808 RENEWABLE ENERGY CORP - FORM 10-Q

Attached files

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EXCEL - IDEA: XBRL DOCUMENT - 808 RENEWABLE ENERGY CORP	Financial_Report.xls
EX-32.1 - EXHIBIT 32.1 - 808 RENEWABLE ENERGY CORP	ex32.htm
EX-31.1 - EXHIBIT 31.1 - 808 RENEWABLE ENERGY CORP	ex31.htm

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 September 30, 2014

 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)

Nevada	80-0651522
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

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.

ý 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).

ý 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.

Large accelerated filer 	Accelerated filer 
Non-accelerated filer 	Smaller reporting company ý

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes ý No

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 70,261,668 shares of common stock as of November 13, 2014.

PART I – FINANCIAL INFORMATION

Item 1. – Financial Statements

808 Renewable Energy Corporation
Balance Sheets
Unaudited

	September 30			December 31
	2014			2013
Assets
Current assets
Cash and cash equivalents	$	-		$	197,385
Accounts receivable-net		113,795			126,223
Subscription receivable		2,000,000			-
Prepaid expenses and other current assets		65,159			48,488
Total current assets		2,178,954			372,096

Long term assets
Project assets,net		4,654,097			4,882,190
Property, plant and equipment, net		195,081			229,689
Deposits		38,459			38,459
Total long term assets		4,887,637			5,150,338

Total assets	$	7,066,591		$	5,522,434

Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued expenses	$	448,824		$	549,777
Finance contracts payable		30,792			43,859
Related party payable		599,773			-
Total current liabilities		1,079,389			593,636

Stockholders' equity
Preferred stock, $0.001 par value, 20,000,000 shares authorized;
2,215,259 Series A issued and outstanding as of September 30, 2014 and
December 31, 2013.		2,215			2,215
Preferred stock, no par value; 8,000,000 shares authorized; 1,600,000 Series D
issued and outstanding as of September 30, 2014; none issued as
of December 31, 2013.		2,000,000			-
Common stock, $0.001 par value, 100,000,000 shares authorized;
70,261,668 and 68,611,668 shares issued and outstanding
as of September 30, 2014 and December 31, 2013.		70,262			68,612
Additional paid in capital		21,015,622			19,892,272
Accumulated deficit		(17,100,897	)		(15,034,301	)
Total stockholders' equity		5,987,202			4,928,798

Total liabilities and stockholders' equity	$	7,066,591		$	5,522,434

See accompanying notes to unaudited financial statements

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808 Renewable Energy Corporation
Statements of Operations
Unaudited


	Three months ended September 30						Nine months ended September 30
	2014			2013			2014			2013


Revenue, net	$	127,495		$	291,955		$	329,897		$	880,583

Cost of goods sold		200,899		$	279,789			595,092			1,041,898
Gross profit (loss)		(73,404	)		12,166			(265,195	)		(161,315	)

Operating expenses
Accounting fees		34,258			3,609			91,980			36,626
Telephone and internet		7,731			10,474			19,000			27,384
Rent expense		27,210			36,472			83,469			86,076
Travel and entertainment		-			1,127			-			12,795
Legal and other professional fees		31,808			62,864			47,881			85,913
Payroll		45,562			128,554			207,690			289,632
Insurance		24,959			40,473			54,560			94,356
Impairment expense		-			60,677			-			60,677
General and administrative expenses		531,474			934			1,272,536			162,170
Total operating expenses		703,002			345,184			1,777,116			855,629

Loss from operations		(776,406	)		(333,018	)		(2,042,311	)		(1,016,944	)

Other expense
Interest expense		(14,412	)		-			(24,285	)		-

Loss for the period		(790,818	)		(333,018	)		(2,066,596	)		(1,016,944	)

Deemed dividend		(1,875,969	)		-			(1,875,969	)		-

Net loss attributable to common shareholders	$	(2,666,787	)	$	(333,018	)	$	(3,942,565	)	$	(1,016,944	)

Basic and diluted loss per share	$	(0.04	)	$	(0.005	)	$	(0.06	)	$	(0.01	)

Weighted average shares outstanding
Basic and diluted		69,725,954			68,624,517			69,281,889			68,624,517

See accompanying notes to unaudited financial statements

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808 Renewable Energy Corporation
Statements of Cash Flow
Unaudited

	Nine months ended September 30
	2014			2013
Cash flows from operating activities
Net loss	$	(2,066,596	)	$	(1,016,944	)
Adjustments to reconcile net loss to cash used in operating
activities
Depreciation expense		293,900			297,236
Bad debt expense		-			20,918
Stock based compensation		1,125,000			-
Impairment expense		-			60,677
(Increase) decrease in current assets
Accounts receivable		12,428			172,600
Prepaid expenses and other current assets		(16,671	)		90,024
Inventory		-			1,176
Deposits		-			(9,959	)
Increase (decrease) in current liabilities
Accounts payable and accrued expenses		(100,953	)		167,297
Net cash used in operating activities		(752,892	)		(216,975	)

Cash flows from investing activities
Acquisition of project assets		(1,200	)		(174,832	)
Acquisition of property and equipment		(29,999	)		(97,501	)
Net cash used in investing activities		(31,199	)		(272,333	)

Cash flows from financing activities
Borrowing of finance contract		81,581			-
Repayment of finance contract payable		(94,648	)		(57,440	)
Proceeds from (repayments to) related party		599,773			140,000
Net cash provided by financing activities		586,706			82,560

Net increase (decrease) in cash and cash equivalents		(197,385	)		(406,748	)

Cash and cash equivalents, beginning balance		197,385			468,081
Cash and cash equivalents, ending balance	$	-		$	61,333

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			-

See accompanying notes to unaudited financial statements

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808 Renewable Energy Corporation

Notes to Financial Statements

September 30, 2014

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, 2013 and 2012 contained in the Company’s Form 10-K originally filed with the Securities and Exchange Commission on March 31, 2014. 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, 2013 and 2012 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 nine months ended September 30, 2014, the Company incurred net losses of $2,066,596 after deducting $1,125,000 for non-cash stock based compensation and as of the same date has an accumulated deficit of $17,100,897. 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.

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808 Renewable Energy Corporation

Notes to Financial Statements

September 30, 2014

Unaudited

NOTE 4 - RELATED PARTY TRANSACTIONS

On August 8, 2013, the Company entered into a revolving note agreement with the CEO, Patrick S. Carter, pursuant to which the Company may borrow up to $1,000,000. The revolving note bears annual interest of 10%, matures on August 7, 2014 and is secured by the assets of the Company.

As of September 30, 2014 the Company drew $599,773 from the revolving note, which remained outstanding at September 30, 2014. The full amount was repaid on October 7, 2014.

NOTE 5 - STOCKHOLDERS’ EQUITY

During the nine months ended September 30, 2014, the Company issued 1,650,000 fully vested shares to the CEO, the board of directors and two individuals for services provided. The shares have a fair value of $1,125,000 which was recognized as stock based compensation for the nine months ended September 30, 2014.

On September 29, 2014, the Board of Directors established the Series D Preferred Stock, consisting of 8,000,000 shares with no par value. The Series D Preferred shareholders are entitled to receive cumulative quarterly dividends at the rate of $0.15 per share per annum and will share in any liquidation, or dissolution, preference to any other distribution to the holders of common shares, an amount equal to $1.25 for each outstanding share. The holders of the Series D Preferred Stock shall have the right to convert, at their option, 24 months after the date of issuance, into common shares at a price equivalent to 40% of the Company's average market price for ten trading days prior to conversion. The Series D Preferred Stock will automatically convert to common stock upon the earlier of (i) 24 months from the purchase date or (ii) the date specified by written consent or agreement of the holders of a majority of the outstanding shares of Series D Preferred Stock.

On September 30, 2014, a member of our Board of Directors subscribed to 1,600,000 preferred shares at a cost of $1.25 per share. The proceeds from the subscription were received in October 1, 2014. The Company has determined that as of September 30, 2014, the Series D Preferred Stock is convertible because of the "automatic conversion" feature in the stock. The Company evaluated the embedded conversion option of the preferred stock under FASB ASC 815-15 and determined that it is clearly and closely related to the host contract, the preferred stock, and does not require to be bifurcated. The Company evaluated the preferred stock for a beneficial conversion feature under FASB ASC 470-20 and determined that a beneficial conversion feature of $1,875,969 existed which has been fully recognized as a deemed dividend to the preferred shareholder.

