Attached files
| file | filename |
|---|---|
| EX-32.2 - EX-32.2 - ABCO Energy, Inc. | ex32-2.htm |
| EX-32.1 - EX-32.1 - ABCO Energy, Inc. | ex32-1.htm |
| EX-31.2 - EX-31.2 - ABCO Energy, Inc. | ex31-2.htm |
| EX-31.1 - EX-31.1 - ABCO Energy, Inc. | ex31-1.htm |
As Filed with the Securities and Exchange Commission on July 10, 2015
File No: 000-55235
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDING MARCH 31, 2015
¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____to_____
Commission file number: 000-55235
ABCO ENERGY, INC.
(Name of registrant as specified in its Charter)
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Nevada
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20-1914514
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(State of Incorporation)
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(IRS Employer Identification No.)
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2100 North Wilmot #211, Tucson, AZ
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85712
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(Address of principal executive offices)
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(Zip Code)
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Registrant’s telephone number, including area code:
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520-777-0511
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Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.
Large accelerated filer ¨ Accelerated file ¨ Non-accelerated filer ¨ Smaller reporting company x.
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ¨ No x
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act subsequent to the distribution of securities under a plan confirmed by the court. Yes ¨ No ¨ N/A
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of June 30, 2015 we had 24,980,030 shares of common stock issued and outstanding.
TABLE OF CONTENTS
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PART I – FINANCIAL INFORMATION
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3
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13
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15
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15
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PART II. OTHER INFORMATION
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16
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16
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16
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16
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16
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16
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16
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17
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PART 1 – FINANCIAL INFORMATION
Item 1. Financial Statements
ABCO ENERGY, INC.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED
MARCH 31, 2015
TABLE OF CONTENTS
Condensed Consolidated Balance Sheets: As of March 31, 2015 and as of December 31, 2014 (Unaudited)
Condensed Consolidated Statements of Operations: For the Three Months Ended March 31, 2015 and March 31, 2014 (Unaudited)
Condensed Consolidated Statements of Cash Flows: For the Three Months Ended March 31, 2015 and March 31, 2014 (Unaudited)
Notes to the Condensed Consolidated Financial Statements (Unaudited)
ABCO ENERGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
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ASSETS
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March 31, 2015
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December 31, 2014
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||||||
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Current Assets
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||||||||
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Cash
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$ | 45,798 | $ | 25,104 | ||||
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Accounts receivable
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98,651 | 164,706 | ||||||
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Inventory
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46,091 | 49,245 | ||||||
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Total Current Assets
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190,540 | 239,055 | ||||||
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Fixed Assets
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Vehicles, office furniture & equipment –
net of accumulated depreciation
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53,534 | 57,800 | ||||||
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Other Assets
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||||||||
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Investment in long term leases
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13,147 | 13,293 | ||||||
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Security deposits
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7,235 | 7,235 | ||||||
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Total Other Assets
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20,382 | 20,528 | ||||||
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Total Assets
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$ | 264,456 | $ | 317,383 | ||||
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LIABILITIES AND STOCKHOLDERS’ DEFICIT
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Current liabilities
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Accounts payable and accrued expenses
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$ | 385,763 | $ | 393,205 | ||||
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Current portion of long term debt
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82,452 | 38,308 | ||||||
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Notes payable – related parties
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68,000 | 60,000 | ||||||
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Total Current Liabilities
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536,215 | 491,513 | ||||||
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Long Term Debt- net of current portion
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8,199 | 16,521 | ||||||
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Total Liabilities
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544,414 | 508,034 | ||||||
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Stockholders’ Deficit
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Common stock, 500,000,000 shares authorized, $0.001 par value,
24,584,680 and 23,695,680 outstanding at March 31, 2015 and December 31, 2014 respectively.
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24,585 | 23,695 | ||||||
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Additional paid in capital
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1,638,476 | 1,587,674 | ||||||
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Accumulated deficit
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(1,943,019 | ) | (1,802,020 | ) | ||||
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Total Stockholders’ Deficit
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(279,958 | ) | (190,651 | ) | ||||
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Total Liabilities and Stockholders’ Deficit
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$ | 264,456 | $ | 317,383 | ||||
See accompanying notes to the unaudited condensed consolidated financial statements.
