NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019 and 2018
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, Inc. (“ABCO” or “Company”) and acquired all 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 stock split prior to the exchange to approximately 9% of the post-exchange outstanding common shares of the Company.
On January 13, 2017, the Board of Directors of the Company 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. 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. The Company held a Special Meeting of Stockholders in May 2017 which authorized an amendment to the Articles of Incorporation to increase the authorized common share capital to 2,000,000,000 common shares and 100,000,000 preferred shares. Thereafter, on September 27, 2017, by written consent the holders of a majority of the outstanding shares voted to authorize an additional amendment to increase the authorized common shares to 2,000,000,000 shares.
On December 23, 2018 the Board of Directors of the Company approved a reverse stock split of its common stock, at a ratio of 1- for-20 (the “Reverse Stock Split”). The Reverse Stock Split became effective with FINRA (the Financial Industry Regulatory Authority) and in the marketplace on December 23, 2018 (the “Effective Date”), whereupon the shares of common stock began trading on a split adjusted basis.
On November 8, 2018, by written consent the holders of a majority of the outstanding shares voted to authorize an additional amendment to increase the authorized common shares to 5,000,000,000 shares. All share numbers through-out these financial statements and notes thereto have been adjusted to reflect this reverse split.
The Company is in the Photo Voltaic (PV) solar systems industry, the LED and energy efficient commercial lighting business and is an electrical product and services supplier. In 2018 ABCO entered the HVAC business with the acquisition of a small company’s assets and qualifying license. The Company plans to build out a network of operations in major cities in the USA to establish a national base of PV, HVAC, lighting 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.
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 are installed by our crews and are purchased from both USA and offshore manufacturers. We have available and utilize many suppliers of US manufactured solar products from such companies as Mia Soleil, Canadian Solar, Boviet, Westinghouse Solar and various Korean, German and Chinese suppliers. In addition, we purchase from several 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 Service Finance Corporation, Green Sky, AEFC and others 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 and as an air conditioning and refrigeration installer. Our license is ROC 258378 electrical and ROC 323162 HVAC and we are fully licensed to offer commercial and residential electrical services, HVAC and solar.
ABCO has two subsidiaries, 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. ABCO Air Conditioning and Services, Inc., an Arizona Corporation, sells residential and commercial air conditioning equipment and services in Arizona. In addition, AEFC has two subsidiaries, Alternative Energy Solar Fund, LLC, and Arizona limited liability company that was formed to invest in solar projects and Alternative Energy Finance Corporation, LLC, an Arizona limited liability company formed so AEFC could do business in Arizona.
ABCO ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019 and 2018
Note 2 – Summary of significant accounting policies
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, or “GAAP.” The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses. Intercompany transactions and balances have been eliminated. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We have identified the following to be critical accounting policies whose application have a material impact on our reported results of operations, and which involve a higher degree of complexity, as they require us to make judgments and estimates about matters that are inherently uncertain.
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.
Fixed Assets
Property and equipment are to be stated at cost less accumulated depreciation. Depreciation is recorded on the straight-line 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 two fiscal years, the company had product sales as follows:
Sales Product and Services Description
|
|
2019
|
|
|
2018
|
|
Solar PV residential and commercial sales
|
|
|
2,252,794
|
|
|
|
96
|
%
|
|
$
|
2,574,640
|
|
|
|
90
|
%
|
Energy efficient lighting & other income
|
|
|
98,759
|
|
|
|
3
|
%
|
|
|
291,824
|
|
|
|
9
|
%
|
Interest Income
|
|
|
614
|
|
|
|
1
|
%
|
|
|
978
|
|
|
|
1
|
%
|
Total revenue
|
|
|
2,352,167
|
|
|
|
100
|
%
|
|
$
|
2,867,442
|
|
|
|
100
|
%
|
Revenue Recognition
Effective January 1, 2018, we have adopted “Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 606 – Revenue from Contracts with Customers related to revenue recognition. Under the standard, revenue is recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services using a five-step model to achieve that principle. In addition, the standard requires disclosures to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. We have elected to adopt the modified retrospective method for transitioning this accounting standard which requires that the cumulative effect of applying the revenue standard to existing contracts be recorded as an adjustment to retained earnings. Based on our review of contracts that were not substantially completed on December 31, 2017, there was no impact to the opening retained earnings balance.
Deferred Revenue
When we receive consideration, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a sales contract, we record deferred revenue, which represents a contract liability. We recognize deferred revenue as net sales after we have satisfied our performance obligations to the customer and all revenue recognition criteria are met.
ABCO ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019 and 2018
Revenue Recognition – Installation of photovoltaic modules (“PV”) solar systems
We use standard contract templates to initiate sales with customers and determined that each project started during the year ended December 31, 2018 contains one performance obligation. Although the contract states multiple services which are capable of being distinct, they are considered a single integrated output to the customer which is customized for each customer. As such all the services promised within a contract are considered one performance obligation. We recognize revenue for installation of PV solar systems over time following the transfer of control to the customer which typically occurs as the PV solar system is being installed. If control transfers over time, revenue is recognized based on the extent of progress towards the completion of the performance obligation. The method utilized by us to measure the progress towards completion requires judgment and is based on the products and services provided. We utilize the input method to measure the progress of our contracts because it best depicts the transfer of assets to the customer which incurs as materials are consumed by the project. The input method measures the progress towards completion based on the ratio of costs incurred to date (“actual cost”) to the total estimated costs (“budget”) at completion of performance obligation. Revenue, including estimated fees, are recorded proportionally as costs are incurred. Costs to fulfill include materials, labor and/or subcontractors’ costs, and other direct costs. Indirect costs and costs to procure the panels, inverters, and other system miscellaneous costs needed to satisfy the performance obligation are excluded since the customer does not gain control of those items until delivered to the site. Including the costs of those items would overstate the extent of our performance.
Each project’s transaction price is included within the contract and although there is only one performance obligation, changes to the contract price could take place after fulfillment of the performance obligation. We have considered financing components on projects started during the year ended December 31, 2018 and elected the use of a practical expedient where an entity need not adjust the promised amount of consideration for the effects of a significant financing component if the entity expects, at contract inception, that the period between when the entity transfers a promised service to the customer and when the customer pays for that good or service will be one year or less. All receivables from projects are expected to be received within one year from project completion and there were no adjustments to the contract values.
