Company Quick10K Filing
H/Cell Energy
Price0.41 EPS-0
Shares8 P/E-7
MCap3 P/FCF-8
Net Debt-0 EBIT-0
TEV3 TEV/EBIT-11
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-06-30 Filed 2020-08-14
10-Q 2020-03-31 Filed 2020-05-15
10-K 2019-12-31 Filed 2020-03-25
10-Q 2019-09-30 Filed 2019-11-12
S-1 2019-07-19 Public Filing
10-Q 2019-06-30 Filed 2019-08-07
10-Q 2019-03-31 Filed 2019-05-15
S-1 2019-03-29 Public Filing
10-K 2018-12-31 Filed 2019-03-26
10-Q 2018-09-30 Filed 2018-11-08
10-Q 2018-06-30 Filed 2018-08-10
10-Q 2018-03-31 Filed 2018-06-27
10-K 2017-12-31 Filed 2018-04-02
10-Q 2017-09-30 Filed 2017-11-09
10-Q 2017-06-30 Filed 2017-08-14
10-Q 2017-03-31 Filed 2017-05-19
10-K 2016-12-31 Filed 2017-03-24
10-Q 2016-09-30 Filed 2016-10-25
8-K 2020-08-12 Enter Agreement, Exhibits
8-K 2020-07-17 Enter Agreement
8-K 2020-06-26 Officers
8-K 2020-06-19
8-K 2020-05-26
8-K 2020-05-18
8-K 2020-03-25
8-K 2020-01-15
8-K 2020-01-03
8-K 2019-11-12
8-K 2019-10-17
8-K 2019-08-07
8-K 2019-07-09
8-K 2019-06-24
8-K 2019-05-16
8-K 2019-03-26
8-K 2019-03-12
8-K 2019-02-08
8-K 2018-11-08
8-K 2018-08-21
8-K 2018-08-10
8-K 2018-06-27
8-K 2018-06-08
8-K 2018-05-21
8-K 2018-04-19
8-K 2018-04-02
8-K 2018-02-01
8-K 2018-02-01
8-K 2018-01-02

HCCC 10Q Quarterly Report

Part I - Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
Item 4 - Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.01 ex31-01.htm
EX-31.02 ex31-02.htm
EX-32.01 ex32-01.htm

H/Cell Energy Earnings 2020-06-30

Balance SheetIncome StatementCash Flow
3.83.02.31.50.80.02015201620182020
Assets, Equity
2.11.61.10.70.2-0.32017201820192020
Rev, G Profit, Net Income
0.30.20.1-0.1-0.2-0.32015201620182020
Ops, Inv, Fin

10-Q 1 form10-q.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended June 30, 2020

 

or

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Transition Period from _________ to _________

 

Commission file number: 000-55802

 

H/CELL ENERGY CORPORATION

(Exact name of registrant as specified in its charter)

 

Nevada   47-4823945
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)

 

3010 LBJ Freeway, Suite 1200 Dallas, TX 75234

(Address of principal executive offices) (zip code)

 

(972) 888-6009

(Registrant’s telephone number, including area code)

 

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 preceding 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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☐ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
    Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act. ☐

 

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

 

Securities registered pursuant to Section 12(b) of the Act: None.

 

As of August 14, 2019, there were 7,951,524 shares of registrant’s common stock outstanding.

 

 

 

 

 

 

H/CELL ENERGY CORPORATION

 

INDEX

 

PART I. FINANCIAL INFORMATION  
       
  ITEM 1. Financial Statements  
       
    Condensed consolidated balance sheets as of June 30, 2020 (unaudited) and December 31, 2019 3
       
    Condensed consolidated statements of operations and other comprehensive income for the three and six months ended June 30, 2020 and 2019 (unaudited) 4
       
    Condensed consolidated statement of stockholders’ equity for the three and six months ended June 30, 2020 and 2019 (unaudited) 5
       
    Condensed consolidated statements of cash flows for the six months ended June 30, 2020 and 2019 (unaudited) 7
       
    Notes to condensed consolidated financial statements (unaudited) 8-21
       
  ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 22-25
       
  ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 25
       
  ITEM 4. Controls and Procedures 25
       
PART II. OTHER INFORMATION  
       
  ITEM 1. Legal Proceedings 26
  ITEM 1A. Risk Factors 26
  ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 26
  ITEM 3. Defaults Upon Senior Securities 26
  ITEM 4. Mine Safety Disclosures 26
  ITEM 5. Other Information 26
  ITEM 6. Exhibits 26
       
  SIGNATURES  27

 

 2 

 

 

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

H/CELL ENERGY CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   June 30, 2020   December 31, 2019 
   (Unaudited)     
ASSETS        
Current assets          
Cash and cash equivalents  $5,010   $25,059 
Prepaid expenses   4,079    4,079 
Current assets held for sale   -    1,093,444 
Total current assets   9,089    1,122,582 
           
Security deposits and other non-current assets   300    600 
Deferred offering cost   -    130,072 
Non-current assets held for sale   -    2,215,177 
Total non-current assets   300    2,345,849 
           
Total assets  $9,389   $3,468,431 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
           
Current liabilities          
Accounts payable and accrued expenses  $56,113   $

157,484

 
Sales and withholding tax payable   2,388    2,552 
Current convertible note payable   -    80,500 
Loan payable   20,000    - 
Loan payable – related party   179,838      
Current liabilities held for sale   -    1,131,193 
Total current liabilities   261,412    1,371,729 
           
Noncurrent liabilities          
Non-current liabilities held for sale   -    1,199,984 
Total noncurrent liabilities   -    1,199,984 
           
Total liabilities   261,412    2,571,713 
           
Commitments and contingencies          
           
Stockholders’ equity          
Preferred stock - $0.0001 par value; 5,000,000 shares authorized; 0 shares issued and outstanding   -    - 
Common stock - $0.0001 par value; 25,000,000 shares authorized; 7,951,524 and 7,725,524 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively   795    772 
Additional paid-in capital   3,059,091    2,969,686 
Accumulated deficit   (3,308,835)   (2,073,740)
Total stockholders’ equity   (248,950)   896,718 
           
TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY  $9,389   $3,468,431 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 3 

 

 

 

H/CELL ENERGY CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS – OTHER COMPREHENSIVE INCOME

(UNAUDITED)

 

  

For the Three Months Ended
June 30,

  

For the Six Months Ended
June 30,

 
   2020   2019   2020   2019 
                 
Revenue                    
Sales  $-   $-   $-   $- 
Total revenue   -    -    -    - 
                     
Cost of goods sold                    
Direct costs   -    -    -    - 
Total cost of goods sold    -    -    -    - 
                     
Gross profit   -    -    -    - 
                     
Operating expenses                    
General and administrative expenses   61,370    129,416    169,757    276,695 
Management fees – related party   10,000    19,500    30,000    39,000 
Total operating expenses   71,370    148,916    199,757    315,695 
                     
Loss from operations   (71,370)   (148,916)   (199,757)   (315,695)
                     
Other expenses                    
Interest expense   41,551    10,258    49,913    12,091 
Interest expense – related party   4,584    58,060    35,719    94,155 
Change in fair value earn-out   -    4,547    4,875    8,943 
Total other expenses   46,135    72,865    90,507    115,189 
                     
Net loss from continuing operations  $(117,505)  $(221,781)  $(290,264)  $(430,884)
                     
Net income (loss) from discontinued operations (including loss on disposal of 789,425)   (845,803)   112,319    (944,831)   196,396 
                     
Net loss  $(963,308)  $(109,462)  $(1,235,095)  $(234,488)
                     
Loss per share (continuing operations)                    
Basic  $(0.01)  $(0.03)  $(0.04)  $(0.06)
Diluted  $(0.01)  $(0.03)  $(0.04)  $(0.06)
Earnings (loss) per share (discontinued operations)                    
Basic  $(0.12)  $0.01  $(0.16)  $0.03
Diluted  $(0.12)  $0.01  $(0.16)  $0.03
Weighted average common shares outstanding                    
Basic   

7,882,101

    7,621,024    

7,802,525

    7,607,295 
Diluted   

7,882,101

    7,621,024    

7,802,525

    7,607,295 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 4 

 

 

H/CELL ENERGY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2019

(UNAUDITED)

 

    Common Stock    Preferred Stock    Additional    Accumulated    Total 
    Number of
Shares
    Amount    Number of
shares
    Amount    Paid-In
Capital
    Income
(Deficit)
    

