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

SUNHYDROGEN, INC.

CONDENSED STATEMENTS OF SHAREHOLDERS' DEFICIT

FOR THE NINE MONTHS ENDED MARCH 31, 2021 AND 2020

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

SUNHYDROGEN, INC.

CONDENSED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED MARCH 31, 2021 AND 2020

(Unaudited)

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

SUNHYDROGEN, INC.

CONDENSED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

(Unaudited)

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

SUNHYDROGEN, INC.

CONDENSED STATEMENTS OF SHAREHOLDERS’ DEFICIT

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

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

SUNHYDROGEN, INC.

CONDENSED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

(Unaudited)

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

SUNHYDROGEN, INC.

CONDENSED NOTES TO FINANCIAL STATEMENTS -– UNAUDITED

SEPTEMBER 30,MARCH 31, 2021 AND 2020 AND 2019

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 threenine months ended September 30, 2020March 31, 2021 are not necessarily indicative of the results that may be expected for the year ended June 30, 2021. 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, 2020.

Going Concern

The accompanying condensed unaudited financial statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets and liabilities and commitments in the normal course of business. The accompanying condensed unaudited financial statements do not reflect any adjustments that might result if the Company is unable to continue as a going concern. The Company does not generate revenue, and has negative cash flows from operations, which raise substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern and appropriateness of using the going concern basis is dependent upon, among other things, raising additional capital. The Company has historically obtained funds through private placement and registered offerings of equity and debt. Management believes that it will be able to continue to raise funds by sale of its securities to its existing shareholders and prospective new investors to provide the additional cash needed to meet the Company’s obligations as they become due and will allow the development of its core business. There is no assurance that the Company will be able to continue raising the required capital.

SUNHYDROGEN, INC.

CONDENSED NOTES TO FINANCIAL STATEMENTS – UNAUDITED

MARCH 31, 2021 AND 2020

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.

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.

During the threenine months ended September 30, 2020,March 31, 2021, the Company purchased two (2) business vehicles for a business vehicletotal of $205,000, for transporting demonstration units and to serve as a mobile office.

SUNHYDROGEN, INC.

CONDENSED NOTES TO FINANCIAL STATEMENTS – UNAUDITED

MARCH 31, 2021 AND 2020

Property and Equipment (Continued)

The Company recognized depreciation expense of $278$7,755 and $157$547 for the threenine months ended September 30,March 31, 2021 and 2020, and 2019, 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.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 $1,758$5,275 and $2,052$5,793 for the threenine months ended September 30,March 31, 2021 and 2020, and 2019, respectively. 

SUNHYDROGEN, INC.

CONDENSED NOTES TO FINANCIAL STATEMENTS - UNAUDITED

SEPTEMBER 30, 2020 AND 2019

Net Earnings (Loss) per Share Calculations

Net earnings (Loss) per share dictates the calculation of basic earnings (loss) per share and diluted earnings per share. Basic earnings (loss) per share are computed by dividing by the weighted average number of common shares outstanding during the year. Diluted net earnings (loss) per share is computed similar to basic earnings (loss) per share except that the denominator is increased to include the effect of stock options and stock-based awards (Note 4), plus the assumed conversion of convertible debt (Note 5). 

For the threenine months ended September 30, 2020,March 31, 2021, the Company calculated the dilutive impact of the outstanding stock options of 186,000,000,182,853,174, common stock purchase warrants of 94,895,239, and the convertible debt of $1,797,000,$1,078,300, which is convertible into shares of common stock. The stock options, warrants and convertible debt were not included, in the calculation of net earnings per share, because their impact was antidilutive.

For the threenine months ended September 30, 2019,March 31, 2020, the Company calculated the dilutive impact of the outstanding stock options of 196,250,000, and the convertible debt of $2,118,100,$2,029,545, which is convertible into shares of common stock. The stock options and convertible debt were not included in the calculation of net earnings per share, because their impact was antidilutive. 

Equity Incentive Plan and Stock OptionsBased Compensation

Equity Incentive PlanThe Company periodically issues stock options to employees and non-employees in non-capital raising transactions for services. The Company accounts for stock option grants issued and vesting to employees based on the authoritative guidance provided by the Financial Accounting Standards Board whereas the value of the award is measured on the date of grant and recognized over the vesting period. The Company accounts for stock option grants issued and vesting to non-employees in accordance with the authoritative guidance of the Financial Accounting Standards Board whereas the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Non-employee stock-based compensation charges generally are amortized over the vesting period on a straight-line basis. In certain circumstances where there are no future performance requirements by the non-employee, the option grants immediately vest, and the total stock-based compensation charge is recorded in the period of the measurement date.

On October 2, 2017, the Company granted 10,000,000 stock options to a non-employee for services.

On December 17, 2018, the Board of Directors approved and adopted the 2019 Equity Incentive Plan (“the Plan”), with 300,000,000 shares of common stock set aside and reserved for issuance pursuant to the Plan. The purpose of the Plan is to promote the success of the Company and to increase stockholder value by providing an additional means through the grant of awards to attract, motivate, retain and reward selected employees and other eligible persons. The awards are performance-based compensation that are granted under the Plan as incentive stock options (ISO) or nonqualified stock options. The per share exercise price for each option shall not be less than 100% of the fair market value of a share of common stock on the date of grant of the option. The Company periodically issues stock options and warrants to employees and non-employees in non-capital raising transactions for services.

SUNHYDROGEN, INC.

CONDENSED NOTES TO FINANCIAL STATEMENTS – UNAUDITED

MARCH 31, 2021 AND 2020

Stock Based Compensation (Continued)

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 30, 2020, the Company has granted 186,000,000 equity incentive stock options leaving a reserve of 114,000,000. The options are exercisable for common stock.Warrant Accounting

Stock based Compensation

The Company periodically issues stock options and warrants to employees and non-employees in non-capital raising transactions for services. The Company accounts for the warrants to purchase shares of common stock option and warrant grants issued and vesting to employees based onusing the authoritative guidance provided by the Financial Accounting Standards Board whereas theestimated fair value of the award is measured on the date of grant and recognized overissuance as calculated using the vesting period. The Company accounts for stock option and warrant grants issued and vesting to non-employees in accordance with the authoritative guidance of the Financial Accounting Standards Board whereas the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Non-employee stock-based compensation charges generally are amortized over the vesting period on a straight-line basis. In certain circumstances where there are no future performance requirements by the non-employee, the option grants immediately vest, and the total stock-based compensation charge is recorded in the period of the measurement date.Black-Scholes valuation model.

As of September 30, 2020, the Company has granted 10,000,000 stock-based compensation stock options, which are exercisable for common stock.

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, 2020,March 31, 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.

SUNHYDROGEN, INC.

CONDENSED NOTES TO FINANCIAL STATEMENTS - UNAUDITED

SEPTEMBER 30, 2020 AND 2019

Fair Value of Financial Instruments

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:

We measure certain financial instruments at fair value on a recurring basis. Assets and liabilities measured at fair value on a recurring basis are as follows at September 30, 2020March 31, 2021 (See Note 6):

SUNHYDROGEN, INC.

