NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 and 2015
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.
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 is calling a Special Meeting of Stockholders in May 2017 to authorize an amendment to the Articles of Incorporation to increase the authorized capital to 1,000,000,000 common shares and 100,000,000 preferred shares.
The 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. 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, 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. All share numbers through-out these financial statements and notes thereto have been adjusted to reflect this reverse split.
OVERVIEW
As of December 31, 2016, we operated in Tucson, 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 Boviet, Canadian Solar, Westinghouse Solar, Dow and various 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 various financial institutions 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.
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 in 2011 and now arranges financing with funds provided by other lessors.
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 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 from 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 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 fiscal year, the company had product sales as follows:
Sales Product and Services Description
|
|
2016
|
|
|
2015
|
|
Solar PV residential and commercial sales
|
|
$
|
674,130
|
|
|
|
84
|
%
|
|
$
|
1,827,361
|
|
|
|
97
|
%
|
Energy efficient lighting & other income
|
|
|
131,078
|
|
|
|
16
|
%
|
|
|
59,964
|
|
|
|
3
|
%
|
Interest Income
|
|
|
1,340
|
|
|
|
0
|
%
|
|
|
2,110
|
|
|
|
0
|
%
|
Total revenue
|
|
$
|
806,548
|
|
|
|
100
|
%
|
|
$
|
1,889,435
|
|
|
|
100
|
%
|
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 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 and work-in-progress
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.
Inventory
The Company records inventory of construction supplies at cost using the first in first out method.
Income Taxes
The company has net operating loss carryforwards as of December 31, 2016 totaling approximately $2,934,073. Accrued derivative liabilities of $1,006,154 are assumed to be non-tax events. A deferred tax benefit of approximately $997,585 has been offset by a valuation allowance of the same amount as its realization is not assured.
Due to the current uncertainty of realizing the benefits of the tax NOL carry-forward, a valuation allowance equal to the tax benefits for the deferred taxes has not been established. The full realization of the tax benefit associated with the carry-forward depends predominately upon the Company’s ability to generate taxable income during future periods, which is not assured.
The NOL carryforward expires according to the following schedule:
Year Ending
December 31:
|
|
Actual
Total Loss
|
|
|
Less
Derivative expense
|
|
|
Net Tax loss
subject to carry over
|
|
2036
|
|
$
|
1,923,384
|
|
|
$
|
1,006,154
|
|
|
$
|
917,230,
|
|
2035
|
|
$
|
214,823
|
|
|
|
|
|
|
$
|
214,823
|
|
2034
|
|
$
|
635,517
|
|
|
|
|
|
|
$
|
635,517
|
|
2033
|
|
$
|
622,474
|
|
|
|
|
|
|
$
|
622,474
|
|
2032
|
|
$
|
230,224
|
|
|
|
|
|
|
$
|
230,224
|
|
2031
|
|
$
|
182,908
|
|
|
|
|
|
|
$
|
182,908
|
|
2030
|
|
$
|
130,897
|
|
|
|
|
|
|
$
|
130,897
|
|
Totals
|
|
$
|
3,940,227
|
|
|
$
|
1,006,154
|
|
|
$
|
2,934,073
|
|
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.
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. All shares were considered anti-dilutive at December 31, 2016.
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. The Company incurred a net loss of $(1,923,384), the net cash flow used in operations was $(1,803,277) and its accumulated net losses from inception through the period ended December 31, 2016 is $3,940,227,
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, or amounts and classification of liabilities that might result from this uncertainty.
Note 4 – 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 5 – Accounts Receivable and Work in Process
Accounts receivable as of December 31, 2016 and 2015, consists of the following:
Description
|
|
2016
|
|
|
2015
|
|
Accounts receivable on completed contracts
|
|
$
|
43,292
|
|
|
$
|
39,100
|
|
Costs and estimated earnings on contracts in progress
|
|
|
60,349
|
|
|
|
252,339
|
|
Total
|
|
$
|
103,641
|
|
|
$
|
291,439
|
|
Work in process consists of costs recorded and revenue earned on projects recognized on the percentage of completion method for work performed on contracts in progress at December 31, 2016 and 2015. 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. Amounts are billed 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. Work in progress as of December 31, 2016 and 2015 consists of the following as reflected in the balance sheet:
Description
|
|
2016
|
|
|
2015
|
|
Costs incurred on uncompleted contracts
|
|
$
|
166,889
|
|
|
$
|
1,519,570
|
|
Estimated earnings
|
|
|
39,828
|
|
|
|
290,037
|
|
|
|
|
206,717
|
|
|
|
1,809,607
|
|
Less billings to date
|
|
|
146,368
|
|
|
|
1,557,268
|
|
Total Costs and estimated earnings on contracts in progress
|
|
$
|
60,349
|
|
|
$
|
252,339
|
|
Billings in excess of costs and earnings were $5,229 at December 31,2016 and $0 at December 31, 2015 and are included in accrued expenses.
