NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2022 AND 2021
1. ORGANIZATION
AND LINE OF BUSINESS
Vision
Hydrogen Corporation (the “Company” or “VisionH2”) is a renewable energy company developing clean hydrogen production
and storage facilities for the commercial, industrial and transportation sectors through site procurement, permitting, pre-development
and grid integration. The Company seeks to utilizing hydrogen as fuel, feedstock, and as a grid balancing & capacitance solution.
VisionH2 is committed to providing low carbon solutions with high yield hydrogen production, storage and distribution services for the
European renewable economy and supply chain.
The
Company was incorporated in the state of Nevada on August 17, 2015 as H/Cell Energy Corporation and is based in Jersey City, New Jersey.
The Company changed its name to Vision Hydrogen Corporation in October 2020. Since inception the Company has been involved in the hydrogen
and renewable energy space. We have three subsidiaries, VisionH2 Holdings AG, Evolution Terminals BV and VisionH2 UK Ltd.
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, 2022 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, 2021, included in the Company’s 2021 Annual Report on Form 10-K filed with
the SEC. The balance sheet as of December 30, 2021 has been derived from audited financial statements at that date but does not include
all of the information required by U.S. GAAP for complete financial statements.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets
and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. The Company bases its estimates on historical experience and on various other assumptions
that are believed to be reasonable in the circumstances, the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under
different assumptions or conditions.
Reclassification
Certain
prior period amounts have been reclassified to conform to current period presentation specifically as it relates to the reclassification
of assets, liabilities, operating results and cash flows.
Comprehensive
Gain/Loss
Comprehensive
loss consists of two components, net loss and other comprehensive loss. The Company’s other comprehensive loss is comprised of
foreign currency translation adjustments. The balance of accumulated other comprehensive loss is $0 as of September 30, 2022 and at December
31, 2021.
For
the three month and nine months ended September 30, 2022, the Company recorded comprehensive loss of $63,048 and $71,962 respectively.
There was no comprehensive gain or loss for the three months and nine months ended September 30, 2021.
VISION
HYDROGEN CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2022 AND 2021
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”).
Website
Development Costs
Website
development costs were for a new company website created in 2021 and are amortized over 3 years.
Leases
Please
see note 5.
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.
VISION
HYDROGEN CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2022 AND 2021
Asset
acquisitions
Asset
acquisitions are measured based on their cost to us, including transaction costs incurred by us. An asset acquisition’s cost or
the consideration transferred by us is assumed to be equal to the fair value of the net assets acquired. If the consideration transferred
is cash, measurement is based on the amount of cash we paid to the seller, as well as transaction costs incurred by us. Consideration
given in the form of nonmonetary assets, liabilities incurred or equity interests issued is measured based on either the cost to us or
the fair value of the assets or net assets acquired, whichever is more clearly evident. The cost of an asset acquisition is allocated
to the assets acquired based on their estimated relative fair values. We engage third-party appraisal firms to assist in the fair value
determination of inventories, identifiable long-lived assets and identifiable intangible assets. Goodwill is not recognized in asset
acquisition.
3. RELATED
PARTY TRANSACTIONS
The
Company has entered into agreements to indemnify its directors and executive officers, in addition to the indemnification provided for
in the Company’s articles of incorporation and bylaws. These agreements, among other things, provide for indemnification of the
Company’s directors and executive officers for certain expenses (including attorneys’ fees), judgments, fines and settlement
amounts incurred by any such person in any action or proceeding, including any action by or in the right of the Company, arising out
of such person’s services as a director or executive officer of the Company, any subsidiary of the Company or any other company
or enterprise to which the person provided services at the Company’s request. The Company believes that these provisions and agreements
are necessary to attract and retain qualified persons as directors and executive officers.
During
2020 a director of the Company lent the Company a total of $596,747 at 6% per annum. On January 21, 2021 the note and accumulated interest
was converted, along with a cash payment of $3,253 for a total of $600,000, into 3,000,000 shares of the Company’s common stock
(“Shares”) pursuant to the Company’s public offering (see “Note 7”).
On
November 8, 2021 we acquired the 84% of VoltH2 Holdings AG (“VoltH2”) which we did not already own from the other shareholders
of VoltH2 for 8,409,091 Shares. An investment firm of which our CEO is principal owned 725,000 shares (66%) of VoltH2. VoltH2
has been renamed VisionH2 Holdings AG.
On
May 11, 2022 we sold our Vlissingen and Terneuzen green hydrogen development projects and related assets to Volt Energy BV, a company
controlled by a former director and co-CEO, in exchange for $11,250,000 and the 1,768,182 Shares held by Volt Energy BV. see
“Note 9”)
On
May 30, 2022 we acquired Evolution Terminals B.V., a Dutch corporation (“ETBV”) from an
investment firm of which our CEO is principal for a purchase price of $3,500,000 and 1,500,000
shares of our common stock. see “Note 10”).
