As Filed with the Securities and Exchange
Commission on May 20, 2016
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____to_____
ABCO ENERGY, INC.
(Name of registrant as specified in its Charter)
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Nevada
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20-1914514
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(State of Incorporation)
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(IRS Employer Identification No.)
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(Address of principal executive offices)
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(Zip Code)
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Registrant’s telephone number, including area code:
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Indicate by check mark whether
the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 and posted on its corporate
Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes
☒ No
☐
Indicate by check mark whether
the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.
Large accelerated filer ☐ Accelerated file ☐ Non-accelerated filer ☐ Smaller reporting company ☒.
Indicate by check mark whether
the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes
☐ No
☒
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether
the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act subsequent to the distribution of securities under a plan confirmed by the court. Yes
☐ No
☐ N/A
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of
May 20, 2016 we had 32,550,534 shares of common stock issued and outstanding.
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PART I – FINANCIAL INFORMATION
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3
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11
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13
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13
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PART II. OTHER INFORMATION
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14
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14
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14
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14
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14
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14
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15
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16
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PART 1 – FINANCIAL INFORMATION
Item 1. Financial Statements
ABCO ENERGY, INC.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED
ABCO ENERGY, INC.
CONSOLIDATED
BALANCE SHEETS
(UNAUDITED)
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ASSETS
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Current Assets
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Cash
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$
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158,566
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$
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40,035
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Accounts receivable on completed projects
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81,006
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39,100
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Accounts receivable on construction work in progress –
net of billings in excess of costs and earnings
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39,568
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252,339
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Inventory
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50,773
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51,255
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Total Current Assets
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329,913
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382,729
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Fixed Assets
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Vehicles, office furniture & equipment –
net of accumulated depreciation
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39,091
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42,511
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Other Assets
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Investment in long term leases
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12,531
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12,689
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Security deposits
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3,100
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4,945
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Total Other Assets
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15,631
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17,634
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Total Assets
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$
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384,635
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$
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442,874
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LIABILITIES AND STOCKHOLDERS’ DEFICIT
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Current liabilities
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Accounts payable and accrued expenses
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$
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334,689
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$
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410,623
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Current portion of long term debt
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4,983
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4,048
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Derivative liability
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102,288
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- |
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Notes payable – other – net of OID and amortization
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238,437
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111,778
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Notes payable – related parties
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100,502
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69,944
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Total Current Liabilities
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780,899
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596,393
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Long Term Debt- net of current portion
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3,168
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5,292
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Total Liabilities
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784,067
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601,685
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Stockholders’ Deficit
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Common stock, 500,000,000 shares authorized, $0.001 par value,
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31,785
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30,621
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Additional paid in capital
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1,865,599
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1,827,411
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Accumulated deficit
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(2,296,816
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)
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(2,016,843
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)
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Total Stockholders’ Equity (Deficit)
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(399,432
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)
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(158,811
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)
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Total Liabilities and Stockholders’ Equity (Deficit)
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$
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384,635
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$
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442,874
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See accompanying notes to the unaudited consolidated financial statements.
ABCO ENERGY, INC.
CONSOLIDATED STATEMENTS OF
OPERATIONS
(UNAUDITED)
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For The Three Months Ended
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Revenues
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$
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230,195
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$
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144,472
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Cost of Sales
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195,075
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120,708
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Gross Profit
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35,120
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23,764
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Operating Expenses:
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Selling, General & Administrative
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184,228
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154,531
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Income (Loss) from operations
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(149,108
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(130,767
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Other expenses
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Interest on notes payable
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28,577
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10,232
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Changes in derivative liability
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102,288
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Income (Loss) before provision for income taxes
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(279,973
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)
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(140,999
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Provision for income tax
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-
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-
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Net Income (loss) applicable to common shareholders
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$
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(279,973
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$
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(140,999
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Net Income (loss) per share (Basic and fully diluted)
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$
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(0.01
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$
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(0.01
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Weighted average number of common shares used in the calculation
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31,203,283
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23,962,500
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See accompanying notes to the financial statements.
ABCO ENERGY, INC.
