Item 1A. Risk Factors.
Risks related
to our business and industry
Our limited
operating history does not afford investors a sufficient history on which to base an investment decision.
We
were formed in February 2009 and are currently developing a new technology that has not yet gained market acceptance. There can
be no assurance that at this time we will operate profitably or that we will have adequate working capital to meet our obligations
as they become due.
Investors
must consider the risks and difficulties frequently encountered by early stage companies, particularly in rapidly evolving markets.
Such risks include the following:
● competition;
● need for acceptance of products;
● ability to continue to develop and extend brand identity;
● ability to anticipate and adapt to a competitive market;
● ability to effectively manage rapidly expanding operations;
● dependence upon key personnel.
We
cannot be certain that our business strategy will be successful or that we will successfully address these risks. In the event
that we do not successfully address these risks, our business, prospects, financial condition, and results of operations could
be materially and adversely affected and we may have to curtail our business.
We have
a history of losses and have never realized revenues to date. We expect to continue to incur losses and no assurance can be given
that we will realize revenues. Accordingly, we may never achieve and sustain profitability.
As
of June 30, 2020, we have an accumulated deficit, of $75,550,515. For the year ended June 30, 2020 we incurred a net loss of $57,529,338.
We expect to continue to incur net losses until we are able to realize revenues to fund our continuing operations. We may fail
to achieve any or significant revenues from sales or achieve or sustain profitability. Accordingly, there can be no assurance of
when, if ever, we will be profitable or be able to maintain profitability.
We
have historically raised funds through various capital raising transactions. We will require additional funds in the future to
fund our business plans, either through additional equity or debt financings or collaborative agreements or from other sources.
We have no commitments to obtain such additional financing, and we may not be able to obtain any such additional financing on terms
favorable to us, or at all. In the event we are unable to obtain additional financing, we may be unable to implement our business
plan. Even with such financing, we have a history of operating losses and there can be no assurance that we will ever become profitable.
We may be
unable to manage our growth or implement our expansion strategy.
We may not be able
to develop our product or implement the other features of our business strategy at the rate or to the extent presently planned.
Our projected growth will place a significant strain on our administrative, operational and financial resources. If we are unable
to successfully manage our future growth, establish and continue to upgrade our operating and financial control systems, recruit
and hire necessary personnel or effectively manage unexpected expansion difficulties, our financial condition and results of operations
could be materially and adversely affected.
We may not
be able to successfully develop and commercialize our technologies which would result in continued losses and may require us to
curtail or cease operations.
In
May of 2012, we completed a lab scale prototype of our technology. This prototype demonstrates hydrogen production from small scale
solar devices coated with our unique, low-cost polymer coating, and submerged in waste water from a pulp and paper mill. However,
we have not completed a large-scale commercial prototype of our technology and are uncertain at this time when completion of a
commercial scale prototype will occur. Although, the lab scale prototype demonstrates the viability of our technology, there can
be no assurance that we will be able to commercialize our technology.
Our revenues
will be dependent upon acceptance of our products by the market; the failure of which would cause us to curtail or cease operations.
We
believe that virtually all of our revenues will come from the sale or license of our products. As a result, we will continue to
incur substantial operating losses until such time as we are able to develop our product and generate revenues from the sale or
license of our products. There can be no assurance that businesses and customers will adopt our technology and products, or that
businesses and prospective customers will agree to pay for or license our products. Our technology and product, when fully developed,
may not gain market acceptance due to various factors such as not enough cost savings between our method of producing hydrogen
and other more conventional methods. In the event that we are not able to significantly increase the number of customers that purchase
or license our products, or if we are unable to charge the necessary prices or license fees, our financial condition and results
of operations will be materially and adversely affected.
We face
intense competition, and many of our competitors have substantially greater resources than we do.
We
operate in a competitive environment that is characterized by price fluctuation and technological change. We will compete with
major international and domestic companies. Some of our current and future potential competitors may have greater market recognition
and customer bases, longer operating histories and substantially greater financial, technical, marketing, distribution, purchasing,
manufacturing, personnel and other resources than we do. In addition, competitors may be developing similar technologies with a
cost similar to, or lower than, our projected costs. As a result, they may be able to respond more quickly to changing customer
demands or to devote greater resources to the development, promotion and sales of solar and solar-related products than we can.
Our
business plan relies on sales of our products based on either a demand for truly renewable clean hydrogen or economically produced
clean hydrogen. If we fail to compete successfully, our business would suffer and we may lose or be unable to gain market share.
Neither the demand for our product nor our ability to manufacture have yet been proven.
Because
our industry is highly competitive and has low barriers to entry, we may lose market share to larger companies that are better
equipped to weather a deterioration in market conditions due to increased competition.
Our
industry is highly competitive and fragmented, subject to rapid change and has low barriers to entry. We may, in the future, compete
for potential customers with solar and heating companies and other providers of solar power equipment or electric power. Some of
these competitors may have significantly greater financial, technical and marketing resources and greater name recognition than
we have.
We
believe that our ability to compete depends in part on a number of factors outside of our control, including:
● the price at which others offer comparable services and equipment;
● the extent of our competitors’ responsiveness to customer needs; and
● installation technology.
Competition
in the solar power services industry may increase in the future, partly due to low barriers to entry, as well as from other alternative
energy resources now in existence or developed in the future. Increased competition could result in price reductions, reduced margins
or loss of market share and greater competition for qualified personnel. There can be no assurance that we will be able to compete
successfully against current and future competitors. If we are unable to compete effectively, or if competition results in a deterioration
of market conditions, our business and results of operations would be adversely affected.
Our business
depends on proprietary technology that we may not be able to protect and may infringe on the intellectual property rights of others.
Our success will depend,
in part, on our technology’s commercial viability and on the strength of our intellectual property rights. We currently hold
patents in the US, China and Australia, but still have several patents pending in multiple countries. There is no guarantee
the pending patents will be granted. In addition, any agreements we enter into with our employees, consultants, advisors, customers
and strategic partners will contain restrictions on the disclosure and use of trade secrets, inventions and confidential information
relating to our technology may not provide meaningful protection in the event of unauthorized use or disclosure.
Third
parties may assert that our technology, or the products we, our customers or partners commercialize using our technology, infringes
upon their proprietary rights. We have yet to complete an infringement analysis and, even if such an analysis were available at
the current time, it is virtually impossible for us to be certain that no infringement exists, particularly in our case where our
products have not yet been fully developed.
We
may need to acquire licenses from third parties in order to avoid infringement. Any required license may not be available to us
on acceptable terms, or at all.
We
could incur substantial costs in defending ourselves in suits brought against us for alleged infringement of another party’s
intellectual property rights as well as in enforcing our rights against others, and if we are found to infringe, the manufacture,
sale and use of our or our customers’ or partners’ products could be enjoined. Any claims against us, with or without
merit, would likely be time-consuming, requiring our management team to dedicate substantial time to addressing the issues presented.
Furthermore, the parties bringing claims may have greater resources than we do.
We do not
maintain theft or casualty insurance and only maintain modest liability and property insurance coverage and therefore, we could
incur losses as a result of an uninsured loss.
We
do not maintain theft, casualty insurance, or property insurance coverage. We cannot assure that we will not incur uninsured liabilities
and losses as a result of the conduct of our business. Any such uninsured or insured loss or liability could have a material adverse
effect on our results of operations.
If we lose
key employees and consultants or are unable to attract or retain qualified personnel, our business could suffer.
Our success is highly
dependent on our ability to attract and retain qualified scientific, engineering and management personnel. We are highly dependent
on our CEO, Timothy Young, and our development team at the University of Iowa. The loss of this valuable resource could have
a material adverse effect on our operations. Our only officer is employed on “at will” basis. Accordingly, there can
be no assurance that they will remain associated with us. Our management’s efforts will be critical to us as we continue
to develop our technology and as we attempt to transition from a development stage company to a company with commercialized products
and services. If we were to lose Mr. Young or the services of the development team at the university or any other key employees
or consultants, we may experience difficulties in competing effectively, developing our technology and implementing our business
strategies.
The loss
of strategic alliances used in the development of our products and technology could impede our ability to complete our product
and result in a material adverse effect causing the business to suffer.
We
pursue strategic alliances with other companies in areas where collaboration can produce technological and industry advancement.
We have entered into the sponsored research agreement with the University of Iowa which is set to terminate August 31, 2021.
If we are unable to extend the terms of the agreements, we could suffer delays in product development or other operational difficulties
which could have a material adverse effect on our results of operations.
There is
substantial doubt about our ability to continue as a going concern.
Our
independent public accounting firm in their report dated September 23, 2020 included
an explanatory paragraph expressing substantial doubt in our ability to continue as a going concern without additional capital
becoming available. Going concern contemplates the realization of assets and the satisfaction of liabilities in the normal course
of business over a reasonable length of time. Our ability to continue as a going concern ultimately is dependent on our ability
to generate a profit which is dependent upon our ability to obtain additional equity or debt financing, attain further operating
efficiencies and, ultimately, to achieve profitable operations. As a result, our financial statements do not reflect any adjustment
which would result from our failure to continue to operate as a going concern. Any such adjustment, if necessary, would materially
affect the value of our assets.
An occurrence of an uncontrollable
event such as the covid-19 pandemic may negatively affect our operations.
The occurrence of an
uncontrollable event such as the COVID-19 pandemic may negatively affect our operations. The COVID-19 pandemic has resulted in
social distancing, travel bans and quarantine, and this has limited and may continue to limit access to our facilities by our management,
support staff and professional advisors. These factors, in turn, may not only impact our operations, financial condition and development
of our products but our overall ability to react timely to mitigate the impact of this event. Also, it may hamper our efforts to
comply with our filing obligations with the Securities and Exchange Commission, and our ability to raise capital on favorable terms,
or at all.
Risks relating
to our common stock
There is a
limited trading market for our common stock.
Our common stock is
not listed on any national securities exchange. Accordingly, investors may find it more difficult to buy and sell our shares than
if our common stock was traded on an exchange. Although our common stock is quoted on the OTC Pink, it is an unorganized, inter-dealer,
over-the-counter market which provides significantly less liquidity than the Nasdaq Capital Market or other national securities
exchange. Further, there is limited trading in our common stock. These factors may have an adverse impact on the trading and price
of our common stock.
Our common
stock could be subject to extreme volatility.
The
trading price of our common stock may be affected by a number of factors, including events described in the risk factors set forth
in this report, as well as our operating results, financial condition and other events or factors. In addition to the uncertainties
relating to future operating performance and the profitability of operations, factors such as variations in interim financial results
or various, as yet unpredictable, factors, many of which are beyond our control, may have a negative effect on the market price
of our common stock. In recent years, broad stock market indices, in general, and smaller capitalization companies, in particular,
have experienced substantial price fluctuations. In a volatile market, we may experience wide fluctuations in the market price
of our common stock and wide bid-ask spreads. These fluctuations may have a negative effect on the market price of our common stock.
In addition, the securities market has, from time to time, experienced significant price and volume fluctuations that are not related
to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market
price of our common stock.
There is
a large number of authorized but unissued shares of capital stock available for issuance, which may result in substantial dilution
to existing shareholders.
Our
articles of Incorporation authorized the issuance of up to 5,000,000,000 shares of common stock, par value $0.001 and 5,000,000
shares of preferred stock, par value $0.001, of which 2,156,132,155 shares of common stock and no shares of preferred stock are
outstanding as of September 18, 2020. Our Board of Directors has the ability to authorize the issuance of an additional 2,843,867,845
shares of common stock and 5,000,000 shares of preferred stock without shareholder approval. Any such issuance will result in substantial
dilution to existing shareholders. In addition, the availability of such a large number of capital stock could be utilized, under
certain circumstances, as a method of discouraging, delaying or preventing a change in control of the Company.
We have
never paid common stock dividends and have no plans to pay dividends in the future, as a result our common stock may be less valuable
because a return on an investor’s investment will only occur if our stock price appreciates.
Holders
of shares of our common stock are entitled to receive such dividends as may be declared by our Board of Directors. To date, we
have paid no cash dividends on our shares of common stock and we do not expect to pay cash dividends on our common stock in the
foreseeable future. We intend to retain future earnings, if any, to provide funds for operations of our business. Therefore, any
return investors in our common stock will be in the form of appreciation, if any, in the market value of our shares of common stock.
There can be no assurance that shares of our common stock will appreciate in value or even maintain the price at which our stockholders
have purchased their shares.
Our common
stock is subject to the SEC’s penny stock rules.
Unless
our common stock is listed on a national securities exchange, including the Nasdaq Capital Market, or we have stockholders’
equity of $5,000,000 or less and our common stock has a market price per share of less than $5.00, transactions in our common stock
will be subject to the SEC’s “penny stock” rules. If our common stock remains subject to the “penny stock”
rules promulgated under the Securities Exchange Act of 1934, broker-dealers may find it difficult to effectuate customer transactions
and trading activity in our securities may be adversely affected.
In
accordance with these rules, broker-dealers participating in transactions in low-priced securities must first deliver a risk disclosure
document that describes the risks associated with such stocks, the broker-dealer’s duties in selling the stock, the customer’s
rights and remedies and certain market and other information. Furthermore, the broker-dealer must make a suitability determination
approving the customer for low-priced stock transactions based on the customer’s financial situation, investment experience
and objectives. Broker-dealers must also disclose these restrictions in writing to the customer, obtain specific written consent
from the customer, and provide monthly account statements to the customer. The effect of these restrictions will probably decrease
the willingness of broker-dealers to make a market in our common stock, decrease liquidity of our common stock and increase transaction
costs for sales and purchases of our common stock as compared to other securities. Our management is aware of the abuses that have
occurred historically in the penny stock market.
This
may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.
Our articles of incorporation allow
for our board to create new series of preferred stock without further approval by our stockholders, which could adversely affect
the rights of the holders of our common stock.
Our board of directors
has the authority to fix and determine the relative rights and preferences of preferred stock. Our board of directors has the authority
to issue up to 5,000,000 shares of our preferred stock without further stockholder approval. As a result, our board of directors
could authorize the issuance of a series of preferred stock that would grant to holders of preferred stock the right to our assets
upon liquidation, or the right to receive dividend payments before dividends are distributed to the holders of common stock. In
addition, our board of directors could authorize the issuance of a series of preferred stock that has greater voting power than
our common stock or that is convertible into our common stock, which could decrease the relative voting power of our common stock
or result in dilution to our existing stockholders.
Additional stock offerings in the
future may dilute then-existing shareholders’ percentage ownership of the Company.
Given our plans and
expectations that we will need additional capital and personnel, we anticipate that we will need to issue additional shares of
common stock or securities convertible or exercisable for shares of common stock, including convertible preferred stock, convertible
notes, stock options or warrants. The issuance of additional securities in the future will dilute the percentage ownership of then
current stockholders.
Item 2. Properties.
Our
principal office address is 10 E. Yanonali, Suite 36, Santa Barbara, CA, 93101. We believe that our current premises are sufficient
to handle our administrative activities for the near future as adequate lab space and equipment is attained through our agreement
with the University of Iowa.
Item 3. Legal Proceedings.
We
are not currently a party to, nor is any of our property currently the subject of, any material legal proceedings.
Item 4. Mine Safety Disclosures.
Not Applicable.
PART II
Item 5. Market for Registrant’s
Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Our
common stock is quoted on the OTC Pink under the symbol “HYSR”
Securities
Our
Articles of Incorporation, as amended, authorizes the issuance of 5,000,000,000 shares of common stock, $0.001 par value per share
and 5,000,000 shares of preferred stock, par value $0.001 per share.
All
outstanding shares of common stock are of the same class and have equal rights and attributes. The holders of our common stock
are entitled to one vote per share on all matters submitted to a vote of our stockholders. All stockholders are entitled to share
equally in dividends, if any, as may be declared from time to time by the Board of Directors out of funds legally available. In
the event of liquidation, the holders of our common stock are entitled to share ratably in all assets remaining after payment
of all liabilities. The stockholders do not have cumulative or preemptive rights.
As of September 18,
2020, our common stock was held by 178 stockholders of record.
Dividend Policy
We
have never declared or paid any cash dividends on our common stock. We do not anticipate paying any cash dividends to stockholders
in the foreseeable future. In addition, any future determination to pay cash dividends will be at the discretion of the Board of
Directors and will be dependent upon our financial condition, results of operations, capital requirements, and such other factors
as the Board of Directors deem relevant. There are no restrictions in our articles of incorporation or bylaws that restrict us
from declaring dividends.
Equity Compensation
Plan Information
On January 23, 2019,
our Board adopted the Company’s 2019 Equity Incentive Plan (the “Plan”). The stated 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 maximum number of shares of the Company’s
common stock that can be issued under the Plan is 300,000,000.
The following table sets forth information
about our equity compensation plans as of June 30, 2020.
(a) (b)
Equity compensation plans approved by security holders - $ - -
Recent Sales
of Unregistered Securities
During
the three months ended June 30, 2020, the Company issued 200,989,838 shares of common stock upon conversion of $249,545 in principal
of convertible notes, plus accrued interest of $49,200, and other fees of $1,900.
During
the three months ended June 30, 2020, the Company issued 16,313,820 shares of common stock for services.
In
connection with the foregoing, the Company relied on an exemption from registration provided under Section 4(a)(2) of the Securities
Act of 1933, as amended for transactions not involving a public offering.
Issuer Purchases
of Equity Securities
None.
Item 6. Selected Financial Data
Not required for
a smaller reporting company.
Item 7. Management’s Discussion
and Analysis of Financial Conditions and Results of Operations.
Certain
statements in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” below,
and elsewhere in this annual report, are not related to historical results, and are forward-looking statements.
Forward-looking
statements present our expectations or forecasts of future events. You can identify these statements by the fact that they do not
relate strictly to historical or current facts. These statements involve known and unknown risks, uncertainties and other factors
that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results,
levels of activity, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements
frequently are accompanied by such words such as “may,” “will,” “should,” “could,”
“expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,”
“predicts,” “potential” or “continue,” or the negative of such terms or other words and terms
of similar meaning. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot
guarantee future results, levels of activity, performance, achievements, or timeliness of such results. Moreover, neither we nor
any other person assumes responsibility for the accuracy and completeness of such forward-looking statements. We are under no duty
to update any of the forward-looking statements after the date of this annual report. Subsequent written and oral forward looking
statements attributable to us or to persons acting in our behalf are expressly qualified in their entirety by the cautionary statements
and risk factors set forth below and elsewhere in this annual report, and in other reports filed by us with the SEC.
You should read the
following description of our financial condition and results of operations in conjunction with the financial statements and accompanying
notes included in this Annual Report beginning on page F-1.
Overview
At SunHydrogen,
Inc., our goal is to replace most forms of energy on earth with clean renewable hydrogen.
Our patented low-cost technology is intended
to produce renewable hydrogen using sunlight and any source of water, including seawater and wastewater. Unlike non-renewable hydrocarbon
fuels, such as oil, coal and natural gas, where carbon dioxide and other contaminants are released into the atmosphere when used,
hydrogen fuel usage produces pure water as the only byproduct. By optimizing the science of water electrolysis at the nano-level,
our low-cost nanoparticles mimic photosynthesis to efficiently use sunlight to split water molecules into environmentally friendly
renewable hydrogen. Using our low-cost method to produce renewable hydrogen, we intend to enable a world of distributed hydrogen
production for renewable electricity and hydrogen fuel cell vehicles.
Our technology
is primarily developed at the University of Iowa, through a sponsored research agreement. Over the past several years, our team
has been focused on developing the technology to a point at which it can be commercialized. After years of dedication, we are now
ready to move from the lab into commercial production with the first generation of our technology.
Our innovative
technology is packaged into a self-contained hydrogen production panel that requires only sunlight and any source of water. Just
like solar panels convert sunlight into electricity, our hydrogen panels will convert sunlight and water into hydrogen. As a result
of this form factor, the panels can be installed almost anywhere to produce hydrogen fuel at or near the point of use. We believe
that this distributed model of hydrogen production addresses one of the biggest challenges of the hydrogen economy, which is the
prohibitive high infrastructure cost of transporting hydrogen to the points of use.
Results of Operations for the Year Ended
June 30, 2020 compared to the Year Ended June 30, 2019.
Operating Expenses
For the year ended
June 30, 2020 operating expenses were $1,681,427 compared to $1,828,551 for the prior year ended June 30, 2019. Operating expenses
consist primarily of research and development expenses and general and administrative expenses incurred in connection with the
operation of our business. The net decrease of $147,124 in operating expenses was a result of a decrease in general and administrative
expense of $235,375, which consist of $261,919 in non-cash stock compensation expense, with an increase of $26,544 in other general
and administrative expense and an increase in research and development cost of $86,820, and an increase in depreciation and amortization
expense of $1,431.
Other Income/(Expenses)
Other income and (expenses)
for the year ended June 30, 2020 were $(55,847,911) compared to $5,806,888 for the prior year ended June 30, 2019. The net increase
of $(61,654,799) in other income and (expenses) was the result of the net change in derivative liability.
Net Income (Loss)
For the year ended
June 30, 2020 our net loss of was $(57,529,338), compared to net income of $3,978,337 for the year ended June 30, 2019. The
majority of the increase in net loss of $61,507,675, was related primarily to the net change in derivative estimates each year.
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 June 30, 2020,
we had a working capital deficit of $60,459,862, compared to a working capital deficit of $4,829,162 as of June 30, 2019. This
increase in working capital deficit of $55,630,700 was primarily due to the increase in net change in derivative liability, cash,
accounts payable, accrued expenses, accrued interest on convertible notes, with a decrease in prepaid expenses, and convertible
notes.
During the year ended
June 30, 2020, we raised an aggregate of $856,500 in a private placement of convertible notes. During the prior year ended June
30, 2019, we raised an aggregate of $804,500 in a private placement of convertible notes. Our ability to continue as a going concern
is dependent upon our ability to raise capital and future revenue generated from operations.
Cash flow used in operating
activities was $695,784 for the year ended June 30, 2020, compared to $853,693 for the year ended June 30, 2019. The decrease in
cash used by operating activities was primarily due to the decrease in insurance expense. The Company has had no revenues.
Cash used in investing
activities for the year ended June 30, 2020 and 2019 was $780 and $13,059, respectively. The decrease in investing activities was
as a result of a decrease in intangible assets purchased during the current year.
Cash provided by financing
activities during the year ended June 30, 2020 was $856,500 compared to $804,500 for the prior year ended June 30, 2019. The increase
in cash from financing activities was due to the increase in issuance of convertible notes through private placement offerings
during the current period.
During the year ended
June 30, 2020, we did not generate any revenue but incurred net loss of $57,529,338 and used cash in the amount of $695,784 in
our operations. As of June 30, 2020, we had a working capital deficiency of $60,459,862 and a shareholders’ deficit of $61,832,448.
These factors, among others raise substantial doubt about our ability to continue as a going concern. Our independent auditors,
in their report dated September 23, 2020, 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 s to continue
as a going concern and appropriateness of using the going concern basis is dependent on our ability to generate a profit which
is dependent upon our ability to obtain additional equity or debt financing, advance our technology and, ultimately, to achieve
profitable operations.
We have historically
obtained funding from our shareholders, through private placement offerings of equity and debt securities. Management believes
that it will be able to continue to raise funds through the sale of its securities to its existing shareholders and prospective
new investors which will provide the additional cash needed to meet the Company’s obligations as they become due, and will
allow the Company to continue to develop its core business. There can be no assurance that we will be able to continue raising
the required capital for our operations and if available, on terms and conditions that are acceptable. If we are unable to obtain
sufficient funds, we may be forced to curtail and/or cease the development of our technology.
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.
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 lattice valuation 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 recording, useful lives and impairment of tangible and intangible
assets, derivatives, accruals, income taxes, stock-based compensation expense, binomial model inputs 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 June 30, 2020, the amounts reported for cash, accrued interest and other expenses, notes payables,
and derivative liability approximate the fair value because of their short maturities.
Recently Adopted
Accounting Pronouncements
Management adopted
recently issued accounting pronouncements during the year ended June 30, 2020, as disclosed in the Notes to the financial statements
included in this report.
Item 7A. Quantitative and Qualitative
Disclosure About Market Risk.
Not
required for a smaller reporting company.
Item 8. Financial Statements.
All
financial information required by this Item is attached hereto at the end of this report beginning on page F-1 and is hereby incorporated
by reference.
Item 9. Changes in and Disagreements
with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Evaluation
of Disclosure Controls and Procedures.
Our
management, with the participation of our CEO and our Acting CFO, evaluated the effectiveness of our disclosure controls and procedures
(as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. Based
on that evaluation, our CEO and our Acting CFO concluded that our disclosure controls and procedures as of the end of the period
covered by this report were effective to ensure that information required to be disclosed is made known to management
and others, as appropriate, to allow timely decision regarding required disclosure and that the information required to be disclosed
by us in reports that we file or submit under the Securities Exchange Act of 1934 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 CEO and Acting CFO, or persons performing similar functions, as appropriate to allow timely decisions regarding required
disclosure. A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and
no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company
have been detected.
Management’s
Annual Report on Internal Control over Financial Reporting.
We
are responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in
Exchange Act Rule 13a-15(f). The Company’s internal control over financial reporting is a process designed to provide reasonable
assurance to our management and board of directors regarding the reliability of financial reporting and the preparation of the
financial statements for external purposes in accordance with accounting principles generally accepted in the United States of
America.
Our
internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii)
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company
are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets
that could have a material effect on the financial statements.
Our
management conducted an evaluation of the effectiveness of our internal control over financial reporting as of June 30, 2020 based
on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013). Based on this evaluation, management concluded that our internal control over financial reporting was
effective as of June 30, 2020, based on those criteria.
A
control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives
of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.
This
annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to the rules
of the Securities and Exchange Commission that permanently exempt smaller reporting companies
Changes in
Internal Controls.
There
has been no change in our internal control over financial reporting that occurred during the last fiscal quarter of fiscal year
ended June 30, 2020 that has materially affected, or is reasonably likely to materially affect our internal control over financial
reporting.
Item 9B. Other Information.
None.
PART III
Item 10. Directors, Executive Officers
and Corporate Governance.
The
following table sets forth information about our executive officers, key employees and directors:
Name Age Position
Mark J. Richardson 67 Director
Timothy Young
– President, CEO, Acting CFO and Chairman of the Board of Directors
Tim
Young is an accomplished executive with over fifteen years of management experience in media and Internet technology companies.
Mr. Young was appointed President, CEO and Chairman of the Company in August 2009. Mr. Young
was appointed Acting CFO in 2010.
Mr.
Young oversees the Company’s research and development initiatives and fundraising efforts.
From
September 2007 through August 2009, Mr. Young was the President of Rovion, Inc., an internet media startup company, where he increased
revenues through a channel sales strategy that included companies such as Clear Channel, Disney, CBS, and Fox Television and bolstered
the company’s technical capabilities through strategic acquisitions. Prior to Rovion, Mr. Young was employed by Time Warner
Inc. from October 1998 through July 2007, where he served as Vice President and Regional Vice President of various divisions including
America Online and Time Warner Cable.
Mr.
Young’s track record of success and over fifteen plus years of management and leadership experience bringing new products
to the market, qualifies him to be a board member of the Company.
Mark J. Richardson
–Director
Mr.
Richardson was appointed as a director in June 2018. Mr. Richardson has been a securities lawyer since he graduated from the University
of Michigan Law School in 1978. He practiced as an associate and partner in large law firms until 1993, when he established his
own practice under the name Richardson & Associates. He has been the principal securities counsel on a variety of equity and
debt placements for corporations, partnerships, and real estate companies. His practice includes public and private offerings,
venture capital placements, debt restructuring, compliance with federal and state securities laws, representation of publicly traded
companies, Nasdaq filings, corporate law, partnerships, joint ventures, mergers, asset acquisitions, and stock purchase agreements.
As a partner in a major international law firm in the 1980’s, Mr. Richardson participated in the leveraged buyout and recapitalization
of a well-known producer of animated programming for children, financed by Prudential Insurance and Bear Stearns, Inc. He was also
instrumental in restructuring the public debentures of a real estate company without resorting to a bankruptcy proceeding. From
1986 to 1993 Mr. Richardson was a contributing author to State Limited Partnerships Laws – California Practice Guide, Prentice
Hall Law and Business. Prior to receiving his Juris Doctor degree cum laude from the University of Michigan Law School in 1978,
Mr. Richardson received a Bachelor of Science degree summa cum laude in Resource Economics from the University of Michigan School
of Natural Resources in 1975, where he earned the Bankstrom Prize for academic excellence and achieved Phi Beta Kappa honors. Mr.
Richardson is an active member of the Los Angeles County and California State Bar Associations, including the Section on Corporations,
Business and Finance and the Section on Real Estate.
The Board has determined
that Mr. Richardson is qualified to serve as a director because of his extensive experience as a practicing attorney representing
small companies.
Directors are elected at our annual meeting
of shareholders and serve for one year until the next annual meeting of shareholders or until their successors are elected and
qualified.
Family Relationships
There
are no family relationships among our executive officers and directors.
Board Leadership
Structure and Role in Risk Oversight
Although
we have not adopted a formal policy on whether the Chairman and Chief Executive Officer positions should be separate or combined,
we have traditionally determined that it is in the best interests of the Company and its shareholders to combine these roles.
Currently, we have only one executive officer, who is our Chief Executive Officer, who also serves as Chairman of the Board. Due
to the small size and early stage of the Company, we believe it is currently most effective to have the Chairman and Chief Executive
Officer positions combined.
Involvement
in Certain Legal Proceedings
During
the past ten years, none of our directors, executive officers, promoters, control persons, or nominees has been:
Committees
of the Board
Due
to the small size of the Company and its Board of Directors, we currently have no audit committee, compensation committee or nominations
and governance committee of our board of directors. We do not have an audit committee financial expert.
Code of Ethics
We
have adopted a Code of Ethics that applies to all of our directors, officers and employees. A copy of the Code of Ethics can be
obtained without charge upon request to Timothy Young, CEO and President, 10 E. Yanonali, Suite 36, Santa Barbara, CA 93101 and
is also being incorporated by reference herein. Any waiver of the provisions of the Code of Ethics for executive officers and directors
may be made only by the Board of Directors. Any such waivers will be promptly disclosed to our shareholders.
Changes in
Nominating Procedures
None.
Item 11. Executive Compensation
The
table below sets forth the compensation earned by each person acting as our Principal Executive Officer and our other most highly
compensated executive officers whose total annual compensation exceeded $100,000 during the last two fiscal years.
Employment Agreements
Our
CEO, Timothy Young is employed as an “at-will” employee whose employment with the Company may be terminated at any
time by either party. We have agreed to pay Mr. Young an annual salary of $255,000, subject to modification in accordance with
the Company’s policies, practices and procedures. In addition, we have agreed to pay Mr. Young three months base
salary, in the event his employment is terminated by the Company. Mr. Young is eligible to receive a quarterly bonus as determined
by the Company’s Board of Directors and to participate in any benefit plan implemented by the Company.
Outstanding