10-Q 1 f10q1223_sunhydrogen.htm QUARTERLY REPORT

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended December 31, 2023

 

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE TRANSITION PERIOD FROM __________ TO __________

 

COMMISSION FILE NUMBER: 000-54437

  

SUNHYDROGEN, INC.

(Name of registrant in its charter)

 

Nevada   26-4298300

(State or other jurisdiction of

incorporation or organization)

  (I.R.S. Employer
Identification No.)

 

  BioVentures Center, 2500 Crosspark Road, Coralville, IA 52241  
  (Address of principal executive offices) (Zip Code)  

 

Issuer’s telephone Number: (805) 966-6566

 

Former address, if changed since last report

 

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. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or 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
  Non-accelerated filer Smaller reporting company
      Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards 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 February 12, 2024 was 5,128,745,974.

 

 

 

 

 

 

SUNHYDROGEN, INC.

 

INDEX

 

  Page
PART I: FINANCIAL INFORMATION 1
Item 1: Financial Statements 1
  Condensed Balance Sheets 1
  Condensed Statements of Operations 2
  Condensed Statements of Shareholders’ Equity 3
  Condensed Statements of Cash Flows 4
  Notes to the Condensed Financial Statements 5
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations 17
Item 3: Quantitative and Qualitative Disclosures About Market Risk 20
Item 4: Controls and Procedures 20
     
PART II: OTHER INFORMATION 21
Item 1 Legal Proceedings 21
Item 1A: Risk Factors 21
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds 21
Item 3: Defaults Upon Senior Securities 21
Item 4: Mine Safety Disclosures 21
Item 5: Other Information 21
Item 6: Exhibits 21
     
Signatures 22

 

i

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

SUNHYDROGEN, INC.

CONDENSED BALANCE SHEETS

 

   December 31,
2023
   June 30,
2023
 
   (Unaudited)     
ASSETS        
CURRENT ASSETS        
Cash and cash equivalent  $34,721,654   $37,185,989 
Certificate of deposit   5,061,200   $- 
Marketable securities at cost   -    3,188,040 
Short term investment at fair value, related party   5,716,766    7,655,601 
           
TOTAL CURRENT ASSETS   45,499,620    48,029,630 
           
OTHER ASSETS          
           
INVESTMENT          
Convertible notes receivable, related party   3,000,000    3,000,000 
           
TOTAL INVESTMENTS   3,000,000    3,000,000 
           
PROPERTY & EQUIPMENT          
Machinery and equipment   33,814    33,814 
Computers and peripherals   11,529    11,529 
Vehicle   155,000    155,000 
    200,343    200,343 
Less: accumulated depreciation   (101,879)   (83,468)
           
NET PROPERTY AND EQUIPMENT   98,464    116,875 
           
INTANGIBLE ASSETS          
Domain, net of amortization of $0 and $5,315, respectively   -    29 
Trademark, net of amortization of $772 and $714, respectively   371    428 
Patents, net of amortization of $39,627  and $36,344, respectively   61,516    64,799 
           
TOTAL INTANGIBLE ASSETS   61,887    65,256 
           
TOTAL OTHER ASSETS   3,160,351    3,182,131 
           
TOTAL ASSETS  $48,659,971   $51,211,761 
           
LIABILITIES, PREFERRED STOCK SUBJECT TO REDEMPTION AND SHAREHOLDERS’ DEFICIT          
           
CURRENT LIABILITIES          
Accounts payable and other payables  $469,285   $232,893 
Accrued expenses   59,685    628 
Loan payable, related party   81,920    106,728 
           
TOTAL CURRENT LIABILITIES   610,890    340,249 
           
LONG TERM LIABILITIES          
Loan payable, related party   9,206    36,731 
           
TOTAL LONG TERM LIABILITIES   9,206    36,731 
           
TOTAL LIABILITIES   620,096    376,980 
           
COMMIMENTS AND CONTINGENCIES (SEE NOTE 9)   
 
    
 
 
           
Series C 10% Preferred Stock, 8,851 and 10,951 shares issued and outstanding, redeemable value of $885,100 and $1,095,100, respectively   885,100    1,095,100 
           
SHAREHOLDERS’ EQUITY          
Preferred Stock, $0.001 par value; 5,000,000 authorized preferred shares outstanding   -    - 
Common Stock, $0.001 par value; 10,000,000,000 authorized common shares 5,092,814,633 and 4,821,298,283 shares issued and outstanding, respectively   5,092,815    4,821,298 
Additional Paid in Capital   127,509,819    126,889,423 
Accumulated deficit   (85,447,859)   (81,971,040)
           
TOTAL SHAREHOLDERS’ EQUITY   47,154,775    49,739,681 
           
TOTAL LIABILITIES, PREFERRED STOCK SUBJECT TO REDEEMPTION AND SHAREHOLDERS’ EQUITY  $48,659,971   $51,211,761 

 

The accompanying notes are an integral part of these condensed unaudited financial statements

 

1

 

 

SUNHYDROGEN, INC.

