ABCO Energy, Inc. - Quarter Report: 2016 March (Form 10-Q)

As Filed with the Securities and Exchange Commission on May 20, 2016  

File No:  000-55235

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United States

Securities and Exchange Commission

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(Mark One)

 

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

FOR THE QUARTERLY PERIOD ENDING MARCH 31, 2016

 

☐ 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

 

 (Name of registrant as specified in its Charter)

 

 

 

 

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.

 

TABLE OF CONTENTS

 

 

PART 1 – FINANCIAL INFORMATION

Item 1.     Financial Statements

ABCO ENERGY, INC.

 

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED

MARCH 31, 2016

Consolidated Balance Sheets: As of March 31, 2016 and as of December 31, 2015 (Unaudited)	4
Consolidated Statements of Operations: For the Three Months Ended March 31, 2016 and March 31, 2015 (Unaudited)	5
Consolidated Statements of Cash Flows: For the Three Months Ended March 31, 2016 March 31, 2015 (Unaudited)	6
Notes to the Consolidated Financial Statements (Unaudited)	7

 

 

ABCO ENERGY, INC.

 CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

 

		March 31, 2016				December 31, 2015
ASSETS
Current Assets
Cash		$	158,566			$	40,035
Accounts receivable on completed projects			81,006				39,100
Accounts receivable on construction work in progress – net of billings in excess of costs and earnings			39,568				252,339
Inventory			50,773				51,255
Total Current Assets			329,913				382,729
Fixed Assets
Vehicles, office furniture & equipment – net of accumulated depreciation			39,091				42,511
Other Assets
Investment in long term leases			12,531				12,689
Security deposits			3,100				4,945
Total Other Assets			15,631				17,634
Total Assets		$	384,635			$	442,874
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities
Accounts payable and accrued expenses		$	334,689			$	410,623
Current portion of long term debt			4,983				4,048
Derivative liability			102,288				-
Notes payable – other – net of OID and amortization			238,437				111,778
Notes payable – related parties			100,502				69,944
Total Current Liabilities			780,899				596,393
Long Term Debt- net of current portion			3,168				5,292
Total Liabilities			784,067				601,685
Stockholders’ Deficit
Common stock, 500,000,000 shares authorized, $0.001 par value, 31,785,501 and 30,621,065 outstanding at March 31, 2016 and December 31, 2015 respectively.			31,785				30,621
Additional paid in capital			1,865,599				1,827,411
Accumulated deficit			(2,296,816	)			(2,016,843	)
Total Stockholders’ Equity (Deficit)			(399,432	)			(158,811	)
Total Liabilities and Stockholders’ Equity (Deficit)		$	384,635			$	442,874

 

See accompanying notes to the unaudited consolidated financial statements.

 

ABCO ENERGY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

 (UNAUDITED)

		For The Three Months Ended
		March 31, 2016				March 31, 2015
Revenues		$	230,195			$	144,472
Cost of Sales			195,075				120,708
Gross Profit			35,120				23,764
Operating Expenses:
Selling, General & Administrative			184,228				154,531
Income (Loss) from operations			(149,108	)			(130,767	)
Other expenses
Interest on notes payable			28,577				10,232
Changes in derivative liability			102,288
Income (Loss) before provision for income taxes			(279,973	)			(140,999	)
Provision for income tax			-				-
Net Income (loss) applicable to common shareholders		$	(279,973	)		$	(140,999	)
Net Income (loss) per share (Basic and fully diluted)		$	(0.01	)		$	(0.01	)
Weighted average number of common shares used in the calculation			31,203,283				23,962,500

 

See accompanying notes to the financial statements.

 

ABCO ENERGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 (UNAUDITED)

 

		For The Three Months Ended
		March 31, 2016				March 31, 2015
Cash Flows from Operating Activities:
Net Income (Loss) for the period		$	(279,973	)		$	(140,999	)
Adjustments to reconcile Net Income or (Loss) to net cash used in operating activities:
Depreciation			3,420				4,266
Derivative charge to finance costs			102,288
Decrease in Accounts Receivable			170,865				66,055
Change in Inventory			482				3,154
Decrease in Accounts Payable & Accrued Expenses			(75,934	)			(7,442	)
Net cash used in operating activities			(78,852	)			(74,966	)
Cash Flows from Investing Activities:
Principal payments received on long term leases			158				146
Decrease in Product and lease deposits			1,845
Net cash provided by (used) in investing activities			2,003				146
Cash Flows from Financing Activities:
Loans from officer			30,558				8,000
Loans from financial institution – net of OID and amortization			126,659				35,822
Principal payments on Long Term Debt			(1,189	)			-
Proceeds from common stock issuances – net of expenses			39,352				51,692
Net cash provided by financing activity			195,380				95,514
Net Increase (Decrease) in cash			118,531				20,694
Cash at The Beginning of The Period			40,035				25,104
Cash at The End of The Period		$	158,566			$	45,798

 

See accompanying notes to the financial statements.

 

ABCO ENERGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2016

(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 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 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

Notes and Loans Payable as of March 31, 2016 and December 31, 2015 consisted of the following:

 

Description		31-Mar-16				31-Dec-15
Note payable - Credit line, payable to Ascentium Capital, bearing interest at 24% per annum, unsecured, matures in February 2016		$	-			$	6,705
Note payable to Ascentium Capital, secured by truck, bearing interest at 9% per annum, matures in September, 2017*			8,151				9,341
Less current portion truck loan			-4,983				-4,048
Note payable – Orchard Street Funding – This loan was paid off in January, 2016			-				45,240
Note payable – other bearing interest at 12% per annum, unsecured, demand note.			60,762				59,832
Note payable to Web Bank, borrowed 2-1-16, bearing interest at 23% per annum, unsecured, matures in March, 2017*			130,907				-
Convertible note payable - EMA Financial, borrowed 3-16-16, due 3-16-17 with interest at 8% per annum - convertible into common stock			40,000				-
Convertible note payable - JMJ Financial, borrowed 3-23-16, due 3-23-18 with interest at 12% per annum - convertible into common stock			27,777				-
Original issue discounts and points on loans - less amortization of $1,768 for the quarter ended March 31, 2016			-21,009				-
Total notes payable			241,605				117,070
Long term debt - net of current portion			3,168				5,292
Total other notes and loans payable		$	238,437			$	111,778

 

Maturity of notes and loans payable
For the period Ending March 31,	Amount				Amount
2016		$	151,481			$	111,178
2017			62,347
2018			27,777
Total		$	241,605			$	111,178

 

Derivative Liabilities from Convertible Notes (Level 3)		$	102,288

 

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 10    Income Tax

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.

 

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)

 

 

(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

THREE MONTHS ENDED MARCH 31, 2016 COMPARED TO THREE MONTHS ENDED MARCH 31, 2015.

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.

STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015

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.

LIQUIDITY AND CAPITAL RESOURCES

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.

 

Item 1A.  Risk Factors

 

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 

 

 

Item 6.     Exhibits

 

 

10(a)	12% $40,000 Convertible Note dated March 16, 2016 (1)
10(b)	8% $25,000 Convertible Note dated March 23, 2016 (1)
10(c)	10% $55,000 Convertible Note dated April 1, 2016 (2)
10(d)	5% $42,000 Convertible Note dated April 5, 2016 (2)
10(e)	10% $40,000 Convertible Note dated May 3, 2016 (2)
10(f)	$30,000 Convertible Note dated May 6, 2016 (2)
31.1	Section 302 Certification of Chief Executive Officer
31.2	Section 302 Certification of Chief Financial Officer
32.1	Section 906 Certification of Chief Executive Officer
32.2	Section 906 Certification of Chief Financial Officer
101 INS	XBRL Instance Document
101 SCH	XBRL Taxonomy Extension Schema Document
101 CAL	XBRL Taxonomy Calculation Linkbase Document
101 DEF	XBRL Taxonomy Extension Definition Linkbase Document
101 LAB	XBRL Taxonomy Labels Linkbase Document
101 PRE	XBRL Taxonomy Presentation Linkbase Document

(1)	Previously filed with the Company’s Form 10-K, File No. 000-55235, filed with the Commission on April 11, 2016, and incorporated herein by this reference as any exhibit to this Form 10-Q.

(2)	Filed herewith.

 

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.

 

May 20, 2016