ABCO ENERGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2016,2020 AND 2019

AND THE YEAR ENDED DECEMBER 31, 2019

On August 8, 2019 the Company issued to Crown Bridge Partners, LLC a Convertible Promissory Note which contains an aggregateoriginal issue discount of 19,872,739$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 upon conversionsequal to 150% of nine differentthe face value of each respective tranche divided by $0.05 (for illustrative purposes, the First Tranche face value is equal to $50,000, 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. $17,548 of this note was converted during the three months ended March 31, 2020.

 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 notesinto 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 conversion prices ranging from $0.0015a price equal to $0.004785% 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. All share figures containedas 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 filingnote 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. During the three months ended March 31, 2020 Oasis converted $36,053 into shares. The balance on the original note including interest and penalties was $$238,619 at March 31, 2020.

As of January 21, 2020 (“Effective Date”), the Company issued to Oasis a $208,000 Promissory Note, net of a prorated original issue discount of $16,000 (“Note”). The Company received $34,000 (“First Tranche”) and the Second in the amount of $25,000 was received in the 1^st quarter. The Third Tranches under this Note were due in February and March, 2020, respectively. In addition, the note caries an $8,000 credit for Oasis transactional expenses. There have been adjusted to reflect Post Reverse Stock Split numbers. As a resultno additional loans from the transaction since tranche one and two totaling $59,000. Each Tranche matures nine months from the effective date of each such issuances, all six [6] of the notes have paid in full as of that date.payment. The Company recorded $424,878 for the equity infusion provided by these notes.

The combination of the Company’s Common Stock held by each stockholder was converted automatically intotwo notes at March 31, 2020 have a recorded balance of $310,922. Oasis and the number of whole shares of Common Stock equalCompany have agreed to (i)negotiate this commitment after 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 were issued, and no cash or other consideration was paid.  The Company issued one whole share of the post-Reverse Stock Split Common Stock to all stockholders who otherwise would have received a fractional share because of the Reverse Stock Split.

ABCO ENERGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019

AND THE YEAR ENDED DECEMBER 31, 2019

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 resultframework 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.

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 Reversederivative liabilities on March 31, 2020 and December 31, 2019:

Note 13 – Long term debt

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 ENERGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019

AND THE YEAR ENDED DECEMBER 31, 2019

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 payments on the Ascentium capital note are $435 and the payments on the Donze note are $212 each per month

The Company purchased an automobile from its then 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 an officer or employee of the Company. The principle payments during 2019 totaled $2,107. The balance at March 31, 2020 was $2,908.

Note 14 – Stockholder’s Deficit

Common Stock Split

During the number of authorizedyear ended December 31, 2019 the Company sold 4,740,000 shares of restricted common stockshares in Regulation S offerings to non-US investors. The total proceeds from the offering was reduced$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 50,000,000 from 500,000,000in Note 10 above.

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. At a Special MeetingThe balance of Stockholders held on August 17, 2017, Company shareholders authorized an amendment850,000 shares was awarded to consultants to the ArticlesCompany. In October 2019, 1,000,000 shares each were issued to Mikael Mildebrandt and Adrian Balinski in connection with their becoming officers and directors of Incorporation to increase the authorized capital to 1,000,000,000 commonCompany.

During the three months ended March 31, 2020 the following shares and 100,000,000 preferred shares. The Amendment was filed with the Nevada Secretary of State on August 17, 2017.

Earnings (loss) per share calculation

Basic net loss per share is computed by dividing net loss by the weighted average number of a Meetingshares of Shareholders executed September 26, 2017,common stock outstanding during the holdersperiod. Diluted net loss per share is computed by dividing net loss by the weighted average number of a majorityshares of the voting power common stock and preferredpotentially outstanding shares of common stock during each period

ABCO ENERGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019

AND THE YEAR ENDED DECEMBER 31, 2019

The computation of basic and diluted loss per share at December 31, 2019 excludes the common stock equivalents from convertible debt of the Company adopted a further Amendment tofollowing potentially dilutive securities because their inclusion would be anti-dilutive, and the Articles of Incorporation increasing the authorized common stock from 1 Billion shares to 2 Billion shares The Certificate of amendment was filed with the Nevada Secretary of State on September 28, 2017.

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. The balance ofTotal amounts paid or accrued interest at September 30, 2017under this agreement and charged to additional paid-in capital for the years ended December 31, 20162019 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 no payments have been made during the current period.

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.

As 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. 

As of September 30, 2017 totaling approximately $4,139,652.  A deferred tax benefit of approximately $1,407,482 has been offset by a valuation allowance of the same amount as its realization is not assured.

The combination of the lowest two (2) trade pricesnotes at March 31, 2020 have a recorded balance of $310,922. Oasis and the Company have agreed to negotiate this commitment after the Company is current on its filings.

ABCO ENERGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019

AND THE YEAR ENDED DECEMBER 31, 2019

Note 15 – 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, 2020 and 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.

An aggregate of 2,120,000 stock awards are outstanding under the Equity Incentive Plan as of December 31, 2019.  The 620,000 of the options are issued to a consultant of the Company.

Note 16 – 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 March 31, 2020, 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 March 31, 2020, 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 March 31, 2020, 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 THREE MONTHS ENDED MARCH 31, 2020 AND 2019

AND THE YEAR ENDED DECEMBER 31, 2019

On May 3, 2020, Company entered into a promissory note evidencing an unsecured loan in the 15 trading days beforeamount of $124,099.00 made to the conversion date.

On November 8, 2017,June 29, 2020 the Company entered into a ConsultingLoan Agreement with Eurasian Capital, LLC [“Consultant”] which will provide institutional funding services and shareholderexecuted a Note  and third party sponsorship servicesa Security Agreement for a  six month term ending May 7, 2018. Consultant shall be paidloan in the amount of $ 150,000 under the SBA’s Economic Injury Disaster Loan Program . The loan bears interest at 3.75%  per annum and is payable over a thirty year period with monthly retainerpayments of $10,000 payable in ABCO restricted common stock based upon$731. No payments are due for the 5 day averagefirst twelve months of the closing bid price commencingloan. The loan is secured by a pledge of all tangible and intangible personal property owned by the Company or hereafter acquired. The proceeds have been used by the Company entirely for working capital purposes.

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 first day1934 Exchange Act. Demand for immediate payment of each month during the effectiveness of the Consulting Agreement. Consultant will$98,250 plus accrued interest and accrued default interest was also be paid a success fee of 7% for raising capital which will be paid in cash from the proceeds of each applicable capital raise.

Our discussion of operating results for the threeThree months ended September 30, 2017March 31, 2020 and September 30, 2016March 31, 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 September 30, 2017March 31, 2020 and for the three months ended September 30, 2016.

Sales for the three months ended September 30, 2017March 31, 2019 were $265,856$314,792 as compared to $146,547$ 654,010 for the same three months in 2016.2019.  This is an increasea decrease of $119,309339,218 or 82% above52% of the 20162019 sales. The Solar sales revenue in 20172020 and 20162019 reflected seasonal and changing market conditions in the financing of solar installations and competition from the public utilities in the Arizona markets.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 rebate programs, the financing or leasing companies were able to reduce the financial requirements by accepting the rebates as partial payments were no longer able to make loans or lease that required no money down or longer terms for their finance products.  This severally reduced the opportunities forresidential market. ABCO has begun its focus on commercial sales and reduced gross margins substantially.  Without available financing, the sales of solar products became even more difficult.  The prices of solar products were reduced in 2017 and 2016has been able to offset the reduction or elimination of rebates. The market has recovered during the first six months of 2017.  The advent of the federal legislation on possible tariffs for imported panels has had an effect on the sales and profits for the third quarter because of drastic price corrections and availability of products.grow every period since that decision. ABCO has worked diligently to overcome thesethe utility changes by focusing on commercial applications and the increased interest of business and government in the LED lighting contracts.

Cost of sales was 143%$214,170 or 68% of revenues in 20172020 and 119%$410,224 or 67% of revenues in 2016.2019.  Gross margins were 43%32% of revenue in 20172020 and 19%33% of revenue for the three months of 2016.2019.  During 20172020 and 20162019 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 107%$160,179 or 51% of revenues for the three months ended June 30, in 20172020 and 129%$261,061 or 43% of revenues for the same period in 2016.2019.  Net loss(loss) income from operations for the three-month period ended September 30, 2017March 31, 2020 was $(135,161)$(59,557) as compared to the net incomeloss of $13,401$17,275 for the same three- monththree-month period ended September 30, 2016.March 31, 2019.  Our operating expenses for this period were lower as a percentage of revenue and lower by 22% from$100,882 than the comparative period in 2016.2019. The interest expense during the period ended September 30, 2017March 31, 2020 was higherlower by $11,406$75,834 than in the period ended September 30, 2016March 31, 2019 due mostly to the working capital provisionlack of merchantnew convertible loans and convertible debt.  Interest on derivativeduring this period where accounting treatment requires the recording of prepaids interest during the first phase of the loan.  Derivative liabilities of convertible debentures decreased by $154769 during the current period as compared to the prior year. This combination of factors increased the operating loss for the period ending September 30, 2017 by $148,562 to $135161) compared to net income of $13,401 at September 30, 2016.  Since our year to date revenues are higher than the previous year, this resulted in lower operating expenses as a percentage of total revenue.

As noted in previous paragraphs discussing market conditions, ABCO could not finish its backlog of work and expand into the markets of LED lights and commercial solar markets without maintaining staff, facilities and sales expenses.  When sales revenues fall, and expenses are not reduced in equal amounts or percentages, the result is an increase of the percentage of operating expenses to sales revenue.  Operating expenses for the two periods was approximately the sameincreased to accommodate our expansion of sales programs, but not in the same ratio as the reductionincrease in sales. ABCO chose to maintain a level of expenses that would not cripple the Company’s future.