Note 6 – Inventory
Inventory of construction supplies not yet charged to specific projects was $46,701 and $51,255 as of December 31, 2016 and 2015, respectively. The Company values items of inventory at the lower of cost or market and uses the first in first out method to charge costs to jobs.
Note 7 – Security deposits and Long Term Commitments
The Company has paid security deposits on the rented spaces it occupies for offices and warehouse which total $1,800 on December 31, 2016 and $4,945 on December 31, 2015.
On May 1, 2014, the Company rented office and warehouse space at 2100 N. Wilmot #211, Tucson, Arizona 85712. This facility consists of 2,400 square feet. The Company now has a one year lease with monthly rent of $1,894 and it is expiring on November 30, 2017. ABCO has a forward commitment of $20,834.
Note 8 – Alternative Energy Finance Corporation (AEFC)
AEFC is a wholly owned subsidiary of ABCO Energy. AEFC provides funding for leases of photovoltaic systems and finances its own leases from its own cash. Long term leases recorded on the consolidated financial statements were $11,984 and $12,689 at December 31, 2016 and December 31, 2015 respectively.
Note 9 – Property and equipment
The Company has acquired all of its office and field work equipment with cash payments and financial institution loans. During the year ended December 31, 2015 the company acquired office equipment for the sum of $859. The total fixed assets consist of vehicles, office furniture, tools and various equipment items and the totals are as follows:
Asset
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
Equipment
|
|
$
|
90,946
|
|
|
$
|
100,846
|
|
Accumulated depreciation
|
|
|
(61,220
|
)
|
|
|
(58,335
|
)
|
Net Fixed Assets
|
|
$
|
29,726
|
|
|
$
|
42,511
|
|
Depreciation expenses for the years ended December 31, 2016 and 2015 was $12,785 and $16,148 respectively.
Note 10 – Notes Payable Officers and Related Party Transactions
Officer loans are demand notes totaling $113,501 and $69,944, respectively, as of December 31, 2016 and December 31, 2015. These notes provide for interest at 12% per annum and are unsecured. Notes payable to the Directors resulted in interest charges of $11,699 and $8,562 for the periods ended December 31, 2016 and December 31, 2015, respectively. Other related party notes totaled $63,846 at December 31, 2016 for loans from a person who is neither an officer or director.
Related party notes payable as of December 31, 2016 and December 31, 2015 consists of the following:
Description
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
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
|
|
|
53,501
|
|
|
|
9,944
|
|
Note payable – other bearing interest at 12% per annum, unsecured, demand note.
|
|
|
63,846
|
|
|
|
59,832
|
|
Total
|
|
$
|
177,347
|
|
|
$
|
129,776
|
|
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 $19,876 accrued and unpaid at December 31, 2016.
The second note was increased by loans of $30,557 and $33,000 during the current period. A repayment of $20,000 was made in December 2016.which decreased the total note to $53,501 as of December 31, 2016. The note is an unsecured demand note and bears interest at 12% per annum. This note resulted in an interest charge of $5,812 accrued and unpaid at December 31, 2016.
The third note is from a related party and has a current balance of $63,846 as of December 31, 2016. The note is an unsecured demand note and bears interest at 12% per annum. This note resulted in an interest charge of $5,254 accrued and unpaid at December 31, 2016.
Note 11 – Short Term Notes Payable
Description
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
Note payable - Credit line, payable to Ascentium Capital, bearing interest at 9% per annum, secured by Boom Truck - due in full by 9-20-17. (1)
|
|
$
|
4,400
|
|
|
$
|
6,706
|
|
Note payable – Orchard Street Funding – This loan was paid off in January, 2016. (2)
|
|
|
-
|
|
|
|
45,240
|
|
Note payable – other bearing interest at 12% per annum, unsecured, demand note.
|
|
|
-
|
|
|
|
59,832
|
|
Merchant Note payable to Web Bank, borrowed 2-1-16, bearing interest at 23% per annum, unsecured. (2)
|
|
|
82,323
|
|
|
|
-
|
|
Merchant Note payable to Quarterspot Lending, borrowed 6-27-16, bearing interest at 31% per annum, unsecured. (3)
|
|
|
40,474
|
|
|
|
-
|
|
Merchant note payable to Premier Capital Funding, borrowed 7-12-16, bearing interest at 29% per annum, unsecured. (4)
|
|
|
27,546
|
|
|
|
|
|
Total
|
|
$
|
154,743
|
|
|
$
|
111,778
|
|
(1) Note payable to Ascentium Capital, secured by truck, bearing interest at 9% per annum, matures on September 20, 2017. This loan has payments of $469 per month.
