UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
☒
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 2021
☐
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER:