UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2022September 30, 2023

or

☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM __________ TO __________

COMMISSION FILE NUMBER: 000-54437

SUNHYDROGEN, INC.

(Name of registrant in its charter)

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

10 E. Yanonali, Suite 36

Santa Barbara, CA 93101

Former address, if changed since last report

Securities registered pursuant to Section 12(b) of the Act:

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.

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 14,November 9, 2023 was 4,474,813,4615,061,034,972.

SUNHYDROGEN, INC.

INDEX

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

SUNHYDROGEN, INC.

CONDENSED BALANCE SHEETS

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

SUNHYDROGEN, INC.

CONDENSED STATEMENTS OF OPERATIONS

FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31,SEPTEMBER 30, 2023 AND 2022 AND 2021

(Unaudited)

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

SUNHYDROGEN, INC.

CONDENSED STATEMENTS OF SHAREHOLDERS’ EQUITY/(DEFICIT)EQUITY

FOR THE SIXTHREE MONTHS ENDED DECEMBER 31,SEPTEMBER 30, 2023 AND 2022 AND 2021

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

SUNHYDROGEN, INC.

CONDENSED STATEMENTS OF CASH FLOWS

FOR THE SIXTHREE MONTHS ENDED DECEMBER 31SEPTEMBER 30, 2023 AND 2022 AND 2021

(Unaudited)

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

SUNHYDROGEN, INC.

NOTES TO FINANCIAL STATEMENTS – UNAUDITED

DECEMBER 31,SEPTEMBER 30, 2023 AND 2022 AND 2021

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included. Operating results for the sixthree months ended December 31, 2022September 30, 2023 are not necessarily indicative of the results that may be expected for the six monthsyear ended December 31, 2022.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, 2022.2023.

This summary of significant accounting policies of SunHydrogen, Inc. is presented to assist in understanding the Company’s financial statements. The financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the financial statements.

Cash and Cash Equivalent

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.

Concentration risk

Cash includes amounts deposited in financial institutions in excess of insurable Federal Deposit Insurance Company (FDIC) limits. At times throughout the year, the Company may maintain cash balances in certain bank accounts in excess of the FDIC limits. As of December 31, 2022,September 30, 2023, the cash balance in excess of the FDIC limits was $19,291,669.$32,550,160. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk in these accounts.

Marketable Securities

The Company considers corporate bonds (“bonds”) as investments due to their ratings. The bonds are rated based on their default probability, health of the corporation’s debt structure, as well as the overall health of the economy. The bonds fall into the category as investments if they have a rating of AAA and BBB.

Corporate bonds and U.S. Treasuries are considered current, based on their liquidity. The investments are generally valued using quoted prices and are classified in Level 2 of the fair value hierarchy as prices are not always from active markets. We consider our investments held to maturity and we believe there are no other than temporary declines in fair value. Our investments are recorded at historical cost.

Use of Estimates

In accordance with accounting principles generally accepted in the United States, management utilizes estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. These estimates and assumptions relate to useful lives and impairment of tangible and intangible assets, accruals, income taxes, stock-based compensation expense, Binomial lattice valuation model inputs, derivative liabilities and other factors. Management believes it has exercised reasonable judgment in deriving these estimates. Consequently, a change in conditions could affect these estimates.

Property and Equipment

Property and equipment are stated at cost and are depreciated using straight line over its estimated useful lives.

The Company recognized depreciation expense of $17,923$9,306 and $18,809$8,563 for the sixthree months ended December 31,September 30, 2023 and the year ended June 30, 2022, and 2021, respectively. 

SUNHYDROGEN, INC.

NOTES TO FINANCIAL STATEMENTS – UNAUDITED

DECEMBER 31, 2022 AND 2021

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.

The Company recognized amortization expense of $3,517$1,699 and $3,517$1,758 for the three months ended December 31, 2022September 30, 2023 and 2021,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 year.three months ended September 30, 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), plus the assumed conversion of convertible debt (Note 5). 

Six Months Ended DecemberThree months ended September 30, 20222023

The Company calculated the dilutive impact of 154,894,499218,394,499 outstanding stock options, 94,895,23986,495,239 common stock purchase warrants,warrant, and the convertible debt and accrued interest of $948,623,8,851 Series C Preferred shares, which isare convertible into shares of common stock. TheStock options, common stock purchase warrants, and convertible debtSeries C Preferred shares were not included in the calculation of net earnings per share, because their impact on income per share is dilutive.antidilutive.

Six Months Ended December 31, 2021Three months ended September 30, 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 $1,173,384,$1,042,614, 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 dilutive.antidilutive.

SUNHYDROGEN, INC.

NOTES TO FINANCIAL STATEMENTS – UNAUDITED

DECEMBER 31, 2022 AND 2021

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 increasedincrease 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 September 30, 2023 there were 279,400,00 shares 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 options, which were added back to the total reserve.

As of December 31, 2022,September 30, 2023, under the 2019 Equity Incentive Plan, there were 154,894,499286,770,561 stock options and shares issued, and a reserve of 46,741,308.13,229,439 shares.

Stock Based Compensation

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

Warrant Accounting 

The Company accounts for the warrants to purchase shares of common stock using the estimated fair value on the date of issuance as calculated using the Black-Scholes valuation model.

Fair Value of Financial Instruments

Fair value of financial instruments requires disclosure of the fair value information, whether or not recognized on the balance sheet, where it is practicable to estimate that value. As of December 31, 2022,September 30, 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.

SUNHYDROGEN, INC.

NOTES TO FINANCIAL STATEMENTS – UNAUDITED

DECEMBER 31, 2022 AND 2021

Fair Value of Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 established a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:

We measure certain financial instruments at fair value on a recurring basis. Assets and liabilities measured at fair value on a recurring basis are as follows on December 31, 2022 (See Note 6):

As of September 30, 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:value for the period ended September 30, 2022:

TheAs of September 30, 2023, the derivative liability balance consisted of the derivative liabilities for convertible notes in the amount of $22,578,380 and warrants in the amount of $2,494,852 for an aggregate total of $25,073,232.was $0.

Research and Development

Research and development costs are expensed as incurred.  Total research and development costs were $2,080,320$439,064 and $437,215$305,530 for the sixthree months ended December 31,September 30, 2023 and 2022, and 2021, respectively.

Accounting for Derivatives

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

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

SUNHYDROGEN, INC.

NOTES TO FINANCIAL STATEMENTS – UNAUDITED

DECEMBER 31, 2022 AND 2021

Reclassification of Expenses

Certain amounts in the 2021 financial statements have been reclassified to conform to the presentation used in the 2022 financial statements. There was no material effect on the Company’s previously issued financial statements.

Recently Issued Accounting Pronouncements

Management does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying unaudited financial statements as of December 31, 2022.September 30, 2023.

Series C Preferred Stock

On December 15, 2021, the Company filed a certificate of designation of Series C Preferred Stock with the Secretary of State of Nevada, designating 17,000 shares of preferred stock as Series C Preferred Stock. Each share of Series C Preferred Stock has a stated value of $100 and is convertible into shares of common stock of the Company at a conversion price equal to $0.00095. The Series C Preferred Stockholders are entitled to receive out of any funds and assets of the Company legally available prior and in preference to any declaration or payment of any dividend on the common stock of the Company, cumulative dividends, at an annual rate of 10% of the stated value, payable in cash or shares of common stock. In the event the Company declares or pays a dividend on its shares of common stock (other than dividend payable in shares of common stock), the holders of Series C Preferred Stock will also be entitled to receive payment of such dividend on an as-if-converted basis. The Series C Preferred Stock confers no voting rights on holders, except with respect to matters that materially and adversely affect the voting powers, rights or preferences of the Series C Preferred Stock or as otherwise required by applicable law.

The

On December 15, 2021, the Company entered into a securities purchase agreement on December 15, 2021, with an accredited investor for an exchange of convertible debt to equity. Under the purchase agreement, the Company and investor acknowledged there was $187,800 of principal remaining under the note issued to the investor by the Company on February 3, 2017, plus $80,365 of accrued interest, representing a total aggregate note balance of $268,165. Pursuant to the purchase agreement, the Company sold to the investor 2,700 shares of the Company’s newly designated Series C Preferred Stock for a total purchase price of $268,165, and a loss on settlement of debt of $1,835. 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 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, 2022,September 30, 2023, the Company had a total of 2,7009,465 shares of Series C Preferred Stock outstanding with a fair value of $268,165,$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 three months ended September 30, 2023, the investor converted 2,100 preferred shares with a stated value of $210,000, at a conversion price of $0.00095. The preferred shares were converted into 221,052,632 shares of common stock. As of September 30, 2023, 7,365 shares of Series C Preferred Stock remain outstanding.

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 September 30, 2023, the Company had a total of 8,851 shares of Series C Preferred Stock outstanding with a fair value of $885,100, and a stated 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. Such shareholderShareholder approval for such actions became effective 20 days after the definitive information statement relating to such actions was mailed to shareholders.

Three months ended September 30, 2023

SUNHYDROGEN, INC.

NOTES TO FINANCIAL STATEMENTS – UNAUDITED

DECEMBER 31,On November 11, 2022, AND 2021the Company entered into a Purchase Agreement with an investor to purchase up to $45,000,000 of shares of the Company’s common stock. During the three months ended September 30, 2023, the Company issued 18,939,394 shares of common stock for $243,975 under the purchase agreement at prices of $0.0132, pursuant to the purchase notices received from the investor. The finance cost of $6,025 was deducted from the gross proceeds received.

On September 8, 2023, the Company issued 221,052,632 shares of common stock, upon conversion of 2,100 shares of preferred stock with a face value of $210,000 at an exercise price of $0.00095.

Six MonthsThree months ended December 31,September 30, 2022

During the periodthree months ended December 31,June 30, 2022, the Company issued 120,000,000381,457,044 shares of common stock upon conversion of convertible notes in the amount of $78,153$255,900 of principal, plus accrued interest of $35,847$106,484 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 periodthree months ended December 31,June 30, 2022, the Company issued 56,314,80640,983,607 shares of common stock for $1,450,000 underpursuant to a purchase agreement for cash 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$0.02745 per share for compensation expenseaggregate net proceeds of $32,875.$960,000.

Under the 2022 Equity Incentive Plan, one employee and one consultant were granted 40,000,000 restricted stock awards for services, of which 20,000,000 shares vested January 1, 2023 and 20,000,000 shares will vest January 1, 2024.

Six Months ended December 31, 2021