Cautionary Statement Regarding Forward-Looking Statements
The information in this report 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, or the SEC. 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.
Hydrogen is the most abundant chemical element in the universe. When hydrogen
fuel is used to power transportation and industry, the only byproduct left
behind is pure water, unlike hydrocarbon fuels such as oil, coal and natural gas
that emit carbon dioxide and other harmful pollutants into the atmosphere.
However, naturally occurring elemental hydrogen is rare - so rare, in fact, that
today about 95% of hydrogen is produced from steam reforming of natural gas
(Source: US Department of Energy, Hydrogen Fuel Basics). This process is both
economically and environmentally unsound.
The SunHydrogen solution offers an efficient and cost-effective way to produce
truly green hydrogen using sunlight and any source of water. Our core technology
is a self-contained, nanoparticle-based hydrogen generator that mimics
photosynthesis to split water molecules, resulting in hydrogen. By optimizing
the science of water electrolysis at the nano-level, we believe we have
developed a low-cost method to potentially produce environmentally friendly
renewable hydrogen.
We believe renewable hydrogen has already proven itself to be a key solution in
helping the world meet climate targets, and we believe our technology
potentially offers solutions to the challenges that the hydrogen future
presents, including cost of production and transportation.
Because our process only requires sunlight and water, our technology can be
installed near the point of hydrogen use. This eliminates the need for pipelines
and trucks that result in high carbon emissions and high capital investment.
Additionally, because our process directly uses the electrical charges created
by sunlight to generate hydrogen, our nanoparticle technology does not rely on
grid power or require the costly power electronics that conventional
electrolyzers do. Lastly, our planned scalable system configuration of many
individual hydrogen-generating panels ensures redundancy, security and
stability.
With a target cost of $2.50/kg., we aspire for our technology to be
cost-competitive with brown hydrogen and below the cost of clean hydrogen
competitors. We believe our solution has the potential to clear a path for green
hydrogen to compete with natural gas hydrogen and gain mass market acceptance as
a true replacement for fossil fuels.
Our technology is primarily developed at three laboratories - our independent
laboratory in Coralville, Iowa, the SunHydrogen laboratory at the University of
Iowa, and the Singh laboratory at University of Michigan.
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Additionally, in parallel to the ongoing development of our own technology, we
are well-capitalized to begin pursuing synergistic strategic investments in the
hydrogen space. SunHydrogen is committed to furthering renewable hydrogen
technology to grow the hydrogen ecosystem, and we are actively pursuing
opportunities for investment and acquisition of complimentary hydrogen
technologies. We are fortunate to have the resources to maximize our impact in
this fast-growing industry.
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.
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 December 31, 2022, the amounts
reported for cash, investment in affiliate, 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 six months ended
December 31, 2022, 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 are
disclosed in notes to the financial statements.
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Results of Operations for the Three Months Ended December 31, 2022 compared to
Three Months Ended December 31, 2021
Operating Expenses
Operating expenses for the three months ended December 31, 2022 were $5,061,951
compared to $737,611 for the three months ended December 31, 2021. The net
increase of $4,324,340 in operating expenses consisted primarily of an increase
in salaries and research and development.
Other Income/(Expenses)
Other income and (expenses) for the three months ended December 31, 2022 were
$9,659,897 compared to $25,169,373 for the three months ended December 31, 2021.
The decrease in other expenses of $15,509,476 was the result of a decrease in
gain on change in derivative liability.
Net Income/(Loss)
For the three months ended December 31, 2022, our net income was $4,597,946,
compared to net income of $24,431,762 for the three months ended December 31,
2021. The majority of the decrease in net income of $19,833,816, was related
primarily to the decrease 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.
Results of Operations for the Six months ended December 31, 2022 compared to Six
Months Ended December 31, 2021
Operating Expenses
Operating expenses for the six months ended December 31, 2022 were $5,700,654,
compared to $1,337,377 for the six months ended December 31, 2021. The net
increase of $4,363,277 in operating expenses consisted primarily of an increase
in salaries and research and development.
Other Income/(Expenses)
Other income and (expenses) for the six months ended December 31, 2022 were
$9,401,649, compared to $74,393,983 for the six months ended December 31, 2021.
The decrease in other expenses of $64,992,334 was the result of a decrease in
the fair value change in derivative liability.
Net Income/(Loss)
For the six months ended December 31, 2022, our net income was $3,700,995,
compared to net income of $73,056,606 for the six months ended December 31,
2021. The majority of the decrease in net income of $69,355,611 was related
primarily to the decrease 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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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 December 31, 2022, we had working capital of $29,475,135, compared to
$24,865,577 as of June 30, 2022. This increase in working capital of $4, 609,558
was primarily due to an increase in cash.
Cash used in operating activities was $2,706,929 for the six months ended
December 31, 2022, compared to $1,301,469 for the six months ended December 31,
2021. The increase in cash used in operating activities was due to an increase
in salaries. The Company has had no revenues.
Cash used in investing activities during the six months ended December 31, 2022
and December 31, 2021 was $6,555,114 and $8,653,392, respectively. The decrease
of $2,098,278 in investing activities was due to the redemption of the
securities and the purchase of assets.
Cash provided by financing activities during the six months ended December 31,
2022 was $1,401,209, compared to cash used in financing activities of
$(1,450,000) for the six months ended December 31, 2021. The increase in cash
provided by financing activities was due to cash received for the purchase of
common stock through a purchase agreement.
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 have not generated any revenues to date.
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.
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SUNHYDROGEN, INC. 
