Sunhydrogen, Inc.: Form 10-Q for the period ended Mar 31, 2025

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.

Additionally, in parallel to the ongoing development of our own technology, we may 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.

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 March 31, 2025, 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 nine months ended March 31, 2025, 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.

Results of Operations for the Three Months ended March 31, 2025 compared to Three Months Ended March 31, 2024

Operating Expenses

Operating expenses for the three months ended March 31, 2025 were $2,137,689, compared to $1,831,859 for the three months ended March 31, 2024. The net change of $305,830 in operating expenses consisted primarily of increases in research and development costs offset by decreases in general and administrative expenses.

Other Income/(Expenses)

Other income and (expenses) for the three months ended March 31, 2025 were $399,750, compared to $(2,190,305) for the three months ended March 31, 2024. The increase in other income of $2,590,055 was the result of an unrealized gain on the Company’s investments in the current period whereas the Company had a large loss on the Company’s investments in the same period of the prior year.

Net Loss

For the three months ended March 31, 2025, our net loss was $1,737,939, compared to a net loss of $4,022,164 for the three months ended March 31, 2024. The decrease in net loss of $2,284,225 was primarily due to an unrealized gain on the Company’s investments in the current period whereas the Company had a large loss on the Company’s investments in the same period of the prior year. In addition, the Company has not generated any revenues.

Results of Operations for the Nine Months ended March 31, 2025 compared to Nine Months Ended March 31, 2024

Operating Expenses

Operating expenses for the nine months ended March 31, 2025 were $4,432,058, compared to $4,095,471 for the nine months ended March 31, 2024. The net change of $336,587 in operating expenses consisted primarily of an increase in research and development costs offset by decreases in selling and marketing expenses and general and administrative expenses.

Other Income/(Expenses)

Other income and (expenses) for the nine months ended March 31, 2025 were $(2,823,781), compared to $(3,403,512) for the nine months ended March 31, 2024. The decrease in other expense of $579,731 was primarily the result of a smaller net unrealized loss on the Company’s investments in the current period whereas the Company had a larger unrealized loss on the Company’s investments in the same period of the prior year.

Net Loss

For the nine months ended March 31, 2025, our net loss was $7,255,839, compared to a net loss of $7,498,983 for the nine months ended March 31, 2024. The decrease in net loss of $243,144 was primarily due to a smaller net unrealized loss on the Company’s investments in the current period whereas the Company had a larger unrealized loss on the Company’s investments in the same period of the prior year. In addition, 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, 2025, we had working capital of $37,961,652, compared to $42,386,683 as of June 30, 2024. This decrease in working capital of $4,425,031 was primarily due to a decrease in equity securities, related party.

Cash used in operating activities was $2,970,810 for the nine months ended March 31, 2025, compared to $1,770,631 for the nine months ended March 31, 2024. The net increase of $1,200,179 in cash used in operating activities was primarily due to a decrease in non-cash expenses, an increase in prepaid expenses, and decreases in accounts payable and accrued expenses. The Company has had no revenues.

Cash provided by (used in) investing activities during the nine months ended March 31, 2025 and March 31, 2024 was $(6,030,113) and $3,000,000, respectively. The net decrease of $9,030,113 in cash provided by (used in) investing activities was due to the redemption of short-term investments in corporate securities of $3,000,000 during the nine months ended March 31, 2024 compared to purchases of short-term investments of $(6,030,113) in the nine months ended March 31, 2025.

Cash provided by financing activities during the nine months ended March 31, 2025 and March 31, 2024 was $2,156,096 and $800,407, respectively. The net increase of $1,355,689 in cash provided by financing activities was due to increased proceeds from a Purchase Agreement entered with an investor for the sale of up to $45,000,000 of common stock.

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.

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, due to the material weakness described below, our disclosure controls and procedures as of the end of the period covered by this report were not 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.

Our management, including our principal executive officer and acting principal financial officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error or fraud. 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. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Due to 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, have been detected. To address the material weaknesses, we performed additional analysis and other post-closing procedures in an effort to ensure our financial statements included in this report have been prepared in accordance with generally accepted accounting principles. Accordingly, management believes that the financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.

As of March 31, 2025, due to the inherent issue of segregation of duties in a small company, we have relied heavily on entity or management review controls and engaged an outside financial consultant to lessen the issue of segregation of duties over accounting, financial close procedures and controls over financial statement disclosure. Accordingly, management has determined that this control deficiency constitutes a material weakness.

Changes in Internal Control Over Financial Reporting

There was no change to our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

There are no material changes from the risk factors previously disclosed in our annual report on Form 10-K filed with the SEC on September 30, 2024.