(2) On February 1, 2016, the Company financed operations with a loan in the amount of $150,000 from WebBank. The note is an open credit line with interest rate of 23% maturing in March of 2017. A portion of the loan was used to pay off a credit loan from Orchard Street Funding in the amount of $44,061. On August 22, 2016, the Company ceased making payments on this loan and at December 31, 2016 the Company owed $82,323 in principal and accrued interest. This loan is personally guaranteed by an Officer of the Company. On March 20, 2017, the Company and WebBank agreed to a monthly payment schedule with payment of $2,508 per month until June 20, 2017, paid biweekly. No arrangements have been made for the final payment schedule on this loan beyond that date. No default notice has been received by the Company on the loan as of March 31, 2017.
(3) On June 28, 2016, the Company financed operations with a loan in the amount of $43,500 from Quarterspot, a lending institution. The note is an open line with interest rate of approximately 31% maturing in September of 2017. On August 22, 2016, the Company ceased making payments on this loan. As of December 31, 2016, the Company owed $40,474 in principal and accrued interest. This loan is not personally guaranteed by an Officer of the Company. On November 30, 2016, the Company and Quarterspot agreed to a monthly payment schedule with payment of $1,500 per month until January 31, 2017. On March 27, 2017, the Company agreed to begin payments of $3,010 per month for twelve months until paid in full. No arrangements have been made for the final payment schedule on this loan beyond that date. No default notice has been received by the Company on the loan as of March 31, 2017.
(4) On July 12, 2016, the Company financed operations with a loan in the amount of $45,000 from Premier Capital Funding, LLC, a lending institution. The note is an open line with interest rate of approximately 29% maturing in November 28, 2016. On August 22, 2016, the Company ceased making payments on this loan. On October 17, 2016, the Company agreed to pay Premier $4,000 per month for ten months to pay this loan in full. The Company had a total balance of $27,546 as of December 31, 2016. This loan is personally guaranteed by an Officer of the Company. No default notice has been received by the Company on the loan as of March 31, 2017.
The Company has been negotiating more favorable payment and payoff arrangements for these debts. If the Company is not successful in this process the note holders may take legal action to collect their respective debt against the Company and/or its officers.
Note 12 – Long term debt
Long term debt as of December 31, 2016 and December 31, 2015 consisted of the following:
Description
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
Note payable to Ascentium Capital, secured by truck, bearing interest at 9% per annum, matures on September 20, 2017. This loan has payments of $469 per month.
|
|
$
|
4,400
|
|
|
$
|
9,340
|
|
Less current portion of truck loan
|
|
|
(4,400
|
)
|
|
|
(4,400
|
)
|
Total long term debt net of current portion
|
|
$
|
0
|
|
|
$
|
4,940
|
|
Note 13 – Convertible Debt and Derivative Valuation
In accordance with the Statement of Financial Accounting Standard ASC 820-10-35-37 Fair Value in Financial Instruments, Statement of Financial Accounting Standard ASC 815 Accounting for Derivative Instruments and Hedging Activities require that instruments with embedded derivative features be valued at their market values. The Company hired a valuation consultant to value the Convertible Debentures for the derivative portion of the instruments. The Binomial model was used to value the derivative liability for the fiscal year ending December 31, 2016
During the year ended December 31, 2016, the Company funded operations with borrowing on six convertible promissory notes, in an amount ranging from $27,777 to $55,000, maturing within from one year to two years, bearing interest ranging from 5% to 12% per annum, convertible into common stock at conversion prices ranging from 45% to 60% of the lowest price in the prior 20 to 25 trading days. Prior to December 31, 2016 all convertible debt was converted to common shares. The total amount of the borrowing amounted to $234,777. Interest accrual to conversions dates accounted for another $11,454 and commissions paid to agents were $18,375.
