☒ ANNUAL
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☐ TRANSITION REPORT UNDER
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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 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 $6,059,344.
The number of shares of registrant’s common stock outstanding,
as of September 18, 2020 was 2,156,132,155.
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.
Our patented low-cost
technology is intended to produce renewable hydrogen using sunlight and any source of water, including seawater and wastewater.
Unlike non-renewable hydrocarbon fuels, such as oil, coal and natural gas, where carbon dioxide and other contaminants are released
into the atmosphere when used, hydrogen fuel produces pure water as the only product. By optimizing the science of photoelectrolysis
at the nano-level, our low-cost nanoparticles mimic photosynthesis to efficiently use sunlight to split water molecules into renewable
hydrogen. Using our low-cost method to produce renewable hydrogen, we intend to enable a world of distributed hydrogen production
for renewable electricity and hydrogen fuel cell vehicles.
Hydrogen
is the lightest and most abundant chemical element, constituting roughly 75% of the universe’s chemical elemental mass (Palmer,
D. (13 September 1997). “Hydrogen in the Universe.” NASA). In its purest form, hydrogen is a non-toxic
colorless and odorless gas. However, naturally occurring elemental hydrogen is relatively rare on earth and hydrogen gas is most
often produced using fossil fuels. Industrial production of hydrogen is mainly from the steam reforming of natural gas and is usually
employed near its production site, with the two largest applications being crude oil processing (hydrocracking) and ammonia production,
mostly for the fertilizer market. We are developing what we believe is a cleaner and greener way to produce hydrogen.
Hydrogen as a fuel,
like electricity, is an energy carrier rather than an energy source. We believe that if hydrogen was easily accessible for the
world to depend on it, the challenging global issues associated with the widespread usages of fossil fuels, such as global climate
change and air pollution would be erased.
Over 99% of hydrogen
produced today is produced using a fossil fuel, methane (natural gas) in a method called steam methane reforming (SMR). Although
commercially optimized over decades, the SMR process is capital intensive and will remain so due to the fundamental nature of the
process which includes: (1) three separate reactors with different catalysts operating at different temperatures, (2) large amounts
of heat transfer needed for the endothermic reforming and exothermic water gas shift, and (3) the need to remove all carbon oxides
using capital and energy intensive methods. (source: Nikolaidis, P.; Poullikkas, A., A comparative overview of hydrogen production
processes. Renewable and Sustainable Energy Reviews 2017, 67, 597-611.)
Besides being capital
intensive, the SMR method releases harmful levels of carbon dioxide and other pollutants into the air further contributing to our
global climate crisis.
We believe renewable
hydrogen is the fuel of the future. The main challenge has been the high cost of hydrogen production and transportation. We believe
a low-cost distributed production technology, such as the SunHydrogen technology, is the way to enable a world of clean and renewable
energy.
Market Opportunity
We believe we are still
in the early stages of the hydrogen market, and yet, this market continues to grow exponentially. One of the reasons for this growth
is the adoption of hydrogen fuel technologies within an increased number of major industries and spanning many applications.
Furthermore, recent
government mandates for renewable energy have created a real and sustainable market opportunity for renewable hydrogen. Most states
in the United States have legislative mandates to use between 10-45% of renewable energy by 2050, some states have mandates for
100% by 2050. These include California (100% by 2045), Colorado (100% by 2050), Hawaii (100% by 2045), Virginia (100% by 2050),
Washington (100% by 2045), Washington DC (100% by 2032) and Puerto Rico (100% by 2050). (https://www.ncsl.org/research/energy/renewable-portfolio-standards.aspx)
While solar and wind
electricity have been the dominate form of renewable energy, the sun does not always shine and the wind does not always blow. Therefore,
we believe a direct solar-to-hydrogen technology which immediately stores solar energy as hydrogen can turn solar energy into a
primary and reliable source of energy just like coal and natural gas – but cleaner and greener.
Existing Market Growth
According
to a Global Market Insights study released in June 2019, the global hydrogen generation market size is predicted to be valued at
$180 billion by 2024. Strict regulatory norms to reduce sulfur content with measures to reduce the carbon footprint is expected
to drive the global hydrogen generation market size. 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 and which aims to lower the gasoline sulfur
content up to 10 ppm in 2017.
Growing
demand for petroleum products from developing countries is anticipated to also drive the hydrogen generation market size in the
coming years. Hydrogen is used in various refining processes including hydrocracking and hydrodesulfurization to crack bigger molecules
into lighter ones and more usable products.
Strong
investment for the expansion and upgrade of refineries to fulfill emission and sulfur content regulation is expected to stimulate
the growth of the hydrogen generation market. Increasing heavy crude oil consumption demand will complement the industry landscape.
Positive outlook towards the chemical industry including ammonia and methanol will also positively influence growth.
We believe increasing demand for clean fuel energy will be affected by:
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Stringent
government regulation towards Desulphurization of Petroleum Products
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Deteriorating
crude oil quality
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Transportation
& Storage Issues
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It is within these
industries that 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 the existing natural
gas pipeline networks, thus bypassing the high cost of dedicated hydrogen pipelines in order 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. (https://www.nrel.gov/docs/fy13osti/51995.pdf).
Hydrogen Fuel Cell Vehicles
One of the most recognized
applications for hydrogen fuel technologies falls within the auto manufacturing and vehicles industries. The three leading manufacturers
of hydrogen fuel cell vehicles (FCVs) are in order, Toyota, Hyundai, and Honda – three internationally recognized companies.
Industry reports cite the need for increased infrastructure, such as fueling stations, for the industry to garner even greater
market acceptance. However, the same report indicates there will be 22.2 million hydrogen fuel cell vehicles sold or leased by
2032, driving revenues upwards of $1.1 trillion. (https://www.researchandmarkets.com/reports/4200873/global-market-for-hydrogen-fuel-cell-vehicles).
Our Technology
Technology
for Making Renewable Hydrogen from Sunlight and Water
Hydrogen
(H2) is the third most abundant element on earth and the cleanest fuel in the universe, (Dresselhaus,
Mildred et al. (May 15, 2003). “Basic Research Needs for the Hydrogen Economy”). Unlike hydrocarbon fuels such
as oil, coal and natural gas where carbon dioxide and other contaminants are released into the atmosphere when used, hydrogen fuel
usage produces only pure water (H2O). Unfortunately, nearly no pure hydrogen exists naturally on earth and therefore
must be extracted from hydrogen containing molecules like water. Historically, the cost of manufacturing hydrogen as an alternative
fuel has been higher than the cost of the energy used to make it. This is the dilemma of the hydrogen economy, and one that we
aim to address.
For
over a century, water electrolysis, splitting water molecules into hydrogen and oxygen due to the passage of electric current,
has been a well-established technology to produce hydrogen. The produced hydrogen combusts into water that can be recycled back
into nature indefinitely. However, in practice, current commercial water electrolysis technologies require considerable energy
from coal-powered electricity and also require ultra-pure water to prevent fouling of the system components. We believe these are
the major barriers to affordable production of hydrogen.