On
June 20, 2022 we entered into a Management Services Agreement with a company controlled by our CEO pursuant to which we receive executive,
business consulting and advisory, business development and other services. The Agreement is for an initial term of three years and will
automatically renew for one or more additional two-year renewal periods unless terminated. The fee under the Management Services Agreement
is $100,000 per month which will increase on each anniversary by the greater of the previous year’s change in the United States
Consumer Price Index plus 2%, or 5%.
4. SIGNIFICANT
CONCENTRATIONS OF CREDIT RISK
Cash
is maintained at an authorized deposit-taking institution (bank) incorporated in the United States, Canada and The Netherlands and is
insured by the U.S. Federal Deposit Insurance Corporation (FDIC), the Canada Deposit Insurance Corporation (CDIC) and the Dutch Central
Bank (DNB) up to $250,000, $73,000 and $114,000 respectively. As of September 30, 2022, the balance
was fully covered with the FDIC and was $4,123,932 and $1,130,836 in excess of the CDIC and DNB insured limit, respectively.
5. 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 maintains its principal office at 95 Christopher Columbus Drive, 16th Floor Jersey City, NJ 07302 on a month-to-month
lease.
VISION
HYDROGEN CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2022 AND 2021
Finance
Leases
As
of September 30, 2022 and December 31, 2021, the Company had no finance leases.
6.
STOCK OPTIONS AWARDS AND GRANTS
There
was no stock option activity from the 2016 Incentive Stock Option Plan from January 1, 2022 to September 30, 2022.
As
of September 30, 2022, there was no unrecognized compensation expense or dilutive securities.
7.
REGISTRATION STATEMENT
In
October 2020, the Company filed a registration statement on Form S-1 with the Securities and Exchange Commission, whereby the Company
registered 12,500,000 shares of its common stock for sale as a company offering. The registration statement was declared effective in
October 2020. The Company sold a total of 12,500,000 shares of Common Stock in January 2021 for total consideration of $2,500,000. The
consideration consisted of $596,747 of debt converted to equity (see Note 3) and gross cash proceeds of $1,903,253. The Company incurred
$70,000 of legal fees and a $51,000 consulting fee in connection with the capital raise.
8. RECENT
ACCOUNTING PRONOUNCEMENTS
In
February 2016, the FASB issued ASU 2016-02 and issued subsequent amendments to 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.
In
September 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.
In
January 2020, the FASB issued ASU 2020-01, Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures
(Topic 323), and Derivative and Hedging (Topic 815), which clarifies the interaction of rules for equity securities, the equity method
of accounting, and forward contracts and purchase options on certain types of securities. The guidance clarifies how to account for the
transition into and out of the equity method of accounting when considering observable transactions under the measurement alternative.
The ASU is effective for annual reporting periods beginning after December 15, 2020, including interim reporting periods within those
annual periods, with early adoption permitted. The Company has adopted this standard and there is no impact on the current financial
statements.
VISION
HYDROGEN CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2022 AND 2021
In
August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts
in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.
This ASU amends the guidance on convertible instruments and the derivatives scope exception for contracts in an entity’s own equity,
and also improves and amends the related EPS guidance for both Subtopics. The ASU will be effective for annual reporting periods after
December 15, 2021 and interim periods within those annual periods and early adoption is permitted. The Company has not yet adopted this
standard and there is no impact expected on the current financial statements.
9. DISCONTINUED
OPERATIONS
On
November 8, 2021, we entered into a Stock Purchase Agreement (the “Purchase Agreement”) with VoltH2 Holdings AG (“VoltH2”),
a Swiss corporation, and the other shareholders of VoltH2 (each, a “Seller”, and together, the “Sellers”) pursuant
to which we acquired VoltH2 (the “Acquisition”). VoltH2 is a European-based developer of clean hydrogen production facilities
for the supply of commercial offtake volumes of clean hydrogen to manufacturers, gas and power traders, industrial consumers, and both
heavy and marine transportation sectors that have pivoted away from carbon emitting energy sources and fuels.
Pursuant
to the Purchase Agreement, we acquired an 84.1% interest of VoltH2, and together with our existing 15.9% ownership interest, we now own
100% of VoltH2.
The
VoltH2 acquisition was accounted for as an asset acquisition with no step-up basis due to our 15.9% ownership of VoltH2 prior to the
acquisition, and due to VoltH2 being an early stage company that had not generated revenues and lacked outputs. Since this transaction
is not an acquisition of a business but yet a transfer of long lived assets (primarily) between two non-operating companies no step-up
in basis was allowed. Both of the entities are non-operating entities and the fair value business combination rules do not apply. When
related parties are involved, the SEC generally will not permit the recognition of gain in the transferor’s financial statements
or a step-up in basis on the transferee’s books for sales or transfers of long-lived assets. No exceptions are permitted on transactions
between a parent company and a subsidiary or between subsidiaries of the same parent, other than in regulated industries when a nonregulated
subsidiary sells manufactured goods to a regulated affiliate. The acquisition consideration consisted of 8,409,091 shares of our common
stock issued on the acquisition date of November 8, 2021 at a closing market price of $11. A deemed dividend for the excess share price
over cost basis of the net assets of ($1,340,426) was recorded in the amount of $93,840,427.
There
were no acquisition related costs for the Company for the three and nine months ended September 30, 2022 and 2021.
The
following pro forma financial information presents the combined results of operations of VoltH2 and the Company for the three and nine
months ended September 31, 2021. The pro forma financial information presents the results as if the acquisition had occurred as of the
beginning of 2021.
The
unaudited pro forma results presented include amortization charges for acquired intangible assets, interest expense and stock-based compensation
expense.
Pro
forma financial information is presented for informational purposes and is not indicative of the results of operations that would have
been achieved if the acquisitions had taken place as of the beginning of 2021.
SCHEDULE
OF PRO FORMA FINANCIAL INFORMATION
| |
| | | |
| | |
| |
Three Months Ended
September 30, 2021 | |
Nine Months Ended
September 30, 2021 |
Revenues | |
$ | - | | |
$ | - | |
Net income (loss) | |
$ | (505,638 | ) | |
$ | (1,149,198 | ) |
Net income per share: | |
| | | |
| | |
Basic and diluted | |
$ | (0.39 | ) | |
$ | (0.92 | ) |
VISION
HYDROGEN CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2022 AND 2021
On
May 6, 2022, we, through our wholly owned Swiss subsidiary, VoltH2 Holdings AG (“VoltH2”), entered into a Share Purchase
Agreement (the “Purchase Agreement”) with Volt Energy BV (the “Purchaser”) pursuant to which we agreed to sell
our 100% interest in our Vlissingen green hydrogen development project and our 50% interest in our Terneuzen green hydrogen development
project and related assets (the “Dutch Projects”) to the Purchaser in exchange for $11,250,000 and the 1,768,182 shares of
our common stock held by the Purchaser (the “Purchase Price”). The Purchase Agreement closed on May 11, 2022There was $623,078
in costs related to the disposition. Due to the related party nature of the transaction the $11,250,000 cash component of the purchase
price and related gain on the sale of the Dutch Projects is a part of paid in capital on the balance sheet as there is no step-up in
basis when related parties are involved. VoltH2 has been renamed VisionH2 Holdings AG.
The
results of discontinued operations are as follows:
SCHEDULE
OF DISCONTINUED OPERATIONS
| |
| | | |
| | |
| |
Three months ended September 30, 2022 | | |
Nine months ended September 30, 2022 | |
Selling, general and administrative expenses | |
| - | | |
| 1,028,088 | |
| |
| | | |
| | |
Discontinued operations for the period | |
$ | - | | |
$ | (1,028,088 | ) |
10. ASSET ACQUISTION UNDER COMMON CONTROL
On
May 30, 2022, we entered into a Stock Purchase Agreement (the “Purchase Agreement”) with Evolution Terminals B.V., a Dutch
corporation (“ETBV”), and ETBV’s sole shareholder. ETBV is developing a green energy terminal for the storage and handling
of sustainable products and fuels.
On
May 30, 2022, we entered into a Stock Purchase Agreement (the “Purchase Agreement”) with Evolution Terminals B.V., a Dutch
corporation (“ETBV”) pursuant to which we acquired ETBV (the “Acquisition”) from an
investment firm of which our CEO is principal for a purchase price of $3,500,000 and 1,500,000
shares of our common stock. ETBV is the owner of a 14 hectare port development project for the storage and distribution of low carbon
and renewable fuels, including hydrogen carriers such as ammonia, methanol and liquid organics, located in Vlissingen (Flushing) at the
mouth of the Westerschelde estuary in the Netherlands. The Acquisition closed on May 31, 2022. The transaction was considered and approved
by a committee comprised of our independent directors. As a result, the combination of the Company and ETBV is considered an asset combination
under common control and has been accounted for in a manner similar to a pooling-of-interests.
The
asset had capitalized project development costs of $1,554,952, which consisted of financial models, environmental impact assessments,
layout drawings, terminal operation simulations, and other various permitting reports and storage designs. These capitalized project
development costs were determined to be In-Process-Research-and-Development (“IPRD). In-Process-Research-and-Development can only
be capitalized under GAAP once project viability has been achieved. Since the acquisition was related party, the accounting should be
acknowledged at predecessor cost and not historical cost. Predecessor cost is what the predecessor owner had recorded, and per the explanation
above, all the amounts are expensed. The total purchase price consideration was expensed in the three and nine months ended September
30, 2022 consisted of $3,500,000 in acquisition costs, $7,620,000 in issuance of stock offset by $57,945 in assets acquired.