The accompanying notes are an integral part
of these condensed unaudited financial statements
SUNHYDROGEN, INC.
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED DECEMBER
31, 2020 AND 2019
(Unaudited)
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUE
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
2,286,980
|
|
|
|
343,353
|
|
|
|
2,725,170
|
|
|
|
713,645
|
|
Research and development cost
|
|
|
439,987
|
|
|
|
104,839
|
|
|
|
578,247
|
|
|
|
248,234
|
|
Depreciation and amortization
|
|
|
4,681
|
|
|
|
2,038
|
|
|
|
6,717
|
|
|
|
4,247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL OPERATING EXPENSES
|
|
|
2,731,648
|
|
|
|
450,230
|
|
|
|
3,310,134
|
|
|
|
966,126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS BEFORE OTHER INCOME (EXPENSES)
|
|
|
(2,731,648
|
)
|
|
|
(450,230
|
)
|
|
|
(3,310,134
|
)
|
|
|
(966,126
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME/(EXPENSES)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
448
|
|
|
|
-
|
|
|
|
448
|
|
|
|
-
|
|
Gain (Loss) on change in derivative liability
|
|
|
(122,138,753
|
)
|
|
|
(2,645,955
|
)
|
|
|
(123,518,838
|
)
|
|
|
(3,080,361
|
)
|
Interest expense
|
|
|
(250,428
|
)
|
|
|
(184,101
|
)
|
|
|
(497,187
|
)
|
|
|
(486,535
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL OTHER INCOME (EXPENSES)
|
|
|
(122,388,733
|
)
|
|
|
(2,830,056
|
)
|
|
|
(124,015,577
|
)
|
|
|
(3,566,896
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
$
|
(125,120,381
|
)
|
|
$
|
(3,280,286
|
)
|
|
$
|
(127,325,711
|
)
|
|
$
|
(4,533,022
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMON STOCK WARRANTS DEEMED DIVIDENDS
|
|
|
(15,928,314
|
)
|
|
|
-
|
|
|
|
(15,928,314
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS
|
|
$
|
(141,048,695
|
)
|
|
$
|
(3,280,286
|
)
|
|
$
|
(143,254,025
|
)
|
|
$
|
(4,533,022
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC AND DILUTED LOSS PER SHARE
|
|
$
|
(0.05
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING BASIC AND DILUTED
|
|
|
2,317,322,842
|
|
|
|
1,444,116,446
|
|
|
|
2,228,251,336
|
|
|
|
1,308,918,562
|
|
The accompanying notes are an integral part
of these condensed unaudited financial statements
SUNHYDROGEN, INC.
CONDENSED STATEMENTS OF SHAREHOLDERS’
DEFICIT
FOR THE SIX MONTHS ENDED DECEMBER 31,
2020 AND 2019
|
|
SIX MONTHS ENDED DECEMBER 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
Common stock
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Total
|
|
Balance at June 30, 2019
|
|
|
-
|
|
|
$
|
-
|
|
|
|
1,077,319,339
|
|
|
$
|
1,077,319
|
|
|
$
|
10,432,575
|
|
|
$
|
(18,021,177
|
)
|
|
$
|
(6,511,283
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for conversion of debt and accrued interest
|
|
|
-
|
|
|
|
-
|
|
|
|
390,468,995
|
|
|
|
390,469
|
|
|
|
285,606
|
|
|
|
-
|
|
|
|
676,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for services
|
|
|
-
|
|
|
|
-
|
|
|
|
57,047,643
|
|
|
|
57,048
|
|
|
|
121,162
|
|
|
|
-
|
|
|
|
178,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
432,558
|
|
|
|
-
|
|
|
|
432,558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,533,022
|
)
|
|
|
(4,533,022
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2019 (unaudited)
|
|
|
-
|
|
|
$
|
-
|
|
|
|
1,524,835,977
|
|
|
$
|
1,524,836
|
|
|
$
|
11,271,901
|
|
|
$
|
(22,554,199
|
)
|
|
$
|
(9,757,462
|
)
|
|
|
SIX MONTHS ENDED DECEMBER 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
Common stock
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Total
|
|
Balance at June 30, 2020
|
|
|
-
|
|
|
$
|
-
|
|
|
|
2,053,410,164
|
|
|
$
|
2,053,410
|
|
|
$
|
11,664,657
|
|
|
$
|
(75,550,515
|
)
|
|
$
|
(61,832,448
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for cash
|
|
|
-
|
|
|
|
-
|
|
|
|
224,310,252
|
|
|
|
224,310
|
|
|
|
7,075,623
|
|
|
|
-
|
|
|
|
7,299,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of common stock warrants for cash
|
|
|
-
|
|
|
|
-
|
|
|
|
120,000,000
|
|
|
|
120,000
|
|
|
|
8,880,000
|
|
|
|
-
|
|
|
|
9,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for conversion of debt and accrued interest
|
|
|
-
|
|
|
|
-
|
|
|
|
275,532,749
|
|
|
|
275,533
|
|
|
|
482,783
|
|
|
|
-
|
|
|
|
758,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for services
|
|
|
-
|
|
|
|
-
|
|
|
|
3,806,290
|
|
|
|
3,806
|
|
|
|
114,217
|
|
|
|
-
|
|
|
|
118,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock warrants issued with securities purchase agreement at fair value
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,900,067
|
|
|
|
-
|
|
|
|
3,900,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock warrants deemed dividends
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15,928,314
|
|
|
|
(15,928,314
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock and warrant compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
224,070
|
|
|
|
-
|
|
|
|
224,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(127,325,711
|
)
|
|
|
(127,325,711
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2020 (unaudited)
|
|
|
-
|
|
|
$
|
-
|
|
|
|
2,677,059,455
|
|
|
$
|
2,677,059
|
|
|
$
|
48,269,731
|
|
|
$
|
(218,804,540
|
)
|
|
$
|
(167,857,750
|
)
|
The accompanying notes are an integral part
of these condensed unaudited financial statements
SUNHYDROGEN, INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31,
2020 AND 2019
(Unaudited)
|
|
Six Months Ended
|
|
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net Income (loss)
|
|
$
|
(127,325,711
|
)
|
|
$
|
(4,533,022
|
)
|
Adjustment to reconcile net income (loss) to net cash (used in) provided by operating activities
|
|
|
|
|
|
|
|
|
Depreciation & amortization expense
|
|
|
6,717
|
|
|
|
4,248
|
|
Stock based compensation expense
|
|
|
224,070
|
|
|
|
432,558
|
|
Stock issued for services
|
|
|
118,023
|
|
|
|
178,210
|
|
Loss on change in derivative liability
|
|
|
123,518,838
|
|
|
|
3,080,361
|
|
Amortization of debt discount recorded as interest expense
|
|
|
408,098
|
|
|
|
372,088
|
|
Commission fees paid through offerings
|
|
|
107,700
|
|
|
|
|
|
Change in assets and liabilities :
|
|
|
|
|
|
|
|
|
Prepaid expense
|
|
|
2,838
|
|
|
|
5,600
|
|
Accounts payable
|
|
|
(22,708
|
)
|
|
|
(20,266
|
)
|
Accrued expenses
|
|
|
4,266
|
|
|
|
|
|
Accrued interest on convertible notes
|
|
|
90,088
|
|
|
|
156,550
|
|
|
|
|
|
|
|
|
|
|
NET CASH USED IN OPERATING ACTIVITIES
|
|
|
(2,867,781
|
)
|
|
|
(323,673
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Purchase of tangible assets
|
|
|
(53,961
|
)
|
|
|
(781
|
)
|
|
|
|
|
|
|
|
|
|
NET CASH USED IN INVESTING ACTIVITIES:
|
|
|
(53,961
|
)
|
|
|
(781
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from the sale of common stock warrants
|
|
|
9,000,000
|
|
|
|
|
|
Net proceeds from purchase agreements
|
|
|
11,092,300
|
|
|
|
|
|
Proceeds from convertible debt
|
|
|
-
|
|
|
|
346,500
|
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
20,092,300
|
|
|
|
346,500
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH
|
|
|
17,170,558
|
|
|
|
22,046
|
|
|
|
|
|
|
|
|
|
|
CASH, BEGINNING OF YEAR
|
|
|
195,010
|
|
|
|
35,074
|
|
|
|
|
|
|
|
|
|
|
CASH, END OF YEAR
|
|
$
|
17,365,568
|
|
|
$
|
57,120
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
803
|
|
|
$
|
416
|
|
Taxes paid
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF NON CASH TRANSACTIONS
|
|
|
|
|
|
|
|
|
Fair value of common stock upon conversion of convertible notes , accrued interest and other fees
|
|
$
|
758,316
|
|
|
$
|
676,075
|
|
Fair value of common stock issued for services
|
|
$
|
118,023
|
|
|
$
|
178,210
|
|
Issuance of common stock purchase warrants deemed dividends
|
|
$
|
15,928,314
|
|
|
$
|
-
|
|
The accompanying notes are an integral part
of these condensed unaudited financial statements
SUNHYDROGEN, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS - UNAUDITED
DECEMBER 31, 2020 AND 2019
The accompanying unaudited condensed
financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America
for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.
In the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included.
Operating results for the six months ended December 31, 2020 are not necessarily indicative of the results that may be expected
for the year ended June 30, 2021. For further information refer to the financial statements and footnotes thereto included in the
Company’s Form 10-K for the year ended June 30, 2020.
Going Concern
The accompanying condensed unaudited
financial statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization
of assets and liabilities and commitments in the normal course of business. The accompanying condensed unaudited financial statements
do not reflect any adjustments that might result if the Company is unable to continue as a going concern. The Company does not
generate revenue, and has negative cash flows from operations, which raise substantial doubt about the Company’s ability
to continue as a going concern. The ability of the Company to continue as a going concern and appropriateness of using the going
concern basis is dependent upon, among other things, raising additional capital. The Company has historically obtained funds through
private placement and registered offerings of equity and debt. Management believes that it will be able to continue to raise funds
by sale of its securities to its existing shareholders and prospective new investors to provide the additional cash needed to meet
the Company’s obligations as they become due and will allow the development of its core business. There is no assurance that
the Company will be able to continue raising the required capital.
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
This summary of significant accounting
policies of SunHydrogen, Inc. is presented to assist in understanding the Company’s financial statements. The financial statements
and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These
accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently
applied in the preparation of the financial statements.
Cash and Cash Equivalent
The Company considers all highly
liquid investments with an original maturity of three months or less to be cash equivalents.
Use of Estimates
In accordance
with accounting principles generally accepted in the United States, management utilizes estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial
statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from
those estimates. These estimates and assumptions relate to useful lives and impairment of tangible and intangible assets, accruals,
income taxes, stock-based compensation expense, Binomial lattice valuation model inputs, derivative liabilities and other factors.
Management believes it has exercised reasonable judgment in deriving these estimates. Consequently, a change in conditions could
affect these estimates.
Property
and Equipment
Property and equipment are stated
at cost, and are depreciated using straight line over its estimated useful lives.
During the six months ended December
31, 2020, the Company purchased a business vehicle for transporting demonstration units and to serve as a mobile office.
The Company recognized depreciation
expense of $3,201 and $325 for the six months ended December 31, 2020 and 2019, respectively.
Intangible Assets
The Company has patent applications
to protect the inventions and processes behind its proprietary solar-to-hydrogen based technology. Intangible assets that have
finite useful lives continue to be amortized over their useful lives.
The Company recognized amortization
expense of $3,517 and $3,923 for the six months ended December 31, 2020 and 2019, respectively.
SUNHYDROGEN, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS - UNAUDITED
DECEMBER 31, 2020 AND 2019
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
Net Earnings (Loss)
per Share Calculations
Net earnings (Loss) per share
dictates the calculation of basic earnings (loss) per share and diluted earnings per share. Basic earnings (loss) per share are
computed by dividing by the weighted average number of common shares outstanding during the year. Diluted net earnings (loss) per
share is computed similar to basic earnings (loss) per share except that the denominator is increased to include the effect of
stock options and stock-based awards (Note 4), plus the assumed conversion of convertible debt (Note 5).
For the six months ended December
31, 2020, the Company calculated the dilutive impact of the outstanding stock options of 196,000,000, common stock purchase warrants
of 148,800,000, and the convertible debt of $1,361,200, which is convertible into shares of common stock. The stock options, warrants
and convertible debt was not included, because their impact was antidilutive.
For the six months ended December
31, 2019, the Company calculated the dilutive impact of the outstanding stock options of 196,250,000, and the convertible debt
of $2,080,300, which is convertible into shares of common stock. The stock options and convertible debt were not included in the
calculation of net earnings per share, because their impact was antidilutive.
Stock Based Compensation
The Company periodically issues
stock options to employees and non-employees in non-capital raising transactions for services. The Company accounts for stock option
grants issued and vesting to employees based on the authoritative guidance provided by the Financial Accounting Standards Board
whereas the value of the award is measured on the date of grant and recognized over the vesting period. The Company accounts for
stock option grants issued and vesting to non-employees in accordance with the authoritative guidance of the Financial Accounting
Standards Board whereas the value of the stock compensation is based upon the measurement date as determined at either a) the date
at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments
is complete. Non-employee stock-based compensation charges generally are amortized over the vesting period on a straight-line basis.
In certain circumstances where there are no future performance requirements by the non-employee, the option grants immediately
vest, and the total stock-based compensation charge is recorded in the period of the measurement date.
On October 2, 2017, the Company
granted 10,000,000 stock options to a non-employee for services.
On December 17, 2018, the Board
of Directors approved and adopted the 2019 Equity Incentive Plan (“the Plan”), with 300,000,000 shares of common stock
set aside and reserved for issuance pursuant to the Plan. The purpose of the Plan is to promote the success of the Company and
to increase stockholder value by providing an additional means through the grant of awards to attract, motivate, retain and reward
selected employees and other eligible persons. The awards are performance-based compensation that are granted under the Plan as
incentive stock options (ISO) or nonqualified stock options. The per share exercise price for each option shall not be less than
100% of the fair market value of a share of common stock on the date of grant of the option. The Company periodically issues stock
options to employees and non-employees in non-capital raising transactions for services.
The Company accounts for stock
option grants issued and vesting to employees and non-employees in accordance with the authoritative guidance of the Financial
Accounting Standards Board whereas the value of the stock compensation is based upon the measurement date as determined at either
a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity
instruments is complete. Non-employee stock-based compensation charges generally are amortized over the vesting period on a straight-line
basis. In certain circumstances where there are no future performance requirements by the non-employee, option grants are immediately
vested, and the total stock-based compensation charge is recorded in the period of the measurement date.
Warrant Accounting
The Company accounts for
the warrants to purchase shares of common stock using the estimated fair value on the date of issuance as calculated using the
Black-Scholes valuation model.
Fair Value of Financial
Instruments
Fair value of financial instruments,
requires disclosure of the fair value information, whether or not recognized on the balance sheet, where it is practicable to estimate
that value. As of December 31, 2020, the amounts reported for cash, accrued interest and other expenses, notes payables, convertible
notes, and derivative liability approximate the fair value because of their short maturities.
SUNHYDROGEN, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS - UNAUDITED
DECEMBER 31, 2020 AND 2019
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
Fair Value of Financial Instruments
We adopted ASC Topic 820 for financial
instruments measured as fair value on a recurring basis. ASC Topic 820 defines fair value, established a framework for measuring
fair value in accordance with accounting principles generally accepted in the United States and expands disclosures about fair
value measurements.
Fair value is defined as the price
that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at
the measurement date. ASC Topic 820 established a three-tier fair value hierarchy which prioritizes the inputs used in measuring
fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities
(level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:
|
●
|
Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;
|
|
|
|
|
●
|
Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and
|
|
|
|
|
●
|
Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
|
We measure certain financial instruments
at fair value on a recurring basis. Assets and liabilities measured at fair value on a recurring basis are as follows at December
31, 2020 (See Note 6):
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability measured at fair value at 12/31/20
|
|
$
|
183,176,556
|
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
183,176,556
|
|
The following is a reconciliation
of the derivative liability for which Level 3 inputs were used in determining the approximate fair value:
Balance as of June 30, 2020
|
|
|
59,657,719
|
|
Fair value of derivative liabilities issued
|
|
|
-
|
|
Loss on change in derivative liability
|
|
|
123,518,837
|
|
Balance as of December 31, 2020
|
|
$
|
183,176,556
|
|
Research and Development
Research and development costs
are expensed as incurred. Total research and development costs were $503,247 and $248,234 for the six months ended December
31, 2020 and 2019, respectively.
Accounting for Derivatives
The Company evaluates all of its
financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives.
For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at
its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations.
For stock-based derivative financial instruments, the Company uses a probability weighted average series Binomial lattice formula
pricing models to value the derivative instruments at inception and on subsequent valuation dates.
The classification of derivative
instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each
reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether
or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.
SUNHYDROGEN, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS - UNAUDITED
DECEMBER 31, 2020 AND 2019
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
Recently Issued Accounting
Pronouncements
In June 2018, FASB issued accounting
standards update ASU 2018-07, (Topic 505) – “Shared-Based Payment Arrangements with Nonemployees”, which simplifies
the accounting for share-based payments granted to nonemployees for goods and services. Under the ASU, most of the guidance on
such payments to nonemployees will be aligned with the requirements for share-based payments granted to employees. Under the ASU
2018-07, the measurement of equity-classified nonemployee share-based payments will be fixed on the grant date, as defined in ASC
718, and will use the term nonemployee vesting period, rather than requisite service period. The amendments in this update are
effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. For all other
entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years
beginning after December 15, 2020. Early adoption is permitted if financial statements have not yet been issued. The Company is
currently evaluating the impact of the adoption of ASU 2018-07 on the Company’s financial statements.
In August
2018, the FASB issued accounting standards update ASU 2018-13, (Topic 820) - “Fair Value Measurement”, which changes
the unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair
value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most
recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively
to all periods presented upon their effective date. The amendments in this update are effective for fiscal years, and interim periods
within those fiscal years, beginning after December 15, 2019. Early adoption is permitted upon issuance. The Company is currently
evaluation the impact of the adoption of ASU 2018-13, on the Company’s financial statements.
Management does not believe that
any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the
accompanying condensed financial statements.
Six months ended December 31,
2020
During the six months ended
December 31, 2020, the Company issued 219,210,319 shares of common stock for cash at prices ranging from $0.022 - $.025 for aggregate
net proceeds of $2,2092,300 plus offering cost of $107,700 for a total of $2,200,000; issued 120,000,000 shares of common stock
for the securities purchase agreement, whereby the funds were split between the fair value of the securities purchase agreement
in the amount of $5,099,933 and the purchase warrants issued with the securities purchase agreement in the amount of $3,900,067
for a total price of $9,000,000.
During the six months ended
December 31, 2020, the Company issued 120,000,000 shares of common stock upon exercise of purchase warrants at an exercise price
of $0.075 for gross proceeds of $9,000,000.
During the six months ended December
31, 2020, the Company issued 275,532,747 shares of common stock upon conversion of convertible notes in the amount of $668,800
of principal, plus accrued interest of $87,716 and other fees of $1,800 based upon conversion prices ranging from $0.00095 - $0.017995
per share. All note conversions were performed per the terms of their respective agreements and therefore no gain or loss on the
conversion was recorded.
During the six months ended December
31, 2020, the Company issued 3,806,290 shares of common stock for services rendered at fair value prices of $0.028 - $0.035 per
share in the aggregate amount of $118,023.
Six months ended December 31,
2019
During the six months ended December
31, 2019, the Company issued 390,468,995 shares of common stock upon conversion of convertible notes in the amount of $586,686
of principal, plus accrued interest of $83,889 and other fees of $5,500 based upon conversion prices ranging from $0.00102 - $0.00296
per share.
During the six months ended December
31, 2019, the Company issued 57,047,643 shares of common stock for services rendered at a fair value prices of $0.002 - $0.004
per share in the aggregate amount of $178,210.
SUNHYDROGEN, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS - UNAUDITED
DECEMBER 31, 2020 AND 2019
Stock Options
On October 2, 2017, the Company
granted 10,000,000 stock options, which were outstanding as of December 31, 2020. Each option expires on the date specified in
the option agreement, which date is not later than the fifth (5th) anniversary from the grant date of the options. Of
the 10,000,000 common stock options, one-third vest immediately, and one-third vest the second and third year, such that, the options
are fully vested with a maturity date of October 2, 2022, and are exercisable at an exercise price of $0.01 per share.
On January 23, 2019, the Company
granted 170,000,000 stock options. One-third of the options vested immediately, and the remainder vest 1/24 per month over the
first twenty-four months following the option grant. The first block were exercisable immediately and is exercisable for a period
of seven (7) years. The options fully vest by January 23, 2022
On January 31, 2019, the Company
granted 6,000,000 stock options, of which two-third (2/3) vest immediately, and the remaining amount shall vest one-twelfth (1/12)
per month from after the date of the option grant. The first block is exercisable for a period of seven (7) years. The options
fully vested on January 31, 2020.
On July 22, 2019, the Company
granted 10,000,000 stock options, of which one-third (1/3) vest immediately, and the remaining shall vest one-twenty fourth (1/24)
per month from after the date of the option grant. The first block were exercisable immediately for a period of seven (7) years.
The options fully vested on July 22, 2020.
A summary of the Company’s
stock option activity and related information follows:
|
|
12/31/20
|
|
|
12/31/2019
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
Number
|
|
|
average
|
|
|
Number
|
|
|
average
|
|
|
|
Of
|
|
|
exercise
|
|
|
of
|
|
|
exercise
|
|
|
|
Options
|
|
|
price
|
|
|
Options
|
|
|
price
|
|
Outstanding, beginning of period
|
|
|
196,250,000
|
|
|
$
|
0.01
|
|
|
|
186,250,000
|
|
|
$
|
0.01
|
|
Granted
|
|
|
-
|
|
|
$
|
0.01
|
|
|
|
10,000,000
|
|
|
$
|
0.01
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited/Expired
|
|
|
(250,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding, end of period
|
|
|
196,000,000
|
|
|
$
|
0.01
|
|
|
|
196,250,000
|
|
|
$
|
0.01
|
|
Exercisable at the end of period
|
|
|
189,332,999
|
|
|
$
|
0.01
|
|
|
|
163,988,812
|
|
|
$
|
0.01
|
|
The weighted average remaining contractual life of
options outstanding as of December 31, 2020 and 2019 was as follows:
12/31/20
|
|
|
12/31/19
|
|
Exercise
Price
|
|
|
Stock Options Outstanding
|
|
|
Stock Options Exercisable
|
|
|
Weighted Average Remaining Contractual Life (years)
|
|
|
Exercise
Price
|
|
|
Stock Options Outstanding
|
|
|
Stock Options Exercisable
|
|
|
Weighted Average Remaining Contractual Life (years)
|
|
$
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
0.02
|
|
|
|
250,000
|
|
|
|
250,000
|
|
|
|
0.50
|
|
$
|
0.01
|
|
|
|
10,000,000
|
|
|
|
10,000,000
|
|
|
|
1.75
|
|
|
$
|
0.01
|
|
|
|
10,000,000
|
|
|
|
10,000,000
|
|
|
|
2.76
|
|
$
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
0.02
|
|
|
|
250,000
|
|
|
|
250,000
|
|
|
|
0.25
|
|
$
|
0.0097-0.0099
|
|
|
|
176,000,000
|
|
|
|
171,277,541
|
|
|
|
5.07 - 5.09
|
|
|
$
|
0.0097-0.0099
|
|
|
|
176,000,000
|
|
|
|
148,926,027
|
|
|
|
6.07 - 6.09
|
|
$
|
0.006
|
|
|
|
10,000,000
|
|
|
|
8,055,458
|
|
|
|
5.56
|
|
|
$
|
0.006
|
|
|
|
10,000,000
|
|
|
|
4,812,785
|
|
|
|
6.56
|
|
|
|
|
|
|
196,000,000
|
|
|
|
189,332,999
|
|
|
|
|
|
|
|
|
|
|
|
196,250,000
|
|
|
|
163,988,812
|
|
|
|
|
|
The stock-based compensation expense
recognized in the statement of operations during the six months ended December 31, 2020 and 2019, related to the granting of these
options was $224,070 and $432,558, respectively.
SUNHYDROGEN, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS - UNAUDITED
DECEMBER 31, 2020 AND 2019
WARRANTS
On December 3, 2020, the Company
issued 120.0 million common stock purchase warrants pursuant to a securities purchase agreement at an exercise price of $0.075
per share. The warrants were exercisable upon issuance.
On December 29, 2020, the 120.0
million warrants issued on December 3, 2020, were exercised for gross proceeds of $9.0 million, and as an inducement the investor
was issued an additional 132.0 million common stock purchase warrants at an exercise price of $0.075. The 132.0 million warrants
were deemed to be a dividend and were estimated at fair value of $15,928,314 using the Black-Scholes valuation model. As of December
31, 2020, these 132.0 million warrants were outstanding.
During the period ended December
31, 2020, the Company issued an aggregate 16.8 million shares of common stock purchase warrants at an exercise price of $0.0938
per share. The warrants were for commission fees associated with the offering, and were netted against the proceeds. The warrants
were estimated at fair value on the date of issuance as calculated using the Black-Scholes valuation model. The warrants can be
exercised over a three (3) year period.
A summary of the Company’s
warrant activity and related information follows for the year ended December 31, 2020.
|
|
12/31/20
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
Number
|
|
|
average
|
|
|
|
|
of
|
|
|
exercise
|
|
|
|
|
Options
|
|
|
price
|
|
|
Outstanding, beginning of period
|
|
|
-
|
|
|
$
|
-
|
|
|
Granted
|
|
|
268,800,000
|
|
|
$
|
0.05
|
|
|
Exercised
|
|
|
(120,000,000)
|
|
|
$
|
(0.05)
|
|
|
Forfeited/Expired
|
|
|
-
|
|
|
|
-
|
|
|
Outstanding, end of period
|
|
|
148,800,000
|
|
|
$
|
0.05
|
|
|
Exercisable at the end of period
|
|
|
148,800,000
|
|
|
$
|
0.05
|
|
|
12/31/20
|
|
|
|
Exercise
Price
|
|
|
Stock Options
Outstanding
|
|
|
Stock Options
Exercisable
|
|
|
Weighted
Average
Remaining
Contractual
Life (years)
|
$
|
0.0938
|
|
|
|
16,800,000
|
|
|
|
16,800,000
|
|
|
2.42 - 2.99
|
$
|
0.075
|
|
|
|
132,000,000
|
|
|
|
132,000,000
|
|
|
2.99
|
|
|
|
|
|
148,800,000
|
|
|
|
148,800,000
|
|
|
|
At December 31, 2020, the aggregate
intrinsic value of the warrants outstanding was $0.
SUNHYDROGEN, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS - UNAUDITED
DECEMBER 31, 2020 AND 2019
5.
|
CONVERTIBLE PROMISSORY NOTES
|
As of December 31, 2020, the outstanding
convertible promissory notes, net of debt discount of $1,360,224 are summarized as follows:
Convertible Promissory Notes, net of debt discount
|
|
$
|
1,360,224
|
|
Less current portion
|
|
|
176,224
|
|
Total long-term liabilities
|
|
$
|
1,184,000
|
|
Maturities of long-term debt net
of debt discount for the next three years are as follows:
Period Ended December 31,
|
|
Amount
|
|
2021
|
|
|
177,200
|
|
2022
|
|
|
605,000
|
|
2023
|
|
|
579,000
|
|
|
|
|
|
|
|
|
$
|
1,361,200
|
|
At December 31, 2020, the $1,361,200
in convertible promissory notes had a remaining debt discount of $976, leaving a net balance of $1,360,224.
The Company issued a 10% convertible
promissory note on January 28, 2016 (the “Jan 2016 Note”) in the aggregate principal amount of up to $500,000. Upon
execution of the convertible promissory note, the Company received a tranche of $10,000. The Company received additional tranches
in the amount of $490,000 for an aggregate sum of $500,000. The Jan 2016 Note matures twelve (12) months from the effective date
of the note. On January 19, 2017, the investor extended the Jan 2016 Note for an additional sixty (60) months from the effective
date of the note, which matures on January 27, 2022. The Jan 2016 Note is convertible into shares of common stock of the Company
at a price equal to a variable conversion price of the lesser of $0.01 per share or fifty percent (50%) of the lowest trading price
since the original effective date of the note or the lowest effective price per share granted to any person or entity after the
effective date to acquire common stock. If the Company fails to deliver shares in accordance with the timeframe of three (3) business
days of the receipt of a notice of conversion, the lender, at any time prior to selling all of those shares, may rescind any portion,
in whole or in part of that particular conversion attributable to the unsold shares and have the rescinded conversion amount returned
to the principal sum with the rescinded conversion shares returned to the Company. In no event shall the lender be entitled to
convert any portion of the Jan 2016 Note such that would result in beneficial ownership by the lender and its affiliates of more
than 4.99% of the outstanding shares of common stock of the Company. In addition, for each conversion, in the event that shares
are not delivered by the fourth business day (inclusive of the day of conversion), a penalty of $1,500 per day shall be assessed
for each day after the third business day (inclusive of the day of the conversion) until the shares are delivered. During the six
months ended on December 31, 2020, the Company issued 213,640,548 common shares upon conversion of principal in the amount of $142,800,
plus interest of $60,159. The balance of the Jan 2016 Note as of December 31, 2020 was $167,200.
SUNHYDROGEN, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS - UNAUDITED
DECEMBER 31, 2020 AND 2019
5.
|
CONVERTIBLE PROMISSORY NOTES (Continued)
|
The Company issued a 10% convertible
promissory note on February 3, 2017 (the “Feb 2017 Note”) in the aggregate principal amount of up to $500,000. Upon
execution of the convertible promissory note, the Company received a tranche of $60,000. The Company received additional tranches
in the amount of $440,000 for an aggregate sum of $500,000. The Feb 2017 Note had a maturity date of February 3, 2018, with an
automatic extension of sixty (60) months from the effective date of the note. The Feb 2017 Note is convertible into shares of common
stock of the Company at a price equal to a variable conversion price of the lesser of $0.01 per share or fifty percent (50%) of
the lowest trading price since the original effective date of the note or the lowest effective price per share granted to any person
or entity after the effective date to acquire common stock. If the Company fails to deliver shares in accordance with the timeframe
of three (3) business days of the receipt of a notice of conversion, the lender, at any time prior to selling all of those shares,
may rescind any portion, in whole or in part of that particular conversion attributable to the unsold shares and have the rescinded
conversion amount returned to the principal sum with the rescinded conversion shares returned to the Company. In no event shall
the lender be entitled to convert any portion of the Feb 2017 Note such that would result in beneficial ownership by the lender
and its affiliates of more than 4.99% of the outstanding shares of common stock of the Company. In addition, for each conversion,
in the event, that shares are not delivered by the fourth business day (inclusive of the day of conversion), a penalty of $1,500
per day shall be assessed for each day after the third business day (inclusive of the day of the conversion) until the shares are
delivered. The balance of the Feb 2017 Note as of December 31, 2020 was $500,000.
The Company issued a 10% convertible
promissory note on November 9, 2017 (the “Nov 2017 Note”) in the aggregate principal amount of up to $500,000. Upon
execution of the convertible promissory note, the Company received a tranche of $45,000. The Company received additional tranches
in the amount of $455,000 for an aggregate sum of $500,000. The Nov 2017 Note had a maturity date of November 9, 2018, with an
automatic extension of sixty (60) months from the effective date of the note. The Nov 2017 Note is convertible into shares of common
stock of the Company at a price equal to a variable conversion price of the lesser of $0.01 per share or fifty percent (50%) of
the lowest trading price since the original effective date of the note or the lowest effective price per share granted to any person
or entity after the effective date to acquire common stock. If the Company fails to deliver shares in accordance with the timeframe
of three (3) business days of the receipt of a notice of conversion, the lender, at any time prior to selling all of those shares,
may rescind any portion, in whole or in part of that particular conversion attributable to the unsold shares and have the rescinded
conversion amount returned to the principal sum with the rescinded conversion shares returned to the Company. In no event shall
the lender be entitled to convert any portion of the Nov 2017 Note such that would result in beneficial ownership by the lender
and its affiliates of more than 4.99% of the outstanding shares of common stock of the Company. In addition, for each conversion,
in the event that shares are not delivered by the fourth business day (inclusive of the day of conversion), a penalty of $1,500
per day shall be assessed for each day after the third business day (inclusive of the day of the conversion) until the shares are
delivered. During the period ended December 31, 2020, the investor separated $70,000 in principal from the note, and the Company
issued 8,099,781 shares of common stock upon conversion of $6,000 in principal, plus interest of $1,695. The balance of the Nov
2017 Note as of December 31, 2020 was $494,000.
The Company issued a 10% convertible
promissory note on June 27, 2018 (the “Jun 2018 Note”) in the aggregate principal amount of up to $500,000. Upon execution
of the convertible promissory note, the Company received a tranche of $50,000. On October 9, 2018, the Company received another
tranche of $40,000, for a total aggregate of $90,000 as of December 31, 2019. The Jun 2018 Note matured on June 27, 2019, which
was automatically extended for sixty (60) months from the effective date of the note. The Jun 2018 Note is convertible into shares
of common stock of the Company at a price equal to a variable conversion price of the lesser of $0.01 per share or fifty percent
(50%) of the lowest trading price since the original effective date of the note or the lowest effective price per share granted
to any person or entity after the effective date to acquire common stock. If the Company fails to deliver shares in accordance
with the timeframe of three (3) business days of the receipt of a notice of conversion, the lender, at any time prior to selling
all of those shares, may rescind any portion, in whole or in part of that particular conversion attributable to the unsold shares
and have the rescinded conversion amount returned to the principal sum with the rescinded conversion shares returned to the Company.
In no event shall the lender be entitled to convert any portion of the Jun 2018 Note such that would result in beneficial ownership
by the lender and its affiliates of more than 4.99% of the outstanding shares of common stock of the Company. In addition, for
each conversion, in the event, that shares are not delivered by the fourth business day (inclusive of the day of conversion), a
penalty of $1,500 per day shall be assessed for each day after the third business day (inclusive of the day of the conversion)
until the shares are delivered. The balance of the Jun 2018 Note as of December 31, 2020 was $90,000.
The Company issued a 10% convertible
promissory note on August 10, 2018 (the “Aug 2018 Note”) in the aggregate principal amount of up to $100,000. The Aug
2018 Note had a maturity date of August 10, 2019, with an extension of sixty (60) months from the date of the note. The Aug 2018
Note matures on August 10, 2023. The Aug 2018 Note may be converted into shares of the Company’s common stock at a conversion
price of the lesser of a) $0.005 per share or b) sixty-one (61%) percent of the lowest trading price per common stock recorded
on any trade day after the effective date. The conversion feature of the Aug 2018 Note was considered a derivative in accordance
with current accounting guidelines because of the reset conversion features of the Note. The balance of the Aug 2018 Note as of
December 31, 2020 was $100,000.
SUNHYDROGEN, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
- UNAUDITED
DECEMBER 31, 2020 AND 2019
5.
|
CONVERTIBLE PROMISSORY NOTES (Continued)
|
On January 20, 2020, the Company
issued a 10% convertible promissory note (the “Jan 2020 Note”) to an investor (the “Jan 2020 Note”) in
the principal amount of $80,000. The Company received funds of $78,000, less other fees of $2,000. The Jan 2020 Note had a maturity
date of January 20, 2021. The Jan 2020 Note was convertible into shares of the Company’s common stock at a conversion price
of sixty-one (61%) percent of the lowest two (2) trading prices of the common stock during the fifteen (15) trading day prior to
the conversion date. The conversion feature of the Jan 2020 Note was considered a derivative in accordance with current accounting
guidelines because of the reset conversion features of the Jan 2020 Note. During the six months ended December 31, 2020, the Company
issued 23,420,128 shares of common stock upon conversion of principal in the amount of $80,000, plus accrued interest of $3,989,
and other fees of $300. The Company recorded amortization of debt discount, which was recognized as interest expense in the amount
of $42,404 during the six months ended December 31, 2020. The Jan 2020 Note was fully converted as of December 31, 2020.
On February 11, 2020, the Company
issued a convertible promissory note (the “Feb 2020 Note”) to an investor (the “Feb 2020 Note”) in the
principal amount of $80,000. The Company received funds of $78,000, less other fees of $2,000. The Feb 2020 Note had a maturity
date of February 11, 2021. The Feb 2020 Note was convertible into shares of the Company’s common stock at a conversion price
of sixty-one (61%) percent of the lowest two (2) trading prices of the common stock during the fifteen (15) trading day prior to
the conversion date. The conversion feature of the Feb 2020 Note was considered a derivative in accordance with current accounting
guidelines because of the reset conversion features of the Feb 2020 Note. During the six months ended December 31, 2020, the Company
issued 5,294,205 shares of common stock upon conversion of principal in the amount of $80,000, plus accrued interest of $3,989,
and other fees of $300. The Company recorded amortization of debt discount, which was recognized as interest expense in the amount
of $49,399 during the six months ended December 31, 2020. The Feb 2020 Note was fully converted as of December 31, 2020.
On March 9, 2020, the Company
issued a convertible promissory note (the “Mar 2020 Note”) to an investor, (the “Mar 2020 Note”) in the
principal amount of $40,000. The Company received funds of $38,000, less other fees of $2,000. The Mar 2020 Note had a maturity
date of March 9, 2021. The Mar 2020 Note was convertible into shares of the Company’s common stock at a conversion price
of sixty-one (61%) percent of the lowest two (2) trading prices of the common stock during the fifteen (15) trading day prior to
the conversion date. The conversion feature of the Mar 2020 Note was considered a derivative in accordance with current accounting
guidelines because of the reset conversion features of the Mar 2020 Note. During the six months ended December 31, 2020, the Company
issued 2,390,871 shares of common stock upon conversion of principal in the amount of $40,000, plus accrued interest of $1,995,
and other fees of $300. The Company recorded amortization of debt discount, which was recognized as interest expense in the amount
of $25,708 during the six months ended December 31, 2020. The Mar 2020 Note was fully converted as of December 31, 2020.
SUNHYDROGEN, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
- UNAUDITED
DECEMBER 31, 2020 AND 2019
5.
|
CONVERTIBLE PROMISSORY NOTES (Continued)
|
On April 14, 2020, the Company
issued a convertible promissory note (the “April 2020 Note”) to an investor in the principal amount of $80,000. The
Company received funds of $78,000, less other fees of $2,000. The April 2020 Note matures on April 14, 2021. The April 2020 Note
was convertible into shares of the Company’s common stock at a conversion price of sixty-one (61%) percent of the average
of the lowest two (2) trading prices of the common stock during the fifteen (15) trading day prior to the conversion date. The
conversion feature of the April 2020 Note was considered a derivative in accordance with current accounting guidelines because
of the reset conversion features of the April 2020 Note. The Company recorded amortization of debt discount, which was recognized
as interest expense in the amount of $63,342 during the six months ended December 31, 2020. During the six months ended December
31, 2020, the Company issued 5,315,949 shares of common stock upon conversion of principal in the amount of $80,000, plus accrued
interest of $4,011, and other fees of $300. The April 2020 Note was fully converted as of December 31, 2020.
On April 15, 2020, the Company
issued a convertible promissory note (the “Apr 2020 Note”) to an investor in the aggregate principal amount of $50,000,
of which the Company received $10,000 as of June 30, 2020. The Apr 2020 Note matures twelve (12) months from the effective dates
of each respective tranche, such that the Apr 2020 Note matures on April 15, 2021, with an automatic extension of sixty (60) months
from the effective date of each tranche. The Apr Note is convertible into shares of common stock of the Company at a variable conversion
price of the lesser of $0.01 per share or fifty percent (50%) of the lowest trading price of the common stock recorded on any trade
day after the effective date, or (c) the lowest effective price per share granted to any person or entity after the effective date
to acquire common stock. If the Company fails to deliver shares in accordance with the timeframe of four (4) business days of the
receipt of a notice of conversion, the lender, at any time prior to selling all of those shares, may rescind any portion, in whole
or in part of that particular conversion attributable to the unsold shares and have the rescinded conversion amount returned to
the principal sum with the rescinded conversion shares returned to the Company. In no event shall the lender be entitled to convert
any portion of the Apr 2020 Note such that would result in beneficial ownership by the lender and its affiliates of more than 4.99%
of the outstanding shares of common stock of the Company. In addition, for each conversion, in the event that shares are not delivered
by the fourth business day (inclusive of the day of conversion), a penalty of $2,000 per day shall be assessed for each day after
the fourth business day (inclusive of the day of the conversion) until the shares are delivered. The conversion feature of the
April 2020 Note was considered a derivative in accordance with current accounting guidelines because of the reset conversion features
of the Apr 2020 Note. The Company recorded amortization of debt discount, which was recognized as interest expense in the amount
of $1,710 during the six months ended December 31, 2020. The balance of the Apr 2020 Note as of December 31, 2020 was $10,000.
On May 19, 2020, the Company
issued a convertible promissory note (the “May 2020 Note”) to an investor in the principal amount of $80,000. The Company
received funds of $78,000, less other fees of $2,000. The May 2020 Note had a maturity date of May 19, 2021. The May 2020 Note
was convertible into shares of the Company’s common stock at a conversion price of sixty-one (61%) percent of the lowest
two (2) trading prices of the common stock during the fifteen (15) trading day prior to the conversion date. The conversion feature
of the May 2020 Note was considered a derivative in accordance with current accounting guidelines because of the reset conversion
features of the May 2020 Note. The Company recorded amortization of debt discount, which was recognized as interest expense in
the amount of $70,795 during the year ended June 30, 2020. During the six months ended December 31, 2020, the Company issued 5,933,503
shares of common stock upon conversion of principal in the amount of $80,000, plus accrued interest of $4,033, and other fees of
$300. The May 2020 Note was fully converted as of December 31, 2020.
On June 18, 2020, the Company
issued a convertible promissory note (the “June 2020 Note”) to an investor in the principal amount of $160,000. The
Company received funds of $156,000, less other fees of $4,000. The Jun 2020 Note has a maturity date of June 19, 2021.The Jun 2020
Note was convertible into shares of the Company’s common stock at a conversion price of sixty-one (61%) percent of the average
of the lowest two (2) trading prices of the common stock during the fifteen (15) trading day prior to the conversion date. The
conversion feature of the Jun 2020 Note was considered a derivative in accordance with current accounting guidelines because of
the reset conversion features of the Jun 2020 Note. The Company recorded amortization of debt discount, which was recognized as
interest expense in the amount of $154,740. During the six months ended December 31, 2020, the Company issued 11,437,764 shares
of common stock upon conversion of principal in the amount of $160,000, plus accrued interest of $7,847, and other fees of $300.The
Jun 2020 Note was fully converted as of December 31, 2020.
All note conversions were performed
per the terms of their respective agreements and therefore no gain or loss on the conversion was recorded.
SUNHYDROGEN, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
- UNAUDITED
DECEMBER 31, 2020 AND 2019
6.
|
DERIVATIVE LIABILITIES
|
ASC Topic 815 provides guidance
applicable to convertible debt issued by the Company in instances where the number into which the debt can be converted is not
fixed. For example, when a convertible debt converts at a discount to market based on the stock price on the date of conversion,
ASC Topic 815 requires that the embedded conversion option of the convertible debt be bifurcated from the host contract and recorded
at their fair value. In accounting for derivatives under accounting standards, the Company recorded a liability representing the
estimated present value of the conversion feature considering the historic volatility of the Company’s stock, and a discount
representing the imputed interest associated with the embedded derivative. The discount is amortized over the life of the convertible
debt, and the derivative liability is adjusted periodically according to stock price fluctuations.
The convertible notes (the “Notes”)
issued do not have fixed settlement provisions because their conversion prices are not fixed. The conversion features have been
characterized as derivative liabilities to be re-measured at the end of every reporting period with the change in value reported
in the statement of operations.
During the six months ended
December 31, 2020, the Company recorded a net loss in change in derivative of $123,518,838 in the statement of operations due to
the change in fair value of the remaining notes, for the six months ended December 31, 2020.
At December
31, 2020, the fair value of the derivative liability was $183,176,556.
For purpose of determining the
fair market value of the derivative liability for the embedded conversion, the Company used the Binomial lattice formula.