Stockholders’
Equity

 
Beginning, January 1, 2019   7,586,024   $758    -   $-   $2,983,476   $(1,361,299)  $1,622,935 
                                    
Stock-based compensation   -    -    -    -    8,562    -    8,562 
                                    
Share donation   35,000    4    -    -    23,446    -    23,450 
                                    
Beneficial conversion feature   -    -    -    -    97,500    -    97,500 
                                    
Debt extinguishment   -    -    -    -    (216,460)   -    (216,460)
                                    
Net loss   -    -    -    -    -    (125,026)   (125,026)
                                    
Ending, March 31, 2019   7,621,024   $762    -   $-   $2,896,524   $(1,486,325)  $1,410,961 
                                    
Stock-based compensation   -    -    -    -    2,074    -    2,074 
                                    
Net loss   -    -    -    -    -    (109,462)   (109,462)
                                    
Ending, June 30, 2019   7,621,024   $762    -   $-   $2,898,598   $(1,595,787)  $1,303,573 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 5 

 

 

HCELL ENERGY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020

(UNAUDITED)

 

   Common Stock   Preferred Stock   Additional   Accumulated     Total 
   Number of
Shares
   Amount   Number of
shares
   Amount   Paid-In
Capital
   Income
(Deficit)
 

Stockholders’
Equity

 
Beginning, January 1, 2020   7,725,524   $772           -    -   $2,969,686   $(2,073,740)   $     896,718 
                                     
Stock-based compensation   -    -    -    -    7,993    -     7,993 
                                     
Equity financing   63,000    6    -    -    19,827    -     19,833 
                                     
Debt extinguishment   -    -    -    -    39,954    -     39,954 
                                     
Net loss   -    -    -    -    -    (271,787)    (271,787)
                                     
Ending, March 31, 2020   7,788,524   $778    -   $-   $3,037,460   $(2,345,527)   $692,711 
                                     
Stock-based compensation   -    -    -    -    -    -     - 
                                     
Equity financing   63,000    6    -    -    6,181    -     6,187 
                                     
Share conversion   100,000    11    -    -    15,450    -     15,461 
                                     
Net loss   -    -    -    -    -    (963,308)    (963,308)
                                     
Ending, June 30, 2020   7,951,524   $795    -   $-   $3,059,091   $(3,308,835)   $(248,949)

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 6 

 

 

H/CELL ENERGY CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

 

   For the Six Months Ended June 30, 
   2020   2019 
         
CASH FLOWS FROM OPERATING ACTIVITIES:          
           
Net loss from continuing operations  $(290,265)  $(430,884)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation and amortization   50,462    77,777 
Stock-based compensation   7,993    10,636 
Other assets   129,180    - 
Change in fair value contingent consideration   4,875    8,943 
Stock issued for services related to equity raise   -    23,450 
Change in operating assets and liabilities:          
 Other long-term asset   -    (30,000)
 Prepaid expenses and other costs   (300)   6,000 
 Accounts payable and accrued expenses   (132,844)   86,520 
           
Net cash (used in) in operating activities – continuing operations   (230,899)   (247,558)
Net cash provided by (used in) operating activities – discontinued operations   128,054   (90,035)

Net cash used in operating activities

   (102,845)   (337,593)
           
CASH FLOWS FROM INVESTING ACTIVITIES          
           
Cash disposed of in dissolution of subsidiaries   

(322,101

)   - 
           
Net cash provided by (used in) investing activities – continuing operations   

(322,101

   - 
Net cash (used in) investing activities – discontinued operations   (21,031)   (5,022)
Net cash (used in) investing activities   (343,132)   (5,022)
           
CASH FLOWS FROM FINANCING ACTIVITIES          
           
Proceeds from PPP notes payable   

20,000

    - 
Proceeds from related party debt   

179,838

    - 
Proceeds from issuance of convertible debt   75,000    147,500 
Repayment of debt   (90,000)   - 
Proceeds from equity financing   26,008    - 
           
Net cash provided by (used in) financing activities – continuing operations   210,846    147,500 
Net cash provided by (used in) financing activities – discontinued operations   (22,243)   150,282 
Net cash provided by (used in) provided by financing activities   (188,603)   297,782 
           
Net increase (decrease) in cash and cash equivalents   (257,374)   (44,833)
           
Effect of foreign currency translation on cash   (15,236)   (771)
           
Cash and cash equivalents - beginning of period   277,620    359,134 
Cash and cash equivalents - end of period  $5,010   $313,530 

 

Supplemental disclosure of non-cash investing and financing activities

 

Beneficial conversion feature  $-   $190,000 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 7 

 

 

H/CELL ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020 AND 2019 (UNAUDITED)

 

1.ORGANIZATION AND LINE OF BUSINESS

 

H/Cell Energy Corporation (the “Company”) was incorporated in the state of Nevada on August 17, 2015 and is based in Dallas, Texas. The Company’s principal operations consist of designing and installing clean energy systems with a focus on hydrogen energy. Effective January 31, 2017, the Company acquired The Pride Group (QLD) Pty Ltd, an Australian company (“Pride”), a provider of security systems integration for customers in the government and commercial sector, and has launched a new clean energy systems division to focus on the Asia-Pacific high growth renewable energy market. On February 1, 2018, the Company acquired PVBJ Inc. (“PVBJ”) Established in 2008, PVBJ is engaged in the business of the design, installation, maintenance, and emergency service of environmental systems both in residential and commercial markets.

 

The Company has developed a hydrogen energy system for residential and commercial use designed to create electricity (the “System”), which uses renewable energy as its source for hydrogen production. The System functions as a self-sustaining clean energy system using hydrogen and fuel cell technology and can be configured as an off-grid solution for all electricity needs or connected to the grid to generate energy credits. The System’s production of electricity is eco-friendly since it is not produced by the use of fossil fuels and is based upon a green-energy concept that is safe, renewable, self-sustaining, and cost effective.

 

During the three and six months ended June 2020, the Company took significant steps to transition its hydrogen energy business to focus on hydrogen production on a scaled production plant model. During the period, the Company disposed of its interests in both PVBJ and Pride (See Note 16 ‘Discontinued Operations’) in order to facilitate this transition. As part of the disposition the Company agreed to provide certain post-closing support to both PVBJ and Pride through Q3 2020. On August 12, 2020, pursuant to a Seed Capital Subscription Agreement, we made an equity investment into VoltH2 Holdings AG (“VoltH2”), a Swiss corporation developing scalable green hydrogen production projects primarily in Europe. VoltH2 is currently developing a 25MW green hydrogen production site near Vlissingen, Netherlands. The investment was for a total purchase price $175,000 USD representing a 17.5% equity interest in VoltH2.

 

Effective June 26, 2020, Charles Benton and Michael Doyle resigned as our Directors. The resignations are not due to any disagreements with the Company its management, or operations.

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The Company’s condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and following the requirements of the Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP can be condensed or omitted. These interim financial statements have been prepared on the same basis as the Company’s annual financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair statement of the Company’s financial information. These interim results are not necessarily indicative of the results to be expected for the year ending December 31, 2020 or any other interim period or for any other future year. These unaudited condensed financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2019, included in the Company’s 2019 Annual Report on Form 10-K filed with the SEC. As of June 30, 2020 the company no longer consolidates Pride or PVBJ as they have been dissolved and the financials presented are just of H/Cell. Results from pride and PVBJ have been recast in the current period and comparative periods in discontinued operations. The balance sheet as of December 31, 2019 has been derived from audited financial statements at that date but does not include all of the information required by U.S. GAAP for complete financial statements.

 

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, 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. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable in the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

Reclassification

 

Certain prior period amounts have been reclassified to conform to current period presentation specifically as it relates to the reclassification of assets, liabilities, operating results, cash flows and the accumulated comprehensive loss as a result of the Company’s dissolution of interests in our PVBJ and Pride subsidiaries.

 

 8 

 

 

H/CELL ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020 AND 2019 (UNAUDITED)

 

Accounts Receivable

 

Accounts receivable are recorded when invoices are issued and are presented in the balance sheet net of the allowance for doubtful accounts. The allowance for doubtful accounts is estimated based on the Company’s historical losses, the existing economic conditions in the construction industry, and the financial stability of its customers. Accounts are written off as uncollectible after collection efforts have failed. In addition, the Company does not generally charge interest on past-due accounts or require collateral. At June 30, 2020 and December 31, 2019, there was no allowance for doubtful accounts required.

 

Goodwill and Finite-Lived Intangible Assets

 

Goodwill represents the excess of the aggregate of the following (1) consideration transferred, (2) the fair value of any non-controlling interest in the acquiree, and (3) if the business combination is achieved in stages, the acquisition-date fair value of our previously held equity interest in the acquiree over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. Identifiable intangible assets consist primarily of customer lists and relationships, non-compete agreements and technology-based intangibles and other contractual agreements. The Company amortizes finite lived identifiable intangible assets over five years, on a straight-line basis to their estimated residual values and periodically reviews them for impairment. Total goodwill and identifiable intangible assets comprised 0% of the Company’s consolidated total assets at June 30, 2020 and 41% at December 31, 2019.

 

The Company uses the acquisition method of accounting for all business combinations and does not amortize goodwill. Goodwill is tested for possible impairment annually during the fourth quarter of each fiscal year or more frequently if events or changes in circumstances indicate that the asset might be impaired. The Company has the option to perform a qualitative assessment to determine if an impairment is more likely than not to have occurred. If the Company can support the conclusion that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company would not need to perform the two-step impairment test for that reporting unit. If the Company cannot support such a conclusion or the Company does not elect to perform the qualitative assessment, then the first step of the goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with its carrying amount, including goodwill. If the estimated fair value of the reporting unit exceeds its carrying amount, its goodwill is not impaired, and the second step of the impairment test is not necessary. If the carrying amount of the reporting unit exceeds its estimated fair value, then the second step of the goodwill impairment test must be performed. The second step of the goodwill impairment test compares the implied fair value of the reporting unit goodwill with its carrying amount to measure the amount of impairment, if any. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment is recognized in an amount equal to that excess.

 

As of June 30, 2020, the Company had no goodwill and has included the write-off of goodwill in the calculation of the loss on disposal of PVBJ. (see Discontinued Operations Note 16).

 

Comprehensive Loss

 

Comprehensive loss consists of two components, net loss and other comprehensive loss. The Company’s other comprehensive loss is comprised of foreign currency translation adjustments. The balance of accumulated other comprehensive loss is zero at June 30, 2020 due to the dissolution of Pride on May 18, 2020.

 

Currency Translation

 

The Company translates its foreign subsidiary’s assets and liabilities denominated in foreign currencies into U.S. dollars at current rates of exchange as of the balance sheet date and income and expense items at the average exchange rate for the reporting period. Translation adjustments resulting from exchange rate fluctuations are recorded in accumulated other comprehensive income. The Company records gains and losses from changes in exchange rates on transactions denominated in currencies other than each reporting location’s functional currency in net income (loss) for each period. Items included in the financial statements of each entity in the group are measured using the currency of the primary economic environment in which the entity operates (“functional currency”).

 

 9 

 

 

H/CELL ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020 AND 2019 (UNAUDITED)

 

The functional and reporting currency of the Company is the United States Dollar (“U.S. Dollar”). The financial records of Australia based Pride is maintained in the local currency, the Australian Dollar (AUD$), which is also its functional currency.

 

For the three and six months ended June 30, 2020, the Company recorded other comprehensive loss of $6,769 and $19,869 respectively due to foreign currency translation in the condensed consolidated financial statements. For the three and six months ended June 30, 2019, the Company recorded other comprehensive loss of $4,239 and income of $14,373 respectively from foreign currency translation. The balance of comprehensive loss and accumulated comprehensive loss has been reclassified to discontinued operations at June 30, 2020 due to the dissolution of Pride on May 18, 2020.

 

Revenue Recognition

 

The Company recognizes revenue in accordance with Accounting Standard Update (“ASU”) ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”

 

Under ASU 2014-09 requirements, the Company recognizes revenue from the installation or construction of projects and service or short-term projects over time using the cost-based input method. The Company accounts for a contract when: (i) it has approval and commitment from both parties, (ii) the rights of the parties are identified, (iii) payment terms are identified, (iv) the contract has commercial substance, and (v) collectability of consideration is probable. The Company considers the start of a project to be when the above criteria have been met and the Company either has written authorization from the customer to proceed or an executed contract. A detailed breakdown of the five-step process is as follows:

 

Identify the Contract with a Customer

 

The Company used to receive almost all of its contracts from only two sources, referrals, or government bids. In a referral, a client that the Company has an ongoing business relationship with refers the Company to perform services. In a government bid, the Company applies to perform services for public projects. The contracts have a pattern of being stand-alone contracts.

 

Identify the Performance Obligations in the Contract

 

The performance obligation of the Company is to perform a contractually agreed upon task for the customer. If the contract is stated to provide only contractual services, then the services are considered the only performance obligation. If the contractual services include design and or engineering in addition to the contract, it is considered a single performance obligation.

 

Determine the Transaction Price

 

The nature of the industry involves a number of uncertainties that can affect the current state of the contract. Variable considerations are the estimates made due to a contract modification in the contractual service. Change orders, claims, extras, or back charges are common in contractual services activity as a form of variable consideration. If there is going to be a contract modification, judgment by management will need to be made to determine if the variable consideration is enforceable. The following factors are considered in determining if the variable consideration is enforceable:

 

1.The customer’s written approval of the scope of the change order;
2.Current contract language that indicates clear and enforceable entitlement relating to the change order;
3.Separate documentation for the change order costs that are identifiable and reasonable; and
4.The Company’s favorable experience in negotiating change orders, especially as it relates to the specific type of contract and change order being evaluated

 

 10 

 

 

H/CELL ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020 AND 2019 (UNAUDITED)

 

Once the Company receives a contract, it generates a budget of projected costs for the contract based on the contract price. If the scope of the contract during the contractual period needs to be modified, the Company typically files a change order. The Company does not continue to perform services until the change modification is agreed upon with documentation by both the Company and the customer. There are few times that claims, extras, or back charges are included in the contract.

 

Allocate the Transaction Price to the Performance Obligations in the Contract

 

If there are multiple performance obligations to the contract, the costs must be allocated appropriately and consistently to each performance obligation. In the Company’s experience, usually only one performance obligation is stated per contract. If there are multiple services provided for one customer, the Company has a policy of splitting out the services over multiple contracts.

 

Recognize Revenue When (or As) the Entity Satisfies a Performance Obligations

 

The Company uses the total costs incurred on the project relative to the total expected costs to satisfy the performance obligation. The input method involves measuring the resources consumed, labor hours expended, costs incurred, time lapsed, or machine hours used relative to the total expected inputs to the satisfaction of the performance obligation. Costs incurred prior to actual contract (i.e. design, engineering, procurement of material, etc.) should not be recognized as the client does not have control of the good/service provided. When the estimate on a contract indicates a loss or claims against costs incurred reduce the likelihood of recoverability of such costs, the Company records the entire estimated loss in the period the loss becomes known. Project contracts typically provide for a schedule of billings or invoices to the customer based on the Company’s job to date percentage of completion of specific tasks inherent in the fulfillment of its performance obligation(s). The schedules for such billings usually do not precisely match the schedule on which costs are incurred. As a result, contract revenue recognized in the statement of operations can and usually does differ from amounts that can be billed or invoiced to the customer at any point during the contract. Amounts by which cumulative contract revenue recognized on a contract as of a given date exceed cumulative billings and unbilled receivables to the customer under the contract are reflected as a current asset in the Company’s balance sheet under the captions “Costs and estimated earnings in excess of billings” and “Unbilled accounts receivable.” Amounts by which cumulative billings to the customer under a contract as of a given date exceed cumulative contract revenue recognized on the contract are reflected as a current liability in the Company’s balance sheet under the caption “Billings in excess of costs and estimated earnings.”

 

Cash and Cash Equivalents

 

Cash and cash equivalents include cash in bank and money market funds as well as other highly liquid investments with an original maturity of three months or less. The Company had no cash equivalents as of June 30, 2020 or December 31, 2019.

 

Stock-Based Compensation

 

The Company recognizes expense for its stock-based compensation based on the fair value of the awards at the time they are granted. We estimate the value of stock option awards on the date of grant using the Black-Scholes model. The determination of the fair value of stock-based payment awards on the date of grant is affected by our stock price as well as assumptions regarding a number of complex and subjective variables. These variables include our expected stock price volatility over the term of the awards, expected term, risk-free interest rate, expected dividends and expected forfeiture rates. The impact of forfeitures is recorded in the period in which they occur. Our outstanding awards do not contain market or performance conditions.

 

Fair Value of Financial Instruments

 

The carrying value of cash and cash equivalents, accounts payable and accrued liabilities, and short-term borrowings, as reflected in the balance sheets, approximate fair value because of the short-term maturity of these instruments. All other significant financial assets, financial liabilities and equity instruments of the Company are either recognized or disclosed in the financial statements together with other information relevant for making a reasonable assessment of future cash flows, interest rate risk and credit risk. Where practicable the fair values of financial assets and financial liabilities have been determined and disclosed; otherwise only available information pertinent to fair value has been disclosed. The Company classifies and discloses assets and liabilities carried at fair value in one of the following three categories:

 

  Level 1—quoted prices in active markets for identical assets and liabilities;
 
 11 

 

 

H/CELL ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020 AND 2019 (UNAUDITED)

 

  Level 2—observable market-based inputs or unobservable inputs that are corroborated by market data; and
     
  Level 3—significant unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

 

There were no fair value measurements as of June 30, 2020.

 

Net Income (Loss) Per Common Share

 

The Company computes basic net income (loss) per share by dividing net income (loss) per share available to common stockholders by the weighted average number of common shares outstanding for the period and excludes the effects of any potentially dilutive securities. Diluted earnings per share, if presented, would include the dilution that would occur upon the exercise or conversion of all potentially dilutive securities into common stock using the “if converted” method as applicable. The computation of diluted loss per share excludes dilutive securities because their inclusion would be anti-dilutive. Dilutive securities for the periods presented are as follows:

 

   Three Months Ended   Six Months Ended 
   June 30, 2020   June 30, 2019   June 30, 2020   June 30, 2018 
                 
Options to purchase common stock   0    425,000    0    425,000 
Convertible debt   0    1,100,000    0    1,100,000 
Totals   0    1,525,000    0    1,525,000 

 

Please refer to Note 10 for a discussion of the decrease for the three and six months ended June 30, 2020 compared to December 31, 2019.

 

3.RELATED PARTY TRANSACTIONS

 

The Company has entered into agreements to indemnify its directors and executive officers, in addition to the indemnification provided for in the Company’s articles of incorporation and bylaws. These agreements, among other things, provide for indemnification of the Company’s directors and executive officers for certain expenses (including attorneys’ fees), judgments, fines and settlement amounts incurred by any such person in any action or proceeding, including any action by or in the right of the Company, arising out of such person’s services as a director or executive officer of the Company, any subsidiary of the Company or any other company or enterprise to which the person provided services at the Company’s request. The Company believes that these provisions and agreements are necessary to attract and retain qualified persons as directors and executive officers.

 

There was $10,000 and $19,500 of management fees expensed for the three months ended June 30, 2020 and 2019 to Turquino Equity LLC (Turquino”), a significant shareholder, and $30,000 and $39,000 for each of the six months ended June 30, 2020 and 2019.

 

On January 2, 2018 and February 8, 2019, the Company and Andrew Hidalgo (“Hidalgo”), completed a Convertible Debenture Agreement whereby Hidalgo, the Company’s Chief Executive Officer, lent us an aggregate of $275,000 (the “Hidalgo Notes”). On January 2, 2018 and February 8, 2019, the Company and Michael Doyle (“Doyle”), the Company’s Director, completed a Convertible Debenture Agreement whereby Doyle lent the Company an aggregate of $275,000 (the “Doyle Notes”).

 

 12 

 

 

H/CELL ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020 AND 2019 (UNAUDITED)

 

May 18, 2020 Purchase and Sale Agreement

 

On May 18, 2020, the Company’s Board of Directors authorized the Company, in accordance to Nevada Statute 78.565, to complete and execute the May 18, 2020 Purchase and Sale Agreement between the Company and Turquino providing for the Company’s sale of 100% of Pride’s outstanding stock Pride to Turquino in return for Turquino’s assumption of the Hidalgo Notes and the Doyle Notes and the debt obligations and accrued interest related thereto (the “Agreement”). In conjunction therewith, Hidalgo and Doyle assigned the Notes to Turquino, at which time Turquino became responsible for the debt obligations upon the Notes. The Company has no further note obligations to Hidalgo or Doyle, and it reduced its debt by approximately $600,000 or 65% of the corporate debt obligations. Pursuant to Nevada Statute Section 78.565, approval of the Agreement only requires the approval of the board of directors and does not require shareholder approval. The Company obtained a valuation of the fair market value of Pride from an independent third party which valued Pride at $425,000 USD. The Agreement provides that the Parties mutually release one another and discharge and release the other party (and their respective current and former officers, directors, employees, shareholders, note holders, attorneys, assigns, agents, representatives, predecessors and successors in interest), from any and all claims, demands, obligations, or causes of action. Hidalgo, our Chief Executive Officer, and a managing member of Turquino, are related parties in connection with the Exchange Agreement, the Notes, and the Agreement.

 

On June 19, 2020, the Company entered into a Promissory Note with a director of the Company (the “Lender”), for a principal amount up to $230,332 bearing interest with interest at 6% per annum. The entire principal and interest upon the Promissory Note are due on June 19, 2021. The proceeds from the note was used to pay accrued expenses of the Company.

 

4.SIGNIFICANT CONCENTRATIONS OF CREDIT RISK

 

Cash is maintained at an authorized deposit-taking institution (bank) incorporated in both the United States and Australia and is insured by the U.S. Federal Deposit Insurance Corporation and Australian Securities & Investments Commission up to $250,000 and approximately $186,000 USD in total, respectively. As of June 30, 2020 and December 31, 2019, the balance was fully covered under the $250,000 threshold in the United States. In Australia, the balance was $10,563 over at December 31, 2019.

 

Credit risk for trade accounts is concentrated as well because substantially all of the balances are receivable from entities located within certain geographic regions. To reduce credit risk, the Company performs ongoing credit evaluations of its customers’ financial conditions but does not generally require collateral. There were no accounts receivable as of June 30, 2020. As of December 31, 2019, one of the Company’s accounts receivable was due from one customer at approximately 13%.

 

5.MAJOR CUSTOMERS

 

Due to the sale of Pride and PVBJ the Company had no major customers for the three or six months ended June 30, 2020. There were two unrelated customers with a concentration of 10% or higher 16%, and 15%, for the three months ended June 30, 2019, and three unrelated customers for the six months ended June 30, 2019 at 21%, and two at 11%.

 

6.UNCOMPLETED CONTRACTS

 

Costs, estimated earnings, and billings on uncompleted contracts are summarized as follows at June 30, 2020 and December 31, 2019:

 

   June 30, 2020   December 31, 2019 
Costs incurred on uncompleted contracts  $-   $465,686 
Estimated earnings   -    454,132 
Costs and estimated earnings earned on uncompleted contracts   -    919,818 
Billings to date   -    750,769 
Costs and estimated earnings in excess of billings on uncompleted contracts   -    169,049 
Costs and earnings in excess of billings on completed contracts   -    (190,102)
   $-   $(21,053)
           
Costs in excess of billings  $-   $26,045 
Billings in excess of cost   -    (47,098)
   $-   $(21,053)

 

 13 

 

 

H/CELL ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020 AND 2019 (UNAUDITED)

 

7.LEASES

 

Operating Leases

 

As of June 30, 2020, the Company had no operating leases. As of December 31, 2019 the Company had $87,897 in current operating lease liability and $137,071 in non-current operating lease liability which have been re-classed to discontinued operations on the condensed consolidated balance sheet.

 

Finance Leases

 

As of June 30, 2020, the Company had no finance leases. As of December 31, 2019 the Company had $75,743 in current finance leases and $307,804 in non-current finance leases which have been re-classed to discontinued operations on the balance sheet.

 

8.CONTRACT BACKLOG

 

As of June 30, 2020, the Company had no contract backlog. As of December 31, 2019, the Company had a contract backlog approximating $551,850, with anticipated direct costs to completion approximating $454,132.

 

9.GOODWILL AND OTHER INTANGIBLES

 

The Company has no goodwill or other intangibles as of June 30, 2020. As of December 31, 2019, the Company had $1,373,621 in goodwill and $83,645 in other intangibles which has been re-classed to discontinued operations on the balance sheet.

