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.
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.
9
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, 2022, we have
an accumulated deficit of $82,946,019. For the year ended June 30, 2022 we incurred a net income of $90,030,933, due to a non-cash change
in derivatives. 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.
We are currently working to
scale 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.
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.
10
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.
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.
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, Australia, and Europe 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.
11
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. For example, we have entered into
a sponsored research agreement with the University of Michigan which expired on September 30, 2022. The Company has extended its’
agreement as of October 1, 2022.
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;
12
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, 2022, we have
outstanding $827,500 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, 2022, we have outstanding warrants to purchase 94,895,239 shares of common stock and options to purchase 157,695,711 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.
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.
13
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, 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. Our independent laboratory is located at the BioVentures Center at 2500 Crosspark
Rd., Coralville, IA 52241.
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.
14
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 10,000,000,000 shares of common stock, $0.001 par value per share and 5,000,000 shares of preferred
stock, par value $0.001 per share.
All outstanding shares of
common stock are of the same class and have equal rights and attributes. The holders of our common stock are entitled to one vote
per share on all matters submitted to a vote of our stockholders. All stockholders are entitled to share equally in dividends, if any,
as may be declared from time to time by the Board of Directors out of funds legally available. In the event of liquidation, the holders
of our common stock are entitled to share ratably in all assets remaining after payment of all liabilities. The stockholders do not
have cumulative or preemptive rights.
As of September 24, 2022,
our common stock was held by approximately 190 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 Plan has been approved by stockholders.
The following table sets forth information
about our equity compensation plans as of June 30, 2022.
(a) (b)
Equity compensation plans not approved by security holders 113,966,451 0.0976 -
Recent Sales of Unregistered Securities
None
15
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.
Results of Operations for the Year Ended June
30, 2022 compared to the Year Ended June 30, 2021
Operating Expenses
For the year ended June 30,
2022, operating expenses were $4,475,225, compared to $5,806,480 for the year ended June 30, 2021. Operating expenses consist primarily
of research and development expenses and general and administrative expenses incurred in connection with the operation of our business.
The net decrease of $1,331,255 in operating expenses was a result of a decrease in research and development of $204,729, a decrease in
equity financing fees of $1,667,650, a decrease in professional fees of $424,604, with an increase in marketing of $259,565, an increase
in non-cash stock compensation of $700,745, and an overall increase of $5,418.
Other Income/(Expenses)
Other income and (expenses)
for the year ended June 30, 2022 was $94,506,158 compared to $(75,691,643) for the year ended June 30, 2021. The majority of the increase
of $170,197,801 in other income was the result of the increase in net change in derivatives of $170, 031,049, an increase in loss on redemption
of marketable securities of $76,792, an increase in dividend expense of $7,925, an increase in investment income of $233,118, and an increase
in loss on settlement of debt of $1,835, with an overall decrease of $20,186.
16
Net Income (Loss)
For the year ended June 30,
2022, our net income was $90,030,933, compared to a net loss of $(81,498,123), for the year ended June 30, 2021. The majority of the increase
in net income of $171,529,056, 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, 2022, we had
a working capital surplus of $24,865,577, compared to a working capital deficit of $(80,099,103) as of June 30, 2021. This decrease in
working capital deficit of $(104,964,680) was primarily due to the change in derivative liability.
During the year ended June
30, 2022, we raised an aggregate of $960,000 from registered offerings of common stock through a private placement. 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.
Cash flow used in operating
activities was $3,435,037 for the year ended June 30, 2022, compared to $5,379,489 for the year ended June 30, 2021. The decrease of $1,944,452
in cash used by operating activities was primarily due to a decrease in professional fees. The Company has had no revenues.
Cash used in investing activities
for the year ended June 30, 2022 and June 30, 2021 was $24,400,032 and $167,866, respectively. The increase in investing activities was
as a result of the purchase of marketable securities.
Cash used in financing activities
during the year ended June 30, 2022 was $490,000, compared to cash provided by financing of $61,358,900 for the year ended June 30, 2021.
The decrease in cash provided by financing activities was due to a decrease in common stock purchase agreements.
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.
17
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, 2022 and 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.
Recently Adopted Accounting Pronouncements
Management adopted recently
issued accounting pronouncements during the year ended June 30, 2022, 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.
18
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 Exchange Act 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, 2022 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, 2022, based on
those criteria.
A control system, no matter
how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.
Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control
issues and instances of fraud, if any, within the Company have been detected.
This annual report does not
include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s
report was not subject to attestation by our registered public accounting firm pursuant to the rules of the Securities and Exchange
Commission that permanently exempt smaller reporting companies
Changes in Internal Controls
There has been no change in
our internal control over financial reporting that occurred during the three months ended June 30, 2022 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.
19
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 69 Director
Woosuk Kim 57 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.
Through his outreach to the
public and to leaders in the renewable energy field, Mr. Young has bolstered the company’s visibility as a key player in the developing
green hydrogen market and rallied a strong investor base. Mr. Young’s proven fundraising ability, along with his leadership and
direction of SunHydrogen’s long-term and short-term goals and strategies, has enabled the company to engage international industrial
partners, attract top industry scientists, and most importantly continue to hit milestones toward commercializing its nanoparticle-based
green hydrogen technology.
Prior to founding SunHydrogen,
Mr. Young demonstrated a track record of success in management and leadership positions bringing new products to the market in the digital,
cable and broadcast media industries. Mr. Young was the President of Rovion, a digital advertising
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 enjoyed a decade-long career at Time Warner Inc. where he served as Vice President and Regional Vice President of
various divisions including America Online and Time Warner Cable. During his tenure, Mr. Young built some of the highest performing sales
organizations at Time Warner with responsibilities ranging from product development and marketing to staff training and leadership development.
He led the California and Hawaii sales teams which accounted for over $200 million in revenues with 250 sales and marketing personnel.
Mr. Young’s track record
of success and over fifteen 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.
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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.
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.
(1) Mr. Kim was appointed our chief operating officer on April 7, 2021.
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.
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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, 2022, 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 2022:
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Item 12. Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters.
The following table sets forth
certain information, as of October 7, 2022, 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 7, 2022, 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 September
30, 2022 or have been exercised and converted.
Name and address Shares of Common Stock Percentage of Common Stock (1)
Directors and Officers (2)
Woosuk Kim - --
All officers and directors as a group (3 persons) 136,894,499 3.2 %
* Less than 1%.
(3) Includes 125,812,947 shares underlying options.
(4) Represents shares underlying options.
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Item 13. Certain Relationships and Related
Transactions, and Director Independence.
Certain Relationships and Related Transactions
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