CONSOLIDATED STATEMENTS OF
CASH FLOWS
(UNAUDITED)
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For The Three Months Ended
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Cash Flows from Operating Activities:
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Net Income (Loss) for the period
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$
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(279,973
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$
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(140,999
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Adjustments to reconcile Net Income or (Loss) to net cash used in operating activities:
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Depreciation
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3,420
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4,266
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Derivative charge to finance costs
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102,288
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Decrease in Accounts Receivable
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170,865
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66,055
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Change in Inventory
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482
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3,154
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Decrease in Accounts Payable & Accrued Expenses
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(75,934
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(7,442
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Net cash used in operating activities
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(78,852
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(74,966
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Cash Flows from Investing Activities:
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Principal payments received on long term leases
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158
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146
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Decrease in Product and lease deposits
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1,845
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Net cash provided by (used) in investing activities
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2,003
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146
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Cash Flows from Financing Activities:
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Loans from officer
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30,558
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8,000
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Loans from financial institution – net of OID and amortization
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126,659
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35,822
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Principal payments on Long Term Debt
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(1,189
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)
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-
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Proceeds from common stock issuances – net of expenses
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39,352
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51,692
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Net cash provided by financing activity
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195,380
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95,514
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Net Increase (Decrease) in cash
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118,531
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20,694
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Cash at The Beginning of The Period
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40,035
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25,104
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Cash at The End of The Period
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$
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158,566
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$
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45,798
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Supplemental Disclosure:
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Cash paid for interest
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$
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28,577
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$
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10,232
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Income taxes paid
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$
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-
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$
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-
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See accompanying notes to the financial statements.
ABCO ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
ABCO Energy, Inc. was organized on
July 29, 2004 and operated until
July 1, 2011 as Energy Conservation Technologies, Inc. (ENYC). On
July 1, 2011 ENYC entered into a share exchange agreement (SEA) with ABCO Energy and acquired all of the assets of ABCO. ENYC changed its name to ABCO Energy, Inc. on
October 31, 2011.
The Company is in the Photo Voltaic (PV) solar systems industry and is an electrical product and services supplier.
The Company prepared these financial statements according to the instructions for Form 10-Q. Therefore, the financial statements do not include all disclosures required by generally accepted accounting principles in the United States. However,
the Company has recorded all transactions and adjustments necessary to fairly present the financial statements included in this Form 10-Q. The adjustments made are normal and recurring. The following notes describe only the material changes in accounting policies, account details or financial statement notes during the first Three Months of 2016. Therefore, please read these financial statements and notes to the financial statements together with the audited financial statements and notes thereto in our Annual Report on Form 10-K for the year
ended
December 31, 2015. The income statement for the Three Months ended
March 31, 2016 cannot necessarily be used to project results for the full year.
Use of estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Significant estimates include, but are not limited to the estimated useful lives of equipment for purposes of depreciation and the valuation of common shares issued for services, equipment and the liquidation of liabilities.
Income (Loss) per Share
Basic earnings per share amounts are calculated based on the weighted average number of shares of common stock outstanding during each period. Diluted earnings per share is based on the weighted average numbers of shares of common stock outstanding for the periods, including dilutive effects of stock options, warrants granted and convertible preferred stock. Dilutive options and warrants that are issued during a period or that expire or are canceled during a period are reflected in the computations for the time they were outstanding during the periods being reported. Since ABCO Energy has incurred losses for all periods except the current period, the impact of the common stock equivalents would be anti-dilutive and therefore are not included in the calculation. In addition, there are no common stock equivalents outstanding at the time of this report.
Effects of Recently Issued Accounting Pronouncements
The Company has reviewed all recently issued accounting pronouncements noting that they do not affect the financial statements.
Note 2 Summary of Significant Accounting Policies
Fair Value of Financial Instruments
The Company measures assets and liabilities at fair value based on expected exit price as defined by the authoritative guidance on fair value measurements, which represents the amount that would be received on the sale date of an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level.
The following are the hierarchical levels of inputs to measure fair value:
Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2: Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Level 3: Unobservable inputs reflecting
the Company’s assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.