 

10.STOCK OPTIONS AWARDS AND GRANTS

 

A summary of the stock option activity and related information for the 2016 Incentive Stock Option Plan from December 31, 2019 to June 30, 2020 is as follows:

 

    Shares   Weighted-
Average
Exercise Price
   Weighted-
Average
Remaining
Contractual Term
   Aggregate
Intrinsic Value
 

Outstanding

at December 31, 2019

    698,500   $0.31    2.40   $216,535 
 Grants    -    -    -    - 
Exercised    -    -    -    - 
Canceled    (698,500)   (0.31)   (2.40)   - 
Outstanding at June 30, 2020    -   $0.00    -    - 
Exercisable at June 30, 2020    -   $0.00    -    - 

 

The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on options with an exercise price less than the Company’s weighted average grant date stock price of $0.3958 per share, which would have been received by the option holders had those option holders exercised their options as of that date.

 

Option valuation models require the input of highly subjective assumptions. The fair value of stock-based payment awards was estimated using the Black-Scholes option model with a volatility figure derived from an index of historical stock prices of comparable entities until sufficient data exists to estimate the volatility using the Company’s own historical stock prices. Management determined this assumption to be a more accurate indicator of value.

 

 14 

 

 

H/CELL ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020 AND 2019 (UNAUDITED)

 

The Company accounts for the expected life of options based on the contractual life of options for non-employees. For incentive options granted to employees, the Company accounts for the expected life in accordance with the “simplified” method, which is used for “plain-vanilla” options, as defined in the accounting standards codification. The risk-free interest rate was determined from the implied yields of U.S. Treasury zero-coupon bonds with a remaining life consistent with the expected term of the options. The fair value of stock-based payment awards was estimated using the Black-Scholes pricing model.

 

As of June 30, 2020, there was no unrecognized compensation expense as all option holders had their options forfeited through the sale of Pride and PVBJ. As of December 31, 2019, there was $32,642 of unrecognized compensation expense.

 

11.SEGMENT INFORMATION

 

The Company’s business was organized into two reportable segments: renewable systems integration revenue and non-renewable systems integration revenue. Due to the sale of both Pride and PVBJ (See Note 16) the Company operates in only one reportable segment. Please refer to Note 16 for further detail and Management’s Discussion and Analysis for further detail.

 

12.INCOME TAX

 

For the three and six months ended June 30, 2020 and 2019, the Company did not record any income tax expense or benefit. No tax benefit has been recorded in relation to the pre-tax income for the three months ended June 30, 2018 and loss for the six months ended June 30, 2018, due to a full valuation allowance to offset any deferred tax asset related to net operating loss carry forwards attributable to the losses.

 

In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law in March 2020. The CARES Act lifts certain deduction limitations originally imposed by the Tax Cuts and Jobs Act of 2017 (“2017 Tax Act”). Corporate taxpayers may carryback net operating losses (NOLs) originating between 2018 and 2020 for up to five years, which was not previously allowed under the 2017 Tax Act. The CARES Act also eliminates the 80% of taxable income limitations by allowing corporate entities to fully utilize NOL carryforwards to offset taxable income in 2018, 2019 or 2020. Taxpayers may generally deduct interest up to the sum of 50% of adjusted taxable income plus business interest income (30% limit under the 2017 Tax Act) for 2019 and 2020. The CARES Act allows taxpayers with alternative minimum tax credits to claim a refund in 2020 for the entire amount of the credits instead of recovering the credits through refunds over a period of years, as originally enacted by the 2017 Tax Act. In addition, the CARES Act raises the corporate charitable deduction limit to 25% of taxable income and makes qualified improvement property generally eligible for 15-year cost-recovery and 100% bonus depreciation. The enactment of the CARES Act did not result in any material adjustments to our income tax provision for the three and months ended June 30, 2020.The Company did not have a deferred tax asset as of June 30, 2020.

 

13.NOTE PAYABLE

 

QRIDA Loan

 

On May 6, 2020, the Company entered into a loan for $160,410 with the Queensland Rural and Industry Development Authority. The interest rate was 2.50% with a term of ten years. Through the dissolution of Pride the Company no longer has this loan as a liability on its balance sheet.

 

2019 Convertible Note Financing

 

On October 17, 2019, the Company entered into a securities purchase agreement with FirstFire Global Opportunities Fund LLC (“FirstFire”), an unrelated third party, pursuant to which it issued a $110,000 convertible note (the “2019 Note”) to FirstFire for gross proceeds of $100,000, with an original discount issuance of $10,000. The transaction closed on October 23, 2019 upon receipt of the funds from FirstFire. The Company incurred $5,000 of legal fees for the transaction. Both the legal fees and original issue discount are amortized over the life of the agreement.

 

On May 18, 2020 FirstFire converted $15,450 of the balance due for 100,000 shares.

 

 15 

 

 

H/CELL ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020 AND 2019 (UNAUDITED)

 

2020 Convertible Note Financing

 

On January 15, 2020, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with FirstFire, , pursuant to which the Company issued a $85,250 principal amount convertible note for gross proceeds of $77,500, with an original discount issuance of $7,750. The transaction closed on January 16, 2020. The Company incurred $2,500 of legal fees for this transaction.

 

On June 18, 2020, the Company and FirstFire entered into a settlement agreement whereby both the 2019 and 2020 notes were cancelled and all remaining amounts due under the above notes were settled for $90,000 The Company has no further obligations with respect to any of the notes under terms of the First Fire Note settlement. The Notes were cancelled, and all remaining contractual obligations there under were extinguished under terms of a Settlement and Release Agreement which resulted in a gain on the income statement of $81,203 for the three and six months ended June 30, 2020.

 

Paycheck Protection Program Loan

 

On May 5, 2020, the Company entered into a term note with Comerica Bank, with a principal amount of $20,000 thousand pursuant to the Paycheck Protection Program (“PPP Term Note”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The PPP Loan is evidenced by a promissory note. The PPP Term Note bears interest at a fixed annual rate of 1.00%, with the first six months of interest deferred. Beginning in November 2020, the Company will make 18 equal monthly payments of principal and interest with the final payment due in April 2022. The PPP Term Note may be accelerated upon the occurrence of an event of default.

 

The PPP Term Note is unsecured and guaranteed by the United States Small Business Administration. The Company may apply to Comerica Bank for forgiveness of the PPP Term Note, with the amount which may be forgiven equal to the sum of payroll costs, covered rent and mortgage obligations, and covered utility payments incurred by the Company during the eight-week period beginning upon receipt of PPP Term Note funds, calculated in accordance with the terms of the CARES Act. At this time, the Company is not in a position to quantify the portion of the PPP Term Note that will be forgiven.

 

Director Related Party Note

 

On June 19, 2020, the Company entered into a Promissory Note with a director of the Company (the “Lender”), for the principal amount up to $230,332 bearing interest with interest at 6% per annum. The entire principal and interest upon the Promissory Note are due on June 19, 2021. As of June 30, 2020 $179,838, is due on this note due to advanced funds being received on the note to settle certain liabilities and the note being fully funded subsequent to quarter end. The note incurred interest expense of $416 for the three months ended June 30, 2020.

 

14.EQUITY PURCHASE AGREEMENT

 

On March 12, 2019, the Company entered into an equity purchase agreement (the “Equity Purchase Agreement”) and a registration rights agreement with an accredited investor (the “Investor”), pursuant to which the Investor has agreed to purchase from the Company up to $450,000 in shares (the “Shares”) of the Company’s common stock, subject to certain limitations and conditions set forth in the Equity Purchase Agreement. Additionally, on March 12, 2019, the Company agreed to donate 35,000 shares of common stock to the manager of the Investor. The Company recorded value of these shares at the market price and is included in general and administrative expenses.

 

On June 24, 2019, the Company provided written notice to the Investor that the Company elected to terminate the Equity Agreement, effective immediately. No Shares were sold pursuant to the Equity Purchase Agreement. On August 30, 2019, the 35,000 donation shares were returned to the Company and canceled.

 

On July 9, 2019, we entered into an equity financing agreement with GHS Investments LLC (the “GHS Financing Agreement); in connection therewith, we filed a Form S-1 Registration Statement (the “S-1”) registering up to 700,000 Common Stock Shares, which S-1 was declared effective on July 19, 2019. On May 19, 2020, we filed a Post-Effective Amendment No. 1 on Form S-1 amending the S-1 to deregister all securities registered pursuant to said S-1, which as of the date of such Amendment, 450,250 Common Stock Shares were unissued (the “Post Effective S-1”). The Post Effective S-1 was declared effective on May 21, 2020, at which time the Offering described in the S-1 was terminated, as well as the contractual obligations under the GHS Financing Agreement.

 

 16 

 

 

H/CELL ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020 AND 2019 (UNAUDITED)

 

15.RECENT ACCOUNTING PRONOUNCEMENTS

 

In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (ASC 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”). ASU 2018-07 simplifies the accounting for nonemployee share-based payment transactions. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned. The new standard became effective for the Company beginning January 1, 2019, with early adoption permitted. The Company has adopted this standard and has no impact on its consolidated financial statements and disclosures.

 

In August 2018, the FASB issue ASU 2018-13, Fair Value Measurement (ASC 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. The new standard became effective for the Company January 1, 2020, with early adoption permitted. The Company has adopted this standard and has no impact on its consolidated financial statements and disclosures.

 

In January 2020, the FASB issued ASU 2020-01, Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivative and Hedging (Topic 815), which clarifies the interaction of rules for equity securities, the equity method of accounting, and forward contracts and purchase options on certain types of securities. The guidance clarifies how to account for the transition into and out of the equity method of accounting when considering observable transactions under the measurement alternative. The ASU is effective for annual reporting periods beginning after December 15, 2020, including interim reporting periods within those annual periods, with early adoption permitted. We are currently evaluating the impact of the new guidance on our consolidated financial statements.

 

In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This ASU amends the guidance on convertible instruments and the derivatives scope exception for contracts in an entity’s own equity, and also improves and amends the related EPS guidance for both Subtopics. The ASU will be effective for annual reporting periods after December 15, 2021 and interim periods within those annual periods and early adoption is permitted. We are currently evaluating the impact of the new guidance on our consolidated financial statements.

 

16.DISCONTINUED OPERATIONS

 

Sale of PVBJ

 

On April 21, 2020, the Company’s Board of Directors authorized its resale of PVBJ pursuant to the following terms (a) the outstanding $221,800 earn-out liability was used as consideration towards the purchase of PVBJ; (b) Paul Benis agreed to apply the remaining salary due to him, as prorated from the Closing Date to the expiration date of the Employment Agreement (January 31, 2021), to the purchase of PVBJ by Benis Holdings LLC as additional consideration thereof and (c) as additional consideration for the purchase of PVBJ by Benis Holdings LLC, PVBJ shall continue to be responsible for the line of credit (see below).

 

Sale of Pride

 

On May 18, 2020, the Company executed a Purchase and Sale Agreement between with Turquino providing for our sale of 100% of Pride’s outstanding stock Pride to Turquino in return for Turquino’s assumption of the Hidalgo Notes and the Doyle Notes and the debt obligations and accrued interest related thereto (the “Agreement”). In conjunction therewith, Hidalgo and Doyle assigned the Notes to Turquino, at which time Turquino became responsible for the debt obligations upon the Notes. The Company has no further note obligations to Hidalgo or Doyle, and it reduced its debt by approximately $600,000 or 65% of the corporate debt obligations.

 

 17 

 

 

H/CELL ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020 AND 2019 (UNAUDITED)

 

The gain/loss on discontinued operations consists of the following:

 

   June 30, 2020 
PVBJ     
Proceeds on sale (earn-out payable exchange)  $214,074 
Less: net asset value   (1,383,440)
Loss on sale of assets  $(1,169,366)
      
Pride     
Proceeds on sale (debt forgiveness)  $500,321 
Less net asset value   (120,380)
Gain on sale of assets  $379,941 

 

The results of discontinued operations are as follows:

 

    Three months ended
June 30, 2020
    Three months ended
June 30, 2019
    Six months ended
June 30, 2020
    Six months ended
June 30, 2019
 
PVBJ                                
Revenue                                
Sales   $ 85,028     $ 747,071     $ 722,786     $ 1,422,025  
Total revenue     85,028       747,071       722,786       1,422,025  
                                 
Cost of goods sold                                
Direct costs     48,655       534,154       560,328       1,059,884  
Total cost of goods sold   $ 48,655     $ 534,154     $ 560,328     $ 1,059,884  
                                 
Selling, general and administrative     61,812       125,408       230,807       298,011  
                                 
Net income (loss) for period   $ (25,439   $ 79,031     $ (68,349 )   $ 64,130  

 

    Three months ended
June 30, 2020
    Three months ended
June 30, 2019
    Six months ended
June 30, 2020
    Six months ended
June 30, 2019
 
Pride                                
Revenue                                
Sales   $ 440,270     $ 1,180,850     $ 1,474,460     $ 2,210,169  
Total revenue     440,270       1,180,850       1,474,460       2,210,169  
                                 
Cost of goods sold                                
Direct costs     323,514       775,170       1,121,121       1,445,878  
Total cost of goods sold   $ 323,514     $ 775,170     $ 1,121,121     $ 1,445,878  
                                 
Selling, general and administrative     147,695       372,392       440,396       632,085  
                                 
Net income (loss) for period   $ (30,939 )   $ 33,288     $ (87,057 )   $ 132,206  

 

 18 

 

 

H/CELL ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020 AND 2019 (UNAUDITED)

 

Gain (loss) from discontinued operations:

 

Results from discontinued operations  $(56,378)  $112,319   $(155,406)  $196,396 
Loss on disposal of assets   (789,425)   -    (789,425)   - 
Loss from discontinued operations  $(845,803)  $112,319   $(944,831)  $196,396 

 

The discontinued operations of the balance sheet as of December 31, 2019 are as follows:

 

   Pride   PVBJ 
         
ASSETS          
Current assets          
Cash and cash equivalents  $196,705   $55,856 
Accounts receivable   449,530    354,129 
Prepaid expenses   2,108    9,071 
Costs and earnings in excess of billings   26,045    - 
Total current assets   674,388    419,056 
           
Property and equipment, net   90,847    387,391 
Security deposits and other non-current assets   31,633    - 
Deferred tax asset   46,000    - 
Customer lists, net   -    63,161 
Right of use asset   222,524    - 
Goodwill   -    1,373,621 
           
Total assets  $1,065,393   $2,243,229 
           
LIABILITIES          
           
Current liabilities          
Accounts payable and accrued expenses  $450,545   $94,104 
Billings in excess of costs and earnings   47,098    - 
Sales and withholding tax payable   37,199    - 
Current operating lease liability   87,897    - 
Current equipment notes payable   17,782    9,653 
Current line of credit   -    269,746 
Current finance lease payable   -    75,743 
Income tax payable   41,426    - 
Total current liabilities   681,947    449,246 
           
Noncurrent liabilities          
Earn-out payable   -    209,199 
Lease operating liability   137,071    - 
Finance leases   -    307,804 
Equipment notes payable   33,227    38,913 
Convertible notes payable – related party, net of discounts   473,770    - 
Total noncurrent liabilities   644,068    555,916 
           
Total liabilities   1,326,015    1,005,162 

 

 19 

 

 

H/CELL ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020 AND 2019 (UNAUDITED)

 

   December 31, 2019 
Pride current assets  $674,388 
PVBJ current assets   419,056 
Current assets of discontinued operations  $1,093,444 
      
Pride non-current assets  $391,004 
PVBJ non-current assets   1,824,173 
Non-current assets of discontinued operations  $2,215,177 

 

   December 31, 2019 
Pride current liabilities  $681,947 
PVBJ current liabilities   449,246 
Current liabilities of discontinued operations  $1,131,193 
      
Pride non-current liabilities  $644,068 
PVBJ non-current liabilities   555,916 
Non-current liabilities of discontinued operations  $1,199,984 

 

17.GOING CONCERN

 

At each reporting period, the Company evaluates whether there are conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. The Company’s evaluation entails analyzing prospective operating budgets and forecasts for expectations of the Company’s cash needs and comparing those needs to the current cash and cash equivalent balances. The Company is required to make certain additional disclosures if it concludes substantial doubt exists and it is not alleviated by the Company’s plans or when its plans alleviate substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements have been prepared assuming that the Company will continue as a going concern. This basis of accounting contemplates the recovery of the Company’s assets and the satisfaction of liabilities in the normal course of business. These consolidated financial statements do not include any adjustments to the specific amounts and classifications of assets and liabilities, which might be necessary should the Company be unable to continue as a going concern.

