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

File No:  000-55235

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549  

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FORM 10-Q

 

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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, 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

 

 (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  May 18, 2018 we had 330,254,233 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, 2018

ABCO ENERGY, INC.

 CONSOLIDATED BALANCE SHEETS

 

ASSETS		March 31, 2018 Unaudited				December 31, 2017 Audited
Current Assets
Cash		$	33,458			$	5,046
Accounts receivable on completed projects			56,807				46,985
Billings in excess of costs on contracts in progress			21,617				(83,813	)
Inventory			38,156				38,127
Total Current Assets			150,038				6,345
Fixed Assets
Vehicles, office furniture & equipment – net of accumulated depreciation			20,327				21,941
Other Assets
Investment in long term leases			11,094				11,281
Security deposits			2,700				2,700
Total Other Assets			13,794				13,981
Total Assets		$	184,159			$	42,267
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable and accrued expenses		$	552,388			$	496,991
Convertible debentures – net of discount			163,306				187,236
Derivative liability on convertible debentures			166,925				178,013
Notes payable – merchant loans			29,003				96,338
Note payable – non-affiliate			60,000				-
Notes payable – related parties			171,029				187,826
Total Current Liabilities			1,142,651				1,146,404
Long term debt, net of current portion			-				-
Total Liabilities			1,142,651				1,146,404
Commitments and contingencies			0				0
Stockholders’ Deficit:
Preferred stock, 100,000,000 shares authorized, $0.001 par value, and 15,000,000 shares issued and outstanding at March 31, 2018 and 15,000,000 at December 31, 2017.			15,000				15,000
Common stock, 2,000,000,000 shares authorized, $0.001 value, 161,459,560 and   125,029,647 Issued and outstanding at March 31, 2018 and December 31, 2017, respectively.			161,459				125,030
Common shares sold not issued 51,903,507 at March 31, 2018 and 37,108,753 at March 31, 2017			51,904				37,109
Additional paid-in capital			3,360,135				3,258,887
Accumulated deficit			(4,546,990	)			(4,540,163	)
Total Stockholders’ Deficit			(958,492	)			(1,104,137	)
Total Liabilities and Stockholders’ Deficit		$	184,159			$	42,267

 

See accompanying notes to the unaudited consolidated financial statements.

 

ABCO ENERGY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2018 AND 2017

(UNAUDITED)

 

		March 31, 2018				March 31, 2017
Revenues		$	522,295			$	212,806
Cost of Sales			328,378				190,369
Gross Profit			193,917				22,437
Operating Expenses:
Payroll expense			84,718				64,029
Consulting expense			13,679				6,759
Corporate expense			1,611				9,466
Professional fees			6,180				7,090
Rent			9,113				6,604
Other expense			44,635				61,228
Total operating expense			159,936				155,176
Net income (Loss) from operations			33,981				(132,739	)
Other expenses
Interest on notes payable			8,474				16,189
Change in Derivative (Gain) Loss			64,882				(72,486	)
Finance Fees – derivatives			6,807				63,094
Gain on extinguishment of debt			(39,355	)			-
Total other (income) expenses			40,808				6,797
Net income (Loss) before provision for income taxes			(6,827	)			(139,536	)
Provision for income tax			-				-
Net income (loss)		$	(6,827	)		$	(139,536-	)
Net income (loss) Per Share (Basic and Fully Diluted)		$	(.01	)		$	(.01	)
Weighted average number of common shares used in the calculation			168,467,567				34,262,574

 

See accompanying notes to the consolidated financial statements.

ABCO ENERGY, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2018 AND 2017

(UNAUDITED)

		March 31,				March 31,
		2018				2017
Cash Flows from Operating Activities:
Net income (loss)		$	(6,827	)		$	(139,536	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation			1,614				2,899
Inventory change			(29	)			22
Gain on extinguishment of debt			(39,355	)
Amortization of debt discount			2,311				192,379
Change in derivative liability			64,556				106,196
Change in derivative valuation			-				(72,486	)
Changes in Accounts receivable			(9,822	)			27,200
Billings in excess of costs on incomplete projects			(105,430	)			(111,002	)
Accounts payable and accrued expenses			55,398				(51,211	)
Net cash used in operating activities			(37,584	)			(45,539	)
Cash Flows from Investing Activities:
Proceeds from investments in long term leases			187				865
Net cash provided by (used for) investing activities			187				865
Cash Flows from Financing Activities:
Proceeds from sale of common stock – net of expenses			50,586				64,868
Merchant loans – net of principal payments							(11,579	)
Proceeds of related party notes payable			(16,797	)			(176	)
Proceeds from non-affiliate loan			60,000				-
Payments on debt			(27,980	)			(1,407	)
Net cash provided by financing activities			65,809				51,706
Net increase (decrease) in cash			28,412				7,032
Cash, beginning of period			5,046				12,534
Cash, end of period		$	33,458			$	19,566

 

See accompanying notes to the consolidated financial statements.

