Securities registered
pursuant to section 12(g) of the Act: common stock, par value $0.001 per share
Indicate by check mark
if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐
No ☒
Indicate by check mark
if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐
No ☒
Indicate by check
mark whether the registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark
whether the registrant has submitted electronically every Interactive Data File required to be submitted 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
such files). Yes ☒ No ☐
Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller
reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark
whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting
firm that prepared or issued its audit report. ☐
Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
No ☒
The aggregate market
value of the common stock held by non-affiliates of the registrant, based upon the last sale price of the common stock of the Company
as of the last business day of its most recently completed second fiscal quarter was approximately $267,705,946.
The number of shares of registrant’s
common stock outstanding, as of October 8, 2021 was 4,054,676,450.
PART I
Item 1. Business.
Unless
otherwise stated or the context requires otherwise, references in this annual report on Form 10-K to “SunHydrogen”, the “Company”,
“we”, “us”, or “our” refer to SunHydrogen, Inc.
Overview
At
SunHydrogen, our goal is to replace fossil fuels with clean, renewable hydrogen.
Hydrogen
is the most abundant chemical element in the universe. When hydrogen fuel is used to power transportation and industry, the only byproduct
left behind is pure water, unlike hydrocarbon fuels such as oil, coal and natural gas that release carbon dioxide and other contaminants
into the atmosphere when used. However, naturally occurring elemental hydrogen is rare – so rare, in fact, that today over 95% of
hydrogen still comes from methane, a fossil fuel (Source: Forbes, Estimating the Carbon Footprint of Hydrogen Production). This
hydrogen is procured through steam methane reforming (SMR), a capital-intensive process that emits carbon dioxide and other harmful pollutants.
The SunHydrogen solution offers an efficient and
cost-effective way to produce truly green hydrogen using sunlight and any source of water. Our core technology is a self-contained, nanoparticle-based
hydrogen generator that mimics photosynthesis to split water molecules, resulting in hydrogen. By optimizing the science of water electrolysis
at the nano-level, we believe we have developed a low-cost method to potentially produce environmentally friendly renewable hydrogen.
We believe renewable hydrogen is the fuel of the
future, and we believe our technology potentially offers solutions to the challenges that the hydrogen future presents, including cost
of production and transportation.
Because our process only requires sunlight and
water, our technology can be installed near the point of hydrogen use. This eliminates the need for pipelines and trucks that result in
high carbon emissions and high capital investment. With a target cost of $2.50/kg., we aspire for our technology to be cost-competitive
with brown hydrogen and below the cost of clean hydrogen competitors. We believe our solution has the potential to clear a path for green
hydrogen to compete with natural gas hydrogen and gain mass market acceptance as a true replacement for fossil fuels.
Our technology is primarily developed at the University
of Iowa, through a sponsored research agreement. A longtime development partner to SunHydrogen, The University of Iowa research team has
worked over the past several years to both lead and optimize the scale-up of our nanoparticle technology.
In 2021, we made strides toward the commercialization
of our nanoparticle technology and entered agreements with two new technology development partners; InRedox in Longmont, Colorado and
SCHMID Group in Freudenstadt, Germany.
Under our agreement with InRedox, they support
the design and production of essential materials for our nanoparticle technology.
Concurrently,
SCHMID has worked to develop the process and equipment to manufacture and scale up our nanoparticle technology.
In 2021, we also successfully completed production
of 100 demonstration units of our Gen 1 technology, and added a Chief Operating Officer, Woosuk Kim, a seasoned senior operations executive
with global business management and financial market expertise spanning the U.S. and Wall Street, Europe, Asia and the Middle East.
We will continue working diligently with our existing
technology partners to drive our technology to commercialization while we simultaneously prepare for mass production and seek out potential
manufacturing partners for production facility, equipment design and engineering.
Market Opportunity
The global hydrogen market
is large and growing rapidly. Current fossil fuels can’t sustain future energy requirements environmentally or economically, and
hydrogen fuel technologies are being adopted across all sectors as the world moves toward renewable alternatives.
Over 110 countries have set
goals to achieve net-zero emissions by 2050, and as governments look to clean energy sources to help them meet their targets, hydrogen
is emerging as a promising solution (Source: United Nations, The race to zero emissions, and why the world depends on it). It is
estimated that nearly 25% of global energy will come from clean hydrogen alone by 2050, which could bring in a projected $2.5 trillion
in annual revenues (Source: Bank of America Securities, New Energy Behind Green Hydrogen).
In the US, California is leading
the way in hydrogen strategies, with more fuel cell passenger vehicles on the road than any other state and one of the largest hydrogen
refueling station networks in the world (Source: Sierra Nevada Ally, Hydrogen Fuel Cell Vehicles are Building Momentum in California).
Globally, over 320 green hydrogen production demonstration projects have been announced, and governments around the world have put forth
ambitious strategies to utilize hydrogen and fuel cell technologies across all sectors of the economy including transportation, feedstock
and industrial heat use (Source: International Energy Agency, Hydrogen Projects Database).
By 2050, the hydrogen market
is expected to increase tenfold compared to where it stands today (Source: The Hydrogen Council, Hydrogen, scaling up).
Existing Market Growth
According
to a Grand View Research study released in March 2021, the global hydrogen generation
market size was valued at $120.7 billion in 2020 and is expected to expand at a compound annual growth rate (CAGR) of 5.7% from 2021 to
2028. This places the market’s projected value at $184 billion in 2028.
Among
the factors driving the global hydrogen generation market size are regulations intended to reduce sulfur content and measures to reduce
the carbon footprint. U.S. federal and state governments have adopted various programs, including the Tier 3 program, to reduce the sulfur
content in gasoline, motor oil and diesel.
Growing
demand for petroleum products from developing countries is also anticipated to drive the hydrogen generation market in the coming years.
Hydrogen is used in various refining processes including hydrocracking and hydrodesulfurization to crack bigger molecules into lighter
ones and produce more usable products.
We believe increasing demand for clean fuel energy will be
affected by:
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Stringent government regulation toward desulphurization of petroleum products
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Deteriorating crude oil quality; and
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Transportation and storage issues
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Therefore, we believe our
renewable hydrogen-producing technology possesses significant early market opportunity, especially as innovation and infrastructure continue
to develop.
Utility Scale Hydrogen Electricity
According to a March 2013
report from NREL, a national laboratory of the U.S. Department of Energy, hydrogen can be blended into existing natural gas pipeline networks,
thus bypassing the high cost of dedicated hydrogen pipelines to use hydrogen at a large scale. If implemented with relatively low concentrations,
less than 5%–15% hydrogen by volume, this strategy of storing and delivering renewable hydrogen to markets appears to be viable
without significantly increasing risks associated with utilization of the gas blend in end-use devices (such as household appliances),
overall public safety, or the durability and integrity of the existing natural gas pipeline network (Source: NREL, Blending Hydrogen
into Natural Gas Pipeline Networks: A review of Key Issues).
Hydrogen Fuel Cell Vehicles
The auto manufacturing and
vehicle industries are among the most recognized applications for hydrogen fuel technologies. According to a 2021 study by Information
Trends, over 27,500 hydrogen fuel cell vehicles had been sold by year-end 2020 since their sales first began. Sales were held back due
to the lack of a solid hydrogen refueling infrastructure, but the numbers are projected to rise quickly, and fuel cell vehicles are gaining
momentum around the world. In the same study, Information Trends projected that close to 600,000 hydrogen fuel cell buses and minibuses
will be in service by 2035 (Source: Information Trends, Global Market for Hydrogen Fuel Cell Buses). In California, executives
from 25 multinational companies including Toyota, Hyundai, BMW, Chevron and other key players have called on Governor Gavin Newsom to
heavily invest in hydrogen infrastructure in the state (Source: Ways2H, Executives Pen Letter to Newsom Calling for Major Investments
in Hydrogen Infrastructure). Stories and projections like these suggest a promising future for fuel cell vehicles.