CONDENSED STATEMENTS OF OPERATIONS

FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2023 AND 2022

(Unaudited)

 

   THREE MONTHS ENDED   SIX MONTHS ENDED 
   December 31,
2023
   December 31,
2022
   December 31,
2023
   December 31,
2022
 
REVENUE  $-   $-   $-   $- 
                     
OPERATING EXPENSES                    
Selling and Marketing   -    -    44,000    87,745 
General and administrative expenses   497,844    3,276,042    1,002,505    3,511,149 
Research and development cost   756,263    1,774,790    1,195,327    2,080,320 
Depreciation and amortization   10,775    11,119    21,780    21,440 
                     
TOTAL OPERATING EXPENSES   1,264,882    5,061,951    2,263,612    5,700,654 
                     
LOSS FROM OPERATIONS BEFORE  OTHER INCOME (EXPENSES)   (1,264,882)   (5,061,951)   (2,263,612)   (5,700,654)
                     
OTHER INCOME/(EXPENSES)                    
Investment  income   484,984    161,834    960,593    397,727 
Dividend expense   (22,591)   (6,750)   (43,520)   (13,500)
Unrealized Gain(loss) on investments, related party   (2,224,504)   8,120,635    (1,938,835)   8,120,635 
Realized Gain(Loss) on redemption of marketable securities   -    -    (188,040)   - 
Gain (Loss) on change in derivative liability   -    1,405,874         941,837 
Interest expense   (1,714)   (21,696)   (3,405)   (45,050)
                     
TOTAL OTHER INCOME (EXPENSES)   (1,763,825)   9,659,897    (1,213,207)   9,401,649 
                     
NET INCOME (LOSS)  $(3,028,707)  $4,597,946   $(3,476,819)  $3,700,995 
                     
BASIC EARNINGS (LOSS) PER SHARE  $(0.00)  $0.00   $(0.00)  $0.00 
                     
DILUTED EARINGINS (LOSS) PER SHARE  $(0.00)  $0.00   $(0.00)  $0.00 
                     
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING                    
BASIC   5,069,670,749    4,382,210,756    4,965,620,378    4,327,586,883 
                     
DILUTED   5,069,670,749    5,385,011,715    4,965,620,378    5,330,387,842 

 

The accompanying notes are an integral part of these condensed unaudited financial statements

 

2

 

 

SUNHYDROGEN, INC.

CONDENSED STATEMENTS OF SHAREHOLDERS’ EQUITY/(DEFICIT)

FOR THE SIX MONTHS ENDED DECEMBER 31, 2023

 

   SIX MONTHS ENDED DECEMBER 31, 2022 
                       Additional         
   Preferred stock       Common stock   Paid-in   Accumulated     
   Shares   Amount   Mezzanine   Shares   Amount   Capital   Deficit   Total 
Balance at June 30, 2022   
      -
   $
      -
   $270,000    4,271,749,146   $4,271,749   $103,311,733   $(83,842,968)  $23,740,514 
                                         
Net Loss   -    
-
    
-
    -    
-
    
-
    (896,949)   (896,949)
                                         
Balance at September 30, 2022 (unaudited)   
-
    
-
    270,000    4,271,749,146    4,271,749    103,311,733    (84,739,917)   22,843,565 
                                         
Issuance of common stock upon partial conversion of purchase agreement for cash   -    
-
    
-
    56,314,806    56,315    1,361,785    
-
    1,418,100 
                                         
Issuance of common stock for conversion of debt and accrued interest   -    
-
    
-
    120,000,000    120,000    (6,000)   
-
    114,000 
                                         
Issuance of common stock for the conversion of stock options   -    
-
    
-
    1,933,852    1,934    30,941    
-
    32,875 
                                         
Stock compensation for conversion of restricted stock awards   -    
-
    
-
    -    
-
    2,365,200    
-
    2,365,200 
                              .            
Net Loss   -    
-
    
-
    -    
-
    
-
    4,597,946    4,597,946 
                                         
Balance at December 31, 2022 (unaudited)   
-
    
-
    270,000    4,449,997,804    4,449,998    107,063,659    (80,141,973)   31,371,684 

 

   SIX MONTHS ENDED DECEMBER 31, 2023 
                       Additional         
   Preferred stock       Common stock   Paid-in   Accumulated     
   Shares   Amount   Mezzanine   Shares   Amount   Capital   Deficit   Total 
Balance at June 30, 2023   
      -
   $
      -
   $1,095,100    4,821,298,283   $4,821,298   $126,889,423   $(81,971,040)  $49,739,681 
                                         
Issuance of common stock upon partial conversion of purchase agreement for cash   -    
-
    
-
    18,684,057    18,684    225,291    
-
    243,975 
                                         
Issuance of common stock upon conversion of Series C Preferred stock   -    
-
    (210,000)   221,052,632    221,053    (11,053)   
-
    210,000 
                                         
Stock compensation expense   -    
-
    
-
    -    
-
    72,481    
-
    72,481 
                                         
Net Loss   -    
-
    
-
    -    
-
    
-
    (448,112)   (448,112)
                                         
Balance at September 30, 2023 (unaudited)   
-
    
-
    885,100    5,061,034,972    5,061,035    127,176,142    (82,419,152)   49,818,025 
                                         
Issuance of common stock upon partial conversion of purchase agreement for cash   -    
-
    
-
    31,779,661    31,780    261,195    
-
    292,975 
                                         
Stock compensation expense   -    
-
    
-
    -    
-
    72,482    
-
    72,482 
                                         
Net Loss   -    
-
    
-
    -    
-
    
-
    (3,028,707)   (3,028,707)
                                         
Balance at December 31, 2023 (unaudited)   
-
   $
-
    885,100    5,092,814,633    5,092,815    127,509,819    (85,447,859)   47,154,775 

 

The accompanying notes are an integral part of these condensed unaudited financial statements

 

3

 

 

SUNHYDROGEN, INC.

CONDENSED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2023

(Unaudited)

 

   Six Months Ended 
   December 31,
2023
   December 31,
2022
 
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net Loss   (3,476,819)   3,700,995 
Adjustment to reconcile net income (loss) to net cash (used in) provided by operating activities          
Depreciation & amortization expense   21,780    21,440 
Conversion of stock options for services   -    32,875 
Stock based compensation expense for services   144,963    2,365,200 
Loss on redemption of marketable securities   188,040    - 
Net (Gain) Loss on change in derivative liability   -    (941,837)
Unrealized gain on change in fair value of investment, related party   1,938,835    (8,120,635)
Change in assets and liabilities :          
Prepaid expense   -    2,525 
Interest receivable on certificate of deposit   (61,200)   - 
Accounts payable   236,392    191,420 
Accrued expenses   59,057    (2,273)
Accrued interest on convertible notes   -    43,361 
           
NET CASH USED IN OPERATING ACTIVITIES   (948,952)   (2,706,929)
           
CASH FLOWS FROM INVESTING ACTIVITIES          
Marketable securities purchased   (168,733,113)   (1,771,617)
Marketable securities redeemed   164,145,423    5,250,317 
Purchase of certificate of deposit   (5,000,000)   - 
Purchase of marketable securities unsettled   4,587,690    - 
Purchase of investment, related party   -    (7,000,000)
Purchase of long term convertible note, related party   -    (3,000,000)
Redemption of short term investments in corporate securities   3,000,000    - 
Purchase of tangible assets   -    (33,814)
           
NET USED IN INVESTING ACTIVITIES:   (2,000,000)   (6,555,114)
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Repayment of related party note payable   (52,333)   (16,891)
Net proceeds from  purchase agreements   536,950    1,418,100 
           
NET CASH PROVIDED BY FINANCING ACTIVITIES   484,617    1,401,209 
           
NET INCREASE (DECREASE)  IN CASH   (2,464,335)   (7,860,834)
           
CASH, BEGINNING OF PERIOD   37,185,989    27,681,485 
           
CASH, END OF PERIOD   34,721,654    19,820,651 
           
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION          
Interest paid  $3,406   $1,688 
Taxes paid   
 
   $- 
           
SUPPLEMENTAL DISCLOSURES OF NON CASH TRANSACTIONS          
Conversion of Series C preferred shares to common shares  $210,000   $- 
Fair value of common stock upon conversion of convertible notes, and accrued interest  $-   $114,000 
Fair value of stock options issued through a cashless exercise  $-   $32,875 
Reclassification of related party accrued salary to loan payable  $-   $211,750 

 

The accompanying notes are an integral part of these condensed unaudited financial statements

 

4

 

 

SUNHYDROGEN, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS –UNAUDITED

DECEMBER 31, 2023 AND 2022

 

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 six months ended December 31, 2023 are not necessarily indicative of the results that may be expected for the year ended June 30, 2024. 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, 2023.

 

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, 2023, the cash balance in excess of the FDIC limits was $28,039,776. 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

 

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.

 

5

 

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

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 $18,411 and $17,923 for the six months ended December 31, 2023 and 2022, respectively. 

