WHERE
YOU CAN FIND MORE INFORMATION
Federal securities laws require us to file information with the SEC concerning our business and operations. Accordingly, we file
annual, quarterly, and special reports, and other information with the Commission. The SEC maintains a web site (http://www.sec.gov)
at which you can read or download our reports and other information.
We
have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the securities being offered
hereby. As permitted by the rules and regulations of the SEC, this prospectus does not contain all the information set forth in
the registration statement and the exhibits and schedules thereto. For further information with respect to the Company and the
securities offered hereby, reference is made to the registration statement, and such exhibits and schedules. The registration
statement may be accessed at the SEC’s web site.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Shareholders
SunHydrogen,
Inc.
Opinion
on the Financial Statements
We
have audited the accompanying balance sheet of SunHydrogen, Inc. (the Company) as of June 30, 2020, and the related statements
of operations, shareholders’ deficit, and cash flows for the year then ended, and the related notes (collectively referred
to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects,
the financial position of the Company as of June 30, 2020, and the results of its operations and its cash flows for the year then
ended in conformity with accounting principles generally accepted in the United States of America. The financial statements of
SunHydrogen, Inc. as of June 30, 2019 were audited by other auditors whose report dated September 27, 2019 expressed an unqualified
opinion on those financial statements.
Basis
for Opinion
These
consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB .
We
conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether
due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting,
but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our
audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the
accounting principles used and the significant estimates made by management, as well as evaluating the overall presentation of
the consolidated financial statements. We believe our audit provides a reasonable basis for our opinion.
The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed
in Note 1 to the financial statements, the Company has suffered net losses from operations and has a net capital deficiency, which
raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are
discussed in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/
M&K CPAS, PLLC
M&K
CPAS, PLLC
We
have served as the Company’s auditor since 2020
Houston,
TX
September
23, 2020
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Shareholders of
HyperSolar,
Inc.
Opinion
on the Financial Statements
We
have audited the accompanying balance sheet of SunHydrogen, Inc. (formerly HyperSolar, Inc.) (the “Company”) as of June
30, 2019, the related statements of operations, shareholders’ deficit, and cash flows for the year then ended, and the related
notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly,
in all material respects, the financial position of the Company as of June 30, 2019, and the results of its operations and its
cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
The
Company’s Ability to Continue as a Going Concern
The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As
discussed in Note 1 to the financial statements, the Company does not generate revenue and has negative cash flows from operations. This
raises substantial doubt about the Company’s ability to continue as a going concern. Management’s plans
in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Basis
for Opinion
These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s
financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting in accordance with the standards of the PCAOB. As part of our audits we are required to obtain an understanding of internal
control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal
control over financial reporting. Accordingly, we express no such opinion in accordance with the standards of the PCAOB.
Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that our audits provide a reasonable basis for our opinion.
We
have served as the Company’s auditor since 2014.
New
York, NY
September
27, 2019
SUNHYDROGEN, INC.
(formerly Hypersolar, Inc.)
BALANCE SHEETS
|
|
June 30,
2020
|
|
|
June 30,
2019
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
Cash
|
|
$
|
195,010
|
|
|
$
|
35,074
|
|
Prepaid expenses
|
|
|
9,378
|
|
|
|
15,000
|
|
|
|
|
|
|
|
|
|
|
TOTAL CURRENT ASSETS
|
|
|
204,388
|
|
|
|
50,074
|
|
|
|
|
|
|
|
|
|
|
PROPERTY & EQUIPMENT
|
|
|
|
|
|
|
|
|
Computers and peripherals
|
|
|
2,663
|
|
|
|
1,883
|
|
Less: accumulated depreciation
|
|
|
(1,605
|
)
|
|
|
(837
|
)
|
|
|
|
|
|
|
|
|
|
NET PROPERTY AND EQUIPMENT
|
|
|
1,058
|
|
|
|
1,046
|
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS
|
|
|
|
|
|
|
|
|
Domain, net of amortization of $4,223 and $3,868, respectively
|
|
|
1,092
|
|
|
|
1,447
|
|
Trademark, net of amortization of $371 and $257, respectively
|
|
|
772
|
|
|
|
886
|
|
Patents, net of amortization of $16,650 and $10,391, respectively
|
|
|
84,492
|
|
|
|
97,100
|
|
|
|
|
|
|
|
|
|
|
TOTAL OTHER ASSETS
|
|
|
86,356
|
|
|
|
99,433
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
291,802
|
|
|
$
|
150,553
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts payable and other payable
|
|
$
|
201,243
|
|
|
$
|
125,085
|
|
Accrued expenses
|
|
|
211,496
|
|
|
|
176,790
|
|
Accrued interest on convertible notes
|
|
|
432,866
|
|
|
|
415,537
|
|
Derivative liability
|
|
|
59,657,719
|
|
|
|
3,905,721
|
|
Convertible promissory notes, net of debt discount of $409,074 and $281,783, respectively
|
|
|
160,926
|
|
|
|
256,103
|
|
|
|
|
|
|
|
|
|
|
TOTAL CURRENT LIABILITIES
|
|
|
60,664,250
|
|
|
|
4,879,236
|
|
|
|
|
|
|
|
|
|
|
LONG TERM LIABILITIES
|
|
|
|
|
|
|
|
|
Convertible promissory notes, net of debt discount of $0 and $0, respectively
|
|
|
1,460,000
|
|
|
|
1,782,600
|
|
|
|
|
|
|
|
|
|
|
TOTAL LONG TERM LIABILITIES
|
|
|
1,460,000
|
|
|
|
1,782,600
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
62,124,250
|
|
|
|
6,661,836
|
|
|
|
|
|
|
|
|
|
|
COMMIMENTS AND CONTINGENCIES (SEE NOTE 8)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
Preferred Stock, $0.001 par
value; 5,000,000 authorized preferred shares, no shares issued or outstanding
|
|
|
-
|
|
|
|
-
|
|
Common Stock, $0.001 par value;
5,000,000,000 authorized common shares 2,053,410,164 and 1,077,319,339 shares issued and outstanding, respectively
|
|
|
2,053,410
|
|
|
|
1,077,319
|
|
Additional Paid in Capital
|
|
|
11,664,657
|
|
|
|
10,432,575
|
|
Accumulated deficit
|
|
|
(75,550,515
|
)
|
|
|
(18,021,177
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL SHAREHOLDERS’ DEFICIT
|
|
|
(61,832,448
|
)
|
|
|
(6,511,283
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND SHAREHOLDER’S DEFICIT
|
|
$
|
291,802
|
|
|
$
|
150,553
|
|
The accompanying notes are an integral part of these audited financial statements
SUNHYDROGEN, INC.
(formerly Hypersolar, Inc.)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 2020 AND 2019
|
|
Years Ended
|
|
|
|
June 30,
2020
|
|
|
June 30,
2019
|
|
|
|
|
|
|
|
|
REVENUE
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
1,057,287
|
|
|
|
1,292,662
|
|
Research and development cost
|
|
|
615,721
|
|
|
|
528,901
|
|
Depreciation and amortization
|
|
|
8,419
|
|
|
|
6,988
|
|
|
|
|
|
|
|
|
|
|
TOTAL OPERATING EXPENSES
|
|
|
1,681,427
|
|
|
|
1,828,551
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS BEFORE OTHER INCOME (EXPENSES)
|
|
|
(1,681,427
|
)
|
|
|
(1,828,551
|
)
|
|
|
|
|
|
|
|
|
|
OTHER INCOME/(EXPENSES)
|
|
|
|
|
|
|
|
|
Loss on write-off of patent cost
|
|
|
(5,426
|
)
|
|
|
-
|
|
Gain (Loss) on change in derivative liability
|
|
|
(54,910,562
|
)
|
|
|
6,641,761
|
|
Interest expense
|
|
|
(931,923
|
)
|
|
|
(834,873
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL OTHER INCOME (EXPENSES)
|
|
|
(55,847,911
|
)
|
|
|
5,806,888
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
$
|
(57,529,338
|
)
|
|
$
|
3,978,337
|
|
|
|
|
|
|
|
|
|
|
BASIC AND DILUTED LOSS PER SHARE
|
|
$
|
(0.04
|
)
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
|
|
|
|
|
|
|
|
|
BASIC AND DILUTED
|
|
|
1,551,749,054
|
|
|
|
924,582,860
|
|
The accompanying notes are an integral part of these audited financial statements
SUNHYDROGEN, INC.
