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

808 Renewable Energy Corporation

Balance Sheets

Unaudited

 

		March 31,				December 31,
		2015				2014
Assets
Current assets
Cash and cash equivalents		$	717,936			$	4,006,824
Accounts receivable-net			148,497				44,111
Related party account receivable			99,208				-
Prepaid expenses and other current assets			81,309				90,276
Total current assets			1,046,950				4,141,211
Long term assets
Project assets,net			2,833,503				2,902,277
Property, plant and equipment, net			167,710				179,645
Deposits			31,000				38,459
Total long term assets			3,032,213				3,120,381
Total assets		$	4,079,163			$	7,261,592
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued expenses			492,598			$	479,749
Finance contracts payable			-				7,698
Total current liabilities			492,598				487,447
Stockholders' equity
Series A Preferred stock, $0.001 par value, 20,000,000 shares authorized;
none issued and outstanding as of March 31, 2015 and 2,215,259			-				2,215
issued and outstanding as of December 31, 2014, respectively
Series D Preferred stock, no par value; 8,000,000 shares authorized;
4,416,000 issued and outstanding as of March 31, 2015 and December 31, 2014
respectively			5,520,000				5,520,000
Common stock, $0.001 par value, 100,000,000 shares authorized;
70,261,668   shares issued and outstanding
as of March 31 2015 andDecember 31, 2014 respectively			70,262				70,262
Treasury stock - 716,990 shares			(250,122	)			(250,122	)
Additional paid in capital			18,742,497				21,015,622
Accumulated deficit			(20,496,072	)			(19,583,832	)
Total stockholders' equity			3,586,565				6,774,145
Total liabilities and stockholders' equity		$	4,079,163			$	7,261,592

 

See accompanying notes to unaudited financial statements

 

 

See accompanying notes to unaudited financial statements

 

 

 

 

We have experienced total net losses since inception of approximately $20,496,072.  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 March 31, 2015 will provide sufficient working capital to meet our anticipated expenditures including installations of new equipment for the next six 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 March 31, 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.

For the three months ended March 31, 2015 compared with the three months ended March 31, 2014.

 

Revenues, from the delivery and sale of electricity and related products, including professional services, for the three months ended March 31, 2015 were $181,446 compared to $106,903 for the same period in 2014, an increase of $74,543 or 69.7%. The increase in revenues was primarily due to the increased number production hours of installed CHP systems operating throughout the three months compared to the same period in 2014.

During the first three months of 2015, the Company operated three revenue producing locations that produced 888,292 KWh of total energy sold, compared to four systems, two of which operated minimally, producing 719,743 WhK of installed electricity plus thermal energy for the same period in 2014, an increase of 23.4%. 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.

Cost of sales, including depreciation, of $68,774 was $199,837 compared to $85,449 and $193,205 for the same period in 2014, an increase of $6,632, or 3.4%. The cost of fuel was $54,851for the three months of March 31, 2015, compared to $48,978 for the same period in 2014, an increase of $5,873 or 12% primarily due to the increased number of production hours at our CHP plants.

During the first three months of March 31, 2015, our gross margins were -10% compared to -80.7% for the same period in 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 27.8% for the three months of March 31, 2015, compared to -.01% for the same period in 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 March 31, 2015 were $893,849 compared to $558,092 for the same period in 2014, an increase of $335,757 or 60%. The increase was mainly due to compensation of $453,750 paid 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.

Loss from Operations

The loss from operations for the three months ended March 31, 2015 was $912,240 inclusive of management compensation and bonuses of $603,750 compared to $645,003 for the same period in 2014 including $375,000 stock based payment that was paid to our directors for services provided during 2013 and 2014, an increase of $267,237 or 41.4% or an increase of $188,487 or 69.8%after removing the management salary and stock based compensation.  The increase in the operating loss was due to increased salaries required for the greater energy production revenue.

 Liquidity and Capital Resources

 

Total current assets at March 31, 2015 were $1,046,950 a decrease of $3,094,261 compared to $4,141,211 at December 31, 2014. Included in current assets were cash and cash equivalents of $717,936 which decreased by $3,288,888 at March 31, 2015, compared to $4,006,824 at December 31, 2014.  The decrease in cash at March 31, 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 $99,208 for the repurchase, on behalf of the Company, of 222,390 common shares.   Accounts receivable increased by $104,386 during the three months ended March 31, 2015 as the result of adding back $75,657 which had previously been written off, but was subsequently collected.  During the same period, accounts payable and accrued expenses increased $12,849 and required the use of cash of that amount.

During the three months ended March 31, 2015, the investing activities of the company's operations for expenditures of nil compared to $22,573 for the same period in 2014, to enhance the value of project assets.

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 facilities in the third quarter of 2015.  The capital cost to refurbish the existing equipment, replace parts, update the controls and commence operation for that plants 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.

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 three months ended March 31, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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.

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.

 

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.