ABCO ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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For the Three Months Ended
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March 31, 2015
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March 31, 2014
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Revenues
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$ | 144,472 | $ | 255,773 | ||||
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Cost of Sales
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(120,708 | ) | (138,657 | ) | ||||
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Gross Profit
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23,764 | 117,116 | ||||||
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Operating Expenses:
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Selling, General & Administrative
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154,531 | 175,720 | ||||||
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Loss from operations
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(130,767 | ) | (58,604 | ) | ||||
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Other expenses
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Interest on notes payable
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10,232 | 1,898 | ||||||
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Loss before provision for income taxes
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(140,999 | ) | (60,502 | ) | ||||
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Provision for income tax
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- | - | ||||||
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Net loss applicable to common shareholders
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$ | (140,999 | ) | $ | (60,502 | ) | ||
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Net loss per share (Basic and fully diluted)
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$ | (0.01 | ) | $ | (0.01 | ) | ||
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Weighted average number of common shares used in the calculation
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23,962,500 | 18,376,895 | ||||||
See accompanying notes to unaudited condensed consolidated financial statements.
ABCO ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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For The Three Months Ended
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March 31, 2015
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March 31, 2014
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Cash Flows From Operating Activities:
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Net Loss for the period
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$
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(140,999
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)
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$
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(60,502
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)
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Add back non-cash items -depreciation
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4,266
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4,140
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Adjustments to reconcile net loss to net cash used in operating activities
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Accounts receivable
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66,055
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(98,186
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) | |||||
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Inventory
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3,154
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(24,764
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) | |||||
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Accounts payable & accrued expenses
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(7,442
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)
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(7,107
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Net cash used in operating activities
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(74,966
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)
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(186,419
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)
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Cash Flows From Investing Activities:
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Principal payments from long term leases
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146
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226
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Net cash provided by investing activities
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146
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226
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Cash Flows From Financing Activities:
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Loans from director
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8,000
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-
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Loans from financial institution - net of payments on principal
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35,822
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- | ||||||
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Proceeds from common stock issuances – net of expenses $139,669
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51,692
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160,009
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Net cash provided by financing activity
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95,514
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160,009
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Net Increase (Decrease) in cash
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20,694
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(26,184
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)
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Cash at the Beginning of the Period
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25,104
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88,518
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Cash at the End of the Period
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$
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45,798
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$
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62,334
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Supplemental Disclosure:
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Cash paid for interest
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$
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10,232
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$
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1,898
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Income taxes paid
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$
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-
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$ |
-
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See accompanying notes to unaudited condensed consolidated financial statements.
ABCO ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2015
(UNAUDITED)
Note 1 Overview and Description of the Company
ABCO Energy, Inc. was organized on July 29, 2004 and operated until July 1, 2011 as Energy Conservation Technologies, Inc. (ENYC). On July 1, 2011 ENYC entered into a share exchange agreement (SEA) with ABCO Energy and acquired all of the assets of ABCO. ENYC changed its name to ABCO Energy, Inc. on October 31, 2011. As a result of the SEA, the outstanding shares of ENYC as of June 30, 2011 were restated in a one for twenty three (1 for 23) reverse division prior to the exchange to approximately 9% of the post-exchange outstanding common shares.
The Company now has 500,000,000 common shares authorized and no preferred shares are currently authorized or issued as of the date of this report.
The Company is in the Photo Voltaic (PV) solar systems industry and is an electrical product and services supplier. The Company plans to build out a network of operations in major cities in the USA in order to establish a national base of PV suppliers, lighting suppliers and electrical service operations centers. This combination of services, solar and electric, provides the company with a solid base in the standard electrical services business and a solid base in the growth markets of solar systems industry.
As of March 31, 2015, we operated in three locations in Arizona. The Company plan is to expand to more locations in North America in the next year as funding becomes available. We believe that the solar and energy efficiency business functions better if the employees are local individuals working and selling in their own community. Our customers have indicated a preference for dealing with local firms and we will continue our focus on company-owned integrated product and services offices. Once a local firm is established, growth tends to come from experience, quality and name recognition. We remain committed to high quality operations.
Description of Products
ABCO sells and installs Solar Photovoltaic electric systems that allow the customer to produce their own power on their residence or business property. These products, installed by our crews, are purchased from both USA and offshore manufacturers. We have available and utilize many suppliers of US manufactured solar products from such companies as Sunpower, Mage, Siliken Solar, Westinghouse Solar, Schuco and various Chinese suppliers. In addition, we purchase from a number of local and regional distributors whose products are readily available and selected for markets and price. ABCO offers solar leasing and long term financing programs from UP solar, Sunpower, Suncap and AEFC that are offered to ABCO customers and other marketing and installation organizations.
ABCO also sells and installs energy efficient lighting products, solar powered street lights and lighting accessories. ABCO contracts directly with manufacturers to purchase its lighting products which are sold to residential and commercial customers.
ABCO has Arizona statewide approval as a registered electrical services and solar products installer. Our license is ROC 258378 electrical and we are fully licensed to offer commercial and residential electrical services and solar. We have operated in State of New York and completed projects through the use of contractors licensed in New York. We have a New York business license, and we intend to continue to do business in this state. As in all states, we will comply with all licensing requirements of those jurisdictions.
The ABCO subsidiary, Alternative Energy Finance Corporation, (AEFC) a Wyoming Company provides funding for leases of photovoltaic systems. AEFC financed its owned leases from its own cash and now arranges financing with funds provided by other lessors. AEFC has not done any new leases since 2011, but intends to do so as cash becomes available.
Note 2 Summary of significant accounting policies
Critical Accounting Policies and Use of Estimates
These financial statements consist of the consolidated financial positions and results of operations of both the parent, ABCO Energy, Inc. and the subsidiary companies. In the opinion of Management, all adjustments necessary for a fair statement of results for the fiscal years presented and for the interim period have been included. These financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) generally accepted in the United States of America.
GAAP requires the Company to make estimates and judgments that affect the reported amounts of assets. On an on-going basis, the Company evaluates its estimates and judgments, including those related to revenue recognition, inventories, adequacy of allowances for doubtful accounts, valuation of long-lived assets, income taxes, equity-based compensation, litigation and warranties. The Company bases its estimates on historical and anticipated results and trends and on various other assumptions that the Company believes are reasonable under the circumstances, including assumptions as to future events.
The policies discussed below are considered by management to be critical to an understanding of the Company’s financial statements. These estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent for other sources. By their nature, estimates are subject to an inherent degree of uncertainty. Actual results may differ from those estimates.
Cash and Cash Equivalents
There are only cash accounts included in our cash equivalents in these statements. For purposes of the statement of cash flows, the Company considers all short-term securities with a maturity of three months or less to be cash equivalents. There are no short term cash equivalents reported in these financial statements.
Property and Equipment
Property and equipment are to be stated at cost less accumulated depreciation. Depreciation is recorded on the straight-line and accelerated basis according to IRS guidelines over the estimated useful lives of the assets, which range from three to ten years. Maintenance and repairs are charged to operations as incurred.
Revenue Recognition
The Company generates revenue from sales of solar products, LED lighting, installation services and leasing fees. During the last three months the company had product sales as follows:
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Sales Product and Services Description
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Three Months
March 31, 2015
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Three Months
March 31, 2014
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Solar PV residential and commercial sales
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$ | 126,908 | $ | 231,000 | ||||
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Solar thermal residential -commercial
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24,470 | |||||||
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ABCO LED & energy efficient lighting
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17,417 | |||||||
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Interest Income
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147 | 303 | ||||||
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Total revenue
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$ | 144,472 | $ | 255,773 | ||||
The Company recognizes product revenue, net of sales discounts, returns and allowances, in accordance Securities and Exchange Commission Staff Accounting Bulletin No. 104, “Revenue Recognition” (“SAB No. 104”) and ASC 605. 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 of 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.
Accounts Receivable
The Company recognizes revenue upon delivery of product to customers and does not make bill-and-hold sales. Contracts spanning reporting periods are recorded on the percentage of completion method for recognition of revenue and expenses. Accounts receivable includes fully completed and partially completed projects and partially billed statements for completed work and product delivery.
Inventory
Inventory is recorded at cost and is managed on a first in first out method.
Income Taxes
Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to differences between the basis of certain assets and liabilities for financial and tax reporting. Deferred taxes represent the future tax return consequences of those differences, which will be taxable either when the assets and liabilities are recovered or settled. Deferred taxes also are recognized for net operating losses (NOL) that are available to offset future federal income taxes. Income tax expense is the current tax payable or refundable for the period plus or minus the net change in the deferred tax asset and liability accounts. A deferred tax asset results from the benefit of utilizing the NOL carry-forwards in future years.
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.
We have adopted FIN 48, Accounting for Uncertainty in Income Taxes – An interpretation of FASB Statement No. 109 (“FIN48”). FIN 48 clarifies the accounting for uncertainty in tax positions by prescribing the recognition threshold a tax position is required to meet before being recognized in the financial statements. It also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. During the periods presented in this report there were no changes in our unrecognized tax benefits.
Fair Values of Financial Instruments
ASC 825 requires the Corporation to disclose estimated fair value for its financial instruments. Fair value estimates, methods, and assumptions are set forth as follows for the Corporation’s financial instruments. The carrying amounts of cash, receivables, other current assets, payables, accrued expenses and notes payable are reported at cost but approximate fair value because of the short maturity of those instruments.
Stock-Based Compensation
The Company accounts for employee and non-employee stock awards under ASC 718, whereby equity instruments issued to employees for services are recorded based on the fair value of the instrument issued and those issued to non-employees are recorded based on the fair value of the consideration received or the fair value of the equity instrument, whichever is more reliably measurable. The company has no stock based compensation reported in these financial statements. (See note 10)
Effects of Recently Issued Accounting Pronouncements
The Company has reviewed all recently issued accounting pronouncements noting that they do not affect the financial statements.
Per Share Computations
Basic net earnings per share are computed using the weighted-average number of common shares outstanding. Diluted earnings per share is computed by dividing net income by the weighted-average number of common shares and the dilutive potential common shares outstanding during the period.
Reclassification
Certain reclassifications have been made to conform to prior periods’ data to the current presentation. These reclassifications had no effect on reported income.
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, 2015 of $1,943,019. In addition, the Company's development activities since inception have been financially sustained through capital contributions from shareholders.
The ability of the Company to continue as a going concern is dependent upon its ability to raise additional capital from the sale of common stock or through debt financing and, ultimately, the achievement of significant operating revenues. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might result from this uncertainty.
Note 4 Inventory and work in process
The company records inventory at cost and uses the first in first out method to charge inventory to operations. Work in process consists of costs recovered and revenue earned on projects on a percentage of completion method for work performed on contracts signed during the Three Months ended March 31, 2015. The total of inventory and work in process was $46,091 as of March 31, 2015 and $49,245 as of December 31, 2014.
Note 5 Security deposits and Long Term Commitments
The Company has paid security deposits on the three rented spaces it occupies for offices and warehouse which total $7,235 on March 31, 2015 and on December 31, 2014.
ABCO lease a 1,200 square foot office and warehouse in an industrial park in Phoenix Arizona for a monthly rental of $1,254 which expires on February 28, 2016. The aggregate total rent due on this lease through expiration is $21,318.
There is no lease on the Williams, Arizona property because this office is located in the office of a Director and no lease has been established.
On May 1, 2014 the Company rented office and warehouse space at 2100 N. Wilmot #211, Tucson, Arizona 85712. This facility consists of 3,600 square feet with a monthly rent of $2,862. Two thirds of the space has a two year lease has a forward commitment of $48,654 with an option to cancel one third of the rental after June 30, 2015. ABCO has made the election to cancel one third of the lease as of June 30, 2015.
Note 6 Alternative Energy Finance Corporation (AEFC)
AEFC is a wholly owned subsidiary of ABCO Energy. AEFC provides funding for leases of photovoltaic systems. AEFC finances its leases from cash payments from its own cash or from single payments or long term leases from lessees. Long term leases recorded on the consolidated financial statements were $13,147 and $13,293 at March 31, 2015 and December 31, 2014 respectively. The aggregate total of leases receivable over the entire term including inputted interest at 8% internal rate of return is approximately $37,619 and $40,897 at March 31, 2015 and December 31, 2014 respectively.
