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 are under no duty to update any of the
forward-looking statements after the date of this annual report. 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, Inc., our goal is to replace most forms of energy on earth with
clean renewable hydrogen.
Our patented low-cost technology is intended to produce renewable hydrogen using
sunlight and any source of water, including seawater and wastewater. Unlike
non-renewable hydrocarbon fuels, such as oil, coal and natural gas, where carbon
dioxide and other contaminants are released into the atmosphere when used,
hydrogen fuel usage produces pure water as the only byproduct. By optimizing the
science of water electrolysis at the nano-level, our low-cost nanoparticles
mimic photosynthesis to efficiently use sunlight to split water molecules into
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.
Our technology is primarily developed at the University of Iowa, through a
sponsored research agreement. Over the past several years, our team has been
focused on developing the technology to a point at which it can be
commercialized. After years of dedication, we are now ready to move from the lab
into commercial production with the first generation of our technology.
Our innovative technology is packaged into a self-contained hydrogen production
panel that requires only sunlight and any source of water. Just like solar
panels convert sunlight into electricity, our hydrogen panels will convert
sunlight and water into hydrogen. As a result of this form factor, the panels
can be installed almost anywhere to produce hydrogen fuel at or near the point
of use. We believe that this distributed model of hydrogen production addresses
one of the biggest challenges of the hydrogen economy, which is the prohibitive
high infrastructure cost of transporting hydrogen to the points of use.
Results of Operations for the Year Ended June 30, 2020 compared to the Year
Ended June 30, 2019.
Operating Expenses
For the year ended June 30, 2020 operating expenses were $1,681,427 compared to
$1,828,551 for the prior year ended June 30, 2019. 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 $147,124 in operating expenses was a result of a decrease in general
and administrative expense of $235,375, which consist of $261,919 in non-cash
stock compensation expense, with an increase of $26,544 in other general and
administrative expense and an increase in research and development cost of
$86,820, and an increase in depreciation and amortization expense of $1,431.
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Other Income/(Expenses)
Other income and (expenses) for the year ended June 30, 2020 were $(55,847,911)
compared to $5,806,888 for the prior year ended June 30, 2019. The net increase
of $(61,654,799) in other income and (expenses) was the result of the net change
in derivative liability.
Net Income (Loss)
For the year ended June 30, 2020 our net loss of was $(57,529,338), compared to
net income of $3,978,337 for the year ended June 30, 2019. The majority of the
increase in net loss of $61,507,675, 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, 2020, we had a working capital deficit of $60,459,862, compared
to a working capital deficit of $4,829,162 as of June 30, 2019. This increase in
working capital deficit of $55,630,700 was primarily due to the increase in net
change in derivative liability, cash, accounts payable, accrued expenses,
accrued interest on convertible notes, with a decrease in prepaid expenses, and
convertible notes.
During the year ended June 30, 2020, we raised an aggregate of $856,500 in a
private placement of convertible notes. During the prior year ended June 30,
2019, we raised an aggregate of $804,500 in a private placement of convertible
notes. Our ability to continue as a going concern is dependent upon our ability
to raise capital and future revenue generated from operations.
Cash flow used in operating activities was $695,784 for the year ended June 30,
2020, compared to $853,693 for the year ended June 30, 2019. The decrease in
cash used by operating activities was primarily due to the decrease in insurance
expense. The Company has had no revenues.
Cash used in investing activities for the year ended June 30, 2020 and 2019 was
$780 and $13,059, respectively. The decrease in investing activities was as a
result of a decrease in intangible assets purchased during the current year.
Cash provided by financing activities during the year ended June 30, 2020 was
$856,500 compared to $804,500 for the prior year ended June 30, 2019. The
increase in cash from financing activities was due to the increase in issuance
of convertible notes through private placement offerings during the current
period.
During the year ended June 30, 2020, we did not generate any revenue but
incurred net loss of $57,529,338 and used cash in the amount of $695,784 in our
operations. As of June 30, 2020, we had a working capital deficiency of
$60,459,862 and a shareholders' deficit of $61,832,448. These factors, among
others raise substantial doubt about our ability to continue as a going concern.
Our independent auditors, in their report dated September 23, 2020, 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
s to continue as a going concern and appropriateness of using the going concern
basis is dependent on our ability to generate a profit which is dependent upon
our ability to obtain additional equity or debt financing, advance our
technology and, ultimately, to achieve profitable operations.
We have historically obtained funding from our shareholders, through private
placement offerings of equity and debt securities. Management believes that it
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 and if available, on terms and conditions that are acceptable. If we
are unable to obtain sufficient funds, we may be forced to curtail and/or cease
the development of our technology.
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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, 2020, 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, 2020, as disclosed in the Notes to the financial statements
included in this report.
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