Under ASC 606, we are required to recognize as an asset the incremental costs of obtaining a contract with a customer if those costs are expected to be recovered. We incur sales commissions that otherwise would not have been incurred if the contract had not been obtained. These costs are recoverable; however, we have elected the use of a practical expedient to expense these costs as incurred as the amortization period of the asset would be less than one year.
Revenue Recognition – Operations & Maintenance
We generally recognize revenue for standard, recurring commercial operations and maintenance services over time as customers receive and consume the benefits of such services, which typically include corrective maintenance, data hosting or energy/deck monitoring services for a period. These services are treated as stand-ready performance obligations and are satisfied evenly over the length of the agreement, so we have elected a time-based method to measure progress and recorded revenue using a straight-line method.
Revenue Recognition – Service & Warranty
Warranties for workmanship and roof penetration are included within each contract. These warranties cannot be purchased separately from the related services, are intended to safeguard the customer against workmanship defects and does not provide any incremental service to the customer. It is necessary for us to perform the specified tasks to provide assurance that the final product complies with agreed-upon specifications and likely do not give rise to a separate performance obligation. We will continue to account for any related warranties in accordance with ASC 460-10 and record an accrual for potential warranty costs at the completion of a project. Any services provided to a customer outside of warranties such as system inspections are recognized upon completion of the service. ABCO billed the manufacturers for warranty work in the amount of $2,725 in 2019 and $1,650 in 2018.
Allowance for Doubtful Accounts
We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. We estimate anticipated losses based on the expected collectability of all of our accounts receivable, which takes into account collection history, the number of days past due, identification of specific customer exposure and current economic trends. When we determine a balance is uncollectible and no longer actively pursue collection of the account, it is written off.
ABCO ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019 and 2018
Accounts Receivable on completed contracts
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, based on the ratio of total costs to total estimated costs by project, 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. The Company records a reserve for bad debts in the amount of 2% of earned accounts receivable. When the Company determines that an account is uncollectible, the account is written off against the reserve and the balance to expense. If the reserve is deemed to be inadequate after annual reviews, the reserve will be increased to an adequate level.
Inventory
The Company records inventory of construction supplies at cost using the first in first out method. After review of the inventory on an annual basis, the Company discounts all obsolete items to net realizable value to account for obsolescence. As of December 31, 2019, all inventory was written off.
Income Taxes
The Company recognizes income taxes under the asset and liability method. Deferred income taxes are recognized based on temporary differences between financial reporting and income tax basis of assets and liabilities, using current enacted income tax rates and regulations. These differences will result in taxable income or deductions in future years when the reported amount of the asset or liability is recovered or settled, respectively. Considerable judgment is required in determining when these events may occur and whether recovery of an asset is more likely than not. RGS has significant net operating loss carry-forwards and evaluates at the end of each reporting period whether it expects it is more likely than not that the deferred tax assets will be fully recoverable and provides a tax valuation allowance as necessary. A valuation allowance is established if it is more likely than not that a deferred tax asset will not be realized. In determining the appropriate valuation allowance, the Company considered projected realization of tax benefits based on expected levels of future taxable income, available tax planning strategies, and its overall deferred tax position. To identify any uncertain tax positions, the Company reviews (1) the decision to exclude from the tax return certain income or transactions; (2) the assertion that a particular equity restructuring (e.g., a spin-off transaction) is tax-free when that position might actually be uncertain, and; (3) the decision not to file a tax return in a particular jurisdiction for which such a return might be required in tax years that are still subject to assessment or challenge under relevant tax statutes. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.
The Company has net operating loss carryforwards as of December 31, 2019 totaling approximately $4,414,891 net of accrued derivative liabilities and stock-based compensation, which are assumed to be non-tax events. A deferred 21% tax benefit of approximately $927,127 has been offset by a valuation allowance of the same amount as its realization is not assured. 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 in the US 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 2016, 2017 and 2018 are still open years and 2019 will replace 2016 when the tax return is filed.
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. The Company evaluates derivatives based on level 3 indicators.
ABCO ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019 and 2018
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.
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. See note 13 for complete derivative and convertible debt disclosure.
Derivative Financial Instruments
Fair value accounting requires bifurcation of embedded derivative instruments such as convertible features in convertible debts or equity instruments, and measurement of their fair value for accounting purposes. In determining the appropriate fair value, the Company uses the binomial option-pricing model. In assessing the convertible debt instruments, management determines if the convertible debt host instrument is conventional convertible debt and further if 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.
Effects of Recently Issued Accounting Pronouncements
The Company has reviewed all recently issued accounting pronouncements and have determined the following have an affect on our financial statements:
Stock-Based Compensation
The Company accounts for employee and non-employee stock awards under ASC 505 and 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. For employees, the Company recognizes compensation expense for share-based awards based on the estimated fair value of the award on the date of grant and the probable attainment of a specified performance condition or over a service period.
ABCO ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019 and 2018
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. All shares were considered anti-dilutive at December 31, 2019. Potentially dilutive share issues are: 1) all unissued common shares sold, 2) all convertible debentures have a possibility of a large number of shares being issued and would result in a larger number of shares issued if the price remains low, 3) the preferred stock of the company held by insiders is convertible into common shares and the preferred stock is voted on a 20 to 1 basis, 4) all options issued. All of the above are potential dilutive items.
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. The Company incurred a net loss of $(1,381,077), the net cash flow used in operations was $(664,840) and its accumulated net losses from inception through the period ended December 31, 2019 is $(6,561,508), which raises substantial doubt about the Company’s ability to continue as a going concern. 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 and classification of liabilities that might result from this uncertainty.
Note 4 – Accounts Receivable
Accounts receivable as of December 31, 2019 and 2018, consists of the following:
Description
|
|
2019
|
|
|
2018
|
|
Accounts receivable on completed contracts
|
|
$
|
30,408
|
|
|
$
|
105,187
|
|
Costs and estimated earnings on contracts in progress
|
|
|
243,626
|
|
|
|
184,212
|
|
Total
|
|
$
|
274,034
|
|
|
$
|
289,399
|
|
Costs and Estimated Earnings on projects are recognized on the percentage of completion method for work performed on contracts in progress at December 31, 2019 and 2018.