Note 7 Property and equipment
The Company has acquired all of its office and field work equipment with cash payments and financial institution loans. During the Three Months ended March 31, 2015 the company acquired lease hold improvements, office equipment, boom truck, trailer and auto for the sum of $39,180 and financed $15,804 of the acquisitions from loans. The total fixed assets consist of vehicles, office furniture, tools and various equipment items and the totals are as follows:
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Asset
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March 31,2015
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December 31, 2014
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||||||
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Equipment
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$
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99,987
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$
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99,987
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||||
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Accumulated depreciation
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(46,453
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) |
(42,187
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) | ||||
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Net Fixed Assets
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$
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53,534
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$
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57,800
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||||
Note 8 Note Payable Officer
Officer’s loans are demand notes totaling $68,000 as of March 31, 2015 and $60,000 as of December 31, 2014. The $60,000 note as of December 31, 2014 provides for interest at 12% per annum and is unsecured. Notes payable to the Director resulted in an interest charge of $1,800 and $7,240 for the period ended March 31, 2015 and December 31, 2014 respectively.
The current period note in the amount of $8,000 as of March 31, 2015 was received in the first quarter of 2015. The note is a demand note, does not bear interest and is unsecured.
Note 9 Long Term Debt
During the quarter ended March 31, 2015 the Company financed operations with loans from National Funding. During the prior fiscal year the company borrowed working capital and equipment loans from Ascentium Capital. The following table describes the purpose and terms of the loans.
| Schedule of Long term Debt |
March 31,2015
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| Lender | Date of
Loan
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Original
Loan
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Purpose | Interest
Rate
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Term | Current
Portion
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Long Term
Portion
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||||||||||||||
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Ascentium Capital
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08/27/14
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$ | 50,000 |
Credit Line
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24 | % |
18 Months
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$ | 33,027 | $ | - | ||||||||||
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Ascentium Capital
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09/01/14
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$ | 14,975 |
Truck loan
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9 | % |
36 Months
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$ | 4,538 | $ | 8,199 | ||||||||||
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National Funding
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02/25/15
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$ | 50,000 |
Credit Line
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30 | % |
7 Months
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$ | 44,887 | $ | - | ||||||||||
| $ | 114,975 | $ | 82,452 | $ | 8,199 | ||||||||||||||||
This debt is collateralized by the specific asset in the case of the truck loan and both loans are personally guaranteed by the officers of the Company.
Note 10 Stockholder’s Equity
ABCO Energy was incorporated on July 29, 2004. Its subsidiary and predecessor ABCO Solar, Inc. was incorporated October 8, 2008 and capitalized for the sum of $10,000 and the Founders were issued 10,000,000 restricted common shares for organizational efforts. The capitalization sum of $10,000 was charged to compensation, common stock and additional paid in capital. On December 31, 2010 an ABCO director converted a promissory note in the amount of $50,000 into 1,000,000 shares of common stock. These transactions resulted in total common stock equity of $60,000.
In March 1, 2013 the Company began a third European private placement offering of restricted common stock to non USA citizens only. The offering consisted of up to 10,000,000 shares of common stock offered at the prices of $.20 to $0.33 USD per share. As of March 31, 2015, the Company had sold 9,932,773 shares.
During the first quarter of 2015 company sold 889,000 shares of common stock and received gross proceeds of $205,860. The expenses of offering totaled $139,669. The net proceeds were used for working capital, corporate expenses, legal fees and public company expenses.
ABCO settled a substantial legal billing for the preparation of the Regulation A offering and its FINRA applications with the issuance of 50,000 shares of restricted common stock. The shares were recorded at par during the 2014 and resulted in a reduction in legal fees expense and an increase in equity.
On March 18, 2014 the company founder cancelled the original issue 6,000,000 shares to satisfy a requirement for FINRA approval of the company merger, name change and roll back of ENYC shares. Additional shares sold plus this action resulted in the total number of common shares outstanding to be 24,584,680 and 23,695,680 as of March 31, 2015 and December 31, 2014 respectively.
On August 19, 2014 the Company issued an aggregate of 1,100,000 shares to financial consulting entities for services relating to fund raising activities and to law firms for legal fees and expenses incurred for public share registrations and other business related activities. These shares were issued with the SEC order dated September 11. 2014 declaring effective the offering statement registered pursuant to Regulation A under section 3(b) of the Securities act of 1933, as amended. The shares were issued to legal consultants for assistance with the Form 10 and the 15c211 filing and for consultants who have assisted in the funding of the Company, as aforesaid. The total issuance was valued at $220,000 for fair market value as negotiated and that amount is charged to additional paid in capital.