The Perfect
and Sustainable Energy Cycle
As
it turns out, Mother Nature has been making hydrogen using sunlight since the beginning of time by splitting water molecules (H2O)
into its basic elements - hydrogen and oxygen. This is exactly what plant leaves do every day by way of photosynthesis. Since the
produced hydrogen is immediately consumed inside the plant, we cannot simply grow trees to make hydrogen.
If
technology can be developed to mimic photosynthesis to split water into hydrogen, we believe then a truly sustainable, low cost,
and renewable energy cycle can be created to power the earth. However, cost has been the biggest barrier to realizing this vision.
Water Splitting
In
the process of splitting a water molecule, input energy is transferred into the chemical bonds. So in essence, manufactured hydrogen
is simply 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 and 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 so 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 product as the SunHydrogen Panel which is comprised of the following components:
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1.
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The Panel Housing - Novel (patent pending) device design is the first of its type to safely separate 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 gasses. 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. Our design can be scaled up and manufactured for commercial use.
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2.
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The
NanoParticle or Solar Cell - Our patented Our patented Photoelectrochemically
Active Heterostructures (PAH) consists of billions of tiny solar cells in 1cm2 that are electrodeposited into a protective
structure to provide the charge that splits the water molecules.
In the process of optimizing our nanoparticles
to be efficient and only use 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 leads us to believe that we can bring a system to market utilizing these readily available cells while our nanoparticles
are still being optimized. These solar cells also absorb the sunlight and produce the necessary charge for splitting the water
molecules into hydrogen and oxygen.
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Oxygen Evolution Catalyst - This proprietary catalyst developed at the University of Iowa is applied on 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 is designed to be efficient and stable in alkaline environments.
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Hydrogen Evolution Catalyst - Necessary for collecting electrons to reduce protons for generating hydrogen gas, we have successfully developed a process to integrate an ultra-low loading of platinum hydrogen catalyst on foam electrodes at ten times lower loading with over 67 times higher activities.
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5.
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Coating Technologies - Two major coating technologies were developed to protect the nanoparticles and solar cells from photo-corrosion 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. A polymer combination that protects the triple junction solar cells from any corrosive water environments for long lifetime of the hydrogen generation device.
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A concentrator equal to two suns - This inexpensive Fresnel lens concentrator to increase sunlight to equal two suns reduces our necessary footprint for a 1000 KG per day system by 40%.
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Our
business and commercialization plan calls for two generations of our panels or generators. The first generation being manufactured
for demonstration utilizes readily available commercial solar cells, coated with a stabilizing polymer and catalysts, and inserted
into our proprietary panels to efficiently and safely split water into hydrogen and oxygen to produce very pure and green hydrogen
that can be piped off the panel, pressurized, and stored for use in a fuel cell to power anything electric.
The
second generation of our panels will feature a nanoparticle-based technology where billions of autonomous solar cells are
electrodeposited onto porous alumina sheets and manufactured in a roll to roll process and inserted into our proprietary panels.
For this generation, we have received multiple patents and we estimate that it will produce hydrogen for less than $4 per kilogram
before pressurization.
Our
team at the University of Iowa led by our CTO Dr. Joun Lee, has reached a milestone of well over 1000 consecutive hours of continuous
hydrogen production utilizing completely immersed solar cells with no external biases achieving simulated production equal to one
year. We believe this to be a record for completely immersed cells. Now ready to take our technology out of the lab, we are working
with several vendors to commercialize and manufacturer our first generation of renewable hydrogen panels that use sunlight and
water to generate hydrogen.
We
anticipate that the SunHydrogen Panel will be a self-contained renewable hydrogen production system that requires only sunlight
and any source of water. As a result, it can be installed almost anywhere to produce hydrogen fuel at or near the point of
distribution, for local use. We believe this model of hydrogen production addresses one of the biggest challenges of using clean
hydrogen fuel on a large scale which is the transportation of hydrogen.
Each
stage of the SunHydrogen Panel can be scaled independently according to the hydrogen demands and length of storage required for
a specific application. A small-scale system can be used to produce continuous renewable electricity for a small house, or a large
scale system can be used to produce hydrogen to power a community.
SunHydrogen
Panel Manufacturing
We
are currently working towards producing 100 demonstration SunHydrogen Panels, that will be used to display our Gen 1 technology
in a number of venues throughout the United States and internationally. We anticipate that these demonstration panels will broaden
national and global awareness of our new, green hydrogen generating technology. With the resulting increased interest, potential
customers of our technology will be able to observe the panels’ operation first hand, and determine potential uses in their
business operations.
Intellectual
Property
On November 14, 2011,
we filed a provisional patent 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.” On March 14, 2017, the part of the patent covering the structural design of Photoelectrochemically Active
Heterostructures (PAH) was granted as the United States Patent No. 9,593,053B1. On April
3, 2018, the part of the patent covering the method for manufacturing PAH was granted as United
States Patent No. 9,593,053B2. The patent protects 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.
An
important aspect of the patented technology 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.
In March of 2015, we
jointly filed a full utility patent application with UCSB for the “Multi-junction artificial photosynthetic cell with enhanced
photovoltages.” The patent covers 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. This patent was granted in Australia in April of 2018, China
and Europe in March of 2019, and in the U.S. in October of 2018.
On December 21, 2016,
we filed jointly with the University of Iowa a patent 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. In September of 2017, we filed the utility patent for this
important invention and prosecution is ongoing.
Strategic Partners
Effective
September 1, 2020, we 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 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, 2021 but may be
extended upon mutual agreement of the parties.
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 and Chemicals Inc. and Air Liquide.
Green
or Renewable hydrogen can be produced through electrolyzers if they are powered by solar or wind. There has been an emergence of
these companies 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 will offer a competitive advantage as it is completely green and renewable
and utilizes 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 18,
2020, we had one (1) full-time employee and several consultants. We have not experienced any work stoppages and we consider relations
with our employees and consultants to be good. Our Chief Technology Officer hired on June 1, 2016 is on a fulltime consulting
basis. Most of our research and development work is performed by the University of Iowa, through a sponsored research agreement.
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 at this time we will 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, 2020, we have an accumulated deficit, of $75,550,515. For the year ended June 30, 2020 we incurred a net loss of $57,529,338.
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
May of 2012, we completed a lab scale prototype of our technology. This prototype demonstrates hydrogen production from small scale
solar devices coated with our unique, low-cost polymer coating, and submerged in waste water from a pulp and paper mill. 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 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 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 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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Competition
in the solar power services industry may increase in the future, partly due to low barriers to entry, as well as from other alternative
energy resources now in existence or developed in the future. Increased competition could result in price reductions, reduced margins
or loss of market share and greater competition for qualified personnel. 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. Our only officer is employed on “at will” basis. Accordingly, 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 the sponsored research agreement with the University of Iowa which is set to terminate August 31, 2021.
