The accompanying notes are an integral part of these unaudited condensed financial statements
The accompanying notes are
an integral part of these unaudited condensed financial statements
The accompanying notes are an integral part of these unaudited condensed financial statements
NOTES TO FINANCIAL STATEMENTS – UNAUDITED
DECEMBER 31, 2022 AND 2021
The accompanying unaudited condensed
financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for
interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion
of management, all normal recurring adjustments considered necessary for a fair presentation have been included. Operating results for
the six months ended December 31, 2022 are not necessarily indicative of the results that may be expected for the six months ended December
31, 2022. For further information refer to the financial statements and footnotes thereto included in the Company’s Form 10-K for
the year ended June 30, 2022.
| 2. | SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES |
This summary of significant accounting
policies of SunHydrogen, Inc. is presented to assist in understanding the Company’s financial statements. The financial statements
and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting
policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the
preparation of the financial statements.
Cash and Cash Equivalent
The Company considers all highly liquid
investments with an original maturity of three months or less to be cash equivalents.
Concentration risk
Cash includes amounts deposited in
financial institutions in excess of insurable Federal Deposit Insurance Company (FDIC) limits. At times throughout the year, the Company
may maintain cash balances in certain bank accounts in excess of the FDIC limits. As of December 31, 2022, the cash balance in excess
of the FDIC limits was $19,291,669. The Company has not experienced any losses in such accounts and believes it is not exposed to any
significant credit risk in these accounts.
Marketable Securities
The Company considers corporate bonds
(“bonds”) as investments due to their ratings. The bonds are rated based on their default probability, health of the corporation’s
debt structure, as well as the overall health of the economy. The bonds fall into the category as investments if they have a rating of
AAA and BBB.
Corporate bonds and U.S.
Treasuries are considered current, based on their liquidity. The investments are generally valued using quoted prices and are
classified in Level 2 of the fair value hierarchy as prices are not always from active markets. We consider our investments held to
maturity and we believe there are no other than temporary declines in fair value. Our investments are recorded at historical
cost.
Use of Estimates
In accordance
with accounting principles generally accepted in the United States, management utilizes estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well
as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. These
estimates and assumptions relate to useful lives and impairment of tangible and intangible assets, accruals, income taxes, stock-based
compensation expense, Binomial lattice valuation model inputs, derivative liabilities and other factors. Management believes it has exercised
reasonable judgment in deriving these estimates. Consequently, a change in conditions could affect these estimates.
Property
and Equipment
Property and
equipment are stated at cost and are depreciated using straight line over its estimated useful lives.
Computers and peripheral equipment | |
| 5 Years | |
Vehicle | |
| 5 Years | |
The
Company recognized depreciation expense of $17,923 and $18,809 for the six months ended December 31, 2022 and 2021, respectively.
SUNHYDROGEN, INC.
NOTES TO FINANCIAL STATEMENTS – UNAUDITED
DECEMBER 31, 2022 AND 2021
| 2. | SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Intangible Assets
The Company has patent applications
to protect the inventions and processes behind its proprietary bio-based back-sheet, a protective covering for the back of photovoltaic
solar modules traditionally made from petroleum-based film. Intangible assets that have finite useful lives continue to be amortized over
their useful lives.
| |
Useful Lives | |
12/31/2022 | | |
6/30/2022 | |
| |
| |
| | |
| |
Domain-gross | |
15 years | |
$ | 5,315 | | |
$ | 5,315 | |
Less accumulated amortization | |
| |
| (5,109 | ) | |
| (4,931 | ) |
Domain-net | |
| |
$ | 206 | | |
$ | 384 | |
| |
| |
| | | |
| | |
Trademark-gross | |
10 years | |
$ | 1,143 | | |
$ | 1,143 | |
Less accumulated amortization | |
| |
| (657 | ) | |
| (601 | ) |
Domain-net | |
| |
$ | 486 | | |
$ | 542 | |
| |
| |
| | | |
| | |
Patents-gross | |
15 years | |
$ | 101,143 | | |
$ | 101,143 | |
Less accumulated amortization | |
| |
| (33,062 | ) | |
| (29,779 | ) |
Patents-net | |
| |
$ | 68,081 | | |
$ | 71,364 | |
The Company recognized amortization
expense of $3,517 and $3,517 for the three months ended December 31, 2022 and 2021, respectively.
Net Earnings (Loss) per
Share Calculations
Net earnings (Loss) per share dictates
the calculation of basic earnings (loss) per share and diluted earnings per share. Basic earnings (loss) per share are computed by dividing
by the weighted average number of common shares outstanding during the year. Diluted net earnings (loss) per share is computed similar
to basic earnings (loss) per share except that the denominator is increased to include the effect of stock options and stock-based awards
(Note 4), plus the assumed conversion of convertible debt (Note 5).
Six Months Ended December 30,
2022
The Company calculated the dilutive impact of 154,894,499 outstanding
stock options, 94,895,239 common stock purchase warrants, and the convertible debt and accrued interest of $948,623, which is convertible
into shares of common stock. The warrants and convertible debt were included because their impact is dilutive.