The holders of the notes converted all the amounts due to their firms for 198,737,390 (19,873,374 post reverse split) shares of common stock during the period September 28, 2016 through December 7, 2016. When the selling was completed, the Company had approximately 268,718,761 shares outstanding. This prompted the Company to consider the 1 for 10 reverse split of the common shares which was accomplished on January 13, 2017. All shares are updated to reflect the reverse split.
The initial valuation of the derivative liability on the converted common shares totaled $743,467 as calculated by consultants for the Company when all notes were
issued, but before any conversions
. This valuation represents $508,690 in excess of the funds received of $234,777 and this value was recorded as a derivative liability on the balance sheet. This value includes the fair value of the shares issued according to the contracts of the holders and valued according to our common share price at the time of acquisition.
As a result of such issuances and conversions, all six (6) of the notes have paid in full as of December 31, 2016.
From September 28, 2016 through December 7, 2016, the Company issued an aggregate of 198,737,390 pre-split (19,873,739) post- split) shares of its common stock upon conversions of six different convertible notes at conversion prices ranging from $0.0015 to $0.0047 per share. After considering the funds received for the shares and amortization of original derivative liability and the changes in the liability due to market conditions, the Company recorded equity of $424,878 for the conversion transactions.
Note 14 – Convertible Debt and Derivative Liabilities on Other Notes
The Company has entered into Securities Purchase Agreement with Blackbridge Capital, LLC, a Delaware limited liability company [“SPA”], operating out of New York, New York (“Blackbridge”) whereby Blackbridge has agreed to purchase up to $5,000,000 worth of shares of the Company’s common stock. The Company has agreed to file a Registration Statement to register such shares for sale to Blackbridge. In addition, the Company has issued [i] a convertible promissory note to Blackbridge pursuant to the Securities Purchase Agreement equal to $150,000 as a commitment fee, that is currently charged to prepaid expenses until services are provided (the “Blackbridge Note”), [ii] and a $100,000 Convertible Note to cover the expenses to be incurred for the preparation and filing of the Registration Statement and related matters (“Expenses Note”).
On March 13, 2017, the Company and Blackbridge, entered into an Agreement, effective as of March 1, 2017, terminating the SPA. The Registration Statement on Form S-1 filed by the Company pursuant to the SPA could not be processed because of technical issues raised by the SEC and was withdrawn on February 28, 2017. In addition, the Blackbridge Note issued by the Company as a commitment fee remains, by its express terms, in full force and effect notwithstanding the termination of the SPA as does the Expenses Note.
The Company determined that the conversion feature embedded within the two Blackbridge notes is a financial derivative. The Generally Accepted Accounting Principles (GAAP) required that the Company’s embedded conversion option be accounted for at fair value. The following schedule shows the change in fair value of the derivative liabilities by December 31, 2016:
Description
|
|
Amount
|
|
Purchase price of the two convertible debentures
|
|
$
|
250,000
|
|
Discount on notes during 2016
|
|
|
(209,589
|
)
|
Balance of derivative liability net of discount on the two notes (See Consolidated Balance sheet liabilities)
|
|
$
|
40,411
|
|
|
|
|
|
|
Initial derivative valuation for the two Blackbridge notes
|
|
$
|
591,952
|
|
Fair value mark to market adjustment for derivatives
|
|
|
(194,230
|
)
|
Balance of valuation of derivative liability at December 31, 2016
|
|
$
|
397,722
|
|
|
|
|
|
|
Derivative calculations and presentations on the Statement of Operations
|
|
|
|
|
Loss on note issuance
|
|
$
|
540,634
|
|
Change in Derivative(Gain) Loss
|
|
|
193,160
|
|
Finance fees
|
|
|
272,360
|
|
Derivative valuation and expense charged to operations in 2016 (See Consolidated Statement of Operations)
|
|
$
|
1,006,154
|
|
The company recorded derivative loss on issuance associated with the Blackbridge notes in the amount $540,634.
The Company recorded as a liability the amount of $743,467 on the first set of six notes and $591,952 on
the two Blackbridge
notes. The Company recorded the debt discount to the extent of the gross proceeds raised, and expensed immediately the remaining value of the derivative as it exceeded the gross proceeds of the note. The Company recorded change in fair value of derivative liabilities as an expense associated with financing for the year ended December 31, 2016 of $193,160.
The Company recorded finance fees for the twelve months ended December 31, 2016 of $272,360 after adjustments mentioned above.
