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.
18
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:
19
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.
20
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 - - - - - -
Director Compensation
The
following table sets forth compensation information regarding the Company’s non-employee directors in fiscal 2021:
21
Item 12. Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The
following table sets forth certain information, as of October 2, 2021, 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 of October 2, 2021, upon the exercise
or conversion 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 October 2, 2021 or have been exercised and converted.
Name and address Shares of Common Stock Percentage of Common Stock (1)
Directors and Officers (2)
Woosuk Kim 0 --
All officers and directors as a group (3 persons) 136,894,499 3.3 %
* Less than 1%.
(3) Includes 125,812,947 shares underlying options.
(4) Represents shares underlying options.
Item 13. Certain Relationships and Related
Transactions, and Director Independence.
Certain Relationships
and Related Transactions
Since
June 30, 2019, 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 cashless 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 cashless at an exercise price of $0.0099
per share and was issued 6,321,849 shares of common stock.
22
On
March 4, 2021, the Company entered into redemption agreements with Timothy Young, the Company’s chief executive officer, Mark Richardson,
a director of the Company, and with a consultant of the Company. Pursuant to the redemption agreements, the Company redeemed an aggregate
of 13,146,826 options to purchase shares of common stock of the Company (including 7,886,435 options held by Mr. Young with an exercise
price of $0.0099, 2,628,812 options held by Mr. Richardson with an exercise price of $0.0099, and 2,631,579 options held by a consultant
with an exercise price of $0.01 for a redemption price of $0.0951 per option (with respect to the options held by Mr. Young and Mr. Richardson)
or $0.095 per option (with respect to the options held by a consultant).
On July 20, 2021, the Company
entered into redemption agreements with Timothy Young, the Company’s chief executive officer, Mark Richardson, a director of the
Company, and with a consultant of the Company. Pursuant to the redemption agreements, the Company redeemed an aggregate of 24,887,263
options to purchase shares of common stock of the Company (including 16,300,618 options held by Mr. Young with an exercise price of $0.0099,
4,289,636 options held by Mr. Richardson with an exercise price of $0.0099, and 4,297,009 options held by the consultant with an exercise
price of $0.01) for a redemption price of $0.05828 per option (with respect to the options held by Mr. Young and Mr. Richardson) or $0.05818
per option (with respect to the options held by the consultant).
As of June 30, 2021, the Company
owed $211,750 to Timothy Young in accrued salary.
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 firm during 2021 and 2020 for the audit of our annual financial statements
and review of financial statements included in the our Form 10-Qs or services that are normally provided by the accountant in connection
with statutory and regulatory filings or engagements for those fiscal years, were approximately
$34,800 and $12,000, respectively.
Audit-Related Fees
We
incurred fees of $0 and $0 for the years ended June 30, 2021 and 2020, respectively, to our principal accountant for assurance and related
services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under
“Audit Fees” above.
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, 2021 and 2020.
All Other Fees
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.
23
Item 15. Exhibits and Financial Statement Schedules.
(1) Financial statements.
The SunHydrogen, Inc. financial statements are
included in Item 8. Financial Statements and Supplementary Data.
(2) Financial statement schedules: None.
(3) 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)
3.9 Amendment to Bylaws (incorporated by reference to 8-K filed March 12, 2021)
4.1 Description of Registrant’s Securities
24
10.10 Form of Warrant (incorporated by reference to 8-K filed February 26, 2021)
10.15 Extension Agreement between the Company and Gebr. SCHMID GmbH
23.1* Consent of M&K CPAS, LLC
* Filed herewith.
** Furnished herewith.
*** Indicates management contract or compensatory plan or arrangement.
25
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: October 8, 2021 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 October 8, 2021
/s/ Mark R. Richardson Director October 8, 2021
Mark R. Richardson
/s/ Woosuk Kim Director October 8, 2021
Woosuk Kim
26
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Board of Directors and Stockholders
SunHydrogen, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets
of SunHydrogen, Inc. (the Company) as of June 30, 2021 and 2020, and the related statements of operations, shareholders’ deficit,
and cash flows for the years 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, 2021
and 2020, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally
accepted in the United States of America.
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 audits 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 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.
Our audits 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 audits also included evaluating the accounting principles used and the significant estimates made
by management, as well as evaluating the overall presentation of the financial statements. We believe our audits provide a reasonable
basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is
a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the
audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially
challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the
financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions
on the critical audit matter or on the accounts or disclosures to which it relates.
Capital Stock and Other Equity Accounts
As discussed in Note 4, the Company issues stock
options and warrants as stock-based compensation to employees and non-employees.
Auditing management’s calculation of the
fair value of the options and warrants issued can be a significant judgment given the fact that the Company uses management estimates
on various inputs to the calculations.
To test
the valuation of the warrants and options, we evaluated management’s significant judgments and estimates. Significant judgements
and estimates related to the valuation of the warrants and options include fair valuing of warrants and options which involve significant
estimates of volatility, grant terms, risk-free rates and the use of historical trading data. We evaluated management’s conclusions
regarding their fair values and reviewed support for the significant inputs used in the valuation model, as well as assessing the model
for reasonableness. In addition, we evaluated the Company’s disclosure in relation to this matter included in Notes 4 to the financial
statements
/s/ M&K CPAS, PLLC
We have served as the Company’s auditor since 2020
Houston, TX
October 8, 2021
F-1
SUNHYDROGEN, INC.
BALANCE SHEETS
ASSETS
CURRENT ASSETS
Prepaid expenses - 9,378
PROPERTY & EQUIPMENT
Less: accumulated depreciation (11,072 ) (1,605 )
OTHER ASSETS
Trademark, net of amortization of $486 and $371, respectively 657 772
LIABILITIES AND SHAREHOLDERS’ DEFICIT
CURRENT LIABILITIES
LONG TERM LIABILITIES
COMMITMENTS AND CONTINGENCIES (SEE NOTE 9) - -
SHAREHOLDERS’ DEFICIT
The accompanying notes are an integral part of these audited financial
statements
F-2
SUNHYDROGEN, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 2021 AND 2020
Year Ended
REVENUE $ - $ -
OPERATING EXPENSES
LOSS FROM OPERATIONS BEFORE OTHER INCOME (EXPENSES) (5,806,480 ) (1,681,427 )
OTHER INCOME/(EXPENSES)
Gain on sale of asset 1,473 -
COMMON STOCK WARRANTS DEEMED DIVIDENDS (15,928,314 ) -
BASIC AND DILUTED LOSS PER SHARE $ (0.04 ) $ (0.04 )
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
The accompanying notes are an integral part of these audited financial
statements
F-3
SUNHYDROGEN, INC.
STATEMENTS OF SHAREHOLDERS’DEFICIT
FOR THE YEARS ENDED JUNE 30, 2021 AND 2020
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-4
SUNHYDROGEN, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2021 AND 2020
Years Ended
CASH FLOWS FROM OPERATING ACTIVITIES:
Depreciation & amortization expense 21,973 8,419
Amortization of debt discount recorded as interest expense 416,472 714,145
Gain on sale of van (1,473 )
Net loss on write-off of patent cost - 5,426
Change in assets and liabilities :
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of van 46,000 -
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES: (167,866 ) (780 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Buyback of stock options from related parties (1,250,000 ) -
Net proceeds from common stock purchase agreements 62,223,350 -
Cash Payoff of convertible notes (64,450 ) -
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Taxes paid $ - $ -
SUPPLEMENTAL DISCLOSURES OF NON CASH TRANSACTIONS
Fair value of common stock issued for services $ 118,023 $ 267,789
Fair value of convertible notes at issuance $ 450,000 $ 841,436
Issurance of common stock purchase warrants deemed dividends $ 15,928,314 $ -
The accompanying notes are an integral part of these audited financial
statements
F-5
SUNHYDROGEN, INC.
NOTES TO FINANCIAL STATEMENTS - AUDITED
JUNE 30, 2021 AND 2020
1. ORGANIZATION AND LINE OF BUSINESS
Organization
SunHydrogen,
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 used for the production of renewable hydrogen to produce renewable electricity and hydrogen
for fuel cells.
Going
Concern Substantial Doubt Alleviated
In connection
with the preparation of its financial statements for the years ended June 30, 2021 and 2020, the Company’s management evaluated
the Company’s ability to continue as a going concern in accordance with the ASU 2014-15, Presentation of Financial Statements–Going
Concern (Subtopic 205-40), which requires an assessment of relevant conditions or events, considered in the aggregate, that are known
or reasonably knowable by management on the issuance dates of the financial statements, which indicated the probable likelihood that the
Company will be able to meet its obligations as they become due within one year after the issuance date of the financial statements.
As part of its evaluation, management
assessed known events, trends, commitments, and uncertainties, which included the amount of capital recently and/or in the process of
being raised, and the current level of investment within the green hydrogen industry and the measure of investor confidence.
For the year ended June 30, 2021, the
Company’s operating loss increased to approximately $81,498,123, compared to an operating loss of approximately $57,529,338 in the
prior year ended June 30, 2020. The increase in operating loss consisted primarily of the non-cash change in derivative liability fair
value.
During the year ended June 30, 2021,
the Company consummated financing transactions for up to $62.0 million of proceeds for the purchase of common stock and warrants of the
Company. The proceeds were used for general and administration expenses, and the cost of research and development. The research and development
transaction is further discussed in Note 8 – Commitments and Contingencies.
Based on its evaluation, coupled with the afore-mentioned financing
transactions management believes that it has completely mitigated the circumstance that led to a doubt with respect to the Company’s
ability to continue as a going concern, which existed at the time of the filing of the Company’s prior annual report. The Company’s
cash of $56.0 million as of June 30, 2021 will enable it to meet its obligations for twelve months from the date these financial statements
are available to be issued.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This
summary of significant accounting policies of SunHydrogen, Inc. is presented to assist in understanding the Company’s financial
statements. The financial statements and notes are representations of the Company’s management, which is responsible for their
integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America