 

Intangible Assets

 

The Company has patent applications to protect the inventions and processes behind its proprietary bio-based back-sheet, a protective covering for the back of photovoltaic solar modules traditionally made from petroleum-based film. Intangible assets that have finite useful lives continue to be amortized over their useful lives.

 

   Useful Lives  12/31/2023   6/30/2023 
            
Domain-gross  15 years  $5,315   $5,315 
Less accumulated amortization      (5,315)   (5,286)
Domain-net     $-   $29 
              
Trademark-gross  10 years  $1,143   $1,143 
Less accumulated amortization      (772)   (714)
Domain-net     $371   $428 
              
Patents-gross  15 years  $101,143   $101,143 
Less accumulated amortization      (39,627)   (36,344)
Patents-net     $61,516   $64,799 

 

The Company recognized amortization expense of $3,369 and $3,517 for the six months ended December 31, 2023 and the year ended June 30, 2023, 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 six months ended December 31, 2023. 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). 

 

Six months ended December 31, 2023

 

The Company calculated the dilutive impact of 218,394,499 outstanding stock options, 86,495,239 common stock purchase warrant, and 8,851 shares of Series C Preferred shares, which are convertible into shares of common stock. Stock options, common stock purchase warrants, Series C Preferred shares were not included, in the calculation of net earnings per share, because their impact on income per share is antidilutive.

 

6

 

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Six months ended December 31, 2022

 

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 $948,623, which is convertible into shares of common stock. The common stock purchase warrants, stock options, and convertible debt and accrued interest, were not included in the calculation of net earnings per share, because their impact on income per share is antidilutive.

 

   Six Months Ended 
   December 31, 
   2023   2022 
         
Income (Loss) to common shareholders (Numerator)  $(3,471,000)  $(3,700,995)
           
Basic weighted average number of common shares outstanding (Denominator)   4,965,620,378    4,327,586,883 
           
Diluted weighted average number of common shares outstanding (Denominator)   4,965,620,378    5,330,387,842 

 

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. During the year ended June 30, 2023, the Company granted restricted stock in the amount of 120,600,000 shares of which 110,600,000 vested in the period. Ten Million shares will vest on January 1, 2024. As of December 31, 2023, there were 279,400,000 in the reserve. As of July 1, 2023, the plan increased to 723,194,742 shares.

 

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. As of September 2020, the Company issued 124,304,650 shares of common stock for consulting services. The Company granted options to purchase 170,000,000 shares of common stock options on January 23, 2019. On July 29, 2022, the Company granted restricted stock awards of 21,500,000 shares to an employee for services, which vested on March 30, 2023. On June 1, 2023, the Company granted 9,000,000 non-statutory stock options to employees for services, which one-third (1/3) vested immediately, and the remainder shall vest one-twenty fourth (1/24) per month from months thirteen (13) through thirty-six (36) after the date of this option. As of June 30, 2023, the Company had redemptions of 38,034,089 shares of stock, which were added back to the total reserve.

 

As of December 31, 2023, under the 2019 Equity Incentive Plan, there were 286,770,561 stock options and shares issued, and a reserve of 13,229,439.

 

7

 

 

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 December 31, 2023, 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.

 

8

 

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

We measure certain financial instruments at fair value on a recurring basis. Assets and liabilities measured at fair value on a recurring basis are as follows (See Note 6):

 

   Total   (Level 1)   (Level 2)   (Level 3) 
Assets:                
Cash and cash equivalents at December 31, 2023  $34,721,654   $34,721,654   $-   $- 
Certificate of Deposits   5,061,200    
 
    5,061,200    
 
 
Marketable securities measured at fair value December 31, 2023  $5,716,766   $-   $5,716,766   $- 
   $45,499,620   $34,721,654   $10,777,966   $- 
                     
Cash and cash equivalents at December 31, 2022  $22,130,447   $1,580,712   $20,549,735   $- 
Marketable securities measured at fair value December 31, 2022  $15,120,635   $-   $15,120,635   $- 
   $37,251,082   $1,580,712   $35,670,370   $- 
                     
Liabilities:                    
Derivative liabilities measured at fair value December 31, 2023  $-   $-   $-   $- 
Derivative liabilities measured at fair value September 30, 2022  $25,073,232   $-   $-   $25,073,232 

 

As of December 31, 2023, the Company had no derivative liabilities for which Level 3 inputs were reported.

 

The following is a reconciliation of the derivative liability for which Level 3 inputs were used in determining the approximate fair value for the period ended September 30, 2022:

 

Balance as of June 30, 2022  $26,015,069 
Loss on change in derivative liability   (941,837)
Balance as of December 31, 2022  $25,073,232 

 

As of December 31, 2023, the derivative liability balance was $0.

 

Research and Development

 

Research and development costs are expensed as incurred.  Total research and development costs were $1,195,327 and $2,080,320 for the six months ended December 31, 2023 and 2022, respectively.