If we are unable to extend the terms of the agreements, we could suffer delays in product development or other operational difficulties
which could have a material adverse effect on our results of operations.
There is
substantial doubt about our ability to continue as a going concern.
Our
independent public accounting firm in their report dated September 23, 2020 included
an explanatory paragraph expressing substantial doubt in our ability to continue as a going concern without additional capital
becoming available. Going concern contemplates the realization of assets and the satisfaction of liabilities in the normal course
of business over a reasonable length of time. Our ability to continue as a going concern ultimately is dependent on our ability
to generate a profit which is dependent upon our ability to obtain additional equity or debt financing, attain further operating
efficiencies and, ultimately, to achieve profitable operations. As a result, our financial statements do not reflect any adjustment
which would result from our failure to continue to operate as a going concern. Any such adjustment, if necessary, would materially
affect the value of our assets.
An occurrence of an uncontrollable
event such as the covid-19 pandemic may negatively affect our operations.
The occurrence of an
uncontrollable event such as the COVID-19 pandemic may negatively affect our operations. The COVID-19 pandemic has resulted in
social distancing, travel bans and quarantine, and this has limited and may continue to limit access to our facilities by our management,
support staff and professional advisors. These factors, in turn, may not only impact our operations, financial condition and development
of our products but our overall ability to react timely to mitigate the impact of this event. Also, it may hamper our efforts to
comply with our filing obligations with the Securities and Exchange Commission, and our ability to raise capital on favorable terms,
or at all.
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.
There is
a large number of authorized but unissued shares of capital stock available for issuance, which may result in substantial dilution
to existing shareholders.
Our
articles of Incorporation authorized the issuance of up to 5,000,000,000 shares of common stock, par value $0.001 and 5,000,000
shares of preferred stock, par value $0.001, of which 2,156,132,155 shares of common stock and no shares of preferred stock are
outstanding as of September 18, 2020. Our Board of Directors has the ability to authorize the issuance of an additional 2,843,867,845
shares of common stock and 5,000,000 shares of preferred stock without shareholder approval. Any such issuance will result in substantial
dilution to existing shareholders. In addition, the availability of such a large number of capital stock could be utilized, under
certain circumstances, as a method of discouraging, delaying or preventing a change in control of the Company.
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, if any, in the market value of our shares of common stock.
There can be no assurance that shares of our common stock will appreciate in value or even maintain the price at which our stockholders
have purchased their shares.
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. The issuance of additional securities in the future will dilute the percentage ownership of then
current stockholders.
Item 2. Properties.
Our
principal office address is 10 E. Yanonali, 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, 2020 AND 2019
|
1.
|
ORGANIZATION AND LINE OF BUSINESS
|
Organization
SunHydrogen, Inc. (formerly
HyperSolar, 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 licensed for the production of renewable hydrogen to produce renewable electricity and hydrogen for fuel cells.
Going Concern
The accompanying audited financial
statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization
of assets and liabilities and commitments in the normal course of business. The accompanying audited financial statements do not
reflect any adjustments that might result if the Company is unable to continue as a going concern. The Company does not generate
revenue, and has negative cash flows from operations, which raise substantial doubt about the Company’s ability to continue
as a going concern. The ability of the Company to continue as a going concern and appropriateness of using the going concern basis
is dependent upon, among other things, additional cash infusion. The Company has historically obtained funds through private placement
offerings of equity and debt. Management believes that it will be able to continue to raise funds by sale of its securities to
its existing shareholders and prospective new investors to provide the additional cash needed to meet the Company’s obligations
as they become due and will allow the development of its core business. There is no assurance that the Company will be able to
continue raising the required capital.
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
This summary of significant
accounting policies of SunHydrogen, Inc (formerly HyperSolar, Inc.) is presented to assist in understanding the Company’s
financial statements. The financial statements and notes are representations of the Company’s management, which is responsible
for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United
States of America and have been consistently applied in the preparation of the financial statements.
Cash and Cash Equivalent
The Company considers all highly
liquid investments with an original maturity of three months or less to be cash equivalents.
Use
of Estimates
In
accordance with accounting principles generally accepted in the United States, management utilizes estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the
financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could
differ from those estimates. These estimates and assumptions relate to useful lives and impairment of tangible and intangible assets,
accruals, income taxes, stock-based compensation expense, Cox Rubenstein 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.
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.
SUNHYDROGEN, INC.
(formerly Hypersolar, Inc.)
NOTES TO FINANCIAL STATEMENTS - AUDITED
JUNE 30, 2020 AND 2019
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
Intangible Assets (Continued)
|
|
Useful Lives
|
|
6/30/2020
|
|
|
6/30/2019
|
|
|
|
|
|
|
|
|
|
|
Domain-gross
|
|
15 years
|
|
$
|
5,315
|
|
|
$
|
5,315
|
|
Less accumulated amortization
|
|
|
|
|
(4,223
|
)
|
|
|
(3,868
|
)
|
Domain-net
|
|
|
|
$
|
1,092
|
|
|
$
|
1,447
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademark-gross
|
|
10 years
|
|
$
|
1,143
|
|
|
$
|
1,143
|
|
Less accumulated amortization
|
|
|
|
|
(371
|
)
|
|
|
(257
|
)
|
Domain-net
|
|
|
|
$
|
772
|
|
|
$
|
886
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents-gross
|
|
15 years
|
|
$
|
107,491
|
|
|
$
|
107,491
|
|
Write-off of patent cost
|
|
|
|
|
(6,349
|
)
|
|
|
-
|
|
Less accumulated amortization
|
|
|
|
|
(16,650
|
)
|
|
|
(10,391
|
)
|
Patents-net
|
|
|
|
$
|
84,492
|
|
|
$
|
97,100
|
|
The Company recognized amortization
expense of $7,651 and $6,360 for the years ended June 30, 2020 and 2019, 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
|
Depreciation expense for the
years ended June 30, 2020 and 2019 was $768 and $628, 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,
2020, the Company calculated the dilutive impact of the outstanding stock options of 186,000,000, and the 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 year ended June 30,
2019, the Company calculated the dilutive impact of its outstanding stock options of 186,250,000, and convertible debt of $2,320,486,
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,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Income (Loss) to common shareholders (Numerator)
|
|
$
|
(57,529,338
|
)
|
|
$
|
3,978,337
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average number of common shares outstanding (Denominator)
|
|
|
1,551,749,054
|
|
|
|
924,582,860
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average number of common shares outstanding (Denominator)
|
|
|
1,551,749,054
|
|
|
|
924,582,860
|
|
SUNHYDROGEN, INC.
(formerly Hypersolar, Inc.)
NOTES TO FINANCIAL STATEMENTS - AUDITED
JUNE 30, 2020 AND 2019
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
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 of common stock
set aside and reserved for issuance pursuant to the Plan. The purpose of the Plan is to promote the success of the Company and
to increase stockholder value by providing an additional means through the grant of awards to attract, motivate, retain and reward
selected employees and other eligible persons. The awards are performance-based compensation that are granted under the Plan as
incentive stock options (ISO) or nonqualified stock options. The per share exercise price for each option shall not be less than
100% of the fair market value of a share of common stock on the date of grant of the option. The Company periodically issues stock
options 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 shares are convertible into common stock upon exercise. As of June 30, 2020, there were 186,000,000 stock
options issued, and 114,000,000 additional shares reserved under the Plan.
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. As of June 30, 2020, 10,000,000 of such options were outstanding.
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, 2020, the amounts reported for cash, accrued interest and other expenses, notes payables, convertible
notes, and derivative liability approximate the fair value because of their short maturities.
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.
|
SUNHYDROGEN, INC.
(formerly Hypersolar, Inc.)
NOTES TO FINANCIAL STATEMENTS - AUDITED
JUNE 30, 2020 AND 2019
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
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, 2020 and 2019 (See Note 6):
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability measured at fair value at 6/30/20
|
|
$
|
59,657,719
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
59,657,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability measured at fair value at 6/30/19
|
|
$
|
3,905,721
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,905,721
|
|
Fair Value of Financial Instruments
(Continued)
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, 2018
|
|
$
|
10,857,698
|
|
Fair value of derivative liabilities at issuance
|
|
|
743,301
|
|
Gain on change in derivative liability
|
|
|
(7,695,278
|
)
|
Balance as of June 30, 2019
|
|
|
3,905,721
|
|
Fair value of derivative liabilities issued
|
|
|
841,436
|
|
Loss on change in derivative liability
|
|
|
54,910,562
|
|
Balance as of June 30, 2020
|
|
$
|
59,657,719
|
|
Research and Development
Research and development
costs are expensed as incurred. Total research and development costs were $615,721 and $528,901 for the years ended
June 30, 2020 and 2019, respectively.
Accounting for
Derivatives
The Company evaluates all of
its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives.
For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at
its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations.
For stock-based derivative financial instruments, the Company uses a probability weighted average series Binomial lattice formula
pricing models to value the derivative instruments at inception and on subsequent valuation dates.
The classification of derivative
instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each
reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether
or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.
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 of being 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.
SUNHYDROGEN, INC.
(formerly Hypersolar, Inc.)
NOTES TO FINANCIAL STATEMENTS - AUDITED
JUNE 30, 2020 AND 2019
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
Recently Issued Accounting
Pronouncements
In August
2017, FASB issued accounting standards update ASU-2017-12, (Topic 815) – “Targeted Improvements to Accounting for Hedging
Activities”, to require an entity to present the earnings effect of the hedging instrument in the same statement line item
in which the earnings effect of the hedged item is reported. The amendments in this update are effective for fiscal years beginning
after December 15, 2018, and 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 with the fiscal years beginning after December 15, 2020. Early
adoption is permitted in any interim period after issuance of the update. The Company does not believe the adoption of ASU-2017
would have a material impact on the Company’s financial statements.
In June 2018, FASB issued accounting
standards update ASU 2018-07, (Topic 505) – “Shared-Based Payment Arrangements with Nonemployees”, which simplifies
the accounting for share-based payments granted to nonemployees for goods and services. Under the ASU, most of the guidance on
such payments to nonemployees will be aligned with the requirements for share-based payments granted to employees. Under the ASU
2018-07, the measurement of equity-classified nonemployee share-based payments will be fixed on the grant date, as defined in ASC
718, and will use the term nonemployee vesting period, rather than requisite service period. The amendments in this update are
effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. For all other
entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years
beginning after December 15, 2020. Early adoption is permitted if financial statements have not yet been issued. The Company is
currently evaluating the impact of the adoption of ASU 2018-07 on the Company’s financial statements.
In August
2018, the FASB issued to accounting standards update ASU 2018-13, (Topic 820) - “Fair Value Measurement”, which changes
the unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair
value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most
recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively
to all periods presented upon their effective date. The amendments in this update are effective for fiscal years, and interim periods
within those fiscal years, beginning after December 15, 2019. Early adoption is permitted upon issuance. The Company is currently
evaluation the impact of the adoption of ASU 2018-13, on the Company’s financial statements.
In December 2019, the FASB issued to accounting standards amendment
updates to ASU 2019-12, (Topic 740) – “Income Taxes”, which simplify the accounting for income taxes by removing
certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP
for other areas of Topic 740 by clarifying and amending existing guidance. The amendments in this update are effective for fiscal
years, and interim periods within those fiscal years, beginning after December 15, 2020. For all other entities, the amendments
are effective for fiscal years beginning after December 15, 2021, and interim periods with fiscal years beginning after December
15, 2022. Early adoption of the amendments is permitted. The Company does not believe the adoption of ASU-2019-12, would have a
material impact on the Company’s financial statements.
Management does not believe
that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on
the accompanying condensed financial statements.
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 amount of $357,134.
Year ended
June 30, 2019
During the year ended June 30,
2019, the Company issued 195,464,064 shares of common stock upon conversion of convertible notes in the amount of $411,814 in principal,
plus accrued interest of $75,278 with an aggregate fair value loss on settlement of $1,053,517 based upon conversion prices ranging
from $0.0055 to $0.0099
During the year ended June 30,
2018, the Company issued 29,397,257 shares of common stock for services rendered at a fair value prices of $0.0063 - $0.0105 per
share in the amount of $249,435.
SUNHYDROGEN, INC.
(formerly Hypersolar, Inc.)
NOTES TO FINANCIAL STATEMENTS - AUDITED
JUNE 30, 2020 AND 2019
Stock Option Plan
The non-qualified common stock
options expire 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. As of June 30, 2020, 250,000 options were fully vested with a maturity date of March 31, 2020,
which expired and were forfeited as of June 30, 2020; on October 2, 2017, the Company issued 10,000,000 non-qualified common stock
options, which vest one-third immediately, and one-third the second and third year, whereby, the options are fully vested with
a maturity date of October 2, 2022, and are exercisable at an exercise price of $0.01 per share.
On January 23, 2019, the Company
issued 170,000,000 stock options, of which one-third (1/3) vest immediately, and the remaining shall vest one-twenty fourth (1/24)
per month after the date of these options (remaining block). The first block shall become exercisable immediately and is exercisable
for a period of seven (7) years. The options fully vest by January 23, 2021.
On January 31, 2019, the Company
issued 6,000,000 stock options, of which two-third (2/3) vest immediately, and the remaining shall vest one-twelfth (1/12) per
month from after the date of these options (remaining block). The first block shall become exercisable immediately and is exercisable
for a period of seven (7) years. The options fully vested on January 31, 2020.
On July 22, 2019, the Company
issued 10,000,000 stock options, of which one-third (1/3) vest immediately, and the remaining shall vest one-twenty fourth (1/24)
per month from after the date of these options (remaining block). The first block shall become exercisable immediately and is exercisable
for a period of seven (7) years. The options fully vest by July 22, 2021.
A summary
of the Company’s stock option activity and related information follows:
|
|
6/30/2020
|
|
|
6/30/2019
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
Number
|
|
|
average
|
|
|
Number
|
|
|
average
|
|
|
|
of
|
|
|
exercise
|
|
|
of
|
|
|
exercise
|
|
|
|
Options
|
|
|
price
|
|
|
Options
|
|
|
price
|
|
Outstanding, beginning of period
|
|
|
186,250,000
|
|
|
$
|
0.01
|
|
|
|
10,250,000
|
|
|
$
|
0.01
|
|
Granted
|
|
|
10,000,000
|
|
|
$
|
0.01
|
|
|
|
176,000,000
|
|
|
$
|
0.01
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited/Expired
|
|
|
(250,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding, end of period
|
|
|
196,000,000
|
|
|
$
|
0.01
|
|
|
|
186,250,000
|
|
|
$
|
0.01
|
|
Exercisable at the end of period
|
|
|
160,493,150
|
|
|
$
|
0.01
|
|
|
|
85,583,333
|
|
|
$
|
0.01
|
|
The weighted average remaining contractual life of
options outstanding as of June 30, 2020 and 2019 was as follows:
6/30/2020
|
|
|
6/30/2019
|
|
Exercisable
Price
|
|
|
Stock Options Outstanding
|
|
|
Stock Options Exercisable
|
|
|
Weighted Average Remaining
Contractual Life (years)
|
|
|
Exercisable Price
|
|
|
Stock Options Outstanding
|
|
|
Stock Options Exercisable
|
|
|
Weighted Average Remaining
Contractual Life (years)
|
|
$
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
0.02
|
|
|
|
250,000
|
|
|
|
250,000
|
|
|
|
0.75
|
|
$
|
0.01
|
|
|
|
10,000,000
|
|
|
|
10,000,000
|
|
|
|
1.26
|
|
|
$
|
0.01
|
|
|
|
10,000,000
|
|
|
|
5,250,000
|
|
|
|
3.26
|
|
$
|
0.0097-0.0099
|
|
|
|
176,000,000
|
|
|
|
144,018,263
|
|
|
|
5.57 – 5.59
|
|
|
$
|
0.0097-0.0099
|
|
|
|
176,000,000
|
|
|
|
60,666,667
|
|
|
|
6.57 - 6.84
|
|
$
|
0.0060
|
|
|
|
10,000,000
|
|
|
|
6,474,887
|
|
|
|
6.06
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
196,000,000
|
|
|
|
160,493,150
|
|
|
|
|
|
|
|
|
|
|
|
186,250,000
|
|
|
|
85,583,333
|
|
|
|
|
|
|
|
6/30/20
|
|
|
|
6/30/19
|
|
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
|
|
SUNHYDROGEN, INC.
(formerly Hypersolar, Inc.)
NOTES TO FINANCIAL STATEMENTS - AUDITED
JUNE 30, 2020 AND 2019
Stock Option Plan (Continued)
The stock-based compensation expense recognized in
the statement of operations during the years ended June 30, 2020 and 2019, related to the granting of these options was $473,853
and $735,772, respectively.
|
5.
|
CONVERTIBLE PROMISSORY NOTES
|
As of June 30, 2020, the outstanding
convertible promissory notes, net of debt discount of $409,074 are summarized as follows:
Convertible Promissory Notes, net of debt discount
|
|
$
|
1,620,926
|
|
Less current portion
|
|
|
160,926
|
|
Total long-term liabilities
|
|
$
|
1,460,000
|
|
Maturities of long-term debt principal for the next four years
are as follows:
Period Ended
|
|
|
|
June 30,
|
|
Amount
|
|
2021
|
|
|
570,000
|
|
2022
|
|
|
575,000
|
|
2023
|
|
|
745,000
|
|
2024
|
|
|
140,000
|
|
|
|
$
|
2,030,000
|
|
At June 30, 2020, the $2,030,000
in convertible promissory notes had a remaining debt discount of $409,074, leaving a net balance of $1,620,926.
The Company issued a 10% convertible
promissory note on April 9, 2015 (the “April 2015 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. The Company received additional tranches
in the amount of $450,000 for an aggregate sum of $500,000. The April 2015 Note matured nine (9) months from the effective dates
of each respective tranche. A second extension was granted to October 9, 2016. On January 19, 2017, the investor extended the April
2015 Note for an additional (60) months from the effective date of each tranche, which had a maturity date of April 9, 2020.The
April 2015 Note was convertible into shares of common stock of the Company at a price equal to a variable conversion price of the
lesser of $0.01 per share or fifty percent (50%) of the lowest trading price since the original effective date of each respective
advance or the lowest effective price per share granted to any person or entity after the effective date to acquire common stock.
In no event could the lender convert any portion of the April 2015 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. During the year ended June 30,
2020, the Company issued 212,079,164 shares of common stock, upon conversion of $192,600, plus accrued interest of $74,285. The
balance of the April 2015 Note as of June 30, 2020 was $0.
SUNHYDROGEN, INC.
(formerly Hypersolar, Inc.)
NOTES TO FINANCIAL STATEMENTS - AUDITED
JUNE 30, 2020 AND 2019
|
5.
|
CONVERTIBLE PROMISSORY NOTES (Continued)
|
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 dates
of each respective tranche. On January 19, 2017, the investor extended the Jan 2016 Note for an additional sixty (60) months from
the effective date of each tranche, which matures on January 27, 2022. The Jan 2016 Note is convertible into shares of common stock
of the Company at a price equal to a variable conversion price of the lesser of $0.01 per share or fifty percent (50%) of the lowest
trading price since the original effective date of 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 Jan 2016 Note such that would result in beneficial ownership
by the lender and its affiliates of more than 4.99% of the outstanding shares of common stock of the Company. In addition, for
each conversion, in the event that shares are not delivered by the fourth business day (inclusive of the day of conversion), a
penalty of $1,500 per day shall be assessed for each day after the third business day (inclusive of the day of the conversion)
until the shares are delivered. During the year ended June 30, 2020, the Company issued 280,606,492 common shares upon conversion
of principal in the amount of $190,000, plus interest of $76,576. The balance of the Jan 2016 Note as of June 30, 2020 was $310,000.
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 matures twelve (12) months from the effective dates
of each respective tranche. The Feb 2017 Note had a maturity date of February 3, 2018, with an automatic extension of sixty (60)
months from the effective date of each tranche. The Feb 2017 Note is convertible into shares of common stock of the Company at
a price equal to a variable conversion price of the lesser of $0.01 per share or fifty percent (50%) of the lowest trading price
since the original effective date of 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 Feb 2017 Note such that would result in beneficial ownership by the lender and its affiliates
of more than 4.99% of the outstanding shares of common stock of the Company. In addition, for each conversion, in the event, that
shares are not delivered by the fourth business day (inclusive of the day of conversion), a penalty of $1,500 per day shall be
assessed for each day after the third business day (inclusive of the day of the conversion) until the shares are delivered. The
balance of the Feb 2017 Note as of June 30, 2020 was $500,000.
The Company issued a 10% convertible
promissory note on November 9, 2017 (the “Nov 2017 Note”) in the aggregate principal amount of up to $500,000. Upon
execution of the convertible promissory note, the Company received a tranche of $45,000. The Company received additional tranches
in the amount of $455,000 for an aggregate sum of $500,000. The Nov 2017 Note matures twelve (12) months from the effective dates
of each respective tranche. The Nov 2017 Note had a maturity date of November 9, 2018, with an automatic extension of sixty (60)
months from the effective date of each tranche. The Nov 2017 Note is convertible into shares of common stock of the Company at
a price equal to a variable conversion price of the lesser of $0.01 per share or fifty percent (50%) of the lowest trading price
since the original effective date of 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. The
balance of the Nov 2017 Note as of June 30, 2020 was $500,000.
SUNHYDROGEN, INC.
(formerly Hypersolar, Inc.)
NOTES TO FINANCIAL STATEMENTS - AUDITED
JUNE 30, 2020 AND 2019
|
5.
|
CONVERTIBLE PROMISSORY NOTES (Continued)
|
The Company issued a 10% convertible
promissory note on June 27, 2018 (the “Jun 2018 Note”) in the aggregate principal amount of up to $500,000. Upon execution
of the convertible promissory note, the Company received a tranche of $50,000. On October 9, 2018, the Company received another
tranche of $40,000, for a total aggregate of $90,000 as of December 31, 2019. The Jun 2018 Note matures twelve (12) months from
the effective dates of each respective tranche. The Jun 2018 Note matured on June 27, 2019, which was automatically extended for
sixty (60) months from the effective date of each tranche. The Jun 2018 Note is convertible into shares of common stock of the
Company at a price equal to a variable conversion price of the lesser of $0.01 per share or fifty percent (50%) of the lowest trading
price since the original effective date of 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 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 $2,823
during the year ended June 30, 2020. The balance of the Jun 2018 Note as of June 30, 2020 was $90,000.
The Company issued a 10% convertible
promissory note on August 10, 2018 (the “Aug 2018 Note”) in the aggregate principal amount of up to $100,000. The Aug
2018 Note had a maturity date of August 10, 2019, with an extension of sixty (60) months from the date of the note. The Aug 2018
Note matures on August 10, 2023. The Aug 2018 Note may be converted into shares of the Company’s common stock at a conversion
price of the lesser of a) $0.005 per share or b) sixty-one (61%) percent of the lowest trading price per common stock recorded
on any trade day after the effective date. The conversion feature of the Aug 2018 Note was considered a derivative in accordance
with current accounting guidelines because of the reset conversion features of the Note. The Company recorded amortization of debt
discount, which was recognized as interest expense in the amount of $11,233 during the year ended June 30, 2020. The balance
of the Aug 2018 Note as of June 30, 2020 was $100,000.
The Company issued 10% convertible
promissory notes on February 14, 2019 thru August 12, 2019, (the “Feb-Aug Notes”) in the aggregate principal amount
of up to $252,000. The Feb-Aug Notes had maturity dates of February 14, 2020 thru August 12, 2020. The Feb-Aug Notes were convertible
into shares of the Company’s common stock at a conversion price of sixty-one (61%) percent of the lowest average two (2)
trading prices per common stock during the fifteen (15) trading day prior to the conversion date. The conversion feature of the
Feb-Aug Notes was considered a derivative in accordance with current accounting guidelines because of the reset conversion features
of the Notes. During the year ended June 30, 2020, the Company issued 116,025,867 shares of common stock upon conversion of principal
in the amount of $252,000, plus accrued interest of $12,600. The Company recorded amortization of debt discount, which was recognized
as interest expense in the amount of $176,288 during the year ended June 30, 2020. The balance of the Feb-Aug Notes as of
June 30, 2020 was $0.
On December 14, 2018, January
18, 2019, and July 3, 2019, the Company issued convertible promissory notes (the “Dec-Jul Notes”) to an investor, (the
“Dec-Jul Notes”) in the total aggregate principal amount of $140,000. The Dec-Jul Notes had maturity dates of December
14, 2019 and January 18, 2020. The Dec-Jul Notes were convertible into shares of the Company’s common stock at a conversion
price of sixty-one (61%) percent of the lowest trading prices per common stock during the fifteen (15) trading day prior to the
conversion date. The conversion feature of the Dec-Jul Notes was considered a derivative in accordance with current accounting
guidelines because of the reset conversion features of the Note. During the year ended June 30, 2020, the Company issued 103,302,185
shares of common stock upon conversion of $132,386 in principal, plus accrued interest of $14,000, and legal fees of $9,000. The
Company recorded amortization of debt discount, which was recognized as interest expense in the amount of $91,714 during the year
ended June 30, 2020. The balance of the Dec-Jul Notes as of June 30, 2020 was $0.
On January 31, 2019 and March
6, 2019, the Company issued convertible promissory notes (the “Jan-Mar Note”) to an investor (the “Jan-Mar Note”)
in the total aggregate principal amount of $160,000. The Jan-Mar Notes had maturity dates of January 31, 2020 and March 6, 2020.
The Jan-Mar Notes were convertible into shares of the Company’s common stock at a conversion price of sixty-one (61%) percent
of the lowest average of the two (2) trading prices per common stock during the fifteen (15) trading day prior to the conversion
date. The conversion feature of the Jan-Mar Notes was considered a derivative in accordance with current accounting guidelines
because of the reset conversion features of the Jan-Mar Notes. The Company issued 76,591,844 shares of common stock upon the conversion
of principal in the amount of $160,000, plus accrued interest of $8,399, and legal fees of $1,500. The Company recorded amortization
of debt discount, which was recognized as interest expense in the amount of $101,698 during the year ended June 30, 2020. The balance
of the Jan-Mar Notes as of June 30, 2020 was $0.
SUNHYDROGEN, INC.
(formerly Hypersolar, Inc.)
NOTES TO FINANCIAL STATEMENTS - AUDITED
JUNE 30, 2020 AND 2019
|
5.
|
CONVERTIBLE PROMISSORY NOTES (Continued)
|
On August 28, 2019, the Company
issued a convertible promissory note (the “Aug 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 Aug Note had a maturity date of August 28, 2020. The Aug Note was convertible
into shares of the Company’s common stock at a conversion price of sixty-one (61%) percent of the lowest average of the two
(2) trading prices per common stock during the fifteen (15) trading day prior to the conversion date. The conversion feature of
the Aug Note was considered a derivative in accordance with current accounting guidelines because of the reset conversion features
of the Aug Note. During the year ended June 30, 2020, the Company issued 30,227,789 shares of common stock upon conversion of principal
in the amount of $80,000, plus accrued interest of $4,219, and legal fees of $600. The Company recorded amortization of debt discount,
which was recognized as interest expense in the amount of $58,835 during the year ended June 30, 2020. The balance of the Aug Note
as of June 30, 2020 was $0.
On October 2, 2019, the Company
issued a convertible promissory note (the “Oct 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 Oct Note matures on October 2, 2020. The Oct Note was convertible into
shares of the Company’s common stock at a conversion price of sixty-one (61%) percent of the lowest average of the two (2)
trading prices per common stock during the fifteen (15) trading day prior to the conversion date. The conversion feature of the
Oct Note was considered a derivative in accordance with current accounting guidelines because of the reset conversion features
of the Oct Note. During the year ended June 30, 2020, the Company issued 39,676,622 shares of common stock upon conversion of principal
in the amount of $80,000, plus accrued interest of $4,110, and legal fees of $600. The Company recorded amortization of debt discount,
which was recognized as interest expense in the amount of $80,000, during the year ended June 30, 2020. The balance of the Oct
Note as of June 30, 2020 was $0.
On November 27, 2019, the Company
issued a convertible promissory note (the “Nov 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 Nov Note had a maturity date of November 27, 2020. The Nov Note was convertible
into shares of the Company’s common stock at a conversion price of sixty-one (61%) percent of the lowest average of the two
(2) trading prices per common stock during the fifteen (15) trading day prior to the conversion date. The conversion feature of
the Nov Note was considered a derivative in accordance with current accounting guidelines because of the reset conversion features
of the Nov Note. During the year ended June 30, 2020, the Company issued 26,579,747 shares of common stock upon conversion of principal
in the amount of $80,000, plus accrued interest of $4,011, and legal fees of $300. The Company recorded amortization of debt discount,
which was recognized as interest expense in the amount of $80,000 during the year ended June 30, 2020. The balance of the Nov Note
as of June 30, 2020 was $0.
On January 10, 2020, the Company
issued a convertible promissory note (the “Jan 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 Jan 2020 Note matures on January 10, 2021. The Jan 2020 Note may be converted
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 per common stock during the thirty (30) 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. The Company recorded amortization of debt discount, which was recognized as interest expense in
the amount of $37,596 during the year ended June 30, 2020. The balance of the Jan 2020 Note as of June 30, 2020 was $80,000.
On February 11, 2020, the Company
issued a convertible promissory note (the “Feb 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 Feb 2020 Note matures on February 11, 2021. The Feb 2020 Note may be
converted 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 per 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. The Company recorded amortization of debt discount, which was recognized as interest
expense in the amount of $30,601 during the year ended June 30, 2020. The balance of the Feb 2020 Note as of June 30, 2020 was
$80,000.
SUNHYDROGEN, INC.
(formerly Hypersolar, Inc.)
NOTES TO FINANCIAL STATEMENTS - AUDITED
JUNE 30, 2020 AND 2019
|
5.
|
CONVERTIBLE PROMISSORY NOTES (Continued)
|
On March 5, 2020, the Company
issued a convertible promissory note (the “Mar 2020 Note”) to an investor in the principal amount of $40,000. The Company
received funds of $38,000, less other fees of $2,000. The Mar 2020 Note matures on March 9, 2021. The Mar 2020 Note may be converted
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 per 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. The Company recorded amortization of debt discount, which was recognized as interest expense in
the amount of $11,528 during the year ended June 30, 2020. The balance of the Mar 2020 Note as of June 30, 2020 was $40,000.
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
may be converted 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 per 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 $16,658 during the year ended June 30, 2020. The balance of the April 2020 Note as of June 30, 2020 was
$80,000.
On April 15, 2020, the Company
issued a convertible promissory note (the “Apr 2020 Note”) to an investor in the aggregate principal amount of $50,000,
of which the Company received $10,000 as of June 30, 2020. The Apr 2020 Note matures twelve (12) months from the effective dates
of each respective tranche, such that the Apr 2020 Note matures on April 15, 2021, with an automatic extension of sixty (60) months
from the effective date of each tranche. The Apr Note is convertible into shares of common stock of the Company at a price equal
to 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 $706 during the year ended June 30, 2020. The balance of the Apr 2020 Note as of June 30,
2020 was $10,000.
On May 19, 2020, the Company
issued a convertible promissory note (the “May 2020 Note”) to an investor in the principal amount of $80,000. The Company
received funds of $78,000, less other fees of $2,000. The May 2020 Note matures on May 19, 2021. The May 2020 Note may be converted
into shares of the Company’s common stock at a conversion price of sixty-one (61%) percent of the lowest two (2) trading
prices per 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 $9,205
during the year ended June 30, 2020. The balance of the May 2020 Note as of June 30, 2020 was $80,000.
SUNHYDROGEN, INC.
(formerly Hypersolar, Inc.)
NOTES TO FINANCIAL STATEMENTS - AUDITED
JUNE 30, 2020 AND 2019
|
5.
|
CONVERTIBLE PROMISSORY NOTES (Continued)
|
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 matures on June 19, 2021. The Jun 2020 Note may
be converted 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 per 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 $5,260 during the year ended June 30, 2020. The balance of the Jun 2020 Note as of June 30, 2020 was $160,000.
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.
During the year ended June 30,
2020, 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 $841,436, based upon the Cox Rubenstein binomial model. 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.
During the year ended June 30,
2020, the Company recorded a net loss in change in derivative of $54,910,562 in the statement of operations due to the change in
fair value of the remaining notes, for the year ended June 30, 2020. At June 30, 2020, the fair value of the derivative liability
was $59,657,719.
For purpose of determining the
fair market value of the derivative liability for the embedded conversion, the Company used the Cox Rubenstein binomial lattice
formula. The significant assumptions used in the Cox Rubenstein binomial lattice formula of the derivatives are as follows:
Risk free interest rate
|
0.13% - 0.22%
|
Stock volatility factor
|
80.0% - 267.0%
|
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 2017.
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, 2020 and 2019, 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.
SUNHYDROGEN, INC.
(formerly Hypersolar, Inc.)
NOTES TO FINANCIAL STATEMENTS - AUDITED
JUNE 30, 2020 AND 2019
7.
|
DEFERRED TAX BENEFIT (Continued)
|
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, 2020 and 2019, the Company did not recognize interest or penalties.
