ABCO Energy, Inc. - Quarter Report: 2015 September (Form 10-Q)
As Filed with the Securities and Exchange Commission on November 16, 2015
File No: 000-55235
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDING SEPTEMBER 30, 2015
¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____to_____
Commission file number: 000-55235
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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2100 North Wilmot #211, Tucson, AZ
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85712
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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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520-777-0511
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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 x 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 x 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 x.
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ¨ No x
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 November 13, 2015 we had 29,073,565 shares of common stock issued and outstanding.
TABLE OF CONTENTS
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PART I – FINANCIAL INFORMATION
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3
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10
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12
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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 NINE MONTHS ENDED
SEPTEMBER 30, 2015
TABLE OF CONTENTS
Consolidated Balance Sheets: As of September 30, 2015 and as of December 31, 2014 (Unaudited)
Consolidated Statements of Operations: For the Three months and Nine months Ended September 30, 2015 and September 30, 2014 (Unaudited)
Consolidated Statements of Cash Flows: For the Three Months and Nine months Ended September 30, 2015 and September 30, 2014 (Unaudited)
Notes to the Consolidated Financial Statements (Unaudited)
ABCO ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
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September 30, 2015
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December 31, 2014
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||||||
| ASSETS | ||||||||
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Current Assets
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||||||||
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Cash
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$
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78,124
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$
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25,104
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||||
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Accounts receivable
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288,167
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164,706
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||||||
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Inventory
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44,560
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49,245
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||||||
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Total Current Assets
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410,851
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239,055
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||||||
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Fixed Assets
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||||||||
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Vehicles, office furniture & equipment –
net of accumulated depreciation
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45,886
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57,800
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||||||
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Other Assets
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||||||||
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Investment in long term leases
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12,845
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13,293
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||||||
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Security deposits
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6,335
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7,235
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||||||
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Total Other Assets
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19,180
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20,528
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||||||
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Total Assets
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$
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475,917
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$
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317,383
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||||
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LIABILITIES AND STOCKHOLDERS’ DEFICIT
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||||||||
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Current liabilities
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||||||||
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Accounts payable and accrued expenses
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$
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257,353
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$
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393,205
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||||
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Short term note payable
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4,519
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- | ||||||
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Current portion of long term debt
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20,967
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38,308
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|||||
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Notes payable – related parties
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68,000
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60,000
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||||||
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Total Current Liabilities
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350,839
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491,513
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||||||
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Long Term Debt- net of current portion
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5,683
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16,521
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||||||
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Total Liabilities
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356,522
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508,034
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||||||
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Stockholders’ Deficit
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||||||||
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Common stock, 500,000,000 shares authorized, $0.001 par value,
28,942,545 and 23,695,680 outstanding at September 30, 2015 and
December 31, 2014 respectively.
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28,943
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23,695
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||||||
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Additional paid in capital
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1,777,869
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1,587,674
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||||||
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Accumulated deficit
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(1,687,417
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)
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(1,802,020
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)
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||||
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Total Stockholders’ Equity (Deficit)
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119,395
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(190,651
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)
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|||||
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Total Liabilities and Stockholders’ Equity (Deficit)
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$
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475,917
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$
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317,383
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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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For The Nine months Ended
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|||||||||||||||
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September 30, 2015
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September 30, 2014
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September 30, 2015
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September 30, 2014
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|||||||||||||
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Revenues
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$
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610,317
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$
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260,835
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$
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1,231,100
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$
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937,158
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||||||||
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Cost of Sales
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119,783
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298,004
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555,414
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684,652
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||||||||||||
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Gross Profit
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490,534
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(37,169
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) |
675,686
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252,506
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|||||||||||
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Operating Expenses:
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||||||||||||||||
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Selling, General & Administrative
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190,674
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225,227
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516,521
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589,926
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||||||||||||
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Income (Loss) from operations
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299,860
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(262,396
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)
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159,165
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(337,420
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)
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||||||||||
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Other expenses
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||||||||||||||||
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Interest on notes payable
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14,855
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5,646
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44,562
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19,491