 

On March 11, 2020, the World Health Organization declared the novel strain of coronavirus (COVID-19), a global pandemic and recommended containment and mitigation measures worldwide. As of the date of this filing, the Company has sold its office in the U.S.; Australia remains fully operational as the Company’s operations service governmental offices and hospitals. The Company has adjusted certain aspects of the Company’s operations to protect its employees and customers while still meeting customers’ needs for vital services. The Company will continue to monitor the situation closely and it is possible that it will implement further measures. In light of the uncertainty as to the severity and duration of the pandemic, the impact on the Company’s revenues, profitability and financial position is uncertain at this time.

 

 20 

 

 

H/CELL ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020 AND 2019 (UNAUDITED)

 

As reflected in the quarterly financial statements, the Company has a net loss of $1,235,095 and net operating cash used of $230,899 for the six months ended June 30, 2020. In addition, the Company is a start up in the renewable energy space and has generated limited revenues to date.

 

Due to the sale of PVBJ and Pride the Company has alleviated liabilities on its balance sheet such as the line of credit due in August 2020, earn out payable, and other notes and finance leases payables relating to vehicles. Management has evaluated the significance of these conditions and under these circumstances expects that its current cash resources, operating cash flows and ability to secure financing (See Note 18 - Subsequent Events) would be sufficient to sustain operations for a period greater than one year from the quarterly report issuance date.

 

18.SUBSEQUENT EVENTS

 

Effective July 17, 2020, a director of the Corporation lent the Company $50,000 at 6% per annum payable on the due date, June 19, 2021 (the “$50,000 Note”). Effective July 22, 2020, an additional loan by the same director was provided to the Corporation for a principal amount of $299,900 at 6% per annum payable on the due date of June 19, 2021 (the $299,900 Note”). The $50,000 Note and the $299,900 Note are related party transactions.

 

On August 12, 2020, pursuant to a Seed Capital Subscription Agreement, we made an equity investment into VoltH2 Holdings AG (“VoltH2”), a Swiss corporation developing scalable green hydrogen production projects primarily in Europe. VoltH2 is currently developing a 25MW green hydrogen production site near Vlissingen, Netherlands. The investment was for a total purchase price $175,000 USD representing a 17.5% equity interest in VoltH2.

 

 21 

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

This Management’s Discussion and Analysis of Financial Condition and Results of Operations includes a number of forward-looking statements that reflect Management’s current views with respect to future events and financial performance. You can identify these statements by forward-looking words such as “may,” “will,” “expect,” “anticipate,” “believe,” “estimate” and “continue,” or similar words. Those statements include statements regarding the intent, belief or current expectations of us and members of our management team as well as the assumptions on which such statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements.

 

Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the Securities and Exchange Commission. Important factors currently known to Management could cause actual results to differ materially from those in forward-looking statements. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in the future operating results over time. We believe that our assumptions are based upon reasonable data derived from and known about our business and operations. No assurances are made that actual results of operations or the results of our future activities will not differ materially from our assumptions. Factors that could cause differences include, but are not limited to, expected market demand for our products, fluctuations in pricing for materials, and competition.

 

H/Cell Energy Corporation is referred to hereinafter as “we”, “our”, or “us”.

 

Business Overview

 

The 2020 year has been challenging for us. Originally, we set out to provide hydrogen energy systems for residential users. The original business plan, established in April 2016 , focused on developing the market for residential off grid hydrogen energy systems while simultaneously acquiring companies that possessed technicians who could be trained in the design and deployment of these hydrogen energy systems.

 

In February 2020, we decided to adopt another approach in market development, which was to pursue the one market that was establishing momentum, hydrogen production on a plant size scale. Hydrogen production that can be transported for vehicles. In order to achieve our new strategic business model, we decided to sell both our subsidiaries because they were not producing enough profit and were not a strategic fit with our goal of developing the market for hydrogen energy systems. Further, the hydrogen energy market for residential users was not developing at all based on cost inefficiencies, and debt levels were beginning to impact us adversely.

 

Beginning in March 2020, the following steps were undertaken to implement the business transition plan:

 

March 2020 - Commenced discussions with investor regarding financing options for HCCC and strategic acquisitions.
April 21, 2020 - Concluded the disposition of the PVBJ subsidiary (See ‘Discontinued Operations’ section below).
May 2020 - Commenced discussions and diligence for an investment in a hydrogen production project in the Netherlands, known as Volt H2 (See ‘Subsequent Events’ section below).
May 18, 2020 - Concluded the disposition of The Pride Group subsidiary
July 2020 - Concluded 2nd and 3rd tranches of debt financing with proceeds earmarked for an investment in Volt H2.
August 12, 2020 - Concluded acquisition of an equity interest in Volt H2 (See ‘Subsequent Events’ section below)

 

With the initial investment into the hydrogen production market via Volt H2, the first step in transitioning our hydrogen business focus has been completed. We now will continue to operate the business in a manner that is aligned with our primary hydrogen business strategy.

 

Discontinued Operations

 

On April 21, 2020, our Board of Directors authorized our resale of PVBJ back to PVBJ pursuant to the terms as follows: (a) Benis Holdings LLC will apply the $221,800 earn-out liability as consideration towards the purchase of PVBJ; (b) Paul Benis agrees to apply the remaining salary due to him, as prorated from the Closing Date to the expiration date of the Employment Agreement (January 31, 2021), to the purchase of PVBJ by Benis Holdings LLC as additional consideration thereof, at which time we will have no further salary obligation to Paul Benis, who will then be deemed to have resigned as our executive officer; and (c) as additional consideration for the purchase of PVBJ by Benis Holdings LLC, PVBJ shall continue to be responsible for the line of credit (refer to note 17).

 

 22 

 

 

On May 18, 2020, our Board of Directors authorized us, in accordance to Nevada Statute 78.565, to complete and execute the May 18, 2020 Purchase and Sale Agreement between us and Turquino providing for our sale of 100% of Pride’s outstanding stock Pride to Turquino in return for Turquino’s assumption of the Hidalgo Notes and the Doyle Notes and the debt obligations and accrued interest related thereto (the “Agreement”). In conjunction therewith, Hidalgo and Doyle assigned the Notes to Turquino, at which time Turquino became responsible for the debt obligations upon the Notes, we have no further note obligations to Hidalgo or Doyle, and we reduced our debt by approximately $600,000 or 65% of the corporate debt obligations. Pursuant to Nevada Statute Section 78.565, approval of the Agreement only requires the approval of the board of directors and does not require shareholder approval. We obtained a valuation of the fair market value of Pride from an independent third party which valued Pride at $425,000 USD. The Agreement provides that the Parties mutually release one another and discharge and release the other party (and their respective current and former officers, directors, employees, shareholders, note holders, attorneys, assigns, agents, representatives, predecessors and successors in interest), from any and all claims, demands, obligations, or causes of action. Hidalgo, our Chief Executive Officer, and a managing member of Turquino, are related parties in connection with the Exchange Agreement, the Notes, and the Agreement.

 

   June 30, 2020 
PVBJ     
Proceeds on sale (earn-out payable exchange)  $214,074 
Less: net asset value   (1,383,440)
Loss on sale of assets  $(1,169,366)
      
Pride     
Proceeds on sale (debt forgiveness)  $500,321 
Less net asset value   (120,380)
Gain on sale of assets  $379,941 

 

Current Operating Trends

 

Results of Continuing Operations

 

For the Three Months Ended June 30, 2020 and 2019

 

Revenue and Cost of Revenue

 

We had no revenue or cost of revenue for the three months ended June 30, 2020. and 2019.

 

General and Administrative Expenses

 

During the three months ended June 30, 2020, our general and administrative expenses were $71,370 consisting of: $52,400 of legal and accounting fees, $26,530 of gross payroll and payroll taxes, $10,000 of management disbursements, $9,788 of consulting/dues and subscription fees, which pertained to EDGAR fees and OTC Market annual listing fees, and $5,175 of miscellaneous expenses offset by a credit of $32,523 as the result of entering into various Settlement and Release Agreements with several other creditors.

