The accompanying notes are an integral part of these condensed unaudited financial statements
The accompanying notes are an integral part of these condensed unaudited financial statements
The accompanying notes are an integral part of these condensed unaudited financial statements
CONDENSED NOTES TO FINANCIAL STATEMENTS –
UNAUDITED
MARCH 31, 2022 AND 2021
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 nine months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ended June 30, 2022.
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, 2021.
| 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.
Marketable Securities
The Company considers corporate bonds
(“bonds”) as investments due to their ratings. The bonds are rated based on their default probability, health of the corporation’s
debt structure, as well as the overall health of the economy. The bonds fall into the category as investments if they have a rating of
AAA and BBB.
The bonds have varied due dates and
were classified as current and noncurrent, based on to their maturity dates. The bonds are generally valued using quoted prices and are
classified in Level 2 of the fair value hierarchy as prices are not always from active markets. We consider our investments held to maturity
and we believe there are no other than temporary declines in fair value. Our investments are recorded at historical cost.
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.
| Computers and peripheral equipment | |
| 5 Years | |
| Vehicle | |
| 5 Years | |
The Company recognized depreciation
expense of $27,335 and $7,755 for the nine months ended March 31, 2022 and 2021, respectively.
SUNHYDROGEN, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS –
UNAUDITED
MARCH 31, 2022 AND 2021
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Intangible Assets
The Company has patent applications
to protect the inventions and processes behind its proprietary solar-to-hydrogen based technology. Intangible assets that have finite
useful lives continue to be amortized over their useful lives.
The Company recognized amortization
expense of $5,275 and $5,275 for the nine months ended March 31, 2022 and 2021, 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).
Nine Months Ended March 31, 2022
The Company calculated the dilutive
impact of the 157,965,711 outstanding stock options of, 94,895,239 common stock purchase warrants of, and the convertible debt and accrued
interest of $1,003,108, which is convertible into shares of common stock. The common stock purchase warrants and convertible debt were
included, because their impact on income per share is dilutive.
Nine Months Ended March 31, 2021
The Company calculated the dilutive
impact of the 182,853,174 outstanding stock options of, 94,895,239 common stock purchase warrants of, and the convertible debt of $1,078,300,
which is convertible into shares of common stock. The stock options, warrants and convertible debt were not included, because their impact
on income per share is antidilutive.
| | |
Nine Months Ended | |
| | |
March 31, | |
| | |
2022 | | |
2021 | |
| | |
| | |
| |
| Income (Loss) to common shareholders (Numerator) | |
$ | 78,734,911 | | |
$ | (163,710,569 | ) |
| | |
| | | |
| | |
| Basic weighted average number of common shares outstanding (Denominator) | |
| 4,085,126,236 | | |
| 2,477,795,662 | |
| | |
| | | |
| | |
| Diluted weighted average number of common shares outstanding (Denominator) | |
| 5,179,620,549 | | |
| 2,477,795,662 | |
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 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 options are exercisable into common stock.
SUNHYDROGEN, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS –
UNAUDITED
MARCH 31, 2022 AND 2021
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Stock Based Compensation
The Company accounts for stock option
grants issued and vesting to employees and non-employees in accordance with the authoritative guidance of the Financial Accounting Standards
Board whereas the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance
commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Non-employee stock-based
compensation charges generally are amortized over the vesting period on a straight-line basis. In certain circumstances where there are
no future performance requirements by the non-employee, option grants are immediately vested, and the total stock-based compensation charge
is recorded in the period of the measurement date.
Warrant Accounting
The Company accounts for the warrants
to purchase shares of common stock using the estimated fair value on the date of issuance as calculated using the Black-Scholes valuation
model.