ABCO ENERGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 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 Three 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 Three Months ended March 31, 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 three months ended March 31, 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. 

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. Since ABCO 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.

 

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 – 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 March 31, 2018 of $(4,546,990), 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 $38,156 and $38,127 as of March 31, 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 $171,029 and $187,826, respectively, as of March 31, 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 $5,060 and $5,447 for the periods ended March 31, 2018 and March 31, 2017, respectively. The other related party note  from a non-officer or director  totaled $49,978  at March 31, 2018.

Related party notes payable and accrued interest as of March 31, 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.

(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 March 31, 2018.

The negotiated payment settlements on the loans  described  in  Note 2 and 3 resulted in an obligation totaling $29,003 as of March 31, 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 $29,003 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 March 31, 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 March 31, 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

During the three-month period ended March 31, 2018 the Company sold but have not yet issued 25,316,667 shares of common stock and received or credited gross proceeds of $122,764.  The expenses of offering totaled $70,225.  The net proceeds of $52,539 were used for working capital, corporate expenses, legal fees and public company expenses.

At March 31, 2018 and 2017 the Company had sold but unissued shares that 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.

 

Description of shares		March 31, 2018 Shares				Full Value of unissued shares				Par value of shares				December 31, 2017 Shares				Full value of unissued shares				Par Value of shares
Common shares sold and issued			161,459,560			$				$	161,459				125,029,647			$				$	125,030
Common shares sold and not yet issued			51,903,507				103,424				51,904				37,108,753				60,885				37,109
Total common shares			213,363,067			$	103,424			$	213,363				162,138,400			$	60,885			$	162,139

 

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 March 31, 2018, Blackbridge still held these shares.

On February 2 and February 20, 2018 Crown Bridge Partners, LLC converted $11,865 of their convertible debentures into 13,408,000 shares of common stock.

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 are currently involved in the mediation process  required by the terms of the CA. No date has been set for the mediation hearing.

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 March 31, 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 March 31, 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 $78,150 at March 31, 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 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.  On February 2 and February 20, 2018 Crown converted $11,865 of their convertible debentures into 13,408,000 shares of common stock. The balance of the note was $26,613 as of March 31, 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 March 31, 2018 and December 31, 2017:

 

The Company recorded finance fees and interest on derivatives for the three months ended March 31, 2018 of $6,807.

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 March 31, 2018 and December 31, 2017 and throughout the year.

Note 11     Income Taxes

 

The company has net operating loss carryforwards as of March 31, 2018 totaling approximately $3,357,100.  Accrued derivative liabilities of $1,040,166 and stock-based compensation from 2017 totaling $81,400 are assumed to be non-tax events. A deferred 21% tax benefit of approximately $704,991 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:

 

Year Ending December 31:		Actual Total Loss (income)				Less Derivative expense				Less Stock Based Compensation				Net Tax loss subject to carry over
2038		$	6,827				71,689				-				(64,862	)
2037			599,936			$	41,289			$	81,400			$	477,247,
2036			1,923,384				1,006,154								917,230
2035			214,823												214,823
2034			635,517												635,517
2033			622,474												622,474
2032			230,224												230,224
2031			182,908												182,908
2030			130,897								-				130,897
Totals		$	4,546,990			$	1,119,132			$	81,400			$	3,346,458

 

Note 12    Subsequent Events

During the period April 1, 2018 through May 11, 2018, the Company sold 34,500,000 shares of restricted common stock for gross proceeds of $172,435 and net proceeds of $74,716. 

During the period April 1, 2018 and May 18, 2018 Power Up Lending Group, LLC and Crown Bridge Partners, LLC converted $87,513 of their convertible debentures into 82,391,166 common shares.

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

 

RESULTS OF OPERATIONS – OVERVIEW

THREE MONTHS ENDED MARCH 31, 2018 COMPARED TO THREE MONTHS ENDED MARCH 31, 2017.

Our discussion of operating results for the Three months ended March 31, 2018 and March 31, 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 March 31, 2018 and for the three months ended March 31, 2017.