The significant assumptions used in the Binomial lattice formula of the derivatives are as follows:
Risk free interest rate
|
|
0.09% - 0.17%
|
Stock volatility factor
|
|
162.0% - 266.0%
|
Weighted average expected option life
|
|
3 months - 5 year
|
Expected dividend yield
|
|
None
|
7.
|
COMMON STOCK PURCHASE AGREEMENTS
On July 27, 2020, the Company entered into
a common stock purchase agreement with an investor. Pursuant to the purchase agreement, subject to certain conditions set forth
in the purchase agreement, the investor was obligated to purchase up to $2.1 million of the Company’s common stock from time
to time through September 30, 2020. The purchase price per share under the purchase agreement was 85% of the lowest closing price
during the five (5) business days prior to closing, not to exceed the valuation cap set forth in the purchase agreement. During
the six months ended December 31, 2020, the Company issued 20,000,000 shares of common stock at a purchase price of $0.025 per
share under the purchase agreement. The Company received net proceeds of $460,300 after legal fees and commissions.
On September 21, 2020, the Company entered
into a common stock purchase agreement with an investor. Under the purchase agreement, the Company had the right to sell, in its
discretion (subject to the terms and conditions of the purchase agreement) up to an aggregate of $4,000,000 of common stock to
the investor. The Company had the right, in its sole discretion, subject to the conditions and limitations in the purchase agreement,
to direct the investor, by delivery of a purchase notice from time to time to purchase over the 6-month term of the purchase agreement,
a minimum of $10,000 and up to a maximum of $400,000 of shares of common stock for each purchase notice (provided that, the purchase
amount for any purchase could not exceed two times the average of the daily trading dollar volume of the common stock during the
10 business days preceding the purchase date). The number of purchase shares issuable under each purchase was equal to 112.5% of
the purchase amount sold under such purchase, divided by the purchase price per share (as defined under the purchase agreement).
The “purchase price” was defined as 90% of the lowest end-of-day volume weighted average price of the common stock
for the five consecutive business days immediately preceding the purchase date, including the purchase date. The Company could
not deliver more than one purchase notice to the investor every ten business days, except as the parties may otherwise agree.
During the six months ended December
31, 2020, the Company entered into a common stock purchase agreement and received aggregate net proceeds of $1,632,000 for
the purchase of 84,310,249 shares of common stock under the purchase agreement. The purchase agreement was terminated on
December 1, 2020.
|
SUNHYDROGEN, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
- UNAUDITED
DECEMBER 31, 2020 AND 2019
8.
|
SECURITIES PURCHASE AGREEMENT
|
On December 3, 2020, the Company
entered into a common stock purchase agreement, under which the Company received $9.0 million for the sale of 120.0 million shares
of common stock and warrants to purchase 120.0 million shares of common stock at an exercise price of $0.075 per share. The purchase
agreement and warrants were accounted for at fair value using the Black-Scholes valuation model. The estimated fair value of the
purchase agreement was $4,979,933 and $3,900,067 for the warrants, which was recognized in the financial statements as of December
31, 2020.
On December 29, 2020, the Company
received $9.0 million from the purchase of 120.0 million shares of common stock, pursuant to the exercise of warrants at an exercise
price of $0.075 per share. As an inducement, the holder was issued an additional 132.0 million common stock purchase warrants,
at an exercise price of $0.075 per share and an exercise period of three years. The purchase warrants were accounted for at fair
value using the Black Scholes valuation model. The estimated value of $15,928,314 was deemed to be dividends, which was netted
against the proceeds and recognized in the financial statements as of December 31, 2020.
9.
|
COMMITMENTS AND CONTINGENCIES
|
On September 15, 2020, the Company
entered into a marketing agreement. The fees are to be paid in cash and registered unrestricted stock. As of December 31, 2020,
the Company has paid a $34,250 deposit, with the balance of the payments and the stock issuances due upon completion of a deliverable.
On September 1, 2020, the Company
entered into a research agreement with the University of Iowa. As consideration under the research agreement, the University of
Iowa will receive a maximum of $299,966 from the Company. The research agreement may be terminated by either party upon sixty (60)
day prior written notice or a material breach or default, which is not cured within 90 days of receipt of a written notice of such
breach. The term of the research agreement is from September 1, 2020 through August 31, 2021. As of December 31, 2020, the Company
has accrued the amount due of $99,989.
In the normal
course of business, the Company may be involved in legal proceedings, claims and assessments arising in the ordinary
course of business. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance. In the opinion
of management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s
consolidated financial position or results of operation
As of December 31, 2020, the
Company reported an accrual associated with the CEO’s prior year salary in the amount of $211,750.
Management evaluated subsequent
events as of the date of the financial statements pursuant to ASC TOPIC 855, and reported the following events:
On January 19, 2021, the Company issued 12,232,733 shares of
common stock upon conversion of principal in the amount of $9,000, plus accrued interest of $2,621.
On January 21, 2021, the Company
issued 103,529,027 shares of common stock upon conversion of principal in the amount of $68,950, plus accrued interest of $29,403.
On January 29, 2021, the Company
issued 50,532,617 shares of common stock upon conversion of principal in the amount of $33,800, plus accrued interest of $14,206.
On January 29, 2021, the Company
paid off a convertible note in principal of $64,450, plus accrued interest of $26,795.
On February 4, 2021, the
Company entered into a purchase agreement with an investor to purchase up twenty-five million dollars ($25,000,000) of the
Company’s registered common stock. The Company has the right, in its sole discretion, subject to the conditions and
limitations in the purchase agreement, to direct the investor, by delivery of a purchase notice from time to time (a
“Purchase Notice”) to purchase (each, a “Purchase”) over the 12-month term of the purchase agreement,
a minimum of $100,000 and up to a maximum of $5,000,000 (the “Purchase Amount”) of shares of common stock (the
“Purchase Shares”) for each Purchase Notice, provided that the parties may agree to waive such limitation, and
provided further that, the initial Purchase Amount was $7,000,000. The number of Purchase Shares the Company will issue under
each Purchase will be equal to 112.5% of the Purchase Amount sold under such Purchase, divided by the Purchase Price per
share (as defined under the purchase agreement). The “Purchase Price” is defined as 90% of the lowest end-of-day
volume weighted average price of the common stock for the five consecutive business days immediately preceding the purchase
date, including the purchase date. On February 5, 2021, the Company issued 46,271,813 shares of common stock for cash in the
amount of $7,000,000.
On February 12, 2021, the Company
received $9.9 million from the exercise of 132,000,000 common stock purchase warrants, at an exercise price of $0.075 per share.