ABCO Energy, Inc. - Quarter Report: 2018 June (Form 10-Q)

As Filed with the Securities and Exchange Commission on August 21, 2018                      

File No:  000-55235

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 (Mark One)

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

FOR THE QUARTERLY PERIOD ENDING JUNE 30, 2018

☐ 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)

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, a non-accelerated filer, smaller reporting company, or an emerging growth company.  See the definition of “law accelerated filed,” “accelerated filed,” “Smaller reporting company,” and “emerging growth company” in Rule 12b of the Exchange Act.

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

Indicate by check mark whether the registrant is a shell company (as defined 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 August 20, 2018 we had 465,054,727 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 SIX MONTHS ENDED

JUNE 30, 2018

ABCO ENERGY, INC.

CONSOLIDATED BALANCE SHEETS

See accompanying notes to the unaudited consolidated financial statements.

ABCO ENERGY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

 (UNAUDITED)

See accompanying notes to the unaudited consolidated financial statements.

ABCO ENERGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 (UNAUDITED)

Supplemental disclosures of cash flow information:

See accompanying notes to the unaudited consolidated financial statements.

ABCO ENERGY, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2018

(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 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 six months of 2018. 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, 2017. The income statement for the six months ended June 30, 2018 cannot necessarily be used to project results for the full year.

Note 2      Summary of Significant Accounting Policies

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.

Revenue Recognition

The Company generates revenue from sales of solar products, LED lighting, installation services and leasing fees. During the six months ended June 30, 2018 and 2017, the company had product sales as follows:

The Company recognizes product revenue, net of sales discounts, returns and allowances. These statements establish that revenue can be recognized when persuasive evidence of an arrangement exists, delivery has occurred, and all significant contractual obligations have been satisfied, the fee is fixed or determinable, and collection is considered probable. ASC (606) accounting requires that the company recognize revenue and profits on the percentage of completion method for long term projects. These contracts generally extend for a period in excess of one reporting period. The amount of revenue and profits recognized in each period in determined by the ratio of costs incurred to the total of estimated costs. Costs included in construction in process consist of materials, direct labor and project related overhead. At June 30, 2018 ABCO had $1,183,589 in construction in progress and had earned $662,984 and $520,604 was not earned at the end of the period.  Recognition standards require evidence of arrangement, delivery or services rendered, price fixed, collectability reasonably assured are now replaced with the following steps under ASC 606. 

1.     Identify the contract with a customer.

2.     Identify the performance obligations in the contract.

3.     Determine the transaction price

4.     Allocate the transaction price to the performance obligations in the contract.

5.     Recognize revenue when (or as) the entity satisfies a performance obligation

Our revenue recognition is recorded on the percentage of completion method for sales and installation revenue and on the accrual basis for fees and interest income.  We recognize and record income when the customer has a legal obligation to pay.  All our revenue streams are acknowledged by written contracts for any of the revenue we record.  There are no differences between major classes of customers or customized orders.  We record discounts, product returns, rebates and other related accounting issues in the normal business manner and experience very small number of adjustments to our written contractual sales.  There are no post-delivery obligations because warranties are maintained by our suppliers. Our lease fees are earned by providing services to contractors for financing of solar systems.  Normally we will acquire the promissory note (lease) on a leased system that will provide cash flow for up to 20 years.  Interest is recorded on the books when earned on amortized leases.

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. ABCO has incurred losses in the current period but 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. Since convertible preferred stock and convertible debt have unknown conversion ratios to common stock, no calculation for this contingency is included in earnings or losses per share.

Effects of Recently Issued Accounting Pronouncements

The Company has reviewed all recently issued accounting pronouncements noting that they do not affect the financial statements.

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 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 – This is Level 3

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 there 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 June 30, 2018 of $(4,754,450), which raises substantial doubt about the Company’s ability to continue as a going concern.

The ability of the Company to continue as a going concern is dependent upon its ability to raise additional capital from the sale of common stock or through debt financing and, ultimately, the achievement of significant operating revenues. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might result from this uncertainty.

