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.
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Results of Operations for the Year Ended June 30, 2021 compared to the Year
Ended June 30, 2020.
Operating Expenses
For the year ended June 30, 2021 operating expenses were $5,806,480 compared to
$1,681,427 for the year ended June 30, 2020. Operating expenses consist
primarily of research and development expenses and general and administrative
expenses incurred in connection with the operation of our business. The net
increase of $4,125,053 in operating expenses was a result of an increase in
research and development expenses, professional fees, and salaries.
Other Income/(Expenses)
Other income and (expenses) for the year ended June 30, 2021 was $(75,691,643)
compared to ($55,847,911) for the year ended June 30, 2020. The net increase of
$19,843,732 in other income and (expenses) was the result of the net change in
derivative liability, and interest expense.
Net Income (Loss)
For the year ended June 30, 2021 our net loss was $(81,498,123), compared to net
loss of $(57,529,338) for the year ended June 30, 2020. The majority of the
increase in net loss of $23,968,785, was related primarily to the net change in
derivative estimates each year. These estimates are based on multiple inputs,
including the market price of our stock, interest rates, our stock price,
volatility, variable conversion prices based on market prices defined in the
respective agreements and probabilities of certain outcomes based on
managements' estimates. These inputs are subject to significant changes from
period to period, therefore, the estimated fair value of the derivative
liabilities will fluctuate from period to period, and the fluctuation may be
material. The Company has not generated any revenues.
Liquidity and Capital Resources
Liquidity is the ability of a company to generate funds to support its current
and future operations, satisfy its obligations, and otherwise operate on an
ongoing basis. Significant factors in the management of liquidity are funds
generated by operations, levels of accounts receivable and accounts payable and
capital expenditures.
As of June 30, 2021, we had a working capital deficit of $80,099,103, compared
to a working capital deficit of $60,459,862 as of June 30, 2020. This increase
in working capital deficit of $19,639,241 was primarily due to an increase in
change in derivative liability.
During the year ended June 30, 2021, we raised an aggregate of $62,223,350 in
registered offerings of common stock and from the exercise of warrants, and
$450,000 in private placements of convertible notes. During the year ended June
30, 2020, we raised an aggregate of $856,500 in private placements of
convertible notes. Our ability to continue as a going concern is dependent upon
our ability to raise capital and potential future revenue generated from
operations.
Cash flow used in operating activities was $5,379,489 for the year ended June
30, 2021, compared to $695,784 for the year ended June 30, 2020. The increase in
cash used by operating activities was primarily due to an increase in research
and development, and office salaries. The Company has had no revenues.
Cash used in investing activities for the year ended June 30, 2021 and 2020 was
$167,866 and $780, respectively. The increase in investing activities was as a
result of the purchase of two vans and office computers for a total of $213,866,
and received sales proceeds of $46,000 for the sale of one of the vans for a net
aggregate of $167,866 during the current period.
Cash provided by financing activities during the year ended June 30, 2021 was
$61,358,900 compared to $856,500 for the year ended June 30, 2020. The increase
in cash from financing activities was due to the funds raised through registered
offerings and the exercise of warrants in 2021.
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We have historically obtained funding from investors, through private placements
and registered offerings of equity and debt securities. Management believes that
the Company will be able to continue to raise funds through the sale of its
securities to its existing shareholders and prospective new investors which will
provide the additional cash needed to meet the Company's obligations as they
become due, and will allow the Company to continue to develop its core business.
There can be no assurance that we will be able to continue raising the required
capital for our operations on terms and conditions that are acceptable to us, or
at all. If we are unable to obtain sufficient funds, we may be forced to curtail
and/or cease our operation.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that are reasonably likely to
have a current or future effect on our financial condition, revenues or
expenses, result of operations, liquidity or capital expenditures.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations
are based upon our financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United States of America.
The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosures of contingent assets and liabilities. On an
ongoing basis, we evaluate our estimates, including those related to impairment
of property, plant and equipment, intangible assets, deferred tax assets and
fair value computation using the Binomial lattice valuation pricing model. We
base our estimates on historical experience and on various other assumptions,
such as the trading value of our common stock and estimated future undiscounted
cash flows, that we believe to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying value of
assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or
conditions; however, we believe that our estimates, including those for the
above-described items, are reasonable.
Use of Estimates
In accordance with accounting principles generally accepted in the United
States, management utilizes estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements as well as the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. These estimates and assumptions relate to
recording, useful lives and impairment of tangible and intangible assets,
derivatives, accruals, income taxes, stock-based compensation expense, binomial
model inputs and other factors. Management believes it has exercised reasonable
judgment in deriving these estimates. Consequently, a change in conditions could
affect these estimates.
Fair Value of Financial Instruments
Fair value of financial instruments, requires disclosure of the fair value
information, whether or not recognized in the balance sheet, where it is
practicable to estimate that value. As of June 30, 2021, the amounts reported
for cash, accrued interest and other expenses, notes payables, and derivative
liability approximate the fair value because of their short maturities.
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Recently Adopted Accounting Pronouncements
Management adopted recently issued accounting pronouncements during the year
ended June 30, 2021, as disclosed in the Notes to the financial statements
included in this report.
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