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
Equity Awards at Fiscal Year-End
The following table
discloses information regarding outstanding equity awards granted or accrued as of June 30, 2020, for our named executive officer.
Outstanding Equity Awards
Option Awards Stock Awards
Director Compensation
The
following table sets forth compensation information regarding the Company’s non-employee directors in fiscal 2020:
Item 12. Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The
following table sets forth certain information concerning the number of shares of our common stock owned by: (i) each of our directors;
(ii) each of our named executive officers; and (iii) each person or group known by us to beneficially own more than 5% of our outstanding
shares of common stock.
We
believe that all persons named in the table have sole voting and investment power with respect to all shares of common stock beneficially
owned by them.
A
person is deemed to be the beneficial owner of securities that can be acquired by him within 60 days from the date of this report
upon the exercise of options, warrants or convertible securities. Each beneficial owner’s percentage ownership is determined
by assuming that options, warrants or convertible securities that are held by him, but not those held by any other person, and
which are exercisable within 60 days of September 18, 2020 or have been exercised and converted.
Name and address Shares of Common Stock Percentage of Common Stock (1)
Directors and Officers (2)
All Officers and Directors as a Group (2 person) 156,666,667 6.8 %
* Less than 1%.
Item 13. Certain Relationships and Related
Transactions, and Director Independence.
Certain Relationships
and Related Transactions
Since
the beginning of our last fiscal year, except as set forth below, there have been and there are no currently proposed transaction,
in which we are or were a participant and the amount involved exceeds $120,000 or one percent of the average of our total assets
at year-end for the last two completed fiscal years, and in which any director, executive officer, holder of more than 10% of any
class of our voting securities, had or will have a direct or indirect material interest.
On
September 10, 2020, the Company entered into rescission agreements with Timothy Young, the Company’s chief executive officer
and director, and Mark Richardson, the Company’s director. Under the rescission agreements, the cashless option exercises
of Mr. Young and Mr. Richardson that were completed on June 24, 2020, were rescinded and unwound in full. Under Mr. Young’s
option exercise, Mr. Young had exercised 50,000,000 options cashlessly at an exercise price of $0.0099 per share and was issued
39,239,130 shares of common stock. Under Mr. Richardson’s option exercise, Mr. Young had exercised 8,055,542 options cashlessly
at an exercise price of $0.0099 per share and was issued 6,321,849 shares of common stock.
Director Independence
The Board has determined
that Mr. Richardson is an independent director within the meaning of NASDAQ Rule 5605(a)(2).
Item 14. Principal Accountant Fees and
Services.
Audit Fees
The
aggregate fees billable to us by our principal accounting during 2020 and 2019 for the audit of our annual financial statements
and quarterly reviews of our financial statements for the fiscal year totaled approximately
$11,000 and $25,000, respectively.
Audit-Related
Fees
We
incurred assurance and audit-related fees during 2020 and 2019 of $0 and $0 to our principal accountant in connection with
the audit of the financial statements of the Company for the years ended June 30, 2020 and 2019.
Tax Fees
We
did not incur fees for services rendered to us for tax compliance, tax advice, or tax planning by our principal accountant for
the fiscal years ended June 30, 2020 and 2019.
All Other Fees
As
of the date of this filing, our current policy is to not engage M&K CPAS, PLLC to provide, among other things, bookkeeping
services, appraisal or valuation services, or international audit services. The policy provides that we engage M&K CPAS, PLLC
to provide audit, and other assurance services, such as review of SEC reports or filings.
Item 15. Exhibits.
Exhibit Description
3.7 Articles of Merger (incorporated by reference to 8-K filed June 15, 2020)
3.8 Bylaws (incorporated by reference to S-1 February 5, 2010)
23.1* Consent of Liggett & Webb, P.A.
23.2* Consent of M&K CPAS, LLC
EX-101.INS * XBRL INSTANCE DOCUMENT
EX-101.SCH * XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT
EX-101.CAL * XBRL TAXONOMY EXTENSION CALCULATION LINKBASE
EX-101.DEF * XBRL TAXONOMY EXTENSION DEFINITION LINKBASE
EX-101.LAB * XBRL TAXONOMY EXTENSION LABELS LINKBASE
EX-101.PRE * XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE
* Filed herewith.
** Furnished herewith.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
SUNHYDROGEN, INC.
Date: September 23, 2020 By: /s/ Timothy Young
Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
Signature Title Date
/s/ Timothy Young Chief Executive Officer, President September 23, 2020
/s/ Mark R. Richardson Director September 23, 2020
Mark R. Richardson
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Shareholders
SunHydrogen,
Inc.
Opinion
on the Financial Statements
We
have audited the accompanying balance sheet of SunHydrogen, Inc. (the Company) as of June 30, 2020, and the related statements
of operations, shareholders’ deficit, and cash flows for the year then ended, and the related notes (collectively referred
to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects,
the financial position of the Company as of June 30, 2020, and the results of its operations and its cash flows for the year then
ended in conformity with accounting principles generally accepted in the United States of America. The financial statements of
SunHydrogen, Inc. as of June 30, 2019 were audited by other auditors whose report dated September 27, 2019 expressed an unqualified
opinion on those financial statements.
Basis
for Opinion
These
consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB .
We
conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether
due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting,
but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our
audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the
accounting principles used and the significant estimates made by management, as well as evaluating the overall presentation of
the consolidated financial statements. We believe our audit provides a reasonable basis for our opinion.
The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed
in Note 1 to the financial statements, the Company has suffered net losses from operations and has a net capital deficiency, which
raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are
discussed in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/
M&K CPAS, PLLC
M&K
CPAS, PLLC
We
have served as the Company’s auditor since 2020
Houston,
TX
September
23, 2020
F-1
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Shareholders of
HyperSolar,
Inc.
Opinion
on the Financial Statements
We
have audited the accompanying balance sheet of SunHydrogen, Inc. (formerly HyperSolar, Inc.) (the “Company”) as of June
30, 2019, the related statements of operations, shareholders’ deficit, and cash flows for the year then ended, and the related
notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly,
in all material respects, the financial position of the Company as of June 30, 2019, and the results of its operations and its
cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
The
Company’s Ability to Continue as a Going Concern
The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As
discussed in Note 1 to the financial statements, the Company does not generate revenue and has negative cash flows from operations. This
raises substantial doubt about the Company’s ability to continue as a going concern. Management’s plans
in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Basis
for Opinion
These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s
financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting in accordance with the standards of the PCAOB. As part of our audits we are required to obtain an understanding of internal
control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal
control over financial reporting. Accordingly, we express no such opinion in accordance with the standards of the PCAOB.
Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that our audits provide a reasonable basis for our opinion.
/s/ Liggett & Webb, P.A.
We
have served as the Company’s auditor since 2014.
New
York, NY
September
27, 2019
F-2
SUNHYDROGEN, INC.
(formerly Hypersolar, Inc.)
BALANCE SHEETS
ASSETS
CURRENT ASSETS
PROPERTY & EQUIPMENT
Less: accumulated depreciation (1,605 ) (837 )
OTHER ASSETS
Trademark, net of amortization of $371 and $257, respectively 772 886
LIABILITIES AND SHAREHOLDERS’ DEFICIT
CURRENT LIABILITIES
LONG TERM LIABILITIES
COMMIMENTS AND CONTINGENCIES (SEE NOTE 8) - -
SHAREHOLDERS’ DEFICIT
TOTAL LIABILITIES AND SHAREHOLDER’S DEFICIT $ 291,802 $ 196,572
The accompanying notes are an integral part of these audited financial statements
F-3
SUNHYDROGEN, INC.
(formerly Hypersolar, Inc.)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 2020 AND 2019
Years Ended
REVENUE $ - $ -
OPERATING EXPENSES
Depreciation and amortization 8,419 6,988
LOSS FROM OPERATIONS BEFORE OTHER INCOME (EXPENSES) (1,681,427 ) (1,828,551 )
OTHER INCOME/(EXPENSES)
Loss on write-off of patent cost (5,426 ) -
BASIC AND DILUTED LOSS PER SHARE $ (0.04 ) $ 0.00
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
The accompanying notes are an integral part of these audited financial statements
F-4
SUNHYDROGEN, INC.
(formerly Hypersolar, Inc.)
STATEMENTS OF SHAREHOLDERS’ DEFICIT
FOR THE YEARS ENDED JUNE 30, 2020 AND 2019
Additional
Preferred stock Common stock Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit Total
Additional
Preferred stock Common stock Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit Total
The accompanying notes are an integral part of these audited financial statements
F-5
SUNHYDROGEN, INC.
(formerly Hypersolar, Inc.)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2020 AND 2019
Years Ended
CASH FLOWS FROM OPERATING ACTIVITIES:
Depreciation & amortization expense 8,419 6,988
Loss on conversion of debt - 1,053,517
Net loss on write-off of patent cost 5,426 -
Amortization of debt discount recorded as interest expense 714,145 610,917
Change in assets and liabilities :
Other asset - 900
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of tangible assets (780 ) (13,059 )
NET CASH USED IN INVESTING ACTIVITIES: (780 ) (13,059 )
CASH FLOWS FROM FINANCING ACTIVITIES:
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Taxes paid $ - $ -
SUPPLEMENTAL DISCLOSURES OF NON CASH TRANSACTIONS
Fair value of convertible notes at issuance $ 841,436 $ 743,301
The accompanying notes are an integral part of these audited financial statements
F-6
SUNHYDROGEN, INC.
(formerly Hypersolar, Inc.)
NOTES TO FINANCIAL STATEMENTS - AUDITED
JUNE 30, 2020 AND 2019
1. ORGANIZATION AND LINE OF BUSINESS
Organization
SunHydrogen, Inc. (formerly
HyperSolar, Inc.) (the “Company”) was incorporated in the state of Nevada on February 18, 2009. The Company, based
in Santa Barbara, California, began operations on February 19, 2009 to develop and market a solar concentrator technology.
Line of Business
The company is currently developing
a novel solar-powered nanoparticle system that mimics photosynthesis to separate hydrogen from water. We intend for technology
of this system to be licensed for the production of renewable hydrogen to produce renewable electricity and hydrogen for fuel cells.
Going Concern
The accompanying audited 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 audited 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, additional cash infusion. The Company has historically obtained funds through private placement
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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant
accounting policies of SunHydrogen, Inc (formerly HyperSolar, 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, Cox Rubenstein 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.