(formerly Hypersolar, Inc.)
STATEMENTS OF SHAREHOLDERS’ DEFICIT
FOR THE YEARS ENDED JUNE 30, 2020 AND 2019
|
|
YEAR ENDED JUNE 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Preferred
stock
|
|
|
Common
stock
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Total
|
|
Balance at June 30, 2018
|
|
|
-
|
|
|
$
|
-
|
|
|
|
852,458,018
|
|
|
$
|
852,458
|
|
|
$
|
8,131,620
|
|
|
$
|
(21,999,514
|
)
|
|
$
|
(13,015,436
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for conversion of debt and accrued interest
|
|
|
-
|
|
|
|
-
|
|
|
|
195,464,064
|
|
|
|
195,464
|
|
|
|
1,345,145
|
|
|
|
-
|
|
|
|
1,540,609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for services
|
|
|
-
|
|
|
|
-
|
|
|
|
29,397,257
|
|
|
|
29,397
|
|
|
|
220,038
|
|
|
|
-
|
|
|
|
249,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
735,772
|
|
|
|
-
|
|
|
|
735,772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,978,337
|
|
|
|
3,978,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2019
|
|
|
-
|
|
|
$
|
-
|
|
|
|
1,077,319,339
|
|
|
$
|
1,077,319
|
|
|
$
|
10,432,575
|
|
|
$
|
(18,021,177
|
)
|
|
$
|
(6,511,283
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
YEAR ENDED JUNE 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
Common stock
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Total
|
|
Balance at June 30, 2019
|
|
|
-
|
|
|
$
|
-
|
|
|
|
1,077,319,339
|
|
|
$
|
1,077,319
|
|
|
$
|
10,432,575
|
|
|
$
|
(18,021,177
|
)
|
|
$
|
(6,511,283
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for conversion of debt and accrued interest
|
|
|
-
|
|
|
|
-
|
|
|
|
884,989,722
|
|
|
|
884,990
|
|
|
|
492,196
|
|
|
|
-
|
|
|
|
1,377,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for services
|
|
|
-
|
|
|
|
-
|
|
|
|
91,101,103
|
|
|
|
91,101
|
|
|
|
266,033
|
|
|
|
-
|
|
|
|
357,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
473,853
|
|
|
|
-
|
|
|
|
473,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(57,529,338
|
)
|
|
|
(57,529,338
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2020
|
|
|
-
|
|
|
$
|
-
|
|
|
|
2,053,410,164
|
|
|
$
|
2,053,410
|
|
|
$
|
11,664,657
|
|
|
$
|
(75,550,515
|
)
|
|
$
|
(61,832,448
|
)
|
The accompanying notes are an integral part of these audited financial statements
SUNHYDROGEN, INC.
(formerly Hypersolar, Inc.)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2020 AND 2019
|
|
Years Ended
|
|
|
|
June 30,
2020
|
|
|
June 30,
2019
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net Income (loss)
|
|
$
|
(57,529,338
|
)
|
|
$
|
3,978,337
|
|
Adjustment to reconcile net income (loss) to net cash (used in) provided by operating activities
|
|
|
|
|
|
|
|
|
Depreciation & amortization expense
|
|
|
8,419
|
|
|
|
6,988
|
|
Stock based compensation expense
|
|
|
473,853
|
|
|
|
735,772
|
|
Stock issued for services
|
|
|
357,134
|
|
|
|
249,435
|
|
(Gain) Loss on change in derivative liability
|
|
|
54,910,562
|
|
|
|
(7,695,278
|
)
|
Loss on conversion of debt
|
|
|
-
|
|
|
|
1,053,517
|
|
Net loss on write-off of patent cost
|
|
|
5,426
|
|
|
|
-
|
|
Amortization of debt discount recorded as interest expense
|
|
|
714,145
|
|
|
|
610,917
|
|
Change in assets and liabilities :
|
|
|
|
|
|
|
|
|
Prepaid expense
|
|
|
5,622
|
|
|
|
(11,058
|
)
|
Other asset
|
|
|
-
|
|
|
|
900
|
|
Accounts payable
|
|
|
76,257
|
|
|
|
13,996
|
|
Accrued expenses
|
|
|
54,607
|
|
|
|
(23,247
|
)
|
Accrued interest on convertible notes
|
|
|
227,529
|
|
|
|
226,028
|
|
|
|
|
|
|
|
|
|
|
NET CASH USED IN OPERATING ACTIVITIES
|
|
|
(695,784
|
)
|
|
|
(853,693
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Purchase of tangible assets
|
|
|
(780
|
)
|
|
|
(13,059
|
)
|
|
|
|
|
|
|
|
|
|
NET CASH USED IN INVESTING ACTIVITIES:
|
|
|
(780
|
)
|
|
|
(13,059
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from convertible notes payable
|
|
|
856,500
|
|
|
|
804,500
|
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
856,500
|
|
|
|
804,500
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH
|
|
|
159,936
|
|
|
|
(62,252
|
)
|
|
|
|
|
|
|
|
|
|
CASH, BEGINNING OF YEAR
|
|
|
35,074
|
|
|
|
97,326
|
|
|
|
|
|
|
|
|
|
|
CASH, END OF YEAR
|
|
$
|
195,010
|
|
|
$
|
35,074
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
2,249
|
|
|
$
|
940
|
|
Taxes paid
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF NON CASH TRANSACTIONS
|
|
|
|
|
|
|
|
|
Fair value of common stock upon conversion of convertible notes , accrued interest and other fees
|
|
$
|
1,377,186
|
|
|
$
|
1,540,609
|
|
Fair value of convertible notes at issuance
|
|
$
|
841,436
|
|
|
$
|
743,301
|
|
The accompanying notes are an integral part of these audited financial statements
SUNHYDROGEN, INC.
(formerly Hypersolar, Inc.)
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.
SUNHYDROGEN,
INC.
