Hydrogen Future Corp - FORM 10-Q

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EXCEL - IDEA: XBRL DOCUMENT - Hydrogen Future Corp	Financial_Report.xls
EX-31.1 - CERTIFICATION - Hydrogen Future Corp	hfco_ex311.htm
EX-32.2 - CERTIFICATION - Hydrogen Future Corp	hfco_ex322.htm
EX-32.1 - CERTIFICATION - Hydrogen Future Corp	hfco_ex321.htm
EX-31.2 - CERTIFICATION - Hydrogen Future Corp	hfco_ex312.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended: March 31, 2014

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

Commission File Number: 333-138927

HYDROGEN FUTURE CORP.

(Exact Name of registrant as specified in its charter)

Nevada	20-5277531
(State or other Jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification Number)

2525 Robinhood Street, Suite 1100

Houston, TX 77005

(Address of principal executive offices)

(713) 465-1001

(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 Exchange Act 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 þ 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 þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act:

Large Accelerated Filer	¨	Accelerated Filer	¨

Non-Accelerated Filer	¨	Smaller Reporting Company	þ

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

As of May 15, 2014, there were 332,282,430 shares outstanding of the registrant’s common stock.

TABLE OF CONTENTS

	Page
PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.	3

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.	21

Item 3. Quantitative and Qualitative disclosures about Market Risk.	30

Item 4. Controls and Procedures.	30

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.	31

Item 1A. Risk Factors.	31

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.	31

Item 3. Defaults Upon Senior Securities.	31

Item 4. Mine Safety Disclosures.	31

Item 5. Other Information.	31

Item 6. Exhibits.	31

Signatures	32

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Hydrogen Future Corp.

(A Development Stage Company)

Balance Sheets

	March 31,			September 30,
	2014			2013
	(Unaudited)
Assets

Current assets
Cash	$	29,157		$	(0	)
Other receivables		3,194			3,194
Total current assets		32,351			3,194

Property and equipment - net		182,501			199,567
Debt issue costs - net		8,828			15,983

Total assets	$	223,680		$	218,744

Liabilities and Stockholders' (Deficit)

Current Liabilities
Accounts payable and accrued liabilities	$	122,610		$	122,610
Accounts payable - related party		415,719			415,719
Accrued interest payable		104,465			74,247
Notes/Advances payable - related party		27,173			27,173
Common stock to be issued		41,750			-
Derivative liability		198,467			1,337,315
Convertible debt - net		755,895			591,738
Total current liabilities		1,666,079			2,568,801

Stockholders' (Deficit)
Preferred stock, $0.001 par value, 200,000,000 shares authorized; 100,000,000 issued and outstanding		100,000			100,000
Common stock, $0.001 par value, 10,000,000,000 shares authorized; 255,178,013 and 200,000 issued and outstanding at march 31, 2014 aned June 30, 2013, respectively		255,178			200
Additional paid-in capital		10,082,033			2,709,377
Deficit accumulated during the development stage		(11,880,115	)		(5,160,139	)
Accumulated other comprehensive income		505			505
Total stockholders' (deficit)		(1,442,399	)		(2,350,057	)

Total liabilities and stockholders' (deficit)	$	223,679		$	218,744

Hydrogen Future Corp.

(A Development Stage Company)

Statements of Operations

(Unaudited)

	Three Months Ended March 31
	2014			2013

Expenses
General and Administrative Expenses	$	5,349,454		$	12,015
Impairment of software		-			-
Total		5,349,454			12,015

Other Income/(Expense)
Interest expense		(176,507	)		(102,074	)
Derivative expense		(1,067,424	)		-
Change in fair value of derivative liability		917,897			(1,182,780	)
Loss on Retirement of Debt		(1,825,104	)		(202,360	)
Total Other (Expense) - net		(2,151,139	)		(1,487,214	)

Net Income (Loss)	$	(7,500,593	)	$	(1,499,229	)

Net loss per common share - basic	$	(0.07	)	$	(12.33	)

Net loss per common share - diluted	$	(0.04	)	$	(12.33	)

Weighted average number of common shares outstanding
during the period/year - basic		102,394,546			121,558

Weighted average number of common shares outstanding
during the period/year - diluted		202,394,546			121,558

Hydrogen Future Corp.

(A Development Stage Company)

Statements of Cash Flows

(Unaudited)

	Six Months Ended March 31,						June 21, 2006 (Inception) to March 31,
	2013			2012			2014

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(6,719,976	)	$	694,279		$	(12,660,733	)
Adjustments to reconcile net loss
to net cash provided by (used in) operating activities:
Share based payments		5,255,000			30,000			5,907,549
Impairment of Software								1,035,027
Derivative expense		2,119,601			144,581			3,687,492
Depreciation		17,066			34,130			452,148
Amortization of debt issue cost		7,156			9,886			42,073
Amortization of debt discount		225,023			169,512			659,326
Amortization of Original Issue Discount		17,250						17,366
Change in fair value of derivative liabilities		(3,258,449	)		(1,386,527	)		(4,002,623	)
Accrued interest on Retired debt								779
Legal fees on debt conversions		9,375						9,375
Common stock to be issued								-
Accrued interest on Retired debt		7,526
Loss on Retirement of Debt		1,999,367						2,201,727

Changes in operating assets and liabilities:
(Increase) decrease in other receivables		-			77,321			(3,194	)
Increase (decrease) in accounts payable and accrued expense		-			(18,054	)		122,610
Increase in accounts payable - related party					133,249			415,719
Increase in accrued interest		30,218			26,624			104,465
Net cash provided by (used in) operating activities		(290,843	)		(85,000	)		(2,010,895	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		-						(288,799	)
Net cash used in investing activities		-			-			(288,799	)


CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from related party notes/advances		-						31,586
Proceeds from convertible notes payable		170,000			40,303			538,803
Notes Issued for Professional services		150,000			53,727			418,727
Repayment of related party notes/advances		-						(968	)
Cash paid as debt offering costs		-						(24,000	)
Proceeds from issuance of common stock		-						579,500
Net cash provided by financing activities		320,000			94,030			1,543,648

Net (Decrease) in Cash		29,157			9,030			(756,046	)
Effect of Exchange Rates on Cash					(9,096	)		(2,941	)

Cash - Beginning of Period/Year		(0	)		854			-

Cash - End of Period/Year	$	29,157		$	788		$	(758,987	)

SUPPLEMENTARY CASH FLOW INFORMATION:
Cash paid during the period/year for:
Interest	$	-		$	-		$	-
Income Taxes	$	-		$	-		$	-


SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

Debt converted to common shares	$	389,618		$	-		$	501,108
Common stock issued to acquire software	$	-		$	-		$	1,380,876
Preferred stock issued to officers	$	310,000					$	310,000
Debt discount recorded on convertible debt accounted for as a derivative liability	$	320,000		$	300,000		$	620,000
Debt discount recorded on convertible debt accounted for as a derivative liability - original issue discount				$	27,122		$	27,122
Debt issue costs - warrants	$	-		$	26,901		$	26,901

Hydrogen Future Corp.

(A Development Stage Company)

Notes to Financial Statements

March 31, 2014

(Unaudited)

Note 1 Basis of Presentation

The accompanying unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the United States Securities and Exchange Commission for interim financial information.

The financial information as of September 30, 2013 is derived from the audited financial statements presented in the Company’s Annual Report on Form 10-K for the years ended September 30, 2013 and 2012. The unaudited interim financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K, which contains the audited financial statements and notes thereto, together with the Management’s Discussion and Analysis, for the years ended September 30, 2013 and 2012.

