808 RENEWABLE ENERGY CORP - Quarter Report: 2015 June (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2015
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File No. 333-184319
808 Renewable Energy Corporation
(Exact name of registrant as specified in its charter)
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Nevada
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80-0651522
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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13888 Harbor Blvd. Ste. 8A
Garden Grove, CA 92843
Registrant’s Telephone Number, Including Area Code: (714) 891 8282
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
☑ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
☑ Yes ☐ No (Not required)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer ☐
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Accelerated filer ☐
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Non-accelerated filer ☐
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Smaller reporting company ☑
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐Yes ☑ No
Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date: 69,542,678 shares of common stock as of August 18, 2015.
PART I – FINANCIAL INFORMATION
Item 1. – Financial Statements
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808 Renewable Energy Corporation
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Balance Sheets
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Unaudited
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June 30,
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December 31,
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|||||||
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2015
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2014
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|||||||
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Assets
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||||||||
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Current assets
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||||||||
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Cash and cash equivalents
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$
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412,108
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$
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4,006,824
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||||
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Accounts receivable-net
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90,031
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44,111
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||||||
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Related party account receivable
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135,276
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-
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||||||
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Prepaid expenses and other current assets
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102,405
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90,276
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||||||
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Total current assets
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739,820
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4,141,211
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||||||
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Long term assets
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||||||||
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Project assets,net
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2,764,729
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2,902,277
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||||||
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Property, plant and equipment, net
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157,010
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179,645
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||||||
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Deposits
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31,000
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38,459
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||||||
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Total long term assets
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2,952,739
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3,120,381
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||||||
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Total assets
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$
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3,692,559
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$
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7,261,592
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||||
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Liabilities and Stockholders' Equity
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||||||||
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Current liabilities
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||||||||
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Accounts payable and accrued expenses
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$
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490,057
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$
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479,749
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||||
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Finance contracts payable
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-
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7,698
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||||||
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Total current liabilities
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490,057
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487,447
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||||||
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Stockholders' equity
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||||||||
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Series A Preferred stock, $0.001 par value, 20,000,000 shares authorized;
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||||||||
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none issued and outstanding as of June 30, 2015 and 2,215,259
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-
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2,215
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||||||
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issued and outstanding as of December 31, 2014, respectively
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||||||||
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Series D Preferred stock, no par value; 8,000,000 shares authorized;
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||||||||
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4,416,000 issued and outstanding as of June 30, 2015 and December 31,
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||||||||
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2014 respectively
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5,520,000
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5,520,000
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||||||
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Common stock, $0.001 par value, 100,000,000 shares authorized;
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||||||||
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70,261,668 shares issued and outstanding
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||||||||
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as of June 30, 2015 and December 31, 2014 respectively
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70,262
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70,262
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||||||
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Treasury stock - 718,990 shares
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(250,122
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)
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(250,122
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)
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||||
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Additional paid in capital
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18,576,897
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21,015,622
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||||||
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Accumulated deficit
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(20,714,535
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)
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(19,583,832
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)
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||||
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Total stockholders' equity
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3,202,502
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6,774,145
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||||||
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Total liabilities and stockholders' equity
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$
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3,692,559
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$
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7,261,592
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||||
See accompanying notes to unaudited financial statements
- 2 -
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808 Renewable Energy Corporation
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||||||||||||||||
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Statements of Operations
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||||||||||||||||
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Unaudited
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||||||||||||||||
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Three months ended June 30
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Six months ended June 30
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|||||||||||||||
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2015
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2014
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2015
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2014
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|||||||||||||
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Revenue, net
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$
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232,872
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$
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95,499
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$
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414,318
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$
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202,402
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||||||||
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-
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||||||||||||||||
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Cost of goods sold
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195,708
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200,988
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395,545
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394,193
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||||||||||||
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Gross
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37,164
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(105,489
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)
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18,773
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(191,791
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)
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||||||||||
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Operating expenses
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||||||||||||||||
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Accounting and auditing fees
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14,651
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37,384
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30,638
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57,722
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||||||||||||
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Telephone and internet
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4,782
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5,201
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11,326
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11,269
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||||||||||||
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Rent expense
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25,875
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25,755
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55,256
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56,259
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||||||||||||
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Legal and other professional fees
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32,739
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9,175
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60,317
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16,073
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||||||||||||
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Payroll
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84,980
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83,250
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372,355
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162,128
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||||||||||||
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Insurance
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30,182
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17,893
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62,028
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29,601
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||||||||||||
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General and administrative expenses
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62,418
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337,364
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557,556
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741,062
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||||||||||||
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Total operating expenses