Six Months Ended December 31,
2021
The Company calculated the dilutive impact of 157,965,711 outstanding
stock options, 94,895,239 common stock purchase warrants, and the convertible debt and accrued interest of $1,173,384, which is convertible
into shares of common stock. The common stock purchase warrants were included in the calculation of net earnings per share, because their
impact on income per share is dilutive.
| |
Six Months Ended | |
| |
December 31, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
Income (Loss) to common shareholders (Numerator) | |
$ | 3,700,995 | | |
$ | 73,056,606 | |
| |
| | | |
| | |
Basic weighted average number of common shares outstanding (Denominator) | |
| 4,382,210,756 | | |
| 4,327,586,883 | |
| |
| | | |
| | |
Diluted weighted average number of common shares outstanding (Denominator) | |
| 5,385,011,715 | | |
| 5,330,387,842 | |
SUNHYDROGEN, INC.
NOTES TO FINANCIAL STATEMENTS – UNAUDITED
DECEMBER 31, 2022 AND 2021
| 2. | SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Equity Incentive Plan and Stock
Options
On January 27, 2022, the Company adopted the 2022 Equity Incentive
Plan, to enable the Company to attract and retain the types of employees, consultants, and directors who will contribute to the Company’s
long-range success. The maximum number of shares of common stock that may be issued under the 2022
Plan is initially 400,000,000. The number of shares will automatically be increased on the first day of the Company’s fiscal
year beginning in 2023 so that the total number of shares issuable will at all times equal fifteen percent (15%) of the Company’s
fully diluted capitalization on the first day of the Company’s fiscal year, unless the Board adopts a resolution providing
that the number of shares issuable under the 2022 Plan shall not be so increased.
Equity Incentive Plan
On December 17, 2018, the Board of
Directors approved and adopted the 2019 Equity Incentive Plan (“the Plan”), with 300,000,000 shares reserved for issuance
pursuant to the Plan. The purpose of the Plan is to promote the success of the Company and to increase stockholder value by providing
an additional means through the grant of awards to attract, motivate, retain and reward selected employees and other eligible persons.
The awards are performance-based compensation that are granted under the Plan as incentive stock options (ISO) or nonqualified stock options.
The per share exercise price for each option shall not be less than 100% of the fair market value of a share of common stock on the date
of grant of the option. The Company periodically issues stock options and warrants to employees and non-employees in non-capital raising
transactions for services and for financing cost. The Company accounts for stock option grants issued and vesting to employees and non-employees
in accordance with the authoritative guidance of the Financial Accounting Standards Board whereas the value of the stock compensation
is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date
at which the necessary performance to earn the equity instruments is complete. Non-employee stock-based compensation charges generally
are amortized over the vesting period on a straight-line basis. In certain circumstances where there are no future performance requirements
by the non-employee, option grants are immediately vested, and the total stock-based compensation charge is recorded in the period of
the measurement date. The Company granted options to purchase 170,000,000 shares of common stock options on January 23, 2019.
As
of December 31, 2022, there were 154,894,499 stock options issued, and a reserve of 46,741,308.
Stock Based Compensation
The Company accounts for stock option
grants issued and vesting to employees and non-employees in accordance with the authoritative guidance of the Financial Accounting Standards
Board whereas the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance
commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Non-employee stock-based
compensation charges generally are amortized over the vesting period on a straight-line basis. In certain circumstances where there are
no future performance requirements by the non-employee, option grants are immediately vested, and the total stock-based compensation charge
is recorded in the period of the measurement date.
Warrant Accounting
The Company accounts for the warrants
to purchase shares of common stock using the estimated fair value on the date of issuance as calculated using the Black-Scholes valuation
model.
Fair Value of Financial
Instruments
Fair value of financial instruments
requires disclosure of the fair value information, whether or not recognized on the balance sheet, where it is practicable to estimate
that value. As of December 31, 2022, the amounts reported for cash, accrued interest and other expenses, notes payables, convertible notes,
and derivative liability approximate the fair value because of their short maturities.
We adopted ASC Topic 820 for financial
instruments measured as fair value on a recurring basis. ASC Topic 820 defines fair value, established a framework for measuring fair
value in accordance with accounting principles generally accepted in the United States and expands disclosures about fair value measurements.
SUNHYDROGEN, INC.
