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, 2019~~March 31, 2020

☐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 6, 2019,~~May 15, 2020, there were ~~7,666,024~~7,851,524 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, 2019~~March 31, 2020 (unaudited) and December 31, ~~2018~~2019	3

		Condensed consolidated statements of operations and other comprehensive income for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 (unaudited) and 2019 ~~and 2018 (unaudited)~~	4

		Condensed consolidated statement of stockholders’ equity for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 (unaudited) and 2019 ~~and 2018 (unaudited)~~	55-6

		Condensed consolidated statements of cash flows for the ~~six~~three months ended ~~June 30,~~March 31, 2020 (unaudited) and 2019 ~~and 2018 (unaudited)~~	7

		Notes to condensed consolidated financial statements (unaudited)	8~~-22~~8-25

	ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	~~23-29~~26-32

	ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	2933

	ITEM 4.	Controls and Procedures	2933

PART II.	OTHER INFORMATION

	ITEM 1.	Legal Proceedings	3034
	ITEM 1A.	Risk Factors	3034
	ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3034
	ITEM 3.	Defaults Upon Senior Securities	3034
	ITEM 4.	Mine Safety Disclosures	3034
	ITEM 5.	Other Information	3034
	ITEM 6.	Exhibits	3034

	SIGNATURES		3135

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

H/CELL ENERGY CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

June 30, 2019 December 31, 2018
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 313,530 $ 359,134
Accounts receivable 1,191,224 1,087,381
Prepaid expenses 15,163 16,282
Current right-of-use (ROU) asset 86,018 -
Costs and earnings in excess of billings 14,753 45,478
Total current assets 1,620,688 1,508,275

Property and equipment, net 455,044 476,436
Security deposits and other non-current assets 32,505 32,530
Deferred tax asset 50,000 50,000
Customer lists, net 73,403 83,645
ROU asset 154,378 -
Other long term asset 30,000 -
Goodwill 1,373,621 1,373,621

Total assets $ 3,789,639 $ 3,524,507

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities
Accounts payable and accrued expenses $ 869,668 $ 891,354
Earn-out payable 199,679 190,736
Billings in excess of costs and earnings 37,325 195,331
Sales and withholding tax payable 66,489 59,857
Current equipment notes payable 32,230 38,991
Current operating lease liability 86,018 -
Current finance lease payable 73,091 65,265
Current convertible notes payable – related party, net of discounts 257,659 -
Income tax payable 32,442 48,643
Total current liabilities 1,654,601 1,490,177

Noncurrent liabilities
Line of credit 230,415 28,359
Lease operating liability 154,378 -
Finance leases 284,431 232,876
Equipment notes payable 57,083 121,038
Convertible notes payable – related party, net of discounts 105,158 29,122
Total noncurrent liabilities 831,465 411,395

Total liabilities 2,486,066 1,901,572

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; 7,621,024 and 7,586,024 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively 762 758
Additional paid-in capital 2,898,598 2,983,476
Accumulated deficit (1,534,625 ) (1,285,764 )
Accumulated other comprehensive loss (61,162 ) (75,535 )
Total stockholders’ equity 1,303,573 1,622,935

TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY $ 3,789,639 $ 3,524,507

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

~~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,
2019 2018 2019 2018

Revenue
Construction income $ 1,927,921 $ 2,009,825 $ 3,632,194 $ 3,704,360
Related party - - - 31,789
Total revenue 1,927,921 2,009,825 3,632,194 3,736,149

Cost of goods sold
Direct costs 1,309,322 1,253,043 2,505,760 2,462,456
Direct costs – related party - - - 31,617
Total cost of goods sold 1,309,322 1,253,043 2,505,760 2,494,073

Gross profit 618,599 756,782 1,126,434 1,242,076

Operating expenses
General and administrative expenses 631,457 687,831 1,238,509 1,243,015
Management fees – related party 19,500 19,500 39,000 39,000
Total operating expenses 650,957 707,331 1,277,509 1,282,015

Income (loss) from operations (32,358 ) 49,451 (151,075 ) (39,939 )

Other expenses
Interest expense 10,258 10,146 12,091 14,092
Interest expense – related party 58,060 18,676 94,155 32,891
Change in fair value earn-out 4,547 6,738 8,943 6,738
(Gain) loss on fixed asset disposal - (64 ) (17,403 ) 3,354
Total other expenses 72,865 35,496 97,786 57,075

Net income (loss) $ (105,223 ) $ 13,955 $ (248,861 ) $ (97,014 )

Other comprehensive income (loss), net

Foreign currency translation adjustment (4,239 ) (22,570 ) 14,373 (32,829 )

Comprehensive loss $ (109,462 ) $ (8,615 ) $ (234,488 ) $ (129,843 )

Earnings (loss) per share
Basic $ (0.01 ) $ 0.00 $ (0.03 ) $ (0.01 )
Diluted $ (0.01 ) $ 0.00 $ (0.03 ) $ (0.01 )
Weighted average common shares outstanding
Basic 7,621,024 7,483,980
7,607,295
7,450,235
Diluted 7,621,024 8,819,225
7,607,295
7,450,235

	March 31, 2020			December 31, 2019
	(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	174,419		$	277,620
Accounts receivable		909,139			803,659
Prepaid expenses		17,247			15,258
Costs and earnings in excess of billings		29,850			26,045
Total current assets		1,130,655			1,122,582

Property and equipment, net		438,776			478,238
Security deposits and other non-current assets		28,082			32,233
Deferred tax asset		46,000			46,000
Customer lists, net		58,040			63,161
Right of use asset		249,638			222,524
Deferred offering cost		129,180			130,072
Goodwill		1,373,621			1,373,621

Total assets	$	3,453,992		$	3,468,431

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities
Accounts payable and accrued expenses	$	935,258		$	702,133
Billings in excess of costs and earnings		37,930			47,098
Sales and withholding tax payable		76,014			39,751
Current operating lease liability		55,795			87,897
Current equipment notes payable		25,187			27,435
Current line of credit		165,960			269,746
Current finance lease payable		76,240			75,743
Current convertible note payable		135,938			80,500
Current convertible notes payable – related party, net of discounts		459,116			-
Income tax payable		30,649			41,426
Total current liabilities		1,998,087			1,371,729

Noncurrent liabilities
Earn-out payable		214,074			209,199
Lease operating liability		196,691			137,071
Finance leases		293,535			307,804
Equipment notes payable		61,968			121,038
Convertible notes payable – related party, net of discounts		-			473,770
Total noncurrent liabilities		766,268			1,199,984

Total liabilities		2,764,355			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; 7,788,524 and 7,725,524 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively		778			772
Additional paid-in capital		3,037,460			2,969,686
Accumulated deficit		(2,271,918	)		(2,010,157	)
Accumulated other comprehensive loss		(76,683	)		(63,583	)
Total stockholders’ equity		689,637			896,718

TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY	$	3,453,992		$	3,468,431

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

H/CELL ENERGY CORPORATION

CONDENSED CONSOLIDATEDSTATEMENT OF ~~STOCKHOLDERS’ EQUITY~~

~~FOR THE SIX MONTHS ENDED JUNE 30, 2019~~OPERATIONS - AND ~~JUNE 30, 2018~~OTHER COMPREHENSIVE INCOME

(UNAUDITED)

	For the Three Months Ended March 31,
	2020			2019

Revenue
Sales	$	1,667,947		$	1,704,273
Total revenue		1,667,947			1,704,273

Cost of goods sold
Direct costs		1,318,515			1,196,438
Total cost of goods sold		1,318,515			1,196,438

Gross profit		349,432			507,835

Operating expenses
General and administrative expenses		527,054			607,052
Management fees – related party		20,000			19,500
Total operating expenses		547,054			626,552

Loss from operations		(197,622	)		(118,717	)

Other expenses
Interest expense		19,468			1,833
Interest expense – related party		39,796			36,095
Change in fair value earn-out		4,875			4,396
(Gain) loss on fixed asset disposal		-			(17,403	)
Total other expenses		64,139			24,921

Income tax provision					-

Net loss	$	(261,761	)	$	(143,638	)

Other comprehensive income (loss), net

Foreign currency translation adjustment		(13,100	)		18,612

Comprehensive loss	$	(274,861	)	$	(125,026	)

Loss per share
Basic	$	(0.04	)	$	(0.02	)
Diluted	$	(0.04	)	$	(0.02	)
Weighted average common shares outstanding
Basic		7,743,005			7,593,413
Diluted		7,743,005			7,593,413

Common Stock Preferred Stock Accumulated
Number
of
Shares Amount Number
of
shares Amount Additional
Paid-In
Capital Accumulated
Income
(Deficit)
Other
Comprehensive
Income (Loss)
Total
Stockholders’
Equity
Beginning, January 1, 2019    7,586,024 $ 758 - $         - $ 2,983,476 $ (1,285,764 ) $ (75,535 ) $ 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

Foreign currency translation adjustment - - - - - - 18,612 18,612

Debt extinguishment - - - - (216,460 ) - - (216,460 )

Net loss - - - - - (143,638 ) - (143,638 )

Ending, March 31, 2019 7,621,024 $ 762 - $ - $   2,896,524 $   (1,429,402 ) $ (56,923 ) $ 1,410,961

Stock-based compensation - - - - 2,074 - - 2,074

Foreign currency translation adjustment - - - - - - (4,239 ) (4,239 )

Net loss - - - - - (105,223 ) - (105,223 )

Ending, June 30, 2019 7,621,024 $ 762 - $ - $ 2,898,598 $ (1,534,625 ) $ (61,162 ) $ 1,303,573

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

H/CELL ENERGY CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND MARCH 31 2020 (UNAUDITED)

															Accumulated			Total
	Common Stock				Preferred Stock				Additional						Other			Stockholders’
	Number of Shares		Amount		Number of shares		Amount		Paid-In Capital			Accumulated Deficit			Comprehensive Gain (Loss)			Equity (Deficit)
Beginning, January 1, 2019		7,586,024	$	758		-		-	$	2,983,476		$	(1,285,764	)	$	(75,535	)	$	1,622,935

Stock-based compensation expense		-		-		-		-		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 income (loss)		-		-		-		-		-			(143,638	)		-			(143,638	)

Foreign currency translation adjustment		-		-		-		-		-			-			18,612			18,612

Ending, March 31, 2019		7,621,024	$	762		-	$	-	$	2,896,524		$	(1,429,402	)	$	(56,923	)	$	1,410,961

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

Common Stock Preferred Stock Accumulated
Number
of
Shares Amount Number
of
shares Amount Additional
Paid-In
Capital Accumulated
Income
(Deficit) Other
Comprehensive
Income (Loss) Total
Stockholders’
Equity
Beginning, January 1, 2018   7,041,579 $ 704 - - $ 1,335,656 $ (731,754 ) $ (28,810 ) $ 575,796

Issuance of common stock February 2018, PVBJ Acquisition 444,445 44 - - 1,183,516 - - 1,183,560
Stock-based compensation expense - - - - 17,148 - - 17,148

Beneficial conversion feature - - - - 395,000 - - 395,000

Foreign currency translation adjustment - - - - - - (10,259 ) (10,259 )

Net loss - - - - - (110,969 ) - (110,969 )

Ending, March 31, 2018 7,486,024 $ 748 - $ - $   2,931,320 $ (842,723 ) $ (39,069 ) $ 2,050,276

Stock-based compensation - - - - 17,149 - - 17,149

Issuance of common stock April 2018, Stock Options 100,000 10 - - 990 - - 1,000

Foreign currency translation adjustment - - - - - - (22,570 ) (22,570 )

Net income - - - - - 13,955 - 13,955

Ending, June 30, 2018 7,586,024 $ 758 - $ - $ 2,949,459 $ (828,768 ) $ (61,639 ) $ 2,059,810

														Accumulated			Total
	Common Stock				Preferred Stock				Additional					Other			Stockholders’
	Number of Shares		Amount		Number of shares		Amount		Paid-In Capital		Accumulated Deficit			Comprehensive Gain (Loss)			Equity (Deficit)
Beginning, January 1, 2020		7,725,524	$	772		-		-	$	2,969,686	$	(2,010,157	)	$	(63,583	)	$	896,718

Stock-based compensation expense		-		-		-		-		7,993		-			-			7,993

Equity financing		63,000		6		-		-		19,827		-			-			19,833

Debt extinguishment		-		-		-		-		39,954								39,954

Net loss		-		-		-		-		-		(261,761	)		-			(261,761	)

Foreign currency translation adjustment		-		-		-		-		-		-			(13,100	)		(13,100	)

Ending, March 31, 2020		7,788,524	$	778		-	$	-	$	3,037,460	$	(2,271,918	)	$	(76,683	)	$	689,637

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

H/CELL ENERGY CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

~~(UNAUDITED)~~

	For the Six Months Ended June 30,						For the Three Months Ended March 31,
	2019			2018			2020			2019

CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss	$	(248,861	)	$	(97,014	)	$	(261,761	)	$	(143,638	)
Adjustments to reconcile net loss to net cash used in operating activities:
Adjustments to reconcile net income (loss) to net cash (used in) operating activities:
Depreciation and amortization		161,506			61,130			69,146			72,015
Stock-based compensation		10,636			34,297
Stock based compensation								7,993			8,562
(Gain) loss on sale of assets		(17,403	)		3,354			-			(17,403	)
Change in fair value contingent consideration		8,943			6,738			4,875			4,396
Change in operating assets and liabilities:
Change in operating ROU asset		(241,820	)		-			(60,036	)		260,524
Share donation		23,450			-			-			23,450
Change in operating ROU liability		241,820			-			59,272			(260,524	)
Accounts and retainage receivable		(106,541	)		(541,335	)		(177,345	)		154,680
Other long term asset		(30,000	)		-			-			(30,000	)
Prepaid expenses and other costs		1,106			202			(2,183	)		(2,481	)
Costs in excess of billings		30,761			(10,559	)		(7,614	)		(2,258	)
Accounts payable and accrued expenses		(13,282	)		412,271			348,750			(207,426	)
Billings in excess of costs		(157,908	)		5,893			(3,445	)		(153,792	)

Net cash used in operating activities		(337,593	)		(125,023	)
Net cash (used in) operating activities								(22,348	)		(293,894	)

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of fixed assets		(77,283	)		(4,663	)		(10,783	)		(79,912	)
Cash acquired in business acquisition		-			30,408
Proceeds from disposition of property and equipment								-			72,638
Security deposits		(377	)		(14,144	)		-			(6,415	)
Proceeds from disposition of property and equipment		72,638			386