Certain information or footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted, pursuant to the rules and regulations of the Securities and Exchange Commission for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows. It is management's opinion, however, that all material adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair financial statement presentation. The interim results for the three months ended March 31, 2014 are not necessarily indicative of results for the full fiscal year.

Note 2 Nature of Operations and Summary of Significant Accounting Policies

Nature of Operations

HYDROGEN FUTURE CORP., (the “Company” or “HFCO”) was incorporated in the State of Nevada on June 21, 2006. The Company was originally incorporated as El Palenque Nercery, Inc. and changed its name to El Palenque Vivero, Inc. on March 31, 2006. On March 23, 2010, it further changed its name to A5 Laboratories Inc. On October 10, 2013, we changed our name to Hydrogen Future Corporation. On December 27, 2013, our stock trading symbol was changed from AFLB.OB to HFCO.OB. Our business offices are located at 2525 Robinhood Street, Suite 1100, Houston TX and our telephone number is (713) 465-1001.

The Company intends to provide contract research and laboratory services to the pharmaceutical industry. To date, the activities of the Company have been limited to raising capital.

On April 28, 2014, the Company filed a form 8-K with the Securities and Exchange Commission. The 8-K referenced above, among other recent developments disclosed the following:

● On April 21, 2014, Hydrogen Future Corporation completed the acquisition of Hydra Fuel Cell Corporation (“Hydra”) from American Security Resources Corporation (Pink Sheets: ARSC). Hydra has developed advanced hydrogen fuel cell technology which it initially intends to deploy as residential and small commercial grid replacement for electric generation.

● Under the agreement to acquire Hydra, the Company acquired 100% of the common stock of Hydra in exchange for a convertible preferred share issued to ARSC. The preferred share is convertible into an amount equal to 100.2% of the then outstanding common stock of the Company at the time of conversion, which is at the sole discretion of ARSC. This gives ARSC an effective 50.1% equity interest in the Company.

● Although an all stock transaction, HFCO was required to have secured sufficient funding commitments to fund Hydra’s production startup before it could close the acquisition. Such commitments were completed just recently.

● Frank Neukomm, HFCO’s Chief Executive Officer and Chairman of the Board, and Robert Farr, HFCO’s President, Chief Operations Officer and Director of HFCO are also officers and directors of ARSC.

Hydrogen Future Corp.

(A Development Stage Company)

Notes to Financial Statements

March 31, 2014

(Unaudited)

We strongly recommend that you read these financial statements in conjunction with the April 28 8-K for a fuller understanding of the Company’s new direction.

The Company’s fiscal year end is September 30.

Development Stage

The Company's financial statements are presented as those of a development stage enterprise. Activities during the development stage primarily include equity based financing and further implementation of the business plan.

Risks and Uncertainties

The Company intends to operate in an industry that is subject to rapid change. The Company’s operations will be subject to significant risk and uncertainties including financial, operational, technological, regulatory and other risks, including the potential risk of business failure.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Such estimates for the periods ended March 31, 2014 and 2013, and assumptions affect, among others, the following:

●	estimated carrying value, useful lives and impairment of property and equipment;

●	estimated fair value of derivative liabilities;

●	estimated valuation allowance for deferred tax assets; and

●	estimated fair value of share based payments

Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from estimates.

Cash and Cash Equivalents

The Company considers highly liquid financial instruments purchased with a maturity of three months or less to be cash equivalents. At March 31, 2014 and September 30, 2013, the Company had no cash equivalents.

At March 31, 2014, the Company had $29.157 in cash.

The Company minimizes its credit risk associated with cash by periodically evaluating the credit quality of its primary financial institution. The balance at times may exceed federally insured limits. At March 31, 2014 and September 30, 2013, there were no balances that exceeded the federally insured limit.

Property and Equipment

Property and equipment (including related party purchases) is stated at cost, less accumulated depreciation computed on a straight-line basis over the estimated useful lives. Maintenance and repairs are charged to operations when incurred. Betterments and renewals are capitalized when deemed material. When property and equipment are sold or otherwise disposed of, the asset account and related accumulated depreciation account are relieved, and any gain or loss is included in operations.

Hydrogen Future Corp.

(A Development Stage Company)

Notes to Financial Statements

March 31, 2014

(Unaudited)

Property and equipment is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company recognized an impairment of $1,035,027 during the year ended September 30, 2011. See Note 6.

Beneficial Conversion Feature

For conventional convertible debt where the rate of conversion is below market value, the Company records a “beneficial conversion feature” (“BCF”) and related debt discount.

When the Company records a BCF, the relative fair value of the BCF would be recorded as a debt discount against the face amount of the respective debt instrument. The discount would be amortized to interest expense over the life of the debt.

Derivative Liabilities

Fair value accounting requires bifurcation of embedded derivative instruments such as conversion features in convertible debt or equity instruments, and measurement of their fair value for accounting purposes. In determining the appropriate fair value, the Company uses the Black-Scholes option-pricing model. In assessing the convertible debt instruments, management determines if the convertible debt host instrument is conventional convertible debt and further if there is a beneficial conversion feature requiring measurement. If the instrument is not considered conventional convertible debt, the Company will continue its evaluation process of these instruments as derivative financial instruments.

Once determined, derivative liabilities are adjusted to reflect fair value at each reporting period end, with any increase or decrease in the fair value being recorded in results of operations as an adjustment to fair value of derivatives. In addition, the fair value of freestanding derivative instruments such as warrants, are also valued using the Black-Scholes option-pricing model.

Debt Issue Costs and Debt Discount

The Company paid debt issue costs, and recorded debt discounts in connection with raising funds through the issuance of convertible debt. These costs are amortized over the life of the debt to interest expense. When a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately expensed.

Original Issue Discount

For certain convertible debt issued, the Company provides the debt holder with an original issue discount (“OID”). An OID is the difference between the original cash proceeds and the amount of the note upon maturity. The Note is originally recorded for the proceeds received. The OID is expensed into interest expense pro-rata over the term of the Note, and upon maturity, the Note shall equal the proceeds due.

Share-Based Payments

Generally, all forms of share-based payments, including stock option grants, warrants, restricted stock grants and stock appreciation rights are measured at their fair value on the awards’ grant date, based on estimated number of awards that are ultimately expected to vest. Share-based payment awards issued to non-employees for services rendered are recorded at either the fair value of the services rendered or the fair value of the share-based payment, whichever is more readily determinable. The expense resulting from share-based payments are recorded as a component of general and administrative expense.

Hydrogen Future Corp.

(A Development Stage Company)

Notes to Financial Statements

March 31, 2014

(Unaudited)

Earnings per Share

Basic earnings (loss) per share is computed by dividing net income (loss) by weighted average number of shares of common stock outstanding during each period. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period.

Prior to the issuance of the Company’s Preferred Stock during the calendar year ending September 30, 2013, the Company did not have any dilutive securities. As such, a separate computation of diluted earnings (loss) per share was not presented. Commencing with the issuance of the Preferred Stock, the Company now has dilutive securities, and a separate computation of diluted earnings (loss) per share is now presented.

The Company had the following potential common stock equivalents at March 31, 2014 and September 30, 2013:

	March 31, 2014		September 30, 2013

Warrants (1)		14,989		14,989
Convertible debt (1)		270,376,629		212,611
Total common stock equivalents (2)		270,391,618		227,600

(1)

The potential shares for which these instruments can convert into common stock currently exceed the Company’s authorized shares for common stock. The Company has identified a debt and warrant holder who cannot exceed ownership in the Company by 9.99%. The investor is limited to 225,178 shares on a fully diluted basis, which is the Company’s maximum exposure at the balance sheet date.

