UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2019

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

Commission File Number: 1-35327

GENIE ENERGY LTD.

(Exact Name of Registrant as Specified in its Charter)

Delaware		45-2069276
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

520 Broad Street, Newark, New Jersey		07102
(Address of principal executive offices)		(Zip Code)

(973) 438-3500

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b)-2 of the Exchange Act:

Title of each Class	Trading Symbol	Name of exchange of which registered
Class B common stock, par value $0.1 per share	GNE	New York Stock Exchange
Series 2012-A Preferred stock, par value $0.1 per share	GNE-PRA	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☒
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes ☐ No ☒

As of November 8, 2019, the registrant had the following shares outstanding:

Class A common stock, $.01 par value:	1,574,326 shares
Class B common stock, $.01 par value:	25,175,759 shares (excluding 767,902 treasury shares)

GENIE ENERGY LTD.

TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION			1

	Item 1.	Financial Statements (Unaudited)	1

		CONSOLIDATED BALANCE SHEETS	1

		CONSOLIDATED STATEMENTS OF OPERATIONS	2

		CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME	3

		CONSOLIDATED STATEMENTS OF EQUITY	4

		CONSOLIDATED STATEMENTS OF CASH FLOWS	6

		NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	7

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34

	Item 3.	Quantitative and Qualitative Disclosures About Market Risks	47

	Item 4.	Controls and Procedures	47

PART II. OTHER INFORMATION			48

	Item 1.	Legal Proceedings	48

	Item 1A.	Risk Factors	48

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	48

	Item 3.	Defaults upon Senior Securities	48

	Item 4.	Mine Safety Disclosures	48

	Item 5.	Other Information	48

	Item 6.	Exhibits	49

SIGNATURES			50

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

GENIE ENERGY LTD.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

	September 30, 2019			December 31, 2018
	(Unaudited)			(Note 1)
Assets
Current assets:
Cash and cash equivalents	$	38,826		$	41,601
Restricted cash—short-term		5,961			1,653
Trade accounts receivable, net of allowance for doubtful accounts of $2,461 and $2,003 at September 30, 2019 and December 31, 2018, respectively		39,593			35,920
Inventory		9,629			9,893
Prepaid expenses		6,588			6,167
Other current assets		3,119			2,670
Total current assets		103,716			97,904
Property and equipment, net		3,821			4,301
Goodwill		12,775			11,082
Other intangibles, net		7,444			6,321
Investment in equity method investees		908			2,208
Restricted cash—long-term		521			943
Deferred income tax assets, net		14,034			15,625
Other assets		7,011			8,480
Total assets	$	150,230		$	146,864
Liabilities and equity
Current liabilities:
Notes payable	$	901		$	923
Trade accounts payable		20,012			18,508
Accrued expenses		25,813			25,242
Income taxes payable		2,026			1,463
Due to IDT Corporation, net		153			234
Other current liabilities		8,208			4,416
Total current liabilities		57,113			50,786
Revolving line of credit		2,516			2,516
Other liabilities		2,817			900
Total liabilities		62,446			54,202
Commitments and contingencies
Equity:
Genie Energy Ltd. stockholders’ equity:
Preferred stock, $0.01 par value; authorized shares—10,000:
Series 2012-A, designated shares—8,750; at liquidation preference, consisting of 2,322 shares issued and outstanding at September 30, 2019 and December 31, 2018		19,743			19,743
Class A common stock, $0.01 par value; authorized shares—35,000; 1,574 shares issued and outstanding at September 30, 2019 and December 31, 2018		16			16
Class B common stock, $0.01 par value; authorized shares—200,000; 25,944 and 25,544 shares issued and 25,196 and 25,294 shares outstanding at September 30, 2019 and December 31, 2018, respectively		259			255
Additional paid-in capital		139,774			136,629
Treasury stock, at cost, consisting of 748 and 250 shares of Class B common stock at September 30, 2019 and December 31, 2018		(5,354	)		(1,624	)
Accumulated other comprehensive income		3,051			2,591
Accumulated deficit		(57,621	)		(53,939	)
Total Genie Energy Ltd. stockholders’ equity		99,868			103,671
Noncontrolling interests		(12,084	)		(11,009	)
Total equity		87,784			92,662
Total liabilities and equity	$	150,230		$	146,864

See accompanying notes to consolidated financial statements.

GENIE ENERGY LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

	Three Months Ended September 30,							Nine Months Ended September 30,
	2019			2018				2019			2018
	(in thousands, except per share data)
Revenues:
Electricity	$	81,473		$	67,292		$	196,142		$	181,141
Natural gas		3,169			3,702			27,069			34,492
Other		1,071			848			10,127			1,911
Total revenues		85,713			71,842			233,338			217,544
Cost of revenues		59,360			50,572			172,417			155,743
Gross profit		26,353			21,270			60,921			61,801
Operating expenses and losses:
Selling, general and administrative (i)		19,364			13,912			53,266			46,379
Research and development		44			—			153			—
Impairment of assets (Note 5)		—			451			—			2,742
Exploration		—			—			—			244
Income from operations		6,945			6,907			7,502			12,436
Interest income		163			195			445			384
Interest expense		(161	)		(89	)		(479	)		(261	)
Equity in the net loss in equity method investees, net		(238	)		(861	)		(2,106	)		(2,082	)
Gain on extinguishment of liability		—			164			—			164
Other (expense) income, net		(85	)		25			147			123
Income before income taxes		6,624			6,341			5,509			10,764
Provision for income taxes		(1,916	)		(675	)		(3,142	)		(1,733	)
Net income		4,708			5,666			2,367			9,031
Loss attributable to noncontrolling interests		539			251			1,484			1,122
Net income attributable to Genie Energy Ltd.		5,247			5,917			3,851			10,153
Dividends on preferred stock		(370	)		(370	)		(1,111	)		(1,111	)
Net income attributable to Genie Energy Ltd. common stockholders	$	4,877		$	5,547		$	2,740		$	9,042

Earnings per share attributable to Genie Energy Ltd. common stockholders:
Basic	$	0.18		$	0.21		$	0.10		$	0.36
Diluted	$	0.18		$	0.21		$	0.10		$	0.36
Weighted-average number of shares used in calculation of earnings per share:
Basic		26,683			25,805			26,603			24,895
Diluted		27,669			26,442			27,541			25,225

Dividends declared per common share	$	0.075		$	0.075		$	0.225		$	0.225
(i) Stock-based compensation included in selling, general and administrative expenses	$	335		$	1,082		$	1,106		$	3,686

See accompanying notes to consolidated financial statements.

GENIE ENERGY LTD.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

	Three Months Ended September 30,					Nine Months Ended September 30,
	2019			2018			2019			2018
	(in thousands)
Net income	$	4,708		$	5,666	$	2,367		$	9,031
Other comprehensive income (loss):
Foreign currency translation adjustments		(265	)		7		(16	)		(331	)
Comprehensive income		4,443			5,673		2,351			8,700
Comprehensive loss attributable to noncontrolling interests		720			280		1,959			844
Comprehensive income attributable to Genie Energy Ltd.	$	5,163		$	5,953	$	4,310		$	9,544

See accompanying notes to consolidated financial statements.

GENIE ENERGY LTD.

CONSOLIDATED STATEMENTS OF EQUITY

(in thousands, except dividend per share)

	Genie Energy Ltd. Stockholders
	Preferred				Class A				Class B					Additional						Accumulated Other
	Stock				Common Stock				Common Stock					Paid-In			Treasury			Comprehensive			Accumulated			Noncontrolling			Total
	Shares		Amount		Shares		Amount		Shares			Amount		Capital			Stock			Income			Deficit			Interests			Equity
Balance at January 1, 2019		2,322	$	19,743		1,574	$	16		25,544		$	255	$	136,629		$	(1,624	)	$	2,591		$	(53,939	)	$	(11,009	)	$	92,662
Adoption of ASU 2018-07		—		—		—		—		—			—		312			—			—			(312	)		—			—
Dividends on preferred stock ($0.01594 per share)		—		—		—		—		—			—		—			—			—			(370	)		—			(370	)
Dividends on common stock ($0.075 per share)		—		—		—		—		—			—		—			—			—			(2,006	)		—			(2,006	)
Stock-based compensation		—		—		—		—		198			2		446			—			—			—			—			448
Exercise of stock options		—		—		—		—		25			—		172			—			—			—			—			172
Options issued to Howard S. Jonas		—		—		—		—		—			—		325			—			—			—			—			325
Noncontrolling interest from acquisition of Lumo		—		—		—		—		—			—		—			—			—			—			884			884
Other comprehensive income		—		—		—		—		—			—		—			—			290			—			(194	)		96
Net income for three months ended March 31, 2019		—		—		—		—		—			—		—			—			—			6,069			91			6,160
Balance at March 31, 2019		2,322		19,743		1,574		16		25,767			257		137,884			(1,624	)		2,881			(50,558	)		(10,228	)		98,371
Dividends on preferred stock ($0.01594 per share)		—		—		—		—		—			—		—			—			—			(370	)		—			(370	)
Dividends on common stock ($0.075 per share)		—		—		—		—		—			—		—			—			—			(2,062	)		—			(2,062	)
Stock-based compensation		—		—		—		—		—			—		324			—			—			—			—			324
Exercise of stock options		—		—		—		—		116			1		792			—			—			—			—			793
Other comprehensive income		—		—		—		—		—			—		—			—			254			—			(101	)		153
Net loss for the three months ended June 30, 2019		—		—		—		—		—			—		—			—			—			(7,466	)		(1,035	)		(8,501	)
Balance at June 30, 2019		2,322		19,743		1,574		16		25,883			258		139,000			(1,624	)		3,135			(60,456	)		(11,364	)		88,708
Dividends on preferred stock ($0.01954) per share		—		—		—		—		—			—		—			—			—			(370	)		—			(370	)
Dividends on common stock ($0.075 per share)		—		—		—		—		—			—		—			—			—			(2,042	)		—			(2,042	)
Repurchase of Class B common stock from stock repurchase program		—		—		—		—		—			—		—			(3,415	)		—			—			—			(3,415	)
Restricted Class B common stock purchased from employees		—		—		—		—		—			—		—			(315	)		—			—			—			(315	)
Stock compensation		—		—		—		—		2			—		341			—			—			—			—			341
Forfeiture of restricted Class B common stock		—		—		—		—		(5	)		—		(6	)		—			—			—			—			(6	)
Exercise of stock options		—		—		—		—		64			1		439			—			—			—			—			440
Other comprehensive income		—		—		—		—		—			—		—			—			(84	)		—			(181	)		(265	)
Net income (loss) for the three months ended September 30, 2019		—		—		—		—		—			—		—			—			—			5,247			(539	)		4,708
Balance at September 30, 2019		2,322	$	19,743		1,574	$	16		25,944		$	259	$	139,774		$	(5,354	)	$	3,051		$	(57,621	)	$	(12,084	)	$	87,784

GENIE ENERGY LTD.

CONSOLIDATED STATEMENTS OF EQUITY (in thousands) — (Continued)

	Genie Energy Ltd. Stockholders
	Preferred				Class A				Class B				Additional						Accumulated Other
	Stock				Common Stock				Common Stock				Paid-In			Treasury			Comprehensive			Accumulated			Noncontrolling			Total
	Shares		Amount		Shares		Amount		Shares		Amount		Capital			Stock			Income			Deficit			Interests			Equity
Balance at January 1, 2018		2,322		19,743		1,574		16		23,601		236		130,870			(2,428	)		3,045			(67,469	)		(16,885	)		67,128
Dividends on preferred stock ($0.01594 per share)		—		—		—		—		—		—		—			—			—			(370	)		—			(370	)
Dividends on common stock ($0.075 per share)		—		—		—		—		—		—		—			—			—			(1,865	)		—			(1,865	)
Stock-based compensation		—		—		—		—		25		—		889			—			—			—			—			889
Other comprehensive income		—		—		—		—		—		—		—			—			15			—			44			59
Net income for the three months ended March 31, 2018		—		—		—		—		—		—		—			—			—			6,154			(295	)		5,859
Balance at March 31, 2018		2,322		19,743		1,574		16		23,626		236		131,759			(2,428	)		3,060			(63,550	)		(17,136	)		71,700
Dividends on preferred stock ($0.1594 per share)		—		—		—		—		—		—		—			—			—			(370	)		—			(370	)
Dividends on common stock ($0.075 per share)		—		—		—		—		—		—		—			—			—			(1,876	)		—			(1,876	)
Sales of Class B common stock and warrants		—		—		—		—		1,152		12		4,295			1,693			—			—			—			6,000
Purchase of equity of subsidiary		—		—		—		—		42		—		(4,139	)		—			—			—			4,139			—
Stock-based compensation		—		—		—		—		157		2		1,122			—			—			—			—			1,124
Other comprehensive income		—		—		—		—		—		—		—			—			(659	)		—			262			(397	)
Net loss for the three months ended June 30, 2018		—		—		—		—		—		—		—			—			—			(1,919	)		(575	)		(2,494	)
Balance at June 30, 2018		2,322		19,743		1,574		16		24,977		250		133,037			(735	)		2,401			(67,715	)		(13,310	)		73,687
Dividends on preferred stock ($0.1594 per share)		—		—		—		—		—		—		—			—			—			(371	)		—			(371	)
Dividends on common stock ($0.075 per share)		—		—		—		—		—		—		—			—			—			(2,017	)		—			(2,017	)
Class B common stock issued for GRE deferred stock units		—		—		—		—		311		3		1,883			—			—			—			—			1,886
Restricted Class B common stock purchased from employees		—		—		—		—		—		—		—			(783	)		—			—			—			(783	)
Stock compensation		—		—		—		—		260		2		873			—			—			—			—			875
Other comprehensive income		—		—		—		—		—		—		—			—			36			—			(29	)		7
Net income (loss) of the three months ended September 30, 2018		—		—		—		—		—		—		—			—			—			5,917			(251	)		5,666
Balance at September 30, 2018		2,322	$	19,743		1,574	$	16		25,548	$	255	$	135,793		$	(1,518	)	$	2,437		$	(64,186	)	$	(13,590	)	$	78,950

See accompanying notes to consolidated financial statements.

GENIE ENERGY LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

	Nine Months Ended September 30,
	2019			2018
	(in thousands)
Operating activities
Net income	$	2,367		$	9,031
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		2,797			1,645
Impairment of assets		—			2,742
Deferred income taxes		1,591			113
Provision for doubtful accounts receivable		453			610
Gain on sale of property and equipment		—			(18	)
Stock-based compensation		1,106			3,686
Equity in the net loss in equity method investees		2,106			2,082
Gain on extinguishment of liability		—			(164	)
Change in assets and liabilities:
Trade accounts receivable		(1,607	)		6,648
Inventory		264			(3,926	)
Prepaid expenses		(395	)		143
Other current assets and other assets		1,243			2,417
Trade accounts payable, accrued expenses and other current liabilities		5,530			(4,404	)
Due to IDT Corporation		(81	)		(138	)
Income taxes payable		563			(228	)
Net cash provided by operating activities		15,937			20,239
Investing activities
Capital expenditures		(343	)		(575	)
Proceeds from sale of property and equipment		—			62
Payments for business acquisition, net of cash acquired		(1,852	)		—
Payment for intangible acquisition		—			(745	)
Investment in equity method investee		(719	)		(658	)
Investments in notes receivables		(214	)		(1,225	)
Cash transferred to Atid		—			(209	)
Repayment of notes receivable		132			80
Net cash used in investing activities		(2,996	)		(3,270	)
Financing activities
Dividends paid		(7,220	)		(6,870	)
Repayment of short-term debt—Lumo Energia		(2,260	)		—
Exercise of stock options		1,405			—
Purchase of Class B common stock		(3,415	)		—
Proceeds from sale of Class B common stock and warrants		—			6,000
Purchase of Class B common stock from employees		(315	)		—
Repayment of notes payable		(37	)		(783	)
Net cash used in financing activities		(11,842	)		(1,653	)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash		12			(36	)
Net increase in cash, cash equivalents, and restricted cash		1,111			15,280
Cash, cash equivalents, and restricted cash at beginning of period		44,197			31,927
Cash, cash equivalents, and restricted cash at end of period	$	45,308		$	47,207
Supplemental Schedule of Non-Cash Financing Activities
Liability incurred for acquisitions	$	2,260		$	—
Purchase of equity of subsidiary	$	—		$	(4,139	)
Carrying value of assets contributed to New Atid (see Note 5)	$	—		$	1,000
Class B common stock issued for GRE deferred units	$	—		$	1,886

See accompanying notes to consolidated financial statements.

GENIE ENERGY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1—Basis of Presentation

The accompanying unaudited consolidated financial statements of Genie Energy Ltd. and its subsidiaries (the “Company” or “Genie”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019. The balance sheet at December 31, 2018 has been derived from the Company’s audited financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. For further information, please refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, as filed with the U.S. Securities and Exchange Commission (the “SEC”).

The Company owns 99.3% of its subsidiary, Genie Energy International Corporation (“GEIC”), which owns 100% of Genie Retail Energy (“GRE”), 100% of Genie Retail Energy International LLC, 100% of Genie Energy Services ("GES") and 97.0% of Genie Oil and Gas, Inc. (“GOGAS”).

GRE owns and operates retail energy providers (“REPs”), including IDT Energy, Inc. (“IDT Energy”), Residents Energy, Inc. (“Residents Energy”), Town Square Energy, LLC and Town Square Energy East, LLC (collectively, "TSE") and Mirabito Natural Gas (“Mirabito”). GRE's REP businesses resell electricity and natural gas to residential and small business customers primarily in the Eastern and Midwestern United States.

Genie Retail Energy International, LLC ("GREI") holds the Company's 67.0% interest in its joint venture that serves retail customers in the United Kingdom ("U.K.") and its wholly-owned venture in Japan, which recently launched commercial operations. In January 2019, the Company acquired an 80.0% controlling interest in Lumo Energia Oyj ("Lumo"), a REP serving residential customers in Finland (see Note 5).

GES oversees Diversegy LLC ("Diversegy"), a retail energy advisory and brokerage company that serves commercial and industrial customers throughout the United States ("U.S.") and manages GRE's 60.0% interest in Prism Solar Technology, Inc. ("Prism") (see Note 5), a solar solutions company that is engaged in U.S. based manufacturing of solar panels, solar installation design and solar energy project management.

GOGAS is an oil and gas exploration company and owns an interest in a contracted drilling services operation. GOGAS holds an 86.1% interest in Afek Oil and Gas, Ltd. (“Afek”), an oil and gas exploration project in the Golan Heights in Northern Israel. GOGAS also holds controlling interests in inactive oil and gas projects. GOGAS also holds a 37.5% interest in a contracting drilling services company in Israel ("Atid 613").

GREI and GES have outstanding deferred stock units granted to officers, employees and a contractor that represent an aggregate interest of 4.0% and 4.5% of the equity of GEIC and GRES, respectively. The deferred stock units are scheduled to vesting up to 2020.

Seasonality and Weather

The weather and the seasons, among other things, affect GRE’s and GRE International's REPs' revenues. Weather conditions have a significant impact on the demand for natural gas used for heating and electricity used for heating and cooling. Typically, colder winters increase demand for natural gas and electricity, and hotter summers increase demand for electricity. Milder winters and/or summers have the opposite effect. Unseasonable temperatures in other periods may also impact demand levels. Natural gas revenues typically increase in the first quarter due to increased heating demands and electricity revenues typically increase in the third quarter due to increased air conditioning use. Approximately 50% and 45% of GRE’s natural gas revenues for the relevant years were generated in the first quarters of 2018 and 2017, respectively, when demand for heating was highest. Although the demand for electricity is not as seasonal as natural gas (due, in part, to usage of electricity for both heating and cooling), approximately 30% of GRE’s electricity revenues for the relevant years were generated in the third quarters of 2018 and 2017, respectively. GRE’s REPs’ revenues and operating income are subject to material seasonal variations, and the interim financial results are not necessarily indicative of the estimated financial results for the full year.

Reclassifications

Certain amounts from the prior year's financial statements have been reclassified in order to conform to the current year's presentation.

Note 2—Cash, Cash Equivalents, and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported in the consolidated balance sheet that equals the total of the same amounts reported in the consolidated statement of cash flows:

(in thousands)	September 30, 2019		December 31, 2018
Cash and cash equivalents	$	38,826	$	41,601
Restricted cash—short-term		5,961		1,653
Restricted cash—long-term		521		943
Total cash, cash equivalents, and restricted cash	$	45,308	$	44,197

Restricted cash—short-term includes amounts set aside in accordance with the Amended and Restated Preferred Supplier Agreement with BP Energy Company (“BP”) (see Note 17) and Credit Agreement with JPMorgan Chase (see Note 18). Restricted cash—long-term includes Afek’s security deposits for its exploration license from the Government of Israel, and its customs and other import duties for the import of exploration equipment.

Note 3—Inventories

Inventories consisted of the following:

(in thousands)	September 30, 2019		December 31, 2018
Natural gas	$	1,112	$	1,116
Renewable credits		8,025		8,654
Solar Panels:
Finished goods		276		40
Raw materials		216		83
Total solar panels inventory		492		123
Totals	$	9,629	$	9,893

Note 4—Revenue Recognition

In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), and has since issued amendments thereto (collectively referred to as “ASC 606”). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services, and the guidance defines a five-step process to achieve this core principle. ASC 606 also mandates additional disclosure about the nature, amount, timing and uncertainty of revenues and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract.

The Company adopted ASC 606 as of January 1, 2018, using the modified retrospective method applied to those contracts that were not completed as of January 1, 2018. Results for the reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period results are not adjusted and continue to be reported in accordance with its historic accounting under ASC Topic 605. The Company determined that the new standard did not have any impact on revenue recognition and measurement in its consolidated financial statements.

Variable quantities in requirements contracts are considered to be options for additional goods and services because the customer has a current contractual right to choose the amount of additional distinct goods. Revenue from the single performance obligation to deliver a unit of electricity and/or natural gas is recognized as the customer simultaneously receives and consumes the benefit. Utility companies offer purchase of receivable, or POR, programs in most of the service territories in which the Company operates, and GRE’s REPs participate in POR programs for a majority of their receivables. The Company estimates variable consideration related to its rebate programs using the expected value method and a portfolio approach. The Company’s estimates related to rebate programs are based on the terms of the rebate program, the customer’s historical electricity and natural gas consumption, the customer’s rate plan, and a churn factor. Taxes that are imposed on the Company’s sales and collected from customers are excluded from the transaction price.

The revenue from sales of solar panels are recognized at a point in time following the transfer of control of the solar panels to the customer, which typically occurs upon shipment or delivery depending on the terms of the underlying contracts. For sales contracts that contain multiple performance obligations, such as the shipment or delivery of solar modules, the Company allocates the transaction price to each performance obligation identified in the contract based on relative standalone selling prices, or estimates of such prices, and recognize the related revenue as control of each individual product is transferred to the customer, in satisfaction of the corresponding performance obligations.

Practical Expedients

The Company’s performance obligations are generally pursuant to contracts for which the estimated customer relationship periods are currently less than one year. Therefore, in accordance with ASC 606, the Company generally expenses sales commissions to acquire GRE customers when incurred because the amortization period would have been one year or less. These costs are recorded within sales and marketing expenses. The Company continuously monitors its customer relationship periods to ensure compliance with the application of the practical expedient.

Disaggregated Revenues

The following table shows the Company’s revenues disaggregated by pricing plans offered to customers:

(in thousands)	Electricity		Natural Gas		Other		Total
Three Months Ended September 30, 2019
Fixed rate	$	39,994	$	528	$	—	$	40,522
Variable rate		41,479		2,641		—		44,120
Other		—		—		1,071		1,071
Total	$	81,473	$	3,169	$	1,071	$	85,713

Three Months Ended September 30, 2018
Fixed rate	$	23,382	$	250	$	—	$	23,632
Variable rate		43,910		3,452		—		47,362
Other		—		—		848		848
Total	$	67,292	$	3,702	$	848	$	71,842

Nine Months Ended September 30, 2019
Fixed rate	$	88,027	$	2,313	$	—	$	90,340
Variable rate		108,115		24,756		—		132,871
Other		—		—		10,127		10,127
Total	$	196,142	$	27,069	$	10,127	$	233,338

Nine Months Ended September 30, 2018
Fixed rate	$	61,572	$	2,547	$	—	$	64,119
Variable rate		119,569		31,945		—		151,514
Other		—		—		1,911		1,911
Total	$	181,141	$	34,492	$	1,911	$	217,544

The following table shows the Company’s revenues disaggregated by non-commercial and commercial channels:

(in thousands)	Electricity		Natural Gas		Other		Total
Three Months Ended September 30, 2019
Non-Commercial Channel	$	66,092	$	2,072	$	—	$	68,164
Commercial Channel		15,381		1,097		—		16,478
Other		—		—		1,071		1,071
Total	$	81,473	$	3,169	$	1,071	$	85,713

Three Months Ended September 30, 2018
Non-Commercial Channel	$	63,904	$	3,177	$	—	$	67,081
Commercial Channel		3,388		525		—		3,913
Other		—		—		848		848
Total	$	67,292	$	3,702	$	848	$	71,842

Nine Months Ended September 30, 2019
Non-Commercial Channel	$	164,183	$	22,986	$	—	$	187,169
Commercial Channel		31,959		4,083		—		36,042
Other		—		—		10,127		10,127
Total	$	196,142	$	27,069	$	10,127	$	233,338

Nine Months Ended September 30, 2018
Non-Commercial Channel	$	172,819	$	30,876	$	—	$	203,695
Commercial Channel		8,322		3,616		—		11,938
Other		—		—		1,911		1,911
Total	$	181,141	$	34,492	$	1,911	$	217,544

Note 5—Acquisitions and Divestiture

Acquisition of Lumo Energia, Oyj

On January 2, 2019 (the “Lumo Closing Date”), pursuant to a Stock Purchase Agreement dated December 17, 2018, the Company completed the purchase of an 80.0% controlling interest in Lumo Energia Oyj ("Lumo"), a Finnish public limited company. The Company paid the sellers a total of €1.6 million (equivalent to $1.9 million). The Company contributed €1.3 million (equivalent to $1.5 million) as a capital loan to fund Lumo's working capital requirements. The Company also provided Lumo with a secured loan for €2.0 million (equivalent to $2.3 million) to pay off and replace its remaining debt. The secured loan is payable in 4 years and bears interest at annual rate of 4.0%, payable monthly. The Company also issued 176,104 shares of its Class B common stock to certain of the sellers which are subject to restrictions as described in the agreement (the “Lumo Restricted Shares”). The Lumo Restricted Shares are subject to vesting conditions related to employment and services to be provided by the recipients of up to two years following the Lumo Closing Date. The Lumo Restricted Shares are accounted for as a share-based compensation and is amortized to the consolidated statement of income over the vesting period of two years.

Of the remaining 20.0% noncontrolling interest retained by the sellers, 12.5% is subject to restrictions, which will lapse over a period of up to three years following the Lumo Closing Date, subject to employment and service conditions.

The Company has a conditional continuing call option to purchase a portion or the entire noncontrolling interest from the sellers during the period beginning at the third anniversary of the Lumo Closing Date and ending three years later.

The sellers, as a group, have a one-time option to sell a portion or all of their noncontrolling interest to the Company, which subject to certain conditions, may be exercised on one occasion only, at any time during the two-year period beginning at the fourth anniversary of the Lumo Closing Date.

The Company recorded revenue for Lumo of approximately $2.6 million and $10.3 million in its consolidated statements of operations and comprehensive income for the three and nine months ended September 30, 2019, respectively. The net income or loss attributable to this acquisition cannot be identified on a stand-alone basis because it is in the process of being integrated into the Company's operations.

The Company conducted a preliminary assessment of certain assets and liabilities related to the acquisition of Lumo, and are continuing the review of assumptions related to intangible assets and non-controlling interests during the measurement period. If new information is obtained about facts and circumstances that existed at the acquisition date, the acquisition accounting will be revised to reflect the resulting adjustments to current estimates of these items. The impact of the acquisition’s preliminary purchase price allocations on the Company’s consolidated balance sheet and the acquisition date fair value of the total consideration transferred were as follows:

(in thousands)
Cash	$	1,539
Trade accounts receivable		2,520
Other current assets		411
Intangible assets:
Trademark (5-year useful life)		294
Non-compete agreements (3-year useful life)		34
Customer relationship (2-year useful life)		2,150
Goodwill		2,090
Other assets		95
Accounts and other current liabilities		(2,403)
Short-term debts		(2,260)
Other liabilities		(195)
Noncontrolling interest		(884)
Net assets	$	3,391

(in thousands)
Supplemental information
Cash paid to Sellers	$	1,869
Cash contributed to Lumo		1,522
Total consideration	$	3,391

Goodwill was allocated to the GRE International segment. Goodwill is the excess of the consideration transferred over the net assets recognized and represents the expected revenue and cost synergies of the combined company and assembled workforce. Goodwill recognized as a result of the acquisition is not deductible for income tax purposes.

Acquisition of Prism

Prism is a solar solutions company that is engaged in US based panel manufacturing, installation design and project management. Prism’s solar panels feature high efficiency N-type silicon solar cells designed into bifacial solar modules which result in systems with a reduction in the average cost per kilowatt hour, while their glass-on-glass design increases the durability and lifetime value of Prism’s panels.

Between August and October 2018, the Company extended an aggregate of $1.3 million in bridge loans to Prism. The bridge loans, which were secured by a subordinated security interest in Prism’s assets as well as a second mortgage and assignment of rents on Prism’s plant and facility, bore fixed annual interest rate of 12.0%.

On October 25, 2018, the Company acquired a 60.0% controlling interest in Prism in exchange for a total consideration of $4.0 million, which includes (i) the conversion of $1.4 million of principal amount and accrued interest on the bridge loans into equity of Prism, (ii) a $1.1 million cash contribution to Prism, and (iii) an obligation to fund Prism with an additional $1.5 million within 60 days which was timely funded.

The Company recorded revenue for Prism of approximately $0.5 million and $ 8.5 million in its consolidated statements of operations and comprehensive income for three and nine months ended September 30, 2019. The net income or loss attributable to this acquisition cannot be identified on a stand-alone basis because it is in the process of being integrated into the Company's operations.

The impact of the acquisition’s purchase price allocations on the Company’s consolidated balance sheet and the acquisition date fair value of the total consideration transferred were as follows:

(in thousands)
Cash	$	931
Trade accounts receivable		11
Inventories		1,142
Other current assets		260
Property plant and equipment (19-year weighted average useful life)		3,564
Intangible assets:
Trademark (10-year useful life)		320
Patent (10-year useful life)		370
Customer contract (3-year useful life)		1,600
Goodwill		804
Accounts payable accrued expenses		(1,723)
Notes payable — current portion		(63)
Notes payable — net of current portion		(885)
Other current liabilities		(1,164)
Noncontrolling interest		(2,667)
Net assets	$	2,500

(in thousands)
Supplemental information
Cash contributed to Prism	$	899
Notes receivable from Prism, including accrued interest, converted to Prism's equity		1,351
Cash payment to previous equity holders of Prism		250
		2,500
Notes payable issued to Prism		1,500
Total considerations	$	4,000

Goodwill was allocated to the GES segment. Goodwill is the excess of the consideration transferred over the net assets recognized and represents the expected revenue and cost synergies of the combined company and assembled workforce. Goodwill recognized as a result of the acquisition is not deductible for income tax purposes.

During the first quarter of 2019, the Company obtained information relevant to determining the fair value of certain intangible assets related to the acquisition of Prism and adjusted its' purchase price allocation. Based on this information, the Company recognized an increased allocation of the purchase price in a nominal amount to patent, $0.1 million to trademark and $0.2 million to customer contract with a corresponding decrease to goodwill of $0.3 million.

Prism's notes payable consisted of the following:

(in thousands)	September 30, 2019		December 31, 2018		October 25, 2018
5.95% note payable, due in monthly payments of $7,184 including interest, through November 2019 when the balloon payment is due, collateralized by Prism's assets	$	871	$	893	$	918
20.0% demand note payable, uncollaterlized		30		30		30
Total notes payable		901		923		948
Less: Current maturities		901		923		63
Noncurrent portion	$	—	$	—	$	885

On April 12, 2019, Prism’s restructured its ownership. The Company now holds a 60.0% interest in Plus EnerG, Inc. ("Plus EnerG") which owns 100% of Prism.

The preliminary allocations of the purchase prices for acquisitions are based upon initial valuations. The Company's estimates and assumptions underlying the initial valuations are subject to the collection of information necessary to complete its valuations within the measurement periods, which are up to one year from the respective acquisition dates. The primary areas of the preliminary purchase price allocations that are not yet finalized relate to the fair value of certain tangible and intangible assets acquired and liabilities assumed, assets and liabilities, noncontrolling interest and residual goodwill. The Company expects to continue to obtain information to assist in determining the fair values of the net assets acquired at the acquisition dates during the measurement periods. During the measurement periods, the Company will adjust assets or liabilities if new information is obtained about facts and circumstances that existed as of the acquisition dates that, if known, would have resulted in the recognition of those assets and liabilities as of those dates. These adjustments will be made in the periods in which the amounts are determined, the cumulative effect of such adjustments will be calculated as if the adjustments had been completed as of the acquisition dates. All changes that do not qualify as adjustments made during the measurement periods are also included in current period earnings.

Divestiture of Majority Interest in Atid Drilling Ltd.

Following the Company’s decision to suspend oil and gas exploration drilling activities at its Afek subsidiary, in June 2018, the Company initiated a plan to sell primarily all of Atid Drilling Ltd.'s ("Atid") assets and liabilities. In 2018, the Company recorded a write-down to fair value of Atid’s net assets in the amount of $2.7 million. On September 1, 2018, Genie Israel Holdings Ltd., a wholly-owned subsidiary of GOGAS (“Genie Israel”) contributed to Atid 613, the equity of Atid with net book value of $1.0 million in exchange for 37.5% interest in Atid 613. The remaining interest in Atid 613 are held by Howard Jonas, the Company’s Chairman (37.5%) and by Geoffrey Rochwarger, the Company’s former Vice Chairman (25.0%) and the Chief Executive Officer of Atid 613.

Genie Israel also entered into a Shareholder Agreement with Atid 613's other shareholders to govern certain issues regarding management of the new company. Under the Shareholder Agreement, among other things, Genie Israel has agreed to make available to Atid 613 working capital financing up to $0.4 million (“Credit Facility”). The Credit Facility bears a variable interest rate as defined in the Shareholder Agreement. As of September 30, 2019, the outstanding balance of Credit Facility was nil.

Genie Israel accounts for its investments in Atid 613 using the equity method of accounting.

Pro Forma Results (unaudited)

The following unaudited pro forma financial information summarizes the results of operations for the three and nine months ended September 30, 2018 as if the acquisitions of Lumo and Prism and divestiture of majority interest in Atid 613, had been completed as of the beginning 2018. The pro forma results are based upon certain assumptions and estimates, and they give effect to actual operating results prior to the acquisitions and adjustments to reflect (i) the change in depreciation expense and intangible asset amortization, (ii) timing of recognition for certain expenses that will not be recurring in the post-acquisition period, (iii) impairment of assets related to Atid, and (iv) income taxes at a rate consistent with the Company’s statutory rate at the date of the acquisitions. No effect has been given to other cost reductions or operating synergies. As a result, these pro forma results do not necessarily represent results that would have occurred if the acquisitions had taken place on the basis assumed above, nor are they indicative of the results of future combined operations.

(in thousands, except earnings per share)	Three Months Ended September 30, 2018		Nine Months Ended September 30, 2018
Total revenues	$	74,241	$	223,626
Net income		1,620		8,651
Net income attributable to Genie Energy Ltd. common stockholders		2,513		9,504
Earnings per share attributable to Genie energy Ltd. common stockholders
Basic		0.10		0.38
Diluted		0.09		0.37

Note 6—Fair Value Measurements

The following table presents the balance of assets and liabilities measured at fair value on a recurring basis:

	Level 1 (1)		Level 2 (2)		Level 3 (3)		Total
	(in thousands)
September 30, 2019
Assets:
Derivative contracts	$	662	$	282	$	—	$	944
Liabilities:
Derivative contracts	$	2,137	$	322	$	—	$	2,459
December 31, 2018
Assets:
Derivative contracts	$	1,107	$	467	$	—	$	1,574
Liabilities:
Derivative contracts	$	2,100	$	248	$	—	$	2,348

(1) – quoted prices in active markets for identical assets or liabilities

(2) – observable inputs other than quoted prices in active markets for identical assets and liabilities

(3) – no observable pricing inputs in the market

The Company’s derivative contracts consist of natural gas and electricity put and call options and swaps. The underlying asset in the Company’s put and call options is a forward contract. The Company’s swaps are agreements whereby a floating (or market or spot) price is exchanged for a fixed price over a specified period.

The Company did not have any transfers of assets or liabilities between Level 1, Level 2 or Level 3 of the fair value measurement hierarchy during the nine months ended September 30, 2019 and 2018.

Fair Value of Other Financial Instruments

The estimated fair value of the Company’s other financial instruments was determined using available market information or other appropriate valuation methodologies. However, considerable judgment is required in interpreting this data to develop estimates of fair value. Consequently, the estimates are not necessarily indicative of the amounts that could be realized or would be paid in a current market exchange.

Restricted cash—short-term and long-term, trade receivables, due to IDT Corporation, and other current liabilities. At September 30, 2019 and December 31, 2018, the carrying amounts of these assets and liabilities approximated fair value. The fair value estimate for restricted cash—short-term and long-term was classified as Level 1 and other current assets, due to IDT Corporation, and other current liabilities were classified as Level 2 of the fair value hierarchy.

Other assets, revolving line of credit, notes payable and other liabilities. At September 30, 2019 and December 31, 2018, other assets included notes receivable. At September 30, 2019, the outstanding balance of the sellers of Lumo's one-time option was not significant and was included in other liabilities account in the consolidated balance sheet. The carrying amount of the note receivable, revolving line of credit, notes payable and other liabilities approximated fair value. The fair values were estimated based on the Company’s assumptions, and were classified as Level 3 of the fair value hierarchy.

The Company did not have any transfers of assets or liabilities between Level 1, Level 2 or Level 3 of the fair value measurement hierarchy during the three and nine months ended September 30, 2019 and 2018.

Concentration of Credit Risks

The Company holds cash, cash equivalents, and restricted cash at several major financial institutions, which may exceed Federal Deposit Insurance Corporation insured limits. Historically, the Company has not experienced any losses due to such concentration of credit risk. The Company’s temporary cash investments policy is to limit the dollar amount of investments with any one financial institution and monitor the credit ratings of those institutions. While the Company may be exposed to credit losses due to the nonperformance of the holders of its deposits, the Company does not expect the settlement of these transactions to have a material effect on its results of operations, cash flows or financial condition.

Utility companies offer purchase of receivable programs in most of the service territories in which GRE’s REPs operate. GRE’s REPs reduce their customer credit risk by participating in POR programs for a majority of their receivables. In addition to providing billing and collection services, utility companies purchase those REPs’ receivables and assume all credit risk without recourse to those REPs. GRE’s REPs’ primary credit risk is therefore nonpayment by the utility companies. Certain of the utility companies represent significant portions of GRE’s REPs’ revenues and gross trade accounts receivable balance and such concentrations increase the risk associated with nonpayment by those utility companies.

The following table summarizes the percentage of consolidated revenues from customers by utility company that equal or exceed 10% of the Company’s consolidated revenues in the period (no other single utility company accounted for more than 10% of consolidated revenues in these periods):

	Nine Months Ended September 30,
	2019		2018
Con Edison		na		12	%

na-less than 10% of consolidated revenue in the period

The following table summarizes the percentage of consolidated gross trade accounts receivable by utility company that equal or exceed 10% of consolidated gross trade accounts receivable at September 30, 2019 and December 31, 2018 (no other single utility company accounted for 10% or greater of our consolidated gross trade accounts receivable at September 30, 2019 or December 31, 2018):

September 30,

2019

December 31,

2018

Jersey Central Power & Light

na-less than 10% of consolidated revenue in the period

Note 7—Derivative Instruments

The primary risk managed by the Company using derivative instruments is commodity price risk, which is accounted for in accordance with Accounting Standards Codification 815 — Derivatives and Hedging. Natural gas and electricity put and call options and swaps are entered into as hedges against unfavorable fluctuations in market prices of natural gas and electricity. The Company does not apply hedge accounting to these options or swaps, therefore the changes in fair value are recorded in earnings. By using derivative instruments to mitigate exposures to changes in commodity prices, the Company exposes itself to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes the Company, which creates credit risk. The Company minimizes the credit or repayment risk in derivative instruments by entering into transactions with high-quality counterparties. At September 30, 2019, GRE’s swaps and options were traded on the Intercontinental Exchange. GRE International's swaps and options were traded through counterparties.

The summarized volume of GRE’s outstanding contracts and options at September 30, 2019 was as follows (MWh – Megawatt hour and Dth – Decatherm):

Settlement Dates	Volume
	Electricity (in MWH)		Gas (in Dth)
Fourth quarter 2019		77,127		1,245,560
First quarter 2020		310,518		1,385,675
Second quarter 2020		16,040		111,550
Third quarter 2020		22,800		64,552
Fourth quarter 2020		5,120		64,351
First quarter 2021		—		71,050
Second quarter 2021		—		52,100
Third quarter 2021		—		38,600
Fourth quarter 2021		—		32,400
First quarter 2022		—		26,450
Second quarter 2022		—		15,000
Third quarter 2022		—		1,650
Fourth quarter 2022		—		200

The fair value of outstanding derivative instruments recorded in the accompanying consolidated balance sheets were as follows:

Asset Derivatives	Balance Sheet Location	September 30, 2019		December 31, 2018
		(in thousands)
Derivatives not designated or not qualifying as hedging instruments:
Energy contracts and options¹	Other current assets	$	941	$	1,116
Energy contracts and options	Other assets		3		458
Total derivatives not designated or not qualifying as hedging instruments — Assets		$	944	$	1,574

Liability Derivatives

Derivatives not designated or not qualifying as hedging instruments:
Energy contracts and options¹	Other current liabilities	$	2,349		2,028
Energy contracts and options	Other liabilities		110		320
Total derivatives not designated or not qualifying as hedging instruments — Liabilities		$	2,459	$	2,348

(1) The Company classifies derivative assets and liabilities as current based on the cash flows expected to be incurred within the following 12 months.

The effect of derivative instruments on the consolidated statements of operations was as follows:

		Amount of (Loss) Gain Recognized on Derivatives
Derivatives not designated or not qualifying as	Location of Loss Recognized	Three Months Ended September 30,					Nine Months Ended September 30,
hedging instruments	on Derivatives		2019			2018	2019			2018
		(in thousands)
Energy contracts and options	Cost of revenues	$	(5,367	)	$	1,462	$	(16,197	)	$	1,911

Note 8—Investment in Equity Method Investees

Investment in Shoreditch

On July 17, 2017, the Company’s subsidiary, Genie Energy UK Ltd. (“GEUK”), entered into a definitive agreement with Energy Global Investments Pty Ltd (“EGC”) to launch Shoreditch Energy Limited (“Shoreditch”), a joint venture to offer electricity and natural gas service to residential and small business customers in the United Kingdom, using the trade name Orbit Energy (the “JV Agreement”). Through September 30, 2019, The Company contributed a total of $5.5 million to Shoreditch. The Company owns 67.0% of the equity.

EGC has several significant participation rights in the management of Shoreditch that limits GEUK’s ability to direct the activities that most significantly impact Shoreditch’s economic performance. GEUK, therefore, accounts for its ownership interest in Shoreditch using the equity method since GEUK has the ability to exercise significant influence over its operating and financial matters, although it does not control Shoreditch.

In 2018, the Company extended $0.2 million loan to EGC (“EGC Loan”), in connection with EGC’s contribution to Shoreditch. The EGC Loan, which is secured by EGC’s interest in Shoreditch, bears a fixed annual interest rate of 2.0% and is due, together with the principal amount on September 17, 2023. As of September 30, 2019, the outstanding balance, including accrued interest, of the EGC Loan was $ 0.2 million.

At September 30, 2019, the net book value of the Company's investment in Shoreditch was nil. There were no other arrangements, events or circumstances that could expose the Company to additional loss, aside from the balance of EGC Loan discussed above.

Summarized unaudited statements of operations of Shoreditch are as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2019			2018			2019			2018
Revenues	$	6,104		$	437		$	14,809		$	766
Operating expenses:
Cost of revenues		5,915			455			14,107			825
Selling, general and administrative		3,045			1,152			7,514			2,916
Loss from operations		(2,856	)		(1,170	)		(6,812	)		(2,975	)
Other		—			—			—			—
Net loss	$	(2,856	)	$	(1,170	)	$	(6,812	)	$	(2,975	)
Genie’s equity in net loss	$	—		$	(767	)	$	(1,938	)	$	(1,988	)

Investment in Atid 613

As discussed in Note 5, Acquisitions and Divestiture, in September 2018, the Company divested a majority interest in Atid in exchange for 37.5% interest in Atid 613 which the Company accounts for using equity method of accounting.

Summarized unaudited statements of operations of Atid 613 are as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2019			2018			2019			2018
Revenues	$	774		$	—		$	3,499		$	—
Operating expenses:		1,141			256			3,684			256
Loss from operations		(367	)		(256	)		(185	)		(256	)
Others		(28	)		7			(47	)		7
Net loss	$	(395	)	$	(249	)	$	(232	)	$	(249	)
Genie’s equity in net loss	$	148		$	94		$	78		$	94

On August 12, 2019, the Company, together with the other shareholders of Atid 613 signed a Funding Agreement to provide aggregate loans to Atid 613 in an amount of up to New Israeli Shekel or NIS 5.1 million (equivalent to $1.5 million), including the Company's commitment to extend up to NIS1.9 million (equivalent to $0.5 million) of such amount. In August 2019, the Company extended NIS0.8 million (equivalent to $0.2 million) in loans. The loans which are secured by Atid 613’s assets bear no interest and mature on March 1, 2020. If the loans are not settled by the maturity date, the loans will bear interest from the maturity date at a rate of 5.5%.

At September 30, 2019, there were $0.2 million loan receivables from Atid 613, included in other current assets in the Company's consolidated balance sheet.

At September 30, 2019, the Company’s maximum exposure to loss as a result of its involvement with Atid 613 was its net book value of investment of $0.5 million and $0.2 million of notes receivable, since there were no other arrangements, events or circumstances that could expose the Company to additional loss.

Note 9—Goodwill and Other Intangible Assets

The table below reconciles the change in the carrying amount of goodwill for the period from January 1, 2019 to September 30, 2019:

(in thousands)	GRE		GRE International				GES		Total
Balance at January 1, 2019	$	9,998	$	—		$	1,084		$	11,082
Prism acquisition purchase price allocation adjustment (see Note 5)		—		—			(280	)		(280	)
Acquisition of Lumo (see Note 5)		—		2,090			—			2,090
Translation adjustment		—		(117	)		—			(117	)
Balance at September 30, 2019	$	9,998	$	1,973		$	804		$	12,775

The table below presents information on the Company’s other intangible assets:

(in thousands)	Weighted Average Amortization Period		Gross Carrying Amount		Accumulated Amortization		Net Balance
September 30, 2019
Patents and trademarks		17.1 years	$	3,834	$	491	$	3,343
Non-compete agreements		1.6 years		148		118		30
Customer relationships		3.9 years		6,887		3,607		3,280
Licenses		10 years		895		104		791
Total			$	11,764	$	4,320	$	7,444
December 31, 2018
Trademark		17.3 years	$	3,470	$	288	$	3,182
Non-compete agreement		2.0 years		115		112		3
Customer relationships		4.0 years		4,612		2,334		2,278
Licenses		10.0 years		895		37		858
Total			$	9,092	$	2,771	$	6,321

Amortization expense of intangible assets (including minimal amount reported in cost of revenues) was $0.5 million and $1.5 million in three and nine months ended September 30, 2019, respectively, and $0.3 million and $0.7 million in three and nine months ended September 30, 2018, respectively. The Company estimates that amortization expense of intangible assets will be $0.5 million, $2.0 million, $1.0 million, $0.5 million, $0.5 million and $2.9 million for the remaining of 2019, 2020, 2021, 2022, 2023 and thereafter, respectively.

Note 10—Leases

The Company entered into operating lease agreements primarily for offices in domestic and foreign locations where it has operations with lease periods expiring between 2019 and 2030. The Company has no finance leases.

The Company determine if a contract is a lease at inception. Operating lease assets and liabilities are included on our consolidated balance sheet beginning January 1, 2019. Right-of-Use ("ROU") assets were included under other assets in the consolidated balance sheet. The current portion of the operating lease liabilities were included in other current liabilities and the noncurrent portion is included in other liabilities in the consolidated balance sheet.

ROU assets and operating lease liabilities are recognized at the present value of the future lease payments at the lease commencement date. The interest rate used to determine the present value of the future lease payments is the incremental borrowing rate, because the interest rate implicit in most of our leases is not readily determinable. The incremental borrowing rate is estimated to approximate the interest rate on a collateralized borrowing rate based on information available at the lease commencement date. ROU assets also include any prepaid lease payments and lease incentives. The lease terms include periods under options to extend or terminate the lease when it is reasonably certain that we will exercise that option. The Company use the base, non-cancelable, lease term when determining the lease assets and liabilities. Operating lease expense is recognized on a straight-line basis over the lease term.

(in thousands)	September 30, 2019

ROU Assets	$	2,490

Current portion of operating lease liabilities		491
Noncurrent portion of operating lease liabilities		2,033
Total	$	2,524

At September 30, 2019, the weighted average remaining lease term is 7.8 years and the weighted average discount rate is 7.2%.

Supplemental cash flow information for ROU assets and operating lease liabilities for the nine months ended September 30, 2019 is as follows:

(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating activities	$	471

ROU assets obtained in the exchange for lease liabilities
Operating leases	$	172

Future lease payments under operating leases as of September 30, 2019 were as follows:

(in thousands)
Remainder of 2019	$	175
2020		632
2021		551
2022		242
2023		221
Thereafter		1,530
Total future lease payments		3,351
Less imputed interest		827
Total operating lease liabilities	$	2,524

Rental expenses under operating leases were $0.2 million and $0.7 million in the three and nine months ended September 30, 2019 respectively and $0.1 million and $0.4 million in three and nine months ended September 30, 2018, respectively.

Note 11—Equity

Dividend Payments

The following table summarizes the quarterly dividends paid by the Company during the nine months ended September 30, 2019 (in thousands, except per share amounts):

Declaration Date

Dividend Per Share

Aggregate Dividend Amount

Record Date

Payment Date

Series 2012-A Preferred Stock (“Preferred Stock”)

January 16, 2019

0.1594

370

February 6, 2019

February 15, 2019

April 10, 2019

0.1594

370

May 6, 2019

May 15, 2019

July 16, 2019

0.1594

370

August 6, 2019

August 15, 2019

Class A Common Stock and Class B Common Stock

March 7, 2019

0.0750

2,006

February 6, 2019

March 23, 2019

May 2, 2019

0.0750

2,062

May 20, 2019

May 31, 2019

August 1, 2019

0.0750

2,042

August 16, 2019

August 23, 2019

On October 25, 2019, the Company’s Board of Directors declared a quarterly Base Dividend of $0.1594 per share on the Preferred Stock for the third quarter of 2019. The dividend will be paid on or about November 15, 2019 to stockholders of record as of the close of business November 6, 2019.

On November 6, 2019, the Company’s Board of Directors declared a quarterly dividend of $0.0750 per share on its Class A common stock and Class B common stock for the third quarter of 2019. The dividend will be paid on or about November 29, 2019 to stockholders of record as of the close of business on November 18, 2019.

The Delaware General Corporation Law allows companies to declare dividends out of “Surplus,” which is calculated by deducting the par value of the company’s stock from the difference between total assets less total liabilities. The Company has elected to record dividends declared against accumulated deficit.

Stock Repurchase Program

On March 11, 2013, the Board of Directors of the Company approved a program for the repurchase of up to an aggregate of 7.0 million shares of the Company’s Class B common stock. In third quarter of 2019, the Company acquired 470,147 Class B common stock under the stock repurchase program for an aggregate amount of $3.4 million. There were no other repurchases under this program in the nine months ended September 30, 2019 and no repurchases under this program in the nine months ended September 30, 2018. At September 30, 2019, 6.4 million shares remained available for repurchase under the stock repurchase program.

Sales of Shares and Warrants

On June 8, 2018, the Company sold to Howard S. Jonas, the Chairman of the Company’s Board of Directors and a principal owner, (1) 1,152,074 shares of the Company’s Class B common stock, at a price of $4.34 per share for an aggregate sales price of $5.0 million, and (2) warrants to purchase an additional 1,048,218 shares of the Company’s Class B common stock at an exercise price of $4.77 per share for an aggregate exercise price of $5.0 million. The warrants will expire in June 2023. In addition, on June 12, 2018, the Company sold to a third-party investor (1) 230,415 treasury shares of the Company’s Class B common stock, at a price of $4.34 per share for an aggregate sales price of $1.0 million, and (2) warrants to purchase an additional 209,644 shares of the Company’s Class B common stock at an exercise price of $4.77 per share for an aggregate exercise price of $1.0 million. As of September 30, 2019, there were outstanding 1,257,862 warrants to purchase the Company’s Class B common stock at $4.77 per share which will expire on in June 2023.

Purchase of Equity of Subsidiary

In June 2018, an entity affiliated with Lord (Jacob) Rothschild exercised its option to exchange its 5.0% equity interest in GOGAS for 41,667 shares of the Company’s Class B common stock. The fair value of the shares of Class B common stock at the time of the exchange was $0.22 million. The Company’s ownership of GOGAS increased from 92.0% to 97.0% upon the completion of the exchange.

Issuance of Class B Common Stock

In January 2, 2019, as part of the acquisition of Lumo, the Company issued 176,104 shares of its Class B common stock to the sellers which are subject to restrictions that lapse over time (see Note 5 — Acquisitions and Divestiture).

Stock-Based Compensation

On May 7, 2018, the Company’s stockholders approved an amendment to the Company’s 2011 Stock Option and Incentive Plan to reserve an additional 974,199 shares of the Company’s Class B common stock for issuance thereunder.

On February 11, 2019, the Company issued options to Howard S. Jonas to purchase 126,176 shares of the Company’s Class B common stock at an exercise price of $8.05 per share in lieu of a cash bonus of $0.3 million. These options vest in three equal annual installments beginning on February 11, 2020.

As of September 30, 2019, there was approximately $2.0 million of total unrecognized compensation costs related to the unvested restricted stock awards. These costs are expected to be recognized over a weighted-average period of approximately 1.83 years.

GRES and GREI Equity Grants

In August 2017, Genie Retail Energy International, LLC ("GREI"), a subsidiary of GRE, which holds the Company's interests in ventures in the U. K., Japan and Finland, granted deferred stock units in GREI representing an aggregate of 4.0% of the outstanding equity in GREI to certain of the Company’s officers and a consultant. The deferred stock units vest in equal amounts on the first, second and third anniversaries of the date of grant. The fair value of the GREI deferred stock units on the date of grant was minimal, which is being recognized on a straight-line basis over the requisite service period, which approximates the vesting period. GREI recognized minimal amounts of compensation costs related to the vesting of the GREI deferred stock for the three and nine months ended September 30, 2019 and 2018. At September 30, 2019, the unrecognized compensation cost relating to these grants was minimal.

In August 2017, Genie Retail Energy Services, LLC ("GRES"), a subsidiary of GRE, granted deferred stock units in GES representing an aggregate of 4.5% of the outstanding equity in GRES to certain of the Company’s officers and a consultant. The deferred stock units vest in equal amounts on the first, second and third anniversaries of the date of grant. The fair value of the GRES deferred stock units on the date of grant was minimal, which is being recognized on a straight-line basis over the requisite service period, which approximates the vesting period. GRES recognized minimal compensation costs related to the vesting of the GRES deferred stock units the three and nine months ended September 30, 2019 and 2018. At September 30, 2019, the unrecognized compensation cost relating to these grants was minimal.

Note 12—Variable Interest Entity

Citizens Choice Energy, LLC (“CCE”), is a REP that resells electricity and natural gas to residential and small business customers in the State of New York. The Company does not own any interest in CCE. Since 2011, the Company has provided CCE with substantially all of the cash required to fund its operations. The Company determined that it has the power to direct the activities of CCE that most significantly impact its economic performance and it has the obligation to absorb losses of CCE that could potentially be significant to CCE on a stand-alone basis. The Company therefore determined that it is the primary beneficiary of CCE, and as a result, the Company consolidates CCE within its GRE segment. The net income or loss incurred by CCE was attributed to noncontrolling interests in the accompanying consolidated statements of operations.

The Company has an option to purchase 100% of the issued and outstanding limited liability company interests of CCE for one dollar plus the forgiveness of $0.5 million that the Company loaned to CCE in October 2015. The option expires on October 22, 2023.

Net loss related to CCE and aggregate net funding provided by the Company were as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2019			2018			2019			2018
Net loss	$	(238	)	$	(392	)	$	(304	)	$	(913	)
Aggregate funding provided by the Company, net	$	(304	)	$	(479	)	$	(311	)	$	(422	)

Summarized combined balance sheet amounts related to CCE was as follows:

(in thousands)	September 30, 2019			December 31, 2018
Assets
Cash and cash equivalents	$	237		$	70
Restricted cash		13			—
Trade accounts receivable		420			623
Prepaid expenses and other current assets		420			411
Other assets		359			359
Total assets	$	1,449		$	1,463
Liabilities and noncontrolling interests
Current liabilities	$	493		$	513
Due to IDT Energy		2,260			1,949
Noncontrolling interests		(1,304	)		(999	)
Total liabilities and noncontrolling interests	$	1,449		$	1,463

The assets of CCE may only be used to settle obligations of CCE, and may not be used for other consolidated entities. The liabilities of CCE are non-recourse to the general credit of the Company’s other consolidated entities.

Note 13—Income Taxes

The following table provided a summary of Company's effective tax rate:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Reported tax rate		28.9	%		10.6	%		57.0	%		16.1	%

The increases in the reported tax rate for the three and nine months ended September 30, 2019 compared to the same period in 2018 is a direct result of the release of the U.S. valuation allowance recorded in the fourth quarter of 2018. In the three and nine months ended September 30, 2019, Genie entities based in the U.S. generated higher pre-tax earnings compared to 2018 that resulted in increased tax liabilities. Genie's non-U.S. entities continue to maintain a valuation allowance on their deferred tax assets.

Note 14—Earnings Per Share

Basic earnings per share is computed by dividing net income or loss attributable to all classes of common stockholders of the Company by the weighted average number of shares of all classes of common stock outstanding during the applicable period. Diluted earnings per share is computed in the same manner as basic earnings per share, except that the number of shares is increased to include restricted stock still subject to risk of forfeiture and to assume exercise of potentially dilutive stock options using the treasury stock method, unless the effect of such increase is anti-dilutive.

The weighted-average number of shares used in the calculation of basic and diluted earnings per share attributable to the Company’s common stockholders consists of the following:

Three Months Ended

September 30,

Nine Months Ended

September 30,

(in thousands)

2019

2018

2019

2018

Basic weighted-average number of shares

26,683

24,805

26,603

24,895

Effect of dilutive securities:

Stock options and warrants

737

181

744

Non-vested restricted Class B common stock

249

456

194

262

Diluted weighted-average number of shares

27,669

25,442

27,541

25,225

The following shares were excluded from the diluted earnings per share computation because the exercise price of the stock options were greater that the average market price of the Company's stock during the periods:

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

2019

2018

2019

2018

Stock options

126

341

126

341

Note 15—Related Party Transactions

On June 8, 2018, the Company sold shares of its Class B common stock and warrants to purchase shares of its Class B common stock to Howard S. Jonas (see Note 11).

The Company was formerly a subsidiary of IDT Corporation (“IDT”). On October 28, 2011, the Company was spun-off by IDT. The Company entered into various agreements with IDT prior to the spin-off including an agreement for certain services to be performed by the Company and IDT. Also, the Company provides specified administrative services to certain of IDT’s foreign subsidiaries.

The Company leases office space and parking in New Jersey and Israel from Rafael Holdings, Inc. ("Rafael"). Howard S. Jonas is the Chairman of the Board of Directors and Chief Executive Officer of Rafael. The leases expire in April 2025.

The charges for services provided by IDT to the Company, and rent charged by Rafael, net of the charges for the services provided by the Company to IDT, are included in “Selling, general and administrative” expense in the consolidated statements of operations.

(in thousands)	Three Months Ended September 30,					Nine Months Ended September 30,
	2019		2018			2019		2018
					(in thousands)
Amount IDT charged the Company	$	260	$	224		$	698	$	920
Amount the Company charged IDT	$	36	$	73		$	115	$	302
Amount Rafael charged the Company	$	56	$	53		$	166	$	107

The following table presents the balance of receivables and payables to IDT and Rafael:

(in thousands)	September 30, 2019		December 31, 2018
	(in thousands)
Due to IDT	$	189	$	267
Due from IDT	$	36	$	33
Due to Rafael	$	19	$	—

The Company had minimal transactions with Zedge, Inc. (“Zedge”) related to certain employees of the Company providing services to Zedge. Zedge was a subsidiary of IDT and was spun-off in June 2016 and Howard Jonas is a current director. There is minimal amount due from Zedge at September 30, 2019 and December 31, 2018

From 2012 to 2015, the Company extended a series of loans to an employee with an aggregate principal amount of $0.5 million (“Promissory Notes”). The Promissory Notes bore interest equivalent to a minimum rate, in effect from time to time required by local regulations. The Notes and the related unpaid accrued interest were due on May 1, 2019. On August 31, 2018, the Company entered into a Loan Modification Agreement with the employee to restructure the Promissory Notes with outstanding balance of $0.5 million including $0.1 million of accrued interest. Pursuant to the Loan Modification Agreement, the employee paid the Company $0.4 million and the remaining outstanding balance of $0.1 million of the Promissory Notes and the related accrued interest is to be repaid between December 2020 and December 2052. The Company recorded minimal amounts of interest income for the three and nine months ended September 30, 2019 and 2018 related to this debt. The outstanding balance, including accrued interest was $0.1 million as of September 30, 2019.

The Company obtains insurance policies from several insurance brokers, one of which is IGM Brokerage Corp. (“IGM”). IGM is owned by the mother of Howard S. Jonas and Joyce Mason, the Company’s Corporate Secretary. Jonathan Mason, husband of Joyce Mason and brother-in-law of Howard S. Jonas, provides insurance brokerage services via IGM. Based on information the Company received from IGM, the Company believes that IGM received commissions and fees from payments made by the Company (including payments from third party brokers). The Company paid IGM a total of $0.3 million in fourth quarter of 2018 related to premium of various insurance policies that were brokered by IGM. There was no outstanding payable to IGM was as of September 30, 2019. Neither Howard S. Jonas nor Joyce Mason has any ownership or other interest in IGM other than via the familial relationships with their mother and Jonathan Mason.

See Note 8 for details of notes receivables from Atid 613.

Note 16—Business Segment Information

In the first quarter of 2019 the Company revised its reportable segments in connection with the acquisition of Lumo and continuous expansion of activities in Japan and the U.K. Specifically, the Company now treats GRE International as a separate reportable segment which includes overseas retail energy supply businesses, currently consisting of interests in Lumo, Genie Japan and the Company's share of operations of Shoreditch. There are no other changes in other reportable segments.

The change in reportable segments did not result in the reallocation of the Company's existing goodwill. Segment information from the prior year's financial statements have been reclassified in order to conform to the current year's presentation.

The Company has 4 reportable business segments: GRE, GRE International, GES and GOGAS. GRE owns and operates REPs, including IDT Energy, Residents Energy, TSE, and Mirabito. Its REP businesses resell electricity and natural gas to residential and small business customers in the Eastern and Midwestern United States. GRE International, operates REPs in Japan and Finland and manages the Company's share in operations of Shoreditch in the U.K. GES designs, manufactures and distributes solar panels, and also offers energy brokerage and advisory services. The GOGAS segment is comprised of the Company’s 86.1% interest in Afek, an oil and gas exploration project in the Golan Heights in Northern Israel, whose operations have been suspended. GOGAS segment also owns inactive oil shale projects and an equity investment in Atid 613. Corporate costs include unallocated compensation, consulting fees, legal fees, business development expenses and other corporate-related general and administrative expenses. Corporate does not generate any revenues, nor does it incur any cost of revenues.

The Company’s reportable segments are distinguished by types of service, customers and methods used to provide their services. The operating results of these business segments are regularly reviewed by the Company’s chief operating decision maker.

The accounting policies of the segments are the same as the accounting policies of the Company as a whole. The Company evaluates the performance of its business segments based primarily on income (loss) from operations. There are no significant asymmetrical allocations to segments.

Operating results for the business segments of the Company were as follows:

(in thousands)	GRE		GRE International			GES			GOGAS			Corporate			Total
Three Months Ended September 30, 2019
Revenues	$	81,649	$	3,039		$	1,025		$	—		$	—		$	85,713
Income (loss) from operations		10,856		(1,560	)		(798	)		(283	)		(1,270	)		6,945
Equity in the net loss of equity method investees		—		—			—			148			90			238

Three Months Ended September 30, 2018
Revenues		70,994		—			678			170			—			71,842
Income (loss) from operations		10,469		(328	)		(165	)		(1,022	)		(2,047	)		6,907
Impairment of assets		—		—			—			451			—			451
Equity in the net loss of equity method investees		—		767			—			94			—			861

Nine Months Ended September 30, 2019
Revenues		212,598		10,751			9,989			—			—			233,338
Income (loss) from operations		18,941		(4,911	)		(1,711	)		(828	)		(3,989	)		7,502
Equity in the net loss of equity method investees		—		1,938			—			78			90			2,106

Nine Months Ended September 30, 2018
Revenues		215,635		—			1,739			170			—			217,544
Income (loss) from operations		25,632		(472	)		(344	)		(5,756	)		(6,624	)		12,436
Impairment of assets		—		—			—			2,742			—			2,742
Equity in net loss of equity method investees		—		1,988			—			94			—			2,082

Total assets for the business segments of the Company were as follows:

(in thousands)	GRE		GRE International		GES		GOGAS		Corporate		Total
Total assets:
September 30, 2019	$	107,876	$	10,103	$	11,163	$	13,349	$	7,739	$	150,230
December 31, 2018		113,918		3,654		11,519		15,375		2,398		146,864

Note 17—Commitments and Contingencies

Legal Proceedings

On October 5, 2018, named plaintiffs Scott Mackey and Daniel Hernandez filed a putative class action complaint against IDT Energy in the United States District Court for the Northern District of Illinois alleging violations of the Telephone Consumer Protection Act, 47 U.S.C. § 227 et seq. The named plaintiffs filed the suit on behalf of: (1) a putative Cell Phone class consisting of all persons in the U.S. to whom IDT Energy and/or a third party acting on IDT Energy’s behalf allegedly made one or more telemarketing calls promoting IDT Energy’s goods or services to their cellular telephone number through the use of an automatic telephone dialing system or an artificial or prerecorded voice within the four year period preceding the filing of the complaint and (2) a putative Do-Not-Call class consisting of all persons in the U.S. who allegedly received more than one call from IDT Energy and/or some party acting on IDT Energy’s behalf promoting IDT Energy’s goods or services in a 12-month period on their cellular phone or residential telephone line and whose number appears on the National Do-Not-Call registry within the four year period preceding the filing of the complaint. On November 30, 2018, IDT Energy filed its Answer and Defenses to the complaint and the parties are now engaged in discovery. On July 10, 2019, IDT Energy filed a motion to (1) compel arbitration of claims made by one of the named plaintiffs along with a stay of litigation against such named plaintiff pursuant to terms alleged to have been opted in and agreed to, and (2) bifurcation of individual and class claims to expedite discovery and dispositive motions related to the named plaintiffs. On September 19, 2019, IDT Energy filed a motion for summary judgement on personal jurisdiction grounds as to one of the Plaintiffs. IDT Energy's motion for bifurcation of discovery was granted and the ruling on the other motions is scheduled for January 9, 2020. IDT Energy denies the allegations in the complaint, which it believes to be meritless and plans to vigorously defend this action. Based upon the Company’s assessment of this matter, a loss based on the merits is not considered probable, nor is the amount of loss, if any, estimable as of September 30, 2019.

On March 13, 2014, July 2, 2014 and July 15, 2014, named plaintiffs in Pennsylvania, New York and New Jersey commenced three separate putative class-action lawsuits against IDT Energy, GRE, GEIC, and Genie (collectively, “IDTE”) contending, among other things, that they and other former and current customers of IDTE were injured as a result of IDTE’s allegedly unlawful sales and marketing practices. The Company denied any basis for those allegations and/or wrongdoing. On July 5, 2017, the Company entered into a settlement of all three actions to further its efforts to address its customers’ concerns. On July 31, 2018, the Magistrate Court issued a report and recommendation recommending approval of the settlement and reduction of the attorneys’ fees. On October 18, 2018, the Court entered a final order approving the Settlement Agreement.

Under the Settlement Agreement, the Company agreed to pay certain amounts to resolve the lawsuits and obtain a release of claims that were, or could have been, asserted in the lawsuits or that are related to, or arise out of the conduct alleged in the lawsuits or similar conduct, wherever it may have occurred. The settlement payment includes payments to customers who timely made a claim, class counsel, and the named plaintiffs, as well as the cost of a claims administrator for administrating the claims process. The period for class members to make claims has expired, and in first quarter of 2018, based on the claims received and related administrative costs, the Company estimated that the total settlement payment would be approximately $7.6 million. In the second quarter of 2019, the Company paid all remaining liabilities related to the class-action lawsuit.

On July 23, 2019, the Chapter 7 Trustee of the Aspirity Holdings, LLC bankruptcy filed an adversary complaint against Diversified Trading Company, LLC (f/k/a Kreiger Enterprises, LLC, "Krieger") and its subsidiaries and affiliates in connection with a note payable by Krieger to Aspirity. GRE purchased Retail Energy Holdings, LLC ("REH") which owns the TSE entities (which were subsidiaries of Krieger prior to the purchase) from Krieger in November 2016. One of the several counts in the complaints alleges that as subsidiaries of Kreiger at the time, REH and TSE, together with several other defendants, guaranteed Kreiger's obligations under the note. The Trustee is seeking combined damages of unpaid principal of approximately $16.0 million with unpaid accrued interest. The Company does not believe that REH or the TSE entities are liable for Krieger's obligations to Aspirity and plans to vigorously defend this action. Separately, the Company will be seeking indemnification from Krieger under the terms of the agreement related to the purchase of REH. On October 8, 2019, the court heard oral arguments on preliminary pre-discovery motions made by Krieger and REH to dismiss the case based on the legal insufficiency of Trustee's complaint. The motions were denied to allow initial discovery to proceed. REH and the TSE entities filed their reply on November 8, 2019 and plan to renew efforts to dismiss the claims. Based upon the Company preliminary assessment of this matter, a loss based on the merits is not probable, nor is the amount of loss, if any, estimable as of September 30, 2019.

In addition to the matters disclosed above, the Company may from time to time be subject to legal proceedings that arise in the ordinary course of business. Although there can be no assurance in this regard, the Company does not expect any of those legal proceedings to have a material adverse effect on the Company’s results of operations, cash flows or financial condition.

Agency and Regulatory Proceedings

From time to time, the Company responds to inquiries or requests for information or materials from public utility commissions or other governmental regulatory or law enforcement agencies related to investigations under statutory or regulatory schemes. The Company cannot predict whether any of those matters will lead to claims or enforcement actions or whether the Company and the regulatory parties will enter into settlements before a formal claim is made.

New Jersey Attorney General and New Jersey Board of Public Utilities

On May 22, 2018, IDT Energy entered into a Consent Order with the New Jersey Attorney General and the New Jersey Board of Public Utilities to resolve an investigation related to IDT Energy’s pricing and business practices during the winter of 2014. Under the terms of the Consent Order, IDT Energy agreed to make payments totaling $1.4 million, including $1.2 million in restitution to consumers who received electricity and/or natural gas supply from IDT Energy in January, February and/or March of 2014. IDT Energy will also implement certain modifications to its sales, marketing and customer service processes, along with additional compliance and reporting requirements. In the third quarter of 2017, the Company accrued $1.5 million for this matter. IDT Energy has made full payment of the amount agreed upon in the Consent Order to a settlement administrator, who will process the restitution payments.

New York Public Service Commission Proceedings

In December 2017, the New York Public Service Commission (“PSC”) held an evidentiary hearing to assess the retail energy market in New York. The parties recently completed post-hearing briefing in the proceedings. The Company is evaluating the potential impact of any new order from the PSC that may follow from the evidentiary process, while preparing various contingencies for operation in compliance with any new requirements that may be imposed. Depending on the final language of any new order, as well as the Company’s ability to modify its relationships with its New York customers, an order could have a substantial impact upon the operations of GRE’s REPs in New York. There is insufficient basis to deem the loss probable or to assess the amount of any possible loss. As of September 30, 2019, New York represented 24.0% of GRE’s total meters served and 17.6% of the total residential customer equivalents (“RCEs”) of GRE’s customer base. For the three and nine months ended September 30, 2019, gross revenue from New York was $14.9 million and $47.6 million, respectively.

An RCE represents a natural gas customer with annual consumption of 100 mmbtu or an electricity customer with annual consumption of 10 MWh. Because different customers have different rates of energy consumption, RCEs are an industry standard metric for evaluating the consumption profile of a given retail customer base.

On December 16, 2016, the PSC issued an order (the “2016 Order”) prohibiting REPs to service to customers enrolled in New York’s utility low-income assistance programs. Temporary stays of the 2016 Order expired, and REPs were required to return service of their low-income customers to the relevant local incumbent utility on the modified schedule set forth in the PSC’s 2016 Order. The 2016 Order required GRE’s REPs to transfer customer accounts comprising approximately 18,700 meters, representing approximately 10,600 RCEs, to their respective incumbent utilities in the three months ended March 31, 2018.

On March 27, 2018, the New York Court of Appeals granted Motions for Leave to Appeal the question of whether the New York Legislature ever imparted to the PSC the authority to regulate the rates that private, non-monopoly REPs charge their customers. On March 19, 2019, the Court of Appeals heard oral arguments regarding the decision entered by the Appellate Division, Third Department, concerning the issue of the scope of the PSC’s authority over REPs under the Public Service Law, and to pronounce New York law on that issue. On May 9, 2019, the Court of Appeals ruled that although PSC has no direct pricing authority over private non-monopoly REPs, their authority to regulate and control access to public utility infrastructure allows them to impose price caps on the prices that non-monopoly REPs charge customers for natural gas and electricity. There is insufficient basis to deem the loss probable or to assess the amount of any possible loss.

Ohio Public Utilities Commission

In August and November of 2017, the Public Utilities Commission of Ohio (“PUCO”) commenced investigations into the marketing and enrollment practices of the Company’s subsidiary Town Square Energy, LLC. The PUCO’s investigations arose from customer complaints that representatives of Town Square allegedly engaged in misleading and deceptive sales practices in connection with Town Square’s table top marketing campaign. Town Square has and continues to cooperate fully with the PUCO’s investigation. Pending the outcome of the investigations, and in response to the PUCO’s recommendation, Town Square temporarily ceased further marketing activity in Ohio. Town Square also undertook various remedial measures which included retraining its vendors. Subsequently, on January 16, 2018, the PUCO issued its findings that Town Square was in probable non-compliance with various sections of the Ohio Administrative Code and proposed various corrective actions which included agent retraining, development of an effective quality assurance program and advising customers that they have the option to enroll with Town Square or switch their service to the regular utilities. Following the settlement discussions, Town Square and the PUCO entered into a settlement agreement which was approved by the PUCO on February 27, 2019. Under the terms of the agreement, Town Square will pay a forfeiture fee of $0.2 million to the State of Ohio. In addition, Town Square will work with the PUCO and take steps to ensure full compliance with PUCO rules and orders, including updating customers, providing the PUCO with updated information, and submitting quarterly reports for a one-year period. In connection with the foregoing, the Company has accrued $0.2 million in third quarter of 2018. If the parties are successful in reaching settlement, Town Square intends to resume marketing activity. As of September 30, 2019, Town Square in Ohio represented 0.2% of GRE’s total meters served and 0.2% of the total RCEs of GRE’s customer base. For the three and nine months ended September 30, 2019, Town Square in Ohio gross revenues was $0.1 million and $0.5 million, respectively.

State of Connecticut Public Utilities Regulatory Authority

On September 19, 2018, the State of Connecticut Public Utilities Regulatory Authority (“PURA”) commenced an investigation into Town Square following customer complaints of allegedly misleading and deceptive sales practices on the part of Town Square. The Office of Consumer Counsel has joined in the investigation. Although Town Square denies any basis for those complaints and any wrongdoing on its part, it is cooperating with the investigation and responding to subpoenas for discovery. As of September 30, 2019, Town Square’s Connecticut customer base represented 13.2% of GRE’s total meters served and 15.5% of the total RCEs of GRE’s customer base. For the three and nine months ended September 30, 2019, Town Square’s gross revenues from sales in Connecticut was $12.3 million and $26.8 million, respectively. As of June 30, 2019, no claims or demands have been made against Town Square by either agency, and there is insufficient basis to deem the loss probable or to the assess the amount of any possible loss.

State of Illinois Office of the Attorney General

In response to complaints that IDT Energy enrolled consumers without their express consent and misrepresented the amount of savings those consumers would receive, the Office of the Attorney General of the State of Illinois (“IL AG”) has been investigating the marketing practices of IDT Energy and has alleged violations of the Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/1 et seq. and the Illinois Telephone Solicitations Act, 815 ILCS 413/1 et seq. Shortly thereafter, the Illinois Commerce Commission ("IL ICC") commenced a similar investigation. Although IDT Energy denies any wrongdoing in connection with those allegations, the parties (including the IL ICC) settled the matter pursuant to a court approved consent decree that includes restitution payments in the amount of $3.0 million, temporary suspension of all marking activities directed at new customers, and implementation of various compliance and reporting procedures.

In third quarter of 2018, the Company recorded a liability of $3.0 million as a reduction of electricity revenues in the consolidated statement of operations. As of September 30, 2019, IDT Energy Illinois represented 3.8% of GRE’s total meters served and 2.0% of the total RCEs of GRE’s customer base. For the three and nine months ended September 30, 2019, IDT Energy’s gross revenues from sales in Illinois were $2.9 million and $8.1 million, respectively.

Other Commitments

Purchase Commitments

The Company had future purchase commitments of $137.7 million at September 30, 2019, of which $103.3 million was for future purchase of electricity. The purchase commitments outstanding as of September 30, 2019 are expected to be paid as follows:

(in thousands)
Remainder of 2019	$	30,375
2020		73,019
2021		23,847
2022		9,498
2023		495
Thereafter		515
Total payments	$	137,749

Renewable Energy Credits

GRE must obtain a certain percentage or amount of its power supply from renewable energy sources in order to meet the requirements of renewable portfolio standards in the states in which it operates. This requirement may be met by obtaining renewable energy credits that provide evidence that electricity has been generated by a qualifying renewable facility or resource. At September 30, 2019, GRE had commitments to purchase renewable energy credits of $34.5 million.

Performance Bonds

GRE has performance bonds issued through a third party for the benefit of various states in order to comply with the states’ financial requirements for REPs. At September 30, 2019, GRE had aggregate performance bonds of $12.4 million outstanding.

BP Energy Company Preferred Supplier Agreement

As of November 19, 2015, certain of GRE’s REPs entered into an Amended and Restated Preferred Supplier Agreement with BP, which was amended as of June 7, 2018. The agreement's termination date is November 30, 2021. Under the agreement, the REPs purchase electricity and natural gas at market rate plus a fee. The obligations to BP are secured by a first security interest in deposits or receivables from utilities in connection with their purchase of the REPs’ customer’s receivables, and in any cash deposits or letters of credit posted in connection with any collateral accounts with BP. In addition, the REPs must pay an advance payment of $2.0 million to BP each month that BP will apply to the next invoiced amount due to BP. The ability to purchase electricity and natural gas under this agreement is subject to satisfaction of certain conditions including the maintenance of certain covenants. At September 30, 2019, the Company was in compliance with such covenants. At September 30, 2019, restricted cash—short-term of $0.8 million and trade accounts receivable of $40.1 million were pledged to BP as collateral for the payment of trade accounts payable to BP of $13.9 million at September 30, 2019.

Note 18—Lines of Credit

On April 4, 2017, GRE, IDT Energy, and other GRE subsidiaries entered into a Credit Agreement with Vantage Commodities Financial Services II, LLC for a $20 million revolving loan facility. The borrowers consist of the Company’s subsidiaries that operate REP businesses, and those subsidiaries’ obligations are guaranteed by GRE. The borrowers have provided as collateral a security interest in their receivables, bank accounts, customer agreements, certain other material agreements and related commercial and intangible rights. The outstanding principal amount incurs interest at LIBOR plus 4.5% per annum. Interest is payable monthly, and all outstanding principal and any accrued and unpaid interest is due on the maturity date of April 3, 2020. At September 30, 2019 and December 31, 2018, $2.5 million was outstanding under the revolving line of credit. At September 30, 2019 and December 31, 2018, the effective interest rate was 6.63% and 7.24% per annum, respectively. The borrowers are required to comply with various affirmative and negative covenants, including maintaining a target tangible net worth during the term of the credit agreement. To date, the Company is in compliance with such covenants.

On December 18, 2018, the Company entered into a Credit Agreement with JPMorgan Chase Bank (“Credit Agreement”) for a $5.0 million credit line facility (“Credit Line”) which expires on December 31, 2019. The Company pays a commitment fee of 0.1% per annum on unused portion of the Credit Line as specified in the Credit Agreement. The borrowed amounts will be in the form of letters of credit which will bear interest of 1.0% per annum. The Company will also pay a fee for each letter of credit that is issued equal to the greater of $500 or 1.0% of the original maximum available amount of the letter of credit. The Company agreed to deposit cash in a money market account at JPMorgan Chase Bank as collateral for the line of credit equal to $5.1 million. As of, September 30, 2019, there were no amounts borrowed under the line of credit. At September 30, 2019, the cash collateral of $5.2 million was included in restricted cash—short-term in the consolidated balance sheet.

Note 19—Recently Issued Accounting Standards

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), related to the accounting for leases. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. Subsequent to the issuance of ASU 2016-02, in July 2018, the FASB issued Accounting Standards Update No. 2018-10, Codification Improvements to Topic 842, Leases ("ASU 2018-10") and Accounting Standards Update No. 2018-11, Leases (Topic 842): Targeted Improvements ("ASU 2018-11"). The amendments in ASU 2018-10 clarify, correct or remove inconsistencies in the guidance provided under ASU 2016-02 related to sixteen specific issues identified. The amendments in ASU 2018-11 provide entities with an additional (and optional) transition method to adopt the new leases standard. Under the new transition method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Consequently, an entity's reporting for the comparative periods presented in the financial statements in the period of adoption will continue to be in accordance with ASC 840, Leases ("ASC 840"). An entity that elects this additional (and optional) transition method must provide the required disclosures under ASC 840 for all periods that continue to be in accordance with ASC 840. ASU 2018-11 also provides lessors with a practical expedient, by class of underlying asset, to not separate non-lease components from the associated lease component and, instead, to account for those components as a single component if certain criteria are met. The effective date and transition requirements for these two standards are the same as the effective date and transition requirements of ASU 2016-02. The standards were effective for the Company beginning after December 15, 2018.

The Company adopted Topic 842 as of January 1, 2019 using a modified retrospective transition method. The financial results reported in periods prior to January 1, 2019 are not adjusted. The Company also elected the package of practical expedients, which among other things, does not require reassessment of lease classification. As most of the Company's leases do not provide an implicit rate, we used our collateralized incremental borrowing rate based on the information available at the lease implementation date in determining the present value of the lease payments. At January 1, 2019, the Company recognized $2.4 million of ROU assets related to the Company's operating leases. The ROU was included in other assets in the consolidated balance sheet. The Company also recognized $0.4 million and $2.0 million of current and noncurrent lease liabilities, included in other current liabilities and other liabilities in the consolidated balance sheets.

In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, that changes the impairment model for most financial assets and certain other instruments. For receivables, loans and other instruments, entities will be required to use a new forward-looking “expected loss” model that generally will result in the earlier recognition of allowance for losses. For available-for-sale debt securities with unrealized losses, entities will measure credit losses in a manner similar to current practice, except the losses will be recognized as allowances instead of reductions in the amortized cost of the securities. In addition, an entity will have to disclose significantly more information about allowances, credit quality indicators and past due securities. The new provisions will be applied as a cumulative-effect adjustment to retained earnings. The Company will adopt the new standard on January 1, 2020. The Company is evaluating the impact that the new standard will have on its consolidated financial statements.

In June 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, to simplify several aspects of the accounting for nonemployee share-based payment transactions by expanding the scope of Topic 718, Compensation—Stock Compensation, to include share-based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost recognition over that period). The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers. The Company adopted this ASU on January 1, 2019. The Company recorded additional $0.3 million to accumulated deficit on January 1, 2019. There was no impact on the consolidated statements of operations and consolidated statements of cash flows.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following information should be read in conjunction with the accompanying consolidated financial statements and the associated notes thereto of this Quarterly Report, and the audited consolidated financial statements and the notes thereto and our Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2018, as filed with the U.S. Securities and Exchange Commission (or SEC).

As used below, unless the context otherwise requires, the terms “the Company,” “Genie,” “we,” “us,” and “our” refer to Genie Energy Ltd., a Delaware corporation, and its subsidiaries, collectively.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements that contain the words “believes,” “anticipates,” “expects,” “plans,” “intends,” and similar words and phrases. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the results projected in any forward-looking statement. In addition to the factors specifically noted in the forward-looking statements, other important factors, risks and uncertainties that could result in those differences include, but are not limited to, those discussed under Item 1A to Part I “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018. The forward-looking statements are made as of the date of this report and we assume no obligation to update the forward-looking statements, or to update the reasons why actual results could differ from those projected in the forward-looking statements. Investors should consult all of the information set forth in this report and the other information set forth from time to time in our reports filed with the SEC pursuant to the Securities Act of 1933 and the Securities Exchange Act of 1934, including our Annual Report on Form 10-K for the year ended December 31, 2018.

Overview

We are comprised of Genie Retail Energy ("GRE"), Genie Retail Energy International ("GRE International"), Genie Energy Services ("GES") and Genie Oil & Gas ("GOGAS").

GRE owns and operates retail energy providers ("REPs"), including IDT Energy, Residents Energy, Town Square Energy ("TSE"), and Mirabito Natural Gas, or Mirabito. GRE's REP businesses resell electricity and natural gas to residential and small business customers primarily in the Eastern United States.

Through a joint venture, in which the Company owns 67.0% interest, GRE International has been serving customers in Great Britain and acquired a license to service customers in Japan through a wholly owned subsidiary. In January 2019, the Company acquired an 80.0% interest in Lumo Energia Ojy ("Lumo"), a REP with approximately 32,000 residential customers in Finland.

In the first quarter of 2019, we revised our reportable segments in connection with the acquisition of an 80.0% interest in Lumo Energia Ojy ("Lumo"). We bifurcated GRE, creating GRE International into a separate reportable segment which will include REPs outside North America, currently includes Lumo, Genie Japan and our share of operations of Shoreditch Energy Limited ("Shoreditch").

GES oversees Diversegy, a retail energy advisory and brokerage company that serves commercial and industrial customers throughout U.S. and manages our 60.0% controlling interest in Prism. Prism is a solar solutions company that is engaged in U.S. based manufacturing of solar panels, solar installation design and solar energy project management.

The Company also operates (and owns 97.0% of the equity of) GOGAS, an oil and gas exploration company and owns a minority interest in a contracted drilling services company ("Atid 613"). GOGAS’ four exploration projects are inactive. GOGAS holds 86.1% interest in Afek Oil and Gas ("Afek"), an oil and gas exploration project in the Golan Heights in Northern Israel. Until September 2018, GOGAS also owned Atid, a drilling services company operating in Israel.

As part of our ongoing business development efforts, we continuously seek out new opportunities, which may include complementary operations or businesses that reflect horizontal or vertical expansion from our current operations. Some of these potential opportunities are considered briefly and others are examined in further depth. In particular, we seek out acquisitions to expand the geographic scope and size of our REP businesses.

Genie Retail Energy

Seasonality and Weather

The weather and the seasons, among other things, affect GRE’s and GRE International's REPs' revenues. Weather conditions have a significant impact on the demand for natural gas used for heating and electricity used for heating and cooling. Typically, colder winters increase demand for natural gas and electricity, and hotter summers increase demand for electricity. Milder winters and/or summers have the opposite effects. Unseasonable temperatures in other periods may also impact demand levels. Natural gas revenues typically increase in the first quarter due to increased heating demands and electricity revenues typically increase in the third quarter due to increased air conditioning use. Approximately 50% and 45% of GRE’s natural gas revenues for the relevant years were generated in the first quarter of 2018 and 2017, respectively, when demand for heating was highest. Although the demand for electricity is not as seasonal as natural gas (due, in part, to usage of electricity for both heating and cooling), approximately 30% of GRE’s REPs’ electricity revenues for the relevant years were generated in the third quarter of 2018 and 2017, respectively. Our revenues and operating income are subject to material seasonal variations, and the interim financial results are not necessarily indicative of the estimated financial results for the full year.

Purchase of Receivables

Utility companies offer purchase of receivable, or POR, programs in most of the service territories in which we operate. GRE’s REPs reduce their customer credit risk by participating in POR programs for a majority of their receivables. In addition to providing billing and collection services, utility companies purchase those REPs’ receivables and assume all credit risk without recourse to those REPs. GRE’s REPs’ primary credit risk is therefore nonpayment by the utility companies.

Class Action Lawsuit

On March 13, 2014, July 2, 2014 and July 15, 2014, named plaintiffs in Pennsylvania, New York and New Jersey commenced three separate putative class-action lawsuits against IDT Energy, GRE, Genie International Corporation ("GEIC"), and Genie (collectively, “IDTE”) contending, among other things, that they and other former and current customers of IDTE were injured as a result of IDTE’s allegedly unlawful sales and marketing practices. We denied any basis for those allegations and/or wrongdoing. On July 5, 2017, we entered into a settlement of all three actions to further its efforts to address its customers’ concerns and on October 18, 2018, the Court entered a final order approving the Settlement Agreement.

Under the Settlement Agreement, we agreed to pay certain amounts to resolve the lawsuits and obtain a release of claims that were, or could have been, asserted in the lawsuits or that are related to, or arise out of the conduct alleged in the lawsuits or similar conduct, wherever it may have occurred. The settlement payment includes payments to customers who timely made a claim, class counsel, and the named plaintiffs, as well as the cost of a claims administrator for administrating the claims process. The period for class members to make claims has expired, and in first quarter of 2018, based on the claims received and related administrative costs, we estimated that the total settlement payment will be approximately $7.6 million. In second quarter 2019, we paid all remaining liabilities related to the class-action lawsuit.

New York Public Service Commission Proceedings

In December 2017, the New York Public Service Commission (“PSC”) held an evidentiary hearing to assess the retail energy market in New York. The parties recently completed post-hearing briefing in the proceedings. The Company is evaluating the potential impact of any new order from the PSC that may follow from the evidentiary process, while preparing various contingencies for operation in compliance with any new requirements that may be imposed. Depending on the final language of any new order, as well as the Company’s ability to modify its relationships with its New York customers, an order could have a substantial impact upon the operations of GRE’s REPs in New York. As of September 30, 2019, New York represented 24.0% of GRE’s total meters served and 17.6% of the total residential customer equivalents (“RCEs”) of GRE’s customer base. For the three and nine months ended September 30, 2019, New York gross revenues were $14.9 million and $47.6 million, respectively.

On March 27, 2018, the New York Court of Appeals granted Motions for Leave to Appeal the question of whether the New York Legislature ever imparted to the PSC the authority to regulate the rates that private, non-monopoly REPs charge their customers. On March 19, 2019, the Court of Appeals heard oral arguments regarding the decision entered by the Appellate Division, Third Department, concerning the issue of the scope of the PSC’s authority over REPs under the Public Service Law, and to pronounce New York law on that issue. On May 9, 2019, the Court of Appeals ruled that although the PSC has no direct pricing authority over private non-monopoly REPs, their authority to regulate and control access to public utility infrastructure allows them to impose price caps on the prices that non-monopoly REPs charge its customers for natural gas and electricity.

Ohio Public Utilities Commission

In August and November of 2017, the Public Utilities Commission of Ohio (“PUCO”) commenced investigations into the marketing and enrollment practices of our subsidiary Town Square Energy, LLC. The PUCO’s investigations arose from customer complaints that representatives of Town Square allegedly engaged in misleading and deceptive sales practices in connection with Town Square’s table top marketing campaign. Town Square has and continues to cooperate fully with the PUCO’s investigation. Pending the outcome of the investigations, and in response to the PUCO’s recommendation, Town Square temporarily ceased further marketing activity in Ohio. Town Square also undertook various remedial measures which included retraining its vendors. Subsequently, on January 16, 2018, the PUCO issued its findings that Town Square was in probable non-compliance with various sections of the Ohio Administrative Code and proposed various corrective actions which included agent retraining, development of an effective quality assurance program and advising customers that they have the option to enroll with Town Square or switch their service to the regular utilities. Following the settlement discussion, Town Square and the PUCO entered into a settlement agreement which was approved by the PUCO on February 27, 2019. Under the terms of the agreement, Town Square will pay a forfeiture fee of $0.2 million to the State of Ohio. In addition, Town Square will work with the PUCO and take steps to ensure full compliance with PUCO rules and orders, including updating customers, providing the PUCO with updated information, and submitting quarterly report for a one-year period. In connection with the foregoing, we accrued $0.2 million in the third quarter of 2018. If the parties are successful in reaching settlement, Town Square intends to resume marketing activity. As of September 30, 2019, Town Square in Ohio represented 0.2% of GRE’s total meters served and 0.2% of the total RCEs of GRE’s customer base. For the three and nine months ended September 30, 2019, Town Square in Ohio gross revenues were $0.1 million and $0.5 million, respectively.

State of Connecticut Public Utilities Regulatory Authority

On September 19, 2018, the State of Connecticut Public Utilities Regulatory Authority (“PURA”) commenced an investigation into Town Square following customer complaints of allegedly misleading and deceptive sales practices on the part of Town Square. The Office of Consumer Counsel has joined in the investigation. Although Town Square denies any basis for those complaints and any wrongdoing on its part, it is cooperating with the investigation and responding to subpoenas for discovery. As of September 30, 2019, Town Square’s Connecticut customer base represented 13.2% of GRE’s total meters served and 15.5% of the total RCEs of GRE’s customer base. For the three and nine months ended September 30, 2019, Town Square’s gross revenues from sales in Connecticut were $12.3 million and $26.8 million, respectively. As of September 30, 2019, no claims or demands have been made against Town Square by either agency, and there is insufficient basis to deem the loss probable or to the assess the amount of any possible loss.

State of Illinois Office of the Attorney General

In third quarter of 2018, the Company recorded a liability of $3.0 million recorded as a reduction of electricity revenues in the consolidated statement of operations. As of September 30, 2019, Illinois represented 3.8% of GRE’s total meters served and 2.0% of the total RCEs of GRE’s customer base. For the three and nine months ended September 30, 2019 and 2018, IDT Energy’s gross revenues from sales in Illinois were $2.9 million and $8.1 million, respectively.

Critical Accounting Policies

Our consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP. Our significant accounting policies are described in Note 1 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2018. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses as well as the disclosure of contingent assets and liabilities. Critical accounting policies are those that require application of management’s most subjective or complex judgments, often as a result of matters that are inherently uncertain and may change in subsequent periods. Our critical accounting policies include those related to revenue recognition, allowance for doubtful accounts, goodwill, and income taxes. Management bases its estimates and judgments on historical experience and other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. For additional discussion of our critical accounting policies, see our Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2018.

Recently Issued Accounting Standards

Information regarding new accounting pronouncements is included in Note 19—Recently Issued Accounting Standards, to the current period’s consolidated financial statements.

Results of Operations

We evaluate the performance of our operating business segments based primarily on income (loss) from operations. Accordingly, the income and expense line items below income (loss) from operations are only included in our discussion of the consolidated results of operations.

Three and Nine Months Ended September 30, 2019 Compared to Three and Nine Months Ended September 30, 2018

Genie Retail Energy Segment

	Three months ended September 30,					Change						Nine months ended September 30,					Change
(amounts in thousands)		2019		2018		$			%				2019		2018			$			%
Revenues:
Electricity		$	78,480	$	67,292	$	11,188			16.6	%		$	185,529	$	181,143		$	4,386			2.4	%
Natural gas			3,169		3,702		(533	)		(14.4	)			27,069		34,492			(7,423	)		(21.5	)
Total revenues			81,649		70,994		10,655			15.0				212,598		215,635			(3,037	)		(1.4	)
Cost of revenues			55,953		50,083		5,870			11.7				153,980		154,745			(765	)		(0.5	)
Gross profit			25,696		20,911		4,785			22.9				58,618		60,890			(2,272	)		(3.7	)
Selling, general and administrative expenses			14,840		10,442		4,398			42.1				39,677		35,258			4,419			12.5
Income from operations		$	10,856	$	10,469	$	387			3.7	%		$	18,941	$	25,632		$	(6,691	)		(26.1	)%

Revenues. Electricity revenues increased in three months ended September 30, 2019 compared to the same period in 2018. The increase is due to increases in both electricity consumption and the average rate per kilowatt hour sold in the three months ended September 30, 2019 compared to the same period in 2018. Electricity consumption by GRE’s REPs' customers increased 15.1% in the three months ended September 30, 2019, compared to the same period in 2018. The increase in electricity consumption reflected an increase in average number of meters served and average consumption per meter, which increased by 12.8% and 2.0%, respectively, in the three months ended September 30, 2019 compared to the same period in 2018, The average rate per kilowatt hour sold increased 1.4% in the three months ended September 30, 2019 compared to the same period in 2018.

GRE’s electricity revenues increased in the nine months ended September 30, 2019 compared to the same period in 2018 due to an increase in both electricity consumption and the average rate per kilowatt hour sold in the nine months ended September 30, 2019 compared to the same period in 2018. Electricity consumption by GRE’s REPs’ customers increased by 0.8% in the nine months ended September 30, 2019 compared to the same period in 2018. The increase in electricity consumption reflected an increase in average consumption per meter partially offset by decrease in average number of meters served. Average consumption per meter increased 3.8% in the nine months ended September 30, 2019 compared to the same period in 2018, while the average number of meters served decreased by 2.8% in the nine months ended September 30, 2019, compared to the same period in 2018. The average rate per kilowatt hour sold increased 1.6% in the nine months ended September 30, 2019 compared to the same period in 2018 reflecting an increase in the underlying commodity cost.

GRE’s natural gas revenues decreased in the three months ended September 30, 2019 compared to the same period in 2018. The average rate per therm sold decreased 6.3% in the three months ended September 30, 2019 compared to the same period in 2018. Natural gas consumption by GRE’s REPs’ customers decreased 8.6% in the three months ended September 30, 2019 compared to the same period in 2018 reflecting a 6.3% decrease in average meters served in the three months ended September 30, 2019 compared to the same period in 2018 and a decrease of 2.5% in average consumption per meter in the three months ended September 30, 2019 compared to the same period in 2018.

GRE’s natural gas revenues decreased in the nine months ended September 30, 2019 compared to the same period in 2018. Natural gas consumption by GRE’s REPs’ customers decreased by 22.2% in the nine months ended September 30, 2019 compared to the same period in 2018, reflecting a 19.7% decrease in average meters served in the nine months ended September 30, 2019 compared to the same period in 2018 and a decrease of 3.1% in average consumption per meter in the nine months ended September 30, 2019 compared to the same period in 2018. The decreases were partially offset by a 0.9% increase in the average rate per therm sold in the nine months ended September 30, 2019 compared to the same period in 2018.

The customer base for GRE’s REPs as measured by meters served consisted of the following:

(in thousands)	September 30, 2019	June 30, 2019		March 31, 2019		December 31, 2018		September 30, 2018
Meters at end of quarter:
Electricity customers	314		307		277		245		269
Natural gas customers	74		71		67		70		73
Total meters	388		378		344		315		342

Gross meter acquisitions in three months ended September 30, 2019, were 76,000 compared to 45,000 in 2018. Gross meter acquisitions in nine months ended September 30, 2019, were 252,000 compared to 157,000 in 2018.

Gross meter acquisitions for the nine months ended September 30, 2019 includes the impact of a municipal aggregation deal in New Jersey which added approximately 35,000 meters. Meters served increased by 10,000 or 2.6% from June 30, 2019 to September 30, 2019. Meters served increased by 73,000 or 23.1% from December 31, 2018 to September 30, 2019. In the three months ended September 30, 2019 average monthly churn decreased to 5.3% compared to 5.7% for same period in 2018. In nine months ended September 30, 2019 average monthly churn decreased to 5.0% compared to 6.3% for same period in 2018. The reduction in churn reflects the impact of a shift in our customer mix related to channel, product and geography.

The average rates of annualized energy consumption, as measured by RCEs, are presented in the chart below. An RCE represents a natural gas customer with annual consumption of 100 mmbtu or an electricity customer with annual consumption of 10 MWh. Because different customers have different rates of energy consumption, RCEs are an industry standard metric for evaluating the consumption profile of a given retail customer base.

(in thousands)	September 30, 2019	June 30, 2019		March 31, 2019		December 31, 2018		September 30, 2018
RCEs at end of quarter:
Electricity customers	266		259		243		195		216
Natural gas customers	61		59		57		58		59
Total RCEs	327		318		300		253		275

RCEs increased 18.9% at September 30, 2019 compared to September 30, 2018 primarily due to the acquisition of relatively higher consumption meters in recent quarters.

Cost of Revenues and Gross Margin Percentage. GRE’s cost of revenues and gross margin percentage were as follows:

	Three months ended September 30,				Change						Nine months ended September 30,				Change
(amounts in thousands)	2019		2018		$			%			2019		2018		$			%
Cost of revenues:
Electricity	$	53,989	$	47,861	$	6,128			12.8	%	$	135,898	$	130,328	$	5,570			4.3	%
Natural gas		1,964		2,222		(258	)		(11.6	)		18,082		24,417		(6,335	)		(25.9	)
Total cost of revenues	$	55,953	$	50,083	$	5,870			11.7	%	$	153,980	$	154,745	$	(765	)		(0.5	)%

	Three months ended September 30,									Nine months ended September 30,
	2019			2018			Change			2019			2018			Change
Gross margin percentage:
Electricity		31.2	%		28.9	%		2.3	%		26.8	%		28.1	%		(1.3	)%
Natural gas		38.0			40.0			(2.0	)		33.2			29.2			4.0
Total gross margin percentage		31.5	%		29.5	%		2.0	%		27.6	%		28.2	%		(0.6	)%

Cost of revenues for electricity increased in the three months ended September 30, 2019 compared to the same period in 2018 primarily because of increases in electricity consumption by GRE’s REPs’ customers partially offset by a decrease in the average unit cost of electricity. The average unit cost of electricity decreased 2.0% in the three months ended September 30, 2019 compared to the same period in 2018. Gross margin on electricity sales increased in the three months ended September 30, 2019 compared to the same period in 2018 because the average rate charged to customers increased more than the average unit cost of electricity.

Cost of revenues for electricity increased in the nine months ended September 30, 2019 compared to the same period in 2018 primarily because of increases in the average unit cost of electricity and in electricity consumption by GRE’s REPs’ customers. The average unit cost of electricity increased 3.4% in the three months ended September 30, 2019 compared to the same period in 2018. The increase in unit cost is partially due to losses incurred by GRE related to hedging activities. Gross margin on electricity sales decreased in the three months ended September 30, 2019 compared to the same period in 2018 because the average rate charged to customers increased less than the average unit cost of electricity.

Cost of revenues for natural gas decreased in the three months ended September 30, 2019 compared to the same period in 2018 primarily because of decreases in the average unit cost of natural gas and natural gas consumption by GRE's REPs' customers. The average unit cost of natural gas decreased 3.3% in the three months ended September 30, 2019 compared to the same period in 2018. Gross margin on natural gas sales decreased in the three months ended September 30, 2019 compared to the same period in 2018 because the average rate charged to customers increased less than the increase in the average unit cost of natural gas.

Cost of revenues for natural gas decreased in the nine months ended September 30, 2019 compared to the same period in 2018 primarily because of decreases in the natural gas consumption by GRE's REPs' customers the average unit cost of natural gas. The average unit cost of natural gas decreased 4.6% in the nine months ended September 30, 2019 compared to the same period in 2018. Gross margin on natural gas sales decreased in the nine months ended September 30, 2019 compared to the same period in 2018 because the average rate charged to customers increased less than the average unit cost of natural gas.

Selling, General and Administrative. The increase in selling, general and administrative expense in the three nine months ended September 30, 2019 compared to the same period in 2018 was primarily due to the increase in customer acquisition costs related to increased pace of customer acquisition activities and the increase in gross customer additions. Commission expenses increased $2.3 million and $3.4 million in the three and nine months ended September 30, 2019,compared to the same periods in 2018. In third quarter of 2019, we reversed $1.7 million of legal expense accrued in prior quarters related to the settlement of the class-action lawsuit discussed above. As a percentage of GRE’s total revenues, selling, general and administrative expense increased from 14.7% in the three months ended September 30, 2018 to 18.2% in the three months ended September 30, 2019 and from 16.4% in the nine months ended September 30, 2018 to 18.7% in the nine months ended September 30, 2019.

GRE International Segment

	Three Months Ended September 30,							Change				Nine Months Ended September 30,						Change
(amounts in thousands)	2019			2018				$		%		2019			2018			$			%
Revenues	$	3,039		$	—		$	3,039		nm	%	$	10,751		$	—		$	10,751			nm	%
Cost of revenue		2,643			—			2,643		nm			10,134			—			10,134			nm
Gross loss		396			—			396		nm			617			—			617			nm
Selling, general and administrative expenses		1,956			328			1,628		496.3			5,528			472			5,056			1,071.2
Loss from operations	$	(1,560	)	$	(328	)	$	(1,232	)	375.6		$	(4,911	)	$	(472	)	$	(4,439	)		940.5
Equity in net loss of joint venture	$	—		$	767		$	(767	)	(100.0	)%	$	1,938		$	1,988		$	(50	)		(2.5	)%

nm—not meaningful

GRE International, holds our stakes in REPs outside of North America These businesses currently include our stake in Shoreditch, which operates as Orbit Energy in the U.K., Genie Japan, and Lumo, which operates in Finland. We account for our investments in Shoreditch under the equity method of accounting. Under this method we record our share in the net income or loss of Shoreditch. Therefore, revenue generated, and expenses incurred are not reflected in our consolidated revenue and expenses.

Meters served by GRE International's REPs, including Shoreditch increased to 103,000 at September 30, 2019 from 69,000 at June 30, 2019 primarily as a result of the acquisition of Lumo in January 2019 as well as growth in Lumo and Shoreditch. The Company also started the commercial operations of Genie Japan in second quarter of 2019.

RCEs at September 30, 2019 increased to 55,000 from 39,000 at June 30, 2019 primarily from the increase in meters served as discussed above.

Revenue and Cost of Revenue. GRE International's revenues and cost of revenue in the three and nine months ended September 30, 2019 pertains to operation of Lumo.

Equity in net loss of joint venture. We account for our ownership interest in Shoreditch using the equity method since we have the ability to exercise significant influence over Shoreditch's operating and financial matters, although we do not control Shoreditch. In second quarter of 2019, the book value the Company's investment in Shoreditch was reduced to nil as a result of the Company's share in accumulated losses of Shoreditch using the equity method of accounting. The Company did not recognize any share in net losses Shoreditch for the three months ended September 30, 2019. The Company's share in Shoreditch’s net loss for the three months ended September 30, 2018 was $0.8 million. The Company's share in Shoreditch’s net loss for the nine months ended September 30, 2019 was $1.9 million compared to $2.0 million for the same period in 2018. The decrease is mainly a result of not recording the Company's share in net losses for three months ended September 30, 2019.

GES Segment

	Three Months Ended September 30,							Change					Nine Months Ended September 30,							Change
(amounts in thousands)	2019				2018			$		%			2019				2018			$		%
Revenues	$	1,025		$	678		$	347		51.2	%	$		9,989		$	1,739		$	8,250		nm	%
Cost of revenue		763			416			347		83.4				8,303			925			7,378		nm
Gross profit		262			262			—		—				1,686			814			872		107.1
Selling, general and administrative expenses		1,016			427			589		137.9				3,246			1,158			2,088		nm
Research and development		44			—			44		nm				151			—			151		nm
Loss from operations	$	(798	)	$	(165	)	$	(633	)	383.6	%	$		(1,711	)	$	(344	)	$	(1,367	)	nm	%

nm—not meaningful

Revenue. GES' revenues increased in the three and nine months ended September 30, 2019 compared to the same periods in 2018. The increase in revenues were the result of our acquisition of a controlling interest in Prism in October 2018. Revenues from Prism in the three and nine months ended September 30, 2019 were $0.5 million and $8.5 million, respectively. Revenues from Diversegy includes commissions, entry fees and other fees from our energy brokerage and marketing services businesses.

Cost of Revenues. Cost of revenues increased in the three and nine months ended September 30, 2019 compared to the same periods in 2018 primarily as a result of the Prism acquisition in October 2018. Cost of revenues from Prism in the three and nine months ended September 30, 2019 were $0.5 million and $7.3 million, respectively. Cost of revenues in the three and nine months ended September 30, 2018 relates to Diversegy commission expense incurred by our energy brokerage and marketing services businesses.

General and Administrative. General and administrative expenses increased the three and nine months ended September 30, 2019 compared to the same periods in 2018 primarily because of the acquisition of Prism offset by decrease in operating expenses of Diversegy.

Genie Oil and Gas Segment

	Three Months Ended September 30,					Change						Nine Months Ended September 30,					Change
(amounts in thousands)	2019		2018			$			%			2019		2018			$			%
Revenue	$	—	$	(170	)	$	170			nm		$	—	$	(170	)	$	170			nm

General and administrative		283		741		$	(458	)		(61.8	)		828		2,940		$	(2,112	)		(71.8	)
Exploration expense		—		—			—			nm			—		244			(244	)		(100.0	)
Impairment of assets		—		451			(451	)		nm			—		2,742			(2,742	)		(100.0	)
Loss from operations	$	283	$	1,022		$	(739	)		(72.3	)	$	828	$	5,756		$	(4,928	)		(85.6	)%
Equity in net loss of Atid 613	$	148	$	94		$	54			57.4		$	78	$	94		$	(16)			(17.0	)

nm—not meaningful

General and Administrative. General and administrative expense decreased in the three and nine months ended September 30, 2019 compared to the same periods in 2018 because of decrease in payroll and related expenses and depreciation expense, primarily due to our divestiture of a controlling interest in Atid in third quarter of 2018.

Exploration. Exploration expense in the nine months ended September 30, 2018 was primarily incurred in the wrap-up of the suspended drilling operations. Subsequent analysis indicates that a zone within the well contains evidence of hydrocarbons at levels sufficient to warrant additional testing. Accordingly, Afek requested and received a renewal of its exploratory license from the Ministry of Energy for the Northern portion of its former license area. The final testing on an existing well is expected to take place within the next two quarters.

Impairment of Assets. In the three and nine months ended September 30, 2018, we recorded an impairment of assets of $0.5 million and $2.7 million, respectively, related to the decision to divest our majority interest in Atid.

Corporate

Corporate does not generate any revenues, nor does it incur any cost of revenues. Corporate costs include unallocated compensation, consulting fees, legal fees, business development expense and other corporate-related general and administrative expense.

	Three months ended September 30,				Change							Nine months ended September 30,				Change
(amounts in thousands)	2019		2018			$			%			2019		2018			$			%
General and administrative and loss from operations	$	1,270	$	2,047		$	(777	)		(38.0	)%	$	3,989	$	6,624		$	(2,635	)		(39.8	)%

Corporate general and administrative expenses decreased in the three and nine months ended September 30, 2019 compared to the same periods in 2018 primarily because of decreases in severance expense and payroll and related expense, including a decrease in stock-based compensation expense. As a percentage of our consolidated revenues, Corporate general and administrative expense decreased from 2.9% in the three months ended September 30, 2018 to 1.5% in the three months ended September 30, 2019 and decreased from 3.0% in the nine months ended September 30, 2018 to 1.7% in the nine months ended September 30, 2019.

Consolidated

Selling, General and Administrative. Stock-based compensation expense included in consolidated selling, general and administrative expense was $0.3 million and $1.1 million in the three months ended September 30, 2019 and 2018, respectively, and $1.1 million and $3.7 million in the nine months ended September 30, 2019 and 2018, respectively. At September 30, 2019, aggregate unrecognized compensation cost related to non-vested stock-based compensation was $2.1 million. The unrecognized compensation cost is recognized over the expected service period.

The following is a discussion of our consolidated income and expense line items below income from operations:

	Three months ended September 30,						Change						Nine months ended September 30,						Change
(amounts in thousands)	2019			2018			$			%			2019			2018			$			%
Income from operations	$	6,945		$	6,907		$	38			0.6	%	$	7,502		$	12,436		$	(4,934	)		(39.7	)%
Interest income		163			195			(32	)		(16.4	)		445			384			61			15.9
Interest expense		(161	)		(89	)		(72	)		80.9			(479	)		(261	)		(218	)		83.5
Equity in net loss in equity method investees		(238	)		(861	)		623			(72.4	)		(2,106	)		(2,082	)		(24	)		1.2
Other (expense) income, net		(85	)		25			(110	)		(440.0	)		147			123			24			19.5
Gain on extinguishment of liability		—			164			(164	)		(100.0	)		—			164			(164	)		(100.0	)
Provision for income taxes		(1,916	)		(675	)		(1,241	)		183.9			(3,142	)		(1,733	)		(1,409	)		81.3
Net income		4,708			5,666			(958	)		(16.9	)		2,367			9,031			(6,664	)		(73.8	)
Net loss attributable to noncontrolling interests		539			251			288			114.7			1,484			1,122			362			32.3
Net income attributable to Genie	$	5,247		$	5,917		$	(670	)		(11.3)	%	$	3,851		$	10,153		$	(6,302	)		(62.1	)%

Other Income (Expense), net. Other income, net in the three and nine months ended September 30, 2019consisted primarily of foreign currency transaction gains. Other expense, net in the three and nine months ended September 30, 2018 consisted primarily of foreign currency transaction losses.

Benefit from (Provision for) Income Taxes. The increase in the reported tax rate for the three months ended September 30, 2019, compared to the same period in 2018 is a direct result of the release of the U.S. valuation allowance recorded in the fourth quarter of 2018. In the three and nine months ended September 30, 2019, Genie entities based in the U.S. generated higher pre-tax earnings compared to 2018 that resulted in increased tax liabilities. Genie's non-U.S. entities continue to maintain a valuation allowance on their deferred tax assets.

Net Loss Attributable to Noncontrolling Interests. The change in the net loss attributable to noncontrolling interests in the three and nine months ended September 30, 2019 compared to the similar periods in 2018 was primarily due to the noncontrolling interest related to Prism, which the Company acquired in October 2018, and Lumo, which the Company acquired in January 2019, partially offset by a decrease in net loss of Afek and CCE.

Liquidity and Capital Resources

General

We currently expect that our cash flow from operations and the $38.8 million balance of unrestricted cash and cash equivalents that we held at September 30, 2019 will be sufficient to meet our currently anticipated cash requirements for at least the period from October 1, 2019 to November 12, 2020.

At September 30, 2019, we had working capital (current assets less current liabilities) of $46.6 million.

	Nine Months Ended September 30,
(in thousands)	2019			2018
	(in thousands)
Cash flows provided by (used in):
Operating activities	$	15,937		$	20,239
Investing activities		(2,996	)		(3,270	)
Financing activities		(11,842	)		(1,653	)
Effect of exchange rate changes on cash, cash equivalents and restricted cash		12			(36	)
Increase in cash, cash equivalents, and restricted cash	$	1,111		$	15,280

Operating Activities

Cash provided by operating activities was $15.9 million and $20.2 million in the nine months ended September 30, 2019 and 2018, respectively. Net income after non-cash adjustments decreased cash flows by $9.3 for the nine months ended September 30, 2019, compared to the same period in 2018. The decrease is primarily the result of decrease in the gross margin in the GRE segment during the nine months ended September 30, 2019 compared to the same period in 2018 and losses incurred by Prism and Lumo which we acquired in October 2018 and January 2019, respectively.

Our cash flow from operations varies significantly from quarter to quarter and from year to year, depending on our operating results and the timing of operating cash receipts and payments, specifically trade accounts receivable and trade accounts payable. Changes in working capital increase cash flows by $6.0 million for the nine months ended September 30, 2019, compared to the same period in 2018. Changes in other assets decreased cash flows by $1.0 million for the nine months ended September 30, 2019, compared to the same period in 2018.

As of November 19, 2015, certain of GRE’s REPs entered into an Amended and Restated Preferred Supplier Agreement with BP Energy Company, or BP, which was amended as of June 7, 2018. The agreement’s termination date is November 30, 2021. The obligations to BP are secured by a first security interest in deposits or receivables from utilities in connection with their purchase of the REPs’ customer’s receivables, and in any cash deposits or letters of credit posted in connection with any collateral accounts with BP. In addition, the REPs must pay an advance payment of $2.0 million to BP each month that BP will apply to the next invoiced amount due to BP. The ability to purchase electricity and natural gas under this agreement is subject to satisfaction of certain conditions including the maintenance of certain covenants. At September 30, 2019, we were in compliance with such covenants. At September 30, 2019, restricted cash—short-term of $0.8 million and trade accounts receivable of $40.1 million were pledged to BP as collateral for the payment of trade accounts payable to BP of $13.9 million at September 30, 2019.

From time to time, we receive inquiries or requests for information or materials from public utility commissions or other governmental regulatory or law enforcement agencies related to investigations under statutory or regulatory schemes, and we respond to those inquiries or requests. We cannot predict whether any of those matters will lead to claims or enforcement actions.

Investing Activities

Our capital expenditures were $0.3 million in the nine months ended September 30, 2019 compared to $0.6 million in the nine months ended September 30, 2019. We had purchase commitments of $137.7 million at September 30, 2019, of which $103.3 million was for purchases of electricity. We currently anticipate that our total capital expenditures in the twelve months ending December 31, 2019 will be between $0.5 million and $1.0 million.

We received $0.1 million from an employee for the repayment of notes receivable in the nine months ended September 30, 2019.

On January 2, 2019, we completed the purchase of an 80.0% controlling interest in Lumo. The Company paid the sellers a total of €1.6 million (equivalent to $1.9 million at that time). The Company contributed €1.3 million (equivalent to $1.5 million at that time) as a capital loan to fund Lumo's working capital requirements. We also provided Lumo with a secured loan for €2.0 million (equivalent to $2.3 million at that time) to pay off and replace its remaining debt.

In the nine months ended September 30, 2019 the Company invested $.07 million to equity method investees.

Financing Activities

In each of the nine months ended September 30, 2019 and 2018, we paid aggregate quarterly Base Dividends of $0.4782 per share, $1.1 million in the aggregate, on our Series 2012-A Preferred Stock, or Preferred Stock. On October 25, 2019, our Board of Directors declared a quarterly Base Dividend of $0.1594 per share on our Preferred Stock. The dividend will be paid on or about November 15, 2019 to stockholders of record as of the close of business on November 6, 2019.

In the nine months ended September 30, 2019 and 2018, we paid aggregate quarterly dividends of $0.225 per share to stockholders of our Class A common stock and Class B common stock. The Company paid $6.1 million and $5.6 million for the nine months ended September 30, 2019 and 2018. On November 6, 2019, our Board of Directors declared a quarterly dividend of $0.075 per share on our Class A common stock and Class B common stock. The dividend will be paid on or about November 29, 2019 to stockholders of record as of the close of business on November 18, 2019.

On April 4, 2017, GRE, IDT Energy, and other GRE subsidiaries entered into a Credit Agreement with Vantage Commodities Financial Services II, LLC, or Vantage, for a $20 million revolving loan facility. The borrowers consist of our subsidiaries that operate REP businesses, and those subsidiaries’ obligations are guaranteed by GRE. On April 4, 2017, the borrowers borrowed $4.3 million under this facility, which included $1.8 million that was previously outstanding under the credit facility between REH and Vantage. The REH Credit Agreement with Vantage was terminated in connection with the entry into this credit agreement. The borrowers have provided as collateral a security interest in their receivables, bank accounts, customer agreements, certain other material agreements and related commercial and intangible rights. Outstanding principal amount incurs interest at LIBOR plus 4.5% per annum. Interest is payable monthly, and all outstanding principal and any accrued and unpaid interest is due on the maturity date of April 3, 2020. The borrowers are required to comply with various affirmative and negative covenants, including maintaining a target tangible net worth during the term of the credit agreement. To date, we are in compliance with such covenants. In the nine months ended September 30, 2019, there were no amounts borrowed or repaid under the line of credit. At September 30, 2019, $2.5 million was outstanding under the line of credit and the effective interest rate was 6.6% per annum.

On December 18, 2018, we entered into a Credit Agreement with JPMorgan Chase Bank (“Credit Agreement”) for a $5.0 million credit line facility (“Credit Line”) which expires on December 31, 2019. The Company will pay a commitment fee of 0.1% per annum on unused portion of the Credit Line as specified in the Credit Agreement. The borrowed amounts will be in the form of letters of credit which will bear interest of 1.0% per annum. The Company will also pay a fee for each letter of credit that is issued equal to the greater of $500 or 1.0% of the original maximum available amount of the letter of credit. We agreed to deposit cash in a money market account at JPMorgan Chase Bank as collateral for the line of credit equal to $5.1 million. As of September 30, 2019, there were no amounts borrowed under the line of credit. At September 30, 2019 the cash collateral of $5.2 million was included in restricted cash—short-term in the consolidated balance sheet.

In the nine months ended September 30, 2019, we received proceeds of $1.4 million from the exercise of stock options for which we issued 205,350 shares of our Class B common stock. There were no stock option exercises in the nine months ended September 30, 2018.

On March 11, 2013, our Board of Directors approved a program for the repurchase of up to an aggregate of 7.0 million shares of our Class B common stock. In third quarter of 2019, the Company acquired 470,147 Class B common stock under the stock repurchase program for an aggregate amount of $3.4 million. There were no repurchases under this program in the nine months ended September 30, 2018. At September 30, 2019, 6.4 million shares remained available for repurchase under the stock repurchase program.

Off-Balance Sheet Arrangements

We do not have any “off-balance sheet arrangements,” as defined in relevant SEC regulations that are reasonably likely to have a current or future effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources, other than the following. GRE has performance bonds issued through a third party for the benefit of certain utility companies and for various states in order to comply with the states’ financial requirements for retail energy providers. At September 30, 2019, GRE had aggregate performance bonds of $12.4 million outstanding.

Item 3.

Quantitative and Qualitative Disclosures About Market Risks

Our primary market risk exposure is the price applicable to our natural gas and electricity purchases and sales. The sales price of our natural gas and electricity is primarily driven by the prevailing market price. Hypothetically, for our GRE segment, if our gross profit per unit in the three months ended September 30, 2019 had remained the same as in the three months ended September 30, 2018, our gross profit from electricity sales would have decreased by $2.1 million and our gross profit from natural gas sales would have increased by $0.1 million in the three months ended September 30, 2019. Hypothetically, if our gross profit per unit in the nine months ended September 30, 2019 had remained the same as in the nine months ended September 30, 2018, our gross profit from electricity sales would have increased by $1.6 million and our gross profit from natural gas sales would have decreased by $1.1 million in the nine months ended September 30, 2019.

The energy markets have historically been very volatile, and we can reasonably expect that electricity and natural gas prices will be subject to fluctuations in the future. In an effort to reduce the effects of the volatility of the price of electricity and natural gas on our operations, we have adopted a policy of hedging electricity and natural gas prices from time to time, at relatively lower volumes, primarily through the use of put and call options and swaps. While the use of these hedging arrangements limits the downside risk of adverse price movements, it also limits future gains from favorable movements. We do not apply hedge accounting to these options or swaps, therefore the mark-to-market change in fair value is recognized in cost of revenue in our consolidated statements of operations. Refer to Note 7 – Derivative Instruments, for details of the hedging activities.

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures. Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of September 30, 2019, due to a material weakness in internal control over financial reporting that was disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018.

Remediation. As previously described in Part II, Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2018, we began implementing a remediation plan to address the material weakness mentioned above. The weakness will not be considered remediated, until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We expect that the remediation of this material weakness will be completed in the fourth quarter of 2019.

The compensating controls implemented and applied during fourth quarter of 2018 are continually being refined for efficiency and effectiveness and were applied in 2019, without material exception.

Changes in Internal Control over Financial Reporting. With the exception of the remediation plan above, there were no changes in our internal control over financial reporting during the quarter ended September 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

Legal proceedings in which we are involved are more fully described in Note 17 to the Consolidated Financial Statements included in Item 1 to Part I of this Quarterly Report on Form 10-Q.

Item 1A.

Risk Factors

There are no material changes from the risk factors included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 and Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2019.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information with respect to purchases by us of our shares during the third quarter of 2019:

	Total Number of Shares Purchased			Average Price per Share		Total Number of Shares Purchased as part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1)
July 1–31, 2019		—		$	—		—		6,896,669
August 1–31, 2019		293,653	(2)		7.80		265,649		6,631,020
September 1–30, 2019		204,498			7.07		204,498		6,426,522
Total		498,151		$	7.28		470,147

(1)	Under our existing stock repurchase program, approved by our Board of Directors on March 11, 2013, we were authorized to repurchase up to an aggregate of 7.0 million shares of our Class B common stock.

(2)	Includes 28,004 Class B common stock that were tendered by the employees of ours to satisfy the tax withholding obligations in connection with the lapsing of restrictions on awards of restricted stock. Such shares were repurchased by us based on their fair market value on the trading day immediately prior to the vesting date.

Item 3.

Defaults upon Senior Securities

None

Item 4.

Mine Safety Disclosures

Not applicable

Item 5.

Other Information

On November 6, 2019, the Board of Directors of the Company adopted the Company's Second Amendment and Restated By-Laws, effective as of November 6, 2019, with the following effect:

Amending Article II, Section 2, and Article III, Section 1 to provide that directors will be elected to the board of directors by a majority vote of stockholders, not by a plurality vote of stockholders
Amending Article II, Section 7; Article III, Section 4; and Article VI, section 1 to allow (or clarify provisions) for electronic delivery of notice under the Second Amended and Restated By-Laws
Amending Article VIII to provide indemnification of officers and directors to the maximum extent provided for under the Delaware General Corporation Law without requirement for pre-approval by the board of directors, outside counsel, or the stockholders of the Company.

Item 6.

Exhibits

Exhibit Number		Description

3.4*		Second Amended and Restated By-Laws of the Registrant, dated as of November 6, 2019

31.1*		Certification of Chief Executive Officer pursuant to 17 CFR 240.13a-14(a), as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of Chief Financial Officer pursuant to 17 CFR 240.13a-14(a), as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002.

32.1*		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002.

32.2*		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002.

101.INS*		XBRL Instance Document

101.SCH*		XBRL Taxonomy Extension Schema Document

101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document.

101.LAB*		XBRL Taxonomy Extension Label Linkbase Document.

101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document.

101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document.

*	Filed or furnished herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Genie Energy Ltd.

November 12, 2019	By:	/s/ Michael M. Stein
		Michael M. Stein Chief Executive Officer

November 12, 2019	By:	/s/ Avi Goldin
		Avi Goldin Chief Financial Officer

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