Cautionary Statement Regarding Forward-Looking Statements
The information in this discussion may contain forward-looking statements. These
forward-looking statements involve risks and uncertainties, including statements
regarding our capital needs, business strategy and expectations. Any statements
that are not of historical fact may be deemed to be forward-looking statements.
These forward-looking statements involve substantial risks and uncertainties. In
some cases you can identify forward-looking statements by terminology such as
"may," "will," "should," "expect," "plan," "intend," "anticipate," "believe,"
"estimate," "predict," "potential," or "continue", the negative of the terms or
other comparable terminology. Actual events or results may differ materially
from the anticipated results or other expectations expressed in the
forward-looking statements. In evaluating these statements, you should consider
various factors, including the risks included from time to time in our reports
filed with the Securities and Exchange Commission. These factors may cause our
actual results to differ materially from any 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.
Unless the context otherwise requires, references in this Form 10-Q to "we,"
"us," "our," or the "Company" refer to SunHydrogen, Inc.
Overview
At SunHydrogen, our goal is to replace fossil fuels with clean renewable
hydrogen.
We refer to our technology as the SunHydrogen panel which is comprised of the
following components:
1. The Generator Housing - Novel device design is the first of its type to
safely separate oxygen and hydrogen in the water splitting process without
sacrificing efficiency. This device houses the water, the solar particles/cells
and is designed with inlets and outlets for water and gasses. Utilizing a novel
ion-exchange membrane strategy for separating the oxygen side from the hydrogen
side, ion transport is increased which is the key to safely increasing
solar-to-hydrogen efficiency. Our design can be scaled up and manufactured for
commercial use.
2. The NanoParticle or Solar Cell - Our patented nanoparticle consists of
billions of tiny solar cells capped with catalysts that are electrodeposited
into one tiny structure to provide the charge that splits the water molecule
when the sun excites the electron.
3. Oxygen Evolution Catalyst - This proprietary catalyst developed at the
University of Iowa lab is uniformly applied onto the solar cell or nanoparticle
and efficiently oxidize water molecule to generate oxygen gas. The oxygen
evolution catalyst must be robust to withstand the long operating hours of the
hydrogen generation device to ensure long lifetime. It must be stable in
alkaline, neutral and acidic environments.
4. Hydrogen Evolution Catalyst - Necessary for collecting electrons to reduce
protons for generating hydrogen gas, we have successfully integrated a low-cost
hydrogen catalyst into our generator system successfully coating a triple
junction solar cell with a catalyst comprised primarily of ruthenium, carbon and
nitrogen that can function as well as platinum, the current catalyst used for
hydrogen production.
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5. Coating Technologies - Two major coating technologies were developed to
protect the nanoparticles and solar cells from photocorrosion under water. A
transparent conducive coating to protect our nanoparticles and solar cells from
photo corrosion and efficiently transfer charges to catalysts for oxygen and
hydrogen evolution reactions. A polymer combination that protects the triple
junction solar cells from any corrosive water environments for long lifetime of
the hydrogen generation device.
In the process of optimizing our nanoparticles to be efficient and only during
experimentation with earth abundant materials (an ongoing process), we
experimented with commercially available triple junction silicon solar cells to
perform tests with our generator housing and other components. Through this
experimentation, our discovery led us to believe that we could bring a system
(Gen 1) to market utilizing these readily available cells while our
nanoparticles are still being optimized. While these solar cells also absorb the
sunlight and produce the necessary charge for splitting the water molecules into
hydrogen and oxygen, their efficiency is low, thus we have made the strategic
decision to focus on our NanoParticle strategy (Gen 2) and use these hydrogen
generators for proof of concept and demonstration purposes only. We anticipate
these hydrogen panels will be demonstrated in various parts of the world to as
further proof of concept of our technology and to promote our nanoparticle
technology that will be more efficient and economical.
Our business and commercialization plan utilizes our second generation of
hydrogen panels featuring the nanoparticle based technology where billions of
autonomous solar cells are electrodeposited onto porous alumina sheets and
manufactured in a roll to roll process or wafer process and inserted into our
proprietary panels. For this generation, we have received multiple patents and
it is estimated that it will produce hydrogen for less than $4 per kilogram
before pressurization.
Now ready to take our technology out of the lab, we are working with several
vendors to help commercialize and manufacture our renewable hydrogen panels that
use sunlight and water to generate hydrogen. In February 2021 we entered into a
cooperation agreement with Schmid Group of Germany that commenced on March 1,
2021 to design and define a process platform that enables mass manufacturing of
SunHydrogen's Gen 2 NanoParticle hydrogen panels.
We anticipate that the SunHydrogenH2Generator will be a self-contained renewable
hydrogen production system that requires only sunlight and any source of water.
As a result, it can be installed almost anywhere to produce hydrogen fuel at or
near the point of distribution, for local use. We believe this model of hydrogen
production addresses one of the biggest challenges of using clean hydrogen fuel
on a large scale - the transportation of hydrogen.
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 valuation option 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.
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Use of Estimates
In accordance with accounting principles generally accepted in the United
States, management utilizes estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements as well as the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. These estimates and assumptions relate to
useful lives and impairment of tangible and intangible assets, accruals, income
taxes, stock-based compensation expense, Binomial lattice valuation model
inputs, derivative liabilities and other factors. Management believes it has
exercised reasonable judgment in deriving these estimates. Consequently, a
change in conditions could affect these estimates.
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 March 31, 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.
We adopted ASC Topic 820 for financial instruments measured as fair value on a
recurring basis. ASC Topic 820 defines fair value, established a framework for
measuring fair value in accordance with accounting principles generally accepted
in the United States and expands disclosures about fair value measurements.
Recently Issued Accounting Pronouncements
Management reviewed currently issued pronouncements during the nine months ended
March 31, 2021, and does not believe that any recently issued, but not yet
effective, accounting standards if currently adopted would have a material
effect on the accompanying condensed financial statements. Pronouncements
disclosed in notes to the financials.
Results of Operations for the Three months ended March 31, 2021 compared to
Three Months Ended March 31, 2020.
Operating Expenses
Operating expenses for the three months ended March 31, 2021 were $1,824,481
compared to $426,943 for the three months ended March 31, 2020. The net increase
of $1,397,538 in operating expenses consisted primarily of an increase in
professional fees of $238,004, an increase in salary expense of $144,875, an
increase in research and development of $981,391, and an overall increase in
other expenses of $136,420, with a decrease in non-cash stock compensation
expense of $103,152.
Other Income/(Expenses)
Other income and (expenses) for the three months ended March 31, 2021 were
$(18,632,063) compared to $(148,497) for the three months ended March 31, 2020.
The increase in other expenses of $18,483,566 was the result of the non-cash
loss in net change in derivative of $18,664,587, and other income of $2,585,
with a decrease in interest expense of $178,436, which includes the net change
in amortization of debt discount of $156,172.
Net Income/(Loss)
For the three months ended March 31, 2021, our net loss was $(20,456,544) as
compared to net loss of $(575,440) for the three months ended March 31, 2020.
The majority of the increase in net loss of $19,881,104, was related primarily
to the increase in net change of derivative instruments estimated each period.
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.
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Results of Operations for the Nine Months ended March 31, 2021 compared to Nine
Months Ended March 31, 2020.
Operating Expenses
Operating expenses for the nine months ended March 31, 2021 were $5,134,614
compared to $1,393,069 for the nine months ended March 31, 2020. The net
increase of $3,741,545 in operating expenses consisted primarily of an increase
in research and development expense of $1,318,904, an increase in professional
fees of $2,218,020, an increase in salary of $329,875, with an overall decrease
of $125,254 in other operating expenses.