(2)	There are other warrant holders included in total warrants besides those described in note (1) above.

Fair Value of Financial Instruments

The carrying amounts of the Company’s short-term financial instruments, other receivables, accounts payable and accrued liabilities, approximate fair value due to the relatively short period to maturity for these instruments.

Foreign Currency Transactions

The Company’s functional currency is the Canadian Dollar. The Company’s reporting currency is the U.S. Dollar. All transactions initiated in Canadian Dollars are translated to U.S. Dollars in accordance with ASC 830-10-20 “Foreign Currency Translation” as follows:

(i)	Monetary assets and liabilities at the rate of exchange in effect at the balance sheet date;

(ii)	Equity at historical rates; and

(iii)

Revenue and expense items at the average exchange rate prevailing during the period.

Adjustments arising from such translations are deferred until realization and are included as a separate component of stockholders’ equity (deficit) as a component of comprehensive income (loss). Therefore, translation adjustments are not included in determining net income (loss) but reported as other comprehensive income (loss).

For foreign currency transactions, the Company translates these amounts to the Company’s functional currency at the exchange rate effective on the invoice date. If the exchange rate changes between the time of purchase and the time actual payment is made, a foreign exchange transaction gain or loss results which is included in determining net income for the period.

Hydrogen Future Corp.

(A Development Stage Company)

Notes to Financial Statements

March 31, 2014

(Unaudited)

Comprehensive Income (Loss)

Comprehensive income or loss is comprised of net earnings or loss and other comprehensive income or loss, which includes certain changes in equity, excluded from net earnings, primarily foreign currency translation adjustments.

Foreign Country Risks

The Company may be exposed to certain risks as its operations are being conducted in Canada. The Company’s results may be adversely affected by change in the political and social conditions in Canada due to governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversions and remittances abroad, and rates and methods of taxation, among other things. The Company does not believe these risks to be significant, and no such losses have occurred in the current or prior periods because of these factors. However, there can be no assurance those changes in political and other conditions will not result in any adverse impact in future periods.

Recent Accounting Pronouncements

In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The guidance in ASU 2011-04 changes the wording used to describe the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements, including clarification of the FASB's intent about the application of existing fair value and disclosure requirements and changing a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. The amendments in this ASU should be applied prospectively and are effective for interim and annual periods beginning after December 15, 2011. Early adoption by public entities is not permitted. The adoption of this guidance is not expected to have a material impact on the Company’s financial position or results of operations.

In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. The guidance in ASU 2011-05 applies to both annual and interim financial statements and eliminates the option for reporting entities to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. This ASU also requires consecutive presentation of the statement of net income and other comprehensive income. Finally, this ASU requires an entity to present reclassification adjustments on the face of the financial statements from other comprehensive income to net income. The amendments in this ASU should be applied retrospectively and are effective for fiscal year, and interim periods within those years, beginning after December 15, 2011. The Company has adopted this guidance in these financial statements.

Note 3 Going Concern

As reflected in the accompanying financial statements, the Company had a net loss of $6,719,976 for the six months ended March 31, 2014, and utilized $290,843 in cash for operations. The Company also has a working capital deficit of $1,633,728 and a deficit accumulated during the development stage of $11,880,115 at March 31, 2014. In addition, the Company is in the development stage and has not yet generated any revenues. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

The ability of the Company to continue its operations is dependent on Management's plans, which include potential asset acquisitions, mergers or business combinations with other entities, further implementation of its business plan and continuing to raise funds through debt or equity raises. The Company will likely rely upon equity financing in order to ensure the continuing existence of the business.

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.

Hydrogen Future Corp.

(A Development Stage Company)

Notes to Financial Statements

March 31, 2014

(Unaudited)

Note 4 Fair Value of Financial Assets and Liabilities

The Company measures assets and liabilities at fair value based on an expected exit price as defined by the authoritative guidance on fair value measurements, which represents the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level.

The following are the hierarchical levels of inputs to measure fair value:

●	Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

●

Level 2: Inputs reflect: quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

●	Level 3: Unobservable inputs reflecting the Company’s assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.

At March 31, 2013, the fair value of financial instruments measured on a recurring basis includes derivative liabilities, determined based on level two inputs consisting of quoted prices in active markets for identical assets. The carrying amount reported for accounts payable, accrued liabilities, and notes payable approximates fair value because of the short-term maturity of these financial instruments.

The Company has a derivative liability measured at fair market value on a recurring basis. Consequently, the Company had changes in fair value reported in the statements of operations, which were attributable to the change in market value relating to the liability for the three months ended March 31, 2012.

The following is the Company’s derivative liability measured at fair value on a recurring basis at:

	March 31, 2013		September 30, 2013
Level 1	$	-	$	-
Level 2 – Derivative Liability		198,467		1,337,315
Level 3		-		-
Total	$	198,467	$	1,337,315

Note 5 Other Receivables

As of March 31, 2014 and September 30, 2013, the Company had receivables of $3,194. The receivable was for amounts funded to a company controlled by our Chief Executive Officer.

Hydrogen Future Corp.

(A Development Stage Company)

Notes to Financial Statements

March 31, 2014

(Unaudited)

Note 6 Property and Equipment

Property and equipment consists of the following:


	March 31, 2014			September 30, 2013			Estimated Useful Lives

Software	$	-		$	1,380,876			3
Leasehold improvements (1)		144,802			144,802			10
Lab equipment (2)		106,062			106,705			10
Office equipment		37,336			37,336			5
		288,843			1,669,719

Less: Accumulated depreciation		(106,342	)		(435,125	)
Less: Impairment		-			(1,035,027	)
Property and equipment – net	$	182,501		$	199,567

(1) See Note 8(B) – related party

(2) See below related to related party purchases

During the year ended September 30, 2011, management evaluated the recoverability of long lived assets by determining whether the carrying value can be recovered through future cash flows. Management determined that it is more likely than not that no future cash flows are to be expected from the use of its software. Due to these circumstances, the remaining book value of the asset in the amount of $1,035,027 was fully impaired and is included in the statements of operations for the year ended September 30, 2011.

The leasehold improvements were completed and placed into service in July 2011.

The Company purchased $104,122 of lab equipment from an entity controlled by the Company’s former Chief Executive Officer during fiscal years ended 2010 and 2011 as follows:

2010	$	79,765
2011		24,357
	$	104,122

See Note 8 for software acquired from a related party.

Note 7 Notes Payable

(A) Related Party

The following is a summary of the Company’s related party liabilities:

	March 31, 2013			September 30, 2013
Notes payable (1)	$	20,915		$	20,915
Advances (2)		7,226			7,226
Less: payments		(968	)		(968	)
Total related party liabilities	$	27,173		$	27,173

(1) The note is non-interest bearing, unsecured, and due on demand.

(2) The advances are non-interest bearing, unsecured, and due on demand.

Hydrogen Future Corp.

(A Development Stage Company)

Notes to Financial Statements

March 31, 2014

(Unaudited)

(B) Convertible Debt – Secured – Derivative Liabilities

Fife Note

On February 15, 2011, the Company issued convertible notes, totaling $300,000, to John Fife with the following provisions:

●	Interest rate 6%;

●	Default interest rate of 12%;

●	Notes are due 48 months from the issuance date of February 23, 2011;

●

Conversion rates equal to 70% or 80% of the market price on date of conversion by applying a specified formula that utilizes the average of the 3 lowest quoted closing prices 20 days immediately preceding the conversion date, and then takes the higher of the average 3 lowest closing prices or $0.12 floor price; and

●	Secured by the Chief Executive Officer’s 15,000,000 shares of the Company common stock.

The investor is entitled at its option to convert all or part of the principal and accrued interest into shares of the Company’s common stock at a conversion price as discussed above. The Company classified the embedded conversion feature as a derivative liability due to management’s assessment that the Company may not have sufficient authorized number of shares of common stock required to net-share settle.

On February 23, 2011, the Company entered into a secured convertible promissory note between the Company and a third party (the “Lender”). The note balance totaled $300,000. The Lender expects to contribute funds in tranches, the first tranche being equal to $300,000, and an additional ten tranches equal to $200,000 each commencing on October 23, 2011, and continuing each subsequent month for ten months. No additional draw downs occurred during the year ended September 30, 2011. In January 2012, the Company received $22,000 from a lender for an additional investment, under the same terms above, which is convertible to shares pursuant to the terms described below. See Note 9(A) related to conversions of this $300,000 note.

The number of shares of common stock to be issued upon conversion of each tranche shall be determined by dividing (a) the conversion amount by (b) the higher of (i) the Market Price or (ii) the Floor Price. Where “Market Price” is defined as 80% of the average of the closing bid price for the three (3) days with the lowest closing bids during the twenty trading days immediately preceding the conversion date, provided, however, that if the market prices fall below $0.05 per share of common stock the conversion factor shall be reduced by 10 percentage points. The “Floor Price” is defined as $.012. The trading data used to compute the closing bid shall be as reported by Bloomberg, LP or if such information is not then being reported by Bloomberg, then as reported by such other data information sources as may be selected by the Lender.

The note also contains language that removes the $0.12 floor if certain “triggering events” occur during the life of the note. Since the floor price can be removed upon any one of these events occurring, the conversion feature of this note has two elements: normal conversion and conversion upon a triggering event.

Upon each occurrence of any of the following triggering events , (a) the conversion factor shall be reduced by 10 percent points (i.e., if the conversion factor were 80% immediately prior to the occurrence of the triggering event, it shall be reduced to 70% upon the occurrence of a triggering event), (b) the conversion price shall be computed without regard to the Floor Price, and (c) this note shall accrue interest at the rate of 1% per month, whether before or after judgment; provided, however, that (1) in no event shall the triggering effects be applied more than two times, and (2) notwithstanding any provisions to the contrary herein, in no event shall the applicable interest rate at any time exceed the maximum interest rate allowed under applicable law:

On October 4, 2012, Mr. Fife foreclosed on his note to us because we were in default. According to the terms of the indenture, Mr. Fife was issued 15 million shares to forestall on his claim against the firm. At the time, the common stock of the Company was trading at $.0039. Therefore, a corresponding expense of $58,500 was recorded at that time and included in General and Administrative Expense.

As of March 31, 2014, as a result of the triggering events (a) and (b), the Company computes the exercise price related to convertible debt, without regard to the floor price.

The normal conversion resulted in a debt discount under ASC 470-25-8 since the calculated market price as of the date of the note was higher ($0.145) than the conversion floor of $0.12.

At the balance sheet date, $115,450 of the debt has been converted leaving a principal balance of $184,550.

Hydrogen Future Corp.

(A Development Stage Company)

Notes to Financial Statements

March 31, 2014

(Unaudited)

Lucosky Brookman LLP Note

Effective on January 10, 2012, the Company issued to Lucosky Brookman LLP (“Lucosky”) a convertible promissory note ( the “Lucosky Note”) for legal services provided since February 1, 2011 of $53,727. The Lucosky Note bears interest at twelve percent (12%) per annum and has a term of six months. Should the Lucosky Note not be paid by the Maturity Date, an event of Default occurs and the interest rate becomes eighteen percent (18%) per annum. Shares of Common Stock to be issued upon conversion of each tranche shall be determined by dividing (a) the conversion amount by (b) the Market Price. The “Market Price” is defined as 50% of the average of the closing price for the five (5) days immediately preceding the conversion date.

During the quarter ended March 31, 2014, the remaining blance of the Lucosky note was converted, and no principal balance remains

Consulting Notes

Starting in Fiscal 2013, the Company incurred a liability to a consultant for $165,000. $165,000 of the Notes bear interest at twelve percent (12%) per annum and matures on June 30, 2014. Shares of Common Stock to be issued upon conversion of each tranche shall be determined by dividing (a) the conversion amount by (b) the Market Price. The “Market Price” is defined as 50% of the low closing bid price for the five (5) days immediately preceding the conversion date.

As of the Balance sheet date, $118,203 of principal on this note has been converted into common shares, leaving a remaining balance of $46,797.

The Company signed a new consulting agreement in August 2013 at a rate of $25,000 per month. Since that time, the Company issued notes totaling $200,000 to the consultant. Shares of Common Stock to be issued upon conversion of each tranche shall be determined by dividing (a) the conversion amount by (b) the Market Price. The “Market Price” is defined as 50% of the low closing bid price for the thirty (30) days immediately preceding the conversion date. As of the Balance sheet date, $39,400 of principal has been converted leaving a balance of $160,600

St. George Notes

On August 27, 2013, St. George Investments LLC (“St. George”) advanced the Company $12,500 (“St. George Note”). The St. George Note has a one year term, an interest rate of ten percent and a ten percent original issue discount (“OID”). An OID represents the difference between the amount received and the face value of the note. The St. George Note has a face value of $13,750, and the OID will be amortized into expense pro-rata over the term of the Note. Shares of Common Stock to be issued upon conversion of each tranche shall be determined by dividing (a) the conversion amount by (b) the Market Price. The “Market Price” is defined as 60% of the average of the two (2) low closing bid prices for the ten (10) days immediately preceding the conversion date. The full principal balance is outstanding.

On October 10, 2013, St. George Investments LLC (“St. George”) advanced the Company $15,000 (“St. George Note”). The St. George Note has a one year term, an interest rate of ten percent and a ten percent original issue discount (“OID”). An OID represents the difference between the amount received and the face value of the note. The St. George Note has a face value of $13,750, and the OID will be amortized into expense pro-rata over the term of the Note. Shares of Common Stock to be issued upon conversion of each tranche shall be determined by dividing (a) the conversion amount by (b) the Market Price. The “Market Price” is defined as 60% of the average of the two (2) low closing bid prices for the ten (10) days immediately preceding the conversion date. The full principal balance is outstanding.

On November 19, 2013, St. George Investments LLC (“St. George”) advanced the Company $10,000 (“St. George Note”). The St. George Note has a one year term, an interest rate of ten percent and a ten percent original issue discount (“OID”). An OID represents the difference between the amount received and the face value of the note. The St. George Note has a face value of $13,750, and the OID will be amortized into expense pro-rata over the term of the Note. Shares of Common Stock to be issued upon conversion of each tranche shall be determined by dividing (a) the conversion amount by (b) the Market Price. The “Market Price” is defined as 60% of the average of the two (2) low closing bid prices for the ten (10) days immediately preceding the conversion date. The full principal balance is outstanding.

Hydrogen Future Corp.

(A Development Stage Company)

Notes to Financial Statements

March 31, 2014

(Unaudited)

Other Notes

The Company has received another $186,000 in proceeds from multiple investors. Interest on the notes varies from 0% to ten percent. Shares of Common Stock to be issued upon conversion of each tranche shall be determined by dividing (a) the conversion amount by (b) the Market Price.