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||||||||||||
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Income (Loss) before provision for income taxes
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285,005
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(268,042
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)
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114,603
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(356,911
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)
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Provision for income tax
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-
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-
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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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285,005
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$
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(268,042
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)
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$
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114,603
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$
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(356,911
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)
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||||||
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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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)
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$
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0.01
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$
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(0.01
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)
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|||||
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Weighted average number of common shares used in the calculation
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26,970,048
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21,291,658
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26,319,112
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20,049,550
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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 Nine Months Ended
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||||||||
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September 30, 2015
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September 30, 2014
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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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114,603
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$
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(356,911
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)
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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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12,773
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12,600
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Increase in Accounts Receivable
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(123,461
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)
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(48,115
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Change in Inventory
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4,685
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(1,895
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)
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Other Current Assets
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- |
(14,055
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)
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Increase in Accounts Payable & Accrued Expenses
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(135,852
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)
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75,500
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Net cash used in operating activities
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(127,252
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)
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(332,876
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)
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Cash Flows From Investing Activities:
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Purchase of vehicles, furniture & equipment
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(859
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)
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(39,180
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)
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Principal payments received on long term leases
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448
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697
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Product and lease deposits
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900
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(2,045
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)
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|||||
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Net cash provided by (used) in investing activities
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489
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(40,528
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)
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Cash Flows From Financing Activities:
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||||||||
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Loans from officer
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8,000
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- | ||||||
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Loans from financial institution
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- |
77,080
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||||||
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Principal payments on Long Term Debt
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(23,660
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) | - | |||||
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Proceeds from common stock issuances – net of expenses and cancellations
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195,443
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293,353
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||||||
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Net cash provided by financing activity
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179,783
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370,433
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||||||
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Net Increase (Decrease) in cash
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53,020
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(2,971
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)
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|||||
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Cash At The Beginning Of The Period
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25,104
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92,157
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||||||
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Cash At The End Of The Period
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$
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78,124
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$
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89,186
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||||
Supplemental Disclosure:
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Cash paid for interest
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$
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44,562
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$
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19,491
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||||
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Consulting fees paid with common stock – at market value
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$
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232,500
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$
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-
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||||
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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
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015
(UNAUDITED)
Note 1 Overview and Description of the Company
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 nine months of 2015. 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, 2014. The income statement for the nine months ended September 30, 2015 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 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 September 30, 2015 of $1,687,417. 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 3 Note Payable Officer
Officer’s loans are demand notes totaling $68,000 as of September 30, 2015 and $60,000 as of December 31, 2014. The $60,000 note as of December 31, 2014 provides for interest at 12% per annum and is unsecured. Notes payable to the Director resulted in an interest charge of $1,816 and $10,838 unpaid accrued interest for the period ended September 30, 2015 and $5,426 accrued and unpaid at December 31, 2014. The current period note in the amount of $8,000 as of September 30, 2015 was received in the first quarter of 2015. The note is a demand note, bears interest at 12% per annum and is unsecured.
Note 4 Short Term Note Payable
During the quarter ended September 30, 2015 the Company financed operations with a loan from National Funding. The note is an open credit line with interest at thirty percent maturing in October, 2015 and had a balance of $4,519 as of September 30, 2015
Note 5 – Long-Term Debt
Long-term indebtedness as of September 30, 2015 and 2014, consisted of the following:
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2015
|
2014
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|||||||
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Credit line payable to Ascentium Capital, bearing interest at 24% per annum, unsecured, matures in February 2015
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$ | 16,152 | $ | 33,847 | ||||
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Note payable to Ascentium Capital, secured by truck, bearing interest at 9% per annum, matures in October, 2017
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10,498 | 13,449 | ||||||
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Total notes payable
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26,650 | 47,296 | ||||||
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Less current maturities
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20,967 | 30,308 | ||||||
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Long-term debt
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$ | 5,683 | $ | 16,521 | ||||
Maturities of long-term indebtedness at September 30, 2015, are as follows:
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For the period Ending
September 30,
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Amount
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|||
|
2016
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$ | 20,967 | ||
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2017
|
5,683 | |||
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Total
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$ | 26,650 | ||
This debt is collateralized by the specific asset in the case of the truck loan and both loans are personally guaranteed by the officers of the Company.
Note 6 Stockholder’s Equity
During the nine month period ended September 30, 2015 Company issued 5,246,865 shares of common stock and received or credited gross proceeds of $963,944 of which $232,500 was issued for legal and consulting services rendered. The expenses of offering totaled $476,997. The net proceeds were used for working capital, corporate expenses, legal fees and public company expenses.
Note 7 Other matters
Legal fees relating to financing activities, market maker applications with FINRA, blue sky registrations with states and other fund raising expenses were charged to additional paid in capital in the amount $34,065 for the nine months ended September 30, 2015 and $39,733 during the years ended December 31, 2014.
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 then picks up again in late Spring. 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 September 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 $3,000,000 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 carry no interest for years 1-2 and a low annual coupon rate of 6.5% for years 3-10 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 $150,000 in connection with the issuance of the bonds. The first $75,000 will be paid by the issuance of 375,000 shares of registered common stock on or about November 19, 2015. The remaining $75,000 will be paid upon delivery to the Company of the definitive form of the bonds. The Company, at its option, can pay in cash or in shares of common stock.
Note 8 Income Tax
The company has net operating loss carryforwards as of September 30, 2015 totaling approximately $1,622,982. A deferred tax benefit of approximately $550,000 has been offset by a valuation allowance of the same amount as its realization is not assured
Note 9 Subsequent Events
From September 30, 2015, through November 10, 2015, the Company sold an aggregate of 131,000 shares of restricted common stock with prices ranging from $0.20 to $0.33 and received gross proceeds of $26,130. Expenses were paid to foreign agents for Regulation S offerings by the Company totaling $16,984.
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.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS – OVERVIEW
NINE MONTHS ENDED SEPTEMBER 30, 2015 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2014.
Our discussion of operating results for the nine months ended September 30, 2015 and September 30, 2014 are presented below with major category details of revenue and expense including the components of operating expenses.
Sales consist of photovoltaic products, LED lighting products and installation during both periods for the nine months ended September 30, 2015 and for the nine months ended September 30, 2014. We have also sold a number of our proprietary LED solar street lights and revenue from this project was recorded during the current period.
Sales for the nine months ended September 30, 2015 were $1,231,100 as compared to $676,323 for the same nine months in 2014. This is an increase of $554,777 or 82% from the 2014 sales. The Solar sales revenue in 2015 and 2014 reflected changing market conditions in the financing of solar installations and a reduction in utility incentives offered to residential and commercial buyers. 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. We are not aware of any trends that may have a similar affect or a similar negative affect on the market as happened in Arizona during 2015 and 2014. The prices of solar products were reduced in 2015 and 2014 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 large commercial applications and the increased interest of business and government in the LED lighting contracts.
Cost of sales was 45% of revenues in 2015 and 57% of revenues in 2014. Gross margins were 65% of revenue in 2015 and 43% of revenue for the nine months of 2014. During 2015 and 2014 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 42% of revenues in 2015 and 54% of revenues for the same period in 2014. Net income for the nine months period ended September 30, 2015 was $114,603 as compared to the net loss of $(88,869) for the same six month period ended September 30, 2014. Our operating expenses for this period were lower than the comparative period in 2014. This combination of factors increased the operating income for the period ending September 30, 2015 as compared to September 30, 2014. 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:
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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
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|
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.
STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014
During the Nine months ended September 30, 2015 our net cash used by operating activities was $(127,252) and comparatively the net cash used by operating activities in the Nine months ended September 30, 2014 was $(332,876). Net cash used by operating activities in the period ended September 30, 2015 consisted primarily of net income from operations $114,603 for 2015 as compared to $(356,911) for 2014. Depreciation adjustments were of non-cash expenses were $12,773 and $12,600 for each year respectively. The Company experienced a decrease in accounts payable of $135,852 and an increase of $75,500 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 2015 period. We also incurred substantial expenses for the commercial projects sold during the period ended September 30, 2015. The corresponding increases in inventory and in accounts receivable reflect cash required because of growth in sales during each period. The increase in Accounts receivable during the period ended September 30, 2015 reflected the increase in sales during the period from those of the 2014 period.
Net cash used for investing activities for the nine months ended September 30,2015 and 2014 was $489 and $(40,528) respectively due to receipt of principal on leases and equipment acquisitions.
Net cash provided by financing activities for the Nine months ended September 30, 2015 and 2014 was $179,783 and $370,433 respectively. Net cash provided by financing activities for 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 nine months ended September 30, 2014 were primarily from the sale of common stock and loans from financial institutions.
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 rebate and in order to be paid for the contracts. This process can easily exceed 90 days and requires the contractor to pay all or most of the cost of the project without assistance from suppliers. Our working capital at September 30, 2015 was $60,012 and it was $(252,458) at December 31, 2014. This increase of $312,470 was primarily income from operations during the Nine months ended September 30, 2015. 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.