Fair Value of Financial
Instruments
Fair value of financial instruments
requires disclosure of the fair value information, whether or not recognized on the balance sheet, where it is practicable to estimate
that value. As of March 31, 2022, 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. |
| ● | 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 on March 31, 2022
(See Note 6):
| | |
Total | | |
(Level 1) | | |
(Level 2) | | |
(Level 3) | |
| Assets: | |
| | |
| | |
| | |
| |
| Marketable securities measured at fair value | |
$ | 10,648,389 | | |
$ | - | | |
$ | 10,648,389 | | |
$ | - | |
| | |
| | | |
| | | |
| | | |
| | |
| Liabilities: | |
| | | |
| | | |
| | | |
| | |
| Derivative liabilities measured at fair value | |
$ | 38,444,200 | | |
$ | - | | |
$ | - | | |
$ | 38,444,200 | |
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, 2021 | |
| 135,247,303 | |
| Fair value of derivative liability removed | |
| (13,231,008 | ) |
| Gain on change in derivative liability | |
| (83,572,095 | ) |
| Balance as of March 31, 2022 | |
$ | 38,444,200 | |
SUNHYDROGEN, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS –
UNAUDITED
MARCH 31, 2022 AND 2021
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Research and Development
Research and development costs are
expensed as incurred. Total research and development costs were $1,202,235 and $1,712,169 for the nine months ended March 31, 2022
and 2021, 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.
Recently Issued Accounting Pronouncements
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 as of March 31, 2022.
Series A Preferred Stock
On
January 27, 2022, the Company filed a certificate of designation of Series A Preferred Stock with the Secretary of State of Nevada, designating
1,000 shares of preferred stock as Series A Preferred Stock, and issued 1,000 shares of Series A Preferred Stock to Timothy Young, the
Company’s chief executive officer., . The Series A Preferred Stock does not have any dividend rights or liquidation preferences.
The Series A preferred shares entitles the holder to 51% of the voting power of the Company’s stockholders. The Series A Preferred
Stock were to automatically be redeemed by the Company at their par value of $0.001 per share, on the first to occur of the following
events: (i) a date sixty days after the effective date of the certificate of designation, (ii) the date that Tim Young ceases to serve
as officer, director or consultant of the Company, or (iii) on the date that the Company’s shares of common stock first trade on
any national securities exchange and such listing is conditioned upon the elimination of the preferential voting rights of the Series
A Preferred Stock. The estimated control premium for the voting control of the Series A Preferred Stock was 14.1%. The following assumptions
were used: (i) control value of $22,101,999, (ii) control time period of 60 days, (iii) risk equivalent to the WACC of 26.4%. The common
stock price was $0.0348, with a market capitalization based on the fully diluted common and preferred shares outstanding. The net fair
value of the Series Preferred Stock was $960,700, which was recognized in the financial statements. The preferred shares expired March
27, 2022, and there were no outstanding shares as of March 31, 2022.
Series C Preferred Stock
On December 15, 2021, the Company filed
a certificate of designation of Series C Preferred Stock with the Secretary of State of Nevada, designating 17,000 shares of preferred
stock as Series C Preferred Stock. Each share of Series C Preferred Stock has a stated value of $100 and is convertible into shares of
common stock of the Company at a conversion price equal to $0.00095. The Series C Preferred Stock holders are entitled to receive out
of any funds and assets of the Company legally available prior and in preference to any declaration or payment of any dividend on the
common stock of the Company, cumulative dividends, at an annual rate of 10% of the stated value, payable in cash or shares of common stock.
In the event the Company declares or pays a dividend on its shares of common stock (other than dividend payable in shares of common stock),
the holders of Series C Preferred Stock will also be entitled to receive payment of such dividend on an as-if-converted basis with respect
to the Series C Preferred Stock. The Series C Preferred Stock confers no voting rights on holders, except with respect to matters that
materially and adversely affect the voting powers, rights or preferences of the Series C Preferred Stock or as otherwise required by applicable
law.
The Company entered into a securities purchase agreement on December 15,
2021, with an accredited investor for an exchange of convertible debt to equity. Under the purchase agreement, the Company and investor
acknowledged there was $187,800 of principal remaining under the note issued to the investor by the Company on February 3, 2017, plus
$80,365 of accrued interest, representing a total aggregate note balance of $268,165. Pursuant to the purchase agreement, the Company
sold to investor 2,700 shares of the Company’s newly designated Series C Preferred Stock for a total purchase price of $268,165.