Note 11 Other matters
On August 29, 2014 the Securities and Exchange Commission approved the ABCO Energy, Inc. Regulation A offering documents, as amended, so that the Company may offer shares of free trading common stock for capital raising purposes. Legal fees relating to financing activities, market maker applications with FINRA, blue sky registrations with states and other fund raising expenses were charged to additional paid in capital in the amount $14,500 for the three months ended March 31,2015 and $39,733 during the years ended December 31, 2014.
Note 12 Warranties of the Company
ABCO Energy provides a five and ten year workmanship warranties for installed systems that cover labor and installation matters only. All installed products are warranted by the manufacturer. In the last four years of operations, all claims on workmanship have been handled expeditiously and inexpensively by the company. Management does not consider the warranty as a significant or material risk.
Note 13 Subsequent Events
From April 1, 2015, through current, the Company sold an aggregate of 395,350 shares of restricted common stock with prices ranging from $0.20 to $0.33 and received gross proceeds of $81,465. Expenses were paid to foreign agents for Regulation S offerings by the Company totaling $52,698.
RESULTS OF OPERATIONS – OVERVIEW
THREE MONTHS ENDED MARCH 31, 2015 COMPARED TO THREE MONTHS ENDED MARCH 31, 2014.
Our discussion of operating results for the three months ended March 31, 2015 and March 31, 2014 are presented below with major category details of revenue and expense including the components of operating expenses.
Sales consist of photovoltaic products, LED lighting products and installation during both periods for the three months ended March 31, 2015 and for the three months ended March 31, 2014. We have also sold a number of our proprietary LED solar street lights and revenue from this project was recorded during the current period.
Sales for the three months ended March 31, 2015 were $144,472 as compared to $255,773 for the same three months in 2014. This is a reduction of $111,301 or 44% from the 2014 sales. The majority of the 2014 reduction is the result of declining residential solar sales during the quarter from seasonal adjustments. The Solar sales revenue in 2015 and 2014 reflected changing market conditions in the financing of solar installations and a reduction in utility incentives offered to residential and commercial buyers. When the utilities in Arizona cancelled or substantially reduced the rebate programs, the financing or leasing companies were able to reduce the financial requirements by accepting the rebates as partial payments were no longer able to make loans or lease that required no money down or longer terms for their finance products. This severally reduced the opportunities for sales and reduced gross margins substantially. Without available financing, the sales of solar products became even more difficult. We are not aware of any trends that may have a similar affect or a similar negative affect on the market as happened in Arizona during 2015 and 2014. The prices of solar products were reduced in 2015 and 2014 to offset the reduction or elimination of rebates and the market has recovered from this time. ABCO has worked diligently to overcome these changes by focusing on large commercial applications and the increased interest of business and government in the LED lighting contracts.
Cost of sales was 84% of revenues in 2015 and 54% of revenues in 2014. Gross margins were 16% of revenue in 2015 and 46% of revenue for the three month of 2014. During 2014 the prices of solar products had not yet been reduced by suppliers to compensate for the previously discussed market conditions. This resulted in higher product prices as a percentage of product sales and had a negative effect on gross margins. During 2015 and 2014 we have been offering new products and have found our entry market prices with some LED product lines have been reduced to gain market share and our gross profit reflects this decision. We feel that we have made progress in entering the LED markets and that our gross margins will improve in the future.
Total selling, general and administrative expenses were 107% of revenues in 2015 and 69% of revenues for the same period in 2014. Net loss for the three months period ended March 31, 2015 was $140,999 as compared to the net loss of $60,502 for the same three month period ended March 31, 2014. Our operating expenses for this period were lower than the comparative period in 2014. This combination of factors increased the operating loss for the period ending March 31, 2015 as compared to March 31, 2014. Since our year to date revenues is lower than the previous year, this resulted in higher operating expenses as a percentage of total revenue.
As noted in previous paragraphs discussing market conditions, ABCO could not finish its backlog of work and expand into the markets of LED lights and commercial solar markets without maintaining staff, facilities and sales expenses. When sales revenues fall, and expenses are not reduced in equal amounts or percentages, the result is an increase of the percentage of operating expenses to sales revenue. Operating expenses for the two periods increased to accommodate our expansion of sales programs, but not in the same ratio as the reduction in sales. ABCO chose to maintain a level of expenses that would not cripple the Company’s future.
