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.
20
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:
21
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.
22
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:
23
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.
24
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
Company, and with a consultant of the Company. Pursuant to the redemption agreements, the Company redeemed an aggregate of 24,887,463
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 4,297,209 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, 2022, 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 2022 and 2021 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$32,000 and $34,800, respectively.
Audit-Related Fees
We incurred fees of $0 and
$0 for the years ended June 30, 2022 and 2021, 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,
2022 and 2021.
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.
25
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
3.9 Articles of Merger (incorporated by reference to 8-K filed June 15, 2020)
4.1 Description of Registrant’s Securities
26
10.6 Form of Warrant (incorporated by reference to 8-K filed February 26, 2021)
10.15 SunHydrogen, Inc. 2022 Stock Incentive Plan
23.1 Consent of M&K CPAS, LLC
* Filed herewith.
** Furnished herewith.
*** Indicates management contract or compensatory plan or arrangement.
27
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 7, 2022 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 7, 2022
/s/ Mark R. Richardson Director October 7, 2022
Mark R. Richardson
/s/ Woosuk Kim Director October 7, 2022
Woosuk Kim
28
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, 2022 and 2021, and the related statements of operations, shareholders’
equity (deficit), and cash flows for each of the years in the two-year period ended June 30, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the
years in the two-year period ended June 30, 2022 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 3, the Company
issued preferred stock to third and related parties. Auditing management’s calculation of the fair value of the preferred shares
issued can be a significant judgment due to the need of a specialist to evaluate the fair value of the preferred shares issued and the
auditor has to test the inputs and estimates used.
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.
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 3 to the financial statements
/s/ M&K CPAS, PLLC
M&K CPAS, PLLC
We have served as the Company’s auditor since 2020
Firm ID 2738
Houston, TX
October 7, 2022
F-1
SUNHYDROGEN,
INC.
BALANCE SHEETS
ASSETS
CURRENT ASSETS
Prepaid expense 2,526 -
PROPERTY & EQUIPMENT
OTHER ASSETS
Trademark, net of amortization of $601 and $486, respectively 542 657
LIABILITIES AND SHAREHOLDERS’ DEFICIT
CURRENT LIABILITIES
LONG TERM LIABILITIES
COMMIMENTS AND CONTINGENCIES (SEE NOTE 9) - -
SHAREHOLDERS’ EQUITY (DEFICIT)
The accompanying notes are an integral part of these financial statements
F-2
SUNHYDROGEN, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 2022 AND 2021
Year Ended
REVENUE $ - $ -
OPERATING EXPENSES
LOSS FROM OPERATIONS BEFORE OTHER INCOME (EXPENSES) (4,475,225 ) (5,806,480 )
OTHER INCOME/(EXPENSES)
Gain on sale of asset - 1,473
Dividend expense (7,925 ) -
Loss on settlement of debt (1,835 ) -
Loss on redemption of marketable securities (76,792 ) -
Loss on settlement of derivative liability (1,109,761 ) -
COMMON STOCK WARRANTS DEEMED DIVIDENDS - (15,928,314 )
BASIC EARNINGS (LOSS) PER SHARE $ 0.02 $ (0.04 )
DILUTED EARNINGS (LOSS) PER SHARE $ 0.02 $ (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’ EQUITY/(DEFICIT)
FOR THE YEARS ENDED JUNE 30, 2022 AND 2021
Additional
Preferred stock Common stock Paid-in Accumulated
Shares Amount Mezzanine Shares Amount Capital Deficit Total
Common stock and warrants compensation expense - - - - - 259,955 - 259,955
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, 2022 AND 2021
Years Ended
CASH FLOWS FROM OPERATING ACTIVITIES:
Stock issued for services - 118,023
Loss on settlement of debt and derivative 1,109,761 -
Loss on settlement of convertible note 1,835 -
Loss on redemption of marketable securities 76,792 -
Amortization of debt discount recorded as interest expense 442,603 416,472
Gain on sale of van - (1,473 )
Change in assets and liabilities :
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of marketable securities (24,400,032 ) -
Proceeds from sale of van - 46,000
Purchase of tangible assets - (213,866 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash payoff of convertible notes - (64,450 )
Proceeds from convertible notes - 450,000
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (490,000 ) 61,358,900
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ - $ 26,843
Taxes paid $ - $ -
SUPPLEMENTAL DISCLOSURES OF NON CASH TRANSACTIONS
Fair value of common stock issued for services $ - $ 118,023
Issuance of common stock purchase warrants deemed dividends $ - $ 15,928,314
Fair value of convertible notes at issuance $ - $ 450,000
Fair value of preferred stock in exchange for convertible note $ 14,340,769 $ -
Fair value of derivative liability removed $ 13,231,008 $ -
Preferred stock issued upon exchange of convertible note $ 268,165 $ -
The accompanying notes are an integral part of these audited financial statements
F-5
SUNHYDROGEN, INC.
NOTES TO FINANCIAL STATEMENTS – AUDITED
JUNE 30, 2022 AND 2021
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, 2022 and 2021, 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, 2022, the
Company’s operating income increased to approximately $90,030,933, compared to an operating loss of approximately $81,498,123 in
the prior year ended June 30, 2021. The increase in operating income consisted primarily of the non-cash change in derivative liability
fair value.
During the year ended June 30, 2022,
the Company consummated financing transactions for up to $960,000 of proceeds for the purchase of common stock 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 and cash equivalents of $27.7 million as of June 30, 2022 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 and have been consistently applied in the
preparation of the financial statements.
Cash and Cash Equivalent
The Company considers all highly liquid
investments with an original maturity of three months or less to be cash equivalents.
Concentration risk
Cash includes amounts deposited in financial
institutions in excess of insurable Federal Deposit Insurance Company (FDIC) limits. At times throughout the year, the Company may maintain
cash balances in certain bank accounts in excess of the FDIC limits. As of June 30, 2022, the cash balance in excess of the FDIC limits
was $27,136,224. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit
risk in these accounts.
F-6
SUNHYDROGEN, INC.
NOTES TO FINANCIAL STATEMENTS – AUDITED
JUNE 30, 2022 AND 2021
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Marketable Securities
The Company considers corporate bonds
(“bonds”) as investments due to their ratings. The bonds are rated based on their default probability, health of the corporation’s
debt structure, as well as the overall health of the economy. The bonds fall into the category as investments if they have a rating of
AAA and BBB.
All investments are considered current,
based on to their liquidity. The investments are generally valued using quoted prices and are classified in Level 2 of the fair value
hierarchy as prices are not always from active markets. We consider our investments held to maturity and we believe there are no other
than temporary declines in fair value. Our investments are recorded at historical cost.
Use of Estimates
In accordance