CONDENSED NOTES TO FINANCIAL STATEMENTS – UNAUDITED

MARCH 31, 2021 AND 2020

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:

Research and Development

Research and development costs are expensed as incurred.  Total research and development costs were $138,260$1,712,169 and $143,395$393,265 for the threenine months ended September 30,March 31, 2021 and 2020, and 2019, respectivelyrespectively.

Accounting for Derivatives

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

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

SUNHYDROGEN, INC.

CONDENSED NOTES TO FINANCIAL STATEMENTS - UNAUDITED

SEPTEMBER 30, 2020 AND 2019

Recently Issued Accounting Pronouncements

In June 2018, FASB issued accounting standards update ASU 2018-07, (Topic 505) – “Shared-Based Payment Arrangements with Nonemployees”, which simplifies the accounting for share-based payments granted to nonemployees for goods and services. Under the ASU, most of the guidance on such payments to nonemployees will be aligned with the requirements for share-based payments granted to employees. Under the ASU 2018-07, the measurement of equity-classified nonemployee share-based payments will be fixed on the grant date, as defined in ASC 718, and will use the term nonemployee vesting period, rather than requisite service period. The amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted if financial statements have not yet been issued. The Company is currently evaluatinghas evaluated the impact of the adoption of ASU 2018-07 on the Company’s financial statements.statements, and there was no impact. 

In August 2018, the FASB issued accounting standards update ASU 2018-13, (Topic 820) - “Fair Value Measurement”, which changes the unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted upon issuance. The Company is currently evaluationhas evaluated the impact of the adoption of ASU 2018-13, on the Company’s financial statements.statements, and there was no impact. 

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.

SUNHYDROGEN, INC.

CONDENSED NOTES TO FINANCIAL STATEMENTS – UNAUDITED

MARCH 31, 2021 AND 2020

ThreeNine months ended September 30, 2020March 31, 2021

During the threenine months ended September 30, 2020,March 31, 2021, the Company issued 35,573,090412,273,408 shares of common stock pursuant to purchase agreements for cash at prices ranging from $0.022 - $.025 per share for aggregate grossnet proceeds of $800,000.$32,523,350.

During the threenine months ended September 30, 2020,March 31, 2021, the Company issued 79,908,088252,000,000 shares of common stock upon exercise of warrants at an exercise price of $0.075 for gross proceeds of $18,900,000.

During the nine months ended March 31, 2021, the Company issued 599,449,820 shares of common stock upon conversion of convertible notes in the amount of $233,000 in$887,250 of principal, plus accrued interest of $23,335$176,987 and other fees of $900$1,800 based upon conversion prices ranging from $0.00095 - $0.017995 per share. All note conversions were performed per the terms of their respective agreements and therefore no gain or loss on the conversion was recorded.

During the threenine months ended September 30, 2020,March 31, 2021, the Company issued 2,813,9033,806,290 shares of common stock for services rendered at fair value prices of $0.028 - $0.035 per share in the aggregate amount of $88,301.$118,023.

ThreeNine months ended September 30, 2019March 31, 2020

During the threenine months ended September 30, 2019,March 31, 2020, the Company issued 217,641,145683,999,878 shares of common stock upon conversion of convertible notes in the amount of $388,886$917,441 in principal, plus accrued interest of $57,594$149,000 and other fees of $3,500, with an aggregate fair value loss on settlement of $623,594$10,100 based upon conversion prices ranging from $0.0035$0.00095 - $0.0069 per share.$0.0041.

During the threenine months ended September 30, 2019,March 31, 2020, the Company issued 22,995,14374,787,283 shares of common stock for services rendered at a fair value prices of $0.0035$0.002 - $0.0050$0.0072 per share in the aggregate amount of $89,450.

SUNHYDROGEN, INC.

CONDENSED NOTES TO FINANCIAL STATEMENTS - UNAUDITED

SEPTEMBER 30, 2020 AND 2019$267,789.

Stock Option PlanOptions

As of September 30, 2020,

On October 2, 2017, the Company granted 10,000,000 non-qualified common stock options were outstanding.options. Each option expires on the date specified in the option agreement, which date is not later than the fifth (5^th) anniversary from the grant date of the options. Of the 10,000,000 non-qualified common stock options, one-third vest immediately, and one-third vest the second and third year, such that, the options are fully vested with a maturity date of October 2, 2022, and are exercisable at an exercise price of $0.01 per share. The Company bought back 2,631,579 shares of the Company’s stock options for $250,000. As of March 31, 2021, 7,368,421 common stock options were outstanding.

Stock Options

On January 23, 2019, the Company issuedgranted 170,000,000 stock options. One-third of the options vested immediately, and the remainder vestvested 1/24 per month over the first twenty fourtwenty-four months following the option grant. The options expire 10 years from the initial grant date.first block was exercisable immediately and is exercisable for a period of seven (7) years. The options fully vest by January 23, 20222022. The Company bought back 10,515,247 shares of the Company’s stock options for $1,000,000 in cash. As of March 31, 2021, there were 159,484,753 options outstanding.

On January 31, 2019, the Company issuedgranted 6,000,000 stock options, of which two-third (2/3) vest immediately, and the remaining amount shall vest one-twelfth (1/12) per month from after the date of the option grant. The options expire 10 years from the initial grant date.first block is exercisable for a period of seven (7) years. The options fully vested on January 31, 2020.

On July 22, 2019, the Company issuedgranted 10,000,000 stock options, of which one-third (1/3) vest immediately, and the remaining shall vest one-twenty fourth (1/24) per month from after the date of the option grant. The options expire 10 years from the initial grant date.first block were exercisable immediately for a period of seven (7) years. The options fully vested on July 22, 2020.2021.

During the three months ended March 31, 2021, the Company bought back an aggregate total of 13,146,826 warrants.

SUNHYDROGEN, INC.

CONDENSED NOTES TO FINANCIAL STATEMENTS – UNAUDITED

MARCH 31, 2021 AND 2020

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

During the nine months ended March 31, 2021, the Company bought back a total of 13,146,826 shares of the Company’s stock options for a total of $1,250,000.

The weighted average remaining contractual life of options outstanding as of September 30,March 31, 2021 and 2020 and 2019 was as follows:

The stock-based compensation expense recognized in the statement of operations during the threenine months ended September 30,March 31, 2021 and 2020, and 2019, related to the granting of these options was $112,035$259,955 and $246,994,$571,594, respectively.

WARRANTS

On December 3, 2020, the Company issued 120.0 million common stock purchase warrants under a securities purchase agreement at an exercise price of $0.075 per share. The warrants were exercisable upon issuance. During the period ended March 31, 2021, the warrants were exercised for aggregate gross proceeds of $9,000,000. As of March 31, 2021, there were no December 3, 2020 warrants outstanding.

On December 29, 2020, the 120.0 million warrants issued on December 3, 2020, were exercised for aggregate gross proceeds of $9.0 million, and as consideration for the exercise, the investor was issued an additional 132.0 million common stock purchase warrants at an exercise price of $0.075. The 132.0 million warrants were deemed to be a dividend and were estimated at fair value of $15,928,314 using the Black-Scholes valuation model. During the period ended March 31, 2021, the warrants were exercised for gross proceeds of $9,900,000. As of March 31, 2021, all of the December 29, 2020 warrants were exercised.

SUNHYDROGEN, INC.

CONDENSED NOTES TO FINANCIAL STATEMENTS -– UNAUDITED

SEPTEMBER 30,MARCH 31, 2021 AND 2020 AND 2019

WARRANTS (Continued)

As of March 31, 2021, the Company had outstanding 94,895,239 common stock purchase warrants from securities purchase agreements at 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 estimated fair value of the warrants was $5,222,495, which was recognized in the financial statements as of March 31, 2021. The warrants can be exercised over a three (3) year period.

A summary of the Company’s warrant activity and related information follows for the nine months ended March 31, 2021.

At March 31, 2021, the aggregate intrinsic value of the warrants outstanding was $9,924,436.

As of September 30, 2020,March 31, 2021, the outstanding convertible promissory notes net of debt discount of $210,050 are summarized as follows:

SUNHYDROGEN, INC.

CONDENSED NOTES TO FINANCIAL STATEMENTS – UNAUDITED

MARCH 31, 2021 AND 2020

Maturities of long-term debt net of debt discount for the next fivefour years are as follows:

At September 30, 2020,March 31, 2021, the $1,797,000$1,078,300 in convertible promissory notes had a remaining debt discount of $210,050,$139, leaving a net balance of $1,586,950.$1,078,161.

The Company issued a 10% convertible promissory note on January 28, 2016 (the “Jan 2016 Note”) in the aggregate principal amount of up to $500,000. Upon execution of the convertible promissory note, the Company received a tranche of $10,000. The Company received additional tranches in the amount of $490,000 for an aggregate sum of $500,000. The JanJanuary 2016 Note matureshad an original maturity date of twelve (12) months from the effective datesdate of each respective tranche.the note. On January 19, 2017, the investor extended the Jan 2016 Note for an additional sixty (60) months from the effective date of each tranche, which matures onthe note, to January 27, 2022. The Jan 2016 Note iswas convertible into shares of common stock of the Company at a price equal to a variable conversion price of the lesser of $0.01 per share or fifty percent (50%) of the lowest trading price since the original effective date of each respective tranchethe note or the lowest effective price per share granted to any person or entity after the effective date to acquire common stock. If the Company fails to deliver shares in accordance with the timeframe of three (3) business days of the receipt of a notice of conversion, the lender, at any time prior to selling all of those shares, may rescind any portion, in whole or in part of that particular conversion attributable to the unsold shares and have the rescinded conversion amount returned to the principal sum with the rescinded conversion shares returned to the Company. In no event shall the lender be entitled to convert any portion of the Jan 2016 Note such that would result in beneficial ownership by the lender and its affiliates of more than 4.99% of the outstanding shares of common stock of the Company. In addition, for each conversion, in the event that shares are not delivered by the fourth business day (inclusive of the day of conversion), a penalty of $1,500 per day shall be assessed for each day after the third business day (inclusive of the day of the conversion) until the shares are delivered. During the threenine months ended on September 30, 2020,March 31, 2021, the Company issued 48,802,884367,702,192 common shares upon conversion of principal in the amount of $33,000,$245,550, plus interest of $13,363.$103,768. The balance of the Jan 2016 Note as of September 30, 2020March 31, 2021 was $277,000.$0.

SUNHYDROGEN, INC.

CONDENSED NOTES TO FINANCIAL STATEMENTS - UNAUDITED

SEPTEMBER 30, 2020 AND 2019

The Company issued a 10% convertible promissory note on February 3, 2017 (the “Feb 2017 Note”) in the aggregate principal amount of up to $500,000. Upon execution of the convertible promissory note, the Company received a tranche of $60,000. The Company received additional tranches in the amount of $440,000 for an aggregate sum of $500,000. The Feb 2017 Note matures twelve (12) months from the effective dates of each respective tranche. The Feb 2017 Note had a maturity date of February 3, 2018, with an automatic extension of sixty (60) months from the effective date of each tranche.the note. The Feb 2017 Note is convertible into shares of common stock of the Company at a price equal to a variable conversion price of the lesser of $0.01 per share or fifty percent (50%) of the lowest trading price since the original effective date of each respective tranchethe note or the lowest effective price per share granted to any person or entity after the effective date to acquire common stock. If the Company fails to deliver shares in accordance with the timeframe of three (3) business days of the receipt of a notice of  conversion, the lender, at any time prior to selling all of those shares, may rescind any portion, in whole or in part of that particular conversion attributable to the unsold shares and have the rescinded conversion amount returned to the principal sum with the rescinded conversion shares returned to the Company. In no event shall the lender be entitled to convert any portion of the Feb 2017 Note such that would result in beneficial ownership by the lender and its affiliates of more than 4.99% of the outstanding shares of common stock of the Company. In addition, for each conversion, in the event, that shares are not delivered by the fourth business day (inclusive of the day of conversion), a penalty of $1,500 per day shall be assessed for each day after the third business day (inclusive of the day of the conversion) until the shares are delivered. During the nine months ended, the Company issued 157,622,696 shares of common stock upon conversion of principal in the amount of $106,700, plus accrued interest of $43,042. The balance of the Feb 2017 Note as of September 30,March 31, 2021 was $393,300.

SUNHYDROGEN, INC.

CONDENSED NOTES TO FINANCIAL STATEMENTS – UNAUDITED

MARCH 31, 2021 AND 2020 was $500,000.

The Company issued a 10% convertible promissory note on November 9, 2017 (the “Nov 2017 Note”) in the aggregate principal amount of up to $500,000. Upon execution of the convertible promissory note, the Company received a tranche of $45,000. The Company received additional tranches in the amount of $455,000 for an aggregate sum of $500,000. The Nov 2017 Note matures twelve (12) months from the effective dates of each respective tranche. The Nov 2017 Note had a maturity date of November 9, 2018, with an automatic extension of sixty (60) months from the effective date of each tranche.the note. The Nov 2017 Note is convertible into shares of common stock of the Company at a price equal to a variable conversion price of the lesser of $0.01 per share or fifty percent (50%) of the lowest trading price since the original effective date of each respective tranchethe note or the lowest effective price per share granted to any person or entity after the effective date to acquire common stock. If the Company fails to deliver shares in accordance with the timeframe of three (3) business days of the receipt of a notice of conversion, the lender, at any time prior to selling all of those shares, may rescind any portion, in whole or in part of that particular conversion attributable to the unsold shares and have the rescinded conversion amount returned to the principal sum with the rescinded conversion shares returned to the Company. In no event shall the lender be entitled to convert any portion of the Nov 2017 Note such that would result in beneficial ownership by the lender and its affiliates of more than 4.99% of the outstanding shares of common stock of the Company. In addition, for each conversion, in the event that shares are not delivered by the fourth business day (inclusive of the day of conversion), a penalty of $1,500 per day shall be assessed for each day after the third business day (inclusive of the day of the conversion) until the shares are delivered. During the period ended March 31, 2021, the Company issued 20,332,512 shares of common stock upon conversion of $15,000 in principal, plus interest of $4,316. The balance of the Nov 2017 Note as of September 30, 2020March 31, 2021 was $500,000.$485,000.