The Company records contracts for future payments based on contractual agreements entered into at the inception of construction contracts. Amounts are payable from customers based on milestones established in each contract. Larger contracts are billed and recorded in advance and unearned profits are netted against the billed amounts such that accounts receivable reflect current amounts due from customers on completed projects and amounts earned on projects in process are reflected in the balance sheet as costs and estimated earnings in excess of billings on contracts in progress.
Excess billings on contracts in process are recorded as liabilities and were $76,052 at December 31, 2019 and $85,777 at December 31, 2018.
Note 5 – Inventory
Inventory of construction supplies not yet charged to specific projects was $0 and $53,950 as of December 31, 2019 and 2018, respectively. The Company values items of inventory at the lower of cost or net realizable value and uses the first in first out method to charge costs to jobs. The Company wrote off all of its inventory during 2019. We have reserved obsolescence expenses of $0 and $5,595 during 2019 and 2018 respectively.
ABCO ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019 and 2018
Note 6 – Security deposits and Long Term Commitments
The Company has paid security deposits on the rented spaces it occupies for offices and warehouse which total $2,700 on December 31, 2019 and 2018. The Company also made a deposit in the amount of $2,500 on a business purchase that was abandoned and this the deposit was refunded during 2020.
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. The Company now has a one year lease with monthly rent of $2,841 which was renewed on November 1, 2019 to a term of one year. ABCO has a forward commitment of $31,251 for the next eleven months.
Note 7 – Investment in long term leases
Long term leases recorded on the consolidated financial statements were $4,136 and $10,512 at December 31, 2019 and December 31, 2018 respectively. During the year ended December 31, 2019 one of the leases owned by AEFC was paid in full by the customer and the Company recorded net proceeds of $6,376.
Note 8 – Fixed Assets
The Company has acquired all its office and field work equipment with cash payments and financial institution loans. The total fixed assets consist of land and building, vehicles, office furniture, tools and various equipment items and the totals are as follows:
|
|
December 31,
|
|
|
December 31,
|
|
Asset
|
|
2019
|
|
|
2018
|
|
Land and Building
|
|
$
|
326,400
|
|
|
$
|
-
|
|
Equipment
|
|
|
121,556
|
|
|
|
119,343
|
|
Accumulated depreciation
|
|
|
(93,018
|
)
|
|
|
(82,805
|
)
|
Fixed Assets, net of accumulated depreciation
|
|
$
|
354,938
|
|
|
$
|
36,538
|
|
Depreciation expenses for the years ended December 31, 2019 and 2018 was $10,213 and $18,610 respectively.
On December 31, 2019 the Company purchased a building at 2505 N Alvernon consisting of 4,800 SF building and approximately ½ acre of land. The property was finance by a $25,000 loan from Green Capital (GCSG) and a mortgage from the seller for the balance. The purchase price was $325,000 plus closing costs of $1,400.
Note 9 – Notes Payable from Officers and Related Party Transactions
Related party notes payable as of December 31, 2019 and December 31, 2018 consists of the following:
Description
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Notes payable – Director bearing interest at 12% per annum, unsecured, demand notes.
|
|
$
|
60,000
|
|
|
$
|
60,000
|
|
Note payable - Officer bearing interest at 12% per annum, unsecured, demand note
|
|
|
61,052
|
|
|
|
61,052
|
|
Note payable – other bearing interest at 12% per annum, unsecured, demand note.
|
|
|
127,506
|
|
|
|
48,497
|
|
Total
|
|
$
|
248,558
|
|
|
$
|
169,549
|
|
The first note in the amount of $60,000 provides for interest at 12% per annum and is unsecured. This note resulted in an interest charge of $36,061 accrued and unpaid at December 31, 2019.
The second note has a current balance of $61,052 as of December 31, 2019. The note is an unsecured demand note and bears interest at 12% per annum. This note resulted in an interest charge of $27,368 accrued and unpaid at December 31, 2019.
ABCO ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019 and 2018
The third note is from a related party and has a current balance of $127,506 as of December 31, 2019. The note is an unsecured demand note and bears interest at 12% per annum. This note resulted in an accumulated interest charge of $28,556 accrued and unpaid at December 31, 2019.
The combined total funds due to Officers and related parties totaled $340,543 with principle and interest at December 31, 2019.
Note 10 – Short Term Notes Payable
Description
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Bill’d Exchange, LLC, an equipment capital lender, initial financing August 2, 2019, finances equipment for commercial contracted customers in varying amounts
|
|
$
|
239,852
|
|
|
$
|
-
|
|
Merchant loan – Knight Capital Funding, LLC
|
|
|
61,747
|
|
|
|
-
|
|
Merchant loan – Pearl lending
|
|
|
65,664
|
|
|
|
-
|
|
Merchant loan – Green Capital
|
|
|
35,250
|
|
|
|
-
|
|
Private money loan from Perfectly Green Corporation, borrowed January 22, 2018, bearing interest at 3% per annum, unsecured (3) demand note-Original balance $60,000, current balance
|
|
|
33,754
|
|
|
|
49,563
|
|
Merchant note payable to Powerup Lending Group, LLC, borrowed December 5, 2018, bearing interest at 26% per annum, unsecured.
|
|
|
-
|
|
|
|
53,362
|
|
Total
|
|
$
|
436,267
|
|
|
$
|
102,925
|
|
Bill’d Exchange, LLC, a customer equipment capital lender, made their initial financing on August 2, 2019. They finance equipment for commercial contracted customers in varying amounts. These loans bear interest at varying rates and are paid weekly for the amount of interest due on the account at each date. Each loan is secured by the accounts receivable from the customer and by personal guarantee of an affiliated officer of ABCO Solar, Inc.
(2) On January 30, 2019 the Company borrowed $153,092 including principal and interest from Knight Capital Funding, LLC, [“KCF”] bearing interest at 23% per annum, unsecured. This loan was refinanced on August 10, 2019 and replaced with a new loan of $144,900 from KCF. The balance and accrued interest at December 31, 2019 was $61,747. On February 18, 2020 ABCO defaulted on this loan due to the reduction in business from Covid 19. As of the date of filing this report, no arrangements for resuming payments had been accomplished.
On December 6, 2019 the Company borrowed $52,174 from Pearl Delta Funding that contained a repayment in the amount of $72,000 in 160 payments of $450. This unsecured note bears interest at the imputed rate of approximately 36% per annum. The unpaid balance of principle and interest at December 31, 2019 was $65,664. On February 18, 2020 ABCO defaulted on this loan due to the reduction in business from Covid 19. As of the date of filing this report, no arrangements for resuming payments had been accomplished.
On December 31, 2019 ABCO borrowed $25,000 from Green Capital Funding, LLC. The proceeds from this loan were used to acquire the real estate purchased on the date of the loan. This unsecured loan bears interest at approximately 36% and has a repayment obligation in the amount of $35,250 in 76 payments. The unpaid balance of principle and interest at December 31, 2019 was $35,250. On February 18, 2020, ABCO defaulted on this loan due to the reduction in business from Covid 19. As of the date of filing this report, no arrangements for resuming payments had been accomplished.
On January 22, 2018 the Company borrowed $60,000 from Perfectly Green Corporation, a Texas corporation. The Company repaid $26,246 leaving a balance of $33,754 and $49,563 at December 31, 2019 and 2018 respectively. The note bears interest at 3% per annum and is payable upon demand after 60 days’ notice which can be requested at any time after May 31, 2018.
On December 5, 2018 the Company borrowed a merchant note payable to Powerup Lending Group, LLC, bearing interest at 26% per annum, unsecured. The balance due at December 31, 2018 was $53,362.
ABCO ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019 and 2018
Note 11 – Convertible debentures -net of discounts
During the year ended December 31, 2019, the Company funded operations with borrowing on new convertible promissory notes. This table presents the positions on the notes as of December 31, 2019.
Holder
|
|
Date
of Loan
|
|
|
Loan
amount
|
|
|
OID and
discounts
and fees
|
|
|
Interest
rate
|
|
|
Maturity
Dates
|
|
|
Balance
December 31, 2019
|
|
Power Up Lending Group Ltd
|
|
|
5-13-19
|
|
|
$
|
96,300
|
|
|
$
|
13,300
|
|
|
|
8
|
%
|
|
|
12-13-19
|
|
|
$
|
4,300
|
|
Power Up Lending Group Ltd
|
|
|
8-14-19
|
|
|
|
68,000
|
|
|
|
13,000
|
|
|
|
8
|
%
|
|
|
2-14-20
|
|
|
|
68,000
|
|
Power Up Lending Group Ltd
|
|
|
9-11-19
|
|
|
|
76,000
|
|
|
|
13,000
|
|
|
|
8
|
%
|
|
|
12-11-20
|
|
|
|
76,000
|
|
Crown Bridge Tranche 1
|
|
|
8-8-19
|
|
|
|
50,000
|
|
|
|
5,000
|
|
|
|
8
|
%
|
|
|
8-19-20
|
|
|
|
50,000
|
|
Oasis Capital
|
|
|
9-1-18
|
|
|
|
150,000
|
|
|
|
124,671
|
|
|
|
|
|
|
|
|
|
|
|
274,671
|
|
Less amortized discounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(87,748
|
)
|
Totals and balances for 12-31-19
|
|
|
|
|
|
$
|
442,300
|
|
|
$
|
164,471
|
|
|
|
|
|
|
|
|
|
|
$
|
385,223
|
|
During the year ended December 31, 2018, the Company funded operations with borrowing on new convertible promissory notes. This table presents the positions on the notes as of December 31, 2018.
Holder
|
|
Date of Loan
|
|
|
Loan amount
|
|
|
OID and Discounts
|
|
|
Interest Rate
|
|
|
Balance December 31, 2018
|
|
Power Up Lending Group Ltd - Redstart
|
|
|
5-7-18
|
|
|
$
|
78,000
|
|
|
$
|
3,000
|
|
|
|
8
|
%
|
|
$
|
48,680
|
|
Power Up Lending Group Ltd - Redstart
|
|
|
7-6-18
|
|
|
|
68,000
|
|
|
|
3,000
|
|
|
|
8
|
%
|
|
|
68,000
|
|
Power Up Lending Group Ltd - Redstart
|
|
|
8-24-18
|
|
|
|
73,000
|
|
|
|
3,000
|
|
|
|
8
|
%
|
|
|
73,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals and balances for 12-31-18
|
|
|
|
|
|
$
|
219,000
|
|
|
$
|
9,000
|
|
|
|
|
|
|
$
|
189,680
|
|
The 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 Black Scholes model was used to value the derivative liability for the fiscal year ending December 31, 2019 and December 31, 2018. The initial valuation of the derivative liability on the non-converted common shares totaled $207,081 at December 31, 2019 and the Power Up notes derivative liability was $74,848, net of discount, at December 31, 2018 as calculated by consultants for the Company when all notes were issued, but before any conversions. This value includes the fair value of the shares that may be issued according to the contracts of the holders and valued according to our common share price at the time of acquisition.
The Company issued to Power Up Lending Group, Inc. a $96,300 Convertible Promissory Note dated May 13, 2019 which contains an original issue discount of $10,000 (OID) and expenses of $3,300 [“Note”]. The Note is convertible into Company common stock beginning six months after the date of the Note with a stated discount rate of 19% as set forth in the Note. There is no trigger of derivative liability from conversion features until six months after initial borrowing date. Without the OID, the effective discount would have been 35%. The net proceeds from this Note were used for working capital. $92,000 of this note was converted in 2019 and it had a balance of $4,300 at December 31, 2019.
The Company issued to Power Up Lending Group, Inc. [“Power Up”], a $68,000 Convertible Promissory Note dated August 14, 2019 [“Note”] which contains an original issue discount of $10,000.00 (OID) and expenses of $3,000.00 [“Note”]. The Note is convertible into Company common stock beginning six months after the date of the Note with an effective discount rate of approximately 19% upon conversion. There is no trigger of derivative liability from conversion features until six months after initial borrowing date. Without the OID, the effective discount rate would be 35% as set forth in the Note. The net proceeds from the Note, was used for working capital.
ABCO ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019 and 2018
The Company issued to Power Up Lending Group, Inc. [“Power Up”], a $76,000 Convertible Promissory Note dated September 11, 2019 [“Note”] which contains an original issue discount of $10,000.00 (OID) and expenses of $3,000.00 [“Note”]. The Note is convertible into Company common stock beginning six months after the date of the Note with an effective discount rate of approximately 19 % upon conversion. There is no trigger of derivative liability from conversion features until six months after initial borrowing date. Without the OID, the effective discount rate would be 35% as set forth in the Note. The net proceeds from the Note, was used for working capital.