Market price is defined as follows:

Debt Amount	Discount	Conversion Mechanism
$20,000	51%	low trade price over prior 30 days

$25,000	60%	low trade price over prior 25 days

$141,000	50%	low bid price over prior 30 days

In connection with the issuance of the $300,000 note discussed above, the Company incurred debt issue costs as follows:

●	8% cash – which is equivalent to $24,000, and

●	8% warrants – having a fair value of $26,901, which was computed as follows;

	Commitment Date
Expected dividends	0%
Expected volatility	180%
Expected term: conversion feature	2 years
Risk free interest rate	1.73%

In January 2012, we raised an additional $22,000 as discussed above, and the Company incurred debt issue costs as follows:

●	8% cash – which is equivalent to $1,760, and

●	8% warrants – having a fair value of $154, which was computed as follows;

	Commitment Date
Expected dividends	0%
Expected volatility	364%
Expected term: conversion feature	2 years
Risk free interest rate	0.65%

The debt issue costs have been capitalized and are being amortized over the life of the note.

Debt issue costs paid, September 30, 2011	$	50,901
Amortization of debt issue costs, September 30, 2011		(11,833	)
Amortization of debt issue costs, September 30, 2012		(9,833	)
Amortization of debt issue costs, September 30, 2013		(13,199	)
Amortization of debt issue costs, March 31, 2014		(7,156	)
Debt issue costs - net	$	8,828

Hydrogen Future Corp.

(A Development Stage Company)

Notes to Financial Statements

March 31, 2014

(Unaudited)

(D)	Debt Discount

During the six months ended March 31, 2014 and 2013 , the company recorded debt discounts of $320,000 and $300,000 respectively

The debt discount recorded in the current quarter pertains to convertible debt containing embedded conversion options that are required to bifurcated and reported at fair value.

During the six months ended March 31, 2013, the Company amortized $225,023 in debt discount.

Note 8- Liability for Common Stock to be Issued

On March 28, 2014, a debt conversion for 8,350,000 shares was filed. The shares were not issued until subsequent to the balance sheet. The price of the stock on that date was $.05, resulting in a liability of $41,750. The shares were issued in April, and the liability was extinguished.

Note 9 Stockholders’ Equity (Deficit)

(A) Common Stock

Stock Issued in 2014

During the six months ended March 31, 2014, the Company issued 154,287,985 shares for the conversion of shares of common stock.

On January 27, 2014 the Company issued 100,000,000 shares of common stock to its management team for compensation in lieu of cash.

Stock Issued in 2013

On February 19, 2013, the Company issued 5,954, 252 shares for the conversion of $15,000 of debt plus accrued interest.

On March 31, 2012, the Company issued 15,000,000 shares of common stock to John Fife for the default on his Note. See Footnote 6

The Company issued 32,061,360 shares for compensation to Directors and Officers

Stock issued in 2012

On October 2, 2011, a lender converted $50,000 pertaining to a note it held with an original principal of $300,000, for 3,000,000 shares of common stock ($0.0166667/share). The quantity of shares issued is based upon the formula described above pertaining to the effect of the triggering event (see Note 7(B)).

Hydrogen Future Corp.

(A Development Stage Company)

Notes to Financial Statements

March 31, 2014

(Unaudited)

On January 3, 2012, the Company issued 2,307,692 shares of common stock for $30,000 ($0.013/share) for services rendered.

On March 4, 2012, a lender converted $21,494 pertaining to a note it held with an original principal of $300,000, for 3,800,000 shares of common stock ($0.00566/share). The quantity of shares issued is based upon the formula described above pertaining to the effect of the triggering event (see Note 7(B)).

Stock issued 2011

During November and December 2010, the Company issued 312,500 shares of common stock for $100,000 ($0.32/share).

On June 14, 2011, the Company issued 75,000 shares of common stock for $15,000 ($0.20/share).

On September 2, 2011, a lender converted $24,990 pertaining to a note it held with an original principal of $300,000, for 1,120,000 shares of common stock ($0.022313/share). The quantity of shares issued is based upon the formula described above pertaining to the effect of the triggering event (see Note 7(B)).

Stock issued in 2010

On March 9, 2010, the Company’s board of directors authorized a 10-for-1 forward split of its common stock effective April 8, 2010. Each stockholder of record on April 7, 2010 received ten new shares of the Company’s $0.001 par value common stock for every one old share outstanding. The effects of the split have been retroactively applied to all periods presented in the accompanying financial statements.

On June 3, 2010, the Company issued 250,000 shares of common stock for $162,500 ($0.65/share).

On July 20, 2010, the Company issued 1,569,177 shares of common stock, having a fair value of $1,380,876 ($0.88/share), based upon the closing trading price, to acquire software from an affiliate of the Company’s Chief Executive Officer.

On July 30, 2010, the Company issued 125,000 shares of common stock for $100,000 ($0.80/share). In addition, the stockholder received a 2-year warrant for 125,000 shares with an exercise price of $1.20.

On August 18, 2010, the Company issued 125,000 shares of common stock for $100,000 ($0.80/share). In addition, the stockholder received a 2-year warrant for 125,000 shares with an exercise price of $1.20.

On August 23, 2010, the Company issued 20,000 shares of common stock to a consultant, having a fair value of $16,000 ($0.80/share), based upon the closing trading price. At September 30, 2010, the Company expensed this stock issuance as a component of general and administrative expense.

On September 17, 2010, the Company issued 150,000 shares of common stock to a consultant, having a fair value of $135,000 ($0.90/share), based upon the closing trading price. At September 30, 2010, the Company expensed this stock issuance as a component of general and administrative expense.

Stock issued in 2007

During 2007, the Company issued 20,500,000 shares of common stock for $82,000 ($0.004/share).

Hydrogen Future Corp.

(A Development Stage Company)

Notes to Financial Statements

March 31, 2014

(Unaudited)

Stock Issued in 2006

On June 21, 2006 (Inception), the Company issued 10,000,000 shares of common stock for $5,000 ($0.0005/share) to directors and officers of the Company.

On August 1, 2006, the Company issued 15,000,000 shares of common stock for $15,000 ($0.0001/share) to directors and officers of the Company.

(B) Stock Warrants

All warrants issued by the Company have expired or were cancelled except for those issued to John Fife, which are discussed in Note 7 (B). After adjustment for the split, Mr. Fife owned 14,989 warrants which are convertible at $100 per share. These warrants expire on February 15, 2015 and have a derivative liability associated with them of $42.

On September 5, 2013, the Company held a special meeting of shareholders (the “Meeting.”). At the Meeting, shareholders approved that the aggregate number of shares that the Corporation will have the authority to issue is Ten Billion Two hundrerd million (10,200,000,000), of which Ten Billion (10,000,00,000) shall be common stock, with a $.001 par value, and Two hundred million (200,000,000) shares will be preferred stock, with a par value of $.001. Prior to the Meeting, the Company was authorized to issue up to Two hundred million (200,000,000) shares, of which One hundred million (100,00,000) shall be common stock, with a $.001 par value, and One hundred million (100,000,000) shares will be preferred stock with a par value of $.001

(D) Preferred Stock

On June 21, 2013 (“Grant Date”), the Company granted One hundred million (100,000,000) shares of Series A Preferred stock (the “Series A”), with a par value of $.001. Fifty million (50,000,000) of the Series A were issued to Frank Neukomm, its Chief Executive Officer, and Robert Farr, its Chief Operating Officer. The shares are convertible into common stock on a 1:1 basis and do not carry any dividend. On the Grant Date, the price of the company’s common stock was $.0031. As such, the Company recorded $310,000 of compensation expense under General and Administrative Expenses.

Note 10 Commitments and Contingencies

(A) Contingencies

From time to time, the Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. The Company is currently not aware of any such legal proceedings or claims that they believe will have, individually or in the aggregate, a material adverse affect on its business, financial condition or operating results.

(B) Facility Lease – Related Party

The Company had subleased office space from a company controlled by the Company’s former Chief Executive. This lease has expired and the company no longer leases this space.

Rent expense for the Six months ended March 31, 2014 and 2013 was $-0-.

The Company had agreed to rent equipment from its former Chief Executive.

Rental equipment expense for the six months ended March 31, 2014 and 2013 was $-0- and $-0-, respectively.

Note 11 Derivative Liabilities

The Company identified conversion features embedded within convertible debt securities as defined in Note 7. The Company has determined that the features associated with the embedded conversion option should be accounted for at fair value as a derivative liability.

Hydrogen Future Corp.

(A Development Stage Company)

Notes to Financial Statements

March 31, 2014

(Unaudited)

As a result of the application of ASC No. 815, the fair value of the conversion feature is summarized as follows:

Derivative liability balance at September 30, 2013	$	1,337,315
Derivative liability Fair value at the commitment date for convertible notes issued
Fair value mark to market adjustment – March 31, 2014		2,119,601
Derivative liability associated with new issuances through March 31, 2012		(3,258,449	)

Derivative liability balance at March 31, 2014	$	198,467

The Company recorded the derivative liability to debt discount to the extent of the gross proceeds raised, and expensed immediately the remaining value of the derivative as it exceeded the gross proceeds of the note. The Company recorded a derivative expense of $1,067,424 and $2,119,601 for the three months and nine months ended March 31, 2014, respectively.

Note 12 Other Related Party Transactions

The Company accrues consulting and rental fees to its former Chief Executive Officer as follows:

Balance at September 30, 2013 and March 31, 2014

415,719

The consulting and rental fees are components of general and administrative expenses.

Note 13 Subsequent Events

The Company has evaluated events subsequent to the balance sheet date through the issuance date of these financial statements in accordance with FASB ASC 855 and has determined the following would require disclosure in, the financial statements;

Issuance of shares of Common stock and conversion of convertible debt

From the Balance Sheet date until the date of this report, the Company issued 77,104,417 shares of common stock.

64,529,792 shares of common stock were issued for the conversion of $111,440 of convertible debt, $703 of accrued interest and $925 in legal fees.

12,574,625 shares of common stock issued resulted from prior conversions.

Issuance of Convertible Debt

From the Balance Sheet date until the date of this report, the Company issued the following convertible debt securities

On April 7, 2014, the Company received $30,000 from an institutional investor. In consideration for the cash, the Company issued a convertible promissory note for the same amount. The promissory note has an eight percent interest rate, an eight month term and converts at the market price. The market price is defined as 51% of the low closing trade price for the thirty (30) days prior to conversion.

On April 14, 2014, the Company received $35,000 from an institutional investor. In consideration for the cash, the Company issued a convertible promissory note for the same amount. The promissory note has an eight percent interest rate, matures on January 31, 2015 and converts at the market price. The market price is defined as 50% of the low closing bid price for the thirty (30) days prior to conversion.

On May 6, 2014, the Company received $42,625 from an institutional investor. In consideration for the cash, the Company issued a convertible promissory note for $50,000. The promissory note has an eight percent interest rate, matures on April 30, 2015 and converts at the market price. The market price is defined as 55% of the low closing trade price for the ten (10) days prior to conversion. The difference between the convertible promissory note and the proceeds received shall be amortized into interest expense over the life of the promissory note

Hydrogen Future Corp.

(A Development Stage Company)

Notes to Financial Statements

March 31, 2014

(Unaudited)

Reverse Split of Shares

On March 31, 2013, the Company approved a one for five hundred (1:500) reverse split of the outstanding shares of the Company’s common stock. The Amendment to the Company’s Articles of Incorporation was filed on January 10, 2014, with the Secretary of state of Nevada. The reverse split became effective on January 27, 2014 Please see our form 8-K filed on January 24, 2014 for more detail.

Issuance of Shares

On January 27, 2014, the Company issued to Management one hundred million (100,000,000) shares of post-split common shares to Management. Please see our Form 8-K filed on January 28, for more detail.

Conversion of Debt

From the balance sheet date until the date of this report, the Company issued 77,104,387 shares of common stock for the conversion of about $100,000 in debt.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward Looking Statements

This quarterly report on Form 10-Q and other reports filed by the Company from time to time with the U.S. Securities and Exchange Commission (the “SEC”) contain or may contain forward-looking statements (collectively the “Filings”) and information that are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by Company’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the filings, the words “anticipate”, “believe”, “estimate”, “expect”, “future”, “intend”, “plan”, or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors, including the risks contained in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2013, filed with the SEC, relating to the Company’s industry, the Company’s operations and results of operations, and any businesses that the Company may acquire. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.

Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.

Plan of Operation

At the balance sheet date, Hydrogen Future Corporation was a development stage company concentrating on contract research and laboratory services.

New Business Opportunity

Based upon a review by the Board of Directors and Management, the Company has decided to enter a new line of business, fuel cell technology. In this regard, and subsequent to the Balance sheet, on April 21, 2014, Hydrogen Future Corporation completed the acquisition of Hydra Fuel Cell Corporation (“Hydra”) from American Security Resources Corporation (Pink Sheets: ARSC). Hydra has developed advanced hydrogen fuel cell technology which it initially intends to deploy as residential and small commercial grid replacement for electric generation.

Under the agreement to acquire Hydra, HFCO acquired 100% of the common stock of Hydra in exchange for a convertible preferred share issued to ARSC. The preferred share is convertible into an amount equal to 100.2% of the then outstanding common stock of HFCO at the time of conversion, which is at the sole discretion of ARSC. This gives ARSC an effective 50.1% equity interest in HFCO.

Although an all stock transaction, HFCO was required to have secured sufficient funding commitments to fund Hydra’s production startup before it could close the acquisition. Such commitments were completed just recently.

Frank Neukomm, HFCO’s Chief Executive Officer and Chairman of the Board, and Robert Farr, HFCO’s President, Chief Operations Officer and Director of HFCO are also officers and directors of ARSC.

Please see our Form 8-K issued on April 28, 2014, as filed with the Securities and Exchange Commission, for a fuller description of our new business model.

Management's Discussion and Analysis of Results of Operations

Our results of operations are summarized below:

	Quarter Ended March 31, 2014 ($)		Quarter Ended March 13, 2013 ($)
Revenue		0.00		0.00
Expenses		(5,349,454)		(12,015)
Other Income (Expenses)		(2,151,139)		(1,487,214)
Net Income (Loss)		(7,500,593)		(1,499,229)
Income (Loss) Per Share-Basic		(.07)		(12.33)
Income (Loss) Per Share- Fully diluted		(.04)		(12.33)

Three Months Ended March 31, 2014 Compared to the Three Months Ended March 31, 2013

During the three months ended March 31, 2014, we did not earn any revenues. We have not earned any revenues since our inception and there is no assurance that we will be able to earn any revenues in the future.

Our General and Administrative expenses for the three months ended March 31, 2014 and 2013 can be summarized as follows:

	For the Three Months Ended March 31,
	2014 ($)		2013 ($)		Difference ($)
Management Compensation		5,210,000		-0-		5,210,000
Consulting Fees		75,000		-0-		75,000
Other General and administrative expenses		54,376		12,015		42,265

Our net loss for the three month period ended March 31, 2014 was $7,500,593, compared to a net loss of $1,499,229 for the three month period ended March 13, 2013, an increased loss of $6,001,364.