Sales for the three months ended March 31, 2018 were $ 522,295 as compared to $ 212,806 for the same three months in 2017.  This is an increase of 309,489 or 146% 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 63% of revenues in 2018 and 89% of revenues in 2017.  Gross margins were 37% of revenue in 2018 and 11% 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 30% of revenues in 2018 and 73% of revenues for the same period in 2017.  Net income for the three-month period ended March 31, 2018 was $46,943 as compared to the net loss of $(139,536) for the same three-month period ended March 31, 2017.  Our operating expenses for this period were lower as a percentage of revenue and higher by $4,660 than the comparative period in 2017. The interest expense during the period ended March 31, 2018 was lower by $7,715 than in the period ended March 31, 2017 due mostly to the working capital provision of merchant loans and convertible debt.  Interest on derivative liabilities of convertible debentures decreased by $69,901 during the current period as compared to the prior year. This combination of factors increased the operating income for the period ending March 31, 2018 by $132,709 as compared to March 31, 2017, due almost entirely by the change in income and expenses.  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 FOR THE THREE MONTHS ENDED MARCH 31, 2018 AND 2017

 

Net cash used for investing activities for the periods ended March 31, 2018 and 2017 was $187 and $865 respectively due to receipt of principal on leases and equipment acquisitions.

Net cash provided by financing activities for the periods ended March 31, 2018 and 2017 was $65,809 and $51,706 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. Cash provided by financing activities during the periods ended March 31, 2018 were primarily from the sale of common stock and loans from private parties. Any future conversions will increase the number of shares outstanding and the Stockholders Equity by the amount of the original investment. Management intends to retire these notes before maturity.

 

LIQUIDITY AND CAPITAL RESOURCES

 

We have been able to borrow $60,000 from a non-affiliated party to increase working capital during the period end March 31, 2018. The total borrowed from Directors, Affiliates and officers totaled $171,029 plus accrued interest of $57,769 as of March 31, 2018. There are no existing agreements or arrangement with any Director to provide additional funds to the Company.

 

During the three months period ended March 31, 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, March 31, 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

 

During the three-month period ended March 31, 2018 the Company sold but have not yet issued 25,316,667 shares of common stock and received or credited gross proceeds of $122,764.  The expenses of offering totaled $70,225.  The net proceeds of $52,539 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 

 

	Exhibit No.		Description of Exhibit
	3(i)		Articles of Incorporation, as amended (1)
	3(ii)		By-Laws (1)
	10(a)		Share Exchange Agreement dated July 15, 2011 (1)
	10(b)		12% $40,000 Convertible Note dated March 16, 2016 (4)
	10(c)		8% $25,000 Convertible Note dated March 23, 2016 (4)
	10(d)		10% $55,000 Convertible Note dated April 1, 2016 (5)
	10(e)		5% $42,000 Convertible Note dated April 5, 2016 (5)
	10(f)		10% $40,000 Convertible Note dated May 3, 2016 (5)
	10(g)		8% $30,000 Convertible Note dated May 6, 2016 (5)
	10(h)		Consulting Agreement between ABCO Energy, Inc. and Benchmark Advisory Partners effective September 20, 2016 (6)
	10(i)		Agreement effective October 19, 2016 between the Company and Joshua Tyrell (7)
	10(j)		Amendment No. 1 to Consulting Agreement effective November 11, 2016 between the Company and Joshua Tyrell (8)
	10(k)		Securities Purchase Agreement dated as of November 7, 2016 between the Company and Blackbridge Capital Growth Fund (9)
	10(l)		8%  $58,000 Convertible Debenture dated  October 11, 2017 between the Company and Power Up Lending Group (10)
	10(m)		5% $45,000 Convertible Promissory Note dated January 11, 2017 between the Company and Crown Bridge Partners (10)
	21		Subsidiaries of Registrant (1)
	31.01		Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (2)
	31.02		Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (2)
	32.01		Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (2)
	99.1		Engagement Agreement between Adams Fund LLC and ABCO Energy, Inc., dated September 15, 2015 (3)
	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 Labels Linkbase Document
	(1)		Previously filed with the Company’s Form 10, SEC File No. 000-55235 filed on March 31, 2015, and incorporated herein by this reference as an exhibit to this Form 10-K.
	(2)		Attached.
	(3)		Previously filed with the Company’s Form 8K filed on September 17, 2015, and incorporated herein by this reference as an exhibit to this Form 10-K.
	(4)		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.
	(5)		Previously filed with the Company’s Form 10-Q, File No. 000-55235, filed with the Commission on May 20, 2016 and incorporate herein by this reference.
	(6)		Previously filed with and incorporated herein by this reference the Company’s Form 8K, filed with the Commission on October 24, 2016.
	(7)		Previously filed with and incorporated herein by this reference the Company’s Form 8K filed with the Commission on October 24, 2016.
	(8)		Previously filed with and incorporated herein by this reference the Company’s Form 8K, filed with the Commission on November 29, 2016.
	(9)		Previously filed with and incorporated herein by this reference the Company’s Form 8K, filed with the Commission on November 29, 2016.
	(10)		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 21, 2018