As of March 31, 2022, the Company had a total of 2,700 shares of Series C Preferred Stock outstanding with a fair value of $268,165, and
a stated face value of one hundred dollars ($100) (“share value’) per share, and is convertible into shares of fully paid
and non-assessable shares of common stock of the Company. Upon liquidation, dissolution and winding up of the Corporation either
voluntary or involuntary, the holder of each outstanding share of Series C Preferred Stock shall be entitled to receive, out of the assets
of the Corporation available for distribution to its shareholders upon such liquidation, before any payments shall be made or any assets
distributed to the holders of the common stock, the stated value of the Series C Preferred Shares plus any declared but unpaid dividends.
No other current or future equity holders of the Corporation shall have higher priority of liquidation preference than holders of Series
C Preferred Stock. The Holder has the right, at any time, at its election, to convert shares of Series C Preferred Stock into common stock
at a conversion price of $0.00095.
SUNHYDROGEN, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS –
UNAUDITED
MARCH 31, 2022 AND 2021
| 3. | CAPITAL STOCK (Continued) |
| Per Valuation | |
| |
| Preferred shares issued | |
$ | 2,700 | | |
$ | 34,853 | |
| Stated value of debt and interest | |
$ | 268,165 | | |
$ | 3,485,313 | |
| Calculated fair value of preferred shares | |
$ | 14,340,769 | | |
$ | 85,555,204 | |
| Fair value of derivative liability removed | |
$ | 13,231,008 | | |
$ | 178,464,388 | |
| Loss on settlement | |
$ | 1,109,761 | | |
$ | 96,394,494 | |
The Company
recognized a loss on settlement of $1,109,761 for the extinguishment of convertible debt, plus derivative liability for the nine
months ended March 31, 2022.
Common Stock
Nine months ended March 31, 2022
During the nine months ended March
31, 2022, the Company issued 381,457,044 shares of common stock upon conversion of convertible notes in the amount of $255,900 of principal,
plus accrued interest of $106,484 based upon a conversion price of $0.00095 per share. The notes were converted per the terms of their
respective agreements and therefore no gain or loss on the conversion was recorded.
During the nine months ended March
31, 2022, the Company issued 40,983,607 shares of common stock pursuant to a purchase agreement for cash at a price of $0.02745 per share
for aggregate net proceeds of $960,000.
Nine months ended March 31, 2021
During the nine months ended March
31, 2021, the Company issued 412,273,408 shares of common stock pursuant to purchase agreements for cash at prices ranging from $0.022
- $.025 per share for aggregate net proceeds of $32,523,350.
During the nine months ended March
31, 2021, the Company issued 252,000,000 shares of common stock upon exercise of warrants at an exercise price of $0.075 for gross proceeds
of $18,900,000.
During the nine months ended March
31, 2021, the Company issued 599,449,820 shares of common stock upon conversion of convertible notes in the amount of $887,250 of principal,
plus accrued interest of $176,987 and other fees of $1,800 based upon conversion prices ranging from $0.00095 - $0.017995 per share. All
note conversions were performed per the terms of their respective agreements and therefore no gain or loss on the conversion was recorded.
During the nine months ended March
31, 2021, the Company issued 3,806,290 shares of common stock for services rendered at fair value prices of $0.028 - $0.035 per share
in the aggregate amount of $118,023.
OPTIONS
On January 27, 2022, the holder of
the majority of the voting power of the shareholders of the Company, and the Company’s chief executive officer, approved by written
consent (i) an amendment to the Company’s articles of incorporation to increase the Company’s authorized shares of common
stock from 5,000,000,000 to 10,000,000,000, (ii) an amendment to the Company’s articles of incorporation to effect a reverse stock
split of the Company’s common stock by a ratio of not less than 1-for-100 and not more than 1-for-500 at any time prior to the one
year anniversary of filing the definitive information statement with respect to the reverse split, with the board of directors having
the discretion as to whether or not the reverse split is to be effected, and with the exact ratio of any reverse split to be set at a
whole number within the above range as determined by the board in its discretion, and (iii) the adoption of the Company’s 2022 Equity
Incentive Plan. Such shareholder approval for such actions became effective 20 days after the definitive information statement relating
to such actions was mailed to shareholders.
SUNHYDROGEN, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS –
UNAUDITED
MARCH 31, 2022 AND 2021
| 4. |
OPTIONS AND WARRANTS (Continued) |
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 vested by January 23, 2022.