Note 4     Inventory

Inventory of construction supplies not yet charged to specific projects was $38,704 and $38,127 as of June 30, 2018 and December 31, 2017, respectively. The Company values items of inventory at the lower of cost or market and uses the first in first out method to charge costs to jobs.

Note 5      Note Payable – Officers, Directors and Related Parties

Officer loans are demand notes totaling $176,386 and $187,826, respectively, as of June 30, 2018 and December 31, 2017.  These notes provide for interest at 12% per annum and are unsecured.  Notes payable to the Officers, Directors and Related Parties resulted in interest charges of $5,296 and $5,223 for the periods ended June 30, 2018 and June 30, 2017, respectively. The other related party note from a non-officer or director totaled $55,336 at June 30, 2018.

Related party notes payable and accrued interest as of June 30, 2018 and December 31, 2017 consists of the following:

Note 6      Short Term Notes Payable

(1) On January 22, 2018 the Company borrowed $60,000 from Perfectly Green Corporation, a Texas corporation.  The note bears interest at 3% per annum and is payable upon demand after 60 days’ notice which cannot be given until after May 31, 2018. Accrued interest on this note totaled $800 at June 30, 2018

(2) On February 1, 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% maturing in March of 2017. A portion of the loan was used to pay off a credit loan from Orchard Street Funding in the amount of $44,061.  On August 22, 2016, the Company ceased making payments on this loan and at December 31, 2017 the Company owed a settled negotiated amount of $69,854 in principal, accrued interest and settlement fees. This loan was personally guaranteed by an Officer of the Company.  The Company has negotiated a payment and payoff arrangements for this debt. 

(3) On June 28, 2016, the Company financed operations with a loan in the amount of $43,500 from Quarterspot, a lending institution. The note is an open line with interest rate of approximately 31% maturing in September of 2017. On August 22, 2016, the Company ceased making payments on this loan.  As of December 31, 2017, the Company owed $26,484 in principal, accrued interest and settlement fees.  This loan is not personally guaranteed by an Officer of the Company.  Arrangements have been made for the final payment schedule on this loan.  The negotiated settlement on the Quarterspot note was $8,650 plus fees.  This note and the fees have been paid in full in the period ended June 30, 2018.

The negotiated payment settlements on the loans described in Note 2 and 3 resulted in an obligation totaling $15,316 as of June 30, 2018 with respect to the WebBank loan, the Quarters pot loan and the Veritas settlement fees.  The obligation requires ABCO to continue payments of $1,187 per week until the total paid reaches the sum of $15,316 with respect to the loans and fees.  Quarterspot loan was paid in full so these payments apply only to WebBank and Veritas.  These notes will be considered paid in full at the end of the negotiated settlement period if all such payments are made on a timely basis.

Note 7      Long Term Debt

The Company had no long term debt as of December 31, 2017 and none as of June 30, 2018.

Note 8      Fair Value of Financial Instruments

The following is the major category of liabilities measured at fair value on a recurring basis as of June 30, 2018, using quoted prices in active markets for identical liabilities (Level 1); significant other observable inputs (Level 2); and significant unobservable inputs (Level 3):

Note 9      Stockholder’s Equity

At June 30, 2018 and December 31, 2017, the Company had sold but have not yet issued 88,491,082 and 35,140,224 shares of common stock. The gross proceeds during the six months ended June 30, 2018 totaled $446,122 and the expenses of offering totaled $265,228.  The net proceeds of $180,894 were used for working capital, corporate expenses, legal fees and public company expenses. These shares are reflected in the balance sheet and included in total shares outstanding.  Many shareholders have elected to wait for the issuance of restricted shares until the holding period has expired. The following table shows the issued and unissued shares at the end of the period.