The Company issued a 10% convertible promissory note on June 27, 2018 (the “Jun 2018 Note”) in the aggregate principal amount of up to $500,000. Upon execution of the convertible promissory note, the Company received a tranche of $50,000. On October 9, 2018, the Company received another tranche of $40,000, for a total aggregate of $90,000 as of December 31, 2019. The Jun 2018 Note matures twelve (12) months from the effective dates of each respective tranche. The Jun 2018 Note matured on June 27, 2019, which was automatically extended for sixty (60) months from the effective date of each tranche.the note. The Jun 2018 Note is convertible into shares of common stock of the Company at a price equal to a variable conversion price of the lesser of $0.01 per share or fifty percent (50%) of the lowest trading price since the original effective date of each respective tranchethe note or the lowest effective price per share granted to any person or entity after the effective date to acquire common stock. If the Company fails to deliver shares in accordance with the timeframe of three (3) business days of the receipt of a notice of conversion, the lender, at any time prior to selling all of those shares, may rescind any portion, in whole or in part of that particular conversion attributable to the unsold shares and have the rescinded conversion amount returned to the principal sum with the rescinded conversion shares returned to the Company. In no event shall the lender be entitled to convert any portion of the Jun 2018 Note such that would result in beneficial ownership by the lender and its affiliates of more than 4.99% of the outstanding shares of common stock of the Company. In addition, for each conversion, in the event, that shares are not delivered by the fourth business day (inclusive of the day of conversion), a penalty of $1,500 per day shall be assessed for each day after the third business day (inclusive of the day of the conversion) until the shares are delivered. The balance of the Jun 2018 Note as of September 30, 2020March 31, 2021 was $90,000.

The Company issued a 10% convertible promissory note on August 10, 2018 (the “Aug 2018 Note”) in the aggregate principal amount of up to $100,000. The Aug 2018 Note had a maturity date of August 10, 2019, with an extension of sixty (60) months from the date of the note. The Aug 2018 Note matures on August 10, 2023. The Aug 2018 Note may be converted into shares of the Company’s common stock at a conversion price of the lesser of a) $0.005 per share or b) sixty-one (61%) percent of the lowest trading price per common stock recorded on any trade day after the effective date. The conversion feature of the Aug 2018 Note was considered a derivative in accordance with current accounting guidelines because of the reset conversion features of the Note. The balance of the Aug 2018 Note as of September 30, 2020March 31, 2021 was $100,000.

SUNHYDROGEN, INC.

CONDENSED NOTES TO FINANCIAL STATEMENTS - UNAUDITED

SEPTEMBER 30, 2020 AND 2019

On January 20, 2020, the Company issued a 10% convertible promissory note (the “Jan 2020 Note”) to an investor (the “Jan 2020 Note”) in the principal amount of $80,000. The Company received funds of $78,000, less other fees of $2,000. The Jan 2020 Note had a maturity date of January 20, 2021. The Jan 2020 Note was convertible into shares of the Company’s common stock at a conversion price of sixty-one (61%) percent of the lowest two (2) trading prices perof the common stock during the fifteen (15) trading day prior to the conversion date. The conversion feature of the Jan 2020 Note was considered a derivative in accordance with current accounting guidelines because of the reset conversion features of the Jan 2020 Note. During the threenine months ended September 30, 2020,March 31, 2021, the Company issued 23,420,128 shares of common stock upon conversion of principal in the amount of $80,000, plus accrued interest of $3,989, and other fees of $300. The Company recorded amortization of debt discount, which was recognized as interest expense in the amount of $42,404 during the threenine months ended September 30, 2020.March 31, 2021. The Jan 2020 Note was fully converted as of September 30, 2020.March 31, 2021.

SUNHYDROGEN, INC.

CONDENSED NOTES TO FINANCIAL STATEMENTS – UNAUDITED

MARCH 31, 2021 AND 2020

On February 11, 2020, the Company issued a convertible promissory note (the “Feb 2020 Note”) to an investor (the “Feb 2020 Note”) in the principal amount of $80,000. The Company received funds of $78,000, less other fees of $2,000. The Feb 2020 Note had a maturity date of February 11, 2021. The Feb 2020 Note was convertible into shares of the Company’s common stock at a conversion price of sixty-one (61%) percent of the lowest two (2) trading prices perof the common stock during the fifteen (15) trading day prior to the conversion date. The conversion feature of the Feb 2020 Note was considered a derivative in accordance with current accounting guidelines because of the reset conversion features of the Feb 2020 Note. During the threesix months ended September 30,December 31, 2020, the Company issued 5,294,205 shares of common stock upon conversion of principal in the amount of $80,000, plus accrued interest of $3,989, and other fees of $300. The Company recorded amortization of debt discount, which was recognized as interest expense in the amount of $49,399 during the threenine months ended September 30, 2020.March 31, 2021. The Feb 2020 Note was fully converted as of September 30, 2020.March 31, 2021.

On March 9, 2020, the Company issued a convertible promissory note (the “Mar 2020 Note”) to an investor, (the “Mar 2020 Note”) in the principal amount of $40,000. The Company received funds of $38,000, less other fees of $2,000. The Mar 2020 Note had a maturity date of March 9, 2021. The Mar 2020 Note was convertible into shares of the Company’s common stock at a conversion price of sixty-one (61%) percent of the lowest two (2) trading prices perof the common stock during the fifteen (15) trading day prior to the conversion date. The conversion feature of the Mar 2020 Note was considered a derivative in accordance with current accounting guidelines because of the reset conversion features of the Mar 2020 Note. During the threesix months ended September 30,December 31, 2020, the Company issued 2,390,871 shares of common stock upon conversion of principal in the amount of $40,000, plus accrued interest of $1,995, and other fees of $300. The Company recorded amortization of debt discount, which was recognized as interest expense in the amount of $25,708 during the threenine months ended September 30, 2020.March 31, 2021. The Mar 2020 Note was fully converted as of September 30, 2020.March 31, 2021.

SUNHYDROGEN, INC.

CONDENSED NOTES TO FINANCIAL STATEMENTS - UNAUDITED

SEPTEMBER 30, 2020 AND 2019

On April 14, 2020, the Company issued a convertible promissory note (the “April 2020 Note”) to an investor in the principal amount of $80,000. The Company received funds of $78,000, less other fees of $2,000. The April 2020 Note matures on April 14, 2021. The April 2020 Note may be convertedwas convertible into shares of the Company’s common stock at a conversion price of sixty-one (61%) percent of the average of the lowest two (2) trading prices perof the common stock during the fifteen (15) trading day prior to the conversion date. The conversion feature of the April 2020 Note was considered a derivative in accordance with current accounting guidelines because of the reset conversion features of the April 2020 Note. The Company recorded amortization of debt discount, which was recognized as interest expense in the amount of $20,164$63,342 during the threenine months ended September 30, 2020.March 31, 2021. During the nine months ended March 31, 2021, the Company issued 5,315,949 shares of common stock upon conversion of principal in the amount of $80,000, plus accrued interest of $4,011, and other fees of $300. The balance of the April 2020 Note was fully converted as of September 30,March 31, 2021.