The carrying amounts of
the Company’s financial assets and liabilities, such as cash, accounts payable and accrued expenses, approximate their fair values because of the current nature of these instruments. Debt approximates fair value based on interest rates available for similar financial arrangements. Derivative liabilities which have been bifurcated from host convertible debt agreements are presented at fair value.
Derivative Financial Instruments
Fair value accounting requires bifurcation of embedded derivative instruments such as convertible features in convertible debts or equity instruments, and measurement of their fair value for accounting purposes. In determining the appropriate fair value,
the Company uses the binomial option-pricing model. In assessing the convertible debt instruments, management determines if the convertible debt host instrument is conventional convertible debt and further if these is a beneficial conversion feature requiring measurement. If the instrument is not considered conventional convertible debt,
the Company will continue its evaluation process of these instruments as derivative financial instruments.
Once determined, derivative liabilities are adjusted to reflect fair value at each reporting period end, with any increase or decrease in the fair value being recorded in results of operations as an adjustment to fair value of derivatives. In addition, the fair value of freestanding derivative instruments, such as warrants, are also valued using the binomial option-pricing model.
Note 3 Going Concern
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern, which contemplates the recoverability of assets and the satisfaction of liabilities in the normal course of business. Since its inception,
the Company has been engaged substantially in financing activities and developing its business plan and marketing. As a result,
the Company incurred accumulated net losses from inception through the period ended
March 31, 2016 of $2,296,816. In addition,
the Company's development activities since inception have
been financially sustained through capital contributions from shareholders.
The ability of
the Company to continue as a going concern is dependent upon its ability to raise additional capital from the sale of common stock or through debt financing and, ultimately, the achievement of significant operating revenues. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might result from this uncertainty.
Note 4 Note Payable – Officers and Directors
Officers and Directors loans are demand notes totaling $100,502 as of
March 31, 2016 and $69,944 as of
December 31, 2015. The total consists of two notes from Officer/Directors. The first note in the amount of $60,000 as of
March 31, 2016 provides for interest at 12% per annum and is unsecured. Notes payable to the Director resulted in an interest charge of $1,796 for the period ended
March 31, 2016 and $14,450 accrued and unpaid at
March 31, 2016.
The second note was increased by $30,502 during the current period, which increased the total note to $40,502 as of
March 31, 2016. The note is a demand note, bears interest at 12% per annum and is unsecured. This note has accumulated and unpaid interest totaling $1,334 at
March 31, 2016. The current period interest accrued on this note was $584.
Note 5 Short Term Note Payable
During the quarter ended
March 31, 2016 the Company financed operations with a loan in the amount of $150,000 from WebBank. The note is an open credit line with interest rate of 23% percent maturing in March of 2017 and had a balance of $130,907 as of
March 31, 2016. A portion of the loan was used to pay off a credit loan from Orchard Street Funding in the amount of $$44,061. This loan is personally guaranteed by an Officer of
the Company.
An unrelated party has made loans to
the Company in the amount of $60,762 during the last fiscal year and during the three months ended
March 31, 2016. The loan is a demand note with an interest rate of 12% per annum.
Note 6 Notes and Loans Payable
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Description
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31-Mar-16
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31-Dec-15
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Note payable - Credit line, payable to Ascentium Capital, bearing interest at 24% per annum, unsecured, matures in February 2016
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$
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-
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$
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6,705
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Note payable to Ascentium Capital, secured by truck, bearing interest at 9% per annum, matures in September, 2017*
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8,151
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9,341
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Less current portion truck loan
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-4,983
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-4,048
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Note payable – Orchard Street Funding – This loan was paid off in January, 2016
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-
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45,240
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Note payable – other bearing interest at 12% per annum, unsecured, demand note.
