Forward Looking Statements
This Management's Discussion and Analysis of Financial Condition and Results of
Operations include several forward-looking statements that reflect management's
current views with respect to future events and financial performance. You can
identify these statements by forward-looking words such as "may," "will,"
"expect," "anticipate," "believe," "estimate" and "continue," or similar words.
Those statements include statements regarding the intent, belief or current
expectations of us and the management team as well as the assumptions on which
such statements are based. Prospective investors are cautioned that any such
forward- looking statements are not guarantees of future performance and involve
risk and uncertainties, and that actual results may differ materially from those
contemplated by such forward-looking statements.
Readers are urged to carefully review and consider the various disclosures made
by us in this report and in our other reports filed with the Securities and
Exchange Commission. Important factors not currently known to management could
cause actual results to differ materially from those in forward-looking
statements. We undertake no obligation to update or revise forward-looking
statements to reflect changed assumptions, the occurrence of unanticipated
events or changes in the future operating results over time. We believe that our
assumptions are based upon reasonable data derived from and business and
operations of the Company. No assurances are made that the actual results of
operations or the results of our future activities will not differ materially
from our assumptions. Factors that could cause differences include, but are not
limited to, expected market demand for our products, fluctuations in pricing for
materials, and competition.
RESULTS OF OPERATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE FISCAL YEARS ENDED DECEMBER 31, 2022, AND 2021
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our consolidated financial
statements and related notes. This discussion and analysis contain certain
statements that are not historical facts, including, among others, those
relating to our anticipated financial performance for fiscal 2022 and 2021, cash
requirements, and our expansion plans. Only statements which are not historical
facts are forward-looking and speak only as of the date on which they are made.
Information included in this discussion and analysis includes commentary on
company-owned offices and sales volumes. Management believes such sales
information is an important measure of our performance and is useful in
assessing consumer acceptance of the ABCO Energy Business Model and the overall
health of the Company. All our financial information is reported in accordance
with U.S. Generally Accepted Accounting Principles (GAAP). Such financial
information should not be considered in isolation or as a substitute for other
measures of performance prepared in accordance with GAAP.
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OVERVIEW
As of December 31, 2022, we operated in Tucson and Phoenix, Arizona. The
Company's plan is to expand to more locations in North America in the next year.
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. This will result in larger contracting jobs, statewide
expansion and growth in revenue. We remain committed to high quality operations.
Our operating results for the years ended December 31, 2022, and 2021 are
presented below with major category details of revenue and expense including the
components of operating expenses. The footnotes to the financial statements
disclose the related party transactions of Officer, Directors and other related
parties.
FISCAL YEAR ENDED DECEMBER 31, 2022, COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
2021
Sales increased to $1,980,504 in 2022, an increase of $608,094 or 45% over 2021
sales of $1,372,410. The Covid 19 Pandemic, Lack of funds and available staff
has reduced our ability to maintain our sales momentum. Our experience has shown
us that there is going to be such pressure on our market, and we are changing to
prevent decreases in sales in the future. We have added new products and new
sales personnel and intend to find merger and acquisition funding and
acquisition or merger candidates during the current year. There is no assurance
that ABCO will be able to accomplish these goals in the coming year.
Cost of sales increased by $328,831, or 35% to $1,277,722 in 2022 from $948,891
in 2021 due primarily to the increase in sales. The Company also changed its
focus from residential installations to a commercial focus in order to meet
changes in the market. Gross margin as a percentage of total sales was at 36% in
2022 from 31% in 2021, primarily due to higher margins associated with
commercial jobs and better management of costs on the larger commercial jobs in
2022. We hope to bid these contracts more favorably in the future to prevent
negative cost of sales numbers. We hope that more efficient production and a
sales mix shift to the higher profit commercial market emphasis will improve
these numbers.
General and administrative expenses increased by $246,785 to $1,093,425 in 2022
from $846,640 in 2021 due primarily to increases in stock-based compensation to
management which accounted for more than the total increase for the period. We
also decreased our administration staff from 2021 in order to control operating
expenses and to closely administer public company expenses.
Net loss from operations decreased by $626,280 to $(43,626) for the year ended
December 31, 2022, as compared to a loss from operations of $(669,906) for the
year ended December 31, 2021. This increase is attributable to expenses from
stock-based compensation and financing. We had similar margins in 2022 as in
2021 due to the emphasis on commercial projects.
Total Net loss for the twelve months ended December 31, 2022, was $(173,259) and
$(668,375) for the year ended December 31, 2021. This decrease is attributable
to expenses from stock-based compensation, financing and professional fee
charges in 2022 that did not occur in 2021.
LIQUIDITY AND CAPITAL RESOURCES
Our primary liquidity and capital requirements have been for carrying cost of
accounts receivable and inventory during and after completion of contracts. This
process can easily exceed 90 days and requires the contractor to pay all or most
of the cost of the project without assistance from suppliers. Our working
capital on December 31, 2022, was $(1,597,509) and it was $(1,390,788) on
December 31, 2021. This decrease of $206,721 was primarily funded by our
officer's loans and private equity offerings.
ABCO Energy has decreased its loan obligations or long-term debt in 2022 and
2021. Our long-term debt net of current portion totaled $454,041 on December 31,
2022, and $495,525 on December 31, 2021, due mainly to the payments on SBA loans
and equipment purchase loans obtained by the Company.
On December 31, 2022, and 2021, the Company owed its President and Director
$634,733 and $533,244 respectively on demand notes. This is an increase of
$101,489 which represents an additional loan from the President of ABCO.
Bank financing has not been available to the Company.
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STATEMENTS OF CASH FLOWS
During the years ended December 31, 2022, and 2021 our net cash used in
operating activities was $5,487 and $(612,949) respectively. Net cash used by
operating activities in the period ended December 31, 2022, and 2021 consisted
primarily of net loss from operations adjusted for non-cash expenses,
stock-based compensation expense and a decrease in accounts payable and accrued
expenses.
Net cash provided by (used in) investing activities for the years ended December
31, 2022, and 2021 was $(25,788) and $667 respectively. This is primarily due to
the purchase of autos for operations and investment in our building
improvements, including the addition of a solar array. Net cash provided by
financing activities for the years ended December 31, 2022, and 2021 was $8,988
and $589,428 respectively. Net cash provided by financing activities for 2022
and 2021 resulted primarily from the issuance of common stock and the conversion
of convertible debt into common stock and officer's loans.
Since our inception on August 8, 2008, through December 31, 2022, we have
incurred net losses of $(7,919,619), including the effects of derivatives on
convertible debt totaling $2,305,951 and stock-based compensation of $562,699
over the last few years. Our cash and cash equivalent balances were $20,101 and
$31,414 as of December 31, 2022, and 2021 respectively. On December 31, 2022, we
had total liabilities of $2,783,415 as opposed to $2,249,620 on December 31,
2021, an increase of $533,795. Most of the increase occurred because of the SBA
long term loan, officer's loans, the auto purchases, excess billings on
contracts in process and derivative liabilities.
We plan to satisfy our future cash requirements, primarily the working capital
required for the marketing of our products and services, by additional financing
and more operations income. This will likely be in the form of future debt or
equity financing. Based on our current operating plan, we have sufficient
working capital to sustain operations in the short term if we do not expand our
business. We will not, however, be able to reach our goals and projections for
multistate expansion without a cash infusion. We expect that our revenue will
increase at a steady pace and that this volume of business will result in
profitable operations in the future.
OFF BALANCE SHEET TRANSACTIONS
The Company has no off-balance sheet transactions during the years ended
December 31, 2022, and 2021.
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ABCO ENERGY, INC. 