CONDENSED
BALANCE SHEETS
|
|
September 30,
2020
|
|
|
June 30,
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
Cash
|
|
$
|
500,644
|
|
|
$
|
195,010
|
|
Prepaid expenses
|
|
|
12,545
|
|
|
|
9,378
|
|
TOTAL CURRENT ASSETS
|
|
|
513,189
|
|
|
|
204,388
|
|
|
|
|
|
|
|
|
|
|
PROPERTY & EQUIPMENT
|
|
|
|
|
|
|
|
|
Computers and peripherals
|
|
|
2,663
|
|
|
|
2,663
|
|
Vehicle
|
|
|
50,000
|
|
|
|
|
|
|
|
|
52,663
|
|
|
|
2,663
|
|
Less: accumulated depreciation
|
|
|
(1,883
|
)
|
|
|
(1,605
|
)
|
NET PROPERTY AND EQUIPMENT
|
|
|
50,780
|
|
|
|
1,058
|
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS
|
|
|
|
|
|
|
|
|
Domain, net of amortization of $4,311 and $4,223, respectively
|
|
|
1,004
|
|
|
|
1,092
|
|
Trademark, net of amortization of $401 and $371, respectively
|
|
|
742
|
|
|
|
772
|
|
Patents, net of amortization of $18,291 and $16,250, respectively
|
|
|
82,852
|
|
|
|
84,492
|
|
TOTAL OTHER ASSETS
|
|
|
84,598
|
|
|
|
86,356
|
|
TOTAL ASSETS
|
|
$
|
648,567
|
|
|
$
|
291,802
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts payable and other payable
|
|
$
|
124,728
|
|
|
$
|
201,243
|
|
Accrued expenses
|
|
|
223,358
|
|
|
|
211,497
|
|
Accrued interest on convertible notes
|
|
|
456,864
|
|
|
|
432,866
|
|
Derivative liability
|
|
|
61,037,804
|
|
|
|
59,657,718
|
|
Convertible promissory notes, net of debt discount of $210,050 and $409,074, respectively
|
|
|
126,950
|
|
|
|
160,926
|
|
TOTAL CURRENT LIABILITIES
|
|
|
61,969,704
|
|
|
|
60,664,250
|
|
|
|
|
|
|
|
|
|
|
LONG TERM LIABILITIES
|
|
|
|
|
|
|
|
|
Convertible promissory notes, net of debt discount of $0 and $0, respectively
|
|
|
1,460,000
|
|
|
|
1,460,000
|
|
TOTAL LONG TERM LIABILITIES
|
|
|
1,460,000
|
|
|
|
1,460,000
|
|
TOTAL LIABILITIES
|
|
|
63,429,704
|
|
|
|
62,124,250
|
|
|
|
|
|
|
|
|
|
|
COMMIMENTS AND CONTINGENCIES (SEE NOTE 8)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
Preferred Stock, $0.001 par value;
5,000,000 authorized preferred shares, no shares issued or
outstanding
|
|
|
-
|
|
|
|
-
|
|
Common Stock, $0.001 par value;
5,000,000,000 shares authorized, 2,171,705,242 and 2,053,410,161 shares issued and outstanding, respectively
|
|
|
2,171,705
|
|
|
|
2,053,410
|
|
Additional Paid in Capital
|
|
|
12,803,933
|
|
|
|
11,664,657
|
|
Accumulated deficit
|
|
|
(77,756,775
|
)
|
|
|
(75,550,515
|
)
|
TOTAL SHAREHOLDERS' DEFICIT
|
|
|
(62,781,137
|
)
|
|
|
(61,832,448
|
)
|
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT
|
|
$
|
648,567
|
|
|
$
|
291,802
|
|
The
accompanying notes are an integral part of these condensed unaudited financial statements
SUNHYDROGEN,
INC.
CONDENSED
STATEMENTS OF OPERATIONS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
(Unaudited)
|
|
Three Months Ended
|
|
|
|
September 30,
2020
|
|
|
September 30,
2019
|
|
|
|
|
|
|
|
|
REVENUE
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
438,190
|
|
|
|
370,316
|
|
Research and development cost
|
|
|
138,260
|
|
|
|
143,395
|
|
Depreciation and amortization
|
|
|
2,036
|
|
|
|
2,209
|
|
|
|
|
|
|
|
|
|
|
TOTAL OPERATING EXPENSES
|
|
|
578,486
|
|
|
|
515,920
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS BEFORE OTHER INCOME (EXPENSES)
|
|
|
(578,486
|
)
|
|
|
(515,920
|
)
|
|
|
|
|
|
|
|
|
|
OTHER INCOME/(EXPENSES)
|
|
|
|
|
|
|
|
|
Gain (Loss) on change in derivative liability
|
|
|
(1,380,085
|
)
|
|
|
(434,405
|
)
|
Interest expense
|
|
|
(247,689
|
)
|
|
|
(302,434
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL OTHER INCOME (EXPENSES)
|
|
|
(1,627,774
|
)
|
|
|
(736,839
|
)
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
$
|
(2,206,260
|
)
|
|
$
|
(1,252,759
|
)
|
|
|
|
|
|
|
|
|
|
BASIC AND DILUTED LOSS PER SHARE
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING BASIC AND DILUTED
|
|
|
2,139,179,833
|
|
|
|
1,173,720,677
|
|
The
accompanying notes are an integral part of these condensed unaudited financial statements
SUNHYDROGEN,
INC.
CONDENSED
STATEMENTS OF SHAREHOLDERS’ DEFICIT
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
|
|
THREE MONTHS ENDED SEPTEMBER 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
Common stock
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Total
|
|
Balance at June 30, 2019
|
|
|
-
|
|
|
$
|
-
|
|
|
|
1,077,319,339
|
|
|
$
|
1,077,319
|
|
|
$
|
10,432,575
|
|
|
$
|
(18,021,177
|
)
|
|
$
|
(6,511,283
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for conversion of debt and accrued interest
|
|
|
-
|
|
|
|
-
|
|
|
|
217,641,145
|
|
|
|
217,641
|
|
|
|
855,933
|
|
|
|
-
|
|
|
|
1,073,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for services
|
|
|
-
|
|
|
|
-
|
|
|
|
22,995,143
|
|
|
|
22,995
|
|
|
|
66,455
|
|
|
|
-
|
|
|
|
89,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
246,994
|
|
|
|
-
|
|
|
|
246,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,252,759
|
)
|
|
|
(1,252,759
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2019
|
|
|
-
|
|
|
$
|
-
|
|
|
|
1,317,955,627
|
|
|
$
|
1,317,955
|
|
|
$
|
11,601,957
|
|
|
$
|
(19,273,936
|
)
|
|
$
|
(6,354,024
|
)
|
|
|
THREE MONTHS ENDED SEPTEMBER 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
Common stock
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Total
|
|
Balance at June 30, 2020
|
|
|
-
|
|
|
$
|
-
|
|
|
|
2,053,410,161
|
|
|
$
|
2,053,410
|
|
|
$
|
11,664,657
|
|
|
$
|
(75,550,515
|
)
|
|
$
|
(61,832,448
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for cash
|
|
|
-
|
|
|
|
-
|
|
|
|
35,573,090
|
|
|
|
35,573
|
|
|
|
764,427
|
|
|
|
-
|
|
|
|
800,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for conversion of debt and accrued interest
|
|
|
-
|
|
|
|
-
|
|
|
|
79,908,088
|
|
|
|
79,908
|
|
|
|
177,327
|
|
|
|
-
|
|
|
|
257,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
r
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for services
|
|
|
-
|
|
|
|
-
|
|
|
|
2,813,903
|
|
|
|
2,814
|
|
|
|
85,487
|
|
|
|
-
|
|
|
|
88,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
112,035
|
|
|
|
|
|
|
|
112,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,206,260
|
)
|
|
|
(2,206,260
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2020
|
|
|
-
|
|
|
$
|
-
|
|
|
|
2,171,705,242
|
|
|
$
|
2,171,705
|
|
|
$
|
12,803,933
|
|
|
$
|
(77,756,775
|
)
|
|
$
|
(62,781,137
|
)
|
The
accompanying notes are an integral part of these condensed unaudited financial statements
SUNHYDROGEN,
INC.
CONDENSED
STATEMENTS OF CASH FLOWS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
(Unaudited)
|
|
Three Months Ended
|
|
|
|
September 30,
2020
|
|
|
September 30,
2019
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net (loss)
|
|
$
|
(2,206,260
|
)
|
|
$
|
(1,252,759
|
)
|
Adjustment to reconcile net income (loss) to net cash (used in) provided by operating activities
|
|
|
|
|
|
|
|
|
Depreciation & amortization expense
|
|
|
2,036
|
|
|
|
2,209
|
|
Stock based compensation expense
|
|
|
112,035
|
|
|
|
246,994
|
|
Stock issued for services
|
|
|
88,301
|
|
|
|
89,450
|
|
Loss on change in derivative liability
|
|
|
1,380,085
|
|
|
|
434,405
|
|
Amortization of debt discount recorded as interest expense
|
|
|
199,024
|
|
|
|
242,392
|
|
Change in assets and liabilities:
|
|
|
|
|
|
|
|
|
Prepaid expense
|
|
|
(3,167
|
)
|
|
|
5,214
|
|
Accounts payable
|
|
|
(76,515
|
)
|
|
|
7,552
|
|
Accrued expenses
|
|
|
11,861
|
|
|
|
|
|
Accrued interest on convertible notes
|
|
|
48,234
|
|
|
|
68,847
|
|
|
|
|
|
|
|
|
|
|
NET CASH USED IN OPERATING ACTIVITIES
|
|
|
(444,366
|
)
|
|
|
(155,696
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(50,000
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
NET CASH USED IN INVESTING ACTIVITIES:
|
|
|
(50,000
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from common stock sales
|
|
|
800,000
|
|
|
|
186,500
|
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
800,000
|
|
|
|
186,500
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH
|
|
|
305,634
|
|
|
|
30,804
|
|
|
|
|
|
|
|
|
|
|
CASH, BEGINNING OF YEAR
|
|
|
195,010
|
|
|
|
35,074
|
|
|
|
|
|
|
|
|
|
|
CASH, END OF YEAR
|
|
$
|
500,644
|
|
|
$
|
65,878
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
2,249
|
|
|
$
|
416
|
|
Taxes paid
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF NON CASH TRANSACTIONS
|
|
|
|
|
|
|
|
|
Fair value of common stock upon conversion of convertible notes , accrued interest and other fees
|
|
$
|
257,235
|
|
|
$
|
388,886
|
|
The
accompanying notes are an integral part of these condensed unaudited financial statements
SUNHYDROGEN,
INC.
CONDENSED
NOTES TO FINANCIAL STATEMENTS - UNAUDITED
SEPTEMBER
30, 2020 AND 2019
The
accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted
in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all normal recurring adjustments considered necessary for a fair
presentation have been included. Operating results for the three months ended September 30, 2020 are not necessarily indicative
of the results that may be expected for the year ended June 30, 2021. For further information refer to the financial statements
and footnotes thereto included in the Company’s Form 10-K for the year ended June 30, 2020.
Going
Concern
The
accompanying condensed unaudited financial statements have been prepared on a going concern basis of accounting, which contemplates
continuity of operations, realization of assets and liabilities and commitments in the normal course of business. The accompanying
condensed unaudited financial statements do not reflect any adjustments that might result if the Company is unable to continue
as a going concern. The Company does not generate revenue, and has negative cash flows from operations, which raise substantial
doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern
and appropriateness of using the going concern basis is dependent upon, among other things, raising additional capital. The Company
has historically obtained funds through private placement offerings of equity and debt. Management believes that it will be able
to continue to raise funds by sale of its securities to its existing shareholders and prospective new investors to provide the
additional cash needed to meet the Company’s obligations as they become due and will allow the development of its core business.
There is no assurance that the Company will be able to continue raising the required capital.
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
This
summary of significant accounting policies of SunHydrogen, Inc. is presented to assist in understanding the Company’s financial
statements. The financial statements and notes are representations of the Company’s management, which is responsible for
their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States
of America and have been consistently applied in the preparation of the financial statements.
Cash
and Cash Equivalent
The
Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.
Use
of Estimates
In
accordance with accounting principles generally accepted in the United States, management utilizes estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the
financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could
differ from those estimates. These estimates and assumptions relate to useful lives and impairment of tangible and intangible
assets, accruals, income taxes, stock-based compensation expense, Binomial lattice valuation model inputs, derivative liabilities
and other factors. Management believes it has exercised reasonable judgment in deriving these estimates. Consequently, a change
in conditions could affect these estimates.
Property
and Equipment
Property and equipment are stated
at cost, and are depreciated using straight line over its estimated useful lives.
During the three months ended
September 30, 2020, the Company purchased a business vehicle for transporting demonstration units and to serve as a mobile office.
The Company recognized depreciation
expense of $278 and $157 for the three months ended September 30, 2020 and 2019, respectively.
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.
The Company recognized amortization
expense of $1,758 and $2,052 for the three months ended September 30, 2020 and 2019, respectively.
SUNHYDROGEN,
INC.
CONDENSED
NOTES TO FINANCIAL STATEMENTS - UNAUDITED
SEPTEMBER
30, 2020 AND 2019
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
Net
Earnings (Loss) per Share Calculations
Net
earnings (Loss) per share dictates the calculation of basic earnings (loss) per share and diluted earnings per share. Basic earnings
(loss) per share are computed by dividing by the weighted average number of common shares outstanding during the year. Diluted
net earnings (loss) per share is computed similar to basic earnings (loss) per share except that the denominator is increased
to include the effect of stock options and stock-based awards (Note 4), plus the assumed conversion of convertible debt (Note
5).
For
the three months ended September 30, 2020, the Company calculated the dilutive impact of the outstanding stock options of 186,000,000,
and the convertible debt of $1,797,000, 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 three months ended September 30, 2019, the Company calculated the dilutive impact of the outstanding stock options of 196,250,000,
and the convertible debt of $2,118,100, 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.
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. 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.
As
of September 30, 2020, the Company has granted 186,000,000 equity incentive stock options leaving a reserve of 114,000,000. The
options are exercisable for common stock.
Stock
based Compensation
The
Company periodically issues stock options and warrants to employees and non-employees in non-capital raising transactions for
services. 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 September 30, 2020, the Company has granted 10,000,000 stock-based compensation stock options, which are exercisable for common
stock.
Fair
Value of Financial Instruments
Fair value of financial instruments,
requires disclosure of the fair value information, whether or not recognized on the balance sheet, where it is practicable to estimate
that value. As of September 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.
SUNHYDROGEN,
INC.
CONDENSED
NOTES TO FINANCIAL STATEMENTS - UNAUDITED
SEPTEMBER
30, 2020 AND 2019
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
Fair
Value of Financial Instruments
We
adopted ASC Topic 820 for financial instruments measured as fair value on a recurring basis. ASC Topic 820 defines fair value,
established a framework for measuring fair value in accordance with accounting principles generally accepted in the United States
and expands disclosures about fair value measurements.
Fair
value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. ASC Topic 820 established a three-tier fair value hierarchy which prioritizes
the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets
for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements).
These tiers include:
|
●
|
Level
1, defined as observable inputs such as quoted prices for identical instruments in active markets;
|
|
●
|
Level
2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as
quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that
are not active; and
|
|
●
|
Level
3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own
assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value
drivers are unobservable.
|
We
measure certain financial instruments at fair value on a recurring basis. Assets and liabilities measured at fair value on a recurring
basis are as follows at September 30, 2020 (See Note 6):
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability measured at fair value at 9/30/20
|
|
$
|
61,037,804
|
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
61,037,804
|
|
The
following is a reconciliation of the derivative liability for which Level 3 inputs were used in determining the approximate fair
value:
Balance as of June 30, 2020
|
|
|
59,657,719
|
|
Fair value of derivative liabilities issued
|
|
|
-
|
|
Loss on change in derivative liability
|
|
|
1,380,085
|
|
Balance as of September 30, 2020
|
|
$
|
61,037,804
|
|
Research
and Development
Research
and development costs are expensed as incurred. Total research and development costs were $138,260 and $143,395 for the
three months ended September 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.
SUNHYDROGEN,
INC.
CONDENSED
NOTES TO FINANCIAL STATEMENTS - UNAUDITED
SEPTEMBER
30, 2020 AND 2019
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
Recently
Issued Accounting Pronouncements
In
June 2018, FASB issued accounting standards update ASU 2018-07, (Topic 505) – “Shared-Based Payment Arrangements with
Nonemployees”, which simplifies the accounting for share-based payments granted to nonemployees for goods and services.
Under the ASU, most of the guidance on such payments to nonemployees will be aligned with the requirements for share-based payments
granted to employees. Under the ASU 2018-07, the measurement of equity-classified nonemployee share-based payments will be fixed
on the grant date, as defined in ASC 718, and will use the term nonemployee vesting period, rather than requisite service period.
The amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within
those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and
interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted if financial statements have
not yet been issued. The Company is currently evaluating the impact of the adoption of ASU 2018-07 on the Company’s financial
statements.
In
August 2018, the FASB issued accounting standards update ASU 2018-13, (Topic 820) - “Fair Value Measurement”, which
changes the unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level
3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the
most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied
retrospectively to all periods presented upon their effective date. The amendments in this update are effective for fiscal years,
and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted upon issuance. The
Company is currently evaluation the impact of the adoption of ASU 2018-13, on the Company’s financial statements.
Management
does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a
material effect on the accompanying condensed financial statements.
Three months ended September
30, 2020
During the three months ended
September 30, 2020, the Company issued 35,573,090 shares of common stock for cash for aggregate gross proceeds of $800,000.