On August 8, 2019 the Company issued to Crown Bridge Partners, LLC a Convertible Promissory Note which contains an original issue discount of $15,000 and expenses of $6,000 [“Note”]. ABCO has borrowed the first tranche of $50,000 and paid the expenses of $5,000 of this agreement. The note is divided into 3 tranches with the 1st being executed on August 8, 2019 and the remaining 2 tranches to be issued at Company’s discretion. The note is convertible into Company common stock beginning six months after the date of the effective date of each tranche with a stated discount rate of 36%. There is no trigger of derivative liability from conversion features until six months after initial borrowing date. At the time of the Buyer’s funding of each tranche under the Note, the Company shall issue to Buyer as a commitment fee, a common stock purchase warrant to purchase an amount of shares of its common stock equal to 150% of the face value of each respective tranche divided by $0.05 (for illustrative purposes, the First Tranche face value is equal to $50,000.00, which resulted in the issuance of a warrant to purchase 1,500,000 shares of the Company’s common stock) pursuant to the terms provided therein (all warrants issuable hereunder, including now and in the future, shall be referred to, in the aggregate, as the “Warrant”) (all warrants issuable hereunder shall be in the same form as the Warrant issued in connection with the First Tranche). The net proceeds from this Note were used for working capital. A conversion feature is associated with this note and prorated from August 8, 2019 to September 30, 2019 in the amount of $4,314. The derivative liability calculation on this note due to its immediate convertibility resulted in a charge to income of $57,075 and a liability in the amount of $71,764. Management does not intend to exercise the last two options to borrow on this note.
As of February 16, 2019, the Company issued to Power Up, a $55,000.00 of shares of the Series C Preferred Stock agreement (Note) net of an original issue discount of $10,000.00 (OID) and expenses of $3,000.00 [“Note”]. The Note was convertible into Company common stock beginning six months after the Effective Date with an effective discount rate of approximately 20%. The OID on this issue that is paid out of proceeds allows a lower purchase price if the Company purchases this liability. The Company redeemed this note for $106,145 before Power up converted it to common stock, so no dilution took place.
As of March 19, 2019, the Company issued to Power Up, a $55,000.00 of shares of the Series C Preferred Stock agreement net of an original issue discount of $10,000.00 (OID) and expenses of $3,000.00 [“Note”]. The Note is convertible into Company common stock beginning six months after the Effective Date with an effective discount rate of approximately 20%. The OID on this issue that is paid out of proceeds allows a lower purchase price if the Company purchases this liability.
As of September 1, 2018 the Company entered into an Equity Purchase Agreement with Oasis Capital, LLC, a Puerto Rico limited liability company (“Investor”) pursuant to which Investor agreed to purchase up to $5,000,000 of the Company’s common stock at a price equal to 85% of the market price at the time of purchase (“Put Shares”). The Company agreed to file a new registration statement to register for resale the Put Shares. The Registration Statement must be effective with the SEC before Investor is obligated to purchase any Put Shares. In addition, the Company [i] issued to Investor a one year $150,000 note which is convertible at a fixed price of $.01 per share as a commitment fee for its purchase of Put Shares and [ii] delivered to Investor a Registration Rights Agreement pursuant to which the Company agreed to register all Put Shares acquired under the Equity Purchase Agreement. During 2019, Investor converted $19,405 of principal of the Note and received 22,392,161 shares of common stock. At December 31, 2019, the Note balance was $130,595. Due to change in accounting treatment this note was booked as a prepaid expense with add-on penalties for a total of $144,076 and a liability of $274,671. The difference is charged to expenses for penalties, derivatives and derivative interest in the amount of $144,076. The entire balance of the prepaid amount has been expensed in the amount of $274,671 in 2019. The liability for this note was not recorded in 2018 because the note had not yet matured.
ABCO ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019 and 2018
Note 12 – Fair Value Measurements
The Company complies with the provisions of FASB ASC No. 820, Fair Value Measurements and Disclosures (“ASC 820”), in measuring fair value and in disclosing fair value measurements at the measurement date. ASC 820 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements required under other accounting pronouncements. FASB ASC No. 820-10-35, Fair Value Measurements and Disclosures- Subsequent Measurement (“ASC 820-10-35”), clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820-10-35-3 also requires that a fair value measurement reflect the assumptions market participants would use in pricing an asset or liability based on the best information available. Assumptions include the risks inherent in a particular valuation technique (such as a pricing model) and/or the risks inherent in the inputs to the model.
ASC 820-10-35 discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). The statement utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:
Level 1 Inputs – Level 1 inputs are unadjusted quoted prices in active markets for assets or liabilities identical to those to be reported at fair value. An active market is a market in which transactions occur for the item to be fair valued with sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2 Inputs – Level 2 inputs are inputs other than quoted prices included within Level 1. Level 2 inputs are observable either directly or indirectly. These inputs include: (a) Quoted prices for similar assets or liabilities in active markets; (b) Quoted prices for identical or similar assets or liabilities in markets that are not active, such as when there are few transactions for the asset or liability, the prices are not current, price quotations vary substantially over time or in which little information is released publicly; (c) Inputs other than quoted prices that are observable for the asset or liability; and (d) Inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Level 3 Inputs – Level 3 inputs are unobservable inputs for an asset or liability. These inputs should be used to determine fair value only when observable inputs are not available. Unobservable inputs should be developed based on the best information available in the circumstances, which might include internally generated data and assumptions being used to price the asset or liability.
When determining the fair value measurements for assets or liabilities required or permitted to be recorded at and/or marked to fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability. When possible, the Company looks to active and observable markets to price identical assets. When identical assets are not traded in active markets, the Company looks to market observable data for similar assets.
The Company determined that the conversion feature embedded within the Power Up Series C Preferred shares (Debenture) that reached maturity in 2018 in the amount of $78,000 was 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 on December 31, 2019 and December 31, 2018:
Description
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Purchase price of the convertible debenture - net of discount
|
|
$
|
442,300
|
|
|
$
|
189,680
|
|
Valuation reduction during the period
|
|
|
(235,219
|
)
|
|
|
(114,832
|
)
|
Balance of derivative liability net of discount on the notes (See Consolidated Balance sheet liabilities)
|
|
$
|
207,081
|
|
|
$
|
74,848
|
|
|
|
|
|
|
|
|
|
|
Derivative calculations and presentations on the Statement of Operations
|
|
|
|
|
|
|
|
|
Loss on note issuance
|
|
$
|
-
|
|
|
$
|
(36,230
|
)
|
Change in Derivative (Gain) Loss
|
|
|
(48,453
|
)
|
|
|
61,251
|
|
Derivative Finance fees
|
|
|
(318,972
|
)
|
|
|
(33,018
|
)
|
Gain (loss) on extinguishment of debt
|
|
|
(244,712
|
)
|
|
|
(370,802
|
)
|
Derivative expense charged to operations in 2019 (See Consolidated Statement of Operations)
|
|
$
|
(612,137
|
)
|
|
$
|
(378,799
|
)
|
ABCO ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019 and 2018
Note 13 – Long term debt
Holder
|
|
Date issued
|
|
|
Interest rate
|
|
|
Amount due
December 31,
2019
|
|
|
Amount due
December 31,
2018
|
|
Real Estate Note Allen-Neisen Family trust – Et. Al.
|
|
|
12-31-19
|
|
|
|
5
|
%
|
|
$
|
300,000
|
|
|
$
|
-
|
|
Ascentium Capital
|
|
|
10-1-18
|
|
|
|
13
|
%
|
|
|
11,192
|
|
|
|
14,285
|
|
Fredrick Donze
|
|
|
9-2-18
|
|
|
|
6
|
%
|
|
|
4,043
|
|
|
|
6,283
|
|
Charles O’Dowd (officer)
|
|
|
8-9-18
|
|
|
|
6
|
%
|
|
|
3,625
|
|
|
|
5,731
|
|
Total long term debt
|
|
|
|
|
|
|
|
|
|
|
318,860
|
|
|
|
26,298
|
|
Less Current portion
|
|
|
|
|
|
|
|
|
|
|
18,860
|
|
|
|
7,628
|
|
Total long-term debt
|
|
|
|
|
|
|
|
|
|
$
|
300,000
|
|
|
$
|
18,670
|
|
On December 31, 2019 ABCO completed negotiations, financial arrangements and closed on the purchase of a 4,800 square foot office and warehouse building located on one/half acre of paved land on one of Tucson’s busiest streets. This property will be more than adequate to house both the Solar business (Now 3600 SF and the HVAC business (now 2000 SF) including our previously announced acquisition of a Tucson HVAC service and equipment supplier. The land and outbuildings will accommodate all of our equipment. The property acquisition was priced at $325,000 the company paid $25,000 down payment and the seller financed $300,000 over a twenty-year mortgage based on a twenty year amortization and a 5% interest rate with a balloon payment at the end of five (5) years. The monthly payment is $1,980.
ABCO acquired the assets of Dr. Fred Air Conditioning services on September 2, 2018 for the total price of $22,000. The allocation of the purchase price was to truck and equipment at $15,000 and the balance was allocated to inventory and the license for period of five or more years. The truck and equipment were financed by Ascentium Capital. The Donze note principal reductions during 2019 were $2,240 and the Ascentium note principal payments were $3,093.
The Company purchased an automobile from its President, Charles O’Dowd, with a promissory note in the amount of $6,575 dated August 9, 2018 and bears interest at 6% per annum for the three year payment plan. Mr. O’Dowd is no longer and employee of the Company. The principle payments during 2019 totaled $2,107.
Note 14 – Stockholder’s Deficit
Common Stock
During the year ended December 31, 2019 the Company sold 4,740,000 shares of restricted common shares in Regulation S offerings to non-US investors. The total proceeds from the offering was $160,305. Commission and expense reimbursements totaled $80,049. The Company recorded net proceeds totaling $80,256.
In addition, debenture holders converted debt into 113,094,599 shares which were issued upon conversion of $143,227 of the notes referred to in Note 10 above.
During the fiscal year ended December 31, 2018 the Company sold 8,020,532 shares in Regulation S offerings to non-US investors. The total proceeds from the offering was $538,084. Commission and expense reimbursements totaled $248,267. The Company recorded net proceeds totaling $289,817.
In addition, during 2018, debenture holders converted debt into 16,767,650 shares which were issued upon conversion of $703,883 of the notes referred to in Note 13 above.
During 2018 the Company issued 369,599 common restricted shares and recorded equity in the amount of $10,000 from vendors for services.
During 2018 the Company issued 1,350,000 restricted common shares to management for services with a fair market value of $27,000. Of these awards, Charles O’Dowd received 450,000 shares and Wayne Marx received 50,000 shares. The balance of 850,000 shares were awarded to consultants to the Company.
ABCO ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019 and 2018
Preferred Stock
On September 15, 2017 and on September 15, 2018, the Board of Directors authorized on each such date the issuance of 15,000,000 preferred shares for an aggregate of 30,000,000 shares of Class B Convertible Preferred Stock [“Series B”] to both Directors of the Company and to two unaffiliated Consultants or a total of 30,000,000 shares of Series B. The Company assigned a value of $15,000 for the shares for 2017 and 2018. Of the Series B, 12,000,000 shares were issued to Charles O’Dowd and 2,000,000 to Wayne Marx, the Directors. Each Consultant received 8,000,000 shares. See the Company’s Schedule 14C filed with the Commission on September 28, 2018. These shares have no market pricing and management assigned an aggregate value of $30,000 to the stock issued based on the par value of $0.001. The 30,000,000 shares of preferred Stock, each with has 20 votes for each Preferred share held by them of record. The holders of the Preferred are also entitled to an additional 300,000,000 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.
Earnings (loss) per share calculation
Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing net loss by the weighted average number of shares of common stock and potentially outstanding shares of common stock during each period
The computation of basic and diluted loss per share at December 31, 2019 excludes the common stock equivalents from convertible debt of the following potentially dilutive securities because their inclusion would be anti-dilutive, and the share issue number is not calculable until conversion takes place.
Stock subscriptions executed under an earlier offering included a provision whereby ABCO agrees to pay a dividend (defined as interest) of from 6% to 12% of the total amount invested for a period of one year from receipt of the invested funds. This dividend (defined as interest) is allocated between the broker and the investor with amounts paid to the broker treated as a cost of the offering and netted against additional paid in capital and amounts paid to the investor treated as interest expense. Total amounts paid or accrued under this agreement and charged to additional paid-in capital for the years ended December 31, 2019 and 2018, amounted to $0 and $0, respectively. Total amounts paid under this agreement and charged to interest expense for the years ended December 31, 2019 and 2018, amounted to $0 and $0, respectively. The accrued balance due on this obligation to shareholders totals $49,290 at December 31, 2019 and 2018.
ABCO has evaluated these agreements under ASC 480-10: Certain Financial Instruments with Characteristics of Both Liabilities and Equity and determined that the capital contributions made under these subscription agreement more closely resemble equity than liabilities as they can only be settled through the issuance of shares and although they have a stated cost associated with them which accrues in the same manner as interest, the cost is only incurred in the first twelve months after placement as is more closely associated with a cost of raising funds than interest expense.
The Company, effective as of September 1, 2018, entered into an Equity Purchase Agreement with Oasis Capital, LLC, a Puerto Rico limited liability company (“Investor”) pursuant to which Investor agreed to purchase up to $5,000,000 of the Company’s common stock at a price equal to 85% of the market price at the time of purchase (“Put Shares”). The Company agreed to file a new registration statement to register for resale the Put Shares. The Registration Statement must be effective with the SEC before Investor is obligated to purchase any Put Shares. In addition, the Company [i] issued to Investor a one year $150,000 note which is convertible at a fixed price of $.01 per share as a commitment fee for its purchase of Put Shares and [ii] delivered to Investor a Registration Rights Agreement pursuant to which the Company agreed to register all Put Shares acquired under the Equity Purchase Agreement. During 2019, Investor converted $19,405 of principal of the Note and received 22,392,161 shares of common stock. At December 31, 2019, the Note balance was $130,595. Due to change in accounting treatment this note was booked as a prepaid expense with add-on penalties for a total of $144,076 and a liability of $274,671. The difference is charged to expenses for penalties, derivatives and derivative interest in the amount of $144,076. The entire balance of the prepaid amount has been expensed in the amount of $274,671 in 2019.
ABCO ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019 and 2018
Note 15 – Income Taxes
On December 22, 2017, The President of the United States signed the TCJA. The enactment of TCJA requires companies, under Accounting Standards Codification (ASC) 740, Income Taxes, to recognize the effects of changes in tax laws and rates on deferred tax assets and liabilities and the retroactive effects of changes in tax laws in the period in which the new legislation is enacted. The TCJA would permanently reduce the maximum corporate income tax rate from 35% to 21% effective for tax years beginning after December 31, 2017, and the future benefits of existing deferred tax assets would need to be computed at the new tax rate. In addition to the change in the corporate income tax rate, the TCJA further introduced a number of other changes including a one-time transition tax via a mandatory deemed repatriation of post-1986 undistributed foreign earnings and profits; the introduction of a tax on global intangible low-taxed income (“GILTI”) for tax years beginning after December 31, 2017; the limitation of deductible net interest to 30% of adjustable taxable income; the further limitation of the deductibility of share-based compensation of certain highly compensated employees; the ability to elect to accelerate bonus depreciation on certain qualified assets; and the Base Erosion and Anti-Abuse Tax ("BEAT"), amongst other changes. The Company recognized the income tax effects of the 2017 Tax Act in its financial statements in accordance with Staff Accounting Bulletin (SAB) No. 118, which provides SEC staff guidance for the application of ASC Topic 740, Income Taxes. The Company has finalized its accounting for the income tax effects of the 2017 Tax Act. Some of the above tax effects do not apply to ABCO.
Utilization of the net operating loss carry-forwards may be subject to annual limitation under applicable federal and state ownership change limitations and, accordingly, net operating losses may expire before utilization. The Company has not completed a Section 382 analysis through December 2019 and therefore has not determined the impact of any ownership changes, as defined under Section 382 of the Internal Revenue Code has occurred in prior years. Therefore, the net operating loss carryforwards above do not reflect any possible limitations and potential loss attributes to such ownership changes. However, the Company believes that upon completion of a Section 382 analysis, as a result of prior period ownership changes, substantially all of the net operating losses will be subject to limitation.
The tax effects recorded primarily include an estimate of the impact of the reduction in the U.S. tax rate on our deferred tax assets and liabilities in 2019 and 2018. The Company had $0 of income tax expense (benefit) for the years ended December 31, 2019 and 2018. The components of the net accumulated deferred income tax assets shown on a gross basis as of December 31, 2018 and 2017 are as follows:
Variations created by statutory rate of 21% and 21% at December 31, 2019 and 2018, respectively
|
|
|
State Tax Rate 4.9%
|
|
|
State Tax Rate 4.9 %
|
|
|
Fed. Tax Rate 21%
|
|
|
Fed. Tax Rate 21%
|
|
|
|
2019
|
|
|
2018
|
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
Accumulated deficit
|
|
$
|
(6,561,508
|
)
|
|
$
|
(5,180,431
|
)
|
|
$
|
(6,561,508
|
)
|
|
$
|
(5,180,431
|
)
|
Less - Expenses related to stock-based compensation
|
|
|
123,400
|
|
|
|
123,400
|
|
|
|
123,400
|
|
|
|
123,400
|
|
Less Expenses related to derivatives - net
|
|
|
2,038,379
|
|
|
|
1,426,242
|
|
|
|
2,038,379
|
|
|
|
1,426,242
|
|
Net tax losses
|
|
|
4,399,729
|
|
|
|
3,630,789
|
|
|
|
4,399,729
|
|
|
|
3,630,789
|
|
Federal tax assumption at 21%
|
|
|
|
|
|
|
|
|
|
|
923,943
|
|
|
|
762,465
|
|
State Tax assumption at 4.9%
|
|
|
|
|
|
|
|
|
|
|
130,527
|
|
|
|
133,375
|
|
State losses expired
|
|
|
1,735,915
|
|
|
|
908,838
|
|
|
|
|
|
|
|
|
|
State of Arizona losses carried forward
|
|
|
2,663,814
|
|
|
|
2,721,951
|
|
|
|
|
|
|
|
|
|
Total deferred tax benefit and valuation allowance
|
|
$
|
130,527
|
|
|
$
|
133,375
|
|
|
$
|
1,054,470
|
|
|
$
|
895,840
|
|
At December 31, 2019, ABCO had $4,399,729 of federal net operating loss carryforwards. expiring, if not utilized, beginning in 2030. Additionally, the Company had $2,663,814 State of Arizona net operating loss carryforwards that have not expired under the five-year limitation.