The Company measured and utilized quoted prices in active markets for identical liabilities (Level 1); significant other observable inputs (Level 2); and significant unobservable inputs (level 3) in applying valuation technology to derivative values for December 31, 2016 and throughout the year.
Note 15 – Stockholder’s Equity
Common Stock
During the year ended December 31, 2016, the Company issued 23,809,770 (2,380,977 post-reverse split) shares of common stock and received or credited gross proceeds of $854,342, net of direct offering expenses. Of such shares, 198,737,390 (19,873,739 post-reverse split) shares were issued upon conversion of the six notes referred to in Note 14 above. The legal and administrative expense of offerings totaled $126,315. The net proceeds in the amount of $728,027 were used for working capital, corporate expenses, legal fees, prepaid expenses and public company expenses.
The Company recorded equity in the amount of $424,878 gain on sale of the six convertible debt notes and $464,739 on the two Blackbridge notes for derivatives valuations incurred in 2016.
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, 2016 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.
|
|
December 31, 2016
|
|
Convertible debt (See the Blackbridge convertible notes above)
|
|
$
|
150,000
|
|
Convertible debt (See the Blackbridge convertible notes above)
|
|
|
100,000
|
|
From October 7, 2016 through December 31, 2016, the Company issued an aggregate of 198,727,390 pre-split (19,872,739 post split) shares of its common stock upon conversions of six different convertible notes at conversion prices ranging from $0.0015 to $0.0047 per share. As a result of such issuances, all six [6] of the notes have paid in full as of that date. The Company recorded $424,878 for the equity infusion provided by these notes.
Note 16 – Other Matters
During the fiscal year ended December 31, 2016 the Company sold 24,863,820 shares (post reverse split 2,486,382 shares) in Regulation S offerings to non-US investors. The total proceeds from the offering was $767,234. Commission and expense reimbursements totaled $441,170. The Company recorded net proceeds totaling $326,064.
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, 2016 and 2015, amounted to $ 3,146 and $56,454, respectively. Total amounts paid under this agreement and charged to interest expense for the years ended December 31, 2016 and 2015, amounted to $ 4,139 and $12,220, respectively.
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.
On September 15, 2015, the Company entered into a consulting contract with Adamas Fund, LLC (AFL), a Chicago based investment banking group providing for the issuance of a Regulation 144A bond offering that will be sold to QIBs (qualified institutional buyers) with a minimum raise of $5,000,000 USD on a best efforts basis. The bond will be sold by several broker dealers globally and will be used in the implementation of ABCO’s future growth plans and for future acquisitions. The ABCO bond will carry no interest for years 1-3 and a low annual coupon rate of 6.5% for years 4-10 with a 10 year maturity date. The bond may be convertible into common stock under certain circumstances. Rule 144A Securities Act of 1933 provides an exemption from the registration requirements of the Securities Act of 1933 for certain private transactions of minimum $100,000 units of restricted securities to qualified investors which generally are large institutional investors that own at least $100 million in investable assets. AFL will receive an aggregate advisory fee of $150,000 in connection with the issuance of the bonds. The first $75,000 was paid by the issuance of 375,000 shares of registered common stock on or about November 19, 2015. The second payment was paid by cash in the amount of $27,500 in five payments of all fees due. No buyers have been presented by Adamas Fund to the company as of the date of this report.
During November, 2016, the Company issued an aggregate of 1,449,649 shares to financial consulting entities for services relating to fund raising activities. The total issuance was valued at $103,400 for fair market value as negotiated and that amount is charged to additional paid in capital.
Effective December 31, 2016, the Company entered into a Consulting Agreement (“CA”) with Joshua Tyrell (“Tyrell”) which provides for Tyrell to assist in various business development activities on behalf of the Company, including but not limited to realizing new business opportunities. In consideration for rendering such services, Tyrell was issued 1,500,000 free trading shares of Company common stock. The CA has a six month term expiring on March 31, 2017. On November 7, 2016 and on November 30, 2016, the CA was amended to provide for the payment of an additional 6,300,000 and an additional 5,000,000 free-trading shares, respectively to Tyrell for services rendered due to the huge trading volume of the derivative conversions and to extend the term of the CA to twelve (12) months ending November 7, 2017. The consultant received a total of 14,300,000 (1,430,000 post reverse split) shares of free trading and restricted common stock valued at $91,600.