STATEMENTS OF CASH FLOWS - DESCRIPTION OF STATEMENT
In financial accounting, the cash flow statement also known as a statement of cash flows is a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing and financing activities. Essentially, the cash flow statement is concerned with the flow of cash in and out of the business. The statement captures both the current operating results and the accompanying changes in the balance sheet. As an analytical tool, the statement of cash flows is useful in determining the short-term viability of a company, particularly its ability to pay bills.
The cash flow statement reflects a firm's liquidity.
The balance sheet is a snapshot of a firm's financial resources and obligations at a single point in time.
The income statement summarizes a firm's financial transactions over an interval of time.
These last two financial statements reflect the accrual basis accounting used by firms to match revenues with the expenses associated with generating those revenues.
The cash flow statement includes only inflows and outflows of cash and cash equivalents; it excludes transactions that do not directly affect cash receipts and payments. These non-cash transactions include depreciation or write-offs on bad debts or credit losses to name a few. The cash flow statement is a cash basis report on three types of financial activities: operating activities, investing activities, and financing activities. Non-cash activities are usually reported in footnotes.
The cash flow statement is intended to:
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Provide information on a firm's liquidity and solvency and its ability to change cash flows in future circumstances
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Provide additional information for evaluating changes in assets, liabilities and equity
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Improve the comparability of different firms' operating performance by eliminating the effects of different accounting methods
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Indicate the amount, timing and probability of future cash flows
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The cash flow statement has been adopted as a standard financial statement because it eliminates allocations, which might be derived from different accounting methods, such as various timeframes for depreciating fixed assets.
STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND 2014
During the Three Months ended March 31, 2015 our net cash used by operating activities was $74,966 and comparatively the net cash used by operating activities in the Three Months ended March 31, 2014 was $186,419. Net cash used by operating activities in the period ended March 31, 2015 consisted primarily of net losses from operations $140,999 for 2015 as compared to $60,502 for 2014. Depreciation adjustments were of non-cash expenses were $4,266 and $4,140 for each year respectively. The Company experienced a decrease in accounts payable of $7,442 and $7,107 for each year respectively. This is primarily due the company requiring more credit from our suppliers and slower credit payments from the Company during the 2015 and 2014 period. The corresponding increases in inventory and accounts receivable reflect cash required because of growth in sales during each period. The decrease in Accounts receivable during the period ended March 31, 2015 reflected the decrease in sales during the period from higher sales in the 2014 prior period.
Net cash provided by investing activities for the Three Months ended March 31,2015 and 2014 was $146 and $226 respectively due to receipt of principal on leases.
Net cash provided by financing activities for the Three Months ended March 31, 2015 and 2014 was $95,514 and $160,009 respectively. Net cash provided by financing activities for 2015 resulted primarily from the sale of common stock, loans from a financial institution and loans from a Director. Cash provided by financing activities during the three months ended March 31, 2014 were primarily from the sale of common stock.
LIQUIDITY AND CAPITAL RESOURCES
Our primary liquidity and capital requirements have been for carrying cost of accounts receivable after completion of contracts. The industry habitually requires the solar contractor to wait for the utility rebate and in order to be paid for the contracts. This process can easily exceed 90 days and requires the contractor to pay all or most of the cost of the project without assistance from suppliers. Our working capital at March 31, 2015 was $(263,223) and it was $(214,150) at December 31, 2014. This decrease of $49,073 was primarily caused by losses from operations during the Three Months ended March 31, 2015 and the year ended December 31, 2014. Bank financing has not been available to the Company but we have been able to increase our credit lines with our suppliers because of good credit. There are no material covenants on our credit lines, normally due in 30 days, since they are standard in the industry and the balances vary on a daily basis.
We have been able to borrow $8,000 from one of our Directors to increase working capital during the first quarter of 2015. There are no existing agreements or arrangement with any Director to provide additional funds to the Company.
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 paid off nearly all of our debt considering that our trade creditors are due in the normal course of business. Management will not expand the business until adequate working capital is provided. Our ability to maintain sufficient liquidity is dependent on our ability to attain profitable operations or to raise additional capital. We have no anticipated timeline for obtaining neither additional financing nor the expansion of our business. We will continue to keep our expenses as low as possible and keep our operations in line with available working capital as long as possible. There is no guarantee that the Company will be able to obtain adequate capital from any sources, or at all.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not Applicable to Smaller Reporting Companies.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures.
