RESULTS OF OPERATIONS - OVERVIEW
FOR THE THREE MONTHS ENDED JUNE 30, 2020 TO THE THREE MONTHS ENDED JUNE 30, 2018
Our discussion of operating results for the three months ended June 30, 2020 and
June 30, 2019 are presented below with major category details of revenue and
expense including the components of operating expenses.
Sales consist of photovoltaic products, electrical services and LED lighting
products and installation during both periods for the three months ended June
30, 2020 and for the three months ended June30, 2019.
Sales for the three months ended June 30, 2019 were $207,239 as compared to
$459.616 for the same three months in 2019. This is a decrease of $252,377 or
55% of the 2019 sales. The Solar sales revenue in 2020 and 2019 reflected the
Covid 19 Pandemic effects on the Company and seasonal and changing market
conditions in the financing of solar installations and competition from the
public utilities in the Arizona markets and the effects of the COVID 19
Pandemic. When the utilities in Arizona cancelled or substantially reduced net
metering, all solar companies have struggled in the residential market. ABCO has
begun its focus on commercial sales in 2017 and has been able to grow every
period since that decision. ABCO has worked diligently to overcome the utility
changes by focusing on commercial applications and the increased interest of
business and government in the LED lighting contracts.
Cost of sales was $220,150 or 106% of revenues in 2020 and $410,224 or 58% of
revenues in 2019. Gross margins were (9%) of revenue in 2020 and 24% of revenue
for the three months of 2019. During 2020 and 2019 we have been offering new
products and have found our entry market prices for steel parking structures
have added gross margins higher than usual because we use outside contractors
for the entire projects. Our gross profit reflects this decision. We feel that
we have made progress in entering the parking shade markets and that our gross
margins will stabilize as growth lowers these margins in the future.
Total selling, general and administrative expenses were $305,231 or 147% of
revenues in 2020 and $240,805 or 52% of revenues for the same period in
2019. Net (loss) income from operations for the three-month period ended June 30
, 2020 was $(18,431) as compared to the net loss of $(76,295) for the same
three-month period ended June 30, 2019. Our operating expenses for this period
were higher by $64,426 than the comparative period in 2019. The interest expense
during the period ended June 30, 2020 was lower by $13,472 than in the period
ended June 30, 2019 due mostly to the lack of new convertible loans during this
period where accounting treatment requires the recording of prepaids interest
during the first phase of the loan. Derivative liabilities of convertible
debentures were $313,313 during the current period as compared to $0 in the
prior year. This combination of factors decreased the loss for the period ending
June 30, 2020 to $(18,431) as compared to $(76,925) on June 30, 2019, due almost
entirely by the change in derivative income and expenses.
As noted in previous paragraphs discussing market conditions, ABCO could not
finish its backlog of work and expand into the markets of LED lights and
commercial solar markets without maintaining staff, facilities and sales
expenses. When sales revenues fall, and expenses are not reduced in equal
amounts or percentages, the result is an increase of the percentage of operating
expenses to sales revenue. Operating expenses for the two periods increased to
accommodate our expansion of sales programs, but not in the same ratio as the
increase in sales. ABCO chose to maintain a level of expenses that would not
cripple the Company's future.
SIX MONTHS ENDED JUNE 30, 2020 COMPARED TO SIX MONTHS ENDED JUNE 20, 2019.
Our discussion of operating results for the six months ended June 30, 2020 and
June 30, 2019 are presented below with major category details of revenue and
expense including the components of operating expenses.
Sales consist of photovoltaic products, electrical services and LED lighting
products and installation during the six months ended June 30, 2020 and for the
six months ended June 30, 2019.
Sales for the six months ended June 30, 2020 were $522,031 as compared to
$1,113,626 for the same three months in 2019. This is an decrease of 591,595 or
53% of the 2019 sales. The Solar sales revenue in 2020 and 2019 reflected
seasonal and changing market conditions in the financing of solar installations
and competition from the public utilities in the Arizona markets and the effects
of the Covid 19 Pandemic. ABCO has begun its focus on commercial sales in 2018
and has been able to grow every period since that decision until the effects of
the Pandemic. ABCO has worked diligently to overcome the utility changes by
focusing on commercial applications and the increased interest of business and
government in the LED lighting contracts.
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Cost of sales was $434,320 or 83% of revenues in 2020 and $678,886 or61% of
revenues in 2019. Gross margins were 17% of revenue in 2020 and 39% of revenue
for the six months of 2019. During 2020 and 2019 we have been offering new
products and have found our entry market prices for steel parking structures
have added gross margins higher than usual because we use outside contractors
for the entire projects. Our gross profit reflects this decision. We feel that
we have made progress in entering the parking shade markets and that our gross
margins will stabilize as growth lowers these margins in the future.