NOTES TO FINANCIAL STATEMENTS – UNAUDITED
DECEMBER 31, 2022 AND 2021
| 2. | SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Fair Value of Financial
Instruments
Fair value is defined as the price
that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement
date. ASC Topic 820 established a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy
gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and
the lowest priority to unobservable inputs (level 3 measurements). These tiers include:
| ● | Level
1, defined as observable inputs such as quoted prices for identical instruments in active markets. |
| ● | Level
2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices
for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active. |
| ● | Level
3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions,
such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. |
We
measure certain financial instruments at fair value on a recurring basis. Assets and liabilities measured at fair value on a recurring
basis are as follows on December 31, 2022 (See Note 6):
| |
Total | | |
(Level 1) | | |
(Level 2) | | |
(Level 3) | |
Assets: | |
| | |
| | |
| | |
| |
Marketable securities measured at fair value December 31, 2022 | |
| 37,251,082 | | |
| 1,580,712 | | |
$ | 35,670,370 | | |
| - | |
| |
$ | 37,251,082 | | |
$ | 1,580,712 | | |
$ | 35,670,370 | | |
$ | - | |
| |
| | | |
| | | |
| | | |
| | |
Liabilities: | |
| | | |
| | | |
| | | |
| | |
Derivative liabilities measured at fair value December 31, 2022 | |
$ | 25,073,232 | | |
$ | - | | |
$ | - | | |
$ | 25,073,232 | |
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, 2022 | |
| 26,015,069 | |
Gain on change in derivative liability | |
| (941,837 | ) |
Balance as of December 31, 2022 | |
$ | 25,073,232 | |
The derivative liability balance consisted
of the derivative liabilities for convertible notes in the amount of $22,578,380 and warrants in the amount of $2,494,852 for an aggregate
total of $25,073,232.
Research and Development
Research and development costs are
expensed as incurred. Total research and development costs were $2,080,320 and $437,215 for the six months ended December 31, 2022
and 2021, respectively.
Accounting for Derivatives
The Company evaluates all of its financial
instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative
financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is
then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative
financial instruments, the Company uses a probability weighted average series Binomial lattice formula pricing models to value the derivative
instruments at inception and on subsequent valuation dates.
The classification of derivative instruments,
including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative
instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the
derivative instrument could be required within 12 months of the balance sheet date.
SUNHYDROGEN, INC.
NOTES TO FINANCIAL STATEMENTS – UNAUDITED
DECEMBER 31, 2022 AND 2021
| 2. | SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Reclassification of Expenses
Certain amounts in the 2021 financial
statements have been reclassified to conform to the presentation used in the 2022 financial statements. There was no material effect on
the Company’s previously issued financial statements.
Recently Issued Accounting Pronouncements
Management does not believe that any
other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying
unaudited financial statements as of December 31, 2022.
Series C Preferred Stock
On December 15, 2021, the Company filed a certificate of designation
of Series C Preferred Stock with the Secretary of State of Nevada, designating 17,000 shares of preferred stock as Series C Preferred
Stock. Each share of Series C Preferred Stock has a stated value of $100 and is convertible into shares of common stock of the Company
at a conversion price equal to $0.00095. The Series C Preferred Stockholders are entitled to receive out of any funds and assets of the
Company legally available prior and in preference to any declaration or payment of any dividend on the common stock of the Company, cumulative
dividends, at an annual rate of 10% of the stated value, payable in cash or shares of common stock. In the event the Company declares
or pays a dividend on its shares of common stock (other than dividend payable in shares of common stock), the holders of Series C Preferred
Stock will also be entitled to receive payment of such dividend on an as-if-converted basis. The Series C Preferred Stock confers no voting
rights on holders, except with respect to matters that materially and adversely affect the voting powers, rights or preferences of the
Series C Preferred Stock or as otherwise required by applicable law.
The Company entered into a securities purchase agreement on December
15, 2021, with an accredited investor for an exchange of convertible debt to equity. Under the purchase agreement, the Company and investor
acknowledged there was $187,800 of principal remaining under the note issued to the investor by the Company on February 3, 2017, plus
$80,365 of accrued interest, representing a total aggregate note balance of $268,165. Pursuant to the purchase agreement, the Company
sold to the investor 2,700 shares of the Company’s newly designated Series C Preferred Stock for a total purchase price of $268,165,
and a loss on settlement of debt of $1,835. As of December 31, 2022, the Company had a total of 2,700 shares of Series C Preferred Stock
outstanding with a fair value of $268,165, and a stated face value of one hundred dollars ($100) (“share value’) per share,
convertible into shares of common stock of the Company. The stock was presented as mezzanine equity because it is redeemable at a fixed
or determinable amount upon an event that is outside of the issuer’s control. Upon liquidation, dissolution and winding up of the
Company, the holder of each outstanding share of Series C Preferred Stock shall be entitled to receive, out of the assets of the Company
available for distribution to its shareholders upon such liquidation, before any payments shall be made or any assets distributed to the
holders of the common stock, the stated value of the Series C Preferred Shares plus any declared but unpaid dividends. No other current
or future equity holders of the Company shall have higher priority of liquidation preference than holders of Series C Preferred Stock.
The holder has the right, at any time, at its election, to convert shares of Series C Preferred Stock into common stock at a conversion
price of $0.00095.
Common Stock
On January 27, 2022, the holder of
the majority of the voting power of the shareholders of the Company, and the Company’s chief executive officer, approved by written
consent (i) an amendment to the Company’s articles of incorporation to increase the Company’s authorized shares of common
stock from 5,000,000,000 to 10,000,000,000, (ii) an amendment to the Company’s articles of incorporation to effect a reverse stock
split of the Company’s common stock by a ratio of not less than 1-for-100 and not more than 1-for-500 at any time prior to the one
year anniversary of filing the definitive information statement with respect to the reverse split, with the board of directors having
the discretion as to whether or not the reverse split is to be effected, and with the exact ratio of any reverse split to be set at a
whole number within the above range as determined by the board in its discretion, and (iii) the adoption of the Company’s 2022 Equity
Incentive Plan. Such shareholder approval for such actions became effective 20 days after the definitive information statement relating
to such actions was mailed to shareholders.
SUNHYDROGEN, INC.
NOTES TO FINANCIAL STATEMENTS – UNAUDITED
DECEMBER 31, 2022 AND 2021
| 3. | CAPITAL
STOCK (Continued) |
Six Months ended December 31,
2022
During the period ended December 31,
2022, the Company issued 120,000,000 shares of common stock upon conversion of convertible notes in the amount of $78,153 of principal,
plus accrued interest of $35,847 based upon a conversion price of $0.00095 per share. The notes were converted per the terms of their
respective agreements and therefore no gain or loss on the conversion was recorded.
On November 11, 2022, the Company entered into a Purchase Agreement
with an investor for a total of $45,000,000 to purchase shares of common stock. During the period ended December 31, 2022, the Company
issued 56,314,806 shares of common stock for $1,450,000 under a purchase agreement at prices of $0.02504 - $0.02608, pursuant to the purchase
notices received from the investor. The finance cost of $31,900 was deducted from the gross proceeds converted.
During the period ended December 31, 2022, a consultant exercised 3,071,412
shares of nonqualified stock options with an exercise price of $0.01 and a market price of $0.027 per share. Upon exercise of the stock
options, the Company issued 1,933,852 shares of common stock through a cashless exercise at the price of $0.017 per share for compensation
expense of $32,875.
Under the 2022 Equity Incentive
Plan, one employee and one consultant were granted 40,000,000 restricted stock awards for services, of which 20,000,000 shares vested
January 1, 2023 and 20,000,000 shares will vest January 1, 2024.
Six Months ended December 31,
2021
During the period ended September 30,
2021, the Company issued 180,480,692 shares of common stock upon conversion of convertible notes in the amount of $120,400 of
principal, plus accrued interest of $51,057 based upon a conversion price of $0.00095 per share. The notes were converted per
the terms of their respective agreements and therefore no gain or loss on the conversion was recorded.
OPTIONS
On October 2, 2017, the Company granted non-qualified options to purchase
10,000,000 shares of common stock . Each option expires on the date specified in the option agreement, which date is not later than the
fifth (5th) anniversary from the grant date of the options. Of the 10,000,000 non-qualified options, one-third vest immediately,
and one-third vest the second and third year, such that the options are fully vested with a maturity date of October 2, 2022 and are exercisable
at an exercise price of $0.01 per share. During the period the 3,071, 412 options remaining were fully exercised. As of December 31, 2022,
there are no remaining options outstanding.
On January 23, 2019, the Company issued
170,000,000 stock options. One-third of the options vested immediately, and the remainder vest 1/24 per month over the first twenty-four
months following the option grant. The options expire 10 years from the initial grant date. The options fully vested by January 23, 2022.
On January 31, 2019, the Company issued
6,000,000 stock options, of which two-third (2/3) vested immediately, and the remaining amount shall vest one-twelfth (1/12) per month
from after the date of the option grant. The options expire 10 years from the initial grant date. The options fully vested on January
31, 2020.
On July 22, 2019, the Company issued
10,000,000 stock options, of which one-third (1/3) vested immediately, and the remaining shall vest one-twenty fourth (1/24) per month
from after the date of the option grant. The options expire 10 years from the initial grant date. The options fully vested on July 22,
2020.
SUNHYDROGEN, INC.
NOTES TO FINANCIAL STATEMENTS – UNAUDITED
DECEMBER 31, 2022 AND 2021
| 4. | OPTIONS
AND WARRANTS (Continued) |
A summary of the Company’s stock
option activity and related information follows:
| |
12/31/2022 | | |
12/31/2021 | |
| |
| | |
Weighted | | |
| | |
Weighted | |
| |
Number | | |
average | | |
Number | | |
average | |
| |
Of | | |
exercise | | |
Of | | |
exercise | |
| |
Options | | |
price | | |
Options | | |
price | |
Outstanding, beginning of period | |
| 157,965,711 | | |
$ | 0.01 | | |
| 182,853,174 | | |
$ | 0.0089 | |
Granted | |
| - | | |
| - | | |
| - | | |
| - | |
Exercised | |
| (3,071,212 | ) | |
$ | 0.01 | | |
| - | | |
| - | |
Redemption of options | |
| - | | |
| - | | |
| (24,887,463 | ) | |
$ | 0.0099 | |
Outstanding, end of period | |
| 154,894,499 | | |
$ | 0.0096 | | |
| 157,965,711 | | |
$ | 0.0089 | |
Exercisable at the end of period | |
| 154,894,499 | | |
$ | 0.0096 | | |
| 157,965,711 | | |
$ | 0.0089 | |
During the six months ended December 31, 2022, a consultant exercised
3,071,412 nonqualified stock options through a cashless exercise for 1,933,852 shares, leaving a balance of 154,894,499 options outstanding.
The options were fully vested and previously expensed accordingly.