On January 31, 2019, the Company issued
6,000,000 stock options, of which two-third (2/3) vested 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) vested 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:
| | |
3/31/2022 | | |
3/31/2021 | |
| | |
| | |
Weighted | | |
| | |
Weighted | |
| | |
Number | | |
average | | |
Number | | |
average | |
| | |
Of | | |
exercise | | |
Of | | |
exercise | |
| | |
Options | | |
price | | |
Options | | |
price | |
| Outstanding, beginning of period | |
| 157,965,711 | | |
$ | 0.01 | | |
| 196,000,000 | | |
$ | 0.01 | |
| Granted | |
| - | | |
$ | 0.01 | | |
| - | | |
| - | |
| Exercised | |
| - | | |
| - | | |
| - | | |
| - | |
| Buyback of options | |
| - | | |
$ | 0.0099 | | |
| (13,146,826 | ) | |
$ | 0.0099 | |
| Outstanding, end of period | |
| 157,965,711 | | |
$ | 0.0089 | | |
| 182,853,174 | | |
$ | 0.0089 | |
| Exercisable at the end of period | |
| 157,965,711 | | |
$ | 0.0089 | | |
| 182,853,174 | | |
$ | 0.0089 | |
During the nine months ended March
31, 2022, the Company granted no options.
During the nine months ended March
31, 2021, the Company bought back a total of 13,146,826 of the Company’s stock options for a total of $1,250,000.
The weighted average remaining contractual life of options
outstanding as of March 31, 2022 and 2021 was as follows:
| 3/31/2022 | | |
3/31/2021 | |
Exercise
Price | | |
Stock Options Outstanding | | |
Stock Options Exercisable | | |
Weighted Average Remaining Contractual Life (years) | | |
Exercise
Price | | |
Stock Options Outstanding | | |
Stock Options Exercisable | | |
Weighted Average Remaining Contractual Life (years) | |
| $ | 0.0100 | | |
| 3,071,212 | | |
| 3,071,212 | | |
| 0.51 | | |
$ | 0.0100 | | |
| 7,369,421 | | |
| 7,368,421 | | |
| 1.51 | |
| $ | 0.0097 | | |
| 6,000,000 | | |
| 6,000,000 | | |
| 3.84 | | |
| 0.0097 | | |
| 6,000,000 | | |
| 6,000,000 | | |
| 4.84 | |
| $ | 0.0099 | | |
| 138,894,499 | | |
| 138,894,499 | | |
| 3.82 | | |
$ | 0.0099 | | |
| 159,484,753 | | |
| 159,484,753 | | |
| 4.82 | |
| $ | 0.0060 | | |
| 10,000,000 | | |
| 10,000,000 | | |
| 4.31 | | |
$ | 0.0060 | | |
| 10,000,000 | | |
| 10,000,000 | | |
| 5.31 | |
| | | | |
| 157,965,711 | | |
| 157,965,711 | | |
| | | |
| | | |
| 182,853,174 | | |
| 182,853,174 | | |
| | |
The stock-based compensation expense
recognized in the statement of operations during the nine months ended March 31, 2022 and 2021, related to the granting of these options
was $0 and $259,955, respectively.
SUNHYDROGEN, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS –
UNAUDITED
MARCH 31, 2022 AND 2021
| 4. |
OPTIONS AND WARRANTS (Continued) |
WARRANTS
As of March 31, 2022, the Company had
an aggregate of 94,895,239 common stock purchase warrants outstanding, with exercise prices ranging from $0.0938 - $0.13125 per share.
The warrants were estimated at fair value on the date of issuance as calculated using the Black-Scholes valuation model. The warrants
can be exercised over periods of three (3) to five (5) years.
A summary of the Company’s warrant
activity and related information follows for the nine months ended March 31, 2022.
| | |
3/31/2022 | |
| | |
| | |
Weighted | |
| | |
Number | | |
average | |
| | |
Of | | |
exercise | |
| | |
Warrants | | |
price | |
| Outstanding, beginning of period | |
| 94,895,239 | | |
$ | 0.11 | |
| Granted | |
| - | | |
| - | |
| Exercised | |
| - | | |
| - | |
| Forfeited/Expired | |
| - | | |
| - | |
| Outstanding, end of period | |
| 94,895,239 | | |
$ | 0.11 | |
| Exercisable at the end of period | |
| 94,895,239 | | |
$ | 0.11 | |
| 3/31/2022 | | |
Weighted Average | |
Exercise
Price | | |
Warrants
Outstanding | | |
Warrants
Exercisable | | |
Remaining Contractual
Life (years) | |
| $ | 0.0938 | | |
| 16,800,000 | | |
| 16,800,000 | | |
| 1.18 - 1.75 | |
| $ | 0.13125 | | |
| 6,666,667 | | |
| 6,666,667 | | |
| 3.91 | |
| $ | 0.12 | | |
| 71,428,572 | | |
| 71,428,572 | | |
| 3.92 | |
| | | | |
| 94,895,239 | | |
| 94,895,239 | | |
| | |
At March 31, 2022, the aggregate intrinsic
value of the warrants outstanding was $0.
| 5. | CONVERTIBLE PROMISSORY NOTES |
As of March 31, 2022, the outstanding
convertible promissory notes net of debt discount are summarized as follows:
| Convertible Promissory Notes, net of debt discount | |
$ | 722,705 | |
| Less current portion | |
| 387,705 | |
| Total long-term liabilities | |
$ | 335,000 | |
Maturities of long-term debt for the
next three years are as follows:
| Period Ended March 31, | |
Amount | |
| 2023 | |
$ | 492,500 | |
| 2024 | |
| 325,000 | |
| 2025 | |
| - | |
| 2026 | |
| 10,000 | |
| | |
$ | 827,500 | |
At March 31, 2022, the $827,500 in
convertible promissory notes had a remaining debt discount of $104,795, leaving a net balance of $722,705.
SUNHYDROGEN, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS –
UNAUDITED
MARCH 31, 2022 AND 2021
| 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. The Company received tranches for an aggregate principal total of $500,000. The Feb 2017 Note had a maturity
date of February 3, 2018, which the investor extended for an additional sixty (60) months from the effective date of the note, to February
3, 2022. The Feb 2017 Note was convertible into shares of common stock of the Company at a variable conversion price of the lesser
of $0.01 per share or fifty percent (50%) of the lowest trading price since the original effective date of the note or the lowest effective
price per share granted to any person or entity after the effective date to acquire common stock. If the Company failed to deliver shares
in accordance with the timeframe of three (3) business days of the receipt of a notice of conversion, the lender, at any time prior to
selling all of those shares, could 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 was the lender be entitled to convert any portion of the Feb 2017 Note to the extent such conversion 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 were not delivered by the fourth business day (inclusive of the day of conversion), a penalty
of $1,500 per day would be assessed for each day after the third business day (inclusive of the day of the conversion) until the shares
are delivered. During the period ended on December 31, 2021, the Company issued 180,480,692 shares of common stock upon
conversion of principal in the amount of $120,400, plus accrued interest of $51,057. Also, during the nine months ended March 31, 2022,
the Company exchanged the balance of the convertible note in the amount of $187,800, plus accrued interest of $80,365 for an aggregate
total of $268,165, for 2,700 Series C preferred shares with a stated value of $100 per share and a 10% annual dividend. The preferred
shares are convertible into common stock at a fixed conversion price of $0.00095. The balance of the Feb 2017 Note as of March 31, 2022
was $0.
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. The Company
received tranches for an aggregate principal total of 500,000. The Nov 2017 Note had a maturity date of November 9, 2018, with an automatic
extension of sixty (60) months from the effective date of the note. The Nov 2017 Note is convertible into shares of common stock of the
Company at a price equal to a variable conversion price of the lesser of $0.01 per share or fifty percent (50%) of the lowest trading
price since the original effective date of the note or the lowest effective price per share granted to any person or entity after the
effective date to acquire common stock. If the Company fails to deliver shares in accordance with the timeframe of three (3) business
days of the receipt of a notice of conversion, the lender, at any time prior to selling all of those shares, may rescind any portion,
in whole or in part of that particular conversion attributable to the unsold shares and have the rescinded conversion amount returned
to the principal sum with the rescinded conversion shares returned to the Company. In no event shall the lender be entitled to convert
any portion of the Nov 2017 Note to the extent such conversion would result in beneficial ownership by the lender and its affiliates of
more than 4.99% of the outstanding shares of common stock of the Company. In addition, for each conversion in the event that shares are
not delivered by the fourth business day (inclusive of the day of conversion), a penalty of $1,500 per day shall be assessed for each
day after the third business day (inclusive of the day of the conversion) until the shares are delivered. During the period ended March
31, 2022, the Company issued 200,976,352 shares of common stock upon the conversion of principal of $135,500, plus the accrued interest
of $55,427. The balance of the Nov 2017 Note as of March 31, 2022 was $177,500.
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 Company received
tranches for an aggregate principal total of $500,000. The Jun 2018 Note matured on June 27, 2019, which was automatically extended for
sixty (60) months from the effective date of the note. The Jun 2018 Note is convertible into shares of common stock of the Company at
a price equal to a variable conversion price of the lesser of $0.01 per share or fifty percent (50%) of the lowest trading price since
the original effective date of the note or the lowest effective price per share granted to any person or entity after the effective date
to acquire common stock. If the Company fails to deliver shares in accordance with the timeframe of three (3) business days of the receipt
of a notice of conversion, the lender, at any time prior to selling all of those shares, may rescind any portion, in whole or in part
of that particular conversion attributable to the unsold shares and have the rescinded conversion amount returned to the principal sum
with the rescinded conversion shares returned to the Company. In no event shall the lender be entitled to convert any portion of the Jun
2018 Note to the extent such conversion 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 $307,781 during the nine months ended March 31, 2022.The balance of the Jun 2018 Note
as of March 31, 2022 was $500,000.
SUNHYDROGEN, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS –
UNAUDITED
MARCH 31, 2022 AND 2021
| 5. |
CONVERTIBLE PROMISSORY
NOTES (Continued) |
The Company issued a 10% convertible
promissory note on August 10, 2018 (the “Aug 2018 Note”) in the aggregate principal amount of up to $100,000. The Aug 2018
Note had a maturity date of August 10, 2019, with an extension of sixty (60) months from the date of the note. The Aug 2018 Note matures
on August 10, 2023. The Aug 2018 Note may be converted into shares of the Company’s common stock at a conversion price of the lesser
of a) $0.005 per share or b) sixty-one (61%) percent of the lowest trading price per common stock recorded on any trade day after the
effective date. The conversion feature of the Aug 2018 Note was considered a derivative in accordance with current accounting guidelines
because of the reset conversion features of the Note. The balance of the Aug 2018 Note as of March 31, 2022 was $100,000.
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.
The Company received tranches for an aggregate principal total of $50,000. The Apr 2020 Note matures twelve (12) months from the
effective dates of each respective tranche, such that the Apr 2020 Note matures on April 15, 2021, with an automatic extension of
sixty (60) months from the effective date of each tranche. The Apr Note is convertible into shares of common stock of the Company at
a variable conversion price of the lesser of $0.01 per share or fifty percent (50%) of the lowest trading price of the common stock
recorded on any trade day after the effective date, or (c) the lowest effective price per share granted to any person or entity
after the effective date to acquire common stock. If the Company fails to deliver shares in accordance with the timeframe of four
(4) business days of the receipt of a notice of conversion, the lender, at any time prior to selling all of those shares, may
rescind any portion, in whole or in part of that particular conversion attributable to the unsold shares and have the rescinded
conversion amount returned to the principal sum with the rescinded conversion shares returned to the Company. In no event shall the
lender be entitled to convert any portion of the Apr 2020 Note to the extent such conversion 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 $30,027 during the nine months ended March 31, 2022. The balance
of the Apr 2020 Note as of March 31, 2022 was $50,000.
All note conversions were performed
per the terms of their respective agreements. At March 31, 2022, the Company recognized a loss of $1,109,761 on conversion of a convertible
note in exchange for Series C preferred stock.
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 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 nine months ended March
31, 2022, the Company recorded a net gain in change in derivative of $83,572,095 in the statement of operations due to the change in fair
value of the remaining notes, for the nine months ended March 31, 2022.
At March 31,
2022, the fair value of the derivative liability was $38,444,200.
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 | |
| 0.35% - 2.28% | |
| Stock volatility factor | |
| 83.0% - 166.0% | |
| Weighted average expected option life | |
| 1 year - 5 years | |
| Expected dividend yield | |
| None | |
SUNHYDROGEN, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS –
UNAUDITED
MARCH 31, 2022 AND 2021
During the period ended March 31, 2022,
the Company invested in corporate bonds, which have been recognized in the financial statements at fair value.
The Company considers corporate bonds
(“bonds”) as investments due to their ratings. The bonds are rated based on their default probability, health of the corporation’s
debt structure, as well as the overall health of the economy. The bonds fall into the category as investments if they have a rating between
AAA and BBB.
As of March 31, 2022, the components
of the Company’s short and long-term investments are summarized as follows:
| Short term investments: | |
| |
| Bonds (held-to-maturity) | |
$ | 7,452,049 | |
| | |
| | |
| Long term investments: | |
| | |
| Bonds (held-to-maturity) | |
| 3,196,340 | |
| Total short and long-term investments | |
$ | 10,648,389 | |
The Company has invested in bonds maturing
from June 30, 2022 through August 16, 2023 that are held to maturity. The current trading prices or fair market value of the bonds vary,
and we believe any decline in fair value is temporary. All bonds are current and not in default.
The following table summarizes the
amortized cost of the held-to-maturity bonds at March 31, 2022, aggregated by credit quality indicator.
| Credit Quality Indicators for the Corporate Bonds | |
| |
| AA/A | |
$ | 5,402,413 | |
| BBB | |
$ | 5,245,976 | |
| Total | |
$ | 10,648,389 | |
The amortized cost of our corporate
bonds and the related gross unrealized gains and losses, were as follows at March 31, 2022:
| | |
| | |
| | |
Gross Unrealized | | |
| |
| | |
| Level | | |
| Cost | | |
| Gains | | |
| Losses | | |
| Fair Value | |
| Bonds | |
| 2 | | |
| 10,648,389 | | |
| - | | |
| (218,923 | ) | |
$ | 10,429,466 | |
During the nine months ended March 31, 2022, the Company recognized
interest income of $172,566 in the financial statements, which is recorded as part of other income to the statement of operations.
| 8. | COMMITMENTS AND CONTINGENCIES |
On September 15, 2020, the Company
entered into a marketing agreement. The fees are to be paid in cash and registered unrestricted stock. As of March 31, 2022, the Company
has paid a $34,250 deposit, with the balance of the payments and the stock issuances due upon completion of a deliverable.
Effective September 1, 2021,
the Company entered into a new research agreement with the University of Iowa. As consideration under the research agreement, the University
of Iowa will receive a maximum of $350,000 from the Company. The contract period is from September 1, 2021 through August 31, 2022.
The research agreement may be terminated by either party upon sixty (60) day prior written notice or a material breach or default, which
is not cured within 90 days of receipt of a written notice of such breach. This agreement was signed by the Company on September 13, 2021.
As of March 31, 2022, the Company has accrued the amount due of $204,166, which is recorded as part of accounts payable.
SUNHYDROGEN, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS –
UNAUDITED
MARCH 31, 2022 AND 2021
| 8. | COMMITMENTS AND CONTINGENCIES (Continued) |
Effective
October 1, 2021, the Company entered into a research agreement with the University of Michigan. As consideration under the research agreement,
the University of Michigan will receive a maximum of $296,448, from the Company. The research agreement may be terminated by either party
upon ninety (90) day prior written notice or a material breach or default, which is not cured within 90 days of receipt of a written notice
of such breach. This agreement was signed by the Company on September 23, 2021.
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 March 31, 2022, the Company reported
an accrual associated with the CEO’s prior years’ salary in the amount of $214,820, and $211,750 for the current year, which
is recorded in related party accrued expenses. The Company began accruing the salary in 2011 and used the funds for operating expenses.
The CEO will be paid during the fiscal year.
During the nine months ended March
31, 2022, the Company redeemed 24,887,463 of the Company’s stock options from related parties for a total of $1,450,000.
Management evaluated subsequent events
as of the date of the financial statements pursuant to ASC TOPIC 855, and there were no subsequent events to report.