SUNHYDROGEN, INC.

CONDENSED NOTES TO FINANCIAL STATEMENTS – UNAUDITED

MARCH 31, 2021 AND 2020 was $80,000.

On April 15, 2020, the Company issued a convertible promissory note (the “Apr 2020 Note”) to an investor in the aggregate principal amount of $50,000, of which the Company received $10,000 as of June 30, 2020. The Apr 2020 Note matures twelve (12) months from the effective dates of each respective tranche, such that the Apr 2020 Note matures on April 15, 2021, with an automatic extension of sixty (60) months from the effective date of each tranche. The Apr Note is convertible into shares of common stock of the Company at a price equal to a variable conversion price of the lesser of $0.01 per share or fifty percent (50%) of the lowest trading price of the common stock recorded on any trade day after the effective date, or (c) the lowest effective price per share granted to any person or entity after the effective date to acquire common stock. If the Company fails to deliver shares in accordance with the timeframe of four (4) business days of the receipt of a notice of conversion, the lender, at any time prior to selling all of those shares, may rescind any portion, in whole or in part of that particular conversion attributable to the unsold shares and have the rescinded conversion amount returned to the principal sum with the rescinded conversion shares returned to the Company. In no event shall the lender be entitled to convert any portion of the Apr 2020 Note such that would result in beneficial ownership by the lender and its affiliates of more than 4.99% of the outstanding shares of common stock of the Company. In addition, for each conversion, in the event that shares are not delivered by the fourth business day (inclusive of the day of conversion), a penalty of $2,000 per day shall be assessed for each day after the fourth business day (inclusive of the day of the conversion) until the shares are delivered. The conversion feature of the April 2020 Note was considered a derivative in accordance with current accounting guidelines because of the reset conversion features of the Apr 2020 Note. The Company recorded amortization of debt discount, which was recognized as interest expense in the amount of $855$2,547 during the threenine months ended September 30, 2020.March 31, 2021. The balance of the Apr 2020 Note as of September 30, 2020March 31, 2021 was $10,000.

On May 19, 2020, the Company issued a convertible promissory note (the “May 2020 Note”) to an investor in the principal amount of $80,000. The Company received funds of $78,000, less other fees of $2,000. The May 2020 Note matures onhad a maturity date of May 19, 2021. The May 2020 Note may be convertedwas convertible into shares of the Company’s common stock at a conversion price of sixty-one (61%) percent of the lowest two (2) trading prices perof the common stock during the fifteen (15) trading day prior to the conversion date. The conversion feature of the May 2020 Note was considered a derivative in accordance with current accounting guidelines because of the reset conversion features of the May 2020 Note. The Company recorded amortization of debt discount, which was recognized as interest expense in the amount of $20,164$70,795 during the year ended June 30, 2020. The balanceDuring the nine months ended March 31, 2021, the Company issued 5,933,503 shares of common stock upon conversion of principal in the amount of $80,000, plus accrued interest of $4,033, and other fees of $300. The May 2020 Note was fully converted as of June 30, 2020 was $80,000.March 31, 2021.

On June 18, 2020, the Company issued a convertible promissory note (the “June 2020 Note”) to an investor in the principal amount of $160,000. The Company received funds of $156,000, less other fees of $4,000. The Jun 2020 Note matures onhas a maturity date of June 19, 2021. The Jun 2020 Note may be convertedwas convertible into shares of the Company’s common stock at a conversion price of sixty-one (61%) percent of the average of the lowest two (2) trading prices perof the common stock during the fifteen (15) trading day prior to the conversion date. The conversion feature of the Jun 2020 Note was considered a derivative in accordance with current accounting guidelines because of the reset conversion features of the Jun 2020 Note. The Company recorded amortization of debt discount, which was recognized as interest expense in the amount of $40,329 during$154,740. During the threenine months ended September 30, 2020.March 31, 2021 the Company issued 11,437,764 shares of common stock upon conversion of principal in the amount of $160,000, plus accrued interest of $7,847, and other fees of $300. The balance of the Jun 2020 Note was fully converted as of September 30, 2020 was $160,000.March 31, 2021.

All note conversions were performed per the terms of their respective agreements and therefore no gain or loss on the conversion was recorded.

SUNHYDROGEN, INC.

CONDENSED NOTES TO FINANCIAL STATEMENTS - UNAUDITED

SEPTEMBER 30, 2020 AND 2019

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.

SUNHYDROGEN, INC.

CONDENSED NOTES TO FINANCIAL STATEMENTS – UNAUDITED

MARCH 31, 2021 AND 2020

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 threenine months ended September 30, 2020,March 31, 2021, the Company recorded a net loss in change in derivative of $1,380,085$142,122,146 in the statement of operations due to the change in fair value of the remaining notes, for the threenine months ended September 30, 2020.March 31, 2021.

At September 30, 2020,March 31, 2021, the fair value of the derivative liability was $61,037,804.$201,779,864.

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:

On July 27, 2020, the Company entered into a common stock purchase agreement with an investor. Pursuant to the purchase agreement, subject to certain conditions set forth in the purchase agreement, the investor was obligated to purchase up to $2.1 million of the Company’s common stock from time to time through September 30, 2020. The purchase price per share under the purchase agreement was 85% of the lowest closing price during the five (5) business days prior to closing, not to exceed the valuation cap set forth in the purchase agreement. During the nine months ended March 31, 2021, the Company issued 20,000,000 shares of common stock at a purchase price of $0.025 per share under the purchase agreement. The Company received net proceeds of $460,300 after legal fees and commissions.

On September 21, 2020, the Company entered into a common stock purchase agreement with an investor. Under the purchase agreement, the Company had the right to sell, in its discretion (subject to the terms and conditions of the purchase agreement) up to an aggregate of $4,000,000 of common stock to the investor. The Company had the right, in its sole discretion, subject to the conditions and limitations in the purchase agreement, to direct the investor, by delivery of a purchase notice from time to time to purchase over the 6-month term of the purchase agreement, a minimum of $10,000 and up to a maximum of $400,000 of shares of common stock for each purchase notice (provided that, the purchase amount for any purchase could not exceed two times the average of the daily trading dollar volume of the common stock during the 10 business days preceding the purchase date). The number of shares issuable under each purchase was equal to 112.5% of the purchase amount sold under such purchase, divided by the purchase price per share (as defined under the purchase agreement). The “purchase price” was defined as 90% of the lowest end-of-day volume weighted average price of the common stock for the five consecutive business days immediately preceding the purchase date, including the purchase date. The Company could not deliver more than one purchase notice to the investor every ten business days, except as the parties may otherwise agree.

During the nine months ended March 31, 2021, the Company received aggregate net proceeds of $1,632,000 for the purchase of 84,310,249 shares of common stock under the purchase agreement. The purchase agreement was terminated on December 1, 2020. 