We have been able to borrow $8,000 from one of our Directors to increase working capital during the first quarter of 2015. There are no existing agreements or arrangement with any Director to provide additional funds to the Company.
THREE MONTHS ENDED SEPTEMBER 30, 2015 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2014.
Our discussion of operating results for the three months ended September 30, 2015 and September 30, 2014 are presented below with major category details of revenue and expense including the components of operating expenses.
Sales consist of photovoltaic products and LED lighting products and installation during both periods for the three months ended September 30, 2015 and for the three months ended September 30, 2014. We have also sold a number of our LED light products and revenue from this project was recorded during the current period.
Sales for the three months ended September 30, 2015 were $610,317 as compared to $260,835 for the same three months in 2014. The Solar sales revenue in 2015 reflected higher sales to commercial markets and a surge in to residential buyers created by conditions related to utility company policy in Arizona. ABCO has worked diligently to capitalize on these changes by focusing on large commercial applications and the increased interest of business and government in the solar and LED lighting contracts.
Cost of sales was 20% of revenues in 2015 and 115% of revenues in 2014. Gross margins were 80% and (14) % of revenue respectively for the two three month periods.
Total operating expenses were 31% of revenues in 2015 and 87% of revenues for the same period in 2014. Net income for the three months period ended September 30, 2015 was $285,005 as compared to the net loss of $(268,042) for the same three month period ended September 30, 2014. Increased sales revenue and a reasonable gross margin in the period ended September 30 2015 produced more cash from operations to pay our expenses. Our operating expenses for this period were lower by $34,553 than the comparative period in 2014. We have shown a profit from operations for the period ended September 30, 2015 as opposed to a loss in 2014 for the three month period. This combination of factors increased the cash flow from operations for the period ending September 30, 2015 as compared to September 30, 2014.
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, September 30,2015, 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.
On September 5, 2014, the Arizona Superior Court entered a Judgment (“AZ Judgment”) affirming the ruling of the Arizona Corporate Commission (“ACC”) dated March 21, 2013. The Company has determined that it has no successor liability to Westcap Energy, Inc. (“Westcap”) as there is no judgment or order against the Company with respect to the AZ Judgment or otherwise.
The AZ Judgment was appealed by all defendants. On September 17, 2015, the Arizona Court of Appeals affirmed the AZ Judgment [“CofA Confirmation”]. The filing of this Notice does not stay the enforcement of AZ Judgment. Westcap, under the AZ Judgment, had sixty (60) days from September 5, 2014, to commence the Rescission Offer to the 24 shareholders who are now Company shareholders. The Company has been advised that all defendants have appealed the CofA Confirmation. The Commission’s findings, as affirmed by the AZ Judgment will not become final until this new appeal has been heard or otherwise disposed of. It has been the Company’s opinion that the defense of the legal position of all defendants is in the best interest of all shareholders and therefore has paid legal fees of $6,897 and $17,286 during 2015 and 2014 respectively.
In August of 2014, the Arizona Corporate Commission refused to allow the Company to voluntarily participate in any rescission pursuant to the AZ Judgment on the grounds the Company was not a party to the ACC action and therefore had no involvement in the rescission requirement. In light of the ACC refusal to even evaluate rescission documents prepared by the Company, the Company informed the ACC that it will take no further action with respect to the ACC Judgment and the Company has not recorded a liability for the ACC Judgment on its books.
Item 1A. Risk Factors
Not Applicable.
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds
From September 30, 2015, through November 10, 2015, the Company sold an aggregate of 131,000 shares of restricted common stock with prices ranging from $0.20 to $0.33 and received gross proceeds of $26,130. Expenses were paid to foreign agents for Regulation S offerings by the Company totaling $16,984.
Item 3. Defaults upon Senior Securities
None
Item 4. Mine Safety Disclosures.
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits
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Exhibits Index
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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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SIGNATURES
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.
November 16, 2015
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ABCO ENERGY, INC
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/s/ Charles O’Dowd
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Charles O’Dowd
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Title: President &
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Chief Executive Officer (CEO)
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/s/ Charles O’Dowd
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Charles O’Dowd
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Chief Financial Officer (CFO)
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Principal Accounting Officer (PAO)
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