During the three month period ended March 31, 2014, we incurred operating expenses (and respective net operating losses) of $5,349,454, compared to operating expenses of $12,105 incurred during the three month period ended March 13, 2013, an increase of $ 5,337,439. The operating expenses incurred during the three month period ended March 31, 2014 and 2013 consisted of (i) $5,210,000 and $-0-, respectively of Management compensation (ii) $75,000 and $-0- in fees paid to consultants; and (iii) $45,843 and $12,015 in other general and administrative expenses, respectively.

Management compensation increased $5,210,000 due to the issuance of 100 million shares of common stock to our Management team. See Footnote 9 for more detail. Consulting fees increased by $75,000 due to the quarterly accrual for consulting services, which did not exist in the same quarter as last year. General and administrative expenses increased by $33,832 principally due to greater (i)contract employee expense (ii) transfer agent fees associated with the reverse split, (iii) increased SEC filing fees and (iv) an overall greater level of corporate expenses.

Other income/(expense) incurred during the three month periods ended March 31, 2014 and March 31, 2013 was as follows:

	2014 ($)			2013 ($)			Difference ($)
Interest Expense		(176,507	)		(102,074	)		(74,433	)
Derivative Expense		(1,067,424	)		-0-			(1,067,424	)
Change in the Fair Value of Derivative liabilities		917,897			(1,182,780	)		2,100,677
Loss on Retirement of Debt		(1,825,104	)		(202,360	)		(1,622,745	)

During the three month period ended March 31, 2014, we incurred other income/(expense) of $(2,151,139), compared to other income (expense) of $(1,487,214) incurred during the three month period ended March 13, 2013, an increased expense of $663,925. Other income/(expense)incurred during the three month period ended March 31, 2014 and 2013 consisted of (i) $(176,507) and $(102,074), respectively of Interest expense; (ii) $(1,067,424) and $-0- in derivative expense; (iii) $917,897 and $(1,182,780),respecitvely in Change in the Fair Value of Derivative liabilities, and (iv) $(1,825,104) and $(202,360) in Loss on Retirement of Debt .

Interest expense increased $74,433 due to greater debt levels and increased amortization of debt discounts. Derivative Expense increased by $1,067,424 due to greater issuances of debt and increased stock price volatility. Change in the Fair Value of Derivative liabilities increased $2,100,677 due to increased stock price volatility and greater outstanding debt levels. Loss on Retirement of Debt increased $1,622,745 due to a greater level of debt conversions and increased stock price volatility.

Therefore, our basic net loss and net loss per share during the three month period ended March 31, 2014, was $7,500,593 or $0.07 per share, compared to a net loss and loss of $1,49,229 or $12.33 per basic share during the three month period ended March 31, 2013. The weighted average number of basic shares outstanding was 102,394,456 for the three month period ended March 31, 2014, compared to 121,558 for the three month period ended March 13, 2013. Our fully diluted net loss per share was $.04 and $12.33 for the six months ended March 31, 2014 and 2013, respectively. The weighted average number of fully-diluted shares outstanding was 202,394,546 for the three month period ended March 31, 2014, compared to 121,558 for the three month period ended March 31, 2013.

Six Months Ended March 31, 2014 Compared to the Six Months Ended March 31, 2013

During the six months ended March 31, 2014, we did not earn any revenues. We have not earned any revenues since our inception and there is no assurance that we will be able to earn any revenues in the future.

Our General and Administrative expenses for the three months ended March 31, 2014 and 2013 can be summarized as follows:

	For the Six Months Ended March 31,
	2014 ($)		2013 ($)		Difference ($)
Management Compensation		5,255,000		-0-		5,210,000
Consulting Fees		150,000		165,000		(15,000)
Other General and administrative expenses		179,440		82,107		97,333

Our net loss for the six month period ended March 31, 2014 was $6,719,976, compared to a net loss of $1,763,579 for the six month period ended March 13, 2013, an increased loss of $4,956,397.

During the six month period ended March 31, 2014, we incurred operating expenses (and respective net operating losses) of $5,579,440, compared to operating expenses of $247,107 incurred during the three month period ended March 13, 2013, an increase of $5,332,332 . The operating expenses incurred during the three month period ended March 31, 2014 and 2013 consisted of (i) $5,255,000 and $-0-, respectively of Management compensation (ii) $150,000 and $165,000 in fees paid to consultants; and (iii) $194,440 and $12,015 in other general and administrative expenses, respectively.

Management compensation increased $5,255,000 due to the issuance of 100 million shares of common stock to our Management team on January 27, 2014 and another 720,000 shares which were issued in December 2013 with a value of $45,000. See Footnote 9 for more detail. Consulting fees decreased by $15,000 due to the accrual of a consulting liability for the first quarter of the last fiscal year partially offset by six monthly accruals for consulting services associated with a new consulting agreement. General and administrative expenses increased by $97,333 principally due to greater (i)contract employee expense (ii) transfer agent fees associated with the reverse split, (iii) increased SEC filing fees and (iv) an overall greater level of corporate expenses.

Other income/(expense) incurred during the three month periods ended March 31, 2014 and March 31, 2013 was as follows:

	2014 ($)			2013 ($)			Difference ($)
Interest Expense		(280,017	)		(216,851	)		(63,165	)
Derivative Expense		(2,119,601	)		(137,631	)		(1,981,971	)
Change in the Fair Value of Derivative liabilities		3,258,449			(959,630	)		4,218,079
Loss on Retirement of Debt		(1,999,367	)		(202,360	)		(1,797,008	)

During the three month period ended March 31, 2014, we incurred other income/(expense) of $(1,140,536), compared to other income (expense) of $(1,516,472) incurred during the three month period ended March 13, 2013, an improvement of $375,396. Other income/(expense)incurred during the three month period ended March 31, 2014 and 2013 consisted of (i) $(280,017) and $(216,851), respectively of Interest expense; (ii) $(2,119,601) and $(137,631) in derivative expense; (iii) $3,258,449 and $(959,630),respectively in Change in the Fair Value of Derivative liabilities, and (iv) $(1,999,367) and $(202,360) in Loss on Retirement of Debt .

Interest expense increased $63,165 due to greater debt levels and increased amortization of debt discounts. Derivative Expense increased by $1,981,971 due to greater issuances of debt and increased stock price volatility. Change in the Fair Value of Derivative liabilities increased $4,218,079 due to increased stock price volatility and greater outstanding debt levels. Loss on Retirement of Debt increased $1,797,008 due to a greater level of debt conversions and increased stock price volatility.

Therefore, our basic net loss and net loss per share during the six month period ended March 31, 2014, was $6,719,976 or $0.08 per share, compared to a net loss and loss of $1,763,579 or $14.43 per basic share during the six month period ended March 31, 2013. The weighted average number of basic shares outstanding was 87,295,771 for the six month period ended March 31, 2014, compared to 122,218 for the three month period ended March 31, 2013. Our fully diluted net loss per share was $.04 and $14.43 for the six months ended March 31, 2014 and 2013, respectively. The weighted average number of fully-diluted shares outstanding was 187,295,771 for the three month period ended March 31, 2014, compared to 122,218 for the three month period ended March 13, 2013.

Liquidity and Capital Resources

As of March 31, 2014, our current assets were $32,351 and our current liabilities were $1,666,079, which resulted in a working capital deficiency of $1,633,728. As of March 31, 2014, current assets were comprised of: (i) $29,157 in cash; and (ii) $3,194 in receivables from a company controlled by our Chief Executive Officer. As of March 31, 2014, current liabilities were comprised of: (i) $122,610 in accounts payable and accrued liabilities; (ii) $415,719 in accounts payable due to a related party; (iii) $104,465 in accrued interest payable; (iv) $27,173 in notes payable due to a related party; (v) $41,750 in common stock to be issued; (vi) a derivative liability of $198,467 resulting from convertible notes payable and warrants and (vii) $755,895 in convertible debt (net of $207,314 of discount);.