On February 4, 2021, the Company entered into a purchase agreement with an investor to purchase up twenty-five million dollars ($25,000,000) of the Company’s registered common stock. The Company has the right, in its sole discretion, subject to the conditions and limitations in the purchase agreement, to direct the investor, by

On July 27, 2020, the Company entered into a purchase agreement with an investor. Pursuant to the purchase agreement, subject to certain conditions set forth in the purchase agreement, the investor was obligated to purchase up to $2.1 million of the Company’s common stock from time to time through September 30, 2020. The purchase price per share under the purchase agreement was 85% of the lowest closing price during the five (5) business days prior to closing, not to exceed the valuation cap set forth in the purchase agreement. During the three months ended September 30, 2020, the Company issued 20,000,000 shares of common stock at a purchase price of $0.025 per share under the purchase agreement. The Company received net proceeds of $460,350 after legal fees and commissions.

On September 21, 2020, the Company entered into a purchase agreement with an investor. Under the purchase agreement, the Company may sell, in its discretion (subject to the terms and conditions of the purchase agreement) up to an aggregate of $4,000,000 of common stock to the investor. The Company has the right, in its sole discretion, subject to the conditions and limitations in the purchase agreement, to direct the investor, by delivery of a purchase notice from time to time to purchase over the 6-month term of the purchase agreement, a minimum of $10,000 and up to a maximum of $400,000 of shares of common stock for each purchase notice (provided that, the purchase amount for any purchase will not exceed two times the average of the daily trading dollar volume of the common stock during the 10 business days preceding the purchase date). The number of purchase shares the Company will issue under each purchase will be equal to 112.5% of the purchase amount sold under such Purchase, divided by the purchase price per share (as defined under the purchase agreement). The “purchase price” is defined as 90% of the lowest end-of-day volume weighted average price of the common stock for the five consecutive business days immediately preceding the purchase date, including the purchase date. The Company may not deliver more than one purchase notice to the investor every ten business days, except as the parties may otherwise agree.

. During the three months ended September 30, 2020, the Company received $300,000 for the sale of 15,573,090 shares of common stock under the purchase agreement.

SUNHYDROGEN, INC.

CONDENSED NOTES TO FINANCIAL STATEMENTS -– UNAUDITED

SEPTEMBER 30,MARCH 31, 2021 AND 2020 AND 2019

delivery of a purchase notice from time to time (a “Purchase Notice”) to purchase (each, a “Purchase”) over the 12-month term of the purchase agreement, a minimum of $100,000 and up to a maximum of $5,000,000 (the “Purchase Amount”) of shares of common stock (the “Purchase Shares”) for each Purchase Notice, provided that the parties may agree to waive such limitation, and provided further that, the initial Purchase Amount was $7,000,000. The number of Purchase Shares the Company will issue under each Purchase will be equal to 112.5% of the Purchase Amount sold under such Purchase, divided by the Purchase Price per share (as defined under the purchase agreement). The “Purchase Price” is defined as 90% of the lowest end-of-day volume weighted average price of the common stock for the five consecutive business days immediately preceding the purchase date, including the purchase date. As of March 31, 2021, the investor has purchased 92,725,060 shares of common stock for a purchase price of $12,750,000.

On December 1, 2020, the Company entered into a securities purchase agreement, under which, upon closing on December 3, 2020 the Company received $9.0 million from the sale of 120.0 million shares of common stock and warrants to purchase 120.0 million shares of common stock at an exercise price of $0.075 per share. The purchase agreement and warrants were accounted for at fair value using the Black-Scholes valuation model. The estimated fair value of the purchase agreement was $4,979,933 and $3,900,067 for the warrants, which was recognized in the financial statements as of March 31, 2021.

On December 29, 2020, the Company received $9.0 million from exercise of warrants to purchase 120.0 million shares of common stock, at an exercise price of $0.075 per share. As consideration for the exercise, the holder was issued an additional 132.0 million common stock purchase warrants, at an exercise price of $0.075 per share and an exercise period of thirty months. The warrants were accounted for at fair value using the Black Scholes valuation model. The estimated value of $15,928,314 was deemed to be dividends, which was netted against the proceeds and recognized in the financial statements as of March 31, 2021. During the period ended March 31, 2021, the 132.0 million warrants were exercised for gross proceeds of $9,900,000.

On February 24, 2021, the Company entered into a securities purchase agreement, under which, upon closing on March 1, 2021, the Company issued 95,238,096 shares of the Company’s common stock, and warrants to purchase an aggregate of 71,428,572 shares of common stock, in a registered direct offering at a combined purchase price of $0.105 per share and 0.75 of one warrant, for aggregate gross proceeds to the Company of approximately $10,000,000. The warrants are exercisable for a period of five years commencing upon issuance, at an exercise price of $0.12 per share, subject to certain adjustments set forth therein. In addition, the Company issued to the designees of the placement agent warrants to purchase an aggregate of up to 6,666,667 shares, with an exercise price of $0.13125 per share and a term of five years from the commencement of the sales in connection with the offering.

The purchase agreement and warrants were accounted for at fair value using the Black-Scholes valuation model. The estimated fair value of the purchase agreement was $8,677,572 and $1,322,428 for the warrants, which was recognized in the financial statements as of March 31, 2021.

SUNHYDROGEN, INC.

CONDENSED NOTES TO FINANCIAL STATEMENTS – UNAUDITED

MARCH 31, 2021 AND 2020

On September 15, 2020, the Company entered into a marketing agreement to position its brand in the market.agreement. The fees are to be paid in cash and registered unrestricted stock. As of September 30, 2020,March 31, 2021, the Company has paid a $26,250$34,250 deposit, with the balance of the payments and the stock issuances due and payable through December 2020.upon completion of a deliverable.

On September 1, 2020, the Company entered into a research agreement with the University of Iowa. As consideration under the research agreement, the University of Iowa will receive a maximum of $299,966 from the Company. The research agreement may be terminated by either party upon a sixty (60) day prior written notice or a material breach or default, which is not cured within 90 days of receipt of a written notice of such breach.

The term of the research agreement is from September 1, 2020 through August 31, 2020.2021. As of September 30, 2020,March 31, 2021, the Company has accrued the amount due of $24, 997.$99,989.

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 willThe Company is not have acurrently party to any material adverse effect on the Company’s consolidated financial position or results of operationlegal proceedings.

As of September 30, 2020,March 31, 2021, the Company reported an accrual associated with the CEO’s prior year salary in the amount of $211,750.$186,000.

During the nine months ended March 31, 2021, the Company redeemed options to purchase an aggregate of 13,146,826 shares of the Company’s common stock for an aggregate redemption price of $1,250,000.

Management evaluated subsequent events as of the date of the financial statements pursuant to ASC TOPIC 855, and reported the following events:

On October 5, 2020,April 1, 2021, the Company issued 992,38713,763,764 shares of commons stock for a purchase price of $1,100,000, pursuant to the purchase agreement dated February 4, 2021.

