UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 2020
☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER: 000-54437
SUNHYDROGEN, INC.
(Name of registrant in its charter)
|
NEVADA |
|
26-4298300 |
(State
or other jurisdiction of
incorporation or organization) |
|
(I.R.S.
Employer
Identification No.) |
10 E. Yanonali St., Suite 36 Santa Barbara, CA
93101
(Address of principal executive offices) (Zip Code)
Issuer’s telephone Number: (805) 966-6566
Securities registered pursuant to Section 12(b) of the Act:
|
Title
of each class |
|
Trading
Symbol(s) |
|
Name
of each exchange on which registered |
| None |
|
None |
|
None |
Securities registered pursuant to section 12(g) of the Act: common
stock, par value $0.001 per share
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act.
Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Act. Yes
☐ No ☒
Indicate by check mark whether the registrant (1) has filed all
reports required by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90
days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the
registrant was required to submit such files). Yes ☒
No ☐
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company or emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule
12b-2 of the Exchange Act.
| Large
accelerated filer |
☐ |
Accelerated
Filer |
☐ |
| Non-accelerated
filer |
☒ |
Smaller
reporting company |
☒ |
| |
|
Emerging
growth company |
☐ |
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards pursuant to Section 13(a) of the Exchange
Act. ☐
Indicate by check mark whether the registrant has filed a report on
and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section
404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the
registered public accounting firm that prepared or issued its audit
report. ☐
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes ☐
No ☒
The aggregate market value of the common stock held by
non-affiliates of the registrant, based upon the last sale price of
the common stock of the Company as of the last business day of its
most recently completed second fiscal quarter was approximately
$6,059,344.
The number of shares of registrant’s common stock outstanding, as
of September 18, 2020 was 2,156,132,155.
DOCUMENTS INCORPORATED BY REFERENCE
None
TABLE OF CONTENTS
PART I
Item 1. Business.
Unless otherwise stated or the context requires otherwise,
references in this annual report on Form 10-K to “SunHydrogen”, the
“Company”, “we”, “us”, or “our” refer to SunHydrogen, Inc.
Overview
At SunHydrogen, our goal is to replace fossil fuels with clean
renewable hydrogen.
Our patented low-cost technology is intended to produce renewable
hydrogen using sunlight and any source of water, including seawater
and wastewater. Unlike non-renewable hydrocarbon fuels, such as
oil, coal and natural gas, where carbon dioxide and other
contaminants are released into the atmosphere when used, hydrogen
fuel produces pure water as the only product. By optimizing the
science of photoelectrolysis at the nano-level, our low-cost
nanoparticles mimic photosynthesis to efficiently use sunlight to
split water molecules into renewable hydrogen. Using our low-cost
method to produce renewable hydrogen, we intend to enable a world
of distributed hydrogen production for renewable electricity and
hydrogen fuel cell vehicles.
Hydrogen is the lightest and most abundant chemical element,
constituting roughly 75% of the universe’s chemical elemental mass
(Palmer, D. (13 September 1997). “Hydrogen in the
Universe.” NASA). In its purest form, hydrogen is a non-toxic
colorless and odorless gas. However, naturally occurring elemental
hydrogen is relatively rare on earth and hydrogen gas is most often
produced using fossil fuels. Industrial production of hydrogen is
mainly from the steam reforming of natural gas and is usually
employed near its production site, with the two largest
applications being crude oil processing (hydrocracking) and ammonia
production, mostly for the fertilizer market. We are developing
what we believe is a cleaner and greener way to produce
hydrogen.
Hydrogen as a fuel, like electricity, is an energy carrier rather
than an energy source. We believe that if hydrogen was easily
accessible for the world to depend on it, the challenging global
issues associated with the widespread usages of fossil fuels, such
as global climate change and air pollution would be erased.
Over 99% of hydrogen produced today is produced using a fossil
fuel, methane (natural gas) in a method called steam methane
reforming (SMR). Although commercially optimized over decades, the
SMR process is capital intensive and will remain so due to the
fundamental nature of the process which includes: (1) three
separate reactors with different catalysts operating at different
temperatures, (2) large amounts of heat transfer needed for the
endothermic reforming and exothermic water gas shift, and (3) the
need to remove all carbon oxides using capital and energy intensive
methods. (source: Nikolaidis, P.; Poullikkas, A., A comparative
overview of hydrogen production processes. Renewable and
Sustainable Energy Reviews 2017, 67, 597-611.)
Besides being capital intensive, the SMR method releases harmful
levels of carbon dioxide and other pollutants into the air further
contributing to our global climate crisis.
We believe renewable hydrogen is the fuel of the future. The main
challenge has been the high cost of hydrogen production and
transportation. We believe a low-cost distributed production
technology, such as the SunHydrogen technology, is the way to
enable a world of clean and renewable energy.
Market Opportunity
We believe we are still in the early stages of the hydrogen market,
and yet, this market continues to grow exponentially. One of the
reasons for this growth is the adoption of hydrogen fuel
technologies within an increased number of major industries and
spanning many applications.
Furthermore, recent government mandates for renewable energy have
created a real and sustainable market opportunity for renewable
hydrogen. Most states in the United States have legislative
mandates to use between 10-45% of renewable energy by 2050, some
states have mandates for 100% by 2050. These include California
(100% by 2045), Colorado (100% by 2050), Hawaii (100% by 2045),
Virginia (100% by 2050), Washington (100% by 2045), Washington DC
(100% by 2032) and Puerto Rico (100% by 2050).
(https://www.ncsl.org/research/energy/renewable-portfolio-standards.aspx)
While solar and wind electricity have been the dominate form of
renewable energy, the sun does not always shine and the wind does
not always blow. Therefore, we believe a direct solar-to-hydrogen
technology which immediately stores solar energy as hydrogen can
turn solar energy into a primary and reliable source of energy just
like coal and natural gas – but cleaner and greener.
Existing Market Growth
According to a Global Market
Insights study released in June 2019, the global hydrogen
generation market size is predicted to be valued at $180 billion by
2024. Strict regulatory norms to reduce sulfur content with
measures to reduce the carbon footprint is expected to drive the
global hydrogen generation market size. U.S. federal and state
governments have adopted various programs including the Tier 3
program to reduce the sulfur content in gasoline, motor oil, and
diesel and which aims to lower the gasoline sulfur content up to 10
ppm in 2017.
Growing demand for petroleum products from developing countries is
anticipated to also drive the hydrogen generation market size in
the coming years. Hydrogen is used in various refining processes
including hydrocracking and hydrodesulfurization to crack bigger
molecules into lighter ones and more usable products.
Strong investment for the expansion and upgrade of refineries to
fulfill emission and sulfur content regulation is expected to
stimulate the growth of the hydrogen generation market. Increasing
heavy crude oil consumption demand will complement the industry
landscape. Positive outlook towards the chemical industry including
ammonia and methanol will also positively influence growth.
We believe
increasing demand for clean fuel energy will be affected
by:
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● |
Stringent
government regulation towards Desulphurization of Petroleum
Products |
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Deteriorating
crude oil quality |
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Transportation
& Storage Issues |
It is within these industries that we believe our renewable
hydrogen producing technology possesses significant early market
opportunity, especially as innovation and infrastructure continue
to develop.
Utility Scale Hydrogen Electricity
According to a March 2013 report from NREL, a national laboratory
of the U.S. Department of Energy, Hydrogen can be blended into the
existing natural gas pipeline networks, thus bypassing the high
cost of dedicated hydrogen pipelines in order to use hydrogen at a
large scale. If implemented with relatively low concentrations,
less than 5%–15% hydrogen by volume, this strategy of storing and
delivering renewable hydrogen to markets appears to be viable
without significantly increasing risks associated with utilization
of the gas blend in end-use devices (such as household appliances),
overall public safety, or the durability and integrity of the
existing natural gas pipeline network.
(https://www.nrel.gov/docs/fy13osti/51995.pdf).
Hydrogen Fuel Cell Vehicles
One of the most recognized applications for hydrogen fuel
technologies falls within the auto manufacturing and vehicles
industries. The three leading manufacturers of hydrogen fuel cell
vehicles (FCVs) are in order, Toyota, Hyundai, and Honda – three
internationally recognized companies. Industry reports cite the
need for increased infrastructure, such as fueling stations, for
the industry to garner even greater market acceptance. However, the
same report indicates there will be 22.2 million hydrogen fuel cell
vehicles sold or leased by 2032, driving revenues upwards of
$1.1 trillion. (https://www.researchandmarkets.com/reports/4200873/global-market-for-hydrogen-fuel-cell-vehicles).
Our Technology
Technology for Making Renewable Hydrogen from Sunlight and
Water
Hydrogen (H2) is the third most abundant element on
earth and the cleanest fuel in the universe, (Dresselhaus, Mildred et al. (May 15,
2003). “Basic Research Needs for the Hydrogen Economy”).
Unlike hydrocarbon fuels such as oil, coal and natural gas where
carbon dioxide and other contaminants are released into the
atmosphere when used, hydrogen fuel usage produces only pure water
(H2O). Unfortunately, nearly no pure hydrogen exists
naturally on earth and therefore must be extracted from hydrogen
containing molecules like water. Historically, the cost of
manufacturing hydrogen as an alternative fuel has been higher than
the cost of the energy used to make it. This is the dilemma of the
hydrogen economy, and one that we aim to address.
For over a century, water electrolysis, splitting water molecules
into hydrogen and oxygen due to the passage of electric current,
has been a well-established technology to produce hydrogen. The
produced hydrogen combusts into water that can be recycled back
into nature indefinitely. However, in practice, current commercial
water electrolysis technologies require considerable energy from
coal-powered electricity and also require ultra-pure water to
prevent fouling of the system components. We believe these are the
major barriers to affordable production of hydrogen.
The Perfect and Sustainable Energy Cycle
As it turns out, Mother Nature has been making hydrogen using
sunlight since the beginning of time by splitting water molecules
(H2O) into its basic elements - hydrogen and oxygen.
This is exactly what plant leaves do every day by way of
photosynthesis. Since the produced hydrogen is immediately consumed
inside the plant, we cannot simply grow trees to make hydrogen.
If technology can be developed to mimic photosynthesis to split
water into hydrogen, we believe then a truly sustainable, low cost,
and renewable energy cycle can be created to power the earth.
However, cost has been the biggest barrier to realizing this
vision.
Water Splitting
In the process of splitting a water molecule, input energy is
transferred into the chemical bonds. So in essence, manufactured
hydrogen is simply a carrier or battery-like storage of the input
energy. If the input energy is from fossil fuels, such as oil and
gas, then carbon fossil fuel energy is simply transferred into
hydrogen. If the input energy is renewable such as solar and wind,
then new and clean energy is stored in hydrogen.
While the concept of water splitting is very appealing, the
following challenges must be addressed for renewable hydrogen to be
commercially viable:
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● |
Energy Inefficiency — Since hydrogen is an energy carrier,
the most energy it can store is 100% of the input energy. However,
conventional systems approach to electrolysis lose so much of the
input energy in system components, wires and electrodes resulting
in only a small portion of electricity making it into the hydrogen
molecules. This translates to high production cost and is the
fundamental problem with water splitting for hydrogen production.
We intend to address this problem with our low cost and energy
efficient particle technology. |
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Need for Clean Water — Conventional electrolysis requires
highly purified clean water to prevent fouling of system
components. This prevents current technology from using large
quantities of available water from oceans, rivers, industrial waste
and municipal waste as feedstock. Our technology is being designed
to use any natural water or waste water for the unlimited
production of renewable hydrogen. |
Technology
Water electrolysis in its simplest form is the transfer of “input
electrons” in the following chemical reactions:
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Cathode (reduction):
2H2O + 2e- ® H2 +
2OH-
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Anode
(oxidation): 4OH- ® O2
+ 2H2O + 4 e- |
From these equations, one can deduce that if every input electron
(e-) is put to work and not lost, then a maximum
amount of input electrons (i.e. energy) is transferred and
stored in the hydrogen molecules (H2). Additionally, if
there were a very high number of cathode and anode reaction areas
within a given volume of water, then a very high number of these
reactions could happen simultaneously throughout the medium to
split each water molecule into hydrogen wherever electrons are
available.
SunHydrogen Panel™
Since our particles are intended to mimic the natural temperature
conditions of photosynthesis, they can be housed in very low-cost
reactors. To facilitate the commercial use of our self-contained
particle technology we are developing a modular system that will
enable the onsite daily production and storage of hydrogen for any
time use in electricity generation.
We refer to our product as the SunHydrogen Panel which is comprised
of the following components:
| |
1. |
The
Panel Housing - Novel (patent pending) device design is the
first of its type to safely separate oxygen and hydrogen in the
water splitting process without sacrificing efficiency. This device
houses the water, the solar particles/cells and is designed with
inlets and outlets for water and gasses. Utilizing a special
membrane for separating the oxygen side from the hydrogen side,
proton transport is increased which is the key to safely increasing
solar-to-hydrogen efficiency. Our design can be scaled up and
manufactured for commercial use. |
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2. |
The
NanoParticle or Solar Cell - Our patented Our patented
Photoelectrochemically
Active Heterostructures (PAH) consists of billions of tiny solar
cells in 1cm2 that are electrodeposited into a
protective structure to provide the charge that splits the water
molecules.
In the process of optimizing our nanoparticles to be efficient and
only use earth abundant materials (an ongoing process), we
experimented with commercially available triple junction silicon
solar cells to perform tests with our generator housing and other
components. Through this experimentation, our discovery leads us to
believe that we can bring a system to market utilizing these
readily available cells while our nanoparticles are still being
optimized. These solar cells also absorb the sunlight and produce
the necessary charge for splitting the water molecules into
hydrogen and oxygen.
|
| |
3. |
Oxygen
Evolution Catalyst - This proprietary catalyst developed at the
University of Iowa is applied on the solar cell or nanoparticle and
efficiently oxidize water molecule to generate oxygen gas. The
oxygen evolution catalyst must be robust to withstand the long
operating hours of the hydrogen generation device to ensure long
lifetime. It is designed to be efficient and stable in alkaline
environments. |
| |
4. |
Hydrogen
Evolution Catalyst - Necessary for collecting electrons to
reduce protons for generating hydrogen gas, we have successfully
developed a process to integrate an ultra-low loading of platinum
hydrogen catalyst on foam electrodes at ten times lower loading
with over 67 times higher activities. |
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5. |
Coating
Technologies - Two major coating technologies were developed to
protect the nanoparticles and solar cells from photo-corrosion
under water. A transparent conducive coating to protect our
nanoparticles and solar cells from photo corrosion and efficiently
transfer charges to catalysts for oxygen and hydrogen evolution
reactions. A polymer combination that protects the triple junction
solar cells from any corrosive water environments for long lifetime
of the hydrogen generation device. |
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6. |
A
concentrator equal to two suns - This inexpensive Fresnel lens
concentrator to increase sunlight to equal two suns reduces our
necessary footprint for a 1000 KG per day system by
40%. |
Our business and commercialization plan calls for two generations
of our panels or generators. The first generation being
manufactured for demonstration utilizes readily available
commercial solar cells, coated with a stabilizing polymer and
catalysts, and inserted into our proprietary panels to efficiently
and safely split water into hydrogen and oxygen to produce very
pure and green hydrogen that can be piped off the panel,
pressurized, and stored for use in a fuel cell to power anything
electric.
The second generation of our panels will feature a
nanoparticle-based technology where billions of autonomous solar
cells are electrodeposited onto porous alumina sheets and
manufactured in a roll to roll process and inserted into our
proprietary panels. For this generation, we have received multiple
patents and we estimate that it will produce hydrogen for less than
$4 per kilogram before pressurization.
Our team at the University of Iowa led by our CTO Dr. Joun Lee, has
reached a milestone of well over 1000 consecutive hours of
continuous hydrogen production utilizing completely immersed solar
cells with no external biases achieving simulated production equal
to one year. We believe this to be a record for completely immersed
cells. Now ready to take our technology out of the lab, we are
working with several vendors to commercialize and manufacturer our
first generation of renewable hydrogen panels that use sunlight and
water to generate hydrogen.
We anticipate that the SunHydrogen Panel will be a self-contained
renewable hydrogen production system that requires only sunlight
and any source of water. As a result, it can be installed
almost anywhere to produce hydrogen fuel at or near the point of
distribution, for local use. We believe this model of hydrogen
production addresses one of the biggest challenges of using clean
hydrogen fuel on a large scale which is the transportation of
hydrogen.
Each stage of the SunHydrogen Panel can be scaled independently
according to the hydrogen demands and length of storage required
for a specific application. A small-scale system can be used to
produce continuous renewable electricity for a small house, or a
large scale system can be used to produce hydrogen to power a
community.
SunHydrogen Panel Manufacturing
We are currently working towards producing 100 demonstration
SunHydrogen Panels, that will be used to display our Gen 1
technology in a number of venues throughout the United States and
internationally. We anticipate that these demonstration panels will
broaden national and global awareness of our new, green hydrogen
generating technology. With the resulting increased interest,
potential customers of our technology will be able to observe the
panels’ operation first hand, and determine potential uses in their
business operations.
Intellectual Property
On November 14, 2011, we filed a provisional patent application
with the U.S. Patent and Trademark Office to protect the
intellectual property rights for “Photoelectrochemically Active
Heterostructures, methods for their manufacture, and methods and
systems for producing desired products.” On March 14, 2017, the
part of the patent covering the structural design of
Photoelectrochemically Active Heterostructures (PAH) was granted as
the United States Patent No.
9,593,053B1. On April 3, 2018, the part of the patent covering the
method for manufacturing PAH was granted as United States Patent No. 9,593,053B2. The
patent protects the Company’s proprietary design and manufacturing
method of a self-contained solar-to-hydrogen device made up of
millions of solar-powered water-splitting nanoparticles, per square
centimeter. These nanoparticles are coated with a separate
patent-pending protective coating that prevents corrosion during
extended periods of hydrogen production. The aim of these
nanoparticles is high conversion efficiency and low
cost.
An important aspect of the
patented technology is the integrated structures of high-density
arrays of nano-sized solar cells as part of hydrogen production
nanoparticles. The technology enables manufacturing of ultra-thin
sheets for solar-to-hydrogen production, requiring substantially
less material as compared to conventional solar cells used in
rooftop power applications.
In March of 2015, we jointly filed a full utility patent
application with UCSB for the “Multi-junction artificial
photosynthetic cell with enhanced photovoltages.” The patent covers
our semiconductor designs to enhance the photovoltages of the
nano-sized solar cells in the PAH structures. The semiconductor
designs stacking multiple junctions inside the PAH structures would
be an efficient and economic solution for the photovoltaic and the
photoelectrochemical industries. This patent was granted in
Australia in April of 2018, China and Europe in March of 2019, and
in the U.S. in October of 2018.
On December 21, 2016, we filed jointly with the University of Iowa
a patent for “Integrated Membrane Solar Fuel Production Assembly”
to protect the intellectual property for our generator housing
system that safely separates oxygen and hydrogen in the
water-splitting process without sacrificing efficiency. This device
houses the water, the solar particles/cells and is designed with
inlets and outlets for water and gases. Utilizing a special
membrane for separating the oxygen side from the hydrogen side,
proton transport is increased which is the key to safely increasing
solar-to-hydrogen efficiency. In September of 2017, we filed the
utility patent for this important invention and prosecution is
ongoing.
Strategic Partners
Effective September 1, 2020, we entered into a research agreement
with the University of Iowa. As consideration under the research
agreement, the University of Iowa will receive a maximum of
$299,966 from the Company. The research agreement may be terminated
by either party upon 60 days prior written notice or by either
party upon notice of a material breach or default which is not
cured within 90 days of receipt of written notice of such breach.
This term of the research agreement runs through August 31, 2021
but may be extended upon mutual agreement of the parties.
Competition
Currently, most hydrogen is produced by steam reforming of natural
gas or methane. This production technology dominates due to easy
availability and low prices of natural gas. Partial oxidation of
petroleum oil is second in production capacity after steam
reforming of natural gas. The third largest production technology
in terms of production capacity is steam gasification of coal. The
current industry is heavily dominated by large players such as Air
Products and Chemicals Inc. and Air Liquide.
Green or Renewable hydrogen can be produced through electrolyzers
if they are powered by solar or wind. There has been an emergence
of these companies in the past few years. ITM Power in England and
Proton Onsite in Norway are two of the largest companies in this
industry. If not powered by solar panels or wind power, they
require external electricity most likely created by coal, gas, or
oil. We believe that our process when fully developed will offer a
competitive advantage as it is completely green and renewable and
utilizes no external power other than the sun.
Corporate Information
We were incorporated in the State of Nevada on February 18, 2009.
Our executive offices are located at 10 E. Yanonali St., Suite 36,
Santa Barbara, CA 93101.
Employees
As of September 18, 2020, we had one (1) full-time employee and
several consultants. We have not experienced any work stoppages and
we consider relations with our employees and consultants to be
good. Our Chief Technology Officer hired on June 1, 2016 is on a
fulltime consulting basis. Most of our research and development
work is performed by the University of Iowa, through a sponsored
research agreement.
Item 1A. Risk
Factors.
Risks related to our business and industry
Our limited operating history does not afford investors a
sufficient history on which to base an investment
decision.
We were formed in February 2009 and are currently developing a new
technology that has not yet gained market acceptance. There can be
no assurance that at this time we will operate profitably or that
we will have adequate working capital to meet our obligations as
they become due.
Investors must consider the risks and difficulties frequently
encountered by early stage companies, particularly in rapidly
evolving markets. Such risks include the following:
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competition; |
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need
for acceptance of products; |
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ability
to continue to develop and extend brand identity; |
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ability
to anticipate and adapt to a competitive market; |
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ability
to effectively manage rapidly expanding operations; |
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amount
and timing of operating costs and capital expenditures relating to
expansion of our business, operations, and infrastructure;
and |
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dependence
upon key personnel. |
We cannot be certain that our business strategy will be successful
or that we will successfully address these risks. In the event that
we do not successfully address these risks, our business,
prospects, financial condition, and results of operations could be
materially and adversely affected and we may have to curtail our
business.
We have a history of losses and have never realized revenues
to date. We expect to continue to incur losses and no assurance can
be given that we will realize revenues. Accordingly, we may never
achieve and sustain profitability.
As of June 30, 2020, we have an accumulated deficit, of
$75,550,515. For the year ended June 30, 2020 we incurred a net
loss of $57,529,338. We expect to continue to incur net losses
until we are able to realize revenues to fund our continuing
operations. We may fail to achieve any or significant revenues from
sales or achieve or sustain profitability. Accordingly, there can
be no assurance of when, if ever, we will be profitable or be able
to maintain profitability.
We have historically raised funds through various capital raising
transactions. We will require additional funds in the future to
fund our business plans, either through additional equity or debt
financings or collaborative agreements or from other sources. We
have no commitments to obtain such additional financing, and we may
not be able to obtain any such additional financing on terms
favorable to us, or at all. In the event we are unable to obtain
additional financing, we may be unable to implement our business
plan. Even with such financing, we have a history of operating
losses and there can be no assurance that we will ever become
profitable.
We may be unable to manage our growth or implement our
expansion strategy.
We may not be able to develop our product or implement the other
features of our business strategy at the rate or to the extent
presently planned. Our projected growth will place a significant
strain on our administrative, operational and financial resources.
If we are unable to successfully manage our future growth,
establish and continue to upgrade our operating and financial
control systems, recruit and hire necessary personnel or
effectively manage unexpected expansion difficulties, our financial
condition and results of operations could be materially and
adversely affected.
We may not be able to successfully develop and commercialize
our technologies which would result in continued losses and may
require us to curtail or cease operations.
In May of 2012, we completed a lab scale prototype of our
technology. This prototype demonstrates hydrogen production from
small scale solar devices coated with our unique, low-cost polymer
coating, and submerged in waste water from a pulp and paper mill.
However, we have not completed a large-scale commercial prototype
of our technology and are uncertain at this time when completion of
a commercial scale prototype will occur. Although, the lab scale
prototype demonstrates the viability of our technology, there can
be no assurance that we will be able to commercialize our
technology.
Our revenues will be dependent upon acceptance of our
products by the market; the failure of which would cause us to
curtail or cease operations.
We believe that virtually all of our revenues will come from the
sale or license of our products. As a result, we will continue to
incur substantial operating losses until such time as we are able
to develop our product and generate revenues from the sale or
license of our products. There can be no assurance that businesses
and customers will adopt our technology and products, or that
businesses and prospective customers will agree to pay for or
license our products. Our technology and product, when fully
developed, may not gain market acceptance due to various factors
such as not enough cost savings between our method of producing
hydrogen and other more conventional methods. In the event that we
are not able to significantly increase the number of customers that
purchase or license our products, or if we are unable to charge the
necessary prices or license fees, our financial condition and
results of operations will be materially and adversely
affected.
We face intense competition, and many of our competitors have
substantially greater resources than we do.
We operate in a competitive environment that is characterized by
price fluctuation and technological change. We will compete with
major international and domestic companies. Some of our current and
future potential competitors may have greater market recognition
and customer bases, longer operating histories and substantially
greater financial, technical, marketing, distribution, purchasing,
manufacturing, personnel and other resources than we do. In
addition, competitors may be developing similar technologies with a
cost similar to, or lower than, our projected costs. As a result,
they may be able to respond more quickly to changing customer
demands or to devote greater resources to the development,
promotion and sales of solar and solar-related products than we
can.