During the three months ended
September 30, 2020, the Company issued 79,908,088 shares of common stock upon conversion of convertible notes in the amount of
$233,000 in principal, plus accrued interest of $23,335 and other fees of $900 based upon conversion prices ranging from $0.00095
- $0.017995 per share. All note conversions were performed per the terms of their respective agreements and therefore no gain or
loss on the conversion was recorded.
During the three months ended
September 30, 2020, the Company issued 2,813,903 shares of common stock for services rendered at fair value prices of $0.028 -
$0.035 per share in the aggregate amount of $88,301.
Three months ended September
30, 2019
During the three months ended
September 30, 2019, the Company issued 217,641,145 shares of common stock upon conversion of convertible notes in the amount of
$388,886 in principal, plus accrued interest of $57,594 and other fees of $3,500, with an aggregate fair value loss on settlement
of $623,594 based upon conversion prices ranging from $0.0035 - $0.0069 per share.
During the three months ended
September 30, 2019, the Company issued 22,995,143 shares of common stock for services rendered at a fair value prices of $0.0035
- $0.0050 per share in the aggregate amount of $89,450.
SUNHYDROGEN,
INC.
CONDENSED
NOTES TO FINANCIAL STATEMENTS - UNAUDITED
SEPTEMBER
30, 2020 AND 2019
Stock
Option Plan
As of September 30, 2020, 10,000,000
non-qualified common stock options were outstanding. Each option expires on the date specified in the option agreement, which
date is not later than the fifth (5th) anniversary from the grant date of the options. Of the 10,000,000 non-qualified
common stock options, one-third vest immediately, and one-third vest the second and third year, such that, the options are fully
vested with a maturity date of October 2, 2022, and are exercisable at an exercise price of $0.01 per share.
On January 23, 2019, the Company
issued 170,000,000 stock options. One-third of the options vested immediately, and the remainder vest 1/24 per month over the first
twenty four months following the option grant. The options expire 10 years from the initial grant date. The options fully vest
by January 23, 2022
On January 31, 2019, the Company
issued 6,000,000 stock options, of which two-third (2/3) vest immediately, and the remaining amount shall vest one-twelfth (1/12)
per month from after the date of the option grant. The options expire 10 years from the initial grant date. 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 the option grant. The options expire 10 years from the initial grant date. The options fully vested
on July 22, 2020.
A
summary of the Company’s stock option activity and related information follows:
|
|
9/30/2020
|
|
|
9/30/2019
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
Number
|
|
|
average
|
|
|
Number
|
|
|
average
|
|
|
|
of
|
|
|
exercise
|
|
|
of
|
|
|
exercise
|
|
|
|
Options
|
|
|
price
|
|
|
Options
|
|
|
price
|
|
Outstanding, beginning of period
|
|
|
196,250,000
|
|
|
$
|
0.01
|
|
|
|
186,250,000
|
|
|
$
|
0.01
|
|
Granted
|
|
|
-
|
|
|
$
|
0.01
|
|
|
|
10,000,000
|
|
|
$
|
0.01
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited/Expired
|
|
|
(250,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding, end of period
|
|
|
196,000,000
|
|
|
$
|
0.01
|
|
|
|
196,250,000
|
|
|
$
|
0.01
|
|
Exercisable at the end of period
|
|
|
174,332,250
|
|
|
$
|
0.01
|
|
|
|
108,916,667
|
|
|
$
|
0.01
|
|
The
weighted average remaining contractual life of options outstanding as of September 30, 2020 and 2019 was as follows:
9/30/20
|
|
|
9/30/19
|
|
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
|
|
|
|
0.50
|
|
$
|
0.01
|
|
|
|
10,000,000
|
|
|
|
10,000,000
|
|
|
|
2.01
|
|
|
$
|
0.01
|
|
|
|
10,000,000
|
|
|
|
5,000,000
|
|
|
|
3.01
|
|
$
|
0.0097-0.0099
|
|
|
|
176,000,000
|
|
|
|
157,110,167
|
|
|
|
5.32
- 5.34
|
|
|
$
|
0.0097-0.0099
|
|
|
|
176,000,000
|
|
|
|
99,777,777
|
|
|
|
6.32
- 6.34
|
|
$
|
0.006
|
|
|
|
10,000,000
|
|
|
|
7,222,083
|
|
|
|
5.81
|
|
|
$
|
0.006
|
|
|
|
10,000,000
|
|
|
|
3,888,889
|
|
|
|
6.81
|
|
|
|
|
|
|
196,000,000
|
|
|
|
174,332,250
|
|
|
|
|
|
|
|
|
|
|
|
196,250,000
|
|
|
|
108,916,667
|
|
|
|
|
|
The
stock-based compensation expense recognized in the statement of operations during the three months ended September 30, 2020 and
2019, related to the granting of these options was $112,035 and $246,994, respectively.
SUNHYDROGEN,
INC.
CONDENSED
NOTES TO FINANCIAL STATEMENTS - UNAUDITED
SEPTEMBER
30, 2020 AND 2019
|
5.
|
CONVERTIBLE
PROMISSORY NOTES
|
As
of September 30, 2020, the outstanding convertible promissory notes, net of debt discount of $210,050 are summarized as follows:
Convertible Promissory Notes, net of debt discount
|
|
$
|
1,586,950
|
|
Less current portion
|
|
|
126,950
|
|
Total long-term liabilities
|
|
$
|
1,460,000
|
|
Maturities
of long-term debt net of debt discount for the next five years are as follows:
Period Ended September 30,
|
|
Amount
|
|
2021
|
|
|
337,000
|
|
2022
|
|
|
695,000
|
|
2023
|
|
|
625,000
|
|
2024
|
|
|
140,000
|
|
|
|
$
|
1,797,000
|
|
At
September 30, 2020, the $1,797,000 in convertible promissory notes had a remaining debt discount of $210,050, leaving a net balance
of $1,586,950.
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 three months ended on September 30, 2020,
the Company issued 48,802,884 common shares upon conversion of principal in the amount of $33,000, plus interest of $13,363. The
balance of the Jan 2016 Note as of September 30, 2020 was $277,000.
SUNHYDROGEN,
INC.
CONDENSED
NOTES TO FINANCIAL STATEMENTS - UNAUDITED
SEPTEMBER
30, 2020 AND 2019
|
5.
|
CONVERTIBLE
PROMISSORY NOTES (Continued)
|
The
Company issued a 10% convertible promissory note on February 3, 2017 (the “Feb 2017 Note”) in the aggregate principal
amount of up to $500,000. Upon execution of the convertible promissory note, the Company received a tranche of $60,000. The Company
received additional tranches in the amount of $440,000 for an aggregate sum of $500,000. The Feb 2017 Note 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 September 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 September 30, 2020 was $500,000.
The
Company issued a 10% convertible promissory note on June 27, 2018 (the “Jun 2018 Note”) in the aggregate principal
amount of up to $500,000. Upon execution of the convertible promissory note, the Company received a tranche of $50,000. On October
9, 2018, the Company received another tranche of $40,000, for a total aggregate of $90,000 as of December 31, 2019. The Jun 2018
Note 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 balance of the Jun 2018 Note as of September 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 balance
of the Aug 2018 Note as of September 30, 2020 was $100,000.
SUNHYDROGEN,
INC.
CONDENSED
NOTES TO FINANCIAL STATEMENTS - UNAUDITED
SEPTEMBER
30, 2020 AND 2019
|
5.
|
CONVERTIBLE
PROMISSORY NOTES (Continued)
|
On January 20, 2020, the Company
issued a 10% convertible promissory note (the “Jan 2020 Note”) to an investor (the “Jan 2020 Note”) in
the principal amount of $80,000. The Company received funds of $78,000, less other fees of $2,000. The Jan 2020 Note had a maturity
date of January 20, 2021. The Jan 2020 Note was convertible into shares of the Company’s common stock at a conversion price
of sixty-one (61%) percent of the lowest two (2) trading prices per common stock during the fifteen (15) trading day prior to the
conversion date. The conversion feature of the Jan 2020 Note was considered a derivative in accordance with current accounting
guidelines because of the reset conversion features of the Jan 2020 Note. During the three months ended September 30, 2020, the
Company issued 23,420,128 shares of common stock upon conversion of principal in the amount of $80,000, plus accrued interest of
$3,989, and other fees of $300. The Company recorded amortization of debt discount, which was recognized as interest expense in
the amount of $42,404 during the three months ended September 30, 2020. The Jan 2020 Note was fully converted as of September 30,
2020.
On February 11, 2020, the Company
issued a convertible promissory note (the “Feb 2020 Note”) to an investor (the “Feb 2020 Note”) in the
principal amount of $80,000. The Company received funds of $78,000, less other fees of $2,000. The Feb 2020 Note had a maturity
date of February 11, 2021. The Feb 2020 Note was convertible into shares of the Company’s common stock at a conversion price
of sixty-one (61%) percent of the lowest two (2) trading prices 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. During the three months ended September 30, 2020, the
Company issued 5,294,205 shares of common stock upon conversion of principal in the amount of $80,000, plus accrued interest of
$3,989, and other fees of $300. The Company recorded amortization of debt discount, which was recognized as interest expense in
the amount of $49,399 during the three months ended September 30, 2020. The Feb 2020 Note was fully converted as of September 30,
2020.
On March 9, 2020, the Company
issued a convertible promissory note (the “Mar 2020 Note”) to an investor, (the “Mar 2020 Note”) in the
principal amount of $40,000. The Company received funds of $38,000, less other fees of $2,000. The Mar 2020 Note had a maturity
date of March 9, 2021. The Mar 2020 Note was convertible into shares of the Company’s common stock at a conversion price
of sixty-one (61%) percent of the lowest two (2) trading prices 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. During the three months ended September 30, 2020, the
Company issued 2,390,871 shares of common stock upon conversion of principal in the amount of $40,000, plus accrued interest of
$1,995, and other fees of $300. The Company recorded amortization of debt discount, which was recognized as interest expense in
the amount of $25,708 during the three months ended September 30, 2020. The Mar 2020 Note was fully converted as of September 30,
2020.
SUNHYDROGEN,
INC.
CONDENSED
NOTES TO FINANCIAL STATEMENTS - UNAUDITED
SEPTEMBER
30, 2020 AND 2019
|
5.
|
CONVERTIBLE
PROMISSORY NOTES (Continued)
|
On
April 14, 2020, the Company issued a convertible promissory note (the “April 2020 Note”) to an investor in the principal
amount of $80,000. The Company received funds of $78,000, less other fees of $2,000. The April 2020 Note matures on April 14,
2021. The April 2020 Note 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 $20,164 during the three months ended September 30, 2020. The balance
of the April 2020 Note as of September 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 $855 during the three months ended September
30, 2020. The balance of the Apr 2020 Note as of September 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 $20,164 during the year ended June 30, 2020. The balance of the May 2020 Note as of June 30, 2020 was
$80,000.
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 $40,329 during the three months ended September 30, 2020. The balance of the Jun 2020 Note
as of September 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.
SUNHYDROGEN,
INC.
CONDENSED
NOTES TO FINANCIAL STATEMENTS - UNAUDITED
SEPTEMBER
30, 2020 AND 2019
6.
|
DERIVATIVE
LIABILITIES
|
ASC
Topic 815 provides guidance applicable to convertible debt issued by the Company in instances where the number into which the
debt can be converted is not fixed. For example, when a convertible debt converts at a discount to market based on the stock price
on the date of conversion, ASC Topic 815 requires that the embedded conversion option of the convertible debt be bifurcated from
the host contract and recorded at their fair value. In accounting for derivatives under accounting standards, the Company recorded
a liability representing the estimated present value of the conversion feature considering the historic volatility of the Company’s
stock, and a discount representing the imputed interest associated with the embedded derivative. The discount is amortized over
the life of the convertible debt, and the derivative liability is adjusted periodically according to stock price fluctuations.
The
convertible notes (the “Notes”) issued do not have fixed settlement provisions because their conversion prices are
not fixed. The conversion features have been characterized as derivative liabilities to be re-measured at the end of every reporting
period with the change in value reported in the statement of operations.
During
the three months ended September 30, 2020, the Company recorded a net loss in change in derivative of $1,380,085 in the statement
of operations due to the change in fair value of the remaining notes, for the three months ended September 30, 2020.
At
September 30, 2020, the fair value of the derivative liability was $61,037,804.
For
purpose of determining the fair market value of the derivative liability for the embedded conversion, the Company used the
Binomial lattice formula. The significant assumptions used in the Binomial lattice formula of the derivatives are as follows:
Risk free interest rate
|
|
0.12% - 0.28%
|
Stock volatility factor
|
|
150.0% - 274.0%
|
Weighted average expected option life
|
|
3 months - 5 year
|
Expected dividend yield
|
|
None
|
7.
|
COMMON STOCK PURCHASE AGREEMENTS
On July 27, 2020, the Company entered into
a purchase agreement with an investor. Pursuant to the purchase agreement, subject to certain conditions set forth in the purchase
agreement, the investor was obligated to purchase up to $2.1 million of the Company’s common stock from time to time through
September 30, 2020. The purchase price per share under the purchase agreement was 85% of the lowest closing price during the five
(5) business days prior to closing, not to exceed the valuation cap set forth in the purchase agreement. During the three months
ended September 30, 2020, the Company issued 20,000,000 shares of common stock at a purchase price of $0.025 per share under the
purchase agreement. The Company received net proceeds of $460,350 after legal fees and commissions.
On September 21, 2020, the Company
entered into a purchase agreement with an investor. 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 the
investor. The Company has the right, in its sole discretion, subject to the conditions and limitations in the purchase
agreement, to direct the investor, by delivery of a purchase notice from time to time to purchase over the 6-month term
of the purchase agreement, a minimum of $10,000 and up to a maximum of $400,000 of shares of common stock for each purchase
notice (provided that, the purchase amount for any purchase 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
the Company will issue under each purchase will be equal to 112.5% of the purchase amount sold under such Purchase, divided
by the purchase price per share (as defined under the purchase agreement). The “purchase price” is defined
as 90% of the lowest end-of-day volume weighted average price of the common stock for the five consecutive business days
immediately preceding the purchase date, including the purchase date. The Company may not deliver more than one purchase
notice to the investor every ten business days, except as the parties may otherwise agree.
. During the three months ended
September 30, 2020, the Company received $300,000 for the sale of 15,573,090 shares of common stock under the purchase
agreement.
|
SUNHYDROGEN,
INC.
CONDENSED
NOTES TO FINANCIAL STATEMENTS - UNAUDITED
SEPTEMBER
30, 2020 AND 2019
|
8.
|
COMMITMENTS
AND CONTINGENCIES
|
On September 15, 2020, the
Company entered into a marketing agreement to position its brand in the market. The fees are to be paid in cash and registered
unrestricted stock. As of September 30, 2020, the Company has paid a $26,250 deposit, with the balance of the payments and the
stock issuances due and payable through December 2020.
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 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 is from September 1, 2020 through August 31, 2020. As of September 30, 2020,
the Company has accrued the amount due of $24, 997.
In the normal
course of business, the Company may be involved in legal proceedings, claims and assessments arising in the ordinary
course of business. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance. In the opinion
of management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s
consolidated financial position or results of operation
As of September 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 October 5, 2020, the Company
issued 992,387 shares of common stock for services in the amount of $29,722.
On October 7, 2020, the Company
received gross proceeds of $300,000 for the sale of 13,489,209 shares of commons stock.
On October 16, 2020, the Company
issued 5,315,949 shares of common stock upon conversion of principal in the amount of 80,000, plus accrued interest of $4,011,
and other fees of $300.
On October 27, 2020, the Company
received gross proceeds of $400,000 for the sale of 19,685,040 shares of common stock.
On November 10, 2020, the Company
issued 53,615,458 shares of common stock upon conversion of principal in the amount of $35,700 in principal, plus accrued interest
of $15,235,
On November 12, 2020, the Company
received $300,000 for the sale of 15,237,709 shares of common stock.
On December 1, 2020, the Company
entered into a securities purchase agreement with the purchaser set forth on the signature page thereto for the purchase and sale
of an aggregate of 120,000,000 shares of the Company’s common stock and warrants to purchase an aggregate of up to 120,000,000
shares of common stock, in a registered direct offering at a combined purchase price of $0.075 per share and warrant, for aggregate
gross proceeds to the Company of $9,000,000. The registered direct offering closed on December 3, 2020.
In addition, the Company issued
to the placement agent’s designees placement agent warrants to purchase a number of shares equal to 7.0% of the aggregate
number of shares sold under the purchase agreement, or warrants to purchase up to an aggregate of 8,400,000 shares. The placement
agent warrants generally have the same terms as the warrants issued to the investor, except they have an exercise price of $0.0938
and the placement agent warrants and the shares of common stock issuable thereunder are not registered under the Securities Act
of 1933, as amended.
On December 28, 2020, the Company
entered into a letter agreement with an existing accredited investor to exercise certain outstanding warrants (the “Exercise”)
to purchase up to an aggregate of 120,000,000 shares of the Company’s common stock at an exercise price per share of $0.075
(the “Prior Warrants”).
In consideration for the immediate
exercise of the Prior Warrants for cash, the exercising investor received new unregistered warrants to purchase up to an aggregate
of 132,000,000 shares of common stock (the “New Warrants”). The New Warrants have an exercise price of $0.075 per share,
with an exercise period of three years from the date of issuance. The closing of the Exercise and issuance of the New Warrants
occurred on December 29, 2020. The gross proceeds to the Company from the Exercise were $9.0 million, prior to deducting placement
agent fees and offering expenses.
The Company issued to the placement
agent’s designees warrants to purchase up to an aggregate of 8,400,000 shares of common stock of the Company, which equals
7.0% of the aggregate number of shares of common stock issuable to the investor upon the Exercise. The placement agent warrants
have an exercise price of $0.0938 per share and otherwise have identical terms to the New Warrants.
PART
II — INFORMATION NOT REQUIRED IN PROSPECTUS
Item
13. Other Expenses of Issuance and Distribution.
The
following table sets forth all expenses to be paid by the registrant in connection with the issuance and distribution of the securities
to be registered, other than underwriting discounts and commissions. . All amounts shown are estimates except for the SEC registration
fee:
SEC registration fee
|
|
$
|
2,972
|
|
Legal fees and expenses
|
|
$
|
100,000
|
|
Accounting fees and expenses
|
|
$
|
5,000
|
|
Placement agent non-accountable expense reimbursement
|
|
|
35,000
|
|
Miscellaneous fees and expenses
|
|
$
|
5,000
|
|
Total
|
|
$
|
147,972
|
|
Item
14. Indemnification of Directors and Officers.
Neither
our Articles of Incorporation nor Bylaws prevent us from indemnifying our officers, directors and agents to the extent permitted
under the Nevada Revised Statute (“NRS”). NRS Section 78.7502 provides that a corporation shall indemnify any director,
officer, employee or agent of a corporation against expenses, including attorneys’ fees, actually and reasonably incurred
by him in connection with any defense to the extent that a director, officer, employee or agent of a corporation has been successful
on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 78.7502(1) or 78.7502(2), or in
defense of any claim, issue or matter therein.
NRS
78.7502(1) provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except
an action by or in the right of the corporation, by reason of the fact that he is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorneys’ fees, judgments,
fines and amounts paid in settlement actually and reasonably incurred by him in connection with the action, suit or proceeding
if he: (a) is not liable pursuant to NRS 78.138; or (b) acted in good faith and in a manner which he reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable
cause to believe his conduct was unlawful.
NRS
Section 78.7502(2) provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor
by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust
or other enterprise against expenses, including amounts paid in settlement and attorneys’ fees actually and reasonably incurred
by him in connection with the defense or settlement of the action or suit if he: (a) is not liable pursuant to NRS 78.138; or
(b) acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation.
Indemnification may not be made for any claim, issue or matter as to which such a person has been adjudged by a court of competent
jurisdiction, after exhaustion of all appeals there from, to be liable to the corporation or for amounts paid in settlement to
the corporation, unless and only to the extent that the court in which the action or suit was brought or other court of competent
jurisdiction determines upon application that in view of all the circumstances of the case, the person is fairly and reasonably
entitled to indemnity for such expenses as the court deems proper.
NRS
Section 78.747 provides that except as otherwise provided by specific statute, no director or officer of a corporation is individually
liable for a debt or liability of the corporation, unless the director or officer acts as the alter ego of the corporation. The
court as a matter of law must determine the question of whether a director or officer acts as the alter ego of a corporation.
Insofar
as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling
us pursuant to the foregoing provisions, we have been informed that, in the opinion of the SEC, such indemnification is against
public policy as expressed in the Securities Act and is therefore unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter
has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification
by us is against public policy as expressed hereby in the Securities Act and we will be governed by the final adjudication of
such issue.
Item
15. Recent Sales of Unregistered Securities.
On
December 28, 2020, we entered into a letter agreement (“Letter Agreement”) with an existing accredited investor to
exercise certain outstanding warrants (the “Exercise”) to purchase up to an aggregate of 120,000,000 shares of the
Company’s common stock at an exercise price per share of $0.075 (the “Prior Warrants”).
In
consideration for the immediate exercise of the Prior Warrants for cash, the exercising investor received new unregistered warrants
to purchase up to an aggregate of 132,000,000 shares of common stock (the “New Warrants”). The New Warrants have an
exercise price of $0.075 per share, with an exercise period of three years from the date of issuance.
On
December 3, 2020, the Company issued to the designees of placement agent for a registered direct offering warrants to purchase
8,400,000 shares of common stock, with an exercise price of $0.0938 and a term of 30 months.
From
October 1, 2020 to January 14, 2021, the Company issued an aggregate of 195,624,664 shares of common stock upon conversion of
an aggregate of $500,781 principal and interest in convertible notes.
During
the three months ended September 30, 2020, the Company issued 79,908,088 shares of common stock upon conversion of principal in
the amount of 233,000, plus accrued interest of $23,335 and other fees of $900.
During
the three months ended September 30, 2020, the Company issued 2,813,903 shares of common stock for services.
During
the three months ended June 30, 2020, the Company issued 200,989,838 shares of common stock upon conversion of $249,545 in principal
of convertible notes, plus accrued interest of $49,200, and other fees of $1,900.
During
the three months ended June 30, 2020, the Company issued 16,313,820 shares of common stock for services.
During
the three months ended March 31, 2020, the Company issued 293,530,883 shares of common stock upon conversion of principal in the
amount of 330,755, plus accrued interest of $65,112 and other fees of $4,600.
On
March 17, 2020, the Company issued a 10% convertible promissory note in the principal amount of $80,000. The 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.
During
the three months ended March 31, 2020, the Company issued 17,739,640 shares of common stock for services.
During
the three months ended December 31, 2019, the Company issued 172,827,849 shares of common stock upon conversion of principal in
the amount of $197,800, plus accrued interest of $26,294 and other fees of $2,000.
During
the three months ended December 31, 2019, the Company issued 34,052,500 shares of common stock for services.
During
the three months ended June 30, 2019, the Company issued 116,315,594 shares of common stock upon conversion of $259,614 in principal,
plus accrued interest of $42,337.
During
the three months ended March 31, 2019, the Company issued 13,042,837 shares of common stock upon conversion of principal in the
amount of $63,000, plus accrued interest of $3,150.
During
the three months ended December 31, 2018, the Company issued 9,603,000 shares of common stock for services.
During
the three months ended September 30, 2018, the Company issued 32,615,769 shares of common stock upon partial conversion of principal
of $44,500, plus accrued interest of $14,208 on an outstanding convertible promissory note.
During
the three months ended June 30, 2018, the Company issued 42,019,125 shares of common stock upon conversion of $144,700 in principal,
plus accrued interest of $43,447.
