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 we will ever operate profitably or that we will have adequate working capital to meet our obligations as they become due.
6
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, 2021, we have an accumulated deficit of $172,976,952. For the year ended June 30, 2021 we incurred a net loss of $81,498,123.
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
early-to-mid , we entered into agreements with development partners InRedox and SCHMID Group, who are working alongside the University
of Iowa research team to take the lab-scale prototypes of our nanoparticle technology to larger, commercial-scale prototypes. 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.
7
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 anticipate that
we will 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 anticipate that 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 at commercial scale 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.
Currently, competing methods
of hydrogen production include steam reforming of natural gas or methane, which dominates due to its easy availability and low price;
partial oxidation of petroleum oil; steam gasification of coal; and electrolyzers powered by solar or wind energy. 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.
8
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. 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 a sponsored research agreement with the University of Iowa which is set to terminate August 31, 2022. If we are unable
to extend the terms of this agreement, we could suffer delays in product development or other operational difficulties which could have
a material adverse effect on our results of operations.
9
The COVID-19 pandemic may negatively affect
our operations.
The
COVID-19 pandemic is having widespread, rapidly evolving, and unpredictable impacts on global society, economies, financial markets, and
business practices. The continuing impacts of COVID-19 are highly unpredictable and could be significant, and may have an adverse effect
on our business, operations and our future financial performance.
The
impact of the pandemic on our business, operations and future financial performance could include, but is not limited to, that:
● We may experience delays in our product development;
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.
We anticipate that our issuance of common
stock upon conversion of outstanding convertible notes will result in dilution to our stockholders.
As of June 30, 2021, we have
outstanding $1,271,200 in convertible notes that are convertible into common stock at variable conversion prices (see Note 5 to the financial
statements included in this report). We anticipate that our issuance of common stock upon conversion of outstanding convertible notes
will result in dilution to holders of our common stock, which may have a negative effect on the price of our common stock. In addition,
as of June 30, 2021, we have outstanding warrants to purchase 94,895,239 shares of common stock and options to purchase 182,853,174 shares
of common stock, and our issuance of shares of common stock upon exercise of outstanding warrants or options may result in additional
dilution to our stockholders.
10
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 in the market value of our shares of common stock, which may not occur.
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.
We anticipate that our issuance of additional common stock or securities convertible into or exercisable into common stock in the future
will dilute the percentage ownership of then current stockholders.
Item 2. Properties.
Our
principal office address is 10 E. Yanonali St., 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.
11
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”
Common Stock
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 October 2, 2021, our
common stock was held by approximately 75 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, 2021.
(a) (b)
Equity compensation plans approved by security holders - $ - -
12
Recent Sales of Unregistered
Securities
During
the three months ended June 30, 2021, the Company issued 364,087,931 shares of common stock upon conversion of $257,100 in principal of
convertible notes, plus accrued interest of $88,784.
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. [Reserved.]
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 disclaim any obligation to publicly update these statements, or disclose any difference between actual
results and those reflected in these statements, except as may be required under applicable law
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,
we are developing a breakthrough, low-cost technology to make renewable hydrogen using sunlight and any source of water, including seawater
and wastewater. The only byproduct of hydrogen fuel is pure water, unlike hydrocarbon fuels such as oil, coal and natural gas that release
carbon dioxide and other contaminants into the atmosphere when used. By optimizing the science of water electrolysis at the nano-level,
our low-cost nanoparticles mimic photosynthesis to efficiently use sunlight to separate hydrogen from water, ultimately producing 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.
13
Results of Operations for the Year Ended June
30, 2021 compared to the Year Ended June 30, 2020.
Operating Expenses
For the year ended June 30,
2021 operating expenses were $5,806,480 compared to $1,681,427 for the year ended June 30, 2020. 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 increase of $4,125,053 in operating expenses was a result of an increase in research and development expenses, professional fees,
and salaries.
Other Income/(Expenses)
Other income and (expenses)
for the year ended June 30, 2021 was $(75,691,643) compared to ($55,847,911) for the year ended June 30, 2020. The net increase of $19,843,732
in other income and (expenses) was the result of the net change in derivative liability, and interest expense.
Net Income (Loss)
For the year ended June 30,
2021 our net loss was $(81,498,123), compared to net loss of $(57,529,338) for the year ended June 30, 2020. The
majority of the increase in net loss of $23,968,785, 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, 2021, we had
a working capital deficit of $80,099,103, compared to a working capital deficit of $60,459,862 as of June 30, 2020. This increase in working
capital deficit of $19,639,241 was primarily due to an increase in change in derivative liability.
During the year ended June
30, 2021, we raised an aggregate of $62,223,350 in registered offerings of common stock and from the exercise of warrants, and $450,000
in private placements of convertible notes. During the year ended June 30, 2020, we raised an aggregate of $856,500 in private placements
of convertible notes. Our ability to continue as a going concern is dependent upon our ability to raise capital and potential future revenue
generated from operations.
Cash flow used in operating
activities was $5,379,489 for the year ended June 30, 2021, compared to $695,784 for the year ended June 30, 2020. The increase in cash
used by operating activities was primarily due to an increase in research and development, and office salaries. The Company has had no
revenues.
Cash used in investing activities for the year ended June 30, 2021
and 2020 was $167,866 and $780, respectively. The increase in investing activities was as a result of the purchase of two vans and office
computers for a total of $213,866, and received sales proceeds of $46,000 for the sale of one of the vans for a net aggregate of $167,866
during the current period.
Cash provided by financing
activities during the year ended June 30, 2021 was $61,358,900 compared to $856,500 for the year ended June 30, 2020. The increase in
cash from financing activities was due to the funds raised through registered offerings and the exercise of warrants in 2021.
14
We have historically obtained
funding from investors, through private placements and registered offerings of equity and debt securities. Management believes that the
Company will be able to continue to raise funds through the sale of its securities to its existing shareholders and prospective new investors
which will provide the additional cash needed to meet the Company’s obligations as they become due, and will allow the Company to
continue to develop its core business. There can be no assurance that we will be able to continue raising the required capital for our
operations on terms and conditions that are acceptable to us, or at all. If we are unable to obtain sufficient funds, we may be forced
to curtail and/or cease our operation.
Off-Balance Sheet Arrangements
We
do not have any off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition,
revenues or expenses, result of operations, liquidity or capital expenditures.
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, 2021, the amounts reported for cash, accrued interest and other expenses, notes payables, and derivative liability
approximate the fair value because of their short maturities.
15
Recently Adopted Accounting
Pronouncements
Management adopted recently
issued accounting pronouncements during the year ended June 30, 2021, 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, 2021 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, 2021, based on those criteria.
16
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 three months ended June 30, 2021 that has
materially affected, or is reasonably likely to materially affect our internal control over financial reporting.
Item 9B. Other Information.
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions
that Prevent Inspections.
Not applicable.
17
PART III
Item 10. Directors, Executive Officers and
Corporate Governance.
The
following table sets forth information about our executive officers and directors:
Name Age Position
Mark J. Richardson 68 Director
Woosuk Kim 56 Chief Operating Officer and 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.
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Woosuk Kim –Chief
Operating Officer and Director
Woosuk Kim has served as our
chief operating officer and director since April 1, 2021. From May 2011 to December 2019, Mr. Kim was senior vice president, head of M&A
group at SK Innovation in Seoul, South Korea, responsible for expanding core businesses and developing new business opportunities in the
renewable energy sector through cross border acquisitions and joint venture transactions. From August 2009 to May 2011 Mr. Kim was vice
president, corporate development at SK Telekom. From August 2006 to March 2008, Mr. Kim was chief financial officer at Axon Financial
Services in New York. From July 1998 to August 2006, Mr. Kim was executive director at Morgan Stanley in New York, responsible for developing
and operating multi-billion dollar asset-backed securities funding platforms, investor marketing, and the corporate treasury function
for Discover Card. He received an MBA from Cornell University and a BA from the University of Chicago. Mr. Kim’s financial industry
knowledge and experience qualify him to serve on our board of directors.
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, our Chief
Executive Officer 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:
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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 our named executive officers during the last two fiscal years.
(2) Mr. Kim was appointed our chief operating officer on April 7, 2021.
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Employment Agreements
On January 21, 2021, the
Company entered into an employment agreement with Timothy Young, the Company’s president, chief executive officer, acting
chief financial officer, and chairman. Under the employment agreement, Mr. Young will continue to serve in such positions and will
receive an annual base salary of $354,000, effective as of January 1, 2021, which base salary will be reviewed annually by the
Board. Mr. Young received a $150,000 signing bonus under the employment agreement and his bonus opportunities will include up to an
additional 100% of base salary upon meeting certain objectives to be set by the Board for each calendar year, payable at the end of
each calendar quarter as the objectives are satisfied. In addition, upon the Company being up-listed to the Nasdaq Capital Market or
New York Stock Exchange, Mr. Young will receive a $250,000 bonus. Mr. Young will also receive a grant of one hundred million shares
of restricted stock units, subject to a vesting schedule to be determined by the Board. If Mr. Young is terminated without
“cause” or he resigns voluntarily for “good reason,” as each term is defined in the agreement, he will be
eligible to receive a lump sum of one year of his base salary and of his bonus and 100% of all outstanding unvested equity awards
will vest immediately, with all outstanding unexercised stock options remaining exercisable for one year form the date of
termination.
On April 1, 2021, the Company
entered into an employment agreement with Woosuk Kim, pursuant to which Mr. Kim serves as our chief operating officer. Pursuant to the
employment agreement, Mr. Kim received a signing bonus of $55,000 and will receive an annual base salary of $275,000, which will be reviewed
and may be increased annually by the board of directors. He will also be eligible for an annual bonus of 75% of his annual base salary,
upon meeting objectives set by the board of directors. In the event the Company uplists the Company’s common stock to Nasdaq or
the New York Stock Exchange, Mr. Kim will receive an additional bonus of $150,000. In the event the Company merges with or acquires another
company and has an increased market capitalization after the close of the transaction, Mr. Kim will receive an additional bonus of $150,000.
Mr. Kim will receive 50,000,000 restricted stock units of the Company, subject to a 24-month vesting schedule to be determined by the
board of directors in its discretion. The employment agreement will terminate April 1, 2023, subject to the right of either party to terminate
the employment agreement at any time upon written notice, provided that, in the event Mr. Kim is terminated prior to such date by the
Company, without Cause (as defined in the employment agreement) or the company is sold, merged, or there is a Change of Control (as defined
in the employment agreement), Mr. Kim will be entitled to certain severance payments and benefits including a payment equal to his annual
base salary that would have accrued until April 1, 2023, a payment of his bonus amount that would have accrued until April 1, 2023, and
immediate accelerated vesting of all outstanding unvested equity awards and any other stock awards.
Outstanding Equity
Awards at Fiscal Year-End
The following table discloses
information regarding outstanding equity awards granted or accrued as of June 30, 2021, for our named executive officers.
Outstanding Equity Awards
Option Awards Stock Awards
Woosuk Kim - - - - - -