Our business plan relies on sales of our products based on either a
demand for truly renewable clean hydrogen or economically produced
clean hydrogen. If we fail to compete successfully, our business
would suffer and we may lose or be unable to gain market share.
Neither the demand for our product nor our ability to manufacture
have yet been proven.
Because our industry is highly competitive and has low
barriers to entry, we may lose market share to larger companies
that are better equipped to weather a deterioration in market
conditions due to increased competition.
Our industry is highly competitive and fragmented, subject to rapid
change and has low barriers to entry. We may, in the future,
compete for potential customers with solar and heating companies
and other providers of solar power equipment or electric power.
Some of these competitors may have significantly greater financial,
technical and marketing resources and greater name recognition than
we have.
We believe that our ability to compete depends in part on a number
of factors outside of our control, including:
| |
● |
the
ability of our competitors to hire, retain and motivate qualified
personnel; |
| |
|
|
| |
● |
the
ownership by competitors of proprietary tools to customize systems
to the needs of a particular customer; |
| |
|
|
| |
● |
the
price at which others offer comparable services and
equipment; |
| |
|
|
| |
● |
the
extent of our competitors’ responsiveness to customer needs;
and |
| |
|
|
| |
● |
installation
technology. |
Competition in the solar power services industry may increase in
the future, partly due to low barriers to entry, as well as from
other alternative energy resources now in existence or developed in
the future. Increased competition could result in price reductions,
reduced margins or loss of market share and greater competition for
qualified personnel. There can be no assurance that we will be able
to compete successfully against current and future competitors. If
we are unable to compete effectively, or if competition results in
a deterioration of market conditions, our business and results of
operations would be adversely affected.
Our business depends on proprietary technology that we may
not be able to protect and may infringe on the intellectual
property rights of others.
Our success will depend, in part, on our technology’s commercial
viability and on the strength of our intellectual property rights.
We currently hold patents in the US, China and Australia, but still
have several patents pending in multiple countries. There is
no guarantee the pending patents will be granted. In addition, any
agreements we enter into with our employees, consultants, advisors,
customers and strategic partners will contain restrictions on the
disclosure and use of trade secrets, inventions and confidential
information relating to our technology may not provide meaningful
protection in the event of unauthorized use or disclosure.
Third parties may assert that our technology, or the products we,
our customers or partners commercialize using our technology,
infringes upon their proprietary rights. We have yet to complete an
infringement analysis and, even if such an analysis were available
at the current time, it is virtually impossible for us to be
certain that no infringement exists, particularly in our case where
our products have not yet been fully developed.
We may need to acquire licenses from third parties in order to
avoid infringement. Any required license may not be available to us
on acceptable terms, or at all.
We could incur substantial costs in defending ourselves in suits
brought against us for alleged infringement of another party’s
intellectual property rights as well as in enforcing our rights
against others, and if we are found to infringe, the manufacture,
sale and use of our or our customers’ or partners’ products could
be enjoined. Any claims against us, with or without merit, would
likely be time-consuming, requiring our management team to dedicate
substantial time to addressing the issues presented. Furthermore,
the parties bringing claims may have greater resources than we
do.
We do not maintain theft or casualty insurance and only
maintain modest liability and property insurance coverage and
therefore, we could incur losses as a result of an uninsured
loss.
We do not maintain theft, casualty insurance, or property insurance
coverage. We cannot assure that we will not incur uninsured
liabilities and losses as a result of the conduct of our business.
Any such uninsured or insured loss or liability could have a
material adverse effect on our results of operations.
If we lose key employees and consultants or are unable to
attract or retain qualified personnel, our business could
suffer.
Our success is highly dependent on our ability to attract and
retain qualified scientific, engineering and management personnel.
We are highly dependent on our CEO, Timothy Young, and our
development team at the University of Iowa. The loss of this
valuable resource could have a material adverse effect on our
operations. Our only officer is employed on “at will” basis.
Accordingly, there can be no assurance that they will remain
associated with us. Our management’s efforts will be critical to us
as we continue to develop our technology and as we attempt to
transition from a development stage company to a company with
commercialized products and services. If we were to lose Mr. Young
or the services of the development team at the university or any
other key employees or consultants, we may experience difficulties
in competing effectively, developing our technology and
implementing our business strategies.
The loss of strategic alliances used in the development of
our products and technology could impede our ability to complete
our product and result in a material adverse effect causing the
business to suffer.
We pursue strategic alliances
with other companies in areas where collaboration can produce
technological and industry advancement. We have entered into
the sponsored research agreement with the University of Iowa which
is set to terminate August 31, 2021. If we are unable to extend the
terms of the agreements, we could suffer delays in product
development or other operational difficulties which could have a
material adverse effect on our results of operations.
There is substantial doubt about our ability to continue as a
going concern.
Our independent public accounting firm in their report dated
September 23, 2020
included an explanatory paragraph expressing substantial
doubt in our ability to continue as a going concern without
additional capital becoming available. Going concern contemplates
the realization of assets and the satisfaction of liabilities in
the normal course of business over a reasonable length of time. Our
ability to continue as a going concern ultimately is dependent on
our ability to generate a profit which is dependent upon our
ability to obtain additional equity or debt financing, attain
further operating efficiencies and, ultimately, to achieve
profitable operations. As a result, our financial statements do not
reflect any adjustment which would result from our failure to
continue to operate as a going concern. Any such adjustment, if
necessary, would materially affect the value of our assets.
An occurrence of an uncontrollable event such as the covid-19
pandemic may negatively affect our operations.
The occurrence of an uncontrollable event such as the COVID-19
pandemic may negatively affect our operations. The COVID-19
pandemic has resulted in social distancing, travel bans and
quarantine, and this has limited and may continue to limit access
to our facilities by our management, support staff and professional
advisors. These factors, in turn, may not only impact our
operations, financial condition and development of our products but
our overall ability to react timely to mitigate the impact of this
event. Also, it may hamper our efforts to comply with our filing
obligations with the Securities and Exchange Commission, and our
ability to raise capital on favorable terms, or at all.
Risks relating to our common stock
There is a limited trading market for our common stock.
Our common stock is not listed on any national securities exchange.
Accordingly, investors may find it more difficult to buy and sell
our shares than if our common stock was traded on an exchange.
Although our common stock is quoted on the OTC Pink, it is an
unorganized, inter-dealer, over-the-counter market which provides
significantly less liquidity than the Nasdaq Capital Market or
other national securities exchange. Further, there is limited
trading in our common stock. These factors may have an adverse
impact on the trading and price of our common stock.
Our common stock could be subject to extreme
volatility.
The trading price of our common stock may be affected by a number
of factors, including events described in the risk factors set
forth in this report, as well as our operating results, financial
condition and other events or factors. In addition to the
uncertainties relating to future operating performance and the
profitability of operations, factors such as variations in interim
financial results or various, as yet unpredictable, factors, many
of which are beyond our control, may have a negative effect on the
market price of our common stock. In recent years, broad stock
market indices, in general, and smaller capitalization companies,
in particular, have experienced substantial price fluctuations. In
a volatile market, we may experience wide fluctuations in the
market price of our common stock and wide bid-ask spreads. These
fluctuations may have a negative effect on the market price of our
common stock. In addition, the securities market has, from time to
time, experienced significant price and volume fluctuations that
are not related to the operating performance of particular
companies. These market fluctuations may also materially and
adversely affect the market price of our common stock.
There is a large number of authorized but unissued shares of
capital stock available for issuance, which may result in
substantial dilution to existing shareholders.
Our articles of Incorporation authorized the issuance of up to
5,000,000,000 shares of common stock, par value $0.001 and
5,000,000 shares of preferred stock, par value $0.001, of which
2,156,132,155 shares of common stock and no shares of preferred
stock are outstanding as of September 18, 2020. Our Board of
Directors has the ability to authorize the issuance of an
additional 2,843,867,845 shares of common stock and 5,000,000
shares of preferred stock without shareholder approval. Any such
issuance will result in substantial dilution to existing
shareholders. In addition, the availability of such a large number
of capital stock could be utilized, under certain circumstances, as
a method of discouraging, delaying or preventing a change in
control of the Company.
We have never paid common stock dividends and have no plans
to pay dividends in the future, as a result our common stock may be
less valuable because a return on an investor’s investment will
only occur if our stock price appreciates.
Holders of shares of our common stock are entitled to receive such
dividends as may be declared by our Board of Directors. To date, we
have paid no cash dividends on our shares of common stock and we do
not expect to pay cash dividends on our common stock in the
foreseeable future. We intend to retain future earnings, if any, to
provide funds for operations of our business. Therefore, any return
investors in our common stock will be in the form of appreciation,
if any, in the market value of our shares of common stock. There
can be no assurance that shares of our common stock will appreciate
in value or even maintain the price at which our stockholders have
purchased their shares.
Our common stock is subject to the SEC’s penny stock
rules.
Unless our common stock is listed on a national securities
exchange, including the Nasdaq Capital Market, or we have
stockholders’ equity of $5,000,000 or less and our common stock has
a market price per share of less than $5.00, transactions in our
common stock will be subject to the SEC’s “penny stock” rules. If
our common stock remains subject to the “penny stock” rules
promulgated under the Securities Exchange Act of 1934,
broker-dealers may find it difficult to effectuate customer
transactions and trading activity in our securities may be
adversely affected.
In accordance with these rules, broker-dealers participating in
transactions in low-priced securities must first deliver a risk
disclosure document that describes the risks associated with such
stocks, the broker-dealer’s duties in selling the stock, the
customer’s rights and remedies and certain market and other
information. Furthermore, the broker-dealer must make a suitability
determination approving the customer for low-priced stock
transactions based on the customer’s financial situation,
investment experience and objectives. Broker-dealers must also
disclose these restrictions in writing to the customer, obtain
specific written consent from the customer, and provide monthly
account statements to the customer. The effect of these
restrictions will probably decrease the willingness of
broker-dealers to make a market in our common stock, decrease
liquidity of our common stock and increase transaction costs for
sales and purchases of our common stock as compared to other
securities. Our management is aware of the abuses that have
occurred historically in the penny stock market.
This may make it more difficult for investors to dispose of our
common stock and cause a decline in the market value of our
stock.
Our articles of incorporation allow for our board to create
new series of preferred stock without further approval by our
stockholders, which could adversely affect the rights of the
holders of our common stock.
Our board of directors has the authority to fix and determine the
relative rights and preferences of preferred stock. Our board of
directors has the authority to issue up to 5,000,000 shares of our
preferred stock without further stockholder approval. As a result,
our board of directors could authorize the issuance of a series of
preferred stock that would grant to holders of preferred stock the
right to our assets upon liquidation, or the right to receive
dividend payments before dividends are distributed to the holders
of common stock. In addition, our board of directors could
authorize the issuance of a series of preferred stock that has
greater voting power than our common stock or that is convertible
into our common stock, which could decrease the relative voting
power of our common stock or result in dilution to our existing
stockholders.
Additional stock offerings in the future may dilute
then-existing shareholders’ percentage ownership of the
Company.
Given our plans and expectations that we will need additional
capital and personnel, we anticipate that we will need to issue
additional shares of common stock or securities convertible or
exercisable for shares of common stock, including convertible
preferred stock, convertible notes, stock options or warrants. The
issuance of additional securities in the future will dilute the
percentage ownership of then current stockholders.
Item 2.
Properties.
Our principal office address is 10 E. Yanonali, Suite 36, Santa
Barbara, CA, 93101. We believe that our current premises are
sufficient to handle our administrative activities for the near
future as adequate lab space and equipment is attained through our
agreement with the University of Iowa.
Item 3. Legal
Proceedings.
We are not currently a party to, nor is any of our property
currently the subject of, any material legal proceedings.
Item 4. Mine Safety
Disclosures.
Not Applicable.
PART II
Item 5. Market for
Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.
Our common stock is quoted on the OTC Pink under the symbol
“HYSR”
Securities
Our Articles of Incorporation, as amended, authorizes the issuance
of 5,000,000,000 shares of common stock, $0.001 par value per share
and 5,000,000 shares of preferred stock, par value $0.001 per
share.
All outstanding shares of common stock are of the same class and
have equal rights and attributes. The holders of our common
stock are entitled to one vote per share on all matters submitted
to a vote of our stockholders. All stockholders are entitled to
share equally in dividends, if any, as may be declared from time to
time by the Board of Directors out of funds legally available. In
the event of liquidation, the holders of our common stock are
entitled to share ratably in all assets remaining after payment of
all liabilities. The stockholders do not have cumulative or
preemptive rights.
As of September 18, 2020, our common stock was held by 178
stockholders of record.
Dividend Policy
We have never declared or paid any cash dividends on our common
stock. We do not anticipate paying any cash dividends to
stockholders in the foreseeable future. In addition, any future
determination to pay cash dividends will be at the discretion of
the Board of Directors and will be dependent upon our financial
condition, results of operations, capital requirements, and such
other factors as the Board of Directors deem relevant. There are no
restrictions in our articles of incorporation or bylaws that
restrict us from declaring dividends.
Equity Compensation Plan Information
On January 23, 2019, our Board adopted the Company’s 2019 Equity
Incentive Plan (the “Plan”). The stated 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 maximum number of shares of the
Company’s common stock that can be issued under the Plan is
300,000,000.
The following table sets forth information about our equity
compensation plans as of June 30, 2020.
|
Plan Category |
|
Number of
securities to
be issued
upon
exercise of
outstanding
options,
warrants
and rights |
|
|
Weighted-
average
exercise
prices of
outstanding
options,
warrants
and rights |
|
|
Number of
securities
remaining
available for
future
issuance
under the
equity
compensation
plans
(excluding
securities
reflected in
column (a)) |
|
| |
|
(a) |
|
|
(b) |
|
|
|
|
|
Equity compensation plans approved by security holders |
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation plans not approved by security holders |
|
|
196,000,000 |
|
|
|
n/a |
|
|
|
114,000,000 |
|
|
Total |
|
|
196,000,000 |
|
|
|
- |
|
|
|
114,000,000 |
|
Recent Sales of Unregistered Securities
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.
In connection with the foregoing, the Company relied on an
exemption from registration provided under Section 4(a)(2) of the
Securities Act of 1933, as amended for transactions not involving a
public offering.
Issuer Purchases of Equity Securities
None.
Item 6. Selected Financial
Data
Not required for a smaller reporting company.
Item 7. Management’s
Discussion and Analysis of Financial Conditions and Results of
Operations.
Certain statements in “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” below, and elsewhere
in this annual report, are not related to historical results, and
are forward-looking statements.
Forward-looking statements present our expectations or forecasts of
future events. You can identify these statements by the fact that
they do not relate strictly to historical or current facts. These
statements involve known and unknown risks, uncertainties and other
factors that may cause our actual results, levels of activity,
performance or achievements to be materially different from any
future results, levels of activity, performance or achievements
expressed or implied by such forward-looking statements.
Forward-looking statements frequently are accompanied by such words
such as “may,” “will,” “should,” “could,” “expects,” “plans,”
“intends,” “anticipates,” “believes,” “estimates,” “predicts,”
“potential” or “continue,” or the negative of such terms or other
words and terms of similar meaning. Although we believe that the
expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity,
performance, achievements, or timeliness of such results. Moreover,
neither we nor any other person assumes responsibility for the
accuracy and completeness of such forward-looking statements. We
are under no duty to update any of the forward-looking statements
after the date of this annual report. Subsequent written and oral
forward looking statements attributable to us or to persons acting
in our behalf are expressly qualified in their entirety by the
cautionary statements and risk factors set forth below and
elsewhere in this annual report, and in other reports filed by us
with the SEC.
You should read the following description of our financial
condition and results of operations in conjunction with the
financial statements and accompanying notes included in this Annual
Report beginning on page F-1.
Overview
At SunHydrogen, Inc., our goal is to replace most forms of energy
on earth with clean renewable hydrogen.
Our patented low-cost technology is intended to produce renewable
hydrogen using sunlight and any source of water, including seawater
and wastewater. Unlike non-renewable hydrocarbon fuels, such as
oil, coal and natural gas, where carbon dioxide and other
contaminants are released into the atmosphere when used, hydrogen
fuel usage produces pure water as the only byproduct. By optimizing
the science of water electrolysis at the nano-level, our low-cost
nanoparticles mimic photosynthesis to efficiently use sunlight to
split water molecules into environmentally friendly renewable
hydrogen. Using our low-cost method to produce renewable hydrogen,
we intend to enable a world of distributed hydrogen production for
renewable electricity and hydrogen fuel cell vehicles.
Our technology is primarily developed at the University of Iowa,
through a sponsored research agreement. Over the past several
years, our team has been focused on developing the technology to a
point at which it can be commercialized. After years of dedication,
we are now ready to move from the lab into commercial production
with the first generation of our technology.
Our innovative technology is packaged into a self-contained
hydrogen production panel that requires only sunlight and any
source of water. Just like solar panels convert sunlight into
electricity, our hydrogen panels will convert sunlight and water
into hydrogen. As a result of this form factor, the panels can be
installed almost anywhere to produce hydrogen fuel at or near the
point of use. We believe that this distributed model of hydrogen
production addresses one of the biggest challenges of the hydrogen
economy, which is the prohibitive high infrastructure cost of
transporting hydrogen to the points of use.
Results of Operations for the Year Ended June 30, 2020 compared
to the Year Ended June 30, 2019.
Operating Expenses
For the year ended June 30, 2020 operating expenses were $1,681,427
compared to $1,828,551 for the prior year ended June 30, 2019.
Operating expenses consist primarily of research and development
expenses and general and administrative expenses incurred in
connection with the operation of our business. The net decrease of
$147,124 in operating expenses was a result of a decrease in
general and administrative expense of $235,375, which consist of
$261,919 in non-cash stock compensation expense, with an increase
of $26,544 in other general and administrative expense and an
increase in research and development cost of $86,820, and an
increase in depreciation and amortization expense of $1,431.
Other Income/(Expenses)
Other income and (expenses) for the year ended June 30, 2020 were
$(55,847,911) compared to $5,806,888 for the prior year ended June
30, 2019. The net increase of $(61,654,799) in other income and
(expenses) was the result of the net change in derivative
liability.
Net Income (Loss)
For the year ended June 30, 2020 our net loss of was $(57,529,338),
compared to net income of $3,978,337 for the year ended June 30,
2019. The majority of the
increase in net loss of $61,507,675, was related primarily to the
net change in derivative estimates each year. These estimates are
based on multiple inputs, including the market price of our stock,
interest rates, our stock price, volatility, variable conversion
prices based on market prices defined in the respective agreements
and probabilities of certain outcomes based on managements’
estimates. These inputs are subject to significant changes from
period to period, therefore, the estimated fair value of the
derivative liabilities will fluctuate from period to period, and
the fluctuation may be material. The Company has not generated any
revenues.
Liquidity and Capital Resources
Liquidity is the ability of a company to generate funds to support
its current and future operations, satisfy its obligations, and
otherwise operate on an ongoing basis. Significant factors in the
management of liquidity are funds generated by operations, levels
of accounts receivable and accounts payable and capital
expenditures.
As of June 30, 2020, we had a working capital deficit of
$60,459,862, compared to a working capital deficit of $4,829,162 as
of June 30, 2019. This increase in working capital deficit of
$55,630,700 was primarily due to the increase in net change in
derivative liability, cash, accounts payable, accrued expenses,
accrued interest on convertible notes, with a decrease in prepaid
expenses, and convertible notes.
During the year ended June 30, 2020, we raised an aggregate of
$856,500 in a private placement of convertible notes. During the
prior year ended June 30, 2019, we raised an aggregate of $804,500
in a private placement of convertible notes. Our ability to
continue as a going concern is dependent upon our ability to raise
capital and future revenue generated from operations.
Cash flow used in operating activities was $695,784 for the year
ended June 30, 2020, compared to $853,693 for the year ended June
30, 2019. The decrease in cash used by operating activities was
primarily due to the decrease in insurance expense. The Company has
had no revenues.
Cash used in investing activities for the year ended June 30, 2020
and 2019 was $780 and $13,059, respectively. The decrease in
investing activities was as a result of a decrease in intangible
assets purchased during the current year.
Cash provided by financing activities during the year ended June
30, 2020 was $856,500 compared to $804,500 for the prior year ended
June 30, 2019. The increase in cash from financing activities was
due to the increase in issuance of convertible notes through
private placement offerings during the current period.
During the year ended June 30, 2020, we did not generate any
revenue but incurred net loss of $57,529,338 and used cash in the
amount of $695,784 in our operations. As of June 30, 2020, we had a
working capital deficiency of $60,459,862 and a shareholders’
deficit of $61,832,448. These factors, among others raise
substantial doubt about our ability to continue as a going concern.
Our independent auditors, in their report dated September 23,
2020, on our audited
financial statements for the year ended June 30, 2020 expressed
substantial doubt about our ability to continue as a going concern.
Our ability s to continue as a going concern and appropriateness of
using the going concern basis is dependent on our ability to
generate a profit which is dependent upon our ability to obtain
additional equity or debt financing, advance our technology and,
ultimately, to achieve profitable operations.
We have historically obtained funding from our shareholders,
through private placement offerings of equity and debt securities.
Management believes that it will be able to continue to raise funds
through the sale of its securities to its existing shareholders and
prospective new investors which will provide the additional cash
needed to meet the Company’s obligations as they become due, and
will allow the Company to continue to develop its core business.
There can be no assurance that we will be able to continue raising
the required capital for our operations and if available, on terms
and conditions that are acceptable. If we are unable to obtain
sufficient funds, we may be forced to curtail and/or cease the
development of our technology.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that are
reasonably likely to have a current or future effect on our
financial condition, revenues or expenses, result of operations,
liquidity or capital expenditures.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results
of operations are based upon our financial statements, which have
been prepared in accordance with accounting principles generally
accepted in the United States of America. The preparation of these
financial statements requires us to make estimates and judgments
that affect the reported amounts of assets, liabilities, revenues
and expenses, and related disclosures of contingent assets and
liabilities. On an ongoing basis, we evaluate our estimates,
including those related to impairment of property, plant and
equipment, intangible assets, deferred tax assets and fair value
computation using the Binomial lattice valuation pricing model. We
base our estimates on historical experience and on various other
assumptions, such as the trading value of our common stock and
estimated future undiscounted cash flows, that we believe to be
reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying value of assets and
liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different
assumptions or conditions; however, we believe that our estimates,
including those for the above-described items, are reasonable.
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 recording, useful lives and impairment of tangible and
intangible assets, derivatives, accruals, income taxes, stock-based
compensation expense, binomial model inputs and other factors.
Management believes it has exercised reasonable judgment in
deriving these estimates. Consequently, a change in conditions
could affect these estimates.
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, and derivative liability approximate the
fair value because of their short maturities.
Recently Adopted Accounting Pronouncements
Management adopted recently issued accounting pronouncements during
the year ended June 30, 2020, as disclosed in the Notes to the
financial statements included in this report.
Item 7A. Quantitative and
Qualitative Disclosure About Market Risk.
Not required for a smaller reporting company.
Item 8. Financial
Statements.
All financial information required by this Item is attached hereto
at the end of this report beginning on page F-1 and is hereby
incorporated by reference.
Item 9. Changes in and
Disagreements with Accountants on Accounting and Financial
Disclosure.
None.
Item 9A. Controls and
Procedures.
Evaluation of Disclosure Controls and
Procedures.
Our management, with the participation of our CEO and our Acting
CFO, evaluated the effectiveness of our disclosure controls and
procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the
Exchange Act) as of the end of the period covered by this report.
Based on that evaluation, our CEO and our Acting CFO concluded that
our disclosure controls and procedures as of the end of the period
covered by this report were effective to ensure that
information required to be disclosed is made known to management
and others, as appropriate, to allow timely decision regarding
required disclosure and that the information required to be
disclosed by us in reports that we file or submit under the
Securities Exchange Act of 1934 is (i) recorded, processed,
summarized and reported within the time periods specified in the
Commission’s rules and forms and (ii) accumulated and communicated
to our management, including our CEO and Acting CFO, or persons
performing similar functions, as appropriate to allow timely
decisions regarding required disclosure. A controls system cannot
provide absolute assurance, however, that the objectives of the
controls system are met, and no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud,
if any, within a company have been detected.
Management’s Annual Report on Internal Control over Financial
Reporting.
We are responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined
in Exchange Act Rule 13a-15(f). The Company’s internal control over
financial reporting is a process designed to provide reasonable
assurance to our management and board of directors regarding the
reliability of financial reporting and the preparation of the
financial statements for external purposes in accordance with
accounting principles generally accepted in the United States of
America.
Our internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the Company;
(ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with accounting principles generally accepted in the
United States of America, and that receipts and expenditures of the
Company are being made only in accordance with authorizations of
management and directors of the Company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the Company’s
assets that could have a material effect on the financial
statements.
Our management conducted an evaluation of the effectiveness of our
internal control over financial reporting as of June 30, 2020 based
on the criteria established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (2013). Based on this evaluation,
management concluded that our internal control over financial
reporting was effective as of June 30, 2020, based on those
criteria.
A control system, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Because of the inherent
limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of
fraud, if any, within the Company have been detected.
This annual report does not include an attestation report of our
registered public accounting firm regarding internal control over
financial reporting. Management’s report was not subject to
attestation by our registered public accounting firm pursuant to
the rules of the Securities and Exchange Commission that
permanently exempt smaller reporting companies
Changes in Internal Controls.
There has been no change in our internal control over financial
reporting that occurred during the last fiscal quarter of fiscal
year ended June 30, 2020 that has materially affected, or is
reasonably likely to materially affect our internal control over
financial reporting.
Item 9B. Other
Information.
None.
PART III
Item 10. Directors,
Executive Officers and Corporate Governance.
The following table sets forth information about our executive
officers, key employees and directors:
|
Name |
|
Age |
|
Position |
| Timothy
Young |
|
55 |
|
President,
CEO, Acting CFO and Chairman of the Board of Directors |
| Mark
J. Richardson |
|
67 |
|
Director |
Timothy Young – President, CEO, Acting CFO and Chairman of the
Board of Directors
Tim Young is an accomplished executive with over fifteen years of
management experience in media and Internet technology companies.
Mr. Young was appointed President, CEO and Chairman of the Company
in August 2009. Mr. Young was
appointed Acting CFO in 2010.
Mr. Young oversees the Company’s research and development
initiatives and fundraising efforts.
From September 2007 through August 2009, Mr. Young was the
President of Rovion, Inc., an internet media startup company, where
he increased revenues through a channel sales strategy that
included companies such as Clear Channel, Disney, CBS, and Fox
Television and bolstered the company’s technical capabilities
through strategic acquisitions. Prior to Rovion, Mr. Young was
employed by Time Warner Inc. from October 1998 through July 2007,
where he served as Vice President and Regional Vice President of
various divisions including America Online and Time Warner
Cable.
Mr. Young’s track record of success and over fifteen plus years of
management and leadership experience bringing new products to the
market, qualifies him to be a board member of the Company.
Mark J. Richardson –Director
Mr. Richardson was appointed as a director in June 2018. Mr.
Richardson has been a securities lawyer since he graduated from the
University of Michigan Law School in 1978. He practiced as an
associate and partner in large law firms until 1993, when he
established his own practice under the name Richardson &
Associates. He has been the principal securities counsel on a
variety of equity and debt placements for corporations,
partnerships, and real estate companies. His practice includes
public and private offerings, venture capital placements, debt
restructuring, compliance with federal and state securities laws,
representation of publicly traded companies, Nasdaq filings,
corporate law, partnerships, joint ventures, mergers, asset
acquisitions, and stock purchase agreements. As a partner in a
major international law firm in the 1980’s, Mr. Richardson
participated in the leveraged buyout and recapitalization of a
well-known producer of animated programming for children, financed
by Prudential Insurance and Bear Stearns, Inc. He was also
instrumental in restructuring the public debentures of a real
estate company without resorting to a bankruptcy proceeding. From
1986 to 1993 Mr. Richardson was a contributing author to State
Limited Partnerships Laws – California Practice Guide, Prentice
Hall Law and Business. Prior to receiving his Juris Doctor degree
cum laude from the University of Michigan Law School in 1978, Mr.
Richardson received a Bachelor of Science degree summa cum laude in
Resource Economics from the University of Michigan School of
Natural Resources in 1975, where he earned the Bankstrom Prize for
academic excellence and achieved Phi Beta Kappa honors. Mr.
Richardson is an active member of the Los Angeles County and
California State Bar Associations, including the Section on
Corporations, Business and Finance and the Section on Real
Estate.
The Board has determined that Mr. Richardson is qualified to serve
as a director because of his extensive experience as a practicing
attorney representing small companies.
Directors are elected at our annual meeting of shareholders and
serve for one year until the next annual meeting of shareholders or
until their successors are elected and qualified.
Family Relationships
There are no family relationships among our executive officers and
directors.
Board Leadership Structure and Role in Risk Oversight
Although we have not adopted a formal policy on whether the
Chairman and Chief Executive Officer positions should be separate
or combined, we have traditionally determined that it is in the
best interests of the Company and its shareholders to combine these
roles. Currently, we have only one executive officer, who is
our Chief Executive Officer, who also serves as Chairman of the
Board. Due to the small size and early stage of the Company, we
believe it is currently most effective to have the Chairman and
Chief Executive Officer positions combined.
Involvement in Certain Legal Proceedings
During the past ten years, none of our directors, executive
officers, promoters, control persons, or nominees has been:
|
● |
the
subject of any bankruptcy petition filed by or against any business
of which such person was a general partner or executive officer
either at the time of the bankruptcy or within two years prior to
that time; |
|
● |
convicted
in a criminal proceeding or is subject to a pending criminal
proceeding (excluding traffic violations and other minor
offenses); |
|
● |
subject
to any order, judgment, or decree, not subsequently reversed,
suspended or vacated, of any court of competent jurisdiction or any
Federal or State authority, permanently or temporarily enjoining,
barring, suspending or otherwise limiting his involvement in any
type of business, securities or banking activities; |
|
● |
found
by a court of competent jurisdiction (in a civil action), the
Commission or the Commodity Futures Trading Commission to have
violated a federal or state securities or commodities
law. |
|
● |
the
subject of, or a party to, any Federal or State judicial or
administrative order, judgment, decree, or finding, not
subsequently reversed, suspended or vacated, relating to an alleged
violation of (a) any Federal or State securities or commodities law
or regulation; (b) any law or regulation respecting financial
institutions or insurance companies including, but not limited to,
a temporary or permanent injunction, order of disgorgement or
restitution, civil money penalty or temporary or permanent
cease-and-desist order, or removal or prohibition order; or (c) any
law or regulation prohibiting mail or wire fraud or fraud in
connection with any business entity; or |
|
● |
the
subject of, or a party to, any sanction or order, not subsequently
reversed, suspended or vacated, of any self-regulatory organization
(as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C.
78c(a)(26))), any registered entity (as defined in Section 1(a)(29)
of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any
equivalent exchange, association, entity or organization that has
disciplinary authority over its members or persons associated with
a member. |
Committees of the Board
Due to the small size of the Company and its Board of Directors, we
currently have no audit committee, compensation committee or
nominations and governance committee of our board of
directors. We do not have an audit committee financial
expert.
Code of Ethics
We have adopted a Code of Ethics that applies to all of our
directors, officers and employees. A copy of the Code of Ethics can
be obtained without charge upon request to Timothy Young, CEO and
President, 10 E. Yanonali, Suite 36, Santa Barbara, CA 93101 and is
also being incorporated by reference herein. Any waiver of the
provisions of the Code of Ethics for executive officers and
directors may be made only by the Board of
Directors. Any such waivers will be promptly disclosed
to our shareholders.
Changes in Nominating Procedures
None.
Item 11. Executive
Compensation
The table below sets forth the compensation earned by each person
acting as our Principal Executive Officer and our other most highly
compensated executive officers whose total annual compensation
exceeded $100,000 during the last two fiscal years.
| Name
& Principal Position |
|
Year |
|
|
Salary
($) |
|
|
Bonus
($) |
|
|
Stock
Awards
($) |
|
|
Option
Awards
($) |
|
|
Non-Equity
Incentive Plan Compensation ($) |
|
|
Non-Qualified
Deferred Compensation Earnings
($) |
|
|
All
Other Compensation ($) |
|
|
Total
($) |
|
|
Timothy
Young, |
|
|
2020 |
|
|
$ |
255,000 |
|
|
|
0 |
|
|
|
0 |
|
|
|
757,243
|
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
$ |
255,000 |
|
| CEO
and Acting CFO |
|
|
2019 |
|
|
$ |
255,000 |
|
|
|
0 |
|
|
|
0 |
|
|
|
1,409,550 |
(1) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
$ |
255,000 |
|
|
(1) |
Calculated
at fair value in accordance with authoritative guidance provided by
the Financial Accounting Standards Board, where the value of the
stock compensation is based upon the grant date and recognized over
the vesting period. On the grant date of January 23, 2019,
one-third (1/3) of the options vested immediately and the remainder
of the options will vest in increments of 1/24 monthly. The shares
represent an option to purchase 150,000,000 shares of common stock
at an exercise price of $0.0099, with a fair value of $757,243. As
of June 30, 2020, no options were exercised. |
Employment Agreements
Our CEO, Timothy Young is employed as an “at-will” employee whose
employment with the Company may be terminated at any time by either
party. We have agreed to pay Mr. Young an annual salary of
$255,000, subject to modification in accordance with the Company’s
policies, practices and procedures. In addition, we have
agreed to pay Mr. Young three months base salary, in the event his
employment is terminated by the Company. Mr. Young is eligible to
receive a quarterly bonus as determined by the Company’s Board of
Directors and to participate in any benefit plan implemented by the
Company.
Outstanding Equity Awards at Fiscal Year-End
The following table discloses information regarding outstanding
equity awards granted or accrued as of June 30, 2020, for our named
executive officer.
|
Outstanding
Equity Awards |
| |
|
Option
Awards |
|
|
Stock
Awards |
|
|
Name |
|
Number
of
Securities
Underlying
Unexercised (#)
Exercisable |
|
|
Number
of
Securities
Underlying
Unexercised
Options (#)
Unexercisable |
|
|
|
Option
Exercise
Price ($) |
|
|
Option
Expiration
Date |
|
|
Number
of
Shares or Units
of Stock that
have not
Vested (#) |
|
|
Market
Value of
Shares or Units
of Stock that
have not
Vested ($) |
|
| Timothy
Young |
|
121,780,822 |
|
|
28,219,178 |
|
|
|
0.0099 |
|
|
1/23/2029 |
|
|
- |
|
|
- |
|
Director Compensation
The following table sets forth compensation information regarding
the Company’s non-employee directors in fiscal 2020:
|
Name |
|
Fees earned or paid in cash
|
|
|
Stock Award
($)
|
|
|
Option Awards ($) |
|
|
Non-equity incentive plan compensation |
|
|
Nonqualified deferred compensation earnings |
|
|
Non-Equity Incentive Plan Compensation ($) |
|
|
Non-Qualified Deferred Compensation Earnings
($) |
|
|
All Other Compensation
($)
|
|
|
Total
($) |
|
|
Mark R. Richardson |
|
|
1 |
|
|
|
- |
|
|
$ |
10,000,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
10,000,000 |
|
Item 12. Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
The following table sets forth certain information concerning the
number of shares of our common stock owned by: (i) each of our
directors; (ii) each of our named executive officers; and (iii)
each person or group known by us to beneficially own more than 5%
of our outstanding shares of common stock.
We believe that all persons named in the table have sole voting and
investment power with respect to all shares of common stock
beneficially owned by them.
A person is deemed to be the beneficial owner of securities that
can be acquired by him within 60 days from the date of this report
upon the exercise of options, warrants or convertible securities.
Each beneficial owner’s percentage ownership is determined by
assuming that options, warrants or convertible securities that are
held by him, but not those held by any other person, and which are
exercisable within 60 days of September 18, 2020 or have been
exercised and converted.
|
Name and address |
|
Shares of Common Stock |
|
|
Percentage of Common Stock (1) |
|
| |
|
|
|
|
|
|
| Directors and
Officers (2) |
|
|
|
|
|
|
| Timothy A. Young |
|
|
147,500,000 |
(3) |
|
|
6.4 |
|
| Mark R. Richardson |
|
|
9,166,667 |
(4) |
|
|
* |
|
| All Officers and Directors as a
Group (2 person) |
|
|
156,666,667 |
|
|
|
6.8 |
% |
* Less than 1%.
|
(1) |
Based
upon 2,156,132,155 shares issued and outstanding as of
September 18, 2020. |
| (2) |
The
address for each of the officers and directors is c/o SunHydrogen,
Inc. 10 E. Yanonali, Suite 36, Santa Barbara, CA 93101 |
| |
|
| (3) |
Includes 137,500,000 shares
underlying options that have vested or will vest within sixty days
of this annual report. |
| |
|
| (4) |
Represents shares underlying
options that have vested and will vest within sixty days of this
annual report. |
Item 13. Certain
Relationships and Related Transactions, and Director
Independence.
Certain Relationships and Related Transactions
Since the beginning of our
last fiscal year, except as set forth below, there have been and
there are no currently proposed transaction, in which we are or
were a participant and the amount involved exceeds $120,000 or one
percent of the average of our total assets at year-end for the last
two completed fiscal years, and in which any director, executive
officer, holder of more than 10% of any class of our voting
securities, had or will have a direct or indirect material
interest.
On September 10, 2020, the
Company entered into rescission agreements with Timothy Young, the
Company’s chief executive officer and director, and Mark
Richardson, the Company’s director. Under the rescission
agreements, the cashless option exercises of Mr. Young and Mr.
Richardson that were completed on June 24, 2020, were rescinded and
unwound in full. Under Mr. Young’s option exercise, Mr. Young had
exercised 50,000,000 options cashlessly at an exercise price of
$0.0099 per share and was issued 39,239,130 shares of common stock.
Under Mr. Richardson’s option exercise, Mr. Young had exercised
8,055,542 options cashlessly at an exercise price of $0.0099 per
share and was issued 6,321,849 shares of common stock.
Director Independence
The Board has determined that Mr. Richardson is an independent
director within the meaning of NASDAQ Rule 5605(a)(2).
Item 14. Principal
Accountant Fees and Services.
Audit Fees
The aggregate fees billable to us by our principal
accounting during 2020 and 2019 for the audit of our annual
financial statements and quarterly reviews of our financial
statements for the fiscal year totaled approximately $11,000 and $25,000,
respectively.
Audit-Related Fees
We incurred assurance and audit-related fees during 2020 and 2019
of $0 and $0 to our principal accountant in connection with
the audit of the financial statements of the Company for the years
ended June 30, 2020 and 2019.
Tax Fees
We did not incur fees for services rendered to us for tax
compliance, tax advice, or tax planning by our principal accountant
for the fiscal years ended June 30, 2020 and 2019.
All Other Fees
As of the date of this filing, our current policy is to not engage
M&K CPAS, PLLC to provide, among other things, bookkeeping
services, appraisal or valuation services, or international audit
services. The policy provides that we engage M&K CPAS, PLLC to
provide audit, and other assurance services, such as review of SEC
reports or filings.
Item 15. Exhibits.
|
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) |
| |
|
|
| 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 May 23, 2014 (incorporated by reference to
10-Q filed on May 15, 2018) |
| |
|
|
| 10.6 |
|
Convertible
Promissory Note dated January 28, 2016 (incorporated by reference
Form 10-Q filed on May 15, 2018) |
| |
|
|
| 10.7 |
|
Convertible
Promissory Note dated February 3, 2017 (incorporated by reference
to Form 10-Q filed on May 15, 2018f) |
| |
|
|
| 10.8 |
|
Convertible
Promissory Note dated November 10, 2017 (incorporated by reference
to Form 10-Q on May 15, 2018) |
| |
|
|
| 10.9 |
|
Convertible
Promissory Note dated July 27, 2018 (incorporated by reference to
Form 8-K filed on June 29, 2018) |
| |
|
|
| 10.10 |
|
Convertible
Promissory dated July 23, 2018 (incorporated by reference to Form
8-K on August 6, 2018) |
|
10.11 |
|
Promissory
Note issued August 10, 2018 (incorporated by reference to Form 8-K
filed on August 14, 2018) |
| |
|
|
| 10.12 |
|
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) |
| |
|
|
| 10.13 |
|
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) |
| |
|
|
| 10.14 |
|
Convertible
Promissory Note dated October 3, 2018 between the Company and
PowerUp Lending (incorporated by reference to Form 8-K on October
12, 2018) |
| 10.17 |
|
Contract
Amendment No. 1 between the Company and The University of Iowa
(incorporated by reference to 8-K filed June 26,
2020) |
| |
|
|
| 10.18 |
|
Purchase
Agreement between the Company and Triton Funds LP (incorporated by
reference to 8-K filed July 31, 2020) |
| |
|
|
| 10.19* |
|
Contract, dated September 1,
2020, between the Company and The University of Iowa, Iowa
City |
| |
|
|
| 10.20* |
|
Purchase Agreement, dated
September 21, 2020, between the Company and GHS Investments,
LLC |
| |
|
|
| 14.1 |
|
Code
of Ethics (incorporated by reference to 10-K filed on September 28,
2012). |
| |
|
|
| 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 |
| |
|
|
| 31.1* |
|
Certification
by Chief Executive Officer and Acting Chief Financial Officer
pursuant to Sarbanes-Oxley Section 302 |
| |
|
|
| 32.1** |
|
Certification
by Chief Executive Officer and Acting Chief Financial Officer
pursuant to 18 U.S.C. Section 1350 |
| 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 PRESENTATION LINKBASE |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
| |
SUNHYDROGEN,
INC. |
| |
|
|
| Date:
September 23, 2020 |
By: |
/s/
Timothy Young |
| |
|
Timothy Young
Chief Executive Officer, Interim Chief Financial Officer, and
Chairman (principal executive, financial and accounting
officer)
|
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.
|
Signature |
|
Title |
|
Date |
| |
|
|
|
|
| /s/
Timothy Young |
|
Chief
Executive Officer, President |
|
September
23, 2020 |
| Timothy
Young |
|
(Principal Executive Officer) Acting Chief Financial Officer
(Principal Financial and Accounting Officer), and Chairman
|
|
|
| |
|
|
|
|
| /s/
Mark R. Richardson |
|
Director |
|
September
23, 2020 |
| Mark
R. Richardson |
|
|
|
|
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
|
|
|
$ |
196,572
|
|
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.
F-21