 

During the three months ended June 30, 2019, our general and administrative expenses were $148,916 consisting of : $61,028 of legal and accounting fees, $40,369 of gross payroll and payroll taxes, $19,500 of management disbursements, $8,518 of consulting/dues and subscription fees, which pertained to EDGAR fees and OTC Market annual listing fees, $5,271 in amortization of intangible assets, $4,674 of directors and officers insurance liability, $2,074 of stock-based compensation and $7,482 of miscellaneous expenses.

 

We incurred $46,135 of other expenses for the three months ended June 30, 2020, including $4,584 of interest expense – related party and $41,551 of interest expense.

 

We incurred $72,865 of other expenses for the three months ended June 30, 2019, including $58,060 of interest expense – related party, $10,258 of interest expense and $4,547 change in fair value earn-out.

 

As a result of the foregoing, we had a net loss from continuing operations of $117,506 for the three months ended June 30, 2020, compared to a net loss of $221,781 for the three months ended June 30, 2019.

 

 23 

 

 

For the Six Months Ended June 30, 2020 and 2019

 

Revenue and Cost of Revenue

 

We had no revenue or cost of revenue for the six months ended June 30, 2020 and 2019.

 

General and Administrative Expenses

 

During the six months ended June 30, 2020, our general and administrative expenses were $199,757 which consisted of the following: $66,516 of gross payroll and payroll tax, $90,300 of accounting and legal fees related to audit and consulting costs, $30,000 of management disbursements, $17,445 of consulting/dues and subscription fees, which pertained to EDGAR fees, OTC Market annual listing fees, and transfer agent fees, $7,993 of stock-based compensation, $5,421 of amortization of intangible assets, and officers insurance liability of $11,023 and $3,582 of miscellaneous expenses. Offset by a credit of $32,523 as the result of entering into various Settlement and Release Agreements with several other Creditors.

 

During the six months ended June 30, 2019, our general and administrative expenses were $315,695 was related to the renewable systems integration segment including corporate expenses, consisting of: $80,738 of gross payroll and payroll tax, $68,301 of accounting fees related to audit, consulting and acquisition costs, $39,000 of management disbursements, $34,000 of legal fees, $23,450 for a share donation, $15,783 of consulting/dues and subscription fees, which pertained to EDGAR fees, OTC Market annual listing fees, and transfer agent fees, $10,636 of stock-based compensation, $10,542 of amortization of intangible assets, $8,964 of travel and meals, $8,000 of investment banking fees, directors and officers insurance liability of $7,542 and $8,739 of miscellaneous expenses.

 

We incurred $90,507 of other expenses for the six months ended June 30, 2020, including $35,719 of interest expense – related party, $49,912 of interest expense and $4,875 change in fair value earn-out.

 

We incurred $115,189 of other expenses for the six months ended June 30, 2019, including $94,155 of interest expense – related party, $12,091 of interest expense and $8,943 change in fair value earn-out.

 

As a result of the foregoing, we had net losses from continuing operations of $290,265 and $430,884 for the six months ended June 30, 2020 and 2019, respectively.

 

For discontinued operations please refer to note 16.

 

Liquidity and Capital Resources

 

As of June 30, 2020, we had negative working capital of $248,949, comprised of $5,010 in cash, $4,079 in prepaid expenses offset by $56,113 of accounts payable, $2,388 in taxes payable and $199,838 in loan payable. We also had other assets of $300, which consisted of security deposits.

 

For the six months ended June 30, 2020, we used $230,899 of cash in operating activities, which represented our net loss of $290,265, $50,462 of amortization, $7,993 of stock based compensation, $129,180 of other assets, $4,875 of change in fair value consideration offset by $300 change in prepaid expenses and $132,844 of change in accounts payable.

 

For the six months ended June 30, 2019, we used $247,558 of cash in operating activities, which represented our net loss of $430,884), $77,777 of amortization, $10,636 in stock based compensation, $8,943 of change in fair value, $23,450 for a share donation, $6,000 in prepaid expenses, $86,520 in accounts payable offset by $30,000 in long term asset.

 

For the six months ended June 30, 2020 we used $322,101 in cash in investing activities due to the cash disposed of in the dissolution of the two subsidiaries Pride and PVBJ.

 

There was no cash used or provided by from investing activities for the six months ended June 30, 2019.

 

For the six months ended June 30, 2020, we generated $210,846 in financing activities relating to $26,008 in proceeds from equity financing, $20,000 in proceeds from PPP notes payable, $179,838 in proceeds from related party debt and $75,000 in proceeds from the issuance of convertible debt offset by $90,000 in debt repayment.

 

For the six months ended June 30, 2019 we generated $147,500 from the issuance of convertible debt.

 

In the future we expect to incur expenses related to compliance for being a public company and travel related to visiting potential customer sites. We expect that our general and administrative expenses will increase as we expand our business development, add infrastructure, and incur additional costs related to being a public company, including incremental audit fees, investor relations programs and increased professional services.

 

 24 

 

 

Our future capital requirements will depend on a number of factors, including the progress of our sales and marketing of our services, the timing and outcome of potential acquisitions, the costs involved in operating as a public reporting company, the status of competitive services, the availability of financing and our success in developing markets for our services. When we enter into contacts with customers, they will be required to make payments in tranches, including a payment after a contract is executed but prior to commencement of the project. We believe our existing cash, together with revenue generated by operations, will be sufficient to fund our operating expenses and capital equipment requirements for at least the next 12 months.

 

Subsequent Events

 

Effective July 17, 2020, our director lent us $50,000 at 6% per annum payable on the due date, June 19, 2021 (the “$50,000 Note”). Effective July 22, 2020, an additional loan by the same director was provided to us for a principal amount of $299,900 at 6% per annum payable on the due date of June 19, 2021 (the $299,900 Note”). The $50,000 Note and the $299,900 Note are related party transactions.

 

On August 12, 2020, pursuant to a Seed Capital Subscription Agreement, we made an equity investment into VoltH2 Holdings AG (“VoltH2”), a Swiss corporation developing scalable green hydrogen production projects primarily in Europe. VoltH2 is currently developing a 25MW green hydrogen production site near Vlissingen, Netherlands. The investment was for a total purchase price $175,000 USD representing a 17.5% equity interest in VoltH2.

 

Critical Accounting Policies

 

Please refer to Note 2 in the accompanying financial statements.

 

Recent Accounting Pronouncements

 

Please refer to Note 16 in the accompanying financial statements.

 

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not required under Regulation S-K for “smaller reporting companies.”

 

ITEM 4 - CONTROLS AND PROCEDURES

 

Evaluation of disclosure controls and procedures.

 

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 as of the end of the period covered by this Quarterly Report on Form 10-Q. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

 

Based on management’s evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2020, as a result of the material weaknesses described below, our disclosure controls and procedures are not designed at a reasonable assurance level and are ineffective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. The material weaknesses, which relate to internal control over financial reporting, that were identified are:

 

a) Due to our small size, we did not have sufficient personnel in our accounting and financial reporting functions. As a result, we were not able to achieve adequate segregation of duties and were not able to provide for adequate review of the financial statements. This control deficiency, which is pervasive in nature, results in a reasonable possibility that material misstatements of the consolidated financial statements will not be prevented or detected on a timely basis; and
b) We lacked sufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of U.S. GAAP and SEC disclosure requirements.

 

We intend to create written policies and procedures for accounting and financial reporting with respect to the requirements and application of U.S. GAAP and SEC disclosure requirements in the future when funds permit.

 

We will continue to monitor and evaluate the effectiveness of our disclosure controls and procedures and our internal controls over financial reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.

 

Changes in internal control over financial reporting.

 

There were no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 25 

 

 

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings

 

We are currently not a party to any material legal proceedings or claims.

 

Item 1A. Risk Factors

 

Not required under Regulation S-K for “smaller reporting companies.”

 

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

 

None.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

None.

 

Item 5. Other Information

 

None.

 

Item 6. Exhibits

 

31.01 Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
31.02 Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
32.01 Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   
101 The following materials from H/Cell Energy Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Stockholders’ Equity, (iv) the Condensed Consolidated Statements of Cash Flows, and (vi) Notes to Unaudited Condensed Consolidated Financial Statements.

 

 26 

 

 

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.

 

  H/CELL ENERGY CORPORATION
     
Date: August 14, 2020 By: /s/ ANDREW HIDALGO
    Andrew Hidalgo
   

Chief Executive Officer (Principal Executive Officer)

     
Date: August 14, 2020 By: /s/ MATTHEW HIDALGO
    Matthew Hidalgo
   

Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

 

 27