During
the three months ended March 31, 2018, the Company issued 50,528,807 shares of common stock upon partial conversion of principal
of $81,600, plus accrued interest of $24,915 on an outstanding convertible promissory note.
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. 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.
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 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
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 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.
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 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.
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 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.
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 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.
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 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.
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 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.
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 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.
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 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.
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 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
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 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.
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. 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.
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 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.
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 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.
In
connection with the foregoing, the Company relied upon the exemption from registration provided by Section 4(a)(2) under the Securities
Act of 1933, as amended, for transactions not involving a public offering.
Item 16.
Exhibits and Financial Statement Schedules.
Exhibit
|
|
Description
|
|
|
|
3.1
|
|
Articles
of Incorporation of filed with the Nevada Secretary of State on February 18, 2009 (incorporated by reference to S-1 filed
on February 5, 2010).
|
|
|
|
3.2
|
|
Articles
of Amendment of Articles of Incorporation filed with the Nevada Secretary of State on September 11, 2009 (incorporated by
reference to S-1 filed February 5, 2010).
|
|
|
|
3.3
|
|
Articles
of Amendment of Articles of Incorporation of filed with the Nevada Secretary of State on November 21, 2013 (incorporated by
reference 8-K filed on November 21, 2013).
|
|
|
|
3.4
|
|
Articles
of Amendment of Articles of Incorporation filed with the Nevada Secretary of State on September 13, 2018. (incorporated by
reference to 10-K filed on September 25, 2018).
|
|
|
|
3.5
|
|
Certificate
of Designation of Series B Preferred Stock (incorporated by reference to the Company’s Form 8-K filed November 26, 2019)
|
|
|
|
3.6
|
|
Certificate
of Amendment to Articles of Incorporation (incorporated by reference to 8-K filed January 3, 2020)
|
|
|
|
3.7
|
|
Articles
of Merger (incorporated by reference to 8-K filed June 15, 2020)
|
|
|
|
3.8
|
|
Bylaws
(incorporated by reference to S-1 February 5, 2010)
|
|
|
|
5.1
|
|
Opinion of Sichenzia Ross Ference LLP*
|
|
|
|
10.1
|
|
2019
Equity Incentive Plan (incorporated by reference to Form S-8 on December 19, 2018)
|
|
|
|
10.2
|
|
Contract
between Company and the University of Iowa dated as of May 1, 2016 (incorporated by reference to 10-K filed on September 21,
2016).
|
|
|
|
10.3
|
|
Offer
of Employment to Timothy Young dated August 13, 2009 (incorporated by reference to S-1 filed on March 25, 2010)
|
|
|
|
10.4
|
|
Invention
Transfer dated as of June 10, 2009 (incorporated by reference Form S-1 filed on March 25, 2010)
|
|
|
|
10.5
|
|
Convertible
Promissory Note dated February 3, 2017 (incorporated by reference to Form 10-Q filed on May 15, 2018f)
|
|
|
|
10.6
|
|
Convertible
Promissory Note dated November 10, 2017 (incorporated by reference to Form 10-Q on May 15, 2018)
|
|
|
|
10.7
|
|
Convertible
Promissory Note dated July 27, 2018 (incorporated by reference to Form 8-K filed on June 29, 2018)
|
|
|
|
10.8
|
|
Convertible
Promissory dated July 23, 2018 (incorporated by reference to Form 8-K on August 6, 2018)
|
10.9
|
|
Promissory Note issued August 10, 2018 (incorporated by reference to Form 8-K filed on August 14, 2018)
|
|
|
|
10.10
|
|
Agreement dated as of June 1, 2018 between the Company and The University of Iowa, Iowa City, Iowa (incorporated by reference to Form 10-K filed on September 25, 2018)
|
|
|
|
10.11
|
|
Consulting Agreement dated as of September 19, 2018 between the Company and GreenTech Development Corporation (incorporated by reference to Form 10-K filed on September 25, 2018)
|
|
|
|
10.12
|
|
Convertible Promissory Note dated October 3, 2018 between the Company and PowerUp Lending (incorporated by reference to Form 8-K on October 12, 2018)
|
|
|
|
10.13
|
|
Convertible Promissory Note dated January 18, 2019 (incorporated by reference to Form 10-Q filed on May 14, 2019)
|
|
|
|
10.14
|
|
Contract, dated September 1, 2020, between the Company and The University of Iowa, Iowa City (incorporated by reference to the 10-K filed September 23, 2020)
|
|
|
|
10.15
|
|
Form of Securities Purchase Agreement (incorporated by reference to 8-K filed December 3, 2020)
|
|
|
|
10.16
|
|
Form of Placement Agent Warrant (incorporated by reference to 8-K filed December 3, 2020)
|
|
|
|
10.17
|
|
Engagement Agreement between the Company and H.C. Wainwright & Co., LLC (incorporated by reference to 8-K filed December 3, 2020)
|
|
|
|
10.18
|
|
Form of Letter Agreement (incorporated by reference to 8-K filed December 29, 2020)
|
|
|
|
10.19
|
|
Form of Warrant (incorporated by reference to 8-K filed December 29, 2020)
|
|
|
|
10.20
|
|
Amendment to Engagement Agreement between the Company and H.C. Wainwright & Co., LLC (incorporated by reference to 8-K filed December 29, 2020)
|
|
|
|
16.1
|
|
Letter from Liggett & Webb, P.A. (incorporated by reference to 8-K filed January 7, 2020)
|
|
|
|
23.1
|
|
Consent of Liggett & Webb, P.A.*
|
|
|
|
23.2
|
|
Consent of M&K CPAS, LLC*
|
|
|
|
23.3
|
|
Consent of Sichenzia Ross Ference LLP (included in Exhibit 5.1)
|
EX-101.INS
|
|
XBRL INSTANCE DOCUMENT*
|
|
|
|
EX-101.SCH
|
|
XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT*
|
|
|
|
EX-101.CAL
|
|
XBRL TAXONOMY EXTENSION CALCULATION LINKBASE*
|
|
|
|
EX-101.DEF
|
|
XBRL TAXONOMY EXTENSION DEFINITION LINKBASE*
|
|
|
|
EX-101.LAB
|
|
XBRL TAXONOMY EXTENSION LABELS LINKBASE*
|
|
|
|
EX-101.PRE
|
|
XBRL TAXONOMY EXTENSION PRESENT*
|
*
Filed herewith.
Item 17.
Undertakings.
(a)
The undersigned registrant hereby undertakes:
(1)
To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i)
To include any prospectus required by section 10(a)(3) of the Securities Act of 1933, as amended (the “Securities Act”);
(ii)
To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if
the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering
price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and
(iii)
To include any material information with respect to the plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement.
(2)
That, for the purposes of determining any liability under the Securities Act, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein, and the offering of the securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3)
To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold
at the termination of the offering.
(4)
That, for the purpose of determining liability under the Securities Act to any purchaser, each prospectus filed pursuant to Rule
424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or
other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement
as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or
prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into
the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract
of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that
was part of the registration statement or made in any such document immediately prior to such date of first use.
(5)
For the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution
of the securities in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless
of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser
by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered
to offer or sell such securities to such purchaser:
(i)
Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant
to Rule 424;
(ii)
Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred
to by the undersigned registrant;
(iii)
The portion of any other free writing prospectus relating to the offering containing material information about the undersigned
registrant or its securities provided by or on behalf of the undersigned registrant; and
(iv)
Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
(b)
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities, other than the payment by
the registrant of expenses incurred and paid by a director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding, is asserted by such director, officer or controlling person in connection with the
securities being registered hereby, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy
as expressed in the Securities Act and will be governed by the final adjudication of such issue.
(c)
The undersigned Registrant hereby undertakes that it will:
(1)
for determining any liability under the Securities Act, treat the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant under
Rule 424(b)(1), or (4) or 497(h) under the Securities Act as part of this registration statement as of the time the Commission
declared it effective.
(2)
for determining any liability under the Securities Act, treat each post-effective amendment that contains a form of prospectus
as a new registration statement for the securities offered in the registration statement, and that offering of the securities
at that time as the initial bona fide offering of those securities.