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60,762
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59,832
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Note payable to Web Bank, borrowed 2-1-16, bearing interest at 23% per annum, unsecured, matures in March, 2017*
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130,907
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|
|
|
-
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Convertible note payable - EMA Financial, borrowed 3-16-16, due 3-16-17 with interest at 8% per annum - convertible into common stock
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40,000
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|
|
|
-
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Convertible note payable - JMJ Financial, borrowed 3-23-16, due 3-23-18 with interest at 12% per annum - convertible into common stock
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|
|
27,777
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|
|
|
-
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|
Original issue discounts and points on loans - less amortization of $1,768 for the quarter ended March 31, 2016 |
|
|
-21,009
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|
|
|
-
|
|
| |
|
|
|
|
|
|
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Total notes payable
|
|
|
241,605
|
|
|
|
117,070
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Long term debt - net of current portion
|
|
|
3,168
|
|
|
|
5,292
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|
|
Total other notes and loans payable
|
|
$
|
238,437
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|
|
$
|
111,778
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Maturity of notes and loans payable
|
|
|
|
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|
|
|
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For the period Ending March 31,
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Amount
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Amount
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|
|
2016
|
|
$
|
151,481
|
|
|
$
|
111,178
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|
|
2017
|
|
|
62,347
|
|
|
|
|
|
|
2018
|
|
|
27,777
|
|
|
|
|
|
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Total
|
|
$
|
241,605
|
|
|
$
|
111,178
|
|
*This debt is collateralized by the specific asset in the case of the truck loan and the WebBank loans is personally guaranteed by an officer of
the Company.
On
March 23, 2016,
the Company issued a two year $250,000 convertible promissory note to JMJ Financial, a Nevada sole proprietorship which bears interest at the rate of 12% per annum on the principal sum of the outstanding (
“JMJ Note”). The JMJ Note is payable in installments of a minimum of $25,000 per drawdown.
The Company drew down $25,000 on
March 23, 2016. Under the terms of the JMJ Note; the current balance is now $31,111, which includes an original issue interest of $2,777.00, plus interest at the rate of 12% per annum. The JMJ Note is convertible at any time into shares of common stock at a conversion price equal to 60% of the lowest trade price in the 25 trading
days previous to the conversion date.
On
March 25, 2016,
the Company received net proceeds of $35,000 after expenses, for a one (1) year $40,000 face amount of 8% Convertible Note in favor of EMA Financial, LLC (
“EMA Note”). The EMA Note is convertible at any time into common stock at a conversion price equal to the lower of (i) the closing sale price on the day immediately preceding the date of funding and (ii) 50% of the lowest closing sale price for the 25 consecutive trading days immediately preceding the conversion date.
In accordance with the Statement of Financial Accounting Standard ASC 820-10-35-37 Fair Value in Financial Instruments, Statement of Financial Accounting Standard ASC 815 Accounting for Derivative Instruments and Hedging Activities require that instruments with embedded derivative features be valued at their market values.
The Company hired a valuation consultant to value the JMJ Note and the EMA Note for the derivative portion of the instruments. The Binomial model was used to value the derivative liability for the quarter ending
March 31, 2016 at $102,288, with a derivative liability
expense of $102,288.
Note 7 Fair Value of Financial Instruments
The following is the major category of liabilities measured at fair value on a recurring basis as of
March 31, 2016, using quoted prices in active markets for identical liabilities (Level 1); significant other observable inputs (Level 2); and significant unobservable inputs (Level 3):
| |
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Derivative Liabilities from Convertible Notes (Level 3)
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$ |
102,288 |
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Note 8 Stockholder’s Equity
During the Three Months period ended
March 31, 2016,
the Company issued 1,164,436 shares of common stock and received or credited gross proceeds of $159,173. The expenses of offering totaled $102,732. The net proceeds were used for working capital, corporate expenses, legal fees and public company expenses.
Note 9 Other matters
Legal fees relating to financing activities, blue sky registrations with states and other fund raising expenses were charged to additional paid in capital in the amount $14,065 for the Three Months ended
March 31, 2016 and $58,616 during the year ended
December 31, 2015.
Our business is affected by some seasonality but this is not a material concern of
our Company. Most reduction in sales due to seasonality take place during the major winter holidays and the first quarter of the year. We adjust automatically to this effect by stretching our workloads and other activities into the slow periods and therefore have not been concerned by seasonality.
On
March 15, 2015 the Company entered into a consulting
contract with Adamas Fund, LLC (AFL), a Chicago based investment banking group providing for the issuance of a Regulation 144A bond offering that will be sold to QIBs (qualified institutional buyers) with a minimum raise of $5,000,000 USD on a best efforts basis. The bond will be sold by several broker dealers globally and will be used in the implementation of ABCO’s future growth plans and for future acquisitions. The ABCO bond will not require interest payments for years 1-3 and a low annual coupon rate of 6.5% for years 4-10 with a 10 year maturity date. The bond may be convertible into common stock under certain circumstances. Rule 144A Securities Act of 1933 provides
an exemption from the registration requirements of the Securities Act of 1933 for certain private transactions of minimum $100,000 units of restricted securities to qualified investors which generally are large institutional investors that own at least $100 million in investable assets. AFL will receive an aggregate advisory fee of $130,000 in connection with the issuance of the bonds. The first $75,000 has been be paid by the issuance of 375,000 shares of registered common stock on or about
November 19, 2015. The remaining $55,000 has been paid with $20,000 in cash, $1,000 which was paid in this reporting period and $19,000 paid
April 7, 2016. The balance will be paid in cash or common stock at
the Company’s option upon receipt of funds from the bonds.
Note 10 Income Tax
The company has net operating loss carryforwards as of
March 31, 2016 totaling approximately $2,194,528. A deferred tax benefit of approximately $746,000 has been offset by a valuation allowance of the same amount as its realization is not assured.
Note 11 Subsequent Events
During the period from
April 1, 2016 through
May 20, 2016, Company issued 765,033 shares of common stock and received or credited gross proceeds of $72,877. The expenses of offering totaled $47,037. The net proceeds were used for working capital, corporate expenses, legal fees and public company expenses.
On
November 6, 2015, the Securities and Exchange Commission declared effective
the Company’s registration statement on Form S-1, relating to the sale of up to 33,600,856 shares of common stock, of which
the Company is selling 10,000,000 new shares. Certain selling shareholders will be offering for sale up to 23,600,856 shares owned by them.
The Company will only receive proceeds from the sale of the 10,000,000 new shares. If all of these shares are sold in this offering, the gross proceeds to
the Company will be $4,200,000.
The
Company will not receive any proceeds from the sale of the shares offered by the selling shareholders.
On
April 1, 2016,
the Company issued a two year $55,000 convertible promissory note to Essex Global Investment Corp. (
“Essex”) which bears interest at the rate of 10% per annum on the principal sum of the outstanding (
“Essex Note”).
The Company received net proceeds of $50,000 after deductions for expenses, from the Essex Note. The Essex Note is convertible at any time after the six (6) month anniversary of the Note into shares of common stock at a conversion price equal to 55% of the lowest trade price in the 20 trading days previous to the conversion date.
On
April 5, 2016,
the Company received net proceeds of $33,300 after expenses, from a one (1) year $42,000 face amount of 5% Convertible Note in favor of Crown Bridge Partners, LLC (
“CBP Note”). The CBP Note is convertible at any time after the six (6) month anniversary of the Note into common stock at a conversion price equal to 52% of the lowest closing sale price for the 25 consecutive trading days immediately preceding the conversion date.
On
May 4, 2016,
the Company received net proceeds of $33,750 after expenses, from a nine [9] month $40,000 face amount of 10% Convertible Note in favor of Auctus Fund, LLC (
“AFL Note”). The AFL Note is convertible after the six (6) month anniversary of the Note into common stock at a conversion price equal to 60% of the lowest closing sale price for the 20 consecutive trading days immediately preceding the conversion date.
On
May 9, 2016,
the Company entered into an agreement with Adar Bays, LLC a Florida Limited Company (Adar), with respect to a private investment up to $60,000 of the convertible debt securities with a 9 month term. The $60,000 convertible debt is comprised of a $30,000 front-end note and one $30,000 back-end note. The principal and accrued interest under the notes will be convertible into shares of common stock of
the Company at a 50% discount to the lowest closing bid price with a 20 day look back. Adar will deduct legal fees of $2,000 on the funding of each of the notes, as well as on the cash funding on the back-end note, as well as making deductions of $2,800 to Almorli Advisors on the cash funding of each of those notes. The
notes shall bear interest at 8%.
The Company is not required to take down the back end note. As of
May 20, 2016,
the Company borrowed $30,000 against the front end note.
The provisions of each of the [four] foregoing Notes contain embedded derivative features which are required to be valued at their fair market value. These valuations are in process but as of the date of this Report, the results thereof are not available. Management believes that the final valuations, taken as a whole, will not have a material adverse effect on the results of future operations.
OUTSTANDING OPTION AWARDS
The following table sets forth certain information regarding Option Awards as of
March 31, 2016 for each executive officer of
the Company who received such awards and all officers and directors as a group. None were outstanding as of the fiscal year ended
December 31, 2015 (1)(2)
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Name
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Number of securities underlying unexercised option exercisable
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Option Exercise Price
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Option Expiration Date
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5,000,000
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$
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0.01
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All Officers and Directors as a Group
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5,000,000
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$
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0.01
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| (1) |
No Stock Awards have been issued into the Equity Incentive Plan. |
| (2) |
An aggregate of 200,000 Share Option Awards have been issued to 3 employees and one consultant of the Company at an exercise price of $0.01 per share expiring on 1/21/21. |
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS – OVERVIEW
Our discussion of operating results for the Three months ended
March 31, 2016 and
March 31, 2015 are presented below with major category details of revenue and expense including the components of operating expenses.
Sales consist of photovoltaic products, electrical services and LED lighting products and installation during both periods for the three months ended
March 31, 2016 and for the three months ended
March 31, 2015.
Sales for the three months ended
March 31, 2016 were $230,195 as compared to $144,472 for the same three months in 2015. This is an increase of $85,723 or 59% above the 2015 sales. The Solar sales revenue in 2016 and 2015 reflected seasonal and changing market conditions in the financing of solar installations and competition from the public utilities in the Arizona markets. When the utilities in Arizona cancelled or substantially reduced the rebate programs, the financing or leasing companies were able to reduce the financial requirements by accepting the rebates as partial payments were no longer able to make loans or lease that required no money down or longer terms for their finance products. This severally reduced the opportunities for sales and reduced gross margins substantially. Without available financing, the sales of solar products became even more difficult. The prices of solar products
were reduced in 2016 and 2015 to offset the reduction or elimination of rebates and the market has recovered from this time. ABCO has worked diligently to overcome these changes by focusing on commercial applications and the increased interest of business and government in the LED lighting
contracts.
Cost of sales was 85% of revenues in 2016 and 84% of revenues in 2015. Gross margins were 15% of revenue in 2016 and 16% of revenue for the three months of 2015. During 2016 and 2015 we have been offering new products and have found our entry market prices for steel parking structures have added gross margins higher than usual because we use outside contractors for the entire projects. Our gross profit reflects this decision. We feel that we have made progress in entering the parking shade markets and that our gross margins will stabilize as growth lowers these margins in the future.
Total selling, general and administrative expenses were 80% of revenues in 2016 and 107% of revenues for the same period in 2015. Net loss for the three month period ended
March 31, 2016 was $(177,685) as compared to the net loss of $(140,999) for the same three month period ended
March 31, 2015. Our operating expenses for this period were lower as a percentage of revenue but higher by $29,697 than the comparative period in 2015. The interest expense during the period ended
March 31, 2016 has expanded by $18,345 greater than in the period ended
March 31, 2015 due mostly to the working capital provision of merchant loans and convertible debt. This combination of factors increased the operating loss for the period ending
March
31, 2016 by $(36,686) as compared to
March 31, 2015. Since our year to date revenues are higher than the previous year, this resulted in lower operating expenses as a percentage of total revenue.
As noted in previous paragraphs discussing market conditions, ABCO could not finish its backlog of work and expand into the markets of LED lights and commercial solar markets without maintaining staff, facilities and sales expenses. When sales revenues fall, and expenses are not reduced in equal amounts or percentages, the result is an increase of the percentage of operating expenses to sales revenue. Operating expenses for the two periods increased to accommodate our expansion of sales programs, but not in the same ratio as the reduction in sales. ABCO chose to maintain a level of expenses that would not cripple
the Company’s future.
STATEMENTS OF CASH FLOWS - DESCRIPTION OF STATEMENT
In financial accounting, the cash flow statement also known as a statement of cash flows is a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing and financing activities. Essentially, the cash flow statement is concerned with the flow of cash in and out of the business. The statement captures both the current operating results and the accompanying changes in the balance sheet. As an analytical tool, the statement of cash flows is useful in determining the short-term viability of a company, particularly its ability to pay bills.
The cash flow statement reflects a firm's liquidity.
The balance sheet is a snapshot of a firm's financial resources and obligations at a single point in time.
The income statement summarizes a firm's financial transactions over an interval of time.
These last two financial statements reflect the accrual basis accounting used by firms to match revenues with the expenses associated with generating those revenues.
The cash flow statement includes only inflows and outflows of cash and cash equivalents; it excludes transactions that do not directly affect cash receipts and payments. These non-cash transactions include depreciation or write-offs on bad debts or credit losses to name a few. The cash flow statement is a cash basis report on six types of financial activities: operating activities, investing activities, and financing activities. Non-cash activities are usually reported in footnotes.
The cash flow statement is intended to:
| 1. |
Provide information on a firm's liquidity and solvency and its ability to change cash flows in future circumstances |
| 2. |
Provide additional information for evaluating changes in assets, liabilities and equity |
| 3. |
Improve the comparability of different firms' operating performance by eliminating the effects of different accounting methods |
| 4. |
Indicate the amount, timing and probability of future cash flows |
The cash flow statement has been adopted as a standard financial statement because it eliminates allocations, which might be derived from different accounting methods, such as various timeframes for depreciating fixed assets.
During the three months ended
March 31, 2016 our net cash used by operating activities was $(78,852) and comparatively the net cash used by operating activities in the three months ended
March 31, 2015 was $(74,966). Net cash used by operating activities in the period ended
March 31, 2016 consisted primarily of net loss from operations of $(279,973) for 2015 as compared to $(140,999) for 2015. Depreciation adjustments were of non-cash expenses were $3,420 and $4,266 for each year respectively.
The Company experienced a decrease in accounts payable of $75,934 and an increase of $7,442 for each year respectively. This is primarily due to
the
Company’s ability apply cash receipts from investors and operations to pay past and current creditors 2016 period. We also incurred substantial expenses for the commercial projects sold during the period ended
March 31, 2016. Accounts receivable decreased by $170,865 during the period ended
March 31, 2016 due to collections from commercial projects at the end of the period and this is also reflected in the $158,566 cash balance at the end of the period.
Net cash used for investing activities for the periods ended March 31,2016 and 2015 was $2,003 and $146 respectively due to receipt of principal on leases and equipment acquisitions.
Net cash provided by financing activities for the periods ended
March 31, 2016 and
2015 was $195,380 and $95,514 respectively. Net cash provided by financing activities for 2016 and 2015 resulted primarily from the sale of common stock, loans from a financial institution and loans from a Director. Cash provided by financing activities during the periods ended
March 31, 2016 were primarily from the sale of common stock and loans from financial institutions. Derivative portion of convertible debt accounted for charges to income for future changes in value of the underlying stock in the amount of $102,288 and an increase in liabilities of $102,288 for the period ended
March 31, 2016. None of this expense will be realized if this debt is retired before maturity.
The total debt received in the two current period loans is $67,777. An additional charge of $102,288 net is a GAAP calculation to reflect the possibility of future conversion of the debt to stock. Any future conversions will increase the number of shares outstanding and the Stockholders Equity by the amount of the original investment. Management intends to retire these notes before maturity.
LIQUIDITY AND CAPITAL RESOURCES
Our primary liquidity and capital requirements have been for carrying cost of accounts receivable after completion of
contracts. The industry habitually requires the solar contractor to wait for the utility approval in order to be paid for the
contracts. This process can easily exceed 90 days and sometimes requires the contractor to pay all or most of the cost of the project without assistance from suppliers. Our working capital at
March 31, 2016 was $(450,986) and it was $(213,664) at
December 31, 2015. This decrease of $237,322 was primarily due to losses from operations during the period ended
March 31, 2016 and adjustments
for possible future losses on derivative conversions. Bank financing has not been available to
the Company but we have been able to increase our credit lines with our suppliers because of good credit. There are no material covenants on our credit lines, normally due in 30 days, since they are standard in the industry and the balances vary on a daily basis. Most are personally guaranteed by the Officer of
the Company.
We have been able to borrow $30,558 from one of our Directors to increase working capital during the period end
March 31, 2016 bringing the total borrowed from Directors and officers to $100,502. There are no existing agreements or arrangement with any Director to provide additional funds to
the Company.
PLAN OF OPERATIONS
Based on our current financial position, we cannot anticipate whether we will have sufficient working capital to sustain operations for the next year if we do not raise additional capital. We will not however, be able to reach our goals and projections for multistate expansion without a cash infusion. We have been able to raise sufficient capital through the sale of our common shares and we have incurred substantial increases in debt from our trade creditors in the normal course of business. Management will not expand the business until adequate working capital is provided. Our ability to maintain sufficient liquidity is dependent on our ability to attain profitable operations or to raise additional capital. We have no anticipated timeline for obtaining neither additional financing nor the expansion of our business. We will continue to keep our expenses as low as possible and keep our operations in line with available working capital as long as
possible. There is no guarantee that
the Company will be able to obtain adequate capital from any sources, or at all.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not Applicable to Smaller Reporting Companies.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures.
As of the end of the reporting period,
March 31, 2015, we carried out an evaluation, under the supervision and with the participation of our management, including
the Company's Chairman and Chief Executive Officer/Principal Accounting Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(e) of the Securities Exchange Act of 1934 (the
"Exchange Act"), which disclosure controls and procedures are designed to insure that information required to be disclosed by a company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported within required time periods specified by the SEC's rules and forms. Based upon that evaluation, the Chairman/CEO and the Chief Financial Officer concluded that our disclosure controls
and procedures are not currently effective in timely alerting them to material information relating to
the Company required to be included in
the Company's period SEC filings.
The Company is attempting to expand such controls and procedures, however, due to a limited number of resources the complete segregation of duties is not currently in place.
(b) Changes in Internal Control.
Subsequent to the date of such evaluation as described in subparagraph (a) above, there were no changes in our internal controls or other factors that could significantly affect these controls, including any corrective action with regard to significant deficiencies and material weaknesses.
(c) Limitations.
Our management, including our Principal Executive Officer and Principal Financial Officer, does not expect that our disclosure controls or internal controls over financial reporting will prevent all errors or all instances of fraud. However, we believe that our disclosure controls and procedures are designed to provide reasonable assurance of achieving this objective. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within
our
company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and any design may not succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitation of a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
PART II-OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, consolidated financial condition, or operating results.
Not Applicable.
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds
During the three month period ended
March 31, 2016 the Company issued 1,164,436 shares of common stock and received or credited gross proceeds of $159,173. The expenses of offering totaled $102,732. The net proceeds were used for working capital, corporate expenses, legal fees and public company expenses.
Item 3. Defaults upon Senior Securities
None
Item 4. Mine Safety Disclosures.
Not Applicable
Item 5. Other Information
Not Applicable
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10(a)
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10(b)
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10(c)
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10(d)
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10(e)
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10(f)
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$30,000 Convertible Note dated May 6, 2016 (2) |
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31.1
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31.2
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32.1
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32.2
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101 INS
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XBRL Instance Document
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101 SCH
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XBRL Taxonomy Extension Schema Document
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101 CAL
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XBRL Taxonomy Calculation Linkbase Document
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101 DEF
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XBRL Taxonomy Extension Definition Linkbase Document
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101 LAB
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XBRL Taxonomy Labels Linkbase Document
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101 PRE
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XBRL Taxonomy Presentation Linkbase Document
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________________________
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report or amendment thereto to be signed on its behalf by the undersigned thereunto duly authorized.
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
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ABCO ENERGY, INC
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Title: President &
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Chief Executive Officer (CEO)
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Chief Financial Officer (CFO)
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Principal Accounting Officer (PAO)
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