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255,627
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516,022
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1,149,476
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1,074,114
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||||||||||||
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Loss from operations
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(218,463
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)
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(621,511
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)
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(1,130,703
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)
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(1,265,905
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)
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||||||||
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Other expense
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||||||||||||||||
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Interest expense
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-
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(9,264
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)
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-
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(9,873
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)
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||||||||||
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Loss for the period
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(218,463
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)
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(630,775
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)
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(1,130,703
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)
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(1,275,778
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)
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||||||||
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Accretion of preferred stock to redemption value
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-
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- |
(2,212,785
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)
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- | |||||||||||
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Cumulative dividend-Series D Preferred
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(165,600
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)
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-
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(331,200
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)
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-
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||||||||||
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Net loss attributable to common shareholders
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$
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(384,063
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)
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$
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(630,775
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)
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$
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(3,674,688
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)
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$
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(1,275,778
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)
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||||
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Basic and diluted loss per share
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$
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(0.01
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)
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$
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(0.01
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)
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$
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(0.05
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)
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$
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(0.02
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)
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||||
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Weighted average shares outstanding
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||||||||||||||||
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Basic and diluted
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70,261,668
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69,133,646
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70,261,668
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69,053,657
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||||||||||||
See accompanying notes to unaudited financial statements
- 3 -
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808 Renewable Energy Corporation
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||||||||
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Statements of Cash Flow
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||||||||
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Unaudited
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||||||||
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For the six months ended
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||||||||
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June 30
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||||||||
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2015
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2014
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|||||||
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Cash flows from operating activities
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||||||||
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Net loss
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$
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(1,130,703
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)
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$
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(1,275,778
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)
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Adjustments to reconcile net loss to cash used in operating
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||||||||
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activities
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||||||||
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Depreciation expense
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160,183
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195,642
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||||||
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Stock based compensation
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-
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675,000
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||||||
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Write off deposits
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7,459
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-
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||||||
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(Increase) decrease in current assets
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||||||||
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Accounts receivable
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(45,920
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)
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(11,971
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)
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Prepaid expenses and other current assets
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(12,129
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)
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(49,704
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)
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Increase (decrease) in current liabilities:
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||||||||
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Accounts payable and accrued expenses
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10,308
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(158,634
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)
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|||||
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Net cash used in operating activities
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(1,010,802
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)
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(625,445
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)
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||||
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Cash flows from investing activities
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||||||||
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Acquisition of project assets
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-
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(29,064
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)
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|||||
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Acquisition of property and equipment
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-
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(1,200
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)
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|||||
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Net cash used in investing activities
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-
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(30,264
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)
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|||||
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Cash flows from financing activities
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||||||||
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Proceeds from (repayment of) finance contract, net
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(7,698
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)
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20,207
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|||||
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Cash used to repurchase Series A Preferred shares
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(2,215,000
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)
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-
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|||||
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Dividends paid
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(225,940
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)
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-
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|||||
| Proceeds from related party debt | - | 445,000 | ||||||
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Funds reimbursed to related party for the reacquisition of the Company's shares
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(135,276
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)
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-
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|||||
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Net cash provided by (used in) financing activities
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(2,583,914
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)
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465,207
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|||||
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Net decrease in cash and cash equivalents
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(3,594,716
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)
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(190,502
|
)
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||||
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Cash and cash equivalents, beginning balance
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4,006,824
|
197,385
|
||||||
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Cash and cash equivalents, ending balance
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$
|
412,108
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$
|
6,883
|
||||
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Supplementary information
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||||||||
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Cash paid during the year for:
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||||||||
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Interest
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$
|
-
|
$
|
9,873
|
||||
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Income taxes
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$
|
-
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$
|
800
|
||||
See accompanying notes to unaudited financial statements
- 4 -
808 Renewable Energy Corporation
Notes to Financial Statements
June 30, 2015
Unaudited
NOTE 1 - ORGANIZATION AND OPERATIONS
808 Renewable Energy Corporation, (the "Company", "we", "our" or "808 Renewable"), located in Garden Grove, California, was incorporated, on May 13, 2009, in Nevada as Tri-Energy, Inc. for the purpose of acquiring and managing combined heat and power renewable energy products, also referred to as distributed generation energy facilities. The Company is also engaged in the business of purchase and sale of power generation equipment, and in the operation, repair, and maintenance of same, for itself, as well as for other energy facility owners.
NOTE 2 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited interim financial statements of 808 Renewable have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission, and should be read in conjunction with the audited financial statements and notes thereto for the years ended December 31, 2014 and 2013 contained in the Company's Form 10-K originally filed with the Securities and Exchange Commission on July 14, 2015. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited consolidated financial statements for years ended December 31, 2014 and 2013 as reported in the Company's Form 10-K have been omitted.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Recently Adopted Accounting Pronouncements
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new pronouncements that have been issued that might have a material impact on its financial position or results of operations.
NOTE 3 - GOING CONCERN
The accompanying financial statements have been prepared on a going concern basis which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the financial statements, during the six months ended June 30, 2015, the Company incurred a net loss attributable to common shareholders of $3,674,688 which included a deduction for dividends to Series D Preferred Stockholders of $331,200, and as of the same date has an accumulated deficit of $20,714,535. If the Company is unable to generate profits and is unable to continue to obtain financing for its working capital requirements, it may have to curtail its business sharply or cease business altogether. These factors raise substantial doubt about the Company's ability to continue as a going concern.
The financial statements do not include any adjustment relating to the recoverability and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
The Company is taking certain steps to provide the necessary capital to continue its operations. These steps included, but are not limited to: 1) focus on sales to minimize the need for capital at this stage; 2) converting part of the outstanding accounts payable to equity; 3) raising equity financing; 4) continuous focus on reductions in cost where possible.
- 5 -
808 Renewable Energy Corporation
Notes to Financial Statements
June 30, 2015
Unaudited
NOTE 4 - RELATED PARTY TRANSACTIONS
On January 14, 2015 the Company paid $2,215,000, to Patrick Carter, to redeem the 2,215,000 Series A Preferred Shares which he owned.
During six months ended June 30, 2015, the Company reimbursed Patrick Carter $135,276 to repay him for common shares which he acquired, for subsequent cancelation, on behalf of the Company. As of June 30, 2015, the shares reaquired by Mr. Carter were not yet transferred to the Company, as such, the amount is reported as a receivable in the balance sheets.
NOTE 5 - STOCKHOLDERS' EQUITY
On January 2, 2015 and April 2, 205 the Company paid $60,340 and $165,600, respectively, as a dividend on the Series D Preferred shares.
NOTE 6 – SUBSEQUENT EVENTS
On July 29, 2015, Thomas Grainger resigned as a director effective July 26, 2015.
On August 5, 2015, 718,990 common shares, repurchased by the Company at a cost of $250,122, were cancelled.
- 6 -
Item 2: - Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
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:
|
·
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our marketing plan;
|
|
·
|
our plans to hire industry experts and expand our management team;
|
|
·
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our beliefs regarding the future of our competitors;
|
|
·
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our anticipated development schedule;
|
|
·
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the anticipated benefits of our product;
|
|
·
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our expectation that the demand for our products will eventually increase; and
|
|
·
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our expectation that we will be able to raise capital when we need it.
|
These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including:
|
·
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general economic and business conditions;
|
|
·
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we may have product liability claims;
|
|
·
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we may not be successful in commercialization of our products;
|
|
·
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regulatory changes may hurt the market for our products;
|
|
·
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we may not be able to protect our intellectual property rights;
|
|
·
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our auditors have issued a going concern opinion regarding our company;
|
|
·
|
competition for, among other things, capital, products and skilled personnel; and
|
|
·
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other factors discussed under the section entitled “Risk Factors”,
|
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 -
Corporate Overview
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 $20,714,535. 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 June 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 June 30, 2015 plus the potential proceeds from the sale of series D Preferred Stock 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 and Depreciation and Amortization
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 six months ended June 30, 2015. $1,684,334 was recognized for the year ended December 31, 2014.
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Revenue Recognition
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 June 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:
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Persuasive evidence of an arrangement exists
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Delivery has occurred
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The sales price is fixed or determinable
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Collection is reasonably assured
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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 six months ended June 30, 2015 compared with the three and six months ended June 30, 2014.
Revenues, from the delivery and sale of electricity and related products, including professional services, for the three and six months ended June 30, 2015 were $232,872 and $414,318, respectively, compared to $95,499 and $202,402 for the same period in 2014, increases of $137,373 or 143.9% for the three months ended June 30, 2015 and $211,916 or 104.7% for the six months ended June 30, 2015 compared to the same six 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 six months compared to the same period in 2014.
During the three months ended June 30, 2015, the Company operated three revenue producing locations that produced 1,305,064 KWh of total energy sold, compared to four systems, two of which operated minimally, producing 620,202 KWh of installed electricity plus thermal energy for the same period in 2014, an increase of 684,682 KWh or 110.4% and 2,265,356 KWh compared to 1,340,335, an increase of 925,021 KWh or 69%. 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.
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Cost of Sales
Cost of sales, including depreciation, of $68,775 was $195,708 for the three months ended June 30, 2015 compared to $86,322 and $200,988 for the three months ended June 30, 2014, a decrease of $5,280 or 2.6%, and $395,545 including depreciation of $137,548, for the six months ended June 30, 2015 compared to $394,193 including depreciation of $171,771 for the same six months in 2014 an increase of $1,352 or 0.34%. The cost of fuel was $75,017 for the three months ended June 30, 2015 compared to $69,745, for the three months ended June 30, 2014 an increase of $5,272 or 7.6%.and $129,868 for the six months ended June 30, 2015 compared to $118,723 for the same period in 2014, an increase of $11,145 or 9.4% primarily due to the increased number of production hours at our CHP plants.
During the six months ended June 30, 2015, our gross margins were 4.5% compared to a -94.7%% for the same period in 2014, and 16% for the three months ended June 30, 2015 compared to a -110.5% for the three months ended June 30, 2014, primarily due to the increase in our CHP plant revenue, improved operating procedures and lower cost of natural gas.. Our CHP energy margins excluding depreciation were at 45.5% for the three months ended June 30, 2015, compared to -20.1% for the same period in 2014 an37.7% for the six months ended June 30, 2015 compared to -10.0% for the six months ended June 30, 2014.
Operating Expenses
Our operating expenses consist of executive staff, accounting, legal expenses, office and warehouse space, general and directors' liability insurance and other administrative expenses. Our operating expenses for the three months ended June 30, 2015 were $255,627 compared to $516,022 for the same period in 2014, a decrease of $260,395 or 50.5% and $1,149,476 for the six months ended June 30, 2015 compared to $1,074,114 for the six months ended June 30, 2014, an increase of $75,362 or 7.0%. The increase was mainly due to compensation of $485,000 paid, during the six months ended June 30, 2015, to the Company CEO, Patrick Carter compared to none being paid to him during the same period in 2014. The Company also paid its COO a bonus of $150,000 during the six months ended June 30, 2015 compared to none being paid during the same period of 2014..
Loss from Operations
The loss from operations for the three months ended June 30, 2015 was $218,463 inclusive of executive compensation of $31,250 compared to $621,511 with no executive compensation for the same three months in 2014, and $1,130,703 for the six months ended June 30, 2015, which included executive compensation and management bonuses of $635,000, compared to $1,265,905 for the same period in 2014, which included a $375,000 stock based payment that was paid to our directors for services provided during 2013 and 2014, The six month loss for the year ended June 30, 2015 was $495,703 compared to $890,905 after removing the executive compensation and management bonuses in 2015 and the stock based compensation in 2014, an decrease of $395,202 or 44.4%..
Liquidity and Capital Resources
Total current assets at June 30, 2015 were $739,820 a decrease of $3,401,391 compared to $4,141,211 at December 31, 2014. Included in current assets were cash and cash equivalents of $412,108 which decreased by $3,594,716 at June 30, 2015, compared to $4,006,824 at December 31, 2014. The decrease in cash at June 30, 2015 compared to December 31, 2014 was mainly the result of the redemption of the Series A Preferred Stock, in the amount of $2,215,000, plus reimbursing Patrick Carter $135,276 for the repurchase, on behalf of the Company, of 442,140 common shares. Accounts receivable increased by $45,920. During the same period, accounts payable and accrued expenses increased $10,308 and required the use of cash of that amount.
During the six months ended June 30, 2015, the investing activities of the company's operations for expenditures of nil compared to $30,264 for the same period in 2014, to enhance the value of project assets.
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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 six 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 may 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 third 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 $250,000. 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 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
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ITEM 4: - CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
As required by paragraph (b) of Rules 13a-15 or 15d-15 under the Securities Exchange Act of 1934, our management, with the participation of our principal executive officer and principal financial officer evaluated our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, management concluded that as of the end of the period covered by this Quarterly Report on Form 10-Q, these disclosure controls and procedures were ineffective. The ineffectiveness of our disclosure controls and procedures was due to material weaknesses identified in our internal control over financial reporting, as described in our annual report on Form 10-K for the year ended December 31, 2014.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the six months ended June 30, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 1: - Legal Proceedings
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 June 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.
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.
On August 5, 2015, 718,990 common shares, repurchased by the Company, were cancelled.
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Item 6: - Exhibits
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Exhibit No.
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Description
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31.1
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Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302
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32.1
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Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of The Sarbanes-Oxley Act of 2004
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101.DEF
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XBRL Taxonomy Extension Definition Linkbase Document*
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101.INS
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XBRL Instance Document
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101SCH
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XBRL Taxonomy Extension Schema Document
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101.CAL
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XBRL Taxonomy Extension Calculation Linkbase Document
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101.LAB
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XBRL Taxonomy Extension Label Linkbase Document
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101.PRE
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XBRL Taxonomy Extension Presentation Linkbase Document
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101.DEF
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XBRL Taxonomy Extension Definition Linkbase Document
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* 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.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
808 Renewable Energy Corporation
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/s/ Patrick S. Carter
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Patrick S. Carter
Chief Executive Officer, President, Secretary, Treasurer and Director
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Date: August 19, 2015
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