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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
For
the quarterly period ended
or
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION
FILE NUMBER:
(Name of registrant in its charter)
|
|
|
|
|
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer
Identification No.) |
(Address of principal executive offices) (Zip Code)
Issuer’s
telephone Number:
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Ticker symbol(s) | Name of each exchange on which registered | ||
| N/A | N/A | N/A |
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.
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).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an 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 | ☐ | |
|
|
☒ | 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 provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
The
number of shares of registrant’s common stock outstanding, as of November 12, 2021 was
SUNHYDROGEN, INC.
INDEX
i
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
SUNHYDROGEN,
INC.
CONDENSED BALANCE SHEETS
|
September 30,
2021 |
June 30,
2021 |
|||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalent | $ |
|
$ |
|
||||
| Marketable securities |
|
-
|
||||||
| Prepaid expenses |
|
-
|
||||||
| TOTAL CURRENT ASSETS |
|
|
||||||
| LONG TERM INVESTMENTS | ||||||||
| Marketable securities |
|
-
|
||||||
| PROPERTY & EQUIPMENT | ||||||||
| Computers and peripherals |
|
|
||||||
| Vehicle |
|
|
||||||
|
|
|
|||||||
| Less: accumulated depreciation |
(
|
) |
(
|
) | ||||
| NET PROPERTY AND EQUIPMENT |
|
|
||||||
| OTHER ASSETS | ||||||||
|
Domain, net of amortization of $
|
|
|
||||||
|
Trademark, net of amortization of $
|
|
|
||||||
|
Patents, net of amortization of $
|
|
|
||||||
| TOTAL OTHER ASSETS |
|
|
||||||
| TOTAL ASSETS | $ |
|
$ |
|
||||
| LIABILITIES AND SHAREHOLDERS’ DEFICIT | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ |
|
$ |
|
||||
| Accrued expenses |
|
|
||||||
| Accrued expenses, related party |
|
|
||||||
| Accrued interest on convertible notes |
|
|
||||||
| Derivative liability |
|
|
||||||
|
Convertible promissory notes, net of debt discount of $
|
|
|
||||||
| TOTAL CURRENT LIABILITIES |
|
|
||||||
| LONG TERM LIABILITIES | ||||||||
|
Convertible promissory notes, net of debt discount of $
|
|
|
||||||
| TOTAL LONG TERM LIABILITIES |
|
|
||||||
| TOTAL LIABILITIES |
|
|
||||||
| COMMIMENTS AND CONTINGENCIES (SEE NOTE 9) |
-
|
-
|
||||||
| SHAREHOLDERS’ DEFICIT | ||||||||
|
Preferred Stock, $
|
-
|
-
|
||||||
|
Common Stock, $
|
|
|
||||||
| Additional Paid in Capital |
|
|
||||||
| Accumulated deficit |
(
|
) |
(
|
) | ||||
| TOTAL SHAREHOLDERS’ DEFICIT |
(
|
) |
(
|
) | ||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT | $ |
|
$ |
|
||||
The accompanying notes are an integral part of these condensed unaudited financial statements
1
SUNHYDROGEN,
INC.
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
| Three Months Ended | ||||||||
|
September 30,
2021 |
September 30,
2020 |
|||||||
| REVENUE | $ |
-
|
$ |
-
|
||||
| OPERATING EXPENSES | ||||||||
| Selling and Marketing |
|
-
|
||||||
| General and administrative expenses |
|
|
||||||
| Research and development cost |
|
|
||||||
| Depreciation and amortization |
|
|
||||||
| TOTAL OPERATING EXPENSES |
|
|
||||||
| LOSS FROM OPERATIONS BEFORE OTHER INCOME (EXPENSES) |
(
|
) |
(
|
) | ||||
| OTHER INCOME/(EXPENSES) | ||||||||
| Other income |
|
-
|
||||||
| Gain (Loss) on change in derivative liability |
|
(
|
) | |||||
| Interest expense |
(
|
) |
(
|
) | ||||
| TOTAL OTHER INCOME (EXPENSES) |
|
(
|
) | |||||
| NET INCOME (LOSS) | $ |
|
$ |
(
|
) | |||
| BASIC EARNINGS (LOSS) PER SHARE | $ |
|
$ |
(
|
) | |||
| DILUTED EARNINGS (LOSS) PER SHARE | $ |
|
$ |
(
|
) | |||
| WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING | ||||||||
| BASIC |
|
|
||||||
| DILUTED |
|
|
||||||
The accompanying notes are an integral part of these condensed unaudited financial statements
2
SUNHYDROGEN,
INC.