As of March 31, 2014, our total assets of $223,680 were comprised of: (i) $32,351 in current assets; (ii) $8,828 in debt issue costs (net of $42,073 of amortization); and (iii) $182,501 in property and equipment (net of $106,342 of depreciation). As of March 31, 2014, our total liabilities of $1,660,079 were comprised of current liabilities of the same amount.

Stockholders’ deficit improved $907,658 from ($2,350,057) as of September 30, 2013 to ($1,442,399) as of March 31, 2014. The change in Stockholder’s deficit was comprised of (i) issuance of shares for Management compensation of $5,255,000; (ii) issuances of shares for conversion of debt totaling $2,372,634, partially offset by (iii) net loss of $6,719,976.

Cash Flows from Operating Activities

We did not generate positive cash flows from operating activities. For the nine months ended March 31, 2014, net cash flows provided by operations was $(290,843). Net cash flows used in operating activities for the six months ended March 31, 2014 consisted of (i) net loss of $(6,719,976), and (ii) the change in the fair value of the derivative liability of $(3,258,449) adjusted by: (iii) share based payments of $5,255,000 (iv) derivative expense of $2,119,601; (v) loss on retirement of debt of $1,999,367; (vi) $225,023 in amortization of debt discount, and (vii) $17,066 in depreciation expense. Net cash flows used by operating activities was further changed by an increase in accrued interest of $30,218.

Cash Flows from Investing Activities

For the nine months ended March 31, 2014, net cash flows provided by investing activities was $0.

Cash Flows from Financing Activities

We have financed our operations primarily from debt or the issuance of equity instruments. For the six months ended March 31, 2014, net cash flows provided from financing activities was $320,000. This was from the issuance of notes for cash of $170,000 and notes for professional services of $150,000.

We anticipate that we will meet our ongoing cash requirements by selling our equity securities or through shareholder loans. Our management has changed our business focus to the acquisition of operating assets and we estimate that our expenses over the next 12 months will be approximately $600,000 for our new venture in fuel cell technology.

Material Commitments

As of the date of this Quarterly Report, we do not have any material commitments other than as described below.

Convertible Debt

Fife Note

On February 15, 2011, the Company issued convertible notes, totaling $300,000, to John Fife with the following provisions:

●	Interest rate 6%;

●	Default interest rate of 12%;

●	Notes are due 48 months from the issuance date of February 23, 2011;

●

●	Secured by the Chief Executive Officer’s 15,000,000 shares of the Company common stock.

As of March 31, 2014, as a result of the triggering events (a) and (b), the Company computes the exercise price related to convertible debt, without regard to the floor price.

The normal conversion resulted in a debt discount under ASC 470-25-8 since the calculated market price as of the date of the note was higher ($0.145) than the conversion floor of $0.12.

At the balance sheet date, $115,450 of the debt has been converted leaving a principal balance of $184,550.

Lucosky Brookman LLP Note

During the quarter ended March 31, 2014, the entire principal value on this note was converted and there is no outstanding balance at March 31, 2014.

Consulting Notes

As of the Balance sheet date, $118,203 of principal on this note has been converted into common shares, leaving a remaining balance of $46,797.

St. George Notes

Other Notes

Market price is defined as follows:

Debt Amount		Discount			Conversion Mechanism
$	20,000		51	%	low trade price over prior 30 days
$	25,000		60	%	low trade price over prior 25 days
$	141,000		50	%	low bid price over prior 30 days

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.

Inflation

The amounts presented in the financial statements do not provide for the effect of inflation on our operations or financial position. The net operating losses shown would be greater than reported if the effects of inflation were reflected either by charging operations with amounts that represent replacement costs or by using other inflation adjustments.

Critical Accounting Policies

Use of Estimates

Such estimates for the quarter ended March 31, 2014 and 2013, and assumptions affect, among others, the following:

●	estimated carrying value, useful lives and related impairment of property and equipment;

●	estimated fair value of derivative liabilities;

●	estimated valuation allowance for deferred tax assets, due to continuing losses; and

●	estimated fair value of share based payments.

Derivative Liabilities

Debt Issue Costs and Debt Discount

The Company may pay debt issue costs, and record debt discounts in connection with raising funds through the issuance of convertible debt. These costs are amortized over the life of the debt to interest expense. If a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately expensed.

Original Issue Discount

Share-based Payments

Generally, all forms of share-based payments, including stock option grants, warrants, restricted stock grants and stock appreciation rights are measured at their fair value on the awards’ grant date, based on estimated number of awards that are ultimately expected to vest. Share-based compensation awards issued to non-employees for services rendered are recorded at either the fair value of the services rendered or the fair value of the share-based payment, whichever is more readily determinable.

Earnings per Share

In accordance with accounting guidance now codified as FASB ASC Topic 260, “Earnings per Share,” basic earnings (loss) per share is computed by dividing net income (loss) by weighted average number of shares of common stock outstanding during each period. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period.

Since the Company reflected a net loss in 2011 and 2010, respectively, the effect of considering any common stock equivalents, if exercisable, would have been anti-dilutive. A separate computation of diluted earnings (loss) per share is not presented.

Fair Value of Financial Instruments

ASC 820 defines fair value, provides a consistent framework for measuring fair value under generally accepted accounting principles and expands fair value financial statement disclosure requirements. ASC 820’s valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect our market assumptions. ASC 820 classifies these inputs into the following hierarchy:

●	Level 1 inputs: Quoted prices for identical instruments in active markets.

●	Level 2 inputs: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

●	Level 3 inputs: Instruments with primarily unobservable value drivers.

Foreign Currency Transactions

(i)	Monetary assets and liabilities at the rate of exchange in effect at the balance sheet date;

(ii)	Equity at historical rates; and

(iii)

Revenue and expense items at the average exchange rate prevailing during the period.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

We do not hold any derivative instruments and do not engage in any hedging activities.

Item 4. Controls and Procedures.

(a) Evaluation of Disclosure Controls and Procedures

The Company’s management, with the participation of the Company’s principal executive officer (“PEO”) and principal financial officer (“PFO”), evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on this evaluation, the PEO and PFO concluded that, as of the end of such period, the Company’s disclosure controls and procedures were not effective to ensure that information that is required to be disclosed by the Company in the reports it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to the Company’s management, including the PEO and PFO, as appropriate, to allow timely decisions regarding required disclosure.

(b) Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

Item 1A. Risk Factors.

There have been no material changes from the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2013, as filed with the SEC on January 2, 2014.

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

Not applicable.

Item 3. Defaults upon Senior Securities.

There has been no default in the payment of principal, interest, sinking or purchase fund installment, or any other material default not cured within 30 days, with respect to any indebtedness of the Company.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

See Form 8K filed on

Item 6. Exhibits.

(d) Exhibits.

Exhibit No.		Description

31.1		Certification by the Principal Executive Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a))*

31.2		Certification by the Principal Accounting Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a))*

32.1		Certification by the Principal Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

32.2		Certification by the Principal Accounting Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

* filed herewith

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.

	HYDROGEN FUTURE CORP.


Dated: May 15, 2014	By:	/s/ Frank Neukomm
		Name: Frank Neukomm
		Title: Chief Executive Officer (Principal Executive Officer)

Hydrogen Future Corp - FORM 10-Q - May 15, 2014

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Hydrogen Future Corp Reports