ABCO ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019 and 2018
The Company’s valuation allowance increased by approximately $158,630 for the year ended December 31, 2019 as a result of its operating loss for the year. The valuation allowance was determined in accordance with the provisions of ASC 740, Income Taxes, which requires an assessment of both negative and positive evidence when measuring the need for a valuation allowance. Based upon the available objective evidence and the Company’s history of losses, management believes it is more likely than not that the net deferred tax assets will not be realized. At December 31, 2019, the Company has a valuation allowance against its deferred tax assets net of the expected income from the reversal of its deferred tax liabilities.
Note 16 – Equity Awards
The following table sets forth information on outstanding option and stock awards held by the named executive officers of the Company at December 31, 2019, including the number of shares underlying both exercisable and un-exercisable portions of each stock option as well as the exercise price and the expiration date of each outstanding option. See Note to Notes to Consolidated Financial Statements.
Outstanding Equity Awards After Fiscal Year-End (1)
|
Name
|
|
Number of securities underlying unexercised
options exercisable (1)
|
|
|
|
Number of securities underlying unexercised
options un- exercisable (2)
|
|
|
Option Exercise Price ($)
|
|
|
Option Grant Date
|
|
|
Option Expiration Date
|
Charles O’Dowd
|
|
|
500,000
|
|
(3)
|
|
|
0
|
|
|
$
|
.001
|
|
|
01/01/2017
|
|
|
01/01/2021
|
Wayne Marx
|
|
|
500,000
|
|
|
|
|
0
|
|
|
$
|
.001
|
|
|
01/012017
|
|
|
01/01/2021
|
|
(1)
|
No Equity Awards were issued during the year ended December 31, 2019.
|
|
(2)
|
All options vest 20% per year beginning on the first anniversary of their grant date.
|
|
(3)
|
This option was terminated when Mr. O’Dowd resigned from the Company in October 2019.
|
An aggregate of 1,620,000 stock awards are outstanding under the Equity Incentive Plan as of December 31, 2019. The balance of the options of 620,000 are issued to a consultant of the Company.
Note 17 – Subsequent Events
During the five months period ending with the filing of this report, the holders of convertible debt converted an aggregate of $142,950 of a convertible debt instruments into 888,944,240 shares of common stock. The total shares outstanding at the date of filing this report was 1,039,535,127 shares.
Subsequent to December 31, 2019, Crown Bridge Partners, LLC converted $17,580 of principal of a convertible Note and received 290,390,132 shares of common stock. At July 27, 2020, the Note balance was $32,420. The Company did not receive any of those proceeds.
Subsequent to December 31, 2019, Power UP Lending Group, Inc., converted $88,440- of principal of the Convertible Promissory Notes and received 476,149,206 shares of common stock. At May 29, 2019, the Note balance was $65,500. The Company did not receive any of those proceeds.
Subsequent to December 31, 2019, Oasis Capital, LLC (“Oasis”) converted $36,930 of principal of a convertible Note and received 122,404,902 shares of common stock. At May 29, 2020, the Note balance was $93,665 The Company did not receive any of those proceeds for working capital.
ABCO ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019 and 2018
As of January 21, 2020 (“Effective Date”), the Company issued to Oasis a $184,000 Promissory Note, net of a prorated original issue discount of $16,000 (“Note”). The Company received $34,000 (“First Tranche”) from Oasis resulting in a then outstanding balance as then is $44,757 consisting of the First Tranche plus the prorated portion of the LOI and a $8,000 credit for Oasis transactional expenses. The Second and the Third Tranches under this Note are due in February and March, 2020, respectively. The Note was issued under the Securities Purchase Agreement dated at January 21, 2020 between the Company and Oasis (“SPA”). Each Tranche matures nine months from the effective date of each such payment. The Company also agreed to issue to Oasis 5,000,000 shares of common stock as an incentive/commitment fee in connection with the transactions. The Company is required to use the proceeds received from the Note to retire currently outstanding convertible debt from two lenders which have not yet matured for conversion. The Note becomes convertible into common stock six months after the Effective Date at a 35% discount to market.
On May 3, 2020, Company entered into a promissory note evidencing an unsecured loan in the amount of $124,099.00 made to the Company under the Paycheck Protection Program (the “Loan”). The Paycheck Protection Program (or “PPP”) was established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), and is administered by the U.S. Small Business Administration. The Loan to the Company is being made through Bank of America, N.A., a national banking association (the “Lender”). The interest rate on the Loan will not exceed 1.00%. The promissory note evidencing the Loan contains customary events of default relating to, among other things, payment defaults, making materially false and misleading representations to the SBA or Lender, or breaching the terms of the Loan documents. The occurrence of an event of default may result in the repayment of all amounts outstanding, collection of all amounts owing from the Company, or filing suit and obtaining judgment against the Company. Under the terms of the CARES Act, PPP loan recipients can apply for and be granted forgiveness for all or a portion of loan granted under the PPP. Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds for payment of payroll costs and any payments of mortgage interest, rent, and utilities. No assurance is provided that the Company will obtain forgiveness of the Loan in whole or in part. If the SBA does not confirm forgiveness of the Loan or only partly confirms forgiveness of the Loan, including principal and interest (“Loan Balance”); then, in either such case, the Lender will establish the terms of repayment of the Loan Balance via a separate letter to the Company, containing the amount of each monthly payment, the interest rate, etc.
On May 29, 2020, Power Up notified the Company that it was in default under the terms of its Convertible Promissory Note dated September 11, 2019 for failure to file this Form 10K on a timely basis and thereby becoming a non-reporting company under the 1934 Exchange Act. Demand for immediate payment of $98,250 plus accrued interest and accrued default interest was also made. The Company is currently considering its options as to how to respond/proceed with respect thereto.