Our Technology
Technology for
Making Renewable Hydrogen from Sunlight and Water
Powered by
solar energy, billions of our microscopic nanoparticles split apart water at the molecular level, extracting hydrogen for use as a clean
energy source and leaving behind only clean oxygen as a byproduct. This process is similar to what happens inside a plant cell during
photosynthesis: Each Photoelectrochemically Active Heterostructures (or PAH) nanoparticle is a microscopic machine, composed of multiple
layers enabling the solar electrolysis reaction to take place.
Water Splitting
In
the process of splitting a water molecule, input energy is transferred into the chemical bonds. Essentially, manufactured hydrogen serves
as a carrier or battery-like storage of the input energy. If the input energy is from fossil fuels, such as oil and gas, then carbon fossil
fuel energy is simply transferred into hydrogen. If the input energy is renewable, such as solar or wind, then new and clean energy is
stored in hydrogen.
While
the concept of water splitting is very appealing, the following challenges must be addressed for renewable hydrogen to be commercially
viable:
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Energy Inefficiency —
Since hydrogen is an energy carrier, the most energy it can store is 100% of the input energy. However, conventional systems approach
to electrolysis lose much of the input energy in system components, wires and electrodes resulting in only a small portion of electricity
making it into the hydrogen molecules. This translates to high production cost and is the fundamental problem with water splitting for
hydrogen production. We intend to address this problem with our low-cost and energy efficient particle technology.
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Need for Clean Water
— Conventional electrolysis requires highly purified clean water to prevent fouling of system components. This prevents current
technology from using large quantities of available water from oceans, rivers, industrial waste and municipal waste as feedstock. Our
technology is being designed to use any natural water or waste water for the unlimited production of renewable hydrogen.
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Technology
Water electrolysis
in its simplest form is the transfer of “input electrons” in the following chemical reactions:
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Cathode (reduction): 2H2O + 2e- ® H2 + 2OH-
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Anode (oxidation): 4OH- ® O2 + 2H2O + 4 e-
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From
these equations, one can deduce that if every input electron (e-) is put to work and not lost, then a maximum amount
of input electrons (i.e. energy) is transferred and stored in the hydrogen molecules (H2). Additionally, if there were
a very high number of cathode and anode reaction areas within a given volume of water, then a very high number of these reactions could
happen simultaneously throughout the medium to split each water molecule into hydrogen wherever electrons are available.
SunHydrogen Panel™
Since
our particles are intended to mimic the natural temperature conditions of photosynthesis, they can be housed in very low-cost reactors.
To facilitate the commercial use of our self-contained particle technology, we are developing a modular system that will enable the onsite
daily production and storage of hydrogen for any time use in electricity generation.
We
refer to our potential product as the SunHydrogen Panel which is comprised of the following components:
1. The Generator Housing
– Our novel device design is the first of its kind to safely separate oxygen and hydrogen in the water splitting process without
sacrificing efficiency. This device houses the water, and the solar particles/cells and is designed with inlets and outlets for water
and gasses. Utilizing a novel ion-exchange membrane strategy for separating the oxygen side from the hydrogen side, ion transport is increased
which is the key to safely increasing solar-to-hydrogen efficiency. Our design can be scaled up and manufactured for commercial use.
2. The NanoParticle or Solar Cell - Powered
by solar energy, billions of our microscopic nanoparticle solar cells split apart water at the molecular level, extracting hydrogen for
use as a clean energy source and leaving behind only clean oxygen as a byproduct.
3. Oxygen Evolution Catalyst
- This proprietary catalyst developed at the University of Iowa lab is uniformly applied onto the solar cell or nanoparticle and efficiently
oxidize water molecule to generate oxygen gas. The oxygen evolution catalyst must be robust to withstand the long operating hours of the
hydrogen generation device to ensure long lifetime. It must be stable in alkaline, neutral and acidic environments.
4. Hydrogen Evolution
Catalyst - Necessary for collecting electrons to reduce protons for generating hydrogen gas, we have successfully integrated a low-cost
hydrogen catalyst into our generator system, successfully coating a triple junction solar cell with a catalyst comprised primarily of
ruthenium, carbon and nitrogen that can function as well as platinum, the current catalyst used for hydrogen production.
5. Coating Technologies
- Two major coating technologies were developed to protect the nanoparticles and solar cells from photocorrosion under water: A transparent
conducive coating to protect our nanoparticles and solar cells from photo corrosion and efficiently transfer charges to catalysts for
oxygen and hydrogen evolution reactions; and a polymer combination that protects the triple junction solar cells from any corrosive water
environments for long lifetime of the hydrogen generation device.
In
the process of optimizing our nanoparticles to be efficient and only during experimentation with earth abundant materials (an ongoing
process), we experimented with commercially available triple junction silicon solar cells to perform tests with our generator housing
and other components. Through this experimentation, our discovery led us to believe that we could bring a system (Gen 1) to market utilizing
these readily available cells while our nanoparticles are still being optimized. While these solar cells also absorb sunlight and produce
the necessary charge for splitting the water molecules into hydrogen and oxygen, their efficiency is low, thus we have made the strategic
decision to focus on our NanoParticle strategy (Gen 2) and use the Gen 1 hydrogen generators for proof of concept and demonstration purposes
only. We anticipate these hydrogen panels will be demonstrated in various parts of the world as further proof of concept of our technology
and to promote our nanoparticle technology that will be more efficient and economical.
Our
business and commercialization plan utilizes our second generation of hydrogen panels featuring the nanoparticle-based technology where
billions of autonomous solar cells are electrodeposited onto porous alumina sheets and manufactured in a roll to roll process or wafer
process and inserted into our proprietary panels. For this generation, we have received multiple patents and our target cost of hydrogen
production is $2.50 per kilogram before pressurization.
We
are working with several vendors to help commercialize and manufacture our renewable hydrogen panels that use sunlight and water to generate
hydrogen. In February 2021, we entered into a cooperation agreement with Schmid Group of Freudenstadt, Germany to design and define a
process platform that enables mass manufacturing of SunHydrogen’s Gen 2 NanoParticle hydrogen panels. In April 2021, we entered
into an agreement with InRedox of Longmont, Colorado to produce the material components needed for Gen 2 manufacturing development. Both
Schmid and InRedox work alongside the research team at the University of Iowa, a longtime technology development partner to SunHydrogen
under sponsored research agreement.
Intellectual Property
On November 14, 2011, we filed
a provisional application with the U.S. Patent and Trademark Office to protect the intellectual property rights for “Photoelectrochemically
Active Heterostructures, methods for their manufacture, and methods and systems for producing desired products.” A year later on
November 14, 2012, we filed a non-provisional application claiming priority to the provisional application. On March 14, 2017, a first
patent covering the structural design of Photoelectrochemically Active Heterostructures (PAH) was granted as United States Patent No.
9,593,053B1. A divisional application claiming priority to the foregoing applications was filed, and on April 3, 2018, a second patent
covering the method for manufacturing PAH was granted as United States Patent No. 9,593,053B2. These patents protect the Company’s
proprietary design and manufacturing method of a self-contained solar-to-hydrogen device made up of millions of solar-powered water-splitting
nanoparticles, per square centimeter. These nanoparticles are coated with a separate patent-pending protective coating that prevents corrosion
during extended periods of hydrogen production. The aim of these nanoparticles is high conversion efficiency and low cost. This patent
expires on November 14, 2032.
An important aspect of the
patented technology referred to in the preceding paragraph is the integrated structures of high-density arrays of nano-sized solar cells
as part of hydrogen production nanoparticles. The technology enables manufacturing of ultra-thin sheets for solar-to-hydrogen production,
requiring substantially less material as compared to conventional solar cells used in rooftop power applications.
On March 21, 2014, we jointly
filed a provisional application with UCSB for the “Multi-junction artificial photosynthetic cell with enhanced photovoltages.”
Thereafter, we filed a non-provisional application on March 16, 2015 and a corresponding PCT Application on March 17, 2015. These applications
cover our semiconductor designs to enhance the photovoltages of the nano-sized solar cells in the PAH structures. The semiconductor designs
stacking multiple junctions inside the PAH structures would be an efficient and economic solution for the photovoltaic and the photoelectrochemical
industries. Patents were granted in Australia in April of 2018, China and Europe in March of 2019, and in the U.S. as United States Patent
No. 10,100,415 in October of 2018. A patent application is currently pending in India. This patent expires on March 17, 2025.
On September 26, 2016, we
filed jointly with the University of Iowa a provisional application for “Integrated Membrane Solar Fuel Production Assembly”
to protect the intellectual property for our generator housing system that safely separates oxygen and hydrogen in the water-splitting
process without sacrificing efficiency. This device houses the water, the solar particles/cells and is designed with inlets and outlets
for water and gases. Utilizing a special membrane for separating the oxygen side from the hydrogen side, proton transport is increased
which is the key to safely increasing solar-to-hydrogen efficiency. On September 26, 2017, we filed a PCT Application that was later nationalized
in the U.S. on March 26, 2019. The U.S. patent application for this important invention is pending and prosecution is ongoing.
Strategic Partners
As
of September 1, 2021, we have renewed our sponsored 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 60 days prior written notice or by either party upon notice of a material breach or default which is not cured within 90 days
of receipt of written notice of such breach. This term of the research agreement runs through August 31, 2022 but may be extended upon
mutual agreement of the parties.
In
February 2021, we entered into a cooperation agreement with SCHMID Group of Freudenstadt, Germany. Due to delays associated with supply
chain challenges brought on by the Covid-19 pandemic, the cooperation agreement has been extended to fully complete the work scope with
no additional cost to the company.
In
April 2021, we entered into an additional agreement with InRedox of Longmont, Colorado to support the design and production of essential
materials for our nanoparticle technology.
Competition
Currently,
most hydrogen is produced by steam reforming of natural gas or methane. This production technology dominates due to easy availability
and low prices of natural gas. Partial oxidation of petroleum oil is second in production capacity after steam reforming of natural gas.
The third largest production technology in terms of production capacity is steam gasification of coal. The current industry is heavily
dominated by large players such as Air Products, Chemicals Inc. and Air Liquide.
Green
or renewable hydrogen can be produced through electrolyzers if the electrolyzers are powered by solar or wind energy. Several companies
of this nature have emerged in the past few years. ITM Power in England and Proton Onsite in Norway are two of the largest companies in
this industry. If not powered by solar panels or wind power, they require external electricity most likely created by coal, gas or oil.
We believe that our process when fully developed may potentially offer a competitive advantage as we anticipate it will be completely
green and renewable and utilize no external power other than the sun.
Corporate Information
We
were incorporated in the State of Nevada on February 18, 2009. Our executive offices are located at 10 E. Yanonali St., Suite 36, Santa
Barbara, CA 93101.
Employees
As of September 27, 2021,
we have 4 full-time employees and several consultants. We have not experienced any work stoppages and we consider relations with our employees
and consultants to be good. Most of our research and development work is performed by the University of Iowa, through a sponsored research
agreement, and in collaboration with our development partners SCHMID and InRedox.
Item 1A. Risk Factors.
Risks related to our
business and industry
Our limited operating
history does not afford investors a sufficient history on which to base an investment decision.
We
were formed in February 2009 and are currently developing a new technology that has not yet gained market acceptance. There can be no
assurance that we will ever operate profitably or that we will have adequate working capital to meet our obligations as they become due.
Investors
must consider the risks and difficulties frequently encountered by early stage companies, particularly in rapidly evolving markets. Such
risks include the following:
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competition;
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need for acceptance of products;
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ability to continue to develop and extend brand identity;
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ability to anticipate and adapt to a competitive market;
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ability to effectively manage rapidly expanding operations;
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amount and timing of operating costs and capital expenditures relating to expansion of our business, operations, and infrastructure; and
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dependence upon key personnel.
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We
cannot be certain that our business strategy will be successful or that we will successfully address these risks. In the event that we
do not successfully address these risks, our business, prospects, financial condition, and results of operations could be materially and
adversely affected and we may have to curtail our business.
We have a history
of losses and have never realized revenues to date. We expect to continue to incur losses and no assurance can be given that we will realize
revenues. Accordingly, we may never achieve and sustain profitability.
As
of June 30, 2021, we have an accumulated deficit of $172,976,952. For the year ended June 30, 2021 we incurred a net loss of $81,498,123.
We expect to continue to incur net losses until we are able to realize revenues to fund our continuing operations. We may fail to achieve
any or significant revenues from sales or achieve or sustain profitability. Accordingly, there can be no assurance of when, if ever,
we will be profitable or be able to maintain profitability.
We
have historically raised funds through various capital raising transactions. We will require additional funds in the future to fund our
business plans, either through additional equity or debt financings or collaborative agreements or from other sources. We have no commitments
to obtain such additional financing, and we may not be able to obtain any such additional financing on terms favorable to us, or at all.
In the event we are unable to obtain additional financing, we may be unable to implement our business plan. Even with such financing,
we have a history of operating losses and there can be no assurance that we will ever become profitable.
We may be unable
to manage our growth or implement our expansion strategy.
We may not be able to develop
our product or implement the other features of our business strategy at the rate or to the extent presently planned. Our projected growth
will place a significant strain on our administrative, operational and financial resources. If we are unable to successfully manage our
future growth, establish and continue to upgrade our operating and financial control systems, recruit and hire necessary personnel or
effectively manage unexpected expansion difficulties, our financial condition and results of operations could be materially and adversely
affected.
We may not be able
to successfully develop and commercialize our technologies which would result in continued losses and may require us to curtail or cease
operations.
In
early-to-mid , we entered into agreements with development partners InRedox and SCHMID Group, who are working alongside the University
of Iowa research team to take the lab-scale prototypes of our nanoparticle technology to larger, commercial-scale prototypes. However,
we have not completed a large-scale commercial prototype of our technology and are uncertain at this time when completion of a commercial
scale prototype will occur. Although the lab scale prototype demonstrates the viability of our technology, there can be no assurance that
we will be able to commercialize our technology.
Our revenues will
be dependent upon acceptance of our products by the market; the failure of which would cause us to curtail or cease operations.
We
believe that virtually all of our revenues will come from the sale or license of our products. As a result, we will continue to incur
substantial operating losses until such time as we are able to develop our product and generate revenues from the sale or license of our
products. There can be no assurance that businesses and customers will adopt our technology and products, or that businesses and prospective
customers will agree to pay for or license our products. Our technology and product, when fully developed, may not gain market acceptance
due to various factors such as not enough cost savings between our method of producing hydrogen and other more conventional methods. In
the event that we are not able to significantly increase the number of customers that purchase or license our products, or if we are unable
to charge the necessary prices or license fees, our financial condition and results of operations will be materially and adversely affected.
We anticipate that
we will face intense competition, and many of our competitors have substantially greater resources than we do.
We
operate in a competitive environment that is characterized by price fluctuation and technological change. We anticipate that we will compete
with major international and domestic companies. Some of our current and future potential competitors may have greater market recognition
and customer bases, longer operating histories and substantially greater financial, technical, marketing, distribution, purchasing, manufacturing,
personnel and other resources than we do. In addition, competitors may be developing similar technologies with a cost similar to, or lower
than, our projected costs. As a result, they may be able to respond more quickly to changing customer demands or to devote greater resources
to the development, promotion and sales of solar and solar-related products than we can.
Our
business plan relies on sales of our products based on either a demand for truly renewable clean hydrogen or economically produced clean
hydrogen. If we fail to compete successfully, our business would suffer and we may lose or be unable to gain market share. Neither the
demand for our product nor our ability to manufacture at commercial scale have yet been proven.
Because our industry
is highly competitive and has low barriers to entry, we may lose market share to larger companies that are better equipped to weather
a deterioration in market conditions due to increased competition.
Our
industry is highly competitive and fragmented, subject to rapid change and has low barriers to entry. We may, in the future, compete for
potential customers with solar and heating companies and other providers of solar power equipment or electric power. Some of these competitors
may have significantly greater financial, technical and marketing resources and greater name recognition than we have.
We
believe that our ability to compete depends in part on a number of factors outside of our control, including:
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the ability of our competitors to hire, retain and motivate qualified personnel;
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the ownership by competitors of proprietary tools to customize systems to the needs of a particular customer;
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the price at which others offer comparable services and equipment;
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the extent of our competitors’ responsiveness to customer needs; and
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installation technology.
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Currently, competing methods
of hydrogen production include steam reforming of natural gas or methane, which dominates due to its easy availability and low price;
partial oxidation of petroleum oil; steam gasification of coal; and electrolyzers powered by solar or wind energy. There can be no assurance
that we will be able to compete successfully against current and future competitors. If we are unable to compete effectively, or if competition
results in a deterioration of market conditions, our business and results of operations would be adversely affected.
Our business depends
on proprietary technology that we may not be able to protect and may infringe on the intellectual property rights of others.
Our success will depend, in
part, on our technology’s commercial viability and on the strength of our intellectual property rights. We currently hold patents
in the US, China and Australia, but still have several patents pending in multiple countries. There is no guarantee the pending
patents will be granted. In addition, any agreements we enter into with our employees, consultants, advisors, customers and strategic
partners will contain restrictions on the disclosure and use of trade secrets, inventions and confidential information relating to our
technology may not provide meaningful protection in the event of unauthorized use or disclosure.
Third
parties may assert that our technology, or the products we, our customers or partners commercialize using our technology, infringes upon
their proprietary rights. We have yet to complete an infringement analysis and, even if such an analysis were available at the current
time, it is virtually impossible for us to be certain that no infringement exists, particularly in our case where our products have not
yet been fully developed.
We
may need to acquire licenses from third parties in order to avoid infringement. Any required license may not be available to us on acceptable
terms, or at all.
We
could incur substantial costs in defending ourselves in suits brought against us for alleged infringement of another party’s intellectual
property rights as well as in enforcing our rights against others, and if we are found to infringe, the manufacture, sale and use of our
or our customers’ or partners’ products could be enjoined. Any claims against us, with or without merit, would likely be time-consuming,
requiring our management team to dedicate substantial time to addressing the issues presented. Furthermore, the parties bringing claims
may have greater resources than we do.
We do not maintain
theft or casualty insurance and only maintain modest liability and property insurance coverage and therefore, we could incur losses as
a result of an uninsured loss.
We
do not maintain theft, casualty insurance, or property insurance coverage. We cannot assure that we will not incur uninsured liabilities
and losses as a result of the conduct of our business. Any such uninsured or insured loss or liability could have a material adverse effect
on our results of operations.
If we lose key
employees and consultants or are unable to attract or retain qualified personnel, our business could suffer.
Our success is highly dependent
on our ability to attract and retain qualified scientific, engineering and management personnel. We are highly dependent on our CEO, Timothy
Young, and our development team at the University of Iowa. The loss of this valuable resource could have a material adverse effect
on our operations. There can be no assurance that they will remain associated with us. Our management’s efforts will be critical
to us as we continue to develop our technology and as we attempt to transition from a development stage company to a company with commercialized
products and services. If we were to lose Mr. Young or the services of the development team at the university or any other key employees
or consultants, we may experience difficulties in competing effectively, developing our technology and implementing our business strategies.
The loss of strategic
alliances used in the development of our products and technology could impede our ability to complete our product and result in a material
adverse effect causing the business to suffer.
We
pursue strategic alliances with other companies in areas where collaboration can produce technological and industry advancement. We
have entered into a sponsored research agreement with the University of Iowa which is set to terminate August 31, 2022. If we are unable
to extend the terms of this agreement, we could suffer delays in product development or other operational difficulties which could have
a material adverse effect on our results of operations.
The COVID-19 pandemic may negatively affect
our operations.
The
COVID-19 pandemic is having widespread, rapidly evolving, and unpredictable impacts on global society, economies, financial markets, and
business practices. The continuing impacts of COVID-19 are highly unpredictable and could be significant, and may have an adverse effect
on our business, operations and our future financial performance.
The
impact of the pandemic on our business, operations and future financial performance could include, but is not limited to, that:
|
|
●
|
We may experience delays in our product development;
|
|
|
●
|
The rapid and broad-based shift to a remote
working environment creates inherent productivity, connectivity, and oversight challenges; and
|
|
|
●
|
Volatility in the equity markets could affect
the value of our equity to shareholders and have an impact on our ability to raise capital.
|
Risks relating to
our common stock
There is a limited
trading market for our common stock.
Our common stock is not listed
on any national securities exchange. Accordingly, investors may find it more difficult to buy and sell our shares than if our common stock
was traded on an exchange. Although our common stock is quoted on the OTC Pink, it is an unorganized, inter-dealer, over-the-counter market
which provides significantly less liquidity than the Nasdaq Capital Market or other national securities exchange. Further, there is limited
trading in our common stock. These factors may have an adverse impact on the trading and price of our common stock.
Our common stock
could be subject to extreme volatility.
The
trading price of our common stock may be affected by a number of factors, including events described in the risk factors set forth in
this report, as well as our operating results, financial condition and other events or factors. In addition to the uncertainties relating
to future operating performance and the profitability of operations, factors such as variations in interim financial results or various,
as yet unpredictable, factors, many of which are beyond our control, may have a negative effect on the market price of our common stock.
In recent years, broad stock market indices, in general, and smaller capitalization companies, in particular, have experienced substantial
price fluctuations. In a volatile market, we may experience wide fluctuations in the market price of our common stock and wide bid-ask
spreads. These fluctuations may have a negative effect on the market price of our common stock. In addition, the securities market has,
from time to time, experienced significant price and volume fluctuations that are not related to the operating performance of particular
companies. These market fluctuations may also materially and adversely affect the market price of our common stock.
We anticipate that our issuance of common
stock upon conversion of outstanding convertible notes will result in dilution to our stockholders.
As of June 30, 2021, we have
outstanding $1,271,200 in convertible notes that are convertible into common stock at variable conversion prices (see Note 5 to the financial
statements included in this report). We anticipate that our issuance of common stock upon conversion of outstanding convertible notes
will result in dilution to holders of our common stock, which may have a negative effect on the price of our common stock. In addition,
as of June 30, 2021, we have outstanding warrants to purchase 94,895,239 shares of common stock and options to purchase 182,853,174 shares
of common stock, and our issuance of shares of common stock upon exercise of outstanding warrants or options may result in additional
dilution to our stockholders.
We have never paid
common stock dividends and have no plans to pay dividends in the future, as a result our common stock may be less valuable because a return
on an investor’s investment will only occur if our stock price appreciates.
Holders
of shares of our common stock are entitled to receive such dividends as may be declared by our Board of Directors. To date, we have paid
no cash dividends on our shares of common stock and we do not expect to pay cash dividends on our common stock in the foreseeable future.
We intend to retain future earnings, if any, to provide funds for operations of our business. Therefore, any return investors in our common
stock will be in the form of appreciation in the market value of our shares of common stock, which may not occur.
Our common stock
is subject to the SEC’s penny stock rules.
Unless
our common stock is listed on a national securities exchange, including the Nasdaq Capital Market, or we have stockholders’ equity
of $5,000,000 or less and our common stock has a market price per share of less than $5.00, transactions in our common stock will be subject
to the SEC’s “penny stock” rules. If our common stock remains subject to the “penny stock” rules promulgated
under the Securities Exchange Act of 1934, broker-dealers may find it difficult to effectuate customer transactions and trading activity
in our securities may be adversely affected.
In
accordance with these rules, broker-dealers participating in transactions in low-priced securities must first deliver a risk disclosure
document that describes the risks associated with such stocks, the broker-dealer’s duties in selling the stock, the customer’s
rights and remedies and certain market and other information. Furthermore, the broker-dealer must make a suitability determination approving
the customer for low-priced stock transactions based on the customer’s financial situation, investment experience and objectives.
Broker-dealers must also disclose these restrictions in writing to the customer, obtain specific written consent from the customer, and
provide monthly account statements to the customer. The effect of these restrictions will probably decrease the willingness of broker-dealers
to make a market in our common stock, decrease liquidity of our common stock and increase transaction costs for sales and purchases of
our common stock as compared to other securities. Our management is aware of the abuses that have occurred historically in the penny stock
market.
This
may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.
Our articles of incorporation allow for
our board to create new series of preferred stock without further approval by our stockholders, which could adversely affect the rights
of the holders of our common stock.
Our board of directors has
the authority to fix and determine the relative rights and preferences of preferred stock. Our board of directors has the authority to
issue up to 5,000,000 shares of our preferred stock without further stockholder approval. As a result, our board of directors could authorize
the issuance of a series of preferred stock that would grant to holders of preferred stock the right to our assets upon liquidation, or
the right to receive dividend payments before dividends are distributed to the holders of common stock. In addition, our board of directors
could authorize the issuance of a series of preferred stock that has greater voting power than our common stock or that is convertible
into our common stock, which could decrease the relative voting power of our common stock or result in dilution to our existing stockholders.
Additional stock offerings in the future
may dilute then-existing shareholders’ percentage ownership of the Company.
Given our plans and expectations
that we will need additional capital and personnel, we anticipate that we will need to issue additional shares of common stock or securities
convertible or exercisable for shares of common stock, including convertible preferred stock, convertible notes, stock options or warrants.
We anticipate that our issuance of additional common stock or securities convertible into or exercisable into common stock in the future
will dilute the percentage ownership of then current stockholders.
Item 2. Properties.
Our
principal office address is 10 E. Yanonali St., Suite 36, Santa Barbara, CA, 93101. We believe that our current premises are sufficient
to handle our administrative activities for the near future as adequate lab space and equipment is attained through our agreement with
the University of Iowa.
Item 3. Legal Proceedings.
We
are not currently a party to, nor is any of our property currently the subject of, any material legal proceedings.
Item 4. Mine Safety Disclosures.
Not Applicable.
The accompanying notes are an integral part of these audited financial
statements
The accompanying notes are an integral part of these audited financial
statements
The accompanying notes are an integral part of these audited financial
statements
The accompanying notes are an integral part of these audited financial
statements
NOTES TO FINANCIAL STATEMENTS - AUDITED
JUNE 30, 2021 AND 2020
|
|
1.
|
ORGANIZATION
AND LINE OF BUSINESS
|
Organization
SunHydrogen,
Inc. (the “Company”) was incorporated in the state of Nevada on February 18, 2009. The Company, based in Santa Barbara, California,
began operations on February 19, 2009 to develop and market a solar concentrator technology.
Line
of Business
The
company is currently developing a novel solar-powered nanoparticle system that mimics photosynthesis to separate hydrogen from water.
We intend for technology of this system to be used for the production of renewable hydrogen to produce renewable electricity and hydrogen
for fuel cells.
Going
Concern Substantial Doubt Alleviated
In connection
with the preparation of its financial statements for the years ended June 30, 2021 and 2020, the Company’s management evaluated
the Company’s ability to continue as a going concern in accordance with the ASU 2014-15, Presentation of Financial Statements–Going
Concern (Subtopic 205-40), which requires an assessment of relevant conditions or events, considered in the aggregate, that are known
or reasonably knowable by management on the issuance dates of the financial statements, which indicated the probable likelihood that the
Company will be able to meet its obligations as they become due within one year after the issuance date of the financial statements.
As part of its evaluation, management
assessed known events, trends, commitments, and uncertainties, which included the amount of capital recently and/or in the process of
being raised, and the current level of investment within the green hydrogen industry and the measure of investor confidence.
For the year ended June 30, 2021, the
Company’s operating loss increased to approximately $81,498,123, compared to an operating loss of approximately $57,529,338 in the
prior year ended June 30, 2020. The increase in operating loss consisted primarily of the non-cash change in derivative liability fair
value.
During the year ended June 30, 2021,
the Company consummated financing transactions for up to $62.0 million of proceeds for the purchase of common stock and warrants of the
Company. The proceeds were used for general and administration expenses, and the cost of research and development. The research and development
transaction is further discussed in Note 8 – Commitments and Contingencies.
Based on its evaluation, coupled with the afore-mentioned financing
transactions management believes that it has completely mitigated the circumstance that led to a doubt with respect to the Company’s
ability to continue as a going concern, which existed at the time of the filing of the Company’s prior annual report. The Company’s
cash of $56.0 million as of June 30, 2021 will enable it to meet its obligations for twelve months from the date these financial statements
are available to be issued.
|
|
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.
Concentration risk
Cash includes amounts deposited in
financial institutions in excess of insurable Federal Deposit Insurance Company (FDIC) limits. At times throughout the year, the Company
may maintain cash balances in certain bank accounts in excess of the FDIC limits. As of June 30, 2021, the cash balance in excess of the
FDIC limits was $55,756,555. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant
credit risk in these accounts.
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.
SUNHYDROGEN,
INC.
NOTES
TO FINANCIAL STATEMENTS - AUDITED
JUNE
30, 2021 AND 2020
|
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
Intangible
Assets
The
Company has patent applications to protect the inventions and processes behind its proprietary bio-based back-sheet, a protective covering
for the back of photovoltaic solar modules traditionally made from petroleum-based film. Intangible assets that have finite useful lives
continue to be amortized over their useful lives.
|
|
|
Useful Lives
|
|
|
6/30/2021
|
|
|
6/30/2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domain-gross
|
|
|
15 years
|
|
|
$
|
5,315
|
|
|
$
|
5,315
|
|
|
Less accumulated amortization
|
|
|
|
|
|
|
(4,577
|
)
|
|
|
(4,223
|
)
|
|
Domain-net
|
|
|
|
|
|
$
|
738
|
|
|
$
|
1,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademark-gross
|
|
|
10 years
|
|
|
$
|
1,143
|
|
|
$
|
1,143
|
|
|
Less accumulated amortization
|
|
|
|
|
|
|
(486
|
)
|
|
|
(371
|
)
|
|
Domain-net
|
|
|
|
|
|
$
|
657
|
|
|
$
|
772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents-gross
|
|
|
15 years
|
|
|
$
|
101,143
|
|
|
$
|
107,491
|
|
|
Write-off of patent cost
|
|
|
|
|
|
|
-
|
|
|
|
(6,349
|
)
|
|
Less accumulated amortization
|
|
|
|
|
|
|
(23,215
|
)
|
|
|
(16,650
|
)
|
|
Patents-net
|
|
|
|
|
|
$
|
77,928
|
|
|
$
|
84,492
|
|
The
Company recognized amortization expense of $7,033 and $7,651 for the years ended June 30, 2021 and 2020, respectively.
Property
and Equipment
Property
and equipment are stated at cost, and are depreciated using straight line over its estimated useful lives:
|
Computers
and peripheral equipment
|
5 Years
|
|
Vehicle
|
5 Years
|
During
the year ended June 30, 2021, the Company purchased fixed assets in the amount of $213,866. On April 19, 2021, the Company sold a vehicle
for cash of $46,000, with a book value of $44,527, and recognized a gain of $1,473.
Depreciation
expense for the years ended June 30, 2021 and 2020 was $14,940 and $768, respectively.
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 year ended June 30, 2021, the Company calculated the dilutive impact of 182,853,173 outstanding stock options, 94,895,239 outstanding
warrants, and convertible debt of $1,271,200, which is convertible into shares of common stock. The stock options, warrants and convertible
debt were not included in the calculation of net earnings per share, because their impact was antidilutive.
SUNHYDROGEN,
INC.