Net cash (used in) provided by investing activities		(5,022	)		11,987
Net cash (used in) investing activities								(10,783	)		(13,689	)

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from issuance of convertible debt		147,500			395,000			75,000			147,500
Net proceeds from line of credit		202,056			-
Net proceeds (repayments of) line of credit								(103,787	)		144,356
Proceeds from equity financing								19,833			-
Repayments on capital leases		(31,131	)		(31,368	)		(13,594	)		(9,985	)
Repayments on notes payable		(20,643	)		(22,273	)		(6,245	)		(8,382	)
Repayments on long-term debt		-			(197,801	)
Proceeds related to stock option exercises		-			1,000

Net cash provided by financing activities		297,782			144,558
Net cash (used in) provided by financing activities								(28,793	)		273,489

Net increase (decrease) in cash and cash equivalents		(44,833	)		31,522
Net (decrease) in cash and cash equivalents								(67,500	)		(34,094	)

Effect of foreign currency translation on cash		(771	)		(26,684	)		(41,277	)		3,399

Cash and cash equivalents - beginning of period		359,134			455,700
Cash and cash equivalents - beginning								277,620			359,134

Cash and cash equivalents - end of period	$	313,530		$	460,538
Cash and cash equivalents - ending							$	174,419		$	328,439

Supplemental disclosure of non-cash investing and financing activities

Common stock issued for acquisition of business	$	-		$	1,177,779
Fair value of net assets acquired in business combination	$	-		$	2,056,344
Reclassification of deferred offering cost to additional paid in capital							$	892		$	-
Beneficial conversion feature	$	190,000		$	8,891		$	-		$	190,000

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

~~H/CELL ENERGY CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~JUNE 30, 2019 AND 2018 (UNAUDITED)~~

1.	ORGANIZATION AND LINE OF BUSINESS

H/Cell Energy Corporation (the “Company”) was incorporated in the state of Nevada on August 17, ~~2015. The Company,~~2015 and is based in Dallas, ~~Texas, is a company whose~~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”)~~. Founded in 1997, Pride is~~, a provider of security systems integration for ~~a variety of~~ 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 in Asia-Pacific.~~market. The new clean energy division has ~~generated some~~started to generate revenue and ~~has begun to bid a number of~~is actively bidding on projects. On February 1, 2018, the Company acquired PVBJ Inc. (“PVBJ”) for 444,445 shares of the Company’s common stock with a fair value of $1,177,779 and $221,800 in earn-out ~~liability.~~liability (see Note 11). Established in 2008, PVBJ is ~~well recognized for~~engaged in the business of the design, installation, maintenance and emergency service of environmental systems both in residential and commercial markets. ~~PVBJ is now expanding into clean energy systems.~~

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

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, ~~2019~~2020 or any other interim period or for any other future year. These unaudited condensed consolidated 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, ~~2018,~~2019, included in the Company’s ~~2018~~2019 Annual Report on Form 10-K filed with the SEC. The balance sheet as of December 31, ~~2018~~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.

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, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, there was no allowance for doubtful accounts required.

~~H/CELL ENERGY CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~JUNE 30, 2019 AND 2018 (UNAUDITED)~~

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~~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 ~~38% and~~ 41% of the Company’s consolidated total assets at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018, respectively.~~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.

~~The Company performed its annual impairment test for PVBJ in December of 2018. Based on the results of the qualitative testing, there was no impairment.~~

As of ~~June 30, 2019,~~March 31, 2020, the Company had recorded goodwill ~~in the amount~~ of $1,373,621 related to the PVBJ acquisition. The performance of the Company’s fiscal ~~2018~~2019 impairment analysis did not result in an impairment of the Company’s goodwill.

Comprehensive Income (Loss)

Comprehensive income (loss) consists of two components, net income (loss) and other comprehensive income (loss). The Company’s other comprehensive income (loss) is comprised of foreign currency translation adjustments.

Foreign 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”).

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

~~H/CELL ENERGY CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~JUNE 30, 2019 AND 2018 (UNAUDITED)~~

For the three ~~and six~~ months ended ~~June 30, 2019,~~March 31, 2020, the Company recorded other comprehensive loss ~~and income~~ of ~~$4,239 and $14,373, respectively,~~$13,100 in the condensed consolidated financial statements. For the three ~~and six~~ months ended ~~June 30, 2018,~~March 31, 2019, the Company recorded other comprehensive ~~loss~~income from a translation ~~loss~~gain of ~~$22,570 and $32,829, respectively,~~$18,612 in the condensed consolidated financial statements.

Revenue Recognition

On January 1, 2018, the Company adopted Accounting Standard Update (“ASU”) ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”) using the modified retrospective method applied to those contracts ~~which~~that were not completed as of December 31, 2017. Results for reporting periods beginning January 1, 2018 are presented under ASU 2014-09, while prior period amounts are not adjusted and continue to be reported under the accounting standards in effect for the prior period.

Under ASU 2014-09 requirements, the Company recognizes revenue from the installation or construction of projects and service or ~~short term~~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~~five-step process is as follows:

Identify the Contract with a Customer

The Company receives 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 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 ~~service,~~services, then the ~~service is~~services are considered the only performance obligation. If the contractual ~~service includes~~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; orand
	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

Once the Company receives a contract, it generates a budget of projected costs ~~is generated~~ 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.

~~H/CELL ENERGY CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~JUNE 30, 2019 AND 2018 (UNAUDITED)~~

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 ~~represent contract assets and liabilities and~~ 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.”

Disaggregated Revenue

For the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ revenues from contracts with customers summarized by ~~Geography~~segment geography and ~~Revenue Stream~~revenue stream were as follows:

Three Months Ended
June 30, 2019 June 30, 2018
United States – Service $ 747,070 $ 707,171
Australia – Service 570,439 540,535
United States – Contract 0 0
Australia – Contract 610,412 762,119
Total $ 1,927,921 $ 2,009,825

	Three Months Ended
	March 31, 2020		March 31, 2019
United States - Service	$	637,757	$	514,955
Australia - Service		360,231		567,121
United States - Contract		-		160,000
Australia - Contract		669,959		462,197
Total	$	1,667,947	$	1,704,273

Six Months Ended
June 30, 2019 June 30, 2018
United States – Service $ 1,262,025 $ 1,013,558
Australia – Service 1,149,956 1,060,655
United States – Contract 160,000 31,789
Australia – Contract 1,060,213 1,630,147
Total $ 3,632,194 $ 3,736,149

Cash and Cash Equivalents

Cash and cash equivalents ~~includes~~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, 2019~~March 31, 2020 or December 31, ~~2018.~~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 forfeiture rate is estimated using historical option cancellation information, adjusted for anticipated changes in expected exercise and employment termination behavior. Our outstanding awards do not contain market or performance conditions.

~~H/CELL ENERGY CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~JUNE 30, 2019 AND 2018 (UNAUDITED)~~

Income Taxes

The Company uses the asset and liability method of accounting for income taxes pursuant to Financial Accounting Standard Board (“FASB”) Accounting Standards Codification (“ASC”) 740,Income Taxes(“ASC 740”). Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets, including tax loss and credit carryforwards, and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred income tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities. The components of the deferred tax assets and liabilities are individually classified as current and non-current based on their characteristics. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized.

The determination of the Company’s provision for income taxes requires significant judgment, the use of estimates, and the interpretation and application of complex tax laws. Significant judgment is required in assessing the timing and amounts of deductible and taxable items and the probability of sustaining uncertain tax positions. The benefits of uncertain tax positions are recorded in the Company’s financial statements only after determining a more-likely-than-not probability that the uncertain tax positions will withstand challenge, if any, from taxing authorities. When facts and circumstances change, the Company reassesses these probabilities and records any changes in the financial statements as appropriate. Accrued interest and penalties related to income tax matters are classified as a component of income tax expense.

The Company recognizes and measures its unrecognized tax benefits in accordance with ASC 740. Under that guidance, management assesses the likelihood that tax positions will be sustained upon examination based on the facts, circumstances and information, including the technical merits of those positions, available at the end of each period. The measurement of unrecognized tax benefits is adjusted when new information is available, or when an event occurs that requires a change.

The Company did not identify any material uncertain tax positions. The Company did not recognize any interest or penalties for unrecognized tax benefits.

The federal income tax returns of the Company are subject to examination by the IRS, generally for the three years after they are filed. The Company’s 2018, 2017, and 2016 income tax returns are still open for examination by the taxing authorities.

Fair Value of Financial Instruments

Except for the Company’s earn-out liability, 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;

	●	Level 2—observable ~~market based~~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.

~~H/CELL ENERGY CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~JUNE 30, 2019 AND 2018 (UNAUDITED)~~

The table below presents a reconciliation of the fair value of the Company’s contingent earn-out obligations that use significant unobservable inputs (Level 3).

Balance at December 31, 2018	$	190,736
Balance at December 31, 2019			$	209,199
Payments		-		-
Adjustments to fair value		8,943		4,875
Balance at June 30, 2019	$	199,679
Balance at March 31, 2020			$	214,074

The Company values earn-out obligations using a probability weighted discounted cash flow method. This fair value measurement is based on significant unobservable inputs in the market and thus represents a Level 3 measurement within the fair value hierarchy. This analysis reflects the contractual terms of the purchase agreements (e.g., minimum and maximum payments, length of earn-out periods, manner of calculating any amounts due, etc.) and utilizes assumptions with regard to future cash flows, probabilities of achieving such future cash flows and a discount rate. The contingent earn-out obligations are measured at fair value each reporting period and changes in estimates of fair value are recognized in earnings.

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 “treasury stock” and/or “if converted” methods as applicable. The computation of diluted loss per share excludes dilutive securities for the three months ended March 31, 2020 and 2019 because their inclusion would be anti-dilutive. ~~Dilutive~~Potentially dilutive securities excluded from the earnings per share calculation for the ~~periods presented are~~three months ended March 31, 2020 and 2019 were as follows:

	Three Months Ended				Six Months Ended
	June 30, 2019		June 30, 2018		June 30, 2019		June 30, 2018		March 31, 2020		March 31, 2019

Options to purchase common stock		425,000		-		425,000		100,000		698,500		968,500
Convertible debt		1,100,000		900,000		1,100,000		900,000		1,490,500		1,100,000
Totals		1,525,000		900,000		1,525,000		1,000,000		2,189,000		2,068,500

3.	RELATED PARTY TRANSACTIONS

The Company’s former office space during the year ended December 31, 2018 consisted of approximately 800 square feet, which was donated to it from one of its executive officers. There was no lease agreement and the Company paid no rent.

~~In April 2018, Rezaul Karim a former director exercised 100,000 options.~~

In June 2016, the Company entered into a contract with Rezaul Karim, one of its former directors, for the installation of an HC-1 system. The system installation was complete as of June 30, 2018. The system installation generated $31,789 of revenue during the six months ended June 30, 2018. The Company subcontracted the installation of the system to Renewable Energy Holdings LLC (“REH”), a company owned by Mike Strizki, one of the Company’s executive officers. James Strizki, one of the Company’s executive officers, is vice president of operations at REH. There was $31,617 and $0 of costs for the six months ended June 30, 2018 and 2019, respectively. There was no revenue or costs for the three months ended June 30, 2019 or 2018.

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.

~~H/CELL ENERGY CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~JUNE 30, 2019 AND 2018 (UNAUDITED)~~

There was $20,000 and $19,500 of management fees expensed for the three months ended ~~June 30,~~March 31, 2020 and March 31, 2019 ~~and 2018~~ to Turquino Equity LLC (Turquino”), a significant shareholder and ~~$39,000 for each of the six months ended June 30, 2019 and 2018.~~related party.

On January 2, 2018, the Company entered into a securities purchase agreement with two of its directors, pursuant to which the Company sold an aggregate principal amount of $400,000 in 12% Convertible Debentures (“2018 Debentures”).On February 8, 2019, the Company and the holders of the 2018 Debentures entered into amendments (the “Amendments”) to the 2018 Debentures.The 2018 Debentures, together with any accrued and unpaid interest, become due and payable on January 2, 2020 (the “2020 Maturity Date”). Interest on the 2018 Debentures accrues at the rate of 12% per annum from January 2, 2018 through the date of the Amendments, and 10% per annum subsequent to the date of the Amendments, payable monthly in cash, beginning on February 1, 2018 and through the 2020 Maturity Date. The 2018 Debentures are convertible into common stock at a conversion price of $0.50 per share at the discretion of the holder, with special provisions applying to any holder whose conversion would result in the holder beneficially owning more than 4.99% of the Company’s common stock. In connection with this convertible note payable, the Company recorded a $395,000 discount on debt, related to the beneficial conversion feature of the note to be amortized over the life of the note using the effective interest method, or until the note is converted or repaid.

On ~~August 21, 2018, PVBJ~~January 3, 2020, the Company entered into ~~a loan and security~~an amendment agreement (the ~~“Credit Agreement”~~“Amendment”) with ~~Thermo Communications Funding, LLC (“Thermo”). The Credit Agreement provides for a revolving line~~two of ~~credit in an amount not~~its directors (the “Holders”) to ~~exceed $350,000, which is evidenced by a promissory note~~convertible notes issued by ~~PVBJ~~the Company to ~~Thermo~~the Holders in January 2018 (the ~~“Note”~~“2018 Notes”). Pursuant to the ~~Credit Agreement, PVBJ granted a security interest to Thermo in all~~Amendment, which was effective as of ~~its assets. In addition, pursuant to a limited recourse guaranty, Andrew Hidalgo,~~January 2, 2020, the ~~Company’s Chief Executive Officer personally guaranteed the repayment~~maturity date of the ~~Credit Agreement under certain conditions.~~2018 Notes was amended from January 2, 2020 to February 8, 2021, and the Holders waived any defaults that might have occurred prior to the date of the Amendment.

As a result of these changes, management determined debt extinguishment which was applied and the new notes were recorded at their fair value resulting in a discount of approximately $40,000 and a gain on extinguishment of this amount recorded to additional paid in capital.

The principal balance was $400,000 and unamortized discount was $31,130 and $125,453, respectively, as of March 31, 2020 and December 31, 2019. Amortization costs of $14,930 and $21,301 were incurred for the quarters ended March 31, 2020 and March 31, 2019 respectively. Of the amount recorded in 2020, $6,000 relates to the notes prior to extinguishment and $9,000 relates to the amended notes.