 

Accounting for Derivatives

 

The Company evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments, the Company uses a probability weighted average series Binomial lattice formula pricing models to value the derivative instruments at inception and on subsequent valuation dates.

 

The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

 

Recently Issued Accounting Pronouncements

 

Management does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying unaudited financial statements as of December 31, 2023.

 

9

 

 

3.CAPITAL STOCK

 

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.

 

On December 15, 2021, the Company entered into a securities purchase agreement 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. On April 15, 2023, the Company entered into another securities purchase agreement with the investor to exchange the remaining notes with principal $550,000, plus accrued interest of $126,455, representing a total aggregate note balance of $676,455, and a loss on settlement of debt of $45. Pursuant to the purchase agreement, the Company sold 6,765 shares of the Company’s designated Series C Preferred Stock to the investor, for a total purchase price of $676,455. The investor tendered the Note to the Company for cancellation and agreed to forgo all future accrued interest under the Note, as the total purchase price for the shares. As of December 31, 2023, the Company had a total of 9,465 shares of Series C Preferred Stock outstanding with a fair value of $946,500, 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 per share. During the six months ended December 31, 2023, the investor converted 2,100 preferred shares with a face value of 210,000, at a conversion price of $0.00095. The preferred shares were converted into 221,052,632. As of December 31, 2023, 7,365 shares remain outstanding.

 

10

 

 

3.CAPITAL STOCK (Continued)

 

On June 19, 2023, the Company entered into a securities purchase agreement with an accredited investor for an exchange of convertible debt to equity. Under the purchase agreement, the Company and investor acknowledged there was an aggregate of $100,000 of principal outstanding under the Note issued to the investor by the Company on August 10, 2018, plus $48,603 of accrued interest, representing a total aggregate note balance of $148,603. Pursuant to the Purchase Agreement, the Company issued and sold to the investor 1,486 shares of the Company’s Series C Preferred Stock for a total purchase price of $148,603, and a gain on settlement of debt of $3. The investor tendered the Note to the Company for cancellation and agreed to forego all future accrued interest under the Note, as the total purchase price for the shares.

 

As of December 31, 2023, the Company had a total of 8,841 shares of Series C Preferred Stock outstanding with a fair value of $885,100, and a stated face value of one hundred dollars ($100) (“share value’) per share, convertible into shares of common stock of the Company. 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 per share.

 

During the fiscal year ended June 30, 2023, the Company entered into a purchase agreement with investors for an exchange of convertible debt into equity. The investors exchanged convertible notes in the amount of $837,800, plus interest in the amount of $255,423, and an aggregate loss of $1,877 for an aggregate total of $1,095,100 in exchange for 10,951 shares of the Company’s Series C Preferred Stock. The extinguishment of the convertible debt and derivative was recognized in the Company’s financial statement as a loss on settlement of convertible notes and derivative liability in the amount of $664,627. A valuation was prepared based on a stock price of $0.020 as of April 15, 2023 and $0.0185 as of June 19, 2023, with a volatility of 96.6%, as of April 15, 2023 and 82.9% as of June 19, 2023 based on an estimated term of 5 years.

 

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.

 

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. Shareholder approval for such actions became effective 20 days after the definitive information statement relating to such actions was mailed to shareholders.

 

Six months ended December 31, 2023

 

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 six months ended December 31, 2023, the Company issued 191,813,350 shares of common stock for $3,298,514 under a purchase agreement at prices of $0.00944 - $0.02608, pursuant to the purchase notices received from the investor. The finance cost of $79,100 was deducted from the gross proceeds converted.

 

11

 

 

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.

 

4.OPTIONS AND WARRANTS

 

RESTRICED STOCK AWARDS

 

On July 29, 2022, the Board of Directors determined that in the best interest of the Company and the Shareholders to grant an employee a restricted stock award in consideration of services to be rendered to the Company. The Board granted 21,500,000 shares of restricted stock awards, which vested on March 30, 2023. Under the 2019 Equity Incentive Plan, an employee was granted 21,500,000 restricted stock awards at a price of $0.025 per share for services, which vested on March 30, 2023.

 

On November 8, 2022 and December 20, 2022, the Board of Directors determined that in the best interest of the Company and the Shareholders, to grant certain employees, a director and a consultant restricted stock awards in consideration of services to be rendered to the Company. The Board granted 33,000,000 shares of restricted stock awards, whereby, 23,000,000 shares vested on January 1, 2023 and 10,000,000 shares will vest on January 1, 2024. Under the 2022 Equity Incentive Plan, an employee, a director and consultant were granted 33,000,000 restricted stock awards at a price of $0.025 per share for services, whereby 23,000,000 shares vested on January 1, 2023 and 10,000,000 will vest on January 1, 2024.

 

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. As of June 30, 2023, the 10,000,000 options were fully exercised.

 

A summary of the Company’s stock option activity and related information follows:

 

   12/31/2023   12/31/2022 
       Weighted       Weighted 
   Number   average   Number   average 
   Of   exercise   Of   exercise 
   Options   price   Options   price 
Outstanding, beginning of period   163,894,499   $0.0095    157,965,711   $0.0089 
Granted   -         -    - 
Exercised   -         3,071,212    - 
Redemption of options   -    -    -    - 
Outstanding, end of period   163,894,499   $0.096    154,894,499   $0.0096 
Exercisable at the end of period   159,394,499   $0.096    154,894,499   $0.0096 

 

12

 

 

4.OPTIONS AND WARRANTS (Continued)

 

Six months ended December 31, 2023

 

During the six months ended December 31, 2023, there were no stock options granted.

 

Under the 2019 Equity Incentive Plan, employees were granted 9,000,000 shares of options at a price per share of $0.016, which vest on June 1, 2026. The Company recorded stock compensation expense of $19,963, which was reported in the financial statements.

 

Six months ended December 31, 2022

 

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 on January 1, 2023 and 20,000,000 shares will vest January 1, 2024.

 

The weighted average remaining contractual life of options outstanding as of December 31, 2023 and 2022 was as follows: 

 

12/31/2023   12/31/2022 
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)
 
$0.016    9,000,000    4,500,000    2.42   $-    -    -    - 
$0.0097    6,000,000    6,000,000    2.09   $0.0097    6,000,000    6,000,000    3.09 
$0.0099    138,894,499    138,894,499    2.07   $0.0099    138,894,499    138,894,499    3.07 
$0.0060    10,000,000    10,000,000    2.56   $0.0060    10,000,000    10,000,000    3.56 
      163,894,499    159,394,499              154,894,499    154,894,499      

 

WARRANTS

 

During the six months ended December 31, 2023, 8,400,000 common stock purchase warrants expired leaving an aggregate of 78,095,239 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 liability calculated on all warrants outstanding as of the six months ended December 31, 2023, was removed with the exchange of the convertible notes and accrued interest for preferred shares. (See Note 6). The warrants can be exercised over a period of three (3) years.

 

A summary of the Company’s warrant activity and related information follows for the six months ended December 31, 2023

 

   12/31/2023 
       Weighted 
       average 
   Number   exercise 
   of Warrants   price 
Outstanding, beginning of period   86,495,239   $0.12 
Granted   -    - 
Exercised   -    - 
Forfeited/Expired   8,400,000   $0.0938 
Outstanding, end of period   78,095,239   $0.12 
Exercisable at the end of period   78,095,239   $0.12 

 

13

 

 

4.OPTIONS AND WARRANTS (Continued)

 

12/31/23   Weighted Average 
Exercise
Price
   Warrants
Outstanding
   Warrants
Exercisable
   Remaining Contractual
Life (years)
 
$0.13125    6,666,667    6,666,667    2.15 
$0.12    71,428,572    71,428,572    2.17 
      78,095,239    78,095,239      

 

At December 31, 2023, the aggregate intrinsic value of the warrants outstanding was $0.

 

5.CASH, CASH EQUIVALENTS, MARKETABLE SECURITIES, AND EQUITY INVESTMENT, RELATED PARTY

 

As of December 31, 2023, the Company invested in marketable securities, which have been recognized in the financial statements at cost. The related party, short-term investment is recognized in the financial statements at fair value.

   

As of December 31, 2023, the components of the Company’s cash, cash equivalents, and short -term investments are summarized as follows:

 

   Adjusted
Cost
   Unrealized
Gains
   Unrealized
Losses
   Fair Value   Cash and
Cash
Equivalents
   Short-Term
Marketable
Securities
 
Cash  $6,907,993   $-   $-   $-   $6,907,993    - 
                               
Subtotal   6,907,993    -    -    -    6,907,993    - 
                               
Level 1                              
U.S. Treasury bills and Obligations   27,813,661    -    -    -    27,813,661    - 
Subtotal   27,813,661                 -    -    -    27,813,661    - 
                               
Level 2                              
Certificate of Deposits   5,061,200    -    -    -    -    5,061,200 
Teco Investment, related party   7,000,000         (1,283,234)   5,716,766    -    5,716,766 
                               
Subtotal   12,061,200    -    (1,283,234)   5,716,766    -    10,777,966 
                               
Total  $46,782,854   $-   $(1,283,234)  $5,716,766   $34,721,654   $10,777,966 

 

The Company has invested in marketable securities, which mature within ninety days from date of purchase, and 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.