CONDENSED STATEMENTS OF SHAREHOLDERS’ DEFICIT
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
| THREE MONTHS ENDED SEPTEMBER 30, 2020 | ||||||||||||||||||||||||||||
| Additional | ||||||||||||||||||||||||||||
| Preferred stock | Common stock | Paid-in | Accumulated | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
| Balance at June 30, 2020 |
-
|
$ |
-
|
|
$ |
|
$ |
|
$ |
(
|
) | $ |
(
|
) | ||||||||||||||
| Issuance of common stock for conversion of debt and accrued interest |
-
|
-
|
|
|
|
-
|
|
|||||||||||||||||||||
| Issuance of common stock for services |
-
|
-
|
|
|
|
-
|
|
|||||||||||||||||||||
| Issuance of common stock for services |
-
|
-
|
|
|
|
-
|
|
|||||||||||||||||||||
| Stock based compensation expense | - |
-
|
- |
-
|
|
-
|
|
|||||||||||||||||||||
| Net Loss | - |
-
|
- |
-
|
-
|
(
|
) |
(
|
) | |||||||||||||||||||
| Balance at September 30, 2020 (unaudited) |
-
|
$ |
-
|
|
$ |
|
$ |
|
$ |
(
|
) | $ |
(
|
) | ||||||||||||||
| THREE MONTH ENDED SEPTEMBER 30, 2021 | ||||||||||||||||||||||||||||
| Additional | ||||||||||||||||||||||||||||
| Preferred stock | Common stock | Paid-in | Accumulated | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
| Balance at June 30, 2021 |
-
|
$ |
-
|
|
$ |
|
$ |
|
$ |
(
|
) | $ |
(
|
) | ||||||||||||||
| Issuance of common stock for conversion of debt and accrued interest |
-
|
-
|
|
|
(
|
) |
-
|
|
||||||||||||||||||||
| Stock options redeemed by Company | - |
-
|
- |
-
|
(
|
) |
-
|
(
|
) | |||||||||||||||||||
| Net Income | - |
-
|
- |
-
|
-
|
|
|
|||||||||||||||||||||
| Balance at September 30, 2021 (unaudited) |
-
|
$ |
-
|
|
$ |
|
$ |
|
$ |
(
|
) | $ |
(
|
) | ||||||||||||||
The accompanying notes are an integral part of these condensed unaudited financial statements
3
SUNHYDROGEN,
INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
| Three Months Ended | ||||||||
|
September 30,
2021 |
September 30,
2020 |
|||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net Income (loss) | $ |
|
$ |
(
|
) | |||
| Adjustment to reconcile net income (loss) to net cash (used in) provided by operating activities | ||||||||
| Depreciation & amortization expense |
|
|
||||||
| Stock based compensation expense |
-
|
|
||||||
| Stock issued for services |
-
|
|
||||||
| Net (Gain) Loss on change in derivative liability |
(
|
) |
|
|||||
| Amortization of debt discount recorded as interest expense |
|
|
||||||
| Change in assets and liabilities : | ||||||||
| Prepaid expense |
(
|
) |
(
|
) | ||||
| Accounts payable |
(
|
) |
(
|
) | ||||
| Accrued expenses |
|
|
||||||
| Accrued interest on convertible notes |
|
|
||||||
| NET CASH USED IN OPERATING ACTIVITIES |
(
|
) |
(
|
) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchase of marketable securities |
(
|
) |
-
|
|||||
| Purchase of property and equipment |
-
|
(
|
) | |||||
| NET CASH USED IN INVESTING ACTIVITIES: |
(
|
) |
(
|
) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Redemption of related parties stock options |
(
|
) |
-
|
|||||
| Net proceeds from common stock purchase agreements |
-
|
|
||||||
| NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES |
(
|
) |
|
|||||
| NET INCREASE (DECREASE) IN CASH |
(
|
) |
|
|||||
| CASH, BEGINNING OF PERIOD |
|
|
||||||
| CASH, END OF PERIOD | $ |
|
$ |
|
||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | ||||||||
| Interest paid | $ |
-
|
$ |
|
||||
| Taxes paid | $ |
-
|
$ |
-
|
||||
| SUPPLEMENTAL DISCLOSURES OF NON CASH TRANSACTIONS | ||||||||
| Fair value of common stock upon conversion of convertible notes, and accrued interest | $ |
|
$ |
|
||||
The accompanying notes are an integral part of these condensed unaudited financial statements
4
SUNHYDROGEN, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS – UNAUDITED
SEPTEMBER 30, 2021 AND 2020
| 1. | Basis of Presentation |
The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included. Operating results for the three months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the year ended June 30, 2022. For further information refer to the financial statements and footnotes thereto included in the Company’s Form 10-K for the year ended June 30, 2021.
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
This summary of significant accounting policies of SunHydrogen, Inc. is presented to assist in understanding the Company’s financial statements. The financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the financial statements.
Cash and Cash Equivalent
The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.
Investments
The Company considers corporate bonds (“bonds”) as investments due to their ratings. The bonds are rated based on their default probability, health of the corporation’s debt structure, as well as the overall health of the economy. The bonds fall into the category as investments if they have a rating of AAA and BBB.
The bonds have varied due dates and were classified as current and noncurrent, based on to their maturity dates. The bonds are generally valued using quoted prices and are classified in Level 2 of the fair value hierarchy as prices are not always from active markets. We consider our investments held to maturity and we believe there are no other than temporary declines in fair value. Our investments are recorded at historical cost.
Use of Estimates
In accordance with accounting principles generally accepted in the United States, management utilizes estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. These estimates and assumptions relate to useful lives and impairment of tangible and intangible assets, accruals, income taxes, stock-based compensation expense, Binomial lattice valuation model inputs, derivative liabilities and other factors. Management believes it has exercised reasonable judgment in deriving these estimates. Consequently, a change in conditions could affect these estimates.
Property and Equipment
Property and equipment are stated at cost and are depreciated using straight line over its estimated useful lives.
| Computers and peripheral equipment |
|
|||
| Vehicle |
|
The
Company recognized depreciation expense of $
5
SUNHYDROGEN, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS – UNAUDITED
SEPTEMBER 30, 2021 AND 2020
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Intangible Assets
The Company has patent applications to protect the inventions and processes behind its proprietary solar-to-hydrogen based technology. Intangible assets that have finite useful lives continue to be amortized over their useful lives.
The
Company recognized amortization expense of $
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).
September 30, 2021
For the three months ended September 30, 2021, the Company calculated
the dilutive impact of the outstanding stock options of
September 30, 2020
For
the three months ended September 30, 2020, the Company calculated the dilutive impact of the outstanding stock options of
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
As
of September 30, 2021, there were
6
SUNHYDROGEN, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS – UNAUDITED
SEPTEMBER 30, 2021 AND 2020
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Stock Based Compensation
The Company accounts for stock option grants issued and vesting to employees and non-employees in accordance with the authoritative guidance of the Financial Accounting Standards Board whereas the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Non-employee stock-based compensation charges generally are amortized over the vesting period on a straight-line basis. In certain circumstances where there are no future performance requirements by the non-employee, option grants are immediately vested, and the total stock-based compensation charge is recorded in the period of the measurement date.
Warrant Accounting
The Company accounts for the warrants to purchase shares of common stock using the estimated fair value on the date of issuance as calculated using the Black-Scholes valuation model.
Fair Value of Financial Instruments
Fair value of financial instruments requires disclosure of the fair value information, whether or not recognized on the balance sheet, where it is practicable to estimate that value. As of September 30, 2021, the amounts reported for cash, accrued interest and other expenses, notes payables, convertible notes, and derivative liability approximate the fair value because of their short maturities.
We adopted ASC Topic 820 for financial instruments measured as fair value on a recurring basis. ASC Topic 820 defines fair value, established a framework for measuring fair value in accordance with accounting principles generally accepted in the United States and expands disclosures about fair value measurements.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 established a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:
| ● | Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets. |
| ● | Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active. |
| ● | Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. |
We measure certain financial instruments at fair value on a recurring basis. Assets and liabilities measured at fair value on a recurring basis are as follows on September 30, 2021 (See Note 6):
| Total | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
| Assets: | ||||||||||||||||
| Corporate bonds | $ |
|
$ |
-
|
$ |
|
$ |
-
|
||||||||
| Liabilities: | ||||||||||||||||
| Derivative liability measured at fair value | $ |
|
$ |
-
|
$ |
-
|
$ |
|
||||||||
7
SUNHYDROGEN, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS – UNAUDITED
SEPTEMBER 30, 2021 AND 2020
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
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, 2021 |
|
|||
| Gain on change in derivative liability |
(
|
) | ||
| Balance as of September 30, 2021 | $ |
|
Research and Development
Research
and development costs are expensed as incurred. Total research and development costs were $
Accounting for Derivatives
The Company evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments, the Company uses a probability weighted average series Binomial lattice formula pricing models to value the derivative instruments at inception and on subsequent valuation dates.
The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.
Recently Issued Accounting Pronouncements
Management does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying condensed financial statements as of September 30, 2021.
| 3. | CAPITAL STOCK |
Three months ended September 30, 2021
During the three months ended September
30, 2021, the Company issued
Three months ended September 30, 2020
During
the three months ended September 30, 2020, the Company issued
During
the three months ended September 30, 2020, the Company issued
During
the three months ended September 30, 2020, the Company issued
8
SUNHYDROGEN, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS – UNAUDITED
SEPTEMBER 30, 2021 AND 2020
| 4. | OPTIONS AND WARRANTS |
As
of September 30, 2020,
On
January 23, 2019, the Company issued
On
January 31, 2019,
A summary of the Company’s stock option activity and related information follows:
| 9/30/21 | 9/30/2020 | |||||||||||||||
| Weighted | Weighted | |||||||||||||||
| Number | average | Number | average | |||||||||||||
| Of | exercise | of | exercise | |||||||||||||
| Options | price | Options | price | |||||||||||||
| Outstanding, beginning of period |
|
$ |
|
|
$ |
|
||||||||||
| Granted |
-
|
$ |
|
-
|
$ |
-
|
||||||||||
| Exercised |
-
|
-
|
-
|
-
|
||||||||||||
|
Buyback of options |
(
|
) | $ |
|
(
|
) |
|
|||||||||
| Outstanding, end of period |
|
$ |
|
|
$ |
|
||||||||||
| Exercisable at the end of period |
|
$ |
|
|
$ |
|
||||||||||
During the three months ended September
30, 2021, the Company bought back a total of
The weighted average remaining contractual life of options outstanding as of September 30, 2021 and 2020 was as follows:
| 9/30/2021 | 9/30/2020 | |||||||||||||||||||||||||||||
|
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) |
|||||||||||||||||||||||
| $ |
|
|
|
|
$ |
|
|
|
|
|||||||||||||||||||||
| $ |
|
|
|
|
|
|
|
|
||||||||||||||||||||||
| $ |
|
|
|
|
$ |
|
|
|
|
|||||||||||||||||||||
| $ |
|
|
|
|
$ |
|
|
|
|
|||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||||||||
The
stock-based compensation expense recognized in the statement of operations during the three months ended September 30, 2021 and 2020,
related to the granting of these options was $
9
SUNHYDROGEN, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS – UNAUDITED
SEPTEMBER 30, 2021 AND 2020
| 4. | OPTIONS AND WARRANTS (Continued) |
WARRANTS
As of September 30, 2021, the Company
had an aggregate of
A summary of the Company’s warrant activity and related information follows for the three months ended September 30, 2021.
| 9/30/21 | ||||||||
| Weighted | ||||||||
| Number | average | |||||||
| of | exercise | |||||||
| Warrants | price | |||||||
| Outstanding, beginning of period |
|
$ |
|
|||||
| Granted |
-
|
-
|
||||||
| Exercised |
-
|
-
|
||||||
| Forfeited/Expired |
-
|
-
|
||||||
| Outstanding, end of period |
|
$ |
|
|||||
| Exercisable at the end of period |
|
$ |
|
|||||
| 9/30/2021 |
Weighted
Average Remaining |
||||||||||||
|
Exercise
Price |
Warrants
Outstanding |
Warrants
Exercisable |
Contractual
Life (years) |
||||||||||
| $ |
|
|
|
|
|||||||||
| $ |
|
|
|
|
|||||||||
| $ |
|
|
|
|
|||||||||
|
|
|
||||||||||||
At
September 30, 2021, the aggregate intrinsic value of the warrants outstanding was $
| 5. | CONVERTIBLE PROMISSORY NOTES |
As of September 30, 2021, the outstanding convertible promissory notes net of debt discount are summarized as follows:
| Convertible Promissory Notes, net of debt discount | $ |
|
||
| Less current portion |
|
|||
| Total long-term liabilities | $ |
|
Maturities of long-term debt for the next four years are as follows:
| Period Ended September | Amount | |||
| 2022 | $ |
|
||
| 2023 |
|
|||
| 2024 |
|
|||
| 2025 |
|
|||
| $ |
|
|||
10
SUNHYDROGEN, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS – UNAUDITED
SEPTEMBER 30, 2021 AND 2020
| 5. | CONVERTIBLE PROMISSORY NOTES (Continued) |
At
September 30, 2021, the $
The Company issued a
The Company issued a
The
Company issued a
11
SUNHYDROGEN, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS – UNAUDITED
SEPTEMBER 30, 2021 AND 2020
| 5. | CONVERTIBLE PROMISSORY NOTES (Continued) |
The
Company issued a
On
April 15, 2020, the Company issued a convertible promissory note (the “Apr 2020 Note”) to an investor in the aggregate principal
amount of $
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 three months ended September 30, 2021, the Company recorded
a net gain in change in derivative of $
At
September 30, 2021, the fair value of the derivative liability was $
12
SUNHYDROGEN, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS – UNAUDITED
SEPTEMBER 30, 2021 AND 2020
| 6. | DERIVATIVE LIABILITIES (Continued) |
For purpose of determining the fair market value of the derivative liability for the embedded conversion, the Company used the Binomial lattice formula. The significant assumptions used in the Binomial lattice formula of the derivatives are as follows:
| Risk free interest rate |
0
.09%
-
|
||
| Stock volatility factor |
|
||
| Weighted average expected option life |
|
||
| Expected dividend yield | None |
| 7. | MARKETABLE SECURITIES |
During the period ended September 30, 2021, the Company invested in corporate bonds, which have been recognized in the financial statements at historical cost.
The Company considers corporate bonds (“bonds”) as investments due to their ratings. The bonds are rated based on their default probability, health of the corporation’s debt structure, as well as the overall health of the economy. The bonds fall into the category as investments if they have a rating between AAA and BBB.
As of September 30, 2021, the components of the Company’s cash and short and long-term investments are summarized as follows:
| Cash | ||||
| Cash and cash equivalents | $ |
|
||
| Short term investments: | ||||
| Bonds (held-to-maturity) |
|
|||
| Long term investments: | ||||
| Bonds (held-to-maturity) |
|
|||
| Total cash and short and long-term investments | $ |
|
||
The Company has invested in bonds maturing from April 1, 2022 through August 16, 2023 that are held to maturity. The current trading prices or fair market value of the bonds vary, and we believe any decline in fair value is temporary. All bonds are current and not in default.
The following table summarizes the amortized cost of the held-to-maturity bonds at September 30, 2021, aggregated by credit quality indicator.
| Credit Quality Indicators for the Corporate Bonds | ||||
| AA/A | $ |
|
||
| BBB | $ |
|
||
| Total | $ |
|
||
The amortized cost of our corporate bonds and the related gross unrealized gains and losses, were as follows at September 30, 2021:
| Gross Unrealized | ||||||||||||||||||||||
| Level | Cost | Gains | Losses | Fair Value | ||||||||||||||||||
| Bonds | 2 |
|
-
|
(
|
) | $ |
|
|||||||||||||||
During the period ended September 30,
2021, the Company recognized interest income of $
13
SUNHYDROGEN, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS – UNAUDITED
SEPTEMBER 30, 2021 AND 2020
| 8. | COMMITMENTS AND CONTINGENCIES |
On
September 15, 2020, the Company entered into a marketing agreement. The fees are to be paid in cash and registered unrestricted stock.
As of September 30, 2021, the Company has paid a $
Effective
September 1, 2021,
Effective
October 1, 2021, the Company entered into a research agreement with the University of Michigan.
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.
| 9. | RELATED PARTY |
As
of June 30, 2021, the Company reported an accrual associated with the CEO’s prior years’ salary in the amount of $
During the three months ended September
30, 2021, the Company redeemed
| 10. | SUBSEQUENT EVENTS |
Management evaluated subsequent events as of the date of the financial statements pursuant to ASC TOPIC 855, and there are no events to report.
14
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Cautionary Statement Regarding Forward-Looking Statements
The information in this report may contain forward-looking statements. These forward-looking statements involve risks and uncertainties, including statements regarding our capital needs, business strategy and expectations. Any statements that are not of historical fact may be deemed to be forward-looking statements. These forward-looking statements involve substantial risks and uncertainties. In some cases you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or “continue”, the negative of the terms or other comparable terminology. Actual events or results may differ materially from the anticipated results or other expectations expressed in the forward-looking statements. In evaluating these statements, you should consider various factors, including the risks included from time to time in our reports filed with the Securities and Exchange Commission, or the SEC. These factors may cause our actual results to differ materially from any forward-looking statements. We disclaim any obligation to publicly update these statements, or disclose any difference between actual results and those reflected in these statements, except as may be required under applicable law.
Unless the context otherwise requires, references in this Form 10-Q to “we,” “us,” “our,” or the “Company” refer to SunHydrogen, Inc.
Overview
At SunHydrogen, our goal is to replace fossil fuels with clean, renewable hydrogen.
Hydrogen is the most abundant chemical element in the universe. When hydrogen fuel is used to power transportation and industry, the only byproduct left behind is pure water, unlike hydrocarbon fuels such as oil, coal and natural gas that release carbon dioxide and other contaminants into the atmosphere when used. However, naturally occurring elemental hydrogen is rare – so rare, in fact, that today over 95% of hydrogen still comes from methane, a fossil fuel (Source: Forbes, Estimating the Carbon Footprint of Hydrogen Production ). This hydrogen is procured through steam methane reforming (SMR), a capital-intensive process that emits carbon dioxide and other harmful pollutants.
We believe the SunHydrogen solution potentially offers an efficient and cost-effective way to produce truly green hydrogen using sunlight and any source of water. Our core technology is a self-contained, nanoparticle-based hydrogen generator that mimics photosynthesis to split water molecules, resulting in hydrogen. By optimizing the science of water electrolysis at the nano-level, we believe we have developed a low-cost method to potentially produce environmentally friendly renewable hydrogen.
We believe renewable hydrogen is the fuel of the future, and we believe our technology potentially offers solutions to the challenges that the hydrogen future presents, including cost of production and transportation.
Because our process only requires sunlight and water, our technology can be installed near the point of hydrogen use. This eliminates the need for pipelines and trucks that result in high carbon emissions and high capital investment. With a target cost of $2.50/kg., we aspire for our technology to be cost-competitive with brown hydrogen and below the cost of clean hydrogen competitors. We believe our solution has the potential to clear a path for green hydrogen to compete with natural gas hydrogen and gain mass market acceptance as a true replacement for fossil fuels.
Our technology is primarily developed at the University of Iowa, through a sponsored research agreement. A longtime development partner to SunHydrogen, The University of Iowa research team has worked over the past several years to both lead and optimize the scale-up of our nanoparticle technology.
In 2021, we made strides toward the commercialization of our nanoparticle technology and entered agreements with two new technology development partners; InRedox in Longmont, Colorado and SCHMID Group in Freudenstadt, Germany.
Under our agreement with InRedox, they support the design and production of essential materials for our nanoparticle technology.
Concurrently, SCHMID has worked to develop the process and equipment to manufacture and scale up our nanoparticle technology.
15
We will continue working diligently with our existing technology partners to drive our technology to commercialization while we simultaneously prepare for mass production and seek out potential manufacturing partners for production facility, equipment design and engineering.
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 valuation option 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 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.
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 September 30, 2021, the amounts reported for cash, accrued interest and other expenses, notes payables, 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.
Recently Issued Accounting Pronouncements
Management reviewed currently issued pronouncements during the three months ended September 30, 2021, and does not believe that any recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying condensed financial statements. Pronouncements are disclosed in notes to the financial statements.
Results of Operations for the Three Months Ended September 30, 2021 compared to Three Months Ended September 30, 2020.
Operating Expenses
Operating expenses for the three months ended September 30, 2021 were $599,766 compared to $578,486 for the prior period ended September 30, 2020. The net increase of $21,278 in operating expenses consisted primarily due an increase in office salary of $108,333, an increase in research and development of $13,102, and a decrease in stock compensation of $112,035, with an offset by $11,878 in other expenses.
16
Other Income/(Expenses)
Other income and (expenses) for the three months ended September 30, 2021 were $49,224,609 compared to $(1,627,774) for the prior period ended September 30, 2020. The increase in other income of $50,852,383 was the result of the non-cash loss in net change in derivative of $50,732,210, a decrease in interest expense of $103,151, which includes the net change in amortization of debt discount of $85,599, with an increase in other income of $17,022.
Net Income/(Loss)
For the three months ended September 30, 2021, our net income was $48,624,844, as compared to a net loss of $(2,206,260) for the prior period ended September 30, 2020. The majority of the increase in net income of $50,831,104, was related primarily to the increase in net change of derivative instruments estimated each period. 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 September 30, 2021, we had a working capital deficit of $38,558,325, compared to a working capital deficit of $80,099,103 as of June 30, 2021. This decrease in working capital deficit of $41,540,778 was primarily due to an increase in gain on change in derivative liability.
Cash used in operating activities was $(669,326) for the three months ended September 30, 2021 compared to $(444,366) for the prior period ended September 30, 2020. The increase in cash used in operating activities was due to an increase in office salaries, and a decrease in accounts payable. The Company has had no revenues.
Cash used in investing activities during the three months ended September 30, 2021 and 2020 was $(8,393,442) and $(50,000), respectively. The increase in investing activities was due to the purchase of marketable securities.
Cash used in financing activities was $(1,450,000) for the three months ended September 30, 2021 compared to $800,000 provided by the prior period ended September 30, 2020. The increase in cash used in financing activities was a result of the redemption of stock options. Our ability to continue as a going concern is dependent upon raising capital through financing transactions and future revenue.
We have historically obtained funding from investors, through private placements and registered offerings of equity and debt securities. Management believes that the Company 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 on terms and conditions that are acceptable to us, or at all. If we are unable to obtain sufficient funds, we may be forced to curtail and/or cease our operation.
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.
17
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not required for smaller reporting companies.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act 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 chief executive officer and chief financial officer, or person performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There was no change to our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
We are not currently a party to, nor is any of our property currently the subject of, any material legal proceeding.
Item 1A. Risk Factors.
There are no material changes from the risk factors previously disclosed in our annual report on Form 10-K filed with the SEC on October 8, 2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
During the three months ended September 30, 2021, the Company issued 180,480,692 shares of common stock upon conversion of principal in the amount of $120,400, plus accrued interest of $51,067.
In connection with the foregoing, the Company relied upon an exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended, for transactions not involving a public offering.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
19
Item 6. Exhibits.
| Exhibit No. | Description | |
| 31.1* | Certification by Chief Executive Officer and Acting Chief Financial Officer pursuant to Sarbanes-Oxley Section 302* | |
| 32.1** | Certification by Chief Executive Officer and Acting Chief Financial Officer pursuant to 18 U.S.C. Section 1350** | |
| 101* | Inline XBRL Document Set for the consolidated financial statements and accompanying notes in Part I, Item 1, of this Quarterly Report on Form 10-Q. | |
| 104* | Inline XBRL for the cover page of this Quarterly Report on Form 10-Q, included in the Exhibit 101 Inline XBRL Document Set. |
| * | Filed herewith |
| ** | Furnished herewith |
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| November 15, 2021 | SUNHYDROGEN, INC. | |
| By: | /s/ Timothy Young | |
|
Timothy Young
Chief
Executive Officer and
(Principal
Executive Officer,
|
||
21
No information found
* THE VALUE IS THE MARKET VALUE AS OF THE LAST DAY OF THE QUARTER FOR WHICH THE 13F WAS FILED.
| FUND | NUMBER OF SHARES | VALUE ($) | PUT OR CALL |
|---|
| DIRECTORS | AGE | BIO | OTHER DIRECTOR MEMBERSHIPS |
|---|
No information found
No Customers Found
No Suppliers Found
Price
Yield
| Owner | Position | Direct Shares | Indirect Shares |
|---|