On February 8, 2019, the Company entered into a securities purchase agreement with two of its directors, pursuant to which the Company sold an aggregate principal amount of $150,000 in 10% Convertible Debentures (“2019 Debentures”). The 2019 Debentures, together with any accrued and unpaid interest, ~~become~~is due and payable on February 8, 2021 (the “2021 Maturity Date”). Interest on the 2019 Debentures accrues at the rate of 10% per annum, payable monthly in cash, beginning on March 1, 2019 and through the 2021 Maturity Date. The 2019 Debentures are convertible into common stock at a conversion price of $0.50 per share at the discretion of the holder, with special provisions applying to any holder whose conversion would result in the holder beneficially owning more than 4.99% of the Company’s common stock. In connection with this convertible note payable, the Company recorded a $97,500 discount on debt related to the beneficial conversion feature of the note to be amortized over the life of the note using the effective interest method, or until the note is converted or repaid.

The principal balance was $150,000 and unamortized discount was $58,369 and $97,500, respectively, as of March 31, 2020 and December 31, 2019. Amortization costs of $11,807 and $4,053 were incurred for the quarters ended March 31, 2020 and March 31, 2019 respectively.

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. At ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the balance was fully covered under the $250,000 threshold in the United States. In Australia, the balance ~~exceeded~~was fully covered under the $186,000 threshold ~~by $54,092~~ at ~~June 30, 2019~~March 31, 2020 and ~~$133,578~~$10,563 over at December 31, ~~2018.~~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. In addition, at ~~June 30,~~March 31, 2020, approximately 27% of the Company’s accounts receivable were from two customers at 16% and 11%. At December 31, 2019, ~~approximately 31%~~one of the Company’s accounts receivable was due from ~~two unrelated customers~~one customer at ~~18% and~~approximately 13%~~. At December 31, 2018, approximately 20% of the Company’s accounts receivable was due from two unrelated customers, each at 10%~~.

5.	MAJOR CUSTOMERS

During the three months ended ~~June 30, 2019,~~March 31, 2020, there ~~were~~was two customers with a concentration of 10% or higher of the ~~Company's~~Company’s revenue at ~~11%~~13% and ~~13%, and during~~12%. During the ~~six~~three months ended ~~June 30,~~March 31, 2019, there ~~were two customers at 15% and 12%. There were two unrelated~~was no customers with a concentration of 10% or higher ~~16%, and 15%, for~~of the ~~three months ended June 30, 2018, and three unrelated customers for the six months ended June 30, 2018 at 21%, and two at 11%.~~

~~H/CELL ENERGY CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~JUNE 30, 2019 AND 2018 (UNAUDITED)~~Company’s revenue.

6.	UNCOMPLETED CONTRACTS

Costs, estimated earnings and billings on uncompleted contracts are summarized as follows at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018:~~2019:

	June 30, 2019			December 31, 2018			March 31, 2020			December 31, 2019
Costs incurred on uncompleted contracts	$	504,698		$	811,173		$	546,468		$	465,686
Estimated earnings		353,079			469,109			357,144			454,132
Costs and estimated earnings earned on uncompleted contracts		857,777			1,280,282			903,612			919,818
Billings to date		814,819			1,265,475			792,473			750,769
Costs and estimated earnings in excess of billings on uncompleted contracts		42,958			14,807			111,139			169,049
Costs and earnings in excess of billings on completed contracts		(65,530	)		(164,660	)		(119,219	)		(190,102	)
	$	(22,572	)	$	(149,853	)	$	(8,080	)	$	(21,053	)

Costs in excess of billings	$	14,753		$	45,478		$	29,850		$	26,045
Billings in excess of cost		(37,325	)		(195,331	)		(37,930	)		(47,098	)
	$	(22,572	)	$	(149,853	)	$	(8,080	)	$	(21,053	)

LEASES

Operating Leases

For leases with a term of 12 months or less, the Company is permitted to make and has made an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities, and we recognize lease expense for such leases on a straight-line basis over the lease term.

~~The Company previously entered into two leases for office space in Woombye and Brisbane, Queensland, Australia, both which expired in April 2018.~~ The Company signed new leases in January 2019 for a Dallas, Texas shared office space, which ~~ends~~ended in December 2019 and ~~February 2018 for new~~is now on a month to month basis. The Company’s current office space in Kunda Park, Queensland Australia, which started in May 2018 and expires in May 2023. The ~~Company also renewed the Brisbane office space for one year, starting in May 2018. The~~ Company’s office in Downingtown, Pennsylvania ~~is month to month.~~was signed in July 2019 and expires June 2020.

On March 25, 2019, the Company signed a lease for new office space in Brisbane, Australia which has a fixed 3% increase annually expiring in March 2025 ~~which~~and includes a renewal period of three years that management is reasonably certain will be exercised. The Company analyzed this lease and determined that this agreement meets the definition of a lease under ~~ASU 2016-02~~ASC 842, as it provides management with the exclusive right to direct the use of and obtain substantially all of the economic benefits from the identified leased asset, which is the office space. Management also analyzed the terms of this arrangement and concluded it should be classified as an operating lease, as none of the criteria were met for finance lease classification. As there was only one identified asset, no allocation of the lease payments was deemed necessary. Management did not incur any initial direct costs associated with this lease. As of the ~~commencement date, which was~~ March 25, 2019 commencement date, a ~~ROU~~right to use asset and lease liability of $108,073 was recorded on the condensed consolidated balance sheet based on the present value of payments in the lease agreement. Per review of the lease agreement, there was no variable terms identified and there is no implicit rate stated. Therefore, the Company determined the present value of the future minimum lease payments based on its incremental borrowing rate. The incremental borrowing rate was determined to be 10%, as this is the rate which represents the incremental borrowing rate for the Company, on a collateralized basis, in a similar economic environment with similar payment terms.

On February 27, 2020, the Company extended the lease in Kunda Park through April 30, 2024, with a three-year renewed option which management is reasonably certain to exercise. The Company analyzed this lease and determined that this agreement meets the definition of a lease under ASC 842, as it provides management with the exclusive right to direct the use of and obtain substantially all of the economic benefits from the identified leased asset, which is the office space. Management also analyzed the terms of this arrangement and concluded it should be classified as an operating lease, as none of the criteria were met for finance lease classification. As there was only one identified asset, no allocation of the lease payments was deemed necessary. Management did not incur any initial direct costs associated with this lease. As of the February 27, 2020 renewal date, the right to use asset and lease liability increased by $130,736 was recorded on the condensed consolidated balance sheet based on the present value of payments in the lease agreement. Per review of the lease agreement, there was no variable terms identified and there is no implicit rate stated. Therefore, the Company determined the present value of the future minimum lease payments based on ~~the~~its incremental borrowing ~~rate of the Company.~~rate. The incremental borrowing rate was determined to be 10%, as this is the rate which represents the incremental borrowing rate for the Company, on a collateralized basis, in a similar economic environment with similar payment terms.

~~H/CELL ENERGY CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~JUNE 30, 2019 AND 2018 (UNAUDITED)~~

The future minimum payments on ~~operating~~the office space leases for each of the next ~~five~~seven years and in the aggregate amount to the following:

2019	$	44,100
2020		64,965		$	50,123
2021		66,006			57,901
2022		66,847			58,638
2023		39,990			35,080
2024					26,856
Thereafter		38,325			6,763
Total lease payments		319,963			235,362
Less: present value discount		(79,567	)
Present value discount					17,123
Total operating lease liabilities	$	240,396		$	252,486

The weighted-average remaining term of the Company’s operating leases was ~~4.7~~5.9 years and the weighted-average discount rate used to measure the present value of the Company’s operating lease liabilities was ~~8.83%~~9.7% as of ~~June 30, 2019.~~March 31, 2020.

~~ROU~~Rent expense for each of the three months ended March 31, 2020 and 2019 amounted to approximately $19,201 and $23,000 respectively and is included in “General and Administrative” expenses on the related statements of operations.

Right of use assets represent the right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ~~ROU~~right of use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ~~ROU~~right of use asset also excludes lease incentives. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

In determining the discount rate to use in calculating the present value of lease payments, the Company estimates the rate of interest it would pay on a collateralized loan with the same payment terms as the lease by utilizing bond yields traded in the secondary market to determine the estimated cost of funds for the particular tenor.

Finance Leases

Under the new leasing standard, ASU 2016-02, Leases (Topic 842), (“ASU 2016-02”), leases that are more than one year in duration are capitalized and recorded on the balance sheet. Some of the Company’s leases, specifically for automobiles and office space, offer an option to extend the term of such leases.

At ~~June 30, 2019,~~March 31, 2020, the Company had 1314 finance leases with an aggregate net book value of ~~$357,522.~~$383,547. The obligations are payable in monthly installments ranging from approximately $503 to $1,578 with interest rates from 3.0% to 5.57% per annum. The leases are secured by the related equipment. Approximate payments to be made on these finance lease obligations are as follows:

2019	$	42,694
2020		85,387	$	68,256
2021		77,450		86,228
2022		66,445		78,381
2023		62,574		82,924
2024				71,392
Thereafter		57,250		14,070

Finance lease obligation		391,800		401,251
Less: amounts representing interest		34,278		31,476
Current maturities of capital lease obligations		73,091
Less: current maturities of finance lease obligations				76,240

Finance lease obligations, non-current	$	284,431	$	293,535

~~H/CELL ENERGY CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~JUNE 30, 2019 AND 2018 (UNAUDITED)~~

8.8.

DEBT

Long-term debt consisted of the following:

Equipment Notes Payable

June 30, 2019 December 31, 2018
Note payable with monthly payments of $716, including interest at 6.50% per annum through November 2020. $ 14,293 $ 18,707
Note payable with monthly payments of $615.25, including interest at 6.80% per annum through August 2021. $ 15,343 $ 18,383
Note payable with monthly payments of $1,294.50, including interest at 14.72% per annum through March 2023. $ 45,304 $ 50,072
Note payable with monthly payments of $1,063.45, including interest at 5.76% per annum through April 2021. $ 14,373 $ 18,539
Note payable with monthly payments of $946.84 including interest at 6.14% per annum through December 2024. $ - $ 54,328
Total: $ 89,313 $ 160,029
Total current portion: $ (32,230 ) $ (38,991 )
Total non-current portion: $ 57,083 $ 121,038

	March 31, 2020			December 31, 2019
Note payable with monthly payments of $1,294, including interest at 14.72% per annum through March 2023.	$	33,567		$	40,733
Note payable with monthly payments of $1,063, including interest at 5.76% per annum through April 2021.		7,181			10,276

Note payable with monthly payments of $983, including interest at 4.90% per annum through August 2024.		46,407			48,566
Total:	$	87,155		$	99,575
Less current portion:		(25,187	)		(27,435	)
Total non-current portion:	$	61,968		$	72,140

As of ~~June 30, 2019,~~March 31, 2020, approximate principal payments to be made on these debt obligations are as follows:

Year ending December 31:	Amount		Amount
2019	$	15,719
2020		32,831	$	18,974
2021		17,831		19,769
2022		9,242		18,726
2023		13,690		22,523
2024				7,163
Thereafter		-		-
Notes payable obligation		89,313	$	87,155

2018 Convertible Note Payable

On January 2, 2018, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with two of its directors, pursuant to which the Company sold an aggregate principal amount of $400,000 in 12% Convertible Debentures (“Debentures”), convertible into shares of the Company’s common stock at a conversion price of $0.75 per share. The Debentures, together with any accrued and unpaid interest, become due and payable on January 2, 2020 (the “Maturity Date”). Interest on the Debentures accrues at the rate of 12% per annum, payable monthly in cash, beginning on February 1, 2018 and through the Maturity Date. The Debentures are convertible into common stock at a conversion price of $0.75 per share at the discretion of the holder, with special provisions applying to any holder whose conversion would result in the holder beneficially owning more than 4.99% of the Company’s common stock.

In connection with this convertible note payable, the Company recorded a $395,000 discount on debt, related to the beneficial conversion feature of the note to be amortized over the life of the note using the effective interest method, or until the note is converted or repaid.

On February 8, 2019, the 2018 Debentures were amended to reduce the interest rate to 10% and reduce the conversion price to $0.50 (the “Revised Debentures”), providing the issuance of an additional 266,667 shares upon conversion. In conjunction with these amendments, the convertible note was re-evaluated in accordance with ASC 470-50 -Debt Modifications and Extinguishments(“ASC 470”), and it was determined that the change in terms resulted in a substantial modification. As a result, the carrying value of the Revised Debentures at the time of the transaction, along with the related beneficial conversion feature, were derecognized and the Revised Debentures were recorded at present value, resulting in a loss on debt extinguishment of $269,793.Of this amount, $53,333 represented the historical beneficial conversion feature and has been treated as a debt discount and is being amortized over the life of the Revised Debentures using the effective interest method.As the holders of the Revised Debentures are related parties to the Company,ASC 470provides for treatment as a capital contribution of $216,460, which represents the related extinguishment loss and will instead be recorded within the Company’s Additional Paid in Capital balance. In connection with the Revised Debentures, the Company incurred $2,500 of legal fees and recorded a $160,000 beneficial conversion feature, both of which are recorded as a discount on debt and amortized over the life of the note using the effective interest method, or until the note is converted or repaid.

On February 8, 2019, the Debentures were amended to reduce the interest rate to 10% and reduce the conversion price to $0.50 (the “Revised Debentures”), providing the issuance of an additional 266,667 shares upon conversion. In conjunction with these amendments, the convertible note was re-evaluated in accordance with ASC 470-50 -Debt Modifications and Extinguishments(“ASC 470”), and it was determined that the change in terms resulted in a substantial modification to the beneficial conversion feature. As a result, the carrying value of the Debentures at the time of the transaction, along with the related beneficial conversion feature, were derecognized and the Revised Debentures were recorded at present value, resulting in a loss on debt extinguishment of $269,793. Of this amount, $53,333 represented the historical beneficial conversion feature and has been treated as a debt discount and is being amortized over the life of the Revised Debentures using the effective interest method. As the holders of the Debentures are related parties to the Company,ASC 470provides for treatment as a capital contribution, whereby the related extinguishment loss will instead be recorded within the Company’s Additional Paid in Capital balance.

On January 3, 2020, the Company entered into an amendment agreement (the “Amendment”) with two of its directors (the “Holders”), to convertible notes issued by the Company to the Holders in January 2018 (the “2018 Notes”). Pursuant to the Amendment, which was effective as of January 2, 2020, the maturity date of the 2018 Notes was amended from January 2, 2020 to February 8, 2021, and the Holders waived any defaults that might have occurred prior to the date of the Amendment.In conjunction with this amendment, the convertible note was re-evaluated in accordance with ASC 470-50 -Debt Modifications and Extinguishments(“ASC 470”), and it was determined that debt extinguishment was applied. As a result, the carrying value of the Debentures at the time of the transaction, along with the related beneficial conversion feature, were the same.

The principal balance was $400,000 and unamortized discount was $31,130 and $125,453, respectively, as of March 31, 2020 and December 31, 2019. Amortization costs of $5,576 and $21,301 were incurred for the quarters ended March 31, 2020 and March 31, 2019 respectively.

2019 Convertible Note Payable

On February 8, 2019, the Company entered into a securities purchase agreement with two of its directors, pursuant to which the Company sold an aggregate principal amount of $150,000 in 10% Convertible Debentures (the “2019 Debentures”). The 2019 Debentures, together with any accrued and unpaid interest, become due and payable on February 8, 2021 (the “2021 Maturity Date”). Interest on the 2019 Debentures accrues at the rate of 10% per annum, payable monthly in cash, beginning on March 1, 2019 and through the 2021 Maturity Date. The 2019 Debentures are convertible into common stock at a conversion price of $0.50 per share at the discretion of the holder, with special provisions applying to any holder whose conversion would result in the holder beneficially owning more than 4.99% of the Company’s common stock.

In connection with ~~the Revised Debentures,~~this convertible note payable, the Company ~~incurred $2,500 of legal fees and~~ recorded a ~~$160,000~~$97,500 discount on debt, related to the beneficial conversion feature ~~both~~ of ~~which are recorded as a discount on debt and~~the note to be amortized over the life of the note using the effective interest method, or until the note is converted or repaid.

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 sold 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.

~~H/CELL ENERGY CORPORATION~~The 2019 Note will mature on October 17, 2020 and will bear interest at the rate of 8% per annum, which interest will be payable on the maturity date or any redemption date, and may be paid, in certain conditions, through the issuance of common shares, at the Company’s discretion. The Company makes a monthly principal payment to FirstFire of $6,000 on the 17^th day of each month, which payment commenced on November 17, 2019. The Company also has the right, at any time, to repay all or a part of the 2019 Note, on at least one prior business days’ notice, in an amount equal to 115% of the principal being repaid, plus any accrued but unpaid interest on the principal amount being repaid.

The 2019 Note will be convertible into the Company’s common stock at a conversion price of $0.50 per share (the “Fixed Conversion Price”) at the discretion of the holder. At no time will FirstFire be entitled to convert any portion of the 2019 Note to the extent that after such conversion, FirstFire (together with its affiliates) would beneficially own more than 4.99% of the Company’s outstanding common stock as of such date. The 2019 Note contains standard anti-dilution protection.

The 2019 Note includes customary event of default provisions and provides for a default interest rate of 15%. Upon the occurrence of an event of default, FirstFire may require the Company to redeem all or any portion of the 2019 Note (including all accrued and unpaid interest), in cash, at a price equal to the product of (A) the amount to be redeemed multiplied by (B) 125%. In addition, upon an event of default, the conversion price would be the lower of (i) the Fixed Conversion Price or (ii) 75% of the lowest closing price of our common stock during the 10 trading days prior to the conversion date.

The principal balance was $110,000 and unamortized discount was $11,273 at March 31, 2020.

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~2020 Convertible Note Financing

~~JUNE 30, 2019 AND 2018 (UNAUDITED)~~On January 15, 2020, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with FirstFire, an unrelated third party, pursuant to which the Company sold a $85,250 principal amount convertible note (the “Note”) to the Investor for gross proceeds of $77,500, with an original discount issuance of $7,750. The transaction closed on January 16, 2020 upon receipt of the funds from the Investor.The Company incurred $2,500 of legal fees for this transaction.

The Note will mature on January 15, 2021 and will bear interest at the rate of 8% per annum, which interest will be payable on the maturity date or any redemption date and may be paid, in certain conditions, through the issuance of common shares, at the discretion of the Company. The Company shall make a monthly principal payment to the Investor of $4,500 on the 15^th day of each month, starting February 15, 2020. The Company also has the right, at any time, to repay all or a part of the Note, on at least one prior business days’ notice, in an amount equal to 115% of the principal being repaid, plus any accrued but unpaid interest on the principal amount being repaid.

The Note will be convertible into the Company’s common shares, par value $0.0001 per share (“Common Stock”) at a conversion price of $0.50 per share (the “Fixed Conversion Price”) at the discretion of the holder. At no time will the Investor be entitled to convert any portion of Convertible Note to the extent that after such conversion, the Investor (together with its affiliates) would beneficially own more than 4.99% of our outstanding Common Stock as of such date. The Note contains standard anti-dilution protection.

The Note includes customary event of default provisions and provides for a default interest rate of 15%. Upon the occurrence of an event of default, the Investor may require the Company to redeem all or any portion of the Note (including all accrued and unpaid interest), in cash, at a price equal to the product of (A) the amount to be redeemed multiplied by (B) 125%. In addition, upon an event of default, the conversion price would be the lower of (i) the Fixed Conversion Price or (ii) 75% of the lowest closing price of the Common Stock during the 10 trading days prior to the conversion date.

On March 26, 2020, the monthly principal payment was reduced to $500.

The principal balance of the Note was $85,250 and unamortized discount was $8,144 at March 31, 2020.

For the three ~~and six~~ months ended ~~June 30,~~March 31, 2020, the Company incurred interest expense of $51,527, of which $5,576 related to the amortization of the 2018 Debentures debt discount, $11,807 for the 2019 Debentures debt discount, $3,939 for the 2019 First Fire Note, and $2,106 for the 2020 First Fire Notes. For the three months ended March 31, 2019, the Company incurred interest expense of ~~$58,060 and $94,155, respectively. $36,694~~$36,095, of which $21,301 related to the amortization of the 2018 Debentures debt discount and ~~$7,614~~$1,626 for the 2019 Debentures debt ~~discount~~discount.

9.	NOTE PAYABLE

On August 21, 2018, PVBJ entered into a loan and security agreement (the “Credit Agreement”) with Thermo. The Credit Agreement provides for a revolving line of credit in an amount not to exceed $350,000, which is evidenced by a promissory note issued by PVBJ to Thermo (the “Note”). Pursuant to the Credit Agreement, PVBJ granted a security interest to Thermo in all of its assets. In addition, pursuant to a limited recourse guaranty, Andrew Hidalgo, the Company’s Chief Executive Officer personally guaranteed the repayment of the Credit Agreement under certain conditions. Pursuant to the terms of the Credit Agreement, the Company is permitted to borrow up to $350,000 under the revolving credit line, under a borrowing base equal to the lesser of (i) or 85% of Eligible Accounts (as defined in the Credit Agreement). Borrowings under the Credit Agreement may be used for working capital and to refinance certain existing debt of PVBJ. The Credit Agreement contains certain customary representations and warranties, affirmative and negative covenants, and events of default. Principal covenants include a debt service coverage ratio of not less than 1.15 to 1.0, a fixed charge coverage ratio of not less than 1.15 to 1.0, and maintaining a tangible net worth of at least $150,000, excluding intercompany loans to the Company. The loan commitment expires on August 21, 2020. As of March 31, 2020, the Company was not in compliance with these covenants. However due to the subsequent sale of PVBJ, Thermo had deemed it to have passed. The facility was increased to $400,000 in August of 2019. The interest rate applicable to revolving loans under the Credit Agreement is prime plus 5.0%, subject to a minimum interest rate of 9.5%. The Company paid a loan commitment fee of $7,000, of which $3,500 was paid on closing, and $3,500 was paid on the Note’s first anniversary. The Company will also pay a monthly monitoring fee during the term of the Credit Agreement of 0.33% of the average outstanding balance, payable monthly in arrears. The Company may prepay the Note at any time and terminate the Credit Agreement. In the event that the Company terminates the Credit Agreement, the Company will pay Thermo an early termination fee equal to 4% of the pro rata portion, which pro rata portion is determined by multiplying $400,000 by the number of months prior to the second anniversary of the effective date of the Credit Agreement and then dividing that by 24. The obligations of PVBJ under the Credit Agreement may be accelerated upon the occurrence of an event of default under the Credit Agreement, which includes customary events of default including, without limitation, payment defaults, defaults in the performance of affirmative and negative covenants, the inaccuracy of representations or warranties, cross-defaults, bankruptcy and insolvency related defaults, defaults relating to judgments, an ERISA reportable event occurs, a change of control and a change in the Company’s financial condition that could have a material adverse effect on the Company.As of March 31, 2020, funds totaling $49,162 were available for borrowing under the Credit Agreement.

For the three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and $57,995 related to the amortization of the 2018 Debentures and $9,240 for the 2019 Debentures for the six months ended June 30, 2019. For the three and six months ended June 30, 2018,~~ the Company incurred interest expense of ~~$18,676~~$10,692 and ~~$32,891~~$8,847, respectively, ~~of which $4,177~~ related to ~~the amortization of the discount~~interest for the ~~2018 Debentures for the three months ended June 30, 2018 and $8,892 for the six months ended June 30, 2018.~~Thermo credit line.

9.10.

CONTRACT BACKLOG

As of ~~June 30,~~March 31, 2020, the Company had a contract backlog approximating $472,052 with anticipated direct costs to complete approximating $352,833. At December 31, 2019, the Company had a contract backlog approximating ~~$451,022, with anticipated direct costs to complete approximating $353,079. At December 31, 2018, the Company had a contract backlog approximating $583,392,~~$551,850, with anticipated direct costs to completion approximating ~~$452,884.~~$454,132.

~~10.~~11.

GOODWILL AND OTHER INTANGIBLES

The tables below present a reconciliation of the Company’s goodwill and intangibles:

Goodwill

Balance at December 31, 2018 $ 1,373,621
Adjustments -
Balance at June 30, 2019 $ 1,373,621

Balance at December 31, 2019	$	1,373,621
Adjustments		-
Balance at March 31, 2020	$	1,373,621

Intangibles – customer list

Balance at December 31, 2018 $ 83,645
Amortization 10,242
Balance at June 30, 2019 $ 73,403

Balance at December 31, 2019	$	63,161
Amortization		(5,121	)
Balance at March 31, 2020	$	58,040

The customer list will continue to be amortized at $5,121 ~~every~~a quarter until December 31, 2022. The remaining $1,707 will be amortized in January 2023.

~~11.~~12.

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, ~~2018~~2019 to ~~June 30, 2019~~March 31, 2020 is as follows:

Shares Weighted-
Average
Exercise Price Weighted-Average
Remaining
Contractual Term Aggregate
Intrinsic Value
Outstanding at December 31, 2018 955,000 0.29 2.40 488,000
Grants 15,000 1.15 4.81 -
Exercised - - - -
Canceled (21,500 ) 0.05 - -
Outstanding at June 30, 2019 948,500 $ 0.28 4.15 -
Exercisable at June 30, 2019 425,000 $ 0.28 1.91 $ 420,750

~~H/CELL ENERGY CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~JUNE 30, 2019 AND 2018 (UNAUDITED)~~

	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		-		-		-		-
Outstanding at March 31, 2020		698,500		0.43		1.48	$	216,535
Exercisable at March 31, 2020		618,375		0.01		.94	$	132,500

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.

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, 2019,~~March 31, 2020, there was ~~$23,980~~$26,676 of unrecognized compensation expense. As of December 31, ~~2018,~~2019, there was ~~$56,745~~$32,642 of unrecognized compensation expense.

~~12.~~13.

SEGMENT INFORMATION

Our business is organized into two reportable segments: renewable systems integration revenue and non-renewable systems integration revenue. The reporting segments follow the same accounting policies used in the preparation of the Company’s unaudited condensed consolidated financial statements.

June 30, 2019 December 31, 2018
Assets by Segment
Renewable systems integration $ 1,545,458 $ 1,540,423
Non-renewable systems integration 2,244,181 1,984,084
$ 3,789,639 $ 3,524,507

The following represents selected information for the Company’s reportable segments for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 and ~~2018.~~2019.

For the Three Months Ended For the Six Months Ended
June 30, 2019 June 30, 2018 June 30, 2019 June 30, 2018
Revenue by segment
Renewable systems integration $ 81,721 $ - $ 126,235 $ 31,789
Non-renewable system integration $ 1,846,200 2,009,825 3,505,959 3,704,360
$ 1,927,921 $ 2,009,825 $ 3,632,194 $ 3,736,149

Cost of sales by segment
Renewable systems integration $ 80,186 $ - $ 117,971 $ 31,617
Non-renewable system integration 1,229,136 1,253,043 2,387,789 2,462,456
$ 1,309,322 $ 1,253,043 $ 2,505,760 $ 2,494,073

Operating expenses
Renewable systems integration $ 148,152 $
137,007
$ 315,692 $ 298,699
Non-renewable system integration 502,805
570,324
961,817 983,316
$ 650,957 $ 707,331 $ 1,277,509 $ 1,282,015

Operating (loss) income by segment
Renewable systems integration $ (146,617 ) $ (137,007 ) $ (307,428 ) $ (298,527 )
Non-renewable system integration 114,259 186,458 156,353 258,588
$ (32,358 ) $ 49,451 $ (151,075 ) $ (39,939 )

	March 31, 2020		December 31, 2018
Assets by Segment
Renewable systems integration	$	1,634,491	$	1,642,592
Non-renewable systems integration		1,819,501		1,825,839
		3,453,992	$	3,468,431

~~H/CELL ENERGY CORPORATION~~

	For the Three Months Ended
	March 31, 2020			March 31, 2019
Revenue by segment
Renewable systems integration	$	21,165		$	49,514
Non-renewable system integration		1,646,782			1,654,759
	$	1,667,947		$	1,704,273

Cost of sales by segment
Renewable systems integration	$	12,324		$	37,785
Non-renewable system integration		1,306,191			1,158,653
	$	1,318,515		$	1,196,438

Operating expenses
Renewable Systems integration	$	103,723		$	167,540
Non-renewable system Integration		443,331			459,012
	$	547,054		$	626,552
Operating (loss) income by segment
Renewable Systems integration	$	(94,882	)	$	(155,811	)
Non-renewable system Integration		(102,740	)		37,094
	$	(197,622	)	$	(118,717	)

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~JUNE 30, 2019 AND 2018 (UNAUDITED)~~

~~13.~~14.

INCOME TAX

For the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ the Company did not record any income tax expense or benefit. No tax benefit has been recorded in relation to the pre-tax ~~income~~loss for the three months ended ~~June 30, 2018~~March 31, 2020 and ~~loss for the six months ended June 30, 2018,~~2019, due to a full valuation allowance to offset any deferred tax asset related to net operating loss carry forwards attributable to the losses.

~~14.~~

~~NOTE PAYABLE~~

On August 21, 2018, PVBJ entered into a loan and security agreement (the “Credit Agreement”) with Thermo Communications Funding, LLC (“Thermo”). The Credit Agreement provides for a revolving line of credit in an amount not to exceed $350,000, which is evidenced by a promissory note issued by PVBJ to Thermo (the “Note”). PursuantIn response to the ~~Credit Agreement, PVBJ granted~~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 ~~security interest to Thermo~~refund in ~~all~~2020 for the entire amount of ~~its assets.~~the credits instead of recovering the credits through refunds over a period of years, as originally enacted by the 2017 Tax Act. In addition, ~~pursuant~~the CARES Act raises the corporate charitable deduction limit to ~~a limited recourse guaranty, Andrew Hidalgo, the Company’s Chief Executive Officer personally guaranteed the repayment~~25% of taxable income and makes qualified improvement property generally eligible for 15-year cost-recovery and 100% bonus depreciation. The enactment of the ~~Credit Agreement under certain conditions. Pursuant~~CARES Act did not result in any material adjustments to our income tax provision for the ~~terms~~three months ended March 31, 2020, or to our net deferred tax assets as of the Credit Agreement, the Company is permitted to borrow up to $350,000 under the revolving credit line, under a borrowing base equal to the lesser of (i) or 85% of Eligible Accounts (as defined in the Credit Agreement). Borrowings under the Credit Agreement may be used for working capital and to refinance certain existing debt of PVBJ. The Credit Agreement contains certain customary representations and warranties, affirmative and negative covenants, and events of default. Principal covenants include a debt service coverage ratio of not less than 1.15 to 1.0, a fixed charge coverage ratio of not less than 1.15 to 1.0, and maintaining a tangible net worth of at least $150,000, excluding intercompany loans to H/Cell. The loan commitment shall expire on August 21,March 31, 2020. As of June 30, 2019, the Company was in compliance with these covenants. The interest rate applicable to revolving loans under the Credit Agreement is prime plus 5.0%, subject to a minimum interest rate of 9.5%. The Company paid a loan commitment fee of $7,000, of which $3,500 was paid on closing, and $3,500 will be paid on the first anniversary. The Company will also pay a monthly monitoring fee during the term of the Credit Agreement of 0.33% of the average outstanding balance, payable monthly in arrears. The Company may prepay the Note at any time and terminate the Credit Agreement. In the event that the Company terminates the Credit Agreement, the Company will pay Thermo an early termination fee equal to 4% of the pro rata portion, which pro rata portion is determined by multiplying $350,000 by the number of months prior to the second anniversary of the effective date of the Credit Agreement and then dividing that by 24. The obligations of PVBJ under the Credit Agreement may be accelerated upon the occurrence of an event of default under the Credit Agreement, which includes customary events of default including, without limitation, payment defaults, defaults in the performance of affirmative and negative covenants, the inaccuracy of representations or warranties, cross-defaults, bankruptcy and insolvency related defaults, defaults relating to judgments, an ERISA reportable event occurs, a change of control and a change in the Company’s financial condition that could have a material adverse effect on the Company. As of June 30, 2019, funds totaling $119,585 were available for borrowing under the Credit Agreement.

15.	EQUITY PURCHASE AGREEMENT

On March 12, 2019, the Company entered into an equity purchase agreement (the “Equity Purchase Agreement”) and a registration rights agreement (the “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.

Under the Equity Purchase Agreement, the Investor has the right, at any time, to purchase Shares by delivering the Company a purchase notice, specifying the number of Shares to be purchased. The purchase price for the Shares under the Equity Purchase Agreement will be 60% of the lowest closing price of the Company’s common stock in the five consecutive trading days preceding the Investor’s receipt of the Shares subject to such equity purchase.

~~H/CELL ENERGY CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~JUNE 30, 2019 AND 2018 (UNAUDITED)~~

In addition, the Investor has an obligation, to the extent it has not already made voluntary purchases, to purchase up to (i) $200,000 in Shares within 15 Trading Days (as defined in the Equity Purchase Agreement) after the effective date of the Registration Statement (as defined below) and (ii) $450,000 in Shares within 70 Trading Days after the effective date of the Registration Statement.

The Company has the right to reject any purchase notice from the Investor by delivering written notice of such rejection within one trading day after receipt. If the Company rejects any purchase notice, the Investor has no further obligations to purchase Shares under the Equity Purchase Agreement. The Company may terminate the Equity Purchase Agreement at any time by written notice to the Investor in the event of a material breach of the Equity Purchase Agreement by the Investor. In addition, the Equity Purchase Agreement will automatically terminate on the earliest of: (i) the date that the Investor has purchased $450,000 of Shares; (ii) 70 Trading Days after the effective date of the Registration Statement; or (iii) the date the Registration Statement is no longer effective.

The obligation of the Investor to purchase the Shares is subject to several conditions, including, among other thing, (i) that the Company has an effective registration statement with the SEC registering the Shares for resale, and (ii) that the purchase of the Shares shall not cause the Investor to own more than 9.99% of the outstanding shares of common stock. In connection with the Equity Purchase Agreement, the Company agreed to pay $15,000 of fees to the Investor, of which $10,000 was paid on execution of the Equity Purchase Agreement, and the remaining $5,000 will be paid on the first sale of Shares.

Pursuant to the Registration Rights Agreement, the Company is required to register the Shares on a registration statement (the “Registration Statement”) to be filed with the SEC within 15 calendar days after the Company filed its annual report for the fiscal year ended December 31, 2018. The Company timely filed the Registration Statement with the SEC.

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.

~~16.~~

~~RECENT ACCOUNTING PRONOUNCEMENTS~~

~~In February 2016, the FASB issued ASU 2016-02 and issued subsequent amendments~~ No Shares were sold pursuant to the initial guidance thereafter. This ASU requires an entity to recognize an ROU asset and lease liability for all leases with terms of more than 12 months. Recognition, measurement and presentation of expenses will depend on classification of the underlying lease as either finance or operating. Similar modifications have been made to lessor accounting in-line with revenue recognition guidance. The amendments also require certain quantitative and qualitative disclosures about leasing arrangements. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. The new standard was effective for the Company on January 1, 2019. Entities are required to adopt ASU 2016-02 using a modified retrospective transition method. Full retrospective transition is prohibited. The guidance permits an entity to apply the standard’s transition provisions at either the beginning of the earliest comparative period presented in the financial statements or the beginning of the period of adoption (i.e., on the effective date). The Company adopted the new standard on its effective date.

The new standard provides several optional practical expedients in transition. The Company elected the ‘package of practical expedients’, which permits it not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. The Company did not elect the use-of hindsight or the practical expedient pertaining to land easements; the latter not being applicable to it. The new standard also provides practical expedients for an entity’s ongoing accounting. The Company elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, the Company will not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. The Company also elected the practical expedient not to separate lease and non-lease components for all of its leases in existence at December 31, 2018, which means all consideration that is fixed, or in-substance fixed, relating to the non-lease components will be captured as part of the Company’s lease components for balance sheet purposes. For the six months ended JuneEquity Purchase Agreement. On August 30, 2019, the 35,000 donation shares were returned to the Company recognized additional lease liabilities of $261,047 with corresponding ROU assets of the same amount based on the present value of the remaining minimum rental payments for existing leases on its Condensed Consolidated Balance Sheets. See Note 7, “Leases,” above, for additional lease disclosures.

~~H/CELL ENERGY CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~JUNE 30, 2019 AND 2018 (UNAUDITED)~~and canceled.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 eliminates Step 2 as part of the goodwill impairment test. The amount of the impairment charge to be recognized would now be the amount by which the carrying value exceeds the reporting unit’s fair value. The loss to be recognized cannot exceed the amount of goodwill allocated to that reporting unit. The amendments in ASU 2017-04 are effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company has elected to early adopt ASU 2017-04 as of January 1, 2018. The Company has applied the guidance related to ASU 2017-04 during its annual impairment test in the fourth quarter of 2018. An entity should apply the amendments in this update on a prospective basis. An entity is required to disclose the nature of and reason for the change in accounting principle upon transition. That disclosure should be provided in the first annual period and in the interim period within the entity initially adopts the amendments in this update. The Company elected to early adopt this standard in performing their 2018 impairment test.GHS Investments

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 will become effective for the Company beginning January 1, 2019, with early adoption permitted. The Company is currently evaluating the impact of this standard 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 will become effective for the Company January 1, 2020, with early adoption permitted. The Company is currently evaluating the impact of this standard on its consolidated financial statements and disclosures.

~~17.~~

~~SUBSEQUENT EVENTS~~

On July 9, 2019, the Company entered into an equity financing agreement (the “Purchase Agreement”) and a registration rights agreement (the “Registration Rights Agreement”) with GHS Investments LLC (“GHS”), pursuant to which GHS has agreed to purchase from the Company up to $3,000,000 in shares (the “Shares”) of the Company’s common stock, subject to certain limitations and conditions set forth in the Purchase Agreement. Additionally, the Company issued 30,000 shares to GHS as a commitment ~~fee.~~fee including in the balance sheet under deferred offering cost along with $90,000 in legal fees.

Under the Purchase Agreement, the Company has the right, from time to time at its sole discretion and subject to certain conditions, to direct GHS to purchase shares of common stock on any business day (a “Put”), provided that at least ten trading days has passed since the most recent Put. The purchase price of shares of common stock pursuant to the Purchase Agreement will be 80% of the lowest trading price of the common stock during the 10 trading days prior to the Put (the “Pricing Period”). Such sales of common stock by the Company, if any, may occur from time to time, at the Company’s option, over the 24-month period commencing on July 31, 2019.

The number of Shares that the Company may direct GHS to purchase per Put is limited by the average daily trading volume of the common stock prior to the Put, as follows:

	i.	If between zero (0) to fifteen thousand (15,000) Shares are traded on average per day during the Pricing Period, the relevant Put shall be capped to fifteen thousand (15,000) Shares;
	ii.	If between fifteen thousand and one (15,001) Shares to thirty thousand (30,000) Shares are traded on average per day, the relevant Put shall be capped to thirty thousand (30,000) Shares;
	iii.	If between thirty thousand and one (30,001) Shares to sixty thousand (60,000) Shares are traded on average per day, the relevant Put shall be capped to sixty thousand (60,000) Shares;
	iv.	If between sixty thousand and one (60,001) Shares to one hundred and fifty thousand (150,000) Shares are traded on average per day, the relevant Put shall be capped to one hundred and fifty thousand (150,000) Shares; and
	v.	If the average daily traded volume for the Pricing Period is equal to or greater than one hundred fifty thousand and one (150,001) Shares, then the relevant Put shall be limited to an amount which equals two times (2x) the average daily volume for the Shares during the Pricing Period.

In all instances, the Company may not sell shares of its common stock to GHS under the Purchase Agreement if it would result in GHS beneficially owning more than 4.99% of the Company’s common stock. In addition, no Put can be made in an amount that exceeds $400,000. ~~Subsequent~~The Company has sold an aggregate of 63,000 shares for proceeds of $19,827 during the three months ended March 31, 2020.

16.	RECENT ACCOUNTING PRONOUNCEMENTS

In February 2016, the FASB issued ASU 2016-02 and issued subsequent amendments to ~~June 30,~~the initial guidance thereafter. This ASU requires an entity to recognize a right of use asset and lease liability for all leases with terms of more than 12 months. Recognition, measurement and presentation of expenses will depend on classification of the underlying lease as either finance or operating. Similar modifications have been made to lessor accounting in-line with revenue recognition guidance. The amendments also require certain quantitative and qualitative disclosures about leasing arrangements. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. The new standard was effective for the Company on January 1, 2019. Entities are required to adopt ASU 2016-02 using a modified retrospective transition method. Full retrospective transition is prohibited. The guidance permits an entity to apply the standard’s transition provisions at either the beginning of the earliest comparative period presented in the financial statements or the beginning of the period of adoption (i.e., on the effective date). The Company adopted the new standard on its effective date.

The new standard provides several optional practical expedients in transition. The Company elected the ‘package of practical expedients’, which permits it not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. The Company did not elect the use-of hindsight or the practical expedient pertaining to land easements; the latter not being applicable to it. The new standard also provides practical expedients for an entity’s ongoing accounting. The Company elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, the Company will not recognize right of use assets or lease liabilities, and this includes not recognizing right of use assets or lease liabilities for existing short-term leases of those assets in transition. The Company also elected the practical expedient not to separate lease and non-lease components for all of its leases in existence at December 31, 2019, which means all consideration that is fixed, or in-substance fixed, relating to the non-lease components will be captured as part of the Company’s lease components for balance sheet purposes. For the year ended December 31, 2019, the Company recognized additional lease liabilities of $261,047 with corresponding right of use assets of the same amount based on the present value of the remaining minimum rental payments for existing leases on its Consolidated Balance Sheets. See Note 7, “Leases,” above, for additional lease disclosures.

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 will become 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 will become 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.

Management does not believe there would have been a material effect on the accompanying financial statements had any other recently issued, but not yet effective, accounting standards been adopted in the current period.

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 condensed consolidated financial statements have been prepared assuming that we 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 condensed consolidated financial statements do not include any adjustments to the specific amounts and classifications of assets and liabilities, which might be necessary should we 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 ~~15,000~~its office in the U.S.; Australia remains fully operational as the Company’s operations service governmental offices and hospitals.We have 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 we 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.

As reflected in the quarterly financial statements, the Company has a net loss of $254,024 and net cash used in operations of $22,348 for the quarter ended March 31, 2020. In addition, the Company is a start up in the renewable energy space and has generated limited revenues to date.

On January 15, 2020, H/Cell Energy Corporation (the “Company”) entered into a securities purchase agreement (the “Purchase Agreement”) with FirstFire Global Opportunities Fund LLC (the “Investor”), an unrelated third party, pursuant to which the Company sold a $85,250 principal amount convertible note (the “Note”) to the Investor for gross proceeds of $77,500, with an original discount issuance of $7,750 (the “Offering”). The transaction closed on January 16, 2020 upon receipt of the funds from the Investor. The Company incurred $2,500 of legal fees for this transaction.

The Note will mature on January 15, 2021 and will bear interest at the rate of 8% per annum, which interest will be payable on the maturity date or any redemption date and may be paid, in certain conditions, through the issuance of common shares, at the discretion of the Company. The Company shall make a monthly principal payment to the Investor of $4,500 on the 15th day of each month, starting February 15, 2020. The Company also has the right, at any time, to repay all or a part of the Note, on at least one prior business days’ notice, in an amount equal to 115% of the principal being repaid, plus any accrued but unpaid interest on the principal amount being repaid.

On January 3, 2020, H/Cell Energy Corporation (the “Company”) entered into an amendment agreement the “Amendment”) with two of its directors (the “Holders”), to convertible notes issued by the Company to the Holders in January 2018 (the “Notes”). Pursuant to the Amendment, which was effective as of January 2, 2020, the maturity date of the Notes was amended from January 2, 2020 to February 8, 2021, and the Holders waived any defaults that might have occurred prior to the date of the Amendment.

On February 1, 2018, we entered into a stock purchase agreement (the “Purchase Agreement”) by and among us, PVBJ, Inc., a New Jersey corporation (“PVBJ”), and Benis Holdings LLC, PVBJ’s sole shareholder (“Benis Holdings”). Pursuant to the Purchase Agreement, we acquired all of PVBJ’s issued and outstanding capital stock from Benis Holdings for a Cash Purchase Price of $221,800 (the “Cash Purchase Price”) and 444,445 shares of our common stock per share having an aggregate value of $1,000,000.00 (the “Acquisition Shares”). The Acquisition Shares were issued at the closing and the Cash Purchase Price was to be paid to Benis Holdings from positive earnings before taxes of PVBJ, with Benis Holdings to receive 50% of annual earnings before taxes of PVBJ until such time as Benis Holdings has received the full Cash Purchase Price (“Positive Earnings Criteria”), which Positive Earnings Criteria PVBJ never accomplished. Further, in connection with our acquisition of PVBJ, the Company entered into an employment agreement with Paul V. Benis, Jr. (the “Employment Agreement”) to serve as its Executive Vice President for a period of three years at an annual salary of $150,000 in return for Paul V. Benis’ oversight of PVBJ’s business operations. Upon acquiring PVBJ, PVBJ became our wholly owned subsidiary. After we acquired PVBJ, PVBJ executed a March 10, 2020 Promissory Note whereby Thermo Communications Funding, LLC (“Thermo”) became PVBJ’s lending facility (the “Note”). As indicated below under Item 18 (Subsequent Events), the Company has resold PVBJ back to PVBJ.

On April 21, 2020, the Company’s Board of Directors authorized the Company’s resale of PVBJ back to PVBJ pursuant to the terms contained in the Resale and Release agreement as follows: (a) Benis Holdings LLC will apply the $221,800 Cash Purchase Price 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 the Company will have no further salary obligation to Paul Benis, who will then be deemed to have resigned as the Company’s executive officer; and (c) as additional consideration for the purchase of PVBJ by Benis Holdings LLC, PVBJ shall continue to be responsible for the Note.

Management has evaluated the significance of these conditions and under these circumstances expects that its current cash resources, operating cash flows and ability to get financing would be sufficient to sustain operations for a period greater than one year from the quarterly report issuance date. The Company still has access to, and the ability for, financing via issuing convertible notes as the Company has done in January 2020. The Company has also extended some previous notes terms maturities with related parties and may continue to do so. Due to the sale of PVBJ, 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 payables relating to vehicles. Our creditor on the convertible note due in 2020 has expressed a willingness to refinance and/or extend the terms. Due to COVID-19 there has been various tax breaks and loan possibilities that the Company may take advantage of. In addition, the operating budget of Pride projects to produce enough cash flow to continue to cover expenses and between January 1, 2020 and March 31, 2020, the Company has sold an aggregate of 63,000 shares of Common Stock to GHS under the Purchase Agreement for ~~gross~~working capital and for the aggregate net proceeds of ~~$7,473.~~$19,833, therefore, the identified conditions noted above have alleviated the substantial doubt.

18.	SUBSEQUENT EVENTS

On April 7, 2020, the Company filed a Post-Effective Amendment No. 1 (“Post Effective S-1”) to the Registration Statement on Form S-1 (File No. 333-23273) (the “Registration Statement), as originally declared effective by the Securities and Exchange Commission (“SEC”) on July 31, 2019. The Post Effective S-1 was filed pursuant to the undertakings in Item 17 of the Registration Statement to (i) include the information contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 that was filed with the SEC on March 25, 2020 and (ii) update certain other information in the Registration Statement. The information included in the Post Effective S-1 amends the Registration Statement and the prospectus contained therein. No additional securities were registered under this Post-Effective S-1. The SEC declared the Post Effective S-1 effective on April 15, 2020.

On April 21, 2020, the Company’s Board of Directors authorized the Company’s resale of PVBJ back to PVBJ pursuant to the terms contained in a Resale and Release agreement, as follows: (a) Benis Holdings LLC will apply the $221,800 Cash Purchase Price 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 his Employment Agreement (January 31, 2021), to the purchase of PVBJ by Benis Holdings LLC as additional consideration thereof, at which time the Company will have no further salary obligation to Paul Benis, who will then be deemed to have resigned as the Company’s executive officer; and (c) as additional consideration for the purchase of PVBJ by Benis Holdings LLC, PVBJ shall continue to be responsible for the Note. The Resale 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. On April 21, 2020, we filed a Form 8-K disclosing the terms of the April 21, 2020 Resale and Release Agreement, which agreement was filed as an exhibit thereto.

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 PNC 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, we are not in a position to quantify the portion of the PPP Term Note that will be forgiven.

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.

Business Overview

We were formed in August 2015 to expand upon the successful implementation of a hydrogen energy system used to completely power a residence or commercial property with clean energy so that it can run independent of the utility grid and also provide energy to the utility grid for monetary credits. This system uses renewable energy as its source for hydrogen ~~production. It~~production and functions as a self-sustaining clean energy system using hydrogen and fuel cell technology. Its production of electricity is ~~truly~~ eco-friendly assince it is not produced by the use of fossil fuels. It is a ~~revolutionary~~ green-energy concept that is safe, renewable, self-sustaining and cost effective.

~~There are great~~The benefits to hydrogen ~~energy. The~~energy are the use of hydrogen as an energy source produces no carbon dioxide or other greenhouse gases. Unlike fossil fuels, the only emission from hydrogen is chemically pure water. Hydrogen can be extracted from water using renewable energy from the sun and unlike batteries, hydrogen can be stored indefinitely. There is no drilling, fracking or mining required to produce hydrogen. We believe it is safe and the most abundant and cleanest energy source on the planet. In addition to offering this self-sustaining clean energy system using hydrogen and fuel cell technology, we offer a number of renewable energy services, such as audits of energy consumption, review of energy/tax credits available, feasibility studies, solar/battery system installation, zoning/permitting analysis, site design/preparation and restoration, system startup, testing, commissioning, maintenance and interconnection applications.

We have succeeded in developing and installing hydrogen energy systems that are combined with renewable solar energy to produce clean electricity. We call the hydrogen energy system the ~~HC-1. The~~ HC-1 ~~system~~System, which functions as a self-sustaining renewable energy ~~system. It~~system, and can be configured as an off grid solution for all ~~your~~users’ electricity needs or it can be connected to the grid to generate energy credits. ItThe HC-1 System is ~~a system~~ comprised of solar, batteries, a hydrogen generator, a fuel cell and a hydrogen storage tank.

When there is sunlight, the solar produce renewable energy ~~that~~ charges a bank of batteries. After the batteries are fully charged, the excess electricity is then combined with water through a hydrogen generator that extracts the hydrogen from the water in a gasified state, which is safely transferred to a tank and stored for later use. If the tank is full, excess electricity is sent from the batteries to the utility grid, which results in energy credits for the system owner. The electricity for the end user is always provided by the charged batteries. If there is no solar power to charge the batteries, the system keeps the batteries fully charged by using the hydrogen gas stored in the tank, which when processed through a fuel cell creates the electricity to charge the batteries. As the system is able to produce its own hydrogen gas, which keeps the tank full, it provides a continuous supply of clean energy and sustainability that is independent from the grid. Each HC-1 system is custom designed to accommodate the electrical loads for an end user. The system is completely scalable.

If a customer wishes to connect the system to the electrical grid in order to generate renewable energy credits, we obtain interconnection agreements from the local electric utility company. If the customer obtains authorization for interconnection to the utility grid, once the HC-1 system is operational, the HC-1 system owner can eliminate their electric bill and, if in a permissible state, can begin generating energy credits. In certain states, an end user receives one energy credit for each ~~1,000 kilowatt~~1,000-kilowatt hours (kWh) produced through renewal energy. The customer sells these credits to a broker, who in turn sells the credits to a utility company so that the utility company can demonstrate their compliance with the regulatory obligations to reduce greenhouse gas emissions. The price per credit can vary depending on supply and demand. Many other states that may not offer an energy credit program, do offer other cash incentives for renewable energy systems.

On January 31, 2017, we acquired The Pride Group (QLD) Pty Ltd, an Australian company (“Pride”). Founded in 1997, Pride is a provider of security systems integration for a variety of customers in the government and commercial sector and has launched a new clean energy division to focus on the high growth renewable energy market in Asia-Pacific. On February 1, 2018, we acquired PVBJ Inc. (“PVBJ”). Established in 2008, PVBJ is a regionally recognized company that specializes in HVAC and refrigeration for commercial and residential customers. The services offered include design, installation, repair, maintenance and emergency services for environmental systems. PVBJ has a highly trained technical team that is experienced in all aspects of environmental systems. PVBJ covers the U.S. Mid-Atlantic market. PVBJ is also establishing a clean energy division so that it can offer hydrogen energy systems to its existing customer base.

Current Operating Trends

Currently, a number of technicians are licensed to install our HC-1 systems in the Mid-Atlantic region of the U.S. and Australia. In addition to recently establishing a clean energy division, Pride ~~is a highly regarded and established company that~~ designs, installs and maintains a variety of technology products in the security systems market. Pride also provides annual maintenance programs which amount to approximately AUD $2 million per annum. Pride currently generates approximately half of its revenue from government contracts and the other half from the commercial sector. Pride is a certified and licensed security systems integrator for the Queensland Government and has various government contracts in place for installation, maintenance and project services.

PVBJ is ~~well recognized for~~engaged in the business in the business of the design, installation, maintenance and emergency service of environmental systems both in residential and commercial markets. The subsidiary has a team of technicians that can install and service a variety of HVAC and refrigeration products. PVBJ is certified and licensed in multiple states and has developed an extensive customer base. PVBJ is now expanding into clean energy systems and employs technicians that are familiar with installing environmental systems requiring electrical, plumbing and gases, which is similar to the installation of an HC-1 system.

We intend to aggressively grow our business, both organically and through strategic acquisitions. Our goal is to acquire companies with the licenses and certifications to operate in various states and countries. This will allow us to expand the geographic areas in which we can install our systems. These acquired companies will also provide us with a consistent revenue stream, a customer base for marketing our systems and technicians that can be trained to install our products and services. Initially, we intend to focus on states or countries whose government supports a regulatory standard requiring its utility companies to increase their production of electricity from renewable energy sources. This overall approach is more cost effective than the protracted nature of opening an office, hiring staff and obtaining certifications to operate in a specific geographic area. As of the date of this quarterly report, we have no written agreements or understandings to acquire any companies and no assurances can be given that we will identify or successfully acquire any other companies.

Trends and Uncertainties

Our operations are subject to the following trends and uncertainties:

	●	The availability of renewable energy project rebates and tax incentives
	●	The level of government contracts generally as well as whether we can consistently obtain material revenues being awarded such contracts
	●	Whether we are able to generate consistent service revenue

Results of Operations

For the ~~Three Months Ended June 30,~~three months ended March 31, 2020 and the three months ended March 31, 2019 ~~and 2018~~

Revenue and Cost of Revenue

We had ~~$1,927,921~~$1,667,947 of revenue and ~~$1,309,322~~$1,318,515 for cost of revenue during the three months ended ~~June 30, 2019, respectively, and we~~March 31, 2020.

We had ~~$2,009,825~~$1,704,273 of revenue and ~~$1,253,043~~$1,196,438 for cost of revenue during the three months ended ~~June 30, 2018, respectively.~~March 31, 2019.

For the Three Months Ended
June 30, 2019 June 30, 2018
Revenue by segment
Renewable systems integration $ 81,721 $ -
Non-renewable system integration 1,846,200 2,009,825
$ 1,927,921 $ 2,009,825

	For the Three Months Ended
	March 31, 2020		March 31, 2019
Revenue by Segment
Renewable Systems Integration	$	21,165	$	49,514
Non-renewable Systems Integration		1,646,782		1,654,759
	$	1,667,947	$	1,704,273

General and Administrative Expenses

During the three months ended ~~June 30, 2019,~~March 31, 2020, our general and administrative expenses were ~~$650,957. $148,152~~$547,054. $123,723 of these expenses was related to the ~~renewable systems integration~~Renewable Systems Integration segment, ~~including corporate expenses as follows: $61,028 of legal and accounting fees, $40,369~~which included $37,500 of gross payroll, ~~and payroll taxes, $19,500~~$20,000 of management ~~disbursements, $8,518~~fees, $28,900 of ~~consulting/~~accounting fees related to audit and consulting fees, $9,000 of legal fees, $7,993 of stock based compensation, $7,657 of dues and subscription fees, which pertained to EDGAR fees and OTC Market annual listing fees, $5,271 inof amortization, $2,772 for insurance, $2,486 of ~~intangible assets, $4,674~~payroll taxes, $2,144 of ~~directors and officers insurance liability, $2,074 of stock-based compensation and $6,718 of miscellaneous expenses.~~

The non-renewable systems integration segment incurred general and administrative expenses during the three months ended June 30, 2019 of $502,805, including management and administrative salaries of $243,939 along with $105,627 of other various employee expenses, such as vacation/sick time, retirement benefits and payroll tax. In addition, automobile allowance and rent expense totaled $15,010. Various insurances totaled $49,176. Rent expense and maintenance totaled $26,018. We also incurred telecommunications charges of $15,742. In addition, we incurred $14,258 for various dues and subscriptions, $11,689 of meals/entertainment and office expense, $3,053 in advertising, $2,774 in legal fees, $2,000 in corporate tax and $13,519 in miscellaneous expenses.