Other Income/(Expenses)
Other income and (expenses) for the nine months ended March 31, 2021 were
$(142,647,641) compared to $(3,715,392) for the nine months ended March 31,
2020. The increase in other expenses of $138,932,249 was the result of the
non-cash loss in net change in derivative of $139,103,066, and a decrease in
interest expense of $167,783, which includes the net change in amortization of
debt discount of $120,162, and an increase in other income of $3,034.
Net Income/(Loss)
For the nine months ended March 31, 2021, our net loss was $(147,782,255) as
compared to a net loss of $(5,108,461) for the nine months ended March 31, 2020.
The majority of the increase in net loss of $142,673,794, was related primarily
to the increase in net change of derivative instruments estimated each period.
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 March 31, 2021, we had a working capital deficit of $157,207,426 as
compared to $60,459,862 as of June 30, 2020. This increase in working capital
deficit of $96,747,564 was due primarily to an increase in cash, accounts
payable, accrued expenses, derivative liability.
Cash used in operating activities was $(4,742,243) for the nine months ended
March 31, 2021 compared to $(525,542) for the nine months ended March 31, 2020.
The increase in cash used in operating activities was due to an increase in
research and development cost and professional fees. The Company has had no
revenues.
Cash used in investing activities during the nine months ended March 31, 2021
and 2020 was $(213,866) and $780, respectively. The increase in cash used in
investing activities was due to the purchase of tangible asset in the current
period.
Cash provided by financing activities during the nine months ended March 31,
2021 was $50,108,900 net of commission fees and $626,500 for the nine months
ended March 31, 2020. The increase in cash provided in financing activities was
due to selling equity securities in the current period. Our ability to continue
as a going concern is dependent upon raising capital through financing
transactions and future revenue. Our capital needs have primarily been met from
the proceeds of private placements and registered offerings of our securities,
as we currently have not generated any revenues.
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The condensed financial statements have been prepared on a going concern basis
of accounting, which contemplates continuity of operations, realization of
assets and liabilities and commitments in the normal course of business. The
accompanying condensed financial statements do not reflect any adjustments that
might result if we are unable to continue as a going concern. During the nine
months ended March 31, 2021, we did not generate any revenues, and incurred a
net loss of $147,782,255, which was primarily associated with the non-cash loss
in change in derivative liability, and we had a working capital deficiency of
$157,327,426 and a shareholders' deficit of $157,997,338 as of March 31, 2021.
These factors, among others raise substantial doubt about our ability to
continue as a going concern. Our independent auditors, in their report on our
audited financial statements for the year ended June 30, 2020, expressed
substantial doubt about our ability to continue as a going concern. Our ability
to continue as a going concern ultimately is dependent on our ability to
generate revenue, which is dependent upon our ability to obtain additional
equity or debt financing, attain further operating efficiencies and, ultimately,
achieve profitable operations. We have historically obtained funds from
investors through the sale of our securities. Management believes that we will
be able to continue to raise funds through the sale of our securities to
existing and new investors. Management believes that funding from existing and
prospective new investors and, subject to successfully developing and
commercializing our potential products, future revenue will provide the
additional cash needed to meet our obligations as they become due, and will
allow the development of our core business operations.
PLAN OF OPERATION AND FINANCING NEEDS
Our plan of operation within the next twelve months is to work with Schmid Group
of Germany and other supporting vendors to scale our NanoParticle based
technology to commercial size while further working on the housing design and
balance of system for full scale hydrogen generation devices that can be
deployed worldwide.
We believe that our current cash balances will be sufficient to support
development activity, intellectual property protection, and all general and
administrative expenses for at least the next two years. We are exploring
investment and strategic partnerships in complimentary green hydrogen
technologies and companies. These include hydrogen storage and compression
technologies among others. We are investigating additional financing
alternatives, including continued equity and/or debt financing. There can be no
assurance that capital in any form would be available to us, and if available,
on terms and conditions that are acceptable. If we are unable to obtain
sufficient funds, we may be forced to reduce the size of our operations, which
could have a material adverse impact on, or cause us to curtail and/or cease the
development of our products.
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.
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SUNHYDROGEN, INC. 