 

During the six months ended December 31, 2023, the Company recognized interest income pertaining to the investments of $723,796 in the financial statements, which is recorded as part of investment income in the statement of operations.

 

14

 

 

5.CASH, CASH EQUIVALENTS, MARKETABLE SECURITIES, AND EQUITY INVESTMENT, RELATED PARTY  (Continued)

 

The Company over the past year has considered many companies in the hydrogen space for strategic investments, and believed that TECO 2030 ASA (TECO)’s fuel cell technology, designed with their development partner AVL, has shown incredible potential to become a key player in the fuel cell market. On November 11, 2022, the Company entered into a subscription agreement with 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. The stocks purchased are adjusted to fair value based on unrealized gain or loss at the end of each period. The Company has reported TECO as a related party, due to having an 8.3% interest as a shareholder.

 

6.EQUITY INVESTMENT IN SECURITIES -RELATED PARTY AND BOND RECEIVABLE -RELATED PARTY

 

The Company purchased a bond receivable of TECO for a subscription amount of $3 million in USD. The issuance of the bond 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 bond receivable matures 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. For the six months ended December 31, 2023, the Company recognized interest income of $114,652 in the financial statements. All interest income has been paid timely each quarter.

 

The CEO of the Company is a director of TECO, however it is the percentage of ownership of TECO’s common stock that makes this a related party relationship.

 

   Cost Basis  

Unrealized
Gain
6/30/2023

  

Unrealized
Loss
12/31/2023

   Fair Value
12/31/2023
 
Short term equity investments at fair value, related party  $7,000,000   $655,601   $(1,938,835)  $5,716,766 

 

During the six months ended December 31, 2023, the Company recognized an unrealized loss of $(1,938,835) in the financial statements.

 

7.SHORT TERM INVESTMENTS

 

On September 12, 2023, the Company invested in a $5,000,0000 certificate of deposit (CD), which matures on March 12, 2024. CDs should be reported as part of cash and cash equivalents at cost plus accrued interest if less than 90 days from the purchase date, and on its own line in the financial statements if the purchase is greater than 90 days. The CD has been classified as a short term investment due to the length of time to maturity at acquisition and is measured using Level 2. The Company recognized interest income of $61,200 in the financial statements as of December 31, 2023.

 

15

 

 

8.COMMITMENTS AND CONTINGENCIES

 

Effective October 1, 2022, the Company extended its research agreement with the University of Iowa through December 31, 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. As of December 31, 2023, there remains a balance of $85,996 per the agreement.

 

Effective October 1, 2022, the Company extended its research agreement with the University of Michigan through December 31, 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. As of December 31, 2023, there remains a balance of $149,098 per the agreement.

 

The Company rented lab space with the University of Iowa as of February 2022. The monthly rent was $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. On July 1, 2022, the Company increased the space needed for its’ lab work for a monthly rental of $5,468 per month. 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 financial position or results of operation.

 

9.RELATED PARTY

 

As of December 31, 2023, 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, 2023, the principal balance remaining on the loan was $91,126, and interest paid during the six months ended December 31, 2023 was $3,406.

 

Under the 2022 Equity Incentive Plan, an employee, a director and consultant were granted 33,000,000 restricted stock awards at a price of $0.025 per share for services, whereby 23,000,000 shares vested on January 1, 2023 and the remaining 10,000,000 will vest on January 1, 2024. During the six months ended December 31, 2023, the Company recorded stock compensation expense of $125,000, as reported in the financial statements.

 

On November 11, 2022, the Company entered into a subscription agreement with 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.

 

The stocks purchased are adjusted to fair value at the end of each period.

 

The Company purchased a convertible note of TECO for a subscription amount of $3 million in USD. The issuance of the convertible note 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 note matures 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.  During the six months ended December 31, 2023, the Company recognized interest income of $114,652 in the financial statements.

 

The Company has reported TECO as a related party, due to having an 8.3% interest as a shareholder.

 

10. SUBSEQUENT EVENTS

 

Management evaluated subsequent events as of the date of the financial statements pursuant to ASC TOPIC 855 and had no subsequent events to report.

 

On January 17, 2024, the Company issued 35,931,341 shares of common stock for $350,000 under a purchase agreement at a purchase price of $0.0097408.

 

On January 30, 2024, the Company’s Board of Directors authorized, and the Company entered into rescission agreements with certain individuals for the cancellation of an aggregate of 51,500,000 restricted stock awards including, an aggregate of 41,500,000 shares of common stock that had vested and were issued pursuant to the restricted stock awards. Also, on January 30, 2024, the Company’s board of directors issued an aggregate of 103,000,000 options to purchase shares of common stock of the Company at an exercise price of $0.012 which options vested immediately upon grant and have a term of six years from the date of grant.

 

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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 emit carbon dioxide and other harmful pollutants into the atmosphere. However, naturally occurring elemental hydrogen is rare – so rare, in fact, that today about 95% of hydrogen is produced from steam reforming of natural gas (Source: US Department of Energy, Hydrogen Fuel Basics). This process is both economically and environmentally unsound.

 

The SunHydrogen solution 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 has already proven itself to be a key solution in helping the world meet climate targets, 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. Additionally, because our process directly uses the electrical charges created by sunlight to generate hydrogen, our nanoparticle technology does not rely on grid power or require the costly power electronics that conventional electrolyzers do. Lastly, our planned scalable system configuration of many individual hydrogen-generating panels ensures redundancy, security and stability.

  

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 three laboratories – our independent laboratory in Coralville, Iowa, the SunHydrogen laboratory at the University of Iowa, and the Singh laboratory at University of Michigan. 

  

Additionally, in parallel to the ongoing development of our own technology, we are well-capitalized to begin pursuing synergistic strategic investments in the hydrogen space. SunHydrogen is committed to furthering renewable hydrogen technology to grow the hydrogen ecosystem, and we are actively pursuing opportunities for investment and acquisition of complimentary hydrogen technologies. We are fortunate to have the resources to maximize our impact in this fast-growing industry.

 

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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 December 31, 2023, the amounts reported for cash, investment in affiliate, 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 December 31, 2023, 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 December 31, 2023 compared to Three Months Ended December 31, 2022

 

Operating Expenses

 

Operating expenses for the three months ended December 31, 2023 were $1,264,882, compared to $5,061,951 for the three months ended December 31, 2022. The net change of $3,797,069 in operating expenses consisted primarily of a decrease in salary expense. 

 

Other Income/(Expenses)

 

Other income and (expenses) for the three months ended December 31, 2023 were $(1,763,825), compared to $9,659,897 for the three months ended December 31, 2022. The decrease in other income of $11,423,722 was the result of a decrease in unrealized gain in related party investments.

 

Net Income/(Loss)

 

For the three months ended December 31, 2023, our net loss was $(3,028,707), compared to net income of $4,597,946 for the three months ended December 31, 2022. The majority of the decrease in net income of $7,626,653, was related primarily to the decrease in unrealized gain in related party investments and 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.

 

18

 

 

Results of Operations for the Six months ended December 31, 2023 compared to Six Months Ended December 31, 2022

 

Operating Expenses

 

Operating expenses for the six months ended December 31, 2023 were $2,263,612, compared to $5,700,654 for the six months ended December 31, 2022. The net decrease of $3,437,042 in operating expenses consisted primarily of a decrease in salary expense.

 

Other Income/(Expenses)

 

Other income and (expenses) for the six months ended December 31, 2023 were $(1,213,207), compared to $9,401,649, for the six months ended December 31, 2022. The net increase in other expenses of $10,614,856 was the result of a decrease in unrealized gain in related party investments.

 

Net Income/(Loss)

 

For the six months ended December 31, 2023, our net loss was $(3,476,819), compared to net income of $3,700,995, for the six months ended December 31, 2022. The majority of the decrease in net income of $7,177,814 was related primarily to the decrease in unrealized gain in related party investments. 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 December 31, 2023, we had working capital of $44,888,730, compared to $47,689,381 as of June 30, 2023. This decrease in working capital of $2,800,651 was primarily due to a decrease in cash and cash equivalents.

 

Cash used in operating activities was $948,952 for the six months ended December 31, 2023, compared to $2,706,929 for the six months ended December 31, 2022. The net decrease of $1,757,977 in cash used in operating activities was due to decrease in salary expense. The Company has had no revenues.

 

Cash used in investing activities during the six months ended December 31, 2023 and December 31, 2022 was $2,000,000 and $6,555,114, respectively. The net decrease of $4,555,114 in cash used in investing activities was due to a decrease in the purchase of marketable securities.

 

Cash provided by financing activities during the three months ended December 31, 2023 and December 31, 2022 was $484,617 and $1,401,209, respectively. The net decrease of $916,592 in cash provided by financing activities was due to a decrease in net proceeds from cash purchase agreements. 

 

Our ability to continue as a going concern is dependent upon raising capital through financing transactions and future revenue. Our capital needs have primarily been met from the proceeds of private placements and registered offerings of our securities, as we have not generated any revenues to date.

 

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.

 

19

 

 

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.

 

20

 

 

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 September 29, 2023.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

None.

 

Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information.

 

None.

  

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 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

 

21

 

 

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.

 

February 13, 2024 SUNHYDROGEN, INC.
     
  By: /s/ Timothy Young
   

Timothy Young

Chief Executive Officer and
Acting Chief Financial Officer

(Principal Executive Officer,
Principal Financial Officer and
Principal Accounting Officer)

 

 

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