On May 7, 2018, the Company issued 78,000 shares of Series C Preferred Stock to Power Up Lending Group Ltd. In exchange for net proceeds of $75,000. The Series C Preferred Stock has no voting rights and is subordinate to the Series B Preferred Stock. The series C Preferred Stock is convertible into common stock after 6 months at the option of the Holder. The conversion into common stock shares is determined by the use of the lowest price of the trading common stock in a 20 day period prior to the elected date to convert, The price is determined by the discount rate of 35% of the lowest price to determine the number of shares. The Series B Preferred  is classified aas a liability on the Balance Sheet because it is mandatorily redeemeable after  its 15 month term if not fully converted by that date.The classification of this investment as a liability on the balance sheet will also require a calculation of a derivative liability on future statements.

On January 17, 2018 the debt holder Blackbridge Capital Growth Fund, LLC converted $14,375 of their convertible debentures into 12,500,000 shares of common stock.  This transaction resulted in an increase to paid in capital for derivative gains in the amount of $25,196 in addition to the reduction in the debt in the amount of $14,375.  As of June 30, 2018, Blackbridge had sold their promissory note to L2 Capital, LLC in a private transaction. L2 Capital converted $29,382 of the note into 29,000,000 shares of common stock prior to June 30, 2018. The balance of the convertible debenture was $57,981 at June 30, 2018.

During the first and second quarter of 2018, Crown Bridge Partners, LLC converted $39,021 of their convertible debenture into of their convertible debentures into 49,358,000 shares of common stock. The balance of their debt was $8,446 plus interest of $4,359. Subsequent to June 30, 2018, Crown Bridge converted the full balance of $12,805 into 18,469,556 shares of common stock. 

On October 13, 2017, the Company issued a nine (9) month $58,000 convertible promissory note to Power Up Lending Group, Ltd., (“Power Up”), which bears interest at the rate of 8% per annum on the principal sum of the outstanding (“Power Up Note”).  The Company received net proceeds of $55,000 after deductions for expenses from the Power Up Note.  The Power Up Note is convertible at any time after the six (6) month anniversary of the Note into shares of common stock as a conversion price equal to 58% of the lowest two (2) trade prices in the 15 trading days before the conversion date. The earliest conversion date was April 19, 2018. During the period ended June 30, 2018 Powerup Lending converted and sold $59,815 worth of debentures including $1,815 in interest for 51,130,560 shares of common stock. The balance of this note was $0 at June 30, 2018.

The Board of Directors of the Company has approved a reverse stock split of its common stock, at a ratio of 1-for-10 (the “Reverse Stock Split”).  The Reverse Stock Split became effective with FINRA (the Financial Industry Regulatory Authority) and in the marketplace on January 13, 2017 (the “Effective Date”), whereupon the shares of common stock began trading on a split adjusted basis.  On the Effective Date, the Company’s trading symbol was changed to “ABCED” for a period of 20 business days, after which the “D” will be removed from the Company’s trading symbol, which will revert to the original symbol of “ABCE”.  In connection with the Reverse Stock Split, the Company’s CUSIP number will change to 00287V204.  On the Effective Date, the total number of shares of the Company’s Common Stock held by each stockholder will be converted automatically into the number of whole shares of Common Stock equal to (i) the number of issued and outstanding shares of Common Stock held by such stockholder immediately prior to the Reverse Stock Split, divided by (ii) 10.  No fractional shares will be issued, and no cash or other consideration will be paid.  Instead, the Company will issue one whole share of the post-Reverse Stock Split Common Stock to any stockholder who otherwise would have received a fractional share because of the Reverse Stock Split.

As a result of the Reverse Stock Split the number of authorized shares of common stock was reduced to 50,000,000 from 500,000,000 shares.  At a Special Meeting of Stockholders held on August 17, 2017, Company shareholders authorized an amendment to the Articles of Incorporation to increase the authorized capital to 1,000,000,000 common shares and 100,000,000 preferred shares. The Amendment was filed with the Nevada Secretary of State on August 17, 2017.

On September 15, 2017, the Board of Directors authorized the issuance of an aggregate of 15,000,000 shares of Class B Convertible Preferred Stock [“Series B”] to both Directors of the Company and to two unaffiliated Consultants. Of the Series B, 6,000,000 shares were issued to Charles O’Dowd and 1,000,000 to Wayne Marx, the Directors. Each Consultant received 4,000,000 shares. See the Company’s Schedule 14C filed with the Commission on September 28, 2017.  These shares have no market pricing and management assigned the value of $15,000 to the stock issue based on the par value of the preferred stock of $0.001. The 15,000,000 shares of Preferred Stock, each has 20 votes for each preferred share held by them at a record date. The holders of the Preferred are also entitled to own additional 150,000,000 common shares upon conversion of the Preferred Stock.  As a result of owning of these shares of Common and Preferred Stock, the Control Shareholders will have voting control the Company.

By Written Consent in lieu of a Meeting of Shareholders executed September 26, 2017, the holders of a majority of the voting power common stock and preferred stock of the Company adopted a further Amendment to the Articles of Incorporation increasing the authorized common stock from 1 Billion shares to 2 Billion shares The Certificate of amendment was filed with the Nevada Secretary of State on September 28, 2017.

On November 8, 2017, the Company entered into a Consulting Agreement (“CA”) with Eurasian Capital, LLC [“Consultant”] which will provide institutional funding services and shareholder and third party sponsorship services for a six month term ending May 7, 2018. Consultant shall be paid a monthly retainer of $10,000 payable in ABCO restricted common stock based upon the 5 day average of the closing bid price commencing on the first day of each month during the effectiveness of the Consulting Agreement.  The CA was terminated by the Company on March 29, 2018 for non-performance by Consultant.  Consultant was issued 7,194,063 restricted shares for November and December 2017, of which 3,968,254 have been delivered to Consultant.  No shares for January through the termination date were ever issued.  A dispute has arisen with respect to the number of shares due Consultant as a result of the CA termination. The parties resolved this matter by the delivery of an aggregate of 7,391,976 shares to Consultant and the execution releases.

Note 10     Convertible Debt and Derivative Valuation

In accordance with the Statement of Financial Accounting Standard ASC 820-10-35-37 Fair Value in Financial Instruments, Statement of Financial Accounting Standard ASC 815 Accounting for Derivative Instruments and Hedging Activities require that instruments with embedded derivative features be valued at their market values.  The Company hired a valuation consultant to value the Convertible Debentures for the derivative portion of the instruments. The Binomial model was used to value the derivative liability for the fiscal year ending December 31, 2017 and June 30, 2018.

During the year ended December 31, 2017, the Company funded operations with borrowing on 2 additional convertible promissory notes and had another debenture due from 2016. This table presents the positions on the notes at June 30, 2018 and December 31, 2017.

The Company had entered into Securities Purchase Agreement with Blackbridge Capital, LLC, a Delaware limited liability company [“SPA”], operating out of New York, New York (“Blackbridge”) on November 2, 2016 whereby Blackbridge has agreed to purchase up to $5,000,000 worth of shares of the Company’s common stock.  The Company had agreed to file a Registration Statement to register such shares for sale to Blackbridge.  In addition, the Company has issued [i] a convertible promissory note to Blackbridge pursuant to the Securities Purchase Agreement equal to $150,000 as a commitment fee (the “Blackbridge Note”), [ii] and designated that a portion of the $100,000 Convertible Note was to be used to cover the expenses to be incurred for the preparation and filing of the Registration statement and related matters (“Expenses Note”). The balance on the $100,000 Blackbridge note was $57,982 at June 30, 2018.

On March 13, 2017, the Company and Blackbridge, entered into an Agreement, effective as of March 1, 2017, terminating the SPA.  The Registration Statement on Form S-1 filed by the Company pursuant to the SPA could not be processed because of technical issues raised by the SEC and was withdrawn on February 28, 2017.  In addition, the Blackbridge Note issued by the Company as a commitment fee was declared null and void by agreement, effective March 1, 2017.

On January 17, 2018 the debt holder Blackbridge Capital Growth Fund, LLC converted $14,375 of their convertible debentures into 12,500,000 shares of common stock.  This transaction resulted in an increase to paid in capital for derivative gains in the amount of $25,196 in addition to the reduction in the debt in the amount of $14,375.  As of June 30, 2018, Blackbridge had sold their promissory note to L2 Capital, LLC in a private transaction. L2 Capital converted $29,382 of the note into 29,000,000 shares of common stock. Prior to June 30, 2012. The balance of the convertible debenture was 57,981 at June 30, 2018.

On January 11, 2017, the Company issued a twelve (12) month $45,000 convertible promissory note to Crown Bridge Partners, LLC, (“Crown”), which bears interest at the rate of 5% per annum on the principal sum of the outstanding (“Crown Note”).  The Company received net proceeds of $40,000 after deductions for expenses from the Crown Note which is convertible at any time after the six (6) month anniversary of the Note into shares of common stock as a conversion price equal to 52% of the lowest one (1) trade prices in the 20 trading days before the conversion date. During 2017 Crown converted $5,979 of their convertible debentures for 3,790,000 shares of common stock. During the period ended June 30, 2018, Crown Bridge converted $39,021 in principal and $712 of Interest into 49,358,000 shares of common stock. The balance of the note was $8,445 plus accrued interest of $4,359 as of June 30, 2018.

On October 13, 2017, the Company issued a nine (9) month $58,000 convertible promissory note to Power Up Lending Group, Ltd., (“Power Up”), which bears interest at the rate of 8% per annum on the principal sum of the outstanding (“Power Up Note”).  The Company received net proceeds of $55,000 after deductions for expenses from the Power Up Note.  The Power Up Note is convertible at any time after the six (6) month anniversary of the Note into shares of common stock as a conversion price equal to 58% of the lowest two (2) trade prices in the 15 trading days before the conversion date. The earliest conversion date was April 19, 2018. During the period ended June 30, 2018 Powerup Lending converted and sold $59,815 worth of debentures including $1,815 in interest for 51,130,560 shares of common stock. The balance of the Power Up Note was $0 at June 30, 2018

The Company determined that the conversion feature embedded within the Expenses Note is a financial derivative. The Generally Accepted Accounting Principles (GAAP) required that the Company’s embedded conversion option be accounted for at fair value. The following schedule shows the change in fair value of the derivative liabilities at June 30, 2018 and December 31, 2017:

The Company recorded finance fees and interest on derivatives for the six months ended June 30, 2018 of $125,384.

The Company measured and utilized quoted prices in active markets for identical liabilities (Level 1); significant other observable inputs (Level 2); and significant unobservable inputs (level 3) in applying valuation technology to derivative values for June 30, 2018 and December 31, 2017 and throughout the year.

Note 11     Income Taxes

The company has net operating loss carryforwards as of June 30, 2018 totaling approximately $3,207,313.  Accrued derivative liabilities of $1,441,402 and stock-based compensation from 2017 totaling $81,400 are assumed to be non-tax events. A deferred 21% tax benefit of approximately $673,535 has been offset by a valuation allowance of the same amount as its realization is not assured.

Due to the current uncertainty of realizing the benefits of the tax NOL carry-forward, a valuation allowance equal to the tax benefits for the deferred taxes has not been established. The full realization of the tax benefit associated with the carry-forward depends predominately upon the Company’s ability to generate taxable income during future periods, which is not assured.

The Company files tax returns in the USA only and is not subject to taxation in any foreign country.  There are three open years for which the Internal Revenue Service can examine our tax returns so 2015, 2016 and 2017 are still open years.

The NOL carryforward expires according to the following schedule:

Note 12    Subsequent Events

During the period July 1, 2018 through August 20, 2018, the Company sold 20,000,000 shares of restricted common stock Using exemption under REG S for gross proceeds of $90,000 and net proceeds of $45,135.

Subsequent to the June 30, 2018 report, L2 Capital converted the balance of their investment into 69,493,906 shares.  This conversion completed their entire investment and interest.

During the period July 1 and August 14, 2018, Crown Bridge Partners, LLC converted $11,848 of their convertible notes into 18,469,556 shares of common stock. These shares were issued for interest and penalties earned during the holding period.

On July 6, 2018, the Company issued 68,000 shares of its Series C Preferred Stock for net proceeds of $65,000 to Power Up Lending Group, Ltd. The Series C Preferred Stock do not have voting rights and are subordinate to the Series B preferred Stock. This investment is disclosed on the balance sheet as a liability and will require a derivative liability calculation in future periods.

Item 2.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS – OVERVIEW

THREE MONTHS ENDED JUNE 30, 2018 COMPARED TO THREE MONTHS ENDED JUNE 30, 2017.

Our discussion of operating results for the Three months ended June 30, 2018 and June 30, 2017 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 June 30, 2018 and for the three months ended June 30, 2017.

Sales for the three months ended June 30, 2018 were $ 558,726 as compared to $ 690,018 for the same three months in 2017.  This is a decrease of $131,292 or 19% of the 2017 sales. The Solar sales revenue in 2018 and 2017 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 severely 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 2018 and 2017 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 75% of revenues in 2018 and 42% of revenues in 2017.  Gross margins were 26% of revenue in 2018 and 58% of revenue for the three months of 2017.  During 2018 and 2017 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 45% of revenues in 2018 and 23% of revenues for the same period in 2017.  Net income from operations for the three-month period ended June 30, 2018 was $($114,099) as compared to the net income of $236,448 for the same three-month period ended June 30, 2017. This change is due almost entirely by the change in conversion of debt to shares which equates to the derivative losses. Our operating expenses for this period were higher as a percentage of revenue and higher by $93,124 than the comparative period in 2017. The interest expense during the period ended June 30, 2018 was higher by $3,158 than in the period ended June 30, 2017 due mostly to the working capital provision of merchant loans and convertible debt being reduced.  Interest on derivative liabilities of convertible debentures decreased by $168,047 during the current period as compared to the prior year. This combination of factors decreased the loss from operations by $(261,226) during the three months ended June 30, 2018.  Since our year to date revenues are lower 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.

SIX MONTHS ENDED JUNE 30, 2018 COMPARED TO SIX MONTHS ENDED JUNE 30, 2017.

Our discussion of operating results for the six months ended June 30, 2018 and June 30, 2017 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 six months ended June 30, 2018 and for the six months ended June 30, 2017.

Sales for the six months ended June 30, 2018 were $1,081,021 as compared to $902,824 for the same six months in 2017.  This is an increase of $178,197 or 20% above the 2017 sales. The Solar sales revenue in 2018 and 2017 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 2018 and 2017 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 69% of revenues in 2018 and 53% of revenues in 2017.  Gross margins were 31% of revenue in 2018 and 47% for the six months of 2017.  During 2018 and 2017 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 38% of revenues in 2018 and 36% of revenues for the same period in 2017.  Net loss from operations for the six-month period ended June 30, 2018 was ($80,118) as compared to the net income of $103,709 for the same six- month period ended June 30, 2017.  Our operating expenses for this period were higher by $97,884 than the comparative period in 2017. The interest expense during the period ended June 30, 2018 was lower by $4,557 than in the period ended June 30, 2017 due mostly to the working capital provision of merchant loans and convertible debt being reduced.  Interest on derivative liabilities of convertible debentures increased by $247,340 during the current period as compared to the prior year. This combination of factors increased the operating loss for the period ending June 30, 2018 by ($272,595) greater than the June 30, 2017 income, due mostly to change in derivative valuation and finance fees and the loss from operations. 

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. The backlog of incomplete work at June 30, 2018 was higher than in any prior period in the company’s history.

STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2018 AND 2017

During the six months ended June 30, 2018 our net cash used by operating activities was $(312,616) and comparatively the net cash used by operating activities in the six months ended June 30, 2017 was $(280,925).  Net cash used by operating activities in the period ended June 30, 2018 consisted primarily of net loss from operations of $(214,283) for 2018 as compared to a net income of $58,312 for 2017.  Depreciation adjustments were of non-cash expenses were $8,120 and $4,390 for each period respectively. Derivative portion of convertible debt accounted for charges to income for future changes in value of the underlying stock in the amount of $(113,994) for the period ended June 30, 2018.  None of this expense will be realized if this debt is retired before maturity.  The Company experienced a decrease in accounts payable of $(67,032) and a decrease of $(45,347) for each period respectively.  This is primarily due to the Company’s ability apply cash receipts from investors and operations to pay past and current creditors during each period. Accounts receivable decreased by $461,328, net of adjustments for contracts in process of $448,246, for a net decrease of $13,082 during the period ended June 30, 2018 due to rapid increases in contracts during the period.

Net cash provided by investing activities for the periods ended June 30, 2018 and 2017 was $(2,191) and $295 respectively due to receipt of principal on leases and equipment acquisitions.

Net cash provided by financing activities for the periods ended June 30, 2018 and 2017 was $317,321 and $269,640 respectively. Net cash provided by financing activities for 2018 and 2017 resulted primarily from the sale of common stock, loans from a financial institution and loans from a Director, Officer and affiliates.

LIQUIDITY AND CAPITAL RESOURCES

Our primary liquidity and capital requirements have been for carrying cost of accounts receivable after completion of contracts.  The industry habitually requires the solar contractor to wait for the utility approval to be paid for the contracts. This process can easily exceed 90 days and sometimes requires the contractor to pay all or most of the cost of the project without assistance from suppliers. Our working capital at June 30, 2018 was $(768,067) and it was $(1,140,059) at December 31, 2017.  This increase of $371,992 in working capital deficit, was primarily due to increases in contracts for constructions projects and losses from operations during the period ended June 30, 2018 and adjustments for possible future losses on derivative conversions.  Bank financing has not been available to the Company, but we have been able to increase our credit lines with our suppliers because of good credit.  There are no material covenants on our credit lines, normally due in 30 days, since they are standard in the industry and the balances vary on a daily basis. Most are personally guaranteed by the Officer of the Company.

We have been able to borrow $60,000 from a non-affiliated party to increase working capital during the period end June 30, 2018. The total borrowed from Directors, Affiliates and officers totaled $176,386 plus accrued interest of $65,410 as of June 30, 2018. There are no existing agreements or arrangement with any Director to provide additional funds to the Company.

During the six months period ended June 30, 2018 or the last fiscal year ended December 31, 2017 there were no transactions, or proposed transactions, which have materially affected or will materially affect the Company in which any director, executive officer or beneficial holder of more than 5% of the outstanding common, or any of their respective relatives, spouses, associates or affiliates, has had or will have any direct or material indirect interest. We have no policy regarding entering into transactions with affiliated parties.

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.

There are no off balance sheet arrangements or transactions.

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, June 30, 2018, 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

At June 30, 2018 and December 31, 2017, the Company had sold but have not yet issued 88,491,082 and 35,140,224 shares of common stock. The gross proceeds during the six months ended June 30, 2018 totaled $446,122 and the expenses of offering totaled $265,228.  The net proceeds of $180,894 were used for working capital, corporate expenses, legal fees and public company expenses. These shares are reflected in the balance sheet and included in total shares outstanding.  Many shareholders have elected to wait for the issuance of restricted shares until the holding period has expired.

Item 3.     Defaults upon Senior Securities

None

Item 4.     Mine Safety Disclosures.

Not Applicable

Item 5.     Other Information

Not Applicable 

Item 6.     Exhibits

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.

August 21, 2018