On April 7, 2021, the Company issued 14,289,265 shares of commons stock for a purchase price of $1,150,000, pursuant to the purchase agreement dated February 4, 2021.

On April 21, 2021, the Company issued 22,032,903 shares of common stock for services ina purchase price of $1,500,000, pursuant to the amount of $29,722.purchase agreement dated February 4, 2021.

On October 7, 2020,May 4, 2021, the Company received gross proceeds of $300,000 for the sale of 13,489,209issued 20,996,641 shares of commons stock.common stock for a purchase price of $1,500,000, pursuant to the purchase agreement dated February 4, 2021.

On October 16, 2020,May 13, 2021, the Company issued 5,315,949126,188,003 shares of common stock upon conversion of principal in the amount of 80,000,$85,100, plus accrued interest of $4,011, and other fees of $300.$34,779 for the convertible note dated February 3, 2017.

On October 27, 2020,May 14, 2021, the Company received gross proceeds of $400,000 for the sale of 19,685,040issued 17,806,268 shares of common stock.stock for a purchase price of $1,000,000, pursuant to the purchase agreement dated February 4, 2021.

On November 10, 2020,May 14, 2021, the Company issued 53,615,45883,074,261 shares of restricted common stock upon conversion of principal in the amount of $35,700 in principal,$60,000, plus accrued interest of $15,235,18,921.

On November 12, 2020,May 14, 2021, the Company received $300,000 for the sale of 15,237,709issued 96,334,535 shares of restricted common stock.stock upon conversion of principal in the amount of $70,000, plus accrued interest of 21,518.

On May 14, 2021, the Company issued 58,491,132 shares of restricted common stock upon conversion of principal in the amount of $42,000, plus accrued interest of 13,567.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Statement Regarding Forward-Looking Statements

The information in this discussion 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 United States Securities and Exchange Commission. 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, ., Inc., our goal is to replace all forms of energy on earthfossil fuels with clean renewable energy.hydrogen.

We refer to our technology as the SunHydrogenH2GeneratorSunHydrogen panel which is comprised of the following components:

1. The Generator Housing - Novel device design is the first of its type to safely separate oxygen and hydrogen in the water splitting process without sacrificing efficiency. This device houses the water, the solar particles/cells and is designed with inlets and outlets for water and gasses. Utilizing a novel ion-exchange membrane strategy for separating the oxygen side from the hydrogen side, ion transport is increased which is the key to safely increasing solar-to-hydrogen efficiency. Our design can be scaled up and manufactured for commercial use.

2. The NanoParticle or Solar Cell - Our patented nanoparticle consists of billions of tiny solar cells capped with catalysts that are electrodeposited into one tiny structure to provide the charge that splits the water molecule when the sun excites the electron.

3. Oxygen Evolution Catalyst - This proprietary catalyst developed at the University of Iowa lab is uniformly applied onto the solar cell or nanoparticle and efficiently oxidize water molecule to generate oxygen gas. The oxygen evolution catalyst must be robust to withstand the long operating hours of the hydrogen generation device to ensure long lifetime. It must be stable in alkaline, neutral and acidic environments.

4. Hydrogen Evolution Catalyst - Necessary for collecting electrons to reduce protons for generating hydrogen gas, we have successfully integrated a low-cost hydrogen catalyst into our generator system successfully coating a triple junction solar cell with a catalyst comprised primarily of ruthenium, carbon and nitrogen that can function as well as platinum, the current catalyst used for hydrogen production.

5. Coating Technologies - Two major coating technologies were developed to protect the nanoparticles and solar cells from photocorrosion under water. A transparent conducive coating to protect our nanoparticles and solar cells from photo corrosion and efficiently transfer charges to catalysts for oxygen and hydrogen evolution reactions. A polymer combination that protects the triple junction solar cells from any corrosive water environments for long lifetime of the hydrogen generation device.

In the process of optimizing our nanoparticles to be efficient and only during experimentation with earth abundant materials (an ongoing process), we experimented with commercially available triple junction silicon solar cells to perform tests with our generator housing and other components. Through this experimentation, our discovery led us to believe that we could bring a system (Gen 1) to market utilizing these readily available cells while our nanoparticles are still being optimized. While these solar cells also absorb the sunlight and produce the necessary charge for splitting the water molecules into hydrogen and oxygen, their efficiency is low, thus we have made the strategic decision to focus on our NanoParticle strategy (Gen 2) and use these hydrogen generators for proof of concept and demonstration purposes only. We anticipate these hydrogen panels will be demonstrated in various parts of the world to as further proof of concept of our technology and to promote our nanoparticle technology that will be more efficient and economical.

Our business and commercialization plan calls for two generationsutilizes our second generation of ourhydrogen panels or generators. The first generation utilizes readily available commercial solar cells, coated with a stability polymer and catalysts and inserted into our proprietary panels to efficiently and safely split water into hydrogen and oxygen to produce very pure and green hydrogen that can be piped offfeaturing the panel, pressurized, and stored for use in a fuel cell to power anything electric.

The second generation of our panels will feature a nanoparticle based technology where billions of autonomous solar cells are electrodeposited onto porous alumina sheets and manufactured in a roll to roll process or wafer process and inserted into our proprietary panels. For this generation, we have received multiple patents and it is estimated that it will produce hydrogen for less than $4 per kilogram before pressurization.

Our team at the University of Iowa, led by our CTO Dr. Joun Lee, has reached a milestone of 1000 consecutive hours of continuous hydrogen production utilizing completely immersed solar cells with no external biases achieving simulated production equal to one year. We believe this to be a record for completely immersed cells. Now ready to take our technology out of the lab, we are working with several vendors to help commercialize and manufacturermanufacture our first generation of renewable hydrogen panels that use sunlight and water to generate hydrogen. We are currently working towards buildingIn February 2021 we entered into a pilot plant in mid 2020 adjacentcooperation agreement with Schmid Group of Germany that commenced on March 1, 2021 to design and define a large company distribution or fulfillment center so they can power their fuel cell forklifts and materials handling equipment with completely renewableprocess platform that enables mass manufacturing of SunHydrogen’s Gen 2 NanoParticle hydrogen vs. having to transport steam-reformed hydrogen where the production process emits tons of harmful emissions and must be transported.panels.

We anticipate that the SunHydrogenH2Generator will be a self-contained renewable hydrogen production system that requires only sunlight and any source of water. As a result, it can be installed almost anywhere to produce hydrogen fuel at or near the point of distribution, for local use. We believe this model of hydrogen production addresses one of the biggest challenges of using clean hydrogen fuel on a large scale - the transportation of hydrogen.

Each stage of the SunHydrogenH2Generator can be scaled independently according to the hydrogen demands and length of storage required for a specific application. A small-scale system can be used to produce continuous renewable electricity for a small house, or a large scale system can be used to produce hydrogen to power a community. 

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, 2020,March 31, 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 threenine months ended September 30, 2020,March 31, 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 disclosed in notes to the financials.

Results of Operations for the Three Months Ended September 30, 2020months ended March 31, 2021 compared to Three Months Ended September 30, 2019.March 31, 2020.

Operating Expenses

Operating expenses for the three months ended September 30, 2020March 31, 2021 were $578,486$1,824,481 compared to $515,920$426,943 for the prior periodthree months ended September 30, 2019.March 31, 2020. The net increase of $62,566$1,397,538 in operating expenses consisted primarily of an increase in professional fees of $170,704, marketing$238,004, an increase in salary expense of $25,946,$144,875, an increase in research and development of $981,391, and an overall increase in other operating expenses of $6,010, partially offset by decreases$136,420, with a decrease in non-cash stock compensation expense of $134,959, and research and development cost of $5,135.$103,152.

Other Income/(Expenses)

Other income and (expenses) for the three months ended September 30, 2020March 31, 2021 were $(1,627,774)$(18,632,063) compared to $(736,839)$(148,497) for the prior periodthree months ended September 30, 2019.March 31, 2020. The increase in other expenses of $890,935$18,483,566 was the result of the non-cash loss in net change in derivative of $945,680,$18,664,587, and other income of $2,585, with a decrease in interest expense of $54,745,$178,436, which includes the net change in amortization of debt discount of $43,368.$156,172.

Net Income/(Loss)

For the three months ended September 30, 2020,March 31, 2021, our net loss was $(2,206,260)$(20,456,544) as compared to net loss of $(1,252,759)$(575,440) for the prior periodthree months ended September 30, 2019.March 31, 2020. The majority of the increase in net loss of $953,501,$19,881,104, 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 RESOURCESResults of Operations for the Nine Months ended March 31, 2021 compared to Nine Months Ended March 31, 2020.

Operating Expenses

Operating expenses for the nine months ended March 31, 2021 were $5,134,614 compared to $1,393,069 for the nine months ended March 31, 2020. The net increase of $3,741,545 in operating expenses consisted primarily of an increase in research and development expense of $1,318,904, an increase in professional fees of $2,218,020, an increase in salary of $329,875, with an overall decrease of $125,254 in other operating expenses.

Other Income/(Expenses)

Other income and (expenses) for the nine months ended March 31, 2021 were $(142,647,641) compared to $(3,715,392) for the nine months ended March 31, 2020. The increase in other expenses of $138,932,249 was the result of the non-cash loss in net change in derivative of $139,103,066, and a decrease in interest expense of $167,783, which includes the net change in amortization of debt discount of $120,162, and an increase in other income of $3,034.

Net Income/(Loss)

For the nine months ended March 31, 2021, our net loss was $(147,782,255) as compared to a net loss of $(5,108,461) for the nine months ended March 31, 2020. The majority of the increase in net loss of $142,673,794, 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, 2020,March 31, 2021, we had a working capital deficit of $61,456,515$157,207,426 as compared to $60,459,862 as of June 30, 2020. This increase in working capital deficit of $996,653$96,747,564 was due primarily to an increase in cash, prepaid expenses,accounts payable, accrued expenses, derivative liability, with a decrease in accounts payable and convertible notes.liability.

Cash used in operating activities was $(444,366)$(4,742,243) for the threenine months ended September 30, 2020March 31, 2021 compared to $(155,696)$(525,542) for the prior periodnine months ended September 30, 2019.March 31, 2020. The increase in cash used in operating activities was due to an increase in consulting feesresearch and development cost and professional fees. The Company has had no revenues.

Cash used in investing activities during the threenine months ended September 30,March 31, 2021 and 2020 was $(213,866) and 2019 was $50,000 and $0,$780, respectively. The increase in cash used in investing activities was due to the purchase of a tangible asset in the current period.

Cash provided by financing activities during the threenine months ended September 30, 2020March 31, 2021 was $50,108,900 net of commission fees and 2019 was $800,000 and $186,500, respectively.$626,500 for the nine months ended March 31, 2020. The increase in cash provided in financing activities was a result of moredue to selling equity financingsecurities in the current period. 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 currently have not generated any revenues.

The condensed financial statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets and liabilities and commitments in the normal course of business. The accompanying condensed financial statements do not reflect any adjustments that might result if we are unable to continue as a going concern. During the threenine months ended September 30, 2020,March 31, 2021, we did not generate any revenues, and incurred a net loss of $2,206,260,$147,782,255, which was primarily associated with the non-cash loss in change in derivative liability, and we had a working capital deficiency of $61,456,515$157,327,426 and a shareholders’ deficit of $62,781,137$157,997,338 as of September 30, 2020.March 31, 2021. These factors, among others raise substantial doubt about our ability to continue as a going concern. Our independent auditors, in their report on our audited financial statements for the year ended June 30, 2020, expressed substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern ultimately is dependent on our ability to generate revenue, which is dependent upon our ability to obtain additional equity or debt financing, attain further operating efficiencies and, ultimately, achieve profitable operations. We have historically obtained funds from investors through the sale of our securities. Management believes that we will be able to continue to raise funds through the sale of our securities to existing and new investors. Management believes that funding from existing and prospective new investors and, subject to successfully developing and commercializing our potential products, future revenue will provide the additional cash needed to meet our obligations as they become due, and will allow the development of our core business operations.

PLAN OF OPERATION AND FINANCING NEEDS

Our plan of operation within the next twelve months is to work with Schmid Group of Germany and other supporting vendors to scale our NanoParticle based technology to commercial size while further research, develop,working on the housing design and protect our technology.balance of system for full scale hydrogen generation devices that can be deployed worldwide.

We believe that our current cash balances will be sufficient to support development activity, intellectual property protection, and all general and administrative expenses for at least the next 30 days. Management estimate that we will require additional cash resources for the remainder of 2020, based upon its current operating plantwo years. We are exploring investment and condition.strategic partnerships in complimentary green hydrogen technologies and companies. These include hydrogen storage and compression technologies among others. We are investigating additional financing alternatives, including continued equity and/or debt financing. There can be no assurance that capital in any form would be available to us, and if available, on terms and conditions that are acceptable. If we are unable to obtain sufficient funds, we may be forced to reduce the size of our operations, which could have a material adverse impact on, or cause us to curtail and/or cease the development of our products.

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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required for Smaller Reporting Companies.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.

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..proceeding. 

ITEM 1A. RISK FACTORS

Except as set forth below, 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 23, 2020.

THE COVID-19 PANDEMIC MAY NEGATIVELY AFFECT OUR OPERATIONS.

The COVID-19 pandemic may negatively affect our operations.

The COVID-19 pandemic has resulted in social distancing, travel bansis having widespread, rapidly evolving, and quarantine,unpredictable impacts on global society, economies, financial markets, and this has limitedbusiness practices. The continuing impacts of COVID-19 are highly unpredictable and could be significant, and may continue to limit access tohave an adverse effect on our facilities bybusiness, operations and our management, support staff and professional advisors. These factors, in turn, may not only impact our operations,future financial condition and development of our products but our overall ability to react timely to mitigate theperformance.

The impact of this event. Also, it may hamperthe pandemic on our effortsbusiness, operations and future financial performance could include, but is not limited to, comply with our filing obligations with the Securities and Exchange Commission, and our ability to raise capital on acceptable terms, or at all.that: