808 RENEWABLE ENERGY CORP - Quarter Report: 2015 September (Form 10-Q)

---

 

808 Renewable Energy Corporation
Balance Sheets
Unaudited
		September 30,				December 31,
		2015				2014
Assets
Current assets
Cash and cash equivalents		$	151,647			$	4,006,824
Accounts receivable-net			68,773				44,111
Prepaid expenses and other current assets			66,836				90,276
Total current assets			287,256				4,141,211
Long term assets
Project assets,net			2,695,955				2,902,277
Property, plant and equipment, net			146,824				179,645
Deposits			31,000				38,459
Total long term assets			2,873,779				3,120,381
Total assets		$	3,161,035			$	7,261,592
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued expenses		$	520,909			$	479,749
Finance contracts payable			-				7,698
Total current liabilities			520,909				487,447
Stockholders' equity
Series A Preferred stock, $0.001 par value, 20,000,000 shares authorized;
none issued and outstanding as of September 30, 2015 and 2,215,259
issued and outstanding as of December 31, 2014, respectively			-				2,215
Series D Preferred stock, no par value; 8,000,000 shares authorized;
4,416,000 issued and outstanding as of September 30, 2015 and  December 31,
2014 respectively			5,520,000				5,520,000
Common stock, $0.001 par value, 100,000,000 shares authorized;
69,103,038 and 70,261,668   shares issued and outstanding
as of September 30, 2015 and December 31, 2014 respectively			69,103				70,262
Treasury stock			-				(250,122	)
Additional paid in capital			18,027,060				21,015,622
Accumulated deficit			(20,976,037	)			(19,583,832	)
Total stockholders' equity			2,640,126				6,774,145
Total liabilities and stockholders' equity		$	3,161,035			$	7,261,592

 

See accompanying notes to unaudited financial statements

 

 

 

 

 

 

 

See accompanying notes to unaudited financial statements

 

 

 

 

 

 

 

Statements of Cash Flow
Unaudited
		For the nine months ended
		September 30
		2015				2014
Cash flows from operating activities
Net loss		$	(1,392,205	)		$	(2,066,596	)
Adjustments to reconcile net loss to net cash used in operating
activities
Depreciation expense			239,143				293,900
Stock based compensation			-				1,125,000
Write off of deposits			7,459				-
(Increase) decrease in current assets
Accounts receivable			(24,662	)			12,428
Prepaid expenses and other current assets			23,440				(16,671	)
Increase (decrease) in current liabilities:
Accounts payable and accrued expenses			41,162				(100,953	)
Net cash used in operating activities			(1,105,663	)			(752,892	)
Cash flows from investing activities
Acquisition of project assets			-				(1,200	)
Acquisition of property and equipment			-				(29,999	)
Net cash used in  investing activities			-				(31,199	)
Cash flows from financing activities
Dividends paid			(391,540	)			-
Cash used to repurchase Series A preferred shares			(2,215,000	)			-
Cash used to repurchase common shares			(135,276	)			-
Cash used to repay finance contract, net			(7,698	)			(13,067	)
Proceeds from  related party debt			-				599,773
Net cash provided by (used in) financing activities			(2,749,514	)			586,706
Net decrease in cash and cash equivalents			(3,855,177	)			(197,385	)
Cash and cash equivalents, beginning balance			4,006,824				197,385
Cash and cash equivalents, ending balance		$	151,647			$	-
Supplementary information
Cash paid during the year for:
Interest		$	-			$	17,295
Income taxes		$	-			$	800
Non-cash financing activities
Preferred stock subscription		$	-			$	2,000,000
Deemed dividend on Series D preferred stock		$	-			$	1,875,969
Cancellation of treasury shares		$	250,122			$	-

 

 

- 4 -

---

808 Renewable Energy Corporation

Notes to Financial Statements

September 30, 2015

Unaudited

 

 

 

 

 

This quarterly report on Form 10-Q contains forward-looking statements. Forward-looking statements are projections of events, revenues, income, future economic performance or management's plans and objectives for future operations. In some cases, you can identify forward-looking statements by the use of terminology such as "may", "should", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential" or "continue" or the negative of these terms or other comparable terminology. Examples of forward-looking statements made in this quarterly report on Form 10-Q includes statements about:

 

 

These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including:

 

 

any of which may cause our company's or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

 

While these forward-looking statements and any assumptions upon which they are based are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

 

As used in this report, the terms "we", "us" and "our" mean 808 Renewable Energy Corporation, a Nevada corporation. In this report, unless otherwise specified, all dollar amounts are expressed in United States dollars and all references to "common shares" refer to the common shares in our capital stock.

 

The following discussion and analysis of our financial condition and plan of operations should be read in conjunction with our unaudited interim financial statements and related notes appearing elsewhere in this Quarterly Report. 

- 7 -

---

808 Renewable Energy Corporation (the "Company", "we", "our") was formed as a Nevada corporation in May 2009 for the purpose of acquiring, developing, owning and managing renewable and efficient energy projects throughout the United States. Before forming 808 Renewable Energy Corporation, we operated 808 Energy 3, LLC, a Nevada limited liability company formed in January 2009 for the purpose of acquiring, re-commissioning and operating distributed generation ("DG") energy facilities, also known as combined heat and power ("CHP") plants. On August 20, 2010, 808 Renewable acquired all of the then-outstanding units of membership interest of 808 Energy 3, LLC not then already owned by 808 Renewable, thereby making 808 Energy 3, LLC a wholly-owned subsidiary of 808 Renewable. We also acquired 808 Energy 2, LLC, a Nevada limited liability company formed in August 2008 to acquire the CHP plant located at Pacific Clay Products, Inc. in Lake Elsinore, California. Effective as of June 30, 2011, 808 Renewable acquired all of the then-outstanding units of membership interest of 808 Energy 2, LLC not then already owned by 808 Renewable, thereby making 808 Energy 2, LLC a wholly-owned subsidiary of 808 Renewable.

 

Our principal executive offices are located at 13888 Harbor Boulevard, Suite 8A, Garden Grove, California 92843. Our telephone number is (714) 891-8282, and our website address is www.808RenewableEnergy.com.

808 Renewable Energy, or the Company, distributes, owns and operates clean, on-site energy systems that produce electricity, hot water, heat and cooling. Our business model includes ownership of the equipment that we install at customers' facilities and the sale of the energy produced by these systems to the customers on a long-term contractual basis. We also provide engineering and other professional services to clients who own their own on-site energy systems, but require assistance in their operation and maintenance.

 

We offer natural gas powered cogeneration systems that are highly reliable and energy efficient. Our cogeneration systems produce electricity from an internal combustion engine driving a generator, while the heat from the engine and exhaust is recovered and typically used to produce heat and hot water for use at the site. We also distribute and operate water chiller systems for building cooling applications that operate in a similar manner, except that the engine's power drives a large air-conditioning compressor while recovering heat for hot water. Cogeneration systems reduce the amount of electricity that the customer must purchase from the local utility and produce valuable heat and hot water for the site to use as required. By simultaneously providing electricity, hot water and heat, cogeneration systems also have a significant, positive impact on the environment by reducing the carbon or CO 2  produced by offsetting the traditional energy supplied by the electric grid and conventional hot water boilers.

 

Our customers pay us for energy produced on site at a rate that is a certain percentage below the rate at which the utility companies provide them electrical and natural gas services. We measure the actual amount of electrical and thermal energy produced and charge our customers accordingly. We agree to install, operate, maintain and repair our energy systems at our sole cost and expense. We also agree to obtain any necessary permits or regulatory approvals at our sole expense. Our agreements are generally for a term of up to 15 years, with renewable provisions upon the mutual agreement of the parties

  

For the customers that want to own their CHP system, we offer our "turn-key" option whereby we provide equipment, systems engineering, and installation; interconnect approvals, on-site labor and startup services needed to bring the complete CHP system on-line. For some customers, we are also paid a fee to operate the systems and charge for those systems on a negotiated basis.

 

Revenues from operation and maintenance services are recorded when provided and verified.

 

- 8 -

---

 

 

 

 

We have experienced total net losses since inception of approximately $20,976,037.  For the foreseeable future, we expect to experience continuing operating losses and negative cash flows from operations as our management executes our current business plan. The cash, cash equivalents, line of credit available from our CEO, Patrick Carter and the proceeds from the sale of series D Preferred stock available at September 30, 2015 will provide sufficient working capital to meet our anticipated expenditures including installations of new equipment for the next three months; however, as we continue to grow our business by adding more energy systems, the cash requirements will increase. We believe that our cash, cash equivalents, line of credit available at September 30, 2015 and our ability to control certain costs, including those related to general and administrative expenses, will enable us to meet our anticipated cash needs through December 31, 2015.  Beyond December 31, 2015, we may need to raise additional capital through a debt financing or equity offering to meet our operating and capital needs. There can be no assurance, however, that we will be successful in our fundraising efforts or that additional funds will be available on acceptable terms, if at all.

 

  If we are unable to raise additional capital in 2015 we may need to terminate and/or adjust our current business plan. Financial considerations may cause us to modify planned deployment of new energy systems and we may decide to suspend installations until we are able to secure additional working capital. We will evaluate possible acquisitions of, or investments in, businesses, technologies and products that are complementary to our business; however, we are not currently engaged in such discussions.

 

The Company's operations are comprised of several business segments. The selling of energy in the form of electricity, heat, hot water and cooling to our customers under long-term sales agreements; the sale of professional services to clients that own their own distributed generating and CHP plants.

 

Critical Accounting Policies

 

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, the reported amounts of revenues and expenses during the reporting period, and the disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. Management believes the following critical accounting policies involve more significant judgments and estimates used in the preparation of our consolidated financial statements.

 

Property and equipment are stated at cost. Depreciation and amortization are computed using the straight-line method at rates sufficient to write off the cost of the applicable assets over their estimated useful lives. Repairs and maintenance are expensed as incurred.

Project assets consist of costs of materials, direct labor, outside contract services and project development costs incurred in connection with the construction of the small-scale renewable energy plants that the Company owns.  Depreciation is, generally, recorded on a straight line basis beginning in the month that operations commence over the assets estimated useful lives ranging from 10 to 20 years. Routine maintenance costs, to the extent that they do not extend the life of the asset, are expensed in the year they are incurred.

 

The Company evaluates the recoverability of its long-lived assets if circumstances indicate impairment may have occurred. This analysis is performed by comparing the respective carrying values of the assets to the current and expected future cash flows, on an undiscounted basis, to be generated from such assets. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair values are reduced for the cost of disposal. Based on its review, the Company found no need to recognize impairment expense, for the nine months ended September 30, 2015.  $1,684,334 was recognized for the year ended December 31, 2014.

- 9 -

---

The Company derives revenue from energy efficiency and renewable energy products and services, which includes the design, engineering, and construction of energy systems that produce electricity, heat or cooling from renewable sources of energy. The Company enters into long-term energy sales agreements (with a typical term of 10 to 15 years) with customers, whereby these energy systems are owned by the Company and are installed in customers' buildings. As of September 30, 2015, the Company had revenue producing systems in four locations.

Each month, the Company obtains readings from its energy meters to determine the amount of energy produced for each customer. The Company multiplies these readings by the appropriate published price of energy (electricity) from its customers' local energy utility, and the energy services agreement entered into with each customer, to derive the value of the monthly energy sales, less the applicable negotiated discount.  The Company's revenues per customer, on a monthly basis, will vary based on the amount of energy produced by its energy systems and the published price of energy (electricity, natural gas or oil) obtained from its customers' local energy utility.

 

The Company recognizes revenue when it is realized or realizable and earned, and therefore only recognizes revenue on energy systems once those systems become operational. The Company recognizes revenue from the sale of equipment upon installation and recognizes revenue on professional services in accordance with the contract entered into with the customer.

 

The Company must meet all of the following four criteria in order to recognize revenue:

 

●

Persuasive evidence of an arrangement exists

●

Delivery has occurred

●

The sales price is fixed or determinable

●

Collection is reasonably assured

 

Payments received in advance of satisfaction of the relevant criteria for revenue recognition are recorded as advances from customers.

 

Impact of New Accounting Pronouncements

 

The Company does not expect the impact of recently issued accounting pronouncements to have a material impact on the Company's results of operations, financial position or cash flows.

 

Results of Operations

 

For the three and nine months ended September 30, 2015 compared with the three and nine months ended September 30, 2014.

 

Revenues, from the delivery and sale of electricity and related products, including professional services, for the three and nine months ended September 30, 2015 were $163,561 and $577,879, respectively, compared to $127,495 and $329,897 for the same period in 2014, increases of $36,066 or 28.3% for the three months ended September 30, 2015 and $247,982 or 75.2% for the nine months ended September 30, 2015 compared to the same nine months in the previous year. The increase in revenues was primarily due to the increased number production hours of installed CHP systems operating throughout the three and nine months compared to the same period in 2014.

During the nine months ended September 30, 2015, the Company operated four revenue producing locations that produced 3,265,246 KWh of total energy sold, compared to four systems, two of which operated minimally, producing 1,943,807 KWh of installed electricity plus thermal energy for the same period in 2014, an increase of 1,312,439 KWh or 67.5%.  For the three months ended September 30, 2015 and 2014 the Company operated four revenue producing locations generating 1,039,890 KWh and 709,161 KWh, an increase of 330,729 KWh or 46.6%. The energy production revenue per customer on a monthly basis is based on the sum of the amount of energy produced by the Company's energy systems and the prevailing price of energy (electricity, natural gas or oil) from its customers' local energy utility that month, less the discounts the Company provides its customers. The Company's Energy Production revenues commence as new energy systems become operational, and the Company typically sells energy in the form of electricity, heat, hot water and cooling.

- 10 -

---

 

 

Our CHP plants allow our customers to reduce both their energy costs and site carbon production by deploying combined heat and power technology on our customers' premises at no cost. Therefore, our company is capital intensive. Our company believes that its existing resources, including cash and cash equivalents, line of credit and future cash flow from operations, are sufficient to meet the working capital requirements of its existing business for the foreseeable future, including the next nine months; however, as our company continues to grow its business by adding more CHP plants, the cash requirements will increase. Beyond September 30, 2015, we will need to raise additional capital through a debt financing or an equity offering to meet our company's operating and capital needs for future growth. There can be no assurance, however, that we will be successful in our fundraising efforts or that additional funds will be available on acceptable terms, if at all.

 

We anticipate re-commissioning one additional facility in the fourth quarter of 2015.  The capital cost to refurbish the existing equipment, replace parts, update the controls and commence operation for that plant is estimated to be approximately $200,000.  We do not currently have sufficient capital resources or revenue from operations to accomplish the re-commissioning and will be required to raise additional capital through debt or equity offerings.  The Company has been exploring various methods of raising additional capital, including the sale of common stock and the sale of partial ownership interests in one or more of its existing facilities.  We will re-commission these plants only as capital is raised to pay the capital costs.  However, if we undertake to re-commission one or more plants, and the costs are more than anticipated, we could experience a shortage of cash flow to sustain operations, in which case the need for additional capital will occur earlier than anticipated and could force us to reduce or curtail certain operations.  We have, from time to time, relied upon loans from affiliates, particularly our CEO Patrick S. Carter and a, previous, director Thomas Grainger, to meet our requirements for operating capital.  We do not expect such loans to be available to us in the future.

 

Our ability to continue to access capital could be impacted by various factors including general market conditions, interest rates, the perception of our potential future earnings and cash distributions, any unwillingness on the part of lenders to make loans to us and any deterioration in the financial position of lenders that might make them unable to meet their obligations to us. If these conditions continue and we cannot raise funds through a public or private debt financing, or an equity offering, our ability to grow our business may be negatively affected. In such case, our company may need to suspend any installation of new CHP plants and significantly reduce its operating costs until market conditions improve.

  

Seasonality

 

Our customers generally use additional energy during periods of more extreme temperatures. Accordingly, our revenue generally tends to increase during the summer. The majority of our heating systems sales are in the winter and the majority of our chilling systems sales are in the summer.

 

Inflation

 

Inflation will generally cause conventional utility suppliers to increase their rates, and since we bill our customers based on the electric utility rates, our pricing will increase in tandem and positively affect our revenue. However, inflation might cause both our investment and cost of goods sold to increase, thereby lowering our return on investment and depressing our gross margins.

 

 Off Balance Sheet Arrangements

 

Our company has no off balance sheet arrangements.

 

Item 3: - Quantitative and Qualitative Disclosures about Market Risk

 

Not applicable

- 12 -

---

 

We know of no material pending legal proceedings to which our company is a party or of which any of our properties is the subject. In addition, we do not know of any such proceedings contemplated by any governmental authorities.

 

In January 2015, we were notified that the U.S. Securities and Exchange Commission (SEC) had commenced an investigation of our Company and certain of our officers and directors.  We have received and responded to numerous subpoenas directed to us and to Patrick S. Carter, our CEO.  We are informed that Thomas Grainger, a director, and several employees have also received subpoenas and are responding thereto.  The SEC is investigating alleged violations of the Securities Act of 1933 and the Securities Exchange Act of 1934.  The SEC has also issued numerous subpoenas to banks and financial institutions at which we or our officers and directors maintain accounts.  The investigation is, at this point, merely fact finding and no formal proceedings have been instituted against us or any related person.

 

 

Item 1A: - Risk Factors

 

Smaller reporting companies are not required to provide the information required by this item.

 

 

Item 2: - Unregistered Sales of Equity Securities and Use of Proceeds.

 

On January 25, 2014 the Company issued 100,000 restricted common shares to each of its five directors as compensation for services rendered in 2013 and to be rendered in 2014.  The 500,000 shares were recorded at a cost of $0.75 per share.

 

On September 25, 2014 the Company issued 400,000 to two employees for past services.

On September 4, 2014 the Company issued 750,000 shares to its CEO as compensation.

On September 30, 2014, the Company issued, to a director, 1,600,000 Series D Preferred Shares, for cash of $2,000,000.

On November 3 and November 19, 2014 the Company issued, to an investor, 16,000 Series D Preferred Shares, for cash of $20,000.

On December 31, 2014, the Company issued, to a director, 2,800,000 Series D Preferred Shares, for cash of $3,500,000.

On August 5, and on September 21, 2015 the Company cancelled 718,990 and 442,140 common shares which had been repurchased for that purpose.

 

 

Item 3: - Default Upon Senior Securities

 

None

 

 

Item 4: - Mine Safety Disclosures

 

Not applicable

 

 

Item 5: - Other Information

 

On July 29, 2015, Thomas Grainger resigned as a director, effective July 26, 2015.

- 14 -

---

Exhibit No.		Description
31.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302
32.1		Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of The Sarbanes-Oxley Act of 2004

 

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document*
101.INS		XBRL Instance Document
101SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

 

* XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.