NOTES
TO FINANCIAL STATEMENTS - AUDITED
JUNE
30, 2021 AND 2020
|
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
For
the year ended June 30, 2020, the Company calculated the dilutive impact of the 127,944,458 outstanding stock options, and convertible
debt of $2,030,000, 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.
|
|
|
For the Years Ended
|
|
|
|
|
June 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) attributable to common shareholders (Numerator)
|
|
$
|
(97,426,437
|
)
|
|
$
|
(57,529,338
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average number of common shares outstanding (Denominator)
|
|
|
2,756,925,374
|
|
|
|
1,551,749,054
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average number of common shares outstanding (Denominator)
|
|
|
2,756,925,374
|
|
|
|
1,551,749,054
|
|
Equity
Incentive Plan and Stock Options
Equity
Incentive Plan
On December 17, 2018, the Board of
Directors approved and adopted the 2019 Equity Incentive Plan (“the Plan”), with 300,000,000 shares set aside and reserved
for issuance pursuant to the Plan. The purpose of the Plan is to promote the success of the Corporation 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 and warrants to employees and non-employees in
non-capital raising transactions for services and for financing cost. 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. The Company granted options to purchase 170,000,000 shares of common stock
options on January 23, 2019. During the year ended June 30, 2021, the Company redeemed 13,146,826 stock options.
As of June 30, 2021, there were 182,853,174 stock options issued, and
a reserve of 117,146,826.
Stock
based Compensation
The
Company periodically issues stock options and warrants to employees and non-employees in non-capital raising transactions for services
and for financing costs. The Company accounts for stock option and warrant 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 and warrant 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.
SUNHYDROGEN, INC.
NOTES TO FINANCIAL STATEMENTS - AUDITED
JUNE 30, 2021 AND 2020
|
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
Fair
Value of Financial Instruments
Fair
value of financial instruments, requires disclosure of the fair value information, whether or not recognized in the balance sheet, where
it is practicable to estimate that value. As of June 30, 2021, 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.
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 June 30, 2021 and 2020 (See Note 6):
|
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability measured at fair value at 6/30/21
|
|
$
|
135,247,303
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
135,247,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability measured at fair value at 6/30/20
|
|
$
|
59,657,718
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
59,657,718
|
|
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, 2019
|
|
$
|
3,905,721
|
|
|
Fair value of derivative liabilities at issuance
|
|
|
841,436
|
|
|
Gain on change in derivative liability
|
|
|
54,910,562
|
|
|
Balance as of June 30, 2020
|
|
|
59,657,719
|
|
|
Fair value of derivative liabilities issued
|
|
|
450,000
|
|
|
Loss on change in derivative liability
|
|
|
75,139,584
|
|
|
Balance as of June 30, 2021
|
|
$
|
135,247,303
|
|
Research
and Development
Research
and development costs are expensed as incurred. Total research and development costs were $1,997,186 and $615,721 for the
years ended June 30, 2021 and 2020, respectively.
SUNHYDROGEN, INC.
NOTES TO FINANCIAL STATEMENTS - AUDITED
JUNE 30, 2021 AND 2020
|
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
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.
Income
Taxes
Deferred
income taxes are provided using the liability method whereby deferred tax assets are recognized for deductible temporary differences
and operating loss and tax credit carry-forwards and deferred tax liabilities are recognized for taxable temporary differences.
Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred
tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all
the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of the changes in
tax laws and rates of the date of enactment.
When
tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities,
while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately
sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available
evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution
of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions
that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than (50%) fifty
percent likely to be realized upon settlement with the applicable taxing authority. The portion of the benefits associated with
tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in
the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon
examination.
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 has evaluated the impact of the adoption of ASU-2018-07, on the Company’s financial statements, and there was no impact.
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 has evaluated the impact of the adoption
of ASU-2018-07, on the Company’s financial statements, and there was no impact.
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 financial statements.
SUNHYDROGEN, INC.
NOTES TO FINANCIAL STATEMENTS - AUDITED
JUNE 30, 2021 AND 2020
Year
ended June 30, 2021
During
the year ended June 30, 2021, the Company issued 576,554,289 shares of common stock under purchase agreements for cash at prices ranging
from $0.022 - $0.15 per share for aggregate net proceeds of $43,323,350.
During
the year ended June 30, 2021, the Company issued 252,000,000 shares of common stock upon exercise of warrants at an exercise price of
$0.075 per share for gross proceeds of $18,900,000.
During
the year ended June 30, 2021, the Company issued 963,537,752 shares of common stock upon conversion of convertible notes in the amount
of $1,144,350 of principal, plus accrued interest of $265,770 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 year ended June 30, 2021, 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.
Year
ended June 30, 2020
During
the year ended June 30, 2020, the Company issued 884,989,722 shares of common stock upon conversion of convertible notes in the amount
of $1,166,986 in principal, plus accrued interest of $198,200 and other fees of $12,000 based upon conversion prices ranging from $0.00095
- $0.0041.
During
the year ended June 30, 2020, the Company issued 91,101,103 shares of common stock for services rendered at fair value prices of $0.002
- $0.0072 per share in the aggregate amount of $357,134.
Stock
Option Plan
On October 2, 2017, the Company granted
options to purchase 10,000,000 shares of common stock. 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 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. The Company redeemed 2,631,579 of these options for $250,000. As of June 30, 2021,
7,368,421 of these options were exercisable.
On January 23, 2019, the Company granted
options to purchase 170,000,000 shares of common stock. One-third of the options vested immediately, and the remainder vested 1/24 per
month over the first twenty-four months following the option grant. The first block was exercisable immediately for a period of seven
(7) years. The options fully vest by January 23, 2022. The Company redeemed 10,515,247 of these options for $1,000,000 in cash. As of
June 30, 2021, there were 159,484,753 of these options were exercisable.
On January 31, 2019, the Company issued
options to purchase 6,000,000 shares of common stock, of which two-third (2/3) vest immediately, and the remaining options vest one-twelfth
(1/12) per month from after the date of these options (remaining block). The first block were exercisable immediately for a period of
seven (7) years. The options fully vested on January 31, 2020 and are exercisable.
On July 22, 2019, the Company issued
options to purchase 10,000,000 shares of common stock, of which one-third (1/3) vest immediately, and the remaining options vest one-twenty
fourth (1/24) per month from after the date of these options (remaining block). The first block shall become exercisable immediately for
a period of seven (7) years. The options fully vest by July 22, 2021 and are exercisable.
SUNHYDROGEN, INC.
NOTES TO FINANCIAL STATEMENTS - AUDITED
JUNE 30, 2021 AND 2020
A
summary of the Company’s stock option activity and related information follows:
|
|
|
6/30/21
|
|
|
6/30/20
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
Number
|
|
|
average
|
|
|
Number
|
|
|
average
|
|
|
|
|
Of
|
|
|
exercise
|
|
|
of
|
|
|
exercise
|
|
|
|
|
Options
|
|
|
price
|
|
|
Options
|
|
|
price
|
|
|
Outstanding, beginning of period
|
|
|
196,000,000
|
|
|
$
|
0.01
|
|
|
|
186,250,000
|
|
|
$
|
0.01
|
|
|
Granted
|
|
|
-
|
|
|
$
|
0.01
|
|
|
|
10,000,000
|
|
|
$
|
0.01
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
(250,000
|
)
|
|
|
-
|
|
|
Buyback of options
|
|
|
(13,146,826
|
)
|
|
$
|
0.0099
|
|
|
|
-
|
|
|
|
-
|
|
|
Outstanding, end of period
|
|
|
182,853,174
|
|
|
$
|
0.0089
|
|
|
|
196,000,000
|
|
|
$
|
0.01
|
|
|
Exercisable at the end of period
|
|
|
182,853,174
|
|
|
$
|
0.0089
|
|
|
|
160,493,150
|
|
|
$
|
0.01
|
|
During
the year ended June 30, 2021, the Company bought back a total of 13,146,826 of the Company’s stock options for a total redemption
price of $1,250,000.
The
weighted average remaining contractual life of options outstanding as of June 30, 2021 and 2020 was as follows:
|
6/30/21
|
|
|
6/30/20
|
|
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)
|
|
|
$
|
0.0100
|
|
|
|
7,368,421
|
|
|
|
7,368,421
|
|
|
|
1.26
|
|
|
$
|
0.0100
|
|
|
|
10,000,000
|
|
|
|
10,000,000
|
|
|
|
2.26
|
|
|
$
|
0.0097
|
|
|
|
6,000,000
|
|
|
|
6,000,000
|
|
|
|
4.59
|
|
|
|
0.0097
|
|
|
|
6,000,000
|
|
|
|
6,000,000
|
|
|
|
5.59
|
|
|
$
|
0.0099
|
|
|
|
159,484,753
|
|
|
|
159,484,753
|
|
|
|
4.57
|
|
|
$
|
0.0099
|
|
|
|
170,000,000
|
|
|
|
156,867,579
|
|
|
|
5.57
|
|
|
$
|
0.0060
|
|
|
|
10,000,000
|
|
|
|
10,000,000
|
|
|
|
4.57
|
|
|
$
|
0.0060
|
|
|
|
10,000,000
|
|
|
|
10,000,000
|
|
|
|
5.57
|
|
|
|
|
|
|
|
182,853,174
|
|
|
|
182,853,174
|
|
|
|
|
|
|
|
|
|
|
|
196,250,000
|
|
|
|
179,117,579
|
|
|
|
|
|
|
|
|
6/30/2021
|
|
|
6/30/2020
|
|
|
Risk free interest rate
|
|
|
1.47% - 2.58%
|
|
|
|
1.94%
|
|
|
Stock volatility factor
|
|
|
54.99% - 189.01%
|
|
|
|
146%
|
|
|
Weighted average expected option life
|
|
|
6 years
|
|
|
|
7 years
|
|
|
Expected dividend yield
|
|
|
None
|
|
|
|
None
|
|
The
stock-based compensation expense recognized in the statement of operations during the years ended June 30, 2021 and 2020, related to
the granting of these options was $259,955 and $473,853, respectively.
WARRANTS
On December 3, 2020, the Company issued
warrants to purchase 120.0 million shares of common stock with an exercise price of $0.075 per share pursuant to a securities purchase
agreement. The warrants were exercisable upon issuance. During the year ended June 30, 2021, the warrants were exercised for aggregate
gross proceeds of $9,000,000. As of June 30, 2021, all of the December 3, 2020 warrants were exercised.
On
December 29, 2020, the 120.0 million warrants issued on December 3, 2020, were exercised for aggregate gross proceeds of $9.0 million,
and as consideration for the exercise the investor was issued additional warrants to purchase 132.0 million shares of common stock 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. During the year ended June 30, 2021, the warrants were exercised for aggregate gross proceeds
of $9,900,000. As of June 30, 2021, all of the December 2020 warrants were exercised.
During the year ended June 30, 2021, the Company issued additional
warrants to purchase an aggregate of 94,895,239 shares of common stock under securities purchase agreements at exercise prices ranging
from $0.0938 - $0.13125 per share. The warrants were estimated at fair value on the date of issuance as calculated using the Black-Scholes
valuation model. The estimated fair value of the warrants was $6,645,870, which was recognized in the financial statements as of June
30, 2021. The warrants can be exercised over a three (3) year period. As of June 30, 2021, all of the warrants were exercisable.
SUNHYDROGEN, INC.
NOTES TO FINANCIAL STATEMENTS - AUDITED
JUNE 30, 2021 AND 2020
A
summary of the Company’s warrant activity and related information follows for the year ended June 30, 2021 listed below.
|
|
|
6/30/21
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
Number
|
|
|
average
|
|
|
|
|
of
|
|
|
exercise
|
|
|
|
|
Warrants
|
|
|
price
|
|
|
Outstanding, beginning of year
|
|
|
-
|
|
|
$
|
-
|
|
|
Granted
|
|
|
346,895,239
|
|
|
$
|
0.086
|
|
|
Exercised
|
|
|
(252,000,000
|
)
|
|
$
|
(0.075
|
)
|
|
Forfeited/Expired
|
|
|
-
|
|
|
|
-
|
|
|
Outstanding, end of year
|
|
|
94,895,239
|
|
|
$
|
0.11
|
|
|
Exercisable at the end of year
|
|
|
94,895,239
|
|
|
$
|
0.11
|
|
|
|
5.
|
CONVERTIBLE
PROMISSORY NOTES
|
As
of June 30, 2021, the outstanding convertible promissory notes, net of debt discount of $442,602 are summarized as follows:
|
Convertible Promissory Notes, net of debt discount
|
|
$
|
828,598
|
|
|
Less current portion
|
|
|
125,398
|
|
|
Total long-term liabilities
|
|
$
|
703,200
|
|
Maturities
of long-term debt net of debt discount for the next four years are as follows:
|
Period Ended June 30,
|
|
|
Amount
|
|
|
2022
|
|
|
|
568,200
|
|
|
2023
|
|
|
|
553,000
|
|
|
2024
|
|
|
|
140,000
|
|
|
2025
|
|
|
|
10,000
|
|
|
|
|
|
$
|
1,271,200
|
|
At
June 30, 2021, the $1,271,200 in convertible promissory notes had a remaining debt discount of $442,602, leaving a net balance of $828,598.
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 was 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 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 failed 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, had the right to 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 would be assessed for each day after the third business day (inclusive
of the day of the conversion) until the shares are delivered. During the year ended June 30, 2021, the Company issued 367,702,192 common
shares upon conversion of principal in the amount of $245,550, plus interest of $103,768, and paid off the balance of Note in the amount
of $64,450 for cash. The balance of the Jan 2016 Note as of June 30, 2021 was $0.
SUNHYDROGEN, INC.
NOTES TO FINANCIAL STATEMENTS - AUDITED
JUNE 30, 2021 AND 2020
|
|
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, the investor extended the Feb
2017 Note for an additional sixty (60) months from the effective date of the note, which matures on February 3, 2022. The Feb 2017 Note
is convertible into shares of common stock of the Company at a 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. During the year ended
on June 30, 2021, the Company issued 283,810,696 shares of common stock upon conversion of principal in the amount of $191,800, plus
accrued interest of $77,820. The balance of the Feb 2017 Note as of June 30, 2021 was $308,200.
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 matures twelve (12) months from the
effective dates of each respective tranche. The Nov 2017 Note matures on November 9, 2018, with an automatic extension of sixty (60)
months from the effective date of each tranche. The Nov 2017 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 since the original effective date
of each respective tranche 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 year ended June 30, 2021, the Company issued 258,232,440 shares
of common stock upon conversion of principal in the amount of $187,000, plus accrued interest of $58,321. The balance of the Nov 2017
Note as of June 30, 2021 was $313,000.
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 and
June 24, 2021, the Company received another tranche of $40,000 and $410,000 respectively, for a total aggregate of $500,000 as of June
30, 2021. 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 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 Company recorded amortization of debt discount, which was recognized as interest expense in the amount of $6,740 during the year
ended June 30, 2021. The balance of the Jun 2018 Note as of June 30, 2021 was $500,000.
SUNHYDROGEN, INC.
NOTES TO FINANCIAL STATEMENTS - AUDITED
JUNE 30, 2021 AND 2020
|
|
5.
|
CONVERTIBLE
PROMISSORY NOTES (Continued)
|
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 June 30, 2021 was $100,000.
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 year ended June 30, 2021, 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 year ended June 30, 2021. The Jan 2020 Note was fully converted as of June 30, 2021.
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 year ended June 30, 2021, 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 year ended June 30, 2021. The Feb 2020 Note was fully converted as of June 30, 2021.
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 year ended June 30, 2021, 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 year ended June
30, 2021. The Mar 2020 Note was fully converted as of June 30, 2021.
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 year ended June 30, 2021. During the year ended June 30, 2021, 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 June 30, 2021.
SUNHYDROGEN, INC.
NOTES TO FINANCIAL STATEMENTS - AUDITED
JUNE 30, 2021 AND 2020
|
5.
|
CONVERTIBLE PROMISSORY NOTES (Continued)
|
On April 15, 2020, the Company entered
into a convertible promissory note (the “Apr 2020 Note”) with an investor, providing for the sale by the Company of a 10%
unsecured convertible note (the “Apr 2020 Note”) in the aggregate principal amount of $50,000, of which the Company received
$10,000 upon execution, and an additional tranche of $40,000, for an aggregate of $50,000. The Apr 2020 Note matures twelve (12) months
from the effective dates of each respective tranche. The Apr 2020 Note matured on April 15, 2021, and the investor extended the Apr 2020
Note for an additional sixty (60) months from the effective date of the note, which matures on April 15, 2025. 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 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 $4,050
during the year ended June 30, 2021. The balance of the Apr 2020 Note as of June 30, 2021 was $50,000.
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, 2021. During the year ended June 30, 2021, 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 June 30, 2021.
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 had 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 year ended June 30, 2021 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 June 30, 2021.
All
note conversions were performed per the terms of their respective agreements and therefore no gain or loss on the conversion was recorded.
|
|
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.
SUNHYDROGEN, INC.
NOTES TO FINANCIAL STATEMENTS - AUDITED
JUNE 30, 2021 AND 2020
|
|
6.
|
DERIVATIVE
LIABILITES (Continued)
|
During
the year ended June 30, 2021, as a result of the Notes issued that were accounted for as derivative liabilities, we determined that the
fair value of the conversion feature of the convertible notes at issuance was $450,000, based upon the Binomial lattice formula. We recorded
the full value of the derivative as a liability at issuance with an offset to valuation discount, which will be amortized over the life
of the Notes.
As of June 30, 2021 and June 30, 2020,
as the number of common stock shares to be issued under the convertible note payable is indeterminate, and the Company concluded that
the equity environment is tainted, and all issued warrants and convertible notes payable are included in the value of the derivative.
During the year ended June 30, 2021, the Company recorded a net loss
in change in derivative of $75,139,584 in the statement of operations due to the change in fair value of the remaining notes and warrants
issued, for the year ended June 30, 2021. At June 30, 2021, the fair value of the derivative liability was $135,247,303.
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
|
|
|
0.07% - 0.87%
|
|
|
Stock volatility factor
|
|
|
145.0% - 212.0%
|
|
|
Weighted average expected option life
|
|
|
0 months - 5 year
|
|
|
Expected dividend yield
|
|
|
None
|
|
The
Company files income tax returns in the U.S. Federal jurisdiction, and the state of California. With few exceptions, the Company is no
longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2018.
Deferred income taxes have been provided by temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes. To the extent allowed
by GAAP, we provide valuation allowances against the deferred tax assets for amount when the realization is uncertain. Included in the
balance at June 30, 2021 and 2020, are no tax positions for which the ultimate deductibility is highly certain, but for which there is
uncertainty about the timing of such deductibility. Because of the impact of deferred tax accounting, other than interest and penalties,
the disallowance of the shorter deductibility period would not affect the annual effective tax rate but would accelerate the payment of
cash to the taxing authority to an earlier period.
The
Company’s policy is to recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating
expenses. During the periods ended June 30, 2021 and 2020, the Company did not recognize interest or penalties.
At
June 30, 2021, the Company had net operating loss carry-forward of approximately $9,497,900, which expires in future years. No tax benefit
has been reported in the June 30, 2021 and 2020 financial statements, since the potential tax benefit is offset by a valuation allowance
of the same amount.
The
income tax provision differs from the amount of income tax determined by applying the U.S. federal income tax rate to pretax income from
continuing operations for the years ended June 30, 2021 and 2020 due to the following:
|
|
|
6/30/2021
|
|
|
6/30/2020
|
|
|
Book income (loss)
|
|
$
|
(15,718,840
|
)
|
|
$
|
1,193,500
|
|
|
Non-deductible expenses
|
|
|
15,976,835
|
|
|
|
(1,520,850
|
)
|
|
Depreciation and amortization
|
|
|
(480
|
)
|
|
|
45
|
|
|
Related party accrual
|
|
|
-
|
|
|
|
(5,100
|
)
|
|
Gain on abandoned asset
|
|
|
1,100
|
|
|
|
|
|
|
Valuation Allowance
|
|
|
-(258,622)
|
|
|
|
332,405
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
-
|
|
|
$
|
-
|
|
SUNHYDROGEN, INC.
NOTES TO FINANCIAL STATEMENTS - AUDITED
JUNE 30, 2021 AND 2020
|
7.
|
DEFERRED
TAX BENEFIT (Continued)
|
Deferred taxes are provided on a liability
method, whereby deferred tax assets are recognized for deductible differences and operating loss and tax credit carry-forward and deferred
tax liabilities are recognized for taxable temporary differences. Temporary differences are the difference between the reported amounts
of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all the deferred tax assets will not be realized. Deferred tax assets and liabilities
are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Deferred
tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all
the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws
and rates on the date of enactment.
Net
deferred tax liabilities consist of the following components as of June 30, 2021 and 2020:
|
|
|
6/30/2021
|
|
|
6/30/2020
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
NOL carryover
|
|
$
|
1,385,455
|
|
|
$
|
1,621,680
|
|
|
Research and development
|
|
|
351,695
|
|
|
|
104,500
|
|
|
Related party accrual
|
|
|
44,470
|
|
|
|
44,470
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
(4,885
|
)
|
|
$
|
(3,610
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Less Valuation Allowance
|
|
$
|
(1,776,735
|
)
|
|
$
|
(1,767,040
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
-
|
|
|
$
|
-
|
|
Due
to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry-forward for Federal income tax reporting
purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carry-forward may be limited as to
use in future years.
The
Company’s tax returns for the previous three years remain open for audit by the respective tax jurisdictions
|
8.
|
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 March 31, 2021, the Company has paid a $34,250 deposit, with the balance of the payments and the stock issuances due
upon completion of a deliverable.
Effective 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 June 30, 2021, 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.
SUNHYDROGEN, INC.
NOTES TO FINANCIAL STATEMENTS - AUDITED
JUNE 30, 2021 AND 2020
Year ended June 30, 2021
As of June 30, 2021, the Company reported
an accrual associated with the CEO’s prior years salary in the amount of $211,750, which is recorded in accrued expenses, related
party. The Company began accruing the salary in 2011 and used the funds for operating expenses. The CEO will be paid during the next fiscal
year.
During the year ended June 30, 2021, the
Company redeemed 13,146,826 stock options for a total redemption price of $1,250,000.
During the year ended June 30, 2021, the
Company issued 3,806,290 shares of common stock to a related party for services rendered at fair value prices of $0.028 - $0.035 per share
in the aggregate amount of $118,023.
Year ended June 30, 2020
During the year ended June 30, 2020, the
Company issued 91,101,103 shares of common stock to a related party for services rendered at fair value prices of $0.002 - $0.0072 per
share in the aggregate amount of $357,134.
Management
evaluated subsequent events as of the date of the financial statements pursuant to ASC TOPIC 855, and reported the following events:
On
July 20, 2021, the Company redeemed a total of 24,887,263 stock options for a total redemption price of $1,450,000.
On
September 2, 2021, the Company issued 180,480,692 shares of common stock upon conversion of principal in the amount of $120,400, plus
accrued interest of $51,057.
Effective September 1, 2021, the Company
entered into a new research agreement with the University of Iowa. As consideration under the research agreement, the University of Iowa
will receive a maximum of $350,000 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. This
agreement was signed by the Company on September 13, 2021.
Effective October 1, 2021, the Company
entered into a research agreement with the University of Michigan. As consideration under the research agreement, the University of Michigan
will receive a maximum of $296,448, from the Company. The research agreement may be terminated by either party upon ninety (90) 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. This
agreement was signed by the Company on September 23, 2021.
F-19
false
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