During the three months ended ~~June 30, 2018,~~March 31, 2019, our general and administrative expenses were ~~$707,331. $137,007~~$626,552. $167,540 of these expenses was related to the ~~renewable systems integration~~Renewable Systems Integration segment, ~~including corporate expenses as follows: $41,325~~which included $37,500 of gross payroll, ~~and payroll taxes, $34,747 of legal and accounting fees,~~$23,450 for share donation, $19,500 of management ~~disbursements, $17,149~~fees, $26,773 of ~~stock-based~~accounting fees related to audit and consulting fees, $12,000 of legal fees, $8,562 of stock based compensation, ~~$7,928~~$8,000 of ~~consulting/~~investment banking fees, $7,265 of dues and subscription fees, which pertained to EDGAR fees and OTC Market annual listing fees, $6,331 of travel and meals, $5,271 inof amortization, $3,207 for insurance, $2,869 of ~~intangible assets, directors and officers insurance liability of $4,258 and $6,829~~payroll taxes, $5,059 of miscellaneous ~~expenses.~~expenses and $1,753 of auto lease.

The ~~non-renewable systems integration~~Non-renewable Systems Integration segment incurred general and administrative expenses during the three months ended ~~June 30, 2018~~March 31, 2020 of ~~$570,324,~~$423,331, including management and administrative salaries of ~~$241,953~~$182,962 along with ~~$110,614~~$96,851 of other various employee expenses, such as retirement benefits, vacation, sick time, office expenses, training and meals. In addition, automobile expenses totaled $16,377, which included lease and auto allowance. Facilities lease maintenance and utilities totaled $20,108. In addition, we incurred $57,573 for various insurances, $12,513 in telecommunications and telephone, $10,202 in dues and subscriptions, $6,494 in advertising and $20,251 in miscellaneous expenses.

The Non-renewable Systems Integration segment incurred general and administrative expenses during the three months ended March 31, 2019 of $459,012, including management and administrative salaries of $228,614 along with $87,810 of other various employee expenses, such as vacation, sick time, office expenses, training and ~~sick time.~~meals. In addition, automobile expenses totaled ~~$68,517,~~$17,238, which included ~~repairs, fuel~~lease and auto allowance. ~~Insurance~~Facilities lease maintenance and utilities totaled $47,868. Rent expense totaled $20,997. Professional fees of $8,347 consisted of legal and accounting fees incurred for tax and human resources advice. We also incurred telecommunications charges of $12,211 and computer expenses of $4,706.$24,961. In addition, we incurred $46,689 for various insurance, other miscellaneous fees of ~~$15,041~~$17,680, $13,300 of payroll tax, $13,006 for telecommunications and ~~depreciation~~information technology, $5,247 of ~~$40,070.~~computer services and $4,467 of 401(k) expense.

We incurred ~~$72,865~~$64,139 of other expenses for the three months ended ~~June 30, 2019,~~March 31, 2020, including ~~$58,060~~$19,468 of interest expense, $39,796 of interest expense – related party ~~$10,258 of interest expense~~ and ~~$4,547~~$4,875 change in fair value earn-out.

We incurred ~~$35,496~~$24,921 of other expenses for the three months ended ~~June 30, 2018,~~March 31, 2019, including ~~$18,676~~$36,095 of interest expense – related party, ~~$10,146 of interest expense and $6,738~~$4,396 change in fair value earn-out and $1,833 of interest expense, offset by ~~$64~~$17,403 of gain on fixed asset disposal.

As a result of the foregoing, we had a net loss of ~~$105,223~~$261,761 for the three months ended ~~June 30, 2019,~~March 31, 2020, compared to a net ~~income~~loss of ~~$13,955~~$143,638 for the three months ended ~~June 30, 2018.~~

~~For the Six Months Ended June 30, 2019 and 2018~~

~~Revenue and Cost of Revenue~~

For the six months ended June 30, 2019, we had $3,632,194 of revenue and $2,505,760 of cost of revenue, respectively, and for the six months ended June 30, 2018, we had $3,736,149 of revenue and $2,494,073 of cost of revenue, respectively, of which $31,789 and $31,617, respectively, was related party.

For the Six Months Ended
June 30, 2019 June 30, 2018
Revenue by segment
Renewable systems integration $ 126,235 $ 31,789
Non-renewable system integration $ 3,505,959 3,704,360
$ 3,632,194 $ 3,736,149

~~General and Administrative Expenses~~

During the six months ended June 30, 2019, our general and administrative expenses were $1,277,509. $315,692 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 $8,736 of miscellaneous expenses.

The non-renewable systems integration segment incurred general and administrative expenses during the six months ended June 30, 2019 of $961,817, including management and administrative salaries of $472,553 along with $194,132 of other various employee expenses, such as vacation/sick time, retirement benefits and payroll tax. In addition, auto allowance and lease totaled $31,044. Facilities lease and maintenance totaled $52,163. In addition various business and health insurances totaled $100,298, $46,527 of computer and telecommunications and safety, $20,935 of travel/meals and office expense, $9,312 of licenses and training, $5,500 of professional fees for legal and accounting services and $29,353 of miscellaneous costs.

During the six months ended June 30, 2018, our general and administrative expenses were $1,282,015. $298,699 was related to the renewable systems integration segment including corporate expenses, consisting of: $80,738 of gross payroll and payroll tax, $57,960 of accounting fees related to audit, consulting and acquisition costs, $39,050 of legal fees, $39,000 of management disbursements, $34,297 of stock-based compensation, $14,872 of consulting/dues and subscription fees, which pertained to EDGAR fees, OTC Market annual listing fees, and transfer agent fees, directors and officers insurance liability of $9,460, $8,835 of amortization of intangible assets, $5,526 of travel and $6,479 of miscellaneous expenses.

The non-renewable systems integration segment incurred general and administrative expenses during the six months ended June 30, 2018 of $983,316, including management and administrative salaries of $388,544 along with $200,093 of other various employee expenses, such as vacation and sick time and workcover. In addition, automobile expenses totaled $153,702, which included repairs, fuel and auto allowance. Facilities lease totaled $57,612. In addition various business and health insurances totaled $74,282, $25,029 of depreciation, $34,325 of computer and telecommunications, $13,464 of professional fees for legal and accounting services, $10,585 of 401K contributions, $10,256 of travel and meals and $15,424 of miscellaneous costs.

We incurred $97,786 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 offset by $17,403 of gain on fixed asset disposal.

We incurred $57,075 of other expenses for the six months ended June 30, 2018, including $32,891 of interest expense – related party, $14,092 of interest expense, $6,738 change in fair value earn-out and $3,354 loss on fixed asset disposal.

~~As a result of the foregoing, we had net losses of $248,861 and $97,014 for the six months ended June 30, 2019 and 2018, respectively.~~March 31, 2019.

Liquidity and Capital Resources

As of ~~June 30, 2019,~~March 31, 2020, we had negative working capital of ~~$33,913,~~$867,432, comprised of ~~$1,191,224~~current assets of $909,139 of accounts receivables, ~~$313,530~~$174,419 of cash and cash equivalents, ~~$86,018 of current right of use assets, $15,163 of prepaid expenses and $14,753~~$29,850 of costs in excess of billings ~~offset by $869,668~~and $17,247 of prepaid expenses. We had $933,258 of accounts payables and accrued expenses, ~~$257,659~~$55,795 of current operating lease liability, $76,240 of current finance leases payable, $76,014 of sales and withholding tax payable, $37,930 of billings in excess of cost, $30,649 of income tax payable, $459,116 of current convertible notes payable – related party net of discount, ~~$199,679 of earn out payable, $86,018~~$135,938 of current ~~operating lease liability, $73,091~~convertible notes payable, $165,960 for line of ~~current finance leases payable, $66,489 of sales and withholding tax payable, $37,325 of billings in excess of cost, $32,442 of income tax payable and $32,230~~credit. $25,187 of current notes payable, which made up our current liabilities at ~~June 30, 2019.~~March 31, 2020. Other ~~non-current assets included $1,373,621 in goodwill, $455,044~~noncurrent liabilities at March 31, 2020 were $196,691 of property and equipment, $154,378 of right of use asset, $73,403 of customer list, $50,000 of a deferred tax asset, $32,505 of security deposits and $30,000 in other long term assets. Other non-current liabilities included $284,431 in finance leases, $230,415 in line of credit, $154,378 in operating lease liability, ~~$105,158 in convertible notes~~$293,535 of long-term finance leases, $214,074 of earn out payable ~~– related party, net of discounts~~ and ~~$57,083~~$61,968 of equipment notes payable.

For the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, we used ~~$337,593~~$22,348 of cash in operating activities, which represented our net loss of ~~$248,861, $241,820~~$261,761, $348,750 of changes in accounts payable, $59,272 of change in operating right of use asset, $157,908 of billings in excess of cost, $106,541 of accounts and retainage receivables, $30,000 in other long term asset, $17,403 of gain on sale of assets and $13,282 of accounts payable and accrued expenses, offset by $241,820 of change in operating right of useROU liability, ~~$161,506 of depreciation and amortization, $30,761 of costs in excess of billings, $23,450 in share donation, $10,636 of stock-based compensation, $8,943~~$4,875 in change in fair value, ~~contingent consideration~~$7,993 in stock based compensation, $69,146 in depreciation and ~~$1,106~~amortization offset by $60,036 of ~~prepaid expenses.~~change in ROU asset, $177,345 change in accounts receivable, $2,183 change in prepaids, $7,614 cost in excess and $3,445 of billings excess in cost.

We used $10,783 from investing activities from the purchase of fixed assets.

We used $28,793 from financing activities consisting of convertible debt issuance for $75,000, $19,833 proceeds from equity financing, offset by repayments on notes payable of $6,245, repayments on finance leases of $13,594 and repayments online of credit of $103,787.

For the ~~six~~three months ended ~~June 30, 2018,~~March 31, 2019, we used ~~$125,023~~$293,894 of cash in operating activities, which represented our net loss of ~~$97,014~~$120,188 and ~~$412,271~~$207,425 of changes in accounts payable, $2,481 of prepaid expenses, $2,258 of costs in excess of billings and ~~accrued expenses offset by $61,130 of depreciation and amortization, $3,354 of loss on sale of assets, $6,738 in change in fair value contingent consideration, $5,893~~$153,792 of billings in excess of cost, ~~and $34,297~~$17,403 of ~~stock-based compensation~~gain on the disposal of fixed assets, $30,000 in long term asset change, $260,524 in change in operating ROU asset offset by ~~$541,335~~$23,450 of share donation, $72,015 of depreciation and amortization, $154,680 of changes in accounts receivables, ~~$202 of prepaid expenses~~$260,524 in change in operating ROU liability $8,562 in stock based compensation and ~~$10,559 of costs~~$4,396 change in ~~excess of billings.~~fair value contingent consideration.

~~For the six months ended June 30, 2019, we~~

We used ~~$5,022 in~~$13,689 from investing activities ~~relating to~~from the purchase of fixed assets of ~~$77,283~~$79,912 and $6,415 in security deposits ~~of $377 offset by $72,638 of proceeds from~~less the disposition of ~~property and equipment.~~fixed assets for $72,638.

~~For the six months ended June 30, 2018, we~~We generated ~~$11,987 in investing activities relating to the purchase of fixed assets of $4,663 and security deposits of $14,144 offset by $386 of proceeds~~$273,489 from ~~the disposition of property and equipment and $30,408 of cash acquired in business acquisition.~~

~~For the six months ended June 30, 2019, we generated $297,782 in~~ financing activities ~~relating to $202,056~~consisted of ~~proceeds from line of credit and $147,500 for~~ the issuance of convertible debt ~~offset by $31,131 in~~for $147,500, net of related costs, less repayments on notes payable of $8,382, less repayments of $9,985 of repayments on capital ~~leases and $20,643 in repayments of notes payable.~~

~~For the six months ended June 30, 2018, we generated $144,558 in financing activities relating to $395,000 for the issuance of convertible debt and $1,000 of~~leases. adding back net proceeds from the ~~exercise~~line of ~~stock options, offset by $197,801 in repayments on long-term debt, $31,368 in repayments~~credit of ~~capital leases and $22,273 in repayments of notes payable.~~$144,356.

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 pubic company costs, ~~related to being a public company,~~ including incremental audit fees, investor relations programs and increased professional services.

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~~contracts 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.

Other than a line of credit from Thermo Communications Funding, LLC (“Thermo”) and an equity purchase agreement with ~~GHS Investments LLC (“GHS”)~~the Investor discussed below, we presently do not have any available credit, bank financing or other external sources of liquidity. We did not achieve net income from operations for the ~~three or six months~~quarter ended ~~June 30, 2019~~March 31, 2020 or the year ended December 31, ~~2018~~2019 and our operations historically have not been a source of liquidity and we cannot be assured they will be in the near future. We may need to obtain additional capital in order to expand operations and fund our activities. Future financing may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. Even if we are able to raise the funds if required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing. Furthermore, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. If additional financing is not available or is not available on acceptable terms, we may be required to delay, reduce the scope of or eliminate our marketing and business development services.

Credit Facility

On August 21, 2018, PVBJ entered into a loan and security agreement (the “Credit Agreement”) with ~~Thermo.~~Thermo, which was amended in March 2020. The Credit Agreement provides for a revolving line of credit in an amount not to exceed ~~$350,000,~~$400,000, which is evidenced by a promissory note issued by PVBJ to Thermo (the “Note”). Pursuant to the Credit Agreement, PVBJ granted a security interest to Thermo in all of its assets. In addition, pursuant to a limited recourse guaranty, Andrew Hidalgo, our Chief Executive Officer, personally guaranteed the repayment of the Credit Agreement under certain conditions.

Pursuant to the terms of the Credit Agreement, we are permitted to borrow up to ~~$350,000~~$400,000 under the revolving credit line, under a borrowing base equal to the lesser of (i) or 85% of Eligible Accounts (as defined in the Credit Agreement). Borrowings under the Credit Agreement may be used for working capital and to refinance certain existing debt of PVBJ. The Credit Agreement contains certain customary representations and warranties, affirmative and negative covenants, and events of default. Principal covenants include a debt service coverage ratio of not less than 1.15 to 1.0, a fixed charge coverage ratio of not less than 1.15 to 1.0, and maintaining a tangible net worth of at least $150,000, excluding intercompany loans. As of ~~June 30, 2019,~~March 31, 2020, we were not in compliance with these covenants. However due to the subsequent sale of PVBJ, Thermo had deemed it to have passed.