Total selling, general and administrative expenses were $465,410 or 89% of
revenues in 2020 and $501,866 or 45% of revenues for the same period in
2019. Net (loss) income from operations for the six-month period ended June 30,
2020 was $(371,205) as compared to the net loss of $(595,760) for the same six
month period ended June 30, 2019. Our operating expenses for this period were
lower by $36,456 than the comparative period in 2019. The interest expense
during the period ended June 30, 2020 was lower by $89,306 than in the period
ended June 30, 2019 due mostly to the increase in working capital through new
merchant loans and derivatives on convertible debt. Derivative liabilities of
convertible debentures decreased by $445,822 during the current period as
compared to the prior year. This combination of factors decreased the loss for
the six month period ending June 30, 2020 to $(371,205) as compared to
$(575,760) for the six months ended June 30, 2019, due almost entirely by the
change in derivative income and expenses.
As noted in previous paragraphs discussing market conditions, ABCO could not
finish its backlog of work and expand into the markets of LED lights and
commercial solar markets without maintaining staff, facilities and sales
expenses. When sales revenues fall, and expenses are not reduced in equal
amounts or percentages, the result is an increase of the percentage of operating
expenses to sales revenue. Operating expenses for the two periods increased to
accommodate our expansion of sales programs, but not in the same ratio as the
increase in sales. ABCO chose to maintain a level of expenses that would not
cripple the Company's future.
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STATEMENTS OF CASH FLOWS FOR THE SIX ENDED JUNE 30, 2020 AND 2019
During the six months ended June 30, 2020 our net cash provided by operating
activities was $13,596 and comparatively the net cash used by operating
activities in the three months ended June 30, 2019 was $(98,823). Net cash used
by operating activities in the period ended June 30, 2020 consisted primarily of
net losses from operations of $(371,205) for 2020 as compared to a loss of
$(595,760) for 2019. Depreciation adjustments were of non-cash expenses were
$11,470 and $5,290 for each period respectively. Derivative portion of
convertible debt accounted for charges to income for future changes in value of
the underlying stock in the amount of $(19,589) for the period ended June 30,
2020. None of this expense will be realized if this debt is retired before
maturity. The Company experienced an increase in accounts payable of $112,751
and a decrease of $(264,958) for each period respectively. This is primarily due
to the Company's ability apply cash receipts from investors and operations to
pay past and current creditors during each period. Accounts receivable decreased
by $184,556, net of adjustments for contracts in process, during the period
ended June 30, 2020 due to increases in contract payments at the end of the
period.
Net cash used for investing activities for the periods ended June 30, 2020 and
2019 was $(8,765) and $5354 respectively due to receipt of principal on leases
paid or terminated and equipment acquisitions.
Net cash provided by financing activities for the periods ended June 30, 2020
and 2019 was $120,230 and $81,387 respectively. Net cash provided by financing
activities for 2020 and 2019 resulted primarily from the sale of common stock,
loans from a financial institution and loans from a Director, Officer and
affiliates. Any future conversions will increase the number of shares
outstanding and the Stockholders Equity by the amount of the original
investment.
LIQUIDITY AND CAPITAL RESOURCES
Our primary liquidity and capital requirements have been for carrying cost of
accounts receivable after completion of contracts. The industry habitually
requires the solar contractor to wait for the utility approval in order to be
paid for the contracts. This process can easily exceed 90 days and sometimes
requires the Company as the contractor to pay all or most of the cost of the
project without assistance from suppliers. Our working capital at June 30, 2020
was $(1,602,188) and it was $(1,558,100) at December 31, 2019. This increase of
$44,088 was primarily due to losses from operations during the period ended June
30, 2020 and adjustments for possible future losses on derivative
conversions. Bank financing has not been available to the Company, but we have
been able to increase our credit lines with our suppliers because of good
credit. There are no material covenants on our credit lines, normally due in 30
days, since they are standard in the industry and the balances vary on a daily
basis. Most are personally guaranteed by the Officer of the Company.
The total borrowed from Directors, Affiliates and officers totaled $313,608 plus
accrued interest of $110,034 as of June 30, 2020. There are no existing
agreements or arrangement with any Director to provide additional funds to the
Company.
During the six months period ended June 30, 2020 or the last fiscal year ended
December 31, 2019 there were no transactions, or proposed transactions, which
have materially affected or will materially affect the Company in which any
director, executive officer or beneficial holder of more than 5% of the
outstanding common, or any of their respective relatives, spouses, associates or
affiliates, has had or will have any direct or material indirect interest. We
have no policy regarding entering into transactions with affiliated parties.
PLAN OF OPERATIONS
Based on our current financial position, we cannot anticipate whether we will
have sufficient working capital to sustain operations for the next year if we do
not raise additional capital. We will not, however, be able to reach our goals
and projections for multistate expansion without a cash infusion. We have been
able to raise sufficient capital through the sale of our common shares and we
have incurred substantial increases in debt from our trade creditors in the
normal course of business. Management will not expand the business until
adequate working capital is provided. Our ability to maintain sufficient
liquidity is dependent on our ability to attain profitable operations or to
raise additional capital. We have no anticipated timeline for obtaining neither
additional financing nor the expansion of our business. We will continue to keep
our expenses as low as possible and keep our operations in line with available
working capital as long as possible. There is no guarantee that the Company will
be able to obtain adequate capital from any sources, or at all.
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ABCO ENERGY, INC. 