During the six months ended December 31, 2021, the Company redeemed
a total of 24,887,463 of the Company’s stock options from related parties for a total of $1,450,000. The options were bought back
for the market price at the date of the buy-back less the exercise price of the grant. All options that were bought back were fully vested
and previously expensed accordingly.
The company’s reasons for the option redemption action
for CEO, Director, and consultant included:
| ● | Retention of said persons who had been with the company for years with no
benefit of stock compensation due to volatility |
| | |
| ● | This action allowed for more price stability in the stock. |
| | |
| ● | Allowed
the company to retain more shares in the equity incentive program established at the
time. |
The weighted average remaining contractual life of options
outstanding as of December 31, 2022 and 2021 was as follows:
12/31/2022 | | |
12/31/2021 | |
Exercise Price | | |
Stock
Options
Outstanding | | |
Stock
Options
Exercisable | | |
Weighted
Average
Remaining
Contractual
Life (years) | | |
Exercise Price | | |
Stock
Options
Outstanding | | |
Stock
Options
Exercisable | | |
Weighted
Average
Remaining
Contractual
Life (years) | |
$ | - | | |
| - | | |
| - | | |
| - | | |
$ | 0.0100 | | |
| 3,071,212 | | |
| 3,071,212 | | |
| 0.76 | |
$ | 0.0097 | | |
| 6,000,000 | | |
| 6,000,000 | | |
| 3.09 | | |
$ | 0.0097 | | |
| 6,000,000 | | |
| 6,000,000 | | |
| 4.09 | |
$ | 0.0099 | | |
| 138,894,499 | | |
| 138,894,499 | | |
| 3.07 | | |
$ | 0.0099 | | |
| 138,894,499 | | |
| 138,894,499 | | |
| 4.07 | |
$ | 0.0060 | | |
| 10,000,000 | | |
| 10,000,000 | | |
| 3.56 | | |
$ | 0.0060 | | |
| 10,000,000 | | |
| 10,000,000 | | |
| 4.56 | |
| | | |
| 154,894,499 | | |
| 154,894,499 | | |
| | | |
| | | |
| 157,965,711 | | |
| 157,965,711 | | |
| | |
WARRANTS
As of December 31, 2022, the Company
had an aggregate of 94,895,239 common stock purchase warrants outstanding, with exercise prices ranging from $0.0938 - $0.13125 per share.
The warrants were estimated at fair value on the date of issuance as calculated using the Black-Scholes valuation model. The derivative
calculated on all warrants outstanding are include in the derivative liability (See Note 6). The warrants can be exercised over periods
of three (3) to five (5) years.
A summary of the Company’s warrant
activity and related information follows for the period ended December 31, 2022.
| |
12/31/2022 | |
| |
| | |
Weighted | |
| |
Number | | |
average | |
| |
of | | |
exercise | |
| |
Warrants | | |
price | |
Outstanding, beginning of period | |
| 94,895,239 | | |
$ | 0.11 | |
Granted | |
| - | | |
| - | |
Exercised | |
| - | | |
| - | |
Forfeited/Expired | |
| - | | |
| - | |
Outstanding, end of period | |
| 94,895,239 | | |
$ | 0.11 | |
Exercisable at the end of period | |
| 94,895,239 | | |
$ | 0.11 | |
SUNHYDROGEN, INC.
NOTES TO FINANCIAL STATEMENTS – UNAUDITED
DECEMBER 31, 2022 AND 2021
| 4. | OPTIONS AND WARRANTS (Continued) |
12/31/2022 | | |
Weighted Average | |
Exercise Price | | |
Warrants Outstanding | | |
Warrants Exercisable | | |
Remaining Contractual Life (years) | |
$ | 0.0938 | | |
| 16,800,000 | | |
| 16,800,000 | | |
| 0.42 - 1.0 | |
$ | 0.13125 | | |
| 6,666,667 | | |
| 6,666,667 | | |
| 3.16 | |
$ | 0.12 | | |
| 71,428,572 | | |
| 71,428,572 | | |
| 3.17 | |
| | | |
| 94,895,239 | | |
| 94,895,239 | | |
| | |
At December 31, 2022, the aggregate
intrinsic value of the warrants outstanding was $0.
| 5. | CONVERTIBLE
PROMISSORY NOTES |
As of December 31, 2022, the outstanding
convertible promissory notes are summarized as follows:
Convertible Promissory Notes | |
$ | 749,347 | |
Less current portion | |
| 699,347 | |
Total long-term liabilities | |
$ | 50,000 | |
Maturities of long-term debt for the
next three years are as follows:
Period Ended December 31, | |
Amount | |
2023 | |
$ | 699,347 | |
2025 | |
| 50,000 | |
| |
$ | 749,347 | |
At December 31, 2022, the outstanding
balance of the convertible promissory notes was $749,347.
The Company issued a 10% convertible
promissory note on November 9, 2017 (the “Nov 2017 Note”) in the aggregate principal amount of up to $500,000. The Company
received tranches for an aggregate principal total of $500,000. The Nov 2017 Note had a maturity date of November 9, 2018, with an automatic
extension of sixty (60) months from the effective date of the note. The Nov 2017 Note is convertible into shares of common stock of the
Company at a price equal to a variable conversion price of the lesser of $0.01 per share or fifty percent (50%) of the lowest trading
price since the original effective date of the note or the lowest effective price per share granted to any person or entity after the
effective date to acquire common stock. If the Company fails to deliver shares in accordance with the timeframe of three (3) business
days of the receipt of a notice of conversion, the lender, at any time prior to selling all of those shares, may rescind any portion,
in whole or in part of that particular conversion attributable to the unsold shares and have the rescinded conversion amount returned
to the principal sum with the rescinded conversion shares returned to the Company. In no event shall the lender be entitled to convert
any portion of the Nov 2017 Note to the extent such conversion would result in beneficial ownership by the lender and its affiliates of
more than 4.99% of the outstanding shares of common stock of the Company. In addition, for each conversion in the event that shares are
not delivered by the fourth business day (inclusive of the day of conversion), a penalty of $1,500 per day shall be assessed for each
day after the third business day (inclusive of the day of the conversion) until the shares are delivered. During the period ended December
31, 2022, the Company issued 120,000,000 shares of common stock upon the conversion of principal in the amount of $78,153, plus accrued
interest of $35,847. As of December 31, 2022, the balance remaining was $99,347.
The Company issued
a 10% convertible promissory note on June 27, 2018 (the “Jun 2018 Note”) in the aggregate principal amount of up to $500,000.
The Company received tranches for an aggregate principal total of $500,000. The Jun 2018 Note matured on June 27, 2019, which was automatically
extended for sixty (60) months from the effective date of the note. The Jun 2018 Note is convertible into shares of common stock of the
Company at a price equal to a variable conversion price of the lesser of $0.01 per share or fifty percent (50%) of the lowest trading
price since the original effective date of the note or the lowest effective price per share granted to any person or entity after the
effective date to acquire common stock. If the Company fails to deliver shares in accordance with the timeframe of three (3) business
days of the receipt of a notice of conversion, the lender, at any time prior to selling all of those shares, may rescind any portion,
in whole or in part of that particular conversion attributable to the unsold shares and have the rescinded conversion amount returned
to the principal sum with the rescinded conversion shares returned to the Company. In no event shall the lender be entitled to convert
any portion of the Jun 2018 Note to the extent such conversion would result in beneficial ownership by the lender and its affiliates
of more than 4.99% of the outstanding shares of common stock of the Company. In addition, for each conversion, in the event, that shares
are not delivered by the fourth business day (inclusive of the day of conversion), a penalty of $1,500 per day shall be assessed for
each day after the third business day (inclusive of the day of the conversion) until the shares are delivered. The balance of the Jun
2018 Note as of December 31, 2022 was $500,000.
SUNHYDROGEN, INC.
NOTES TO FINANCIAL STATEMENTS – UNAUDITED
DECEMBER 31, 2022 AND 2021
| 5. | CONVERTIBLE
PROMISSORY NOTES (Continued) |
The Company issued a 10% convertible
promissory note on August 10, 2018 (the “Aug 2018 Note”) in the aggregate principal amount of up to $100,000. The Aug 2018
Note had a maturity date of August 10, 2019, with an extension of sixty (60) months from the date of the note. The Aug 2018 Note matures
on August 10, 2023. The Aug 2018 Note may be converted into shares of the Company’s common stock at a conversion price of the lesser
of a) $0.005 per share or b) sixty-one (61%) percent of the lowest trading price per common stock recorded on any trade day after the
effective date. The conversion feature of the Aug 2018 Note was considered a derivative in accordance with current accounting guidelines
because of the reset conversion features of the Note. The balance of the Aug 2018 Note as of December 31, 2022 was $100,000.
On April 15, 2020, the Company
issued a convertible promissory note (the “Apr 2020 Note”) to an investor in the aggregate principal amount of $50,000.
The Company received tranches for an aggregate principal total of $50,000. The Apr 2020 Note matures twelve (12) months from the
effective dates of each respective tranche, such that the Apr 2020 Note matures on April 15, 2021, with an automatic extension of
sixty (60) months from the effective date of each tranche. The Apr Note is convertible into shares of common stock of the Company at
a variable conversion price of the lesser of $0.01 per share or fifty percent (50%) of the lowest trading price of the common stock
recorded on any trade day after the effective date, or (c) the lowest effective price per share granted to any person or entity
after the effective date to acquire common stock. If the Company fails to deliver shares in accordance with the timeframe of four
(4) business days of the receipt of a notice of conversion, the lender, at any time prior to selling all of those shares, may
rescind any portion, in whole or in part of that particular conversion attributable to the unsold shares and have the rescinded
conversion amount returned to the principal sum with the rescinded conversion shares returned to the Company. In no event shall the
lender be entitled to convert any portion of the Apr 2020 Note to the extent such conversion would result in beneficial ownership by
the lender and its affiliates of more than 4.99% of the outstanding shares of common stock of the Company. In addition, for each
conversion, in the event that shares are not delivered by the fourth business day (inclusive of the day of conversion), a penalty of
$2,000 per day shall be assessed for each day after the fourth business day (inclusive of the day of the conversion) until the
shares are delivered. The conversion feature of the April 2020 Note was considered a derivative in accordance with current
accounting guidelines because of the reset conversion features of the Apr 2020 Note. The balance of the Apr 2020 Note as of December
31, 2022 was $50,000.