The Company has entered into Securities Purchase Agreement with Blackbridge Capital, LLC, a Delaware limited liability company [“SPA”], operating out of New York, New York (“Blackbridge”) whereby Blackbridge has agreed to purchase up to $5,000,000 worth of shares of the Company’s common stock. The Company has agreed to file a Registration Statement to register such shares for sale to Blackbridge. In addition, the Company has issued [i] a convertible promissory note to Blackbridge pursuant to the Securities Purchase Agreement equal to $150,000 as a commitment fee, that is currently charged to prepaid expenses until services are provided (the “Blackbridge Note”), [ii] and a $100,000 Convertible Note to cover the expenses to be incurred for the preparation and filing of the Registration Statement and related matters (“Expenses Note”).
On March 13, 2017, the Company and Blackbridge, entered into an Agreement, effective as of March 1, 2017, terminating the SPA. The Registration Statement on Form S-1 filed by the Company pursuant to the SPA could not be processed because of technical issues raised by the SEC and was withdrawn on February 28, 2017. In addition, the Blackbridge Note issued by the Company as a commitment fee remains, by its express terms, in full force and effect notwithstanding the termination of the SPA as does the Expenses Note.
Note 17 – Subsequent Events
The Board of Directors of the Company has approved a reverse stock split of its common stock, at a ratio of 1-for-10 (the “Reverse Stock Split”). The Reverse Stock Split became effective with FINRA (the Financial Industry Regulatory Authority) and in the marketplace on January 13, 2017 (the “Effective Date”), whereupon the shares of common stock began trading on a split adjusted basis. On the Effective Date, the Company’s trading symbol was changed to “ABCED” for a period of 20 business days, after which the “D” will be removed from the Company’s trading symbol, which will revert to the original symbol of “ABCE”. In connection with the Reverse Stock Split, the Company’s CUSIP number will change to 00287V204. On the Effective Date, the total number of shares of the Company’s Common Stock held by each stockholder will be converted automatically into the number of whole shares of Common Stock equal to (i) the number of issued and outstanding shares of Common Stock held by such stockholder immediately prior to the Reverse Stock Split, divided by (ii) 10. No fractional shares will be issued, and no cash or other consideration will be paid. Instead, the Company will issue one whole share of the post-Reverse Stock Split Common Stock to any stockholder who otherwise would have received a fractional share because of the Reverse Stock Split.
As a result of the Reverse Stock Split the number of authorized shares of common stock was reduced to 50,000,000 from 500,000,000 shares. The Company is calling a Special Meeting of Stockholders for May 2017 to authorize an amendment to the Articles of Incorporation to increase the authorized capital to 1,000,000,000 common shares and 100,000,000 preferred shares.
On January 11, 2017, the Company issued a $45,000 one [1] year convertible Note to Crown Bridge Partners, LLC. After the OID and other issuance expenses, the Company netted $40,000. The Note is convertible into shares of common stock at a discount rate of 48% off of the lowest average closing price for the 20 trading day period prior to the date on the notice of conversion.
On February 25, 2017, the Company replaced its current auditors, Thayer-O’Neal Company, LLC (“Thayer”) with Fruci & Associates II, PLLC (“Fruci”). There were no disagreements between the Company and Thayer regarding accounting principles or practices, disclosure requirements or auditing scope or procedures which resulted in this change of auditors. Fruci conducted the audit of the Company’s financial statements for the fiscal year ended December 31, 2016 which appear herein.
Equity Awards
The following table sets forth information on outstanding option and stock awards held by the named executive officers of the Company at March 31, 2017, including the number of shares underlying both exercisable and un-exercisable portions of each stock option as well as the exercise price and the expiration date of each outstanding option. See Note 16 to Notes to Consolidated Financial Statements.
Outstanding Equity Awards After Fiscal Year-End (1)
|
Name
|
Number of securities
underlying unexercised
options exercisable (#)
|
|
Number of securities
underlying unexercised
options un-exercisable (#)
(2))
|
|
Option
Exercise
Price ($)
|
|
Option
Grant
Date
|
|
Option
Expiration
Date
|
Charles O’Dowd
|
|
|
500,000
|
|
|
|
0
|
|
|
$
|
.001
|
|
01/01/2016
|
|
01/01/2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wayne Marx
|
|
|
500,000
|
|
|
|
0
|
|
|
|
.001
|
|
|
|
01/012016
|
|
01/01/2021
|
(1)
|
No Equity Awards were outstanding at December 31, 2016, the end of the Fiscal Year.
|
(2)
|
All options vest 20% per year beginning on the first anniversary of their grant date.
|
In the aggregate of 1,620,000 stock awards are outstanding under the Equity Incentive Plan as of March 31, 2017.