As of the end of the reporting period, March 31,2015, we carried out an evaluation, under the supervision and with the participation of our management, including the Company's Chairman and Chief Executive Officer/Principal Accounting Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(e) of the Securities Exchange Act of 1934 (the "Exchange Act"), which disclosure controls and procedures are designed to insure that information required to be disclosed by a company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported within required time periods specified by the SEC's rules and forms. Based upon that evaluation, the Chairman/CEO and the Chief Financial Officer concluded that our disclosure controls and procedures are not currently effective in timely alerting them to material information relating to the Company required to be included in the Company's period SEC filings. The Company is attempting to expand such controls and procedures, however, due to a limited number of resources the complete segregation of duties is not currently in place.
(b) Changes in Internal Control.
Subsequent to the date of such evaluation as described in subparagraph (a) above, there were no changes in our internal controls or other factors that could significantly affect these controls, including any corrective action with regard to significant deficiencies and material weaknesses.
(c) Limitations.
Our management, including our Principal Executive Officer and Principal Financial Officer, does not expect that our disclosure controls or internal controls over financial reporting will prevent all errors or all instances of fraud. However, we believe that our disclosure controls and procedures are designed to provide reasonable assurance of achieving this objective. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and any design may not succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitation of a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
PART II-OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, consolidated financial condition, or operating results.
On June 5, 2014, the Arizona Superior Court entered a Judgment (“AZ Judgment”) affirming the ruling of the Arizona Corporate Commission (“ACC”) dated March 21, 2013. The Company has determined that it has no successor liability to Westcap Energy, Inc. (“Westcap”) as there is no judgment or order against the Company with respect to the AZ Judgment or otherwise.
A Notice of Appeal has been filed on behalf of Westcap and the other defendants with the Arizona Court of Appeals. The filing of this Notice does not stay the enforcement of AZ Judgment. Westcap, under the AZ Judgment, had sixty (60) days from June 5, 2014, to commence the Rescission Offer to the 24 shareholders who are now Company shareholders. It has been the Company’s opinion that the defense of the legal position of all defendants is in the best interest of all shareholders and therefore has paid legal fees of $17,286 and $23,785 during 2014 and 2013 respectively.
In August of 2014, the ACC refused to allow the Company to voluntarily participate in any rescission pursuant to the AZ Judgment on the grounds the Company was not a party to the ACC action and therefore had no involvement in the rescission requirement. In light of the ACC refusal to even evaluate rescission documents prepared by the Company, the Company informed the ACC that it will take no further action with respect to the ACC Judgment and the Company has not recorded a liability for the ACC Judgment on its books. As of the date of this report there have been no changes in the status of this case.
Item 1A. Risk Factors
Not Applicable.
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds.
During the quarter ended March 31, 2015, we issued 889,000 shares of Common Stock for $205,860 and paid expenses of financing in the amount of $139,669 in private Regulation S transactions in reliance of the exemption from registration contained in Regulation S under the Securities Act of 1933, as amended. The net proceeds were used for working capital, corporate expenses, legal fees and public company expenses.
Item 3. Defaults upon Senior Securities
None
Item 4. Mine Safety Disclosures.
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits
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31.1
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31.2
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32.1
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32.2
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101 INS
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XBRL Instance Document
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101 SCH
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XBRL Taxonomy Extension Schema Document
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101 CAL
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XBRL Taxonomy Calculation Linkbase Document
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101 DEF
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XBRL Taxonomy Extension Definition Linkbase Document
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101 LAB
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XBRL Taxonomy Labels Linkbase Document
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101 PRE
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XBRL Taxonomy Presentation Linkbase Document
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report or amendment thereto to be signed on its behalf by the undersigned thereunto duly authorized.
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
July 10, 2015
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ABCO ENERGY, INC
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/s/ Charles O’Dowd
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Charles O’Dowd
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Title: President &
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Chief Executive Officer (CEO)
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/s/ Charles O’Dowd
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Charles O’Dowd
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Chief Financial Officer (CFO)
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Principal Accounting Officer (PAO)
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