ASC Topic 815 provides guidance applicable
to convertible debt issued by the Company in instances where the number into which the debt can be converted is not fixed. For example,
when a convertible debt converts at a discount to market based on the stock price on the date of conversion, ASC Topic 815 requires that
the embedded conversion option of the convertible debt be bifurcated from the host contract and recorded at their fair value. In accounting
for derivatives under accounting standards, the Company recorded a liability representing the estimated present value of the conversion
feature considering the historic volatility of the Company’s stock, and a discount representing the imputed interest associated
with the embedded derivative. The discount is amortized over the life of the convertible debt, and the derivative liability is adjusted
periodically according to stock price fluctuations.
The convertible notes issued do not
have fixed settlement provisions because their conversion prices are not fixed. The conversion features have been characterized as derivative
liabilities to be re-measured at the end of every reporting period with the change in value reported in the statement of operations.
During the period ended December 31,
2022, the Company recorded a net gain in change in derivative of $941,837 in the statement of operations due to the change in fair value
of the remaining notes, for the period ended December 31, 2022.
SUNHYDROGEN, INC.
NOTES TO FINANCIAL STATEMENTS – UNAUDITED
DECEMBER 31, 2022 AND 2021
| 6. | DERIVATIVE LIABILITIES (Continued) |
For the six months
ended December 31, 2022 and the year ended June 30, 2022, the fair value of the derivative liabilities are as follows;
| |
12/31/2022 | | |
6/30/2022 | |
| |
| | |
| |
Derivative liability, convertible notes | |
$ | 22,578,380 | | |
$ | 24,528,774 | |
Derivative liability, warrants | |
| 2,494,852 | | |
| 1,486,294 | |
Total | |
$ | 25,073,232 | | |
$ | 26,015,068 | |
For purpose of determining the fair
market value of the derivative liability for the embedded conversion, the Company used the Binomial lattice formula. The significant
assumptions used in the Binomial lattice formula of the derivatives are as follows:
Risk free interest rate | |
4.41% - 4.76% |
Stock volatility factor | |
92.0% - 133.0% |
Weighted average expected option life | |
1 year - 5 years |
Expected dividend yield | |
None |
As of December 31, 2022, the Company
invested in corporate bonds and government bonds, which have been recognized in the financial statements at cost.
The Company considers corporate bonds
and government bonds (“bonds”) as investments due to their ratings. The bonds are rated based on their default probability,
health of the corporation’s debt structure, as well as the overall health of the economy. The bonds fall into the category as investments
if they have a rating between AAA and BBB.
As of December 31, 2022, the components
of the Company’s cash, cash equivalents, short -term investments are summarized as follows:
| |
Adjusted Cost | | |
Unrealized Gains | | |
Unrealized Losses | | |
Fair Value | | |
Cash and Cash Equivalents | | |
Short-Term Marketable Securities | |
Cash | |
| 18,239,939 | | |
| - | | |
| - | | |
| 18,239,939 | | |
| 18,239,939 | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Subtotal | |
| 18,239,939 | | |
| - | | |
| | | |
| 18,239,939 | | |
| 18,239,939 | | |
| - | |
Level 1 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
U.S. Treasury bills | |
| 1,580,712 | | |
| - | | |
| - | | |
| 1,580,712 | | |
| 1,580,712 | | |
| - | |
Subtotal | |
| 1,580,712 | | |
| - | | |
| - | | |
| 1,580,712 | | |
| 1,580,712 | | |
| - | |
Level 2 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Marketable securities | |
| 20,844,540 | | |
| - | | |
| (294,805 | ) | |
| 20,549,735 | | |
| - | | |
| 20,549,735 | |
Investment in affiliate | |
| 7,000,0000 | | |
| 8,120,635 | | |
| | | |
| 15,120,635 | | |
| | | |
| 15,120,635 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Subtotal | |
| 27,844,540 | | |
| 8,120,635 | | |
| (294,805 | ) | |
| 35,670,370 | | |
| - | | |
| 35,670,370 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Total | |
| 47,665,191 | | |
| 8,120,635 | | |
| (294,805 | ) | |
| 55,491,021 | | |
| 19,820,651 | | |
| 35,670,370 | |
The Company has invested in bonds maturing
from December 6, 2022 through August 16, 2023 that are held to maturity. The current trading prices or fair market value of the securities
vary, and we believe any decline in fair value is temporary. All securities are current and not in default.
SUNHYDROGEN, INC.
NOTES TO FINANCIAL STATEMENTS – UNAUDITED
DECEMBER 31, 2022 AND 2021
| 7. | MARKETABLE SECURITIES (Continued) |
The following table summarizes the
amortized cost of the held-to-maturity securities at December 31, 2022, aggregated by credit quality indicator.
Credit Quality Indicators for the Securities | |
| |
AA/A | |
$ | 17,459,974 | |
BBB | |
$ | 4,965,278 | |
Total | |
$ | 22,425,252 | |
During the period ended December 31,
2022, the Company recognized interest income of $397,727 in the financial statements, which is recorded as part of investment income in
the statement of operations.
8. |
INVESTMENTS IN SECURITIES
-AFFILIATE AND CONVERTIBLE NOTES RECEIVABLE -AFFILIATE |
On November 11, 2022, the Company entered into a subscription agreement
with TECO2030 ASA, (TECO) a public limited company incorporated in Norway. Pursuant to the subscription agreement, the Company purchased
13,443,875 shares of TECO stock for an aggregate consideration of $7 million in USD, at an exchange rate of NOK 10.4094, and a convertible
note of TECO for a subscription amount of $3 million in USD. The issuance of the convertible notes receivable is through a Tap Issue Addendum
to TECO’s secured convertible notes agreement dated June 1, 2022, pursuant to which Nordic Trustee AS is acting as the security
agent on behalf of the note holders. The convertible notes mature on June 1, 2025, and bears interest at the rate of 8% per annum paid
quarterly in arrears and are convertible into shares of TECO at a rate of NOK 5.0868 per share.
The Company’s CEO is a director
of TECO, as such TECO is considered an affiliate of the Company.
| |
Cost Basis | | |
Unrealized Gain | | |
Fair Value December 31, 2022 | |
Short term investments in affiliate at fair value | |
$ | 7,000,000 | | |
$ | 8,120,635 | | |
$ | 15,120,635 | |
During the period ended December 31,
2022, the Company recognized an unrealized gain of $8,120,635 in the financial statements.
| 9. | COMMITMENTS
AND CONTINGENCIES |
Effective October 1, 2022, the
Company extended its research agreement with the University of Iowa through September 30, 2023. As consideration under the research agreement,
the University of Iowa will receive a maximum of $343,984 from the Company in four equal installments of $85,996. The agreement can
be terminated by either party upon sixty (60) days prior written notice to the other.
Effective October 1, 2022, the
Company extended its research agreement with the University of Michigan through September 30, 2023. As consideration under the research
agreement, the University of Michigan will receive a maximum of $298,194, from the Company in four equal installments of $74,549. In the
event of early termination by the Sponsor, the Sponsor will pay all costs accrued by the University as of the date of termination, including
non-cancellable obligations.
Effective
December 2021, the Company entered into a marketing media campaign in the amount of $350,000, during the year ended June 30, 2022. The
Company paid $262,500, and the remaining balance of $87,500 was paid on July 11, 2022 leaving a zero balance as of December 31, 2022.
The
Company rented lab space with the University of Iowa as of February 2022. The monthly rent is a base of $1,468, plus an additional $500
for the rental of a lab on a month-to-month basis and is cancellable with a thirty (30) day notice. Due to the rental being month-to-month,
ASC 842 lease accounting is not applicable.
In the normal
course of business, the Company may be involved in legal proceedings, claims and assessments arising in the ordinary
course of business. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance. In the opinion
of management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s
consolidated financial position or results of operation.
SUNHYDROGEN, INC.
NOTES TO FINANCIAL STATEMENTS – UNAUDITED
DECEMBER 31, 2022 AND 2021
Six Months ended December 31, 2022
As of December 31, 2022, the Company
reported an accrual associated with the CEO’s prior years’ salary in the amount of $211,750 for the current year, which is
recorded in related party accrued expenses. The Company began accruing the salary in 2011 and used the funds for operating expenses. During
the period ended December 31, 2022, the accrued salary was reclassified as a loan from the CEO, with an interest rate of five percent
(5%). The loan will be repaid with monthly payments of $9,290, including interest and principal over a two-year period. As of December
31, 2022, the balance remaining on the loan was $194,859.
Under
the 2022 Equity Incentive Plan, two employees were granted 150,000,000 restricted stock awards for services, which vested immediately.
The Company withheld 62,400,000 shares at a price of $0.027 to pay for the taxes owed by the employees in the amount of $1,684,800, and
the remaining 87,600,000 shares priced at $0.027 per share in the amount of $2,365,200 in stock compensation reported in the financial
statements.
During the six months ended December
31, 2022, a consultant exercised 3,071,412 nonqualified stock options through a cashless exercise for $32,875 in stock compensation expense
reported in the financial statements.
Six
Months ended December 31, 2021
During
the six months ended December 31, 2021, the Company redeemed 24,887,463 of the Company’s stock options to related parties
for a total of $1,450,000.
Management evaluated subsequent events
as of the date of the financial statements pursuant to ASC TOPIC 855, and had the following subsequent events to report.
On January 24, 2023, the Company issued 12,112,404 shares of common
stock for $250,000 under a purchase agreement at a purchase price of $0.02064.
On January 23, 2023, under the 2022
Equity Incentive Plan, the Company granted a Director 3,000,000 restricted stock awards for services, which vested immediately. These
shares have not yet been issued.
On February 3, 2023, the Company issued 12,703,253 shares of common
stock for $250,000 under a purchase agreement at a purchase price of $0.01968.