The loan commitment shall expire on August 21, 2020. The interest rate applicable to revolving loans under the Credit Agreement is prime plus 5.0%, subject to a minimum interest rate of 9.5%. We paid a loan commitment fee of $7,000, of which $3,500 was paid on closing, and $3,500 ~~will be~~was paid on the first anniversary. We will also pay a monthly monitoring fee during the term of the Credit Agreement of 0.33% of the average outstanding balance, payable monthly in arrears.

We may prepay the Note at any time and terminate the Credit Agreement. In the event that we terminate the Credit Agreement, we will pay Thermo an early termination fee equal to 4% of the pro rata portion, which pro rata portion is determined by multiplying ~~$350,000~~$400,000 by the number of months prior to the second anniversary of the effective date of the Credit Agreement and then dividing that by 24.

The obligations of PVBJ under the Credit Agreement may be accelerated upon the occurrence of an event of default under the Credit Agreement, which includes customary events of default including, without limitation, payment defaults, defaults in the performance of affirmative and negative covenants, the inaccuracy of representations or warranties, cross-defaults, bankruptcy and insolvency related defaults, defaults relating to judgments, an ERISA reportable event occurs, a change of control and a change in our financial condition that could have a material adverse effect on us.

As of ~~June 30, 2019,~~March 31, 2020 we had outstanding borrowings of ~~$230,415~~$165,960 under the Credit Agreement, the interest rate was 9.5%, andfunds totaling ~~$119,485~~$49,162 were available for borrowing under the Credit Agreement.

2019 Convertible Debenture Financing

On February 8, 2019, we entered into a securities purchase agreement (the “2019 Purchase Agreement”) with two of our directors, pursuant to which we sold an aggregate principal amount of $150,000 in 10% Convertible Debentures (the “2019 Debentures”), convertible into shares of our common stock at a conversion price of $0.50 per share.

The 2019 Debentures, together with any accrued and unpaid interest, become due and payable on February 8, 2021 (the “2021 Maturity Date”). Interest on the 2019 Debentures accrues at the rate of 10% per annum, payable monthly in cash, beginning on March 1, 2019 and on the 2021 Maturity Date. The 2019 Debentures are convertible into common stock at a conversion price of $0.50 per share at the discretion of the holder, with special provisions applying to any holder whose conversion would result in the holder beneficially owning more than 4.99% of our common stock.

2018 Convertible Debenture Financing

On January 2, 2018, we entered into a securities purchase agreement (the “2018 Purchase Agreement”) with two of our directors, pursuant to which we sold an aggregate principal amount of $400,000 in 12% Convertible Debentures (the “2018 Debentures”), originally convertible into shares of our common stock at a conversion price of $0.75 per share.

The 2018 Debentures, together with any accrued and unpaid interest, ~~become~~were originally due and payable on January 2, 2020 (the “2020 Maturity Date”). Interest on the 2018 Debentures accrues at the rate of 12% per annum, payable monthly in cash, beginning on February 1, 2018 and on the 2020 Maturity Date. The 2018 Debentures are convertible into common stock at a conversion price of $0.75 per share at the discretion of the holder, with special provisions applying to any holder whose conversion would result in the holder beneficially owning more than 4.99% of our common stock.

On February 8, 2019, we entered into amendments (the ~~“Amendments”~~“First Amendments”) with the holders of the 2018 Debentures. Pursuant to the First Amendments, the conversion price of the 2018 Debentures was reduced from $0.75 to $0.50, and the interest rate on the 2018 Debentures was reduced from 12% to 10%. On January 3, 2020, we entered into amendments (the “Second Amendments”) with the holders of the 2018 Debentures. Pursuant to the Second Amendments, the 2020 Maturity Date was extended until February 8, 2021.

Equity Financing Agreement

On July 9, 2019, we entered into an equity financing agreement (the ~~“Purchase~~“Equity Purchase Agreement”) and a registration rights agreement (the “Registration Rights Agreement”) with GHS, pursuant to which GHS has agreed to purchase from us up to $3,000,000 in shares (the “Shares”) of our common stock, subject to certain limitations and conditions set forth in the Equity Purchase Agreement. Additionally, we issued 30,000 shares to GHS as a commitment fee.

Under the Equity Purchase Agreement, we have the right, from time to time at our sole discretion and subject to certain conditions, to direct GHS to purchase shares of common stock on any business day (a “Put”), provided that at least ten trading days has passed since the most recent Put. The purchase price of shares of common stock pursuant to the Equity Purchase Agreement will be 80% of the lowest trading price of the common stock during the 10 trading days prior to the Put (the “Pricing Period”). Such sales of common stock by us, if any, may occur from time to time, at our option, over the 24-month period commencing on July 31, 2019.

The number of Shares that we may direct GHS to purchase per Put is limited by the average daily trading volume of the common stock prior to the Put, as follows:

	i.	If between zero (0) to fifteen thousand (15,000) Shares are traded on average per day during the Pricing Period, the relevant Put shall be capped to fifteen thousand (15,000) Shares;
	ii.	If between fifteen thousand and one (15,001) Shares to thirty thousand (30,000) Shares are traded on average per day, the relevant Put shall be capped to thirty thousand (30,000) Shares;
	iii.	If between thirty thousand and one (30,001) Shares to sixty thousand (60,000) Shares are traded on average per day, the relevant Put shall be capped to sixty thousand (60,000) Shares;
	iv.	If between sixty thousand and one (60,001) Shares to one hundred and fifty thousand (150,000) Shares are traded on average per day, the relevant Put shall be capped to one hundred and fifty thousand (150,000) Shares; and
	v.	If the average daily traded volume for the Pricing Period is equal to or greater than one hundred fifty thousand and one (150,001) Shares, then the relevant Put shall be limited to an amount which equals two times (2x) the average daily volume for the Shares during the Pricing Period.

In all instances, we may not sell shares of our common stock to GHS under the Equity Purchase Agreement if it would result in GHS beneficially owning more than 4.99% of our common stock. In addition, no Put can be made in an amount that exceeds $400,000. As of March 26, 2020, we have sold an aggregate of 188,250 shares of our common stock to GHS under the Equity Purchase Agreement for aggregate net proceeds of $59,949.

2019 Convertible Note Financing

On October 17, 2019, we entered into a securities purchase agreement with FirstFire Global Opportunities Fund LLC (“FirstFire”), an unrelated third party, pursuant to which we sold a $110,000 principal amount 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 2019 Note will mature on October 17, 2020 and will bear interest at the rate of 8% per annum, which interest will be payable on the maturity date or any redemption date and may be paid, in certain conditions, through the issuance of common shares, at our discretion. We make a monthly principal payment to FirstFire of $6,000 on the 17th day of each month, which started November 17, 2019. We also have the right, at any time, to repay all or a part of the 2019 Note, on at least one prior business days’ notice, in an amount equal to 115% of the principal being repaid, plus any accrued but unpaid interest on the principal amount being repaid.

The 2019 Note will be convertible into our common stock at a fixed conversion price of $0.50 per share at the discretion of the holder. At no time will FirstFire be entitled to convert any portion of the 2019 Note to the extent that after such conversion, FirstFire (together with its affiliates) would beneficially own more than 4.99% of our outstanding common stock as of such date. The 2019 Note contains standard anti-dilution protection.

The 2019 Note includes customary event of default provisions and provides for a default interest rate of 15%. Upon the occurrence of an event of default, FirstFire may require us to redeem all or any portion of the 2019 Note (including all accrued and unpaid interest), in cash, at a price equal to the product of (A) the amount to be redeemed multiplied by (B) 125%. In addition, upon an event of default, the conversion price would be the lower of (i) the Fixed Conversion Price or (ii) 75% of the lowest closing price of our common stock during the 10 trading days prior to the conversion date.

2020 Convertible Note Financing

On January 15, 2020, we entered into a securities purchase agreement with FirstFire pursuant to which we sold a $85,250 principal amount convertible note (the “2020 Note”) to FirstFire for gross proceeds of $77,500, with an original discount issuance of $7,750. The transaction closed on January 16, 2020 upon receipt of the funds from FirstFire.

The 2020 Note will mature on January 15, 2021 and will bear interest at the rate of 8% per annum, which interest will be payable on the maturity date or any redemption date and may be paid, in certain conditions, through the issuance of common shares, at our discretion. We make a monthly principal payment to FirstFire of $4,500 on the 15th day of each month, which started February 15, 2020. We also have the right, at any time, to repay all or a part of the 2020 Note, on at least one prior business days’ notice, in an amount equal to 115% of the principal being repaid, plus any accrued but unpaid interest on the principal amount being repaid.

The 2020 Note will be convertible into our common stock at the Fixed Conversion Price at the discretion of the holder. At no time will FirstFire be entitled to convert any portion of the 2020 Note to the extent that after such conversion, FirstFire (together with its affiliates) would beneficially own more than 4.99% of our outstanding common stock as of such date. The 2020 Note contains standard anti-dilution protection.

The 2020 Note includes customary event of default provisions and provides for a default interest rate of 15%. Upon the occurrence of an event of default, FirstFire may require us to redeem all or any portion of the 2020 Note (including all accrued and unpaid interest), in cash, at a price equal to the product of (A) the amount to be redeemed multiplied by (B) 125%. In addition, upon an event of default, the conversion price would be the lower of (i) the Fixed Conversion Price or (ii) 75% of the lowest closing price of our common stock during the 10 trading days prior to the conversion date.

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, 2019,~~March 31, 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~~Chief executive officer and ~~chief~~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.~~future.

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,~~March 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

2933

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.~~On February 8, 2019, we entered into a securities purchase agreement (the “Purchase Agreement”) with two of our directors, pursuant to which we sold an aggregate principal amount of $150,000 in 10% Convertible Debentures (“Debentures”), convertible into shares of our common stock at a conversion price of $0.50 per share at the discretion of the holder, with special provisions applying to any holder whose conversion would result in the holder beneficially owning more than 4.99% of our common stock. We intend to use the net proceeds for working capital and general corporate purposes.

The issuance of the Debentures was exempt from registration under the Securities Act of 1933, as amended, in reliance upon Section 4(a)(2) of the Securities Act.

On March 12, 2019, we donated 35,000 shares of our common stock to the manager of the investor in connection with the equity purchase agreement we entered into with the investor. The issuance of the shares was exempt from registration under the Securities Act of 1933, as amended, in reliance upon Section 4(a)(2) of the Securities Act. The shares were subsequently returned to the Company.

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,~~March 31, 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.

3034

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 7, 2019~~May 15, 2020	By:	/s/ ANDREW HIDALGO
		Andrew Hidalgo
		Chief Executive Officer (Principal Executive Officer)

Date: ~~August 7, 2019~~May 15, 2020	By:	/s/ MATTHEW HIDALGO
		Matthew Hidalgo
		Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2019			2018			2019			2018

Revenue
Construction income	$	1,927,921		$	2,009,825		$	3,632,194		$	3,704,360
Related party		-			-			-			31,789
Total revenue		1,927,921			2,009,825			3,632,194			3,736,149

Cost of goods sold
Direct costs		1,309,322			1,253,043			2,505,760			2,462,456
Direct costs – related party		-			-			-			31,617
Total cost of goods sold		1,309,322			1,253,043			2,505,760			2,494,073

Gross profit		618,599			756,782			1,126,434			1,242,076

Operating expenses
General and administrative expenses		631,457			687,831			1,238,509			1,243,015
Management fees – related party		19,500			19,500			39,000			39,000
Total operating expenses		650,957			707,331			1,277,509			1,282,015

Income (loss) from operations		(32,358	)		49,451			(151,075	)		(39,939	)

Other expenses
Interest expense		10,258			10,146			12,091			14,092
Interest expense – related party		58,060			18,676			94,155			32,891
Change in fair value earn-out		4,547			6,738			8,943			6,738
(Gain) loss on fixed asset disposal		-			(64	)		(17,403	)		3,354
Total other expenses		72,865			35,496			97,786			57,075

Net income (loss)	$	(105,223	)	$	13,955		$	(248,861	)	$	(97,014	)

Other comprehensive income (loss), net

Foreign currency translation adjustment		(4,239	)		(22,570	)		14,373			(32,829	)

Comprehensive loss	$	(109,462	)	$	(8,615	)	$	(234,488	)	$	(129,843	)

Earnings (loss) per share
Basic	$	(0.01	)	$	0.00		$	(0.03	)	$	(0.01	)
Diluted	$	(0.01	)	$	0.00		$	(0.03	)	$	(0.01	)
Weighted average common shares outstanding
Basic		7,621,024			7,483,980			7,607,295			7,450,235
Diluted		7,621,024			8,819,225			7,607,295			7,450,235

	June 30, 2019			December 31, 2018
Note payable with monthly payments of $716, including interest at 6.50% per annum through November 2020.	$	14,293		$	18,707
Note payable with monthly payments of $615.25, including interest at 6.80% per annum through August 2021.	$	15,343		$	18,383
Note payable with monthly payments of $1,294.50, including interest at 14.72% per annum through March 2023.	$	45,304		$	50,072
Note payable with monthly payments of $1,063.45, including interest at 5.76% per annum through April 2021.	$	14,373		$	18,539
Note payable with monthly payments of $946.84 including interest at 6.14% per annum through December 2024.	$	-		$	54,328
Total:	$	89,313		$	160,029
Total current portion:	$	(32,230	)	$	(38,991	)
Total non-current portion:	$	57,083		$	121,038

Balance at December 31, 2018	$	83,645
Amortization		10,242
Balance at June 30, 2019	$	73,403

	For the Three Months Ended						For the Six Months Ended
	June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018
Revenue by segment
Renewable systems integration	$	81,721		$	-		$	126,235		$	31,789
Non-renewable system integration	$	1,846,200			2,009,825			3,505,959			3,704,360
	$	1,927,921		$	2,009,825		$	3,632,194		$	3,736,149

Cost of sales by segment
Renewable systems integration	$	80,186		$	-		$	117,971		$	31,617
Non-renewable system integration		1,229,136			1,253,043			2,387,789			2,462,456
	$	1,309,322		$	1,253,043		$	2,505,760		$	2,494,073

Operating expenses
Renewable systems integration	$	148,152		$	137,007		$	315,692		$	298,699
Non-renewable system integration		502,805			570,324			961,817			983,316
	$	650,957		$	707,331		$	1,277,509		$	1,282,015

Operating (loss) income by segment
Renewable systems integration	$	(146,617	)	$	(137,007	)	$	(307,428	)	$	(298,527	)
Non-renewable system integration		114,259			186,458			156,353			258,588
	$	(32,358	)	$	49,451		$	(151,075	)	$	(39,939	)