NOTE 6 – SUBSEQUENT EVENTS

On October 1, 2014, the Company received the $2,000,000 proceeds from the preferred stock subscription.

On October 7, 2014, the Company repaid in full the related party payable, to the CEO, of $599,773.

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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:

our marketing plan;

our plans to hire industry experts and expand our management team;

our beliefs regarding the future of our competitors;

our anticipated development schedule;

the anticipated benefits of our product;

our expectation that the demand for our products will eventually increase; and

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:

general economic and business conditions;

we may have product liability claims;

we may not be successful in commercialization of our products;

regulatory changes may hurt the market for our products;

we may not be able to protect our intellectual property rights;

our auditors have issued a going concern opinion regarding our company;

competition for, among other things, capital, products and skilled personnel; and

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.

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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.

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We have experienced total net losses since inception of approximately $17,100,897. 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, 2014 will provide sufficient working capital to meet our anticipated expenditures including installations of new equipment for the next twelve 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, 2014 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 nine months ended September 30, 2014 or for the year ended December 31, 2013.

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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 September 30, 2014, the Company had 6 operating energy systems.

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 months ended September 30, 2014 compared with the three months ended September 30, 2013.

Revenues, from the delivery and sale of electricity and related products, including professional services, for the three months ended September 30, 2014 were $127,495 compared to $291,955 for the same period in 2013, a decrease of $164,460 or 56.3%. The decrease in revenues was primarily due to a decrease in the number of installed CHP systems operating throughout the three months compared to the same period in 2013. We did not generate any professional fees from energy developer revenue during the three months ended September 30 2014 or the three months ended September 30, 2013.

During the three months ended September 30, 2014, the Company operated, intermittently, a total of 22 CHP energy systems, representing 1,396,625 kWh of total energy sold, compared to 30CHP energy systems, representing 1,881,836 kWh of installed electricity plus thermal energy for the same period in 2013, a decrease of 485,211 kWH or 25.8%.

During the three months ended September 30, 2014, cost of sales, including depreciation, of $86,321 was$200,899 compared to $279,789 including depreciation of $85,171 for the same period in 2013, a decrease of $78,890 or 28.2%. The cost of fuel was $57,653 for the three months in 2014, compared to $122,634 for the same period in 2013, a decrease of $64,981 or 53%.

Total operating expenses for the three months ended September 30, 2014 were $790,818 which included stock based compensation of $450,000 compared to $340,818 for the same period in 2013, a decrease of $92,182 or 26.7% after removing the stock based compensation. The decrease is the result of managements’ efforts to reorganize the administrative business model and to operate more efficiently.

The loss from operations for the three months ended September 30, 2014 was $776,406 or $326,406 after deducting $450,000 for stock based compensation, an increase of $7,800 or 2.3% compared to the same period in 2013.

For the nine months ended September 30, 2014 compared with the nine months ended September 30, 2013

Revenues, from the delivery and sale of electricity and related products, including professional services, for the nine months ended September 30, 2014 were $329,897 compared to $880,583 for the same period in 2013, a decrease of $550,686 or 62.5%. The decrease in revenues was primarily due to a decrease in the number of installed CHP systems operating throughout the nine months compared to the same period in 2013. We generated $6,321 of energy developer revenue in 2014 compared to none for the same period in 2013.

During the first nine months of 2014, the Company operated 22 CHP energy systems, representing 3,470,613 kWh of total energy sold, compared to 30CHP energy systems, representing 6,387,394 kWh of installed electricity plus thermal energy for the same period in 2013, a decrease of 45.7%. 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

For the nine months ended September 30, 2014, cost of sales, including depreciation, of $258,092 was $595 092 compared to $1,041,898 including depreciation of $256,842 for the same period in 2013, a decrease of $446,806, or 42.9%. The cost of fuel was $154,103 for the nine months of 2014, compared to $370,324 for the same period in 2013, a decrease of $215,221 or 58.1% primarily due to lower run hours at our CHP plants.

During the three months ended September 30, 2014, cost of sales, including depreciation, of $86,321 was $200,899 compared to $279,789 including depreciation of $85,171 for the same period in 2013, a decrease of $78,890 or 28.2%. The cost of fuel was $57,653 for the three months in 2014, compared to $122,634 for the same period in 2013, a decrease of $64,981 or 53%.

During the first nine months of 2014, our gross margins were (80%) compared to (18%) for the same period in 2013, primarily due to the decrease in our CHP plant revenue and the stubbornly high fuel prices during the nine months ended September 30, 2014. Our CHP energy margins excluding depreciation were at (2.2%) for the nine months of 2014, compared to 10.9% for the same period in 2013.

Operating Expenses

Our operating expenses consist of executive staff, accounting and legal expenses, office space, general insurance and other administrative expenses. Our operating expenses for the nine months ended September 30, 2014 were $1,777,116 after including $1,125,000 of stock based compensation, which includes $825,000 paid to our directors for services provided during 2013 and 2014, plus $300,000 of stock based compensation paid to two previous employees for past services, compared to $855,629 for the same period in 2013, a decrease of $203,513 or 23.8 % after removing the stock based compensation. The decrease was mainly due to a decrease in internal payroll and insurance costs.

Loss from Operations

The loss from operations for the nine months ended September 30, 2014 was $2,042,311 inclusive of stock based compensation amounting to $1,125,000, of which $825,000 was paid to our directors for services provided during 2013 and 2014, and $300,000 was paid to two previous employees for past services which had been agreed to but inadvertently not done, compared to a loss of $1,016,944 for the same period in 2013, an increase of $1,025,367 or 100.8% or a decrease of $99,633 or 9.8% after removing the stock based compensation. The decrease in the operating loss was due to better cost controls; greater energy developer and energy service revenue, and lower costs at our company owned CHP plants due to fewer operation hours. Our non-cash compensation expense was $0 in 2013.

Liquidity and Capital Resources

Total current assets at September 30, 2014 were $2,178,954 an increase of $1,806,858 compared to $372,096 at December 31, 2013. Included in current assets were subscription receivable of $2,000,000, the proceeds of which were collected in October 1, 2014. The increase in prepaid expenses of $16,671 was due to the renewal of insurance premiums, while the decrease, of $12,428 in accounts receivable was due to the collection of outstanding invoices in the normal course of business. During that the same period, accounts payable and accrued expenses decreased $100,953 and required the use of cash of that amount, during the nine month period in 2014 as compared to an increase totaling $167,297 in 2013.

During the nine months ended September 30, 2014, the investing activities of the company’s operations were for expenditures of $31,199 to enhance the value of project assets. During the same nine month period in 2013, the Company utilized $272,333 for those same investing opportunities.

The Company borrowed $599,773 from its line of credit with the Company CEO, Patrick Carter, all of which was repaid on October 7, 2014.

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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 9 months; however, as our company continues to grow its business by adding more CHP plants, the cash requirements will increase. Beyond June 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 three additional facilities in the first quarter of 2015 The capital cost to refurbish the existing equipment, replace parts, update the controls and commence operation for all three plants is estimated to be approximately $900,000. 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 of the plants, but 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, 2013.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the nine months ended September 30, 2014 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.

We know of no material proceedings in which any of our directors, officers or affiliates, or any registered or beneficial stockholder is a party adverse to our company or has a material interest adverse to our company.

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, pursuant to a Stock Subscription Agreement for $2,000,000, which funds were received by the Company, on October 1, 2014.

Item 3: - Default Upon Senior Securities

None

Item 4: - Mine Safety Disclosures

Not applicable

Item 5: - Other Information

None

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Item 6: - Exhibits

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.

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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

/s/ Patrick S. Carter
Patrick S. Carter Chief Executive Officer, President, Secretary, Treasurer and Director
Date: November 19, 2014

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808 RENEWABLE ENERGY CORP - FORM 10-Q - November 19, 2014

Attached files

808 RENEWABLE ENERGY CORP Reports