At June 30, 2020, the Company
had net operating loss carry-forward of approximately $7,722,300, which expires in future years. No tax benefit has been reported
in the June 30, 2020 and 2019 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, 2020 and 2019 due to the following:
|
|
6/30/2020
|
|
|
6/30/2019
|
|
Book income (loss)
|
|
$
|
(12,081,160
|
)
|
|
$
|
1,193,500
|
|
Non-deductible expenses
|
|
|
11,950,635
|
)
|
|
|
(1,520,850
|
)
|
Depreciation and amortization
|
|
|
310
|
|
|
|
45
|
|
Related party accrual
|
|
|
7,875
|
|
|
|
(5,100
|
)
|
Valuation Allowance
|
|
|
122,340
|
|
|
|
332,405
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
-
|
|
|
$
|
-
|
|
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, 2020 and 2019:
|
|
6/30/2020
|
|
|
6/30/2019
|
|
Deferred tax assets:
|
|
|
|
|
|
|
NOL carryover
|
|
$
|
1,571,210
|
|
|
$
|
2,070,125
|
|
Research and development
|
|
|
104,500
|
|
|
|
92,490
|
|
Related party accrual
|
|
|
44,465
|
|
|
|
52,275
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
(3,610
|
)
|
|
$
|
(5,340
|
)
|
|
|
|
|
|
|
|
|
|
Less Valuation Allowance
|
|
$
|
(1,716,565
|
)
|
|
$
|
(2,209,550
|
)
|
|
|
|
|
|
|
|
|
|
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.
On
December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to
as the Tax Cut and Jobs Act (the “Tax Act”). The Tax Act establishes new tax laws
that affects 2018 and future years, including a reduction in the U.S. federal corporate income tax rate
to 21%, effective July 1, 2018. The Company has applied the new tax law for its calculation of the deferred tax
provision. There was no impact to the Company’s financial statements. For certain deferred tax assets
and deferred tax liabilities, we have recorded a provisional decrease of $707,468, with a corresponding net adjustment to the
valuation allowance of $707,468 as of July 1, 2018.
The Company’s
tax returns for the previous three years remain open for audit by the respective tax jurisdictions.
SUNHYDROGEN, INC.
(formerly Hypersolar, Inc.)
NOTES TO FINANCIAL STATEMENTS - AUDITED
JUNE 30, 2020 AND 2019
|
8.
|
COMMITMENTS AND CONTINGENCIES
|
On June 1, 2019, 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 $144,747 from the Company. The research agreement may be terminated by either party upon a 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 runs through May 31, 2020, and was extended on September 1, 2020.
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 operations.
As of June 30, 2020, the Company reported an accrual associated with the CEO’s prior year salary in the amount of $211,750.
Management
evaluated subsequent events as of the date of the financial statements pursuant to ASC TOPIC 855, and reported the following events:
On
July 13, 2020, the Company issued 23,420,128 shares of common stock upon conversion of principal in the amount of $80,000, plus
accrued interest of $3,989, and $300 in other fees.
On
July 14, 2020, the Company issued 1,047,679 shares of common stock for services in the amount of $29,335.
On
July 15, 2020, the Company issued 48,802,884 shares of common stock upon conversion of principal in the amount of $33,000, plus
accrued interest of $13,363.
On July 27,
2020, the Company entered into a common stock purchase agreement, whereby an investor purchased 20,000,000 shares of common stock
at a purchase price of $0.025.
On August
12, 2020, the Company issued 836,678 shares of common stock for services in the amount of $29,267.
On August
12, 2020, the Company issued 5,294,205 shares of common stock upon conversion of principal in the amount of $80,000, plus accrued
interest of $3,989, and $300 in other fees.
On September
1, 2020, the Company entered into a research agreement with the University of Iowa. As consideration under the research agreement,
the University of Iowa will receive a maximum of $299,966 from the Company. The research agreement may be terminated by either
party upon sixty (60) 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, 2021, but
may be extended upon mutual agreement of the parties.
On September
4, 2020, the Company issued 929,546 shares of common stock for services in the amount of $29,699.
On September 11, 2020, the Company
issued 2,390,871 shares of common stock upon conversion of principal in the amount of $40,000, plus accrued interest of $1,994.52
and $300 in other expenses.
On September 21, 2020, the Company
entered into a purchase agreement (the “Purchase Agreement”) with GHS Investments, LLC (“GHS”). Under the
Purchase Agreement, the Company may sell, in its discretion (subject to the terms and conditions of the Purchase Agreement) up
to an aggregate of $4,000,000 of common stock to GHS.
The Company has the right, in
its sole discretion, subject to the conditions and limitations in the Purchase Agreement, to direct GHS, by delivery of a purchase
notice from time to time (a “Purchase Notice”) to purchase (each, a “Purchase”) over the 6-month term of
the Purchase Agreement, a minimum of $10,000 and up to a maximum of $400,000 (the “Purchase Amount”) of shares of common
stock (the “Purchase Shares”) for each Purchase Notice (provided that, the Purchase Amount for any Purchase will not
exceed two times the average of the daily trading dollar volume of the common stock during the 10 business days preceding the purchase
date). The number of Purchase Shares we will issue under each Purchase will be equal to 112.5% of the Purchase Amount sold under
such Purchase, divided by the Purchase Price per share (as defined under the Purchase Agreement). The “Purchase Price”
is defined as 90% of the lowest end-of-day volume weighted average price of the common stock for the five consecutive business
days immediately preceding the purchase date, including the purchase date. We may not deliver more than one Purchase Notice to
GHS every ten business days, except as the parties may otherwise agree.
Other than as described above,
there are no trading volume requirements or restrictions under the Purchase Agreement. We will control the timing and amount of
any sales of our common stock to GHS. We may at any time in our sole discretion terminate the Purchase Agreement.
The Purchase Agreement prohibits
us from directing GHS to purchase any shares of common stock if those shares, when aggregated with all other shares of our common
stock then beneficially owned by GHS and its affiliates, would result in GHS and its affiliates having beneficial ownership, at
any single point in time, of more than 4.99% of the then total outstanding shares of our common stock.
Events of default under the
Purchase Agreement include the following:
|
●
|
the effectiveness of the registration statement for the Purchase Shares lapses for any reason or
is unavailable for the resale by GHS of the Purchase Shares;
|
|
●
|
the suspension of our common stock from trading for a period of two business days;
|
|
●
|
the delisting of the Company’s common stock from the OTC Pink; provided, however, that the
common stock is not immediately thereafter trading on the Nasdaq Capital Market, New York Stock Exchange, the Nasdaq Global Market,
the Nasdaq Global Select Market, the NYSE American, or the OTCQX or OTCQB;
|
|
●
|
the failure for any reason by the transfer agent to issue Purchase Shares to GHS within three business
days after the applicable date on which GHS is entitled to receive such securities;
|
|
●
|
any breach of the representations and warranties or covenants contained in the Purchase Agreement
if such breach would reasonably be expected to have a material adverse effect and such breach is not cured within five business
days;
|
|
●
|
insolvency or bankruptcy proceedings are commenced by or against us, as more fully described in
the Purchase Agreement; or
|
|
●
|
if at any time we are not eligible to transfer our common stock electronically via DWAC.
|
So long as an event of default
(all of which are outside the control of GHS) has occurred and is continuing, the Company may not deliver to GHS any Purchase Notice.
We will pay a finder’s
fee to J.H. Darbie & Co., Inc. of 4% of the net proceeds we receive from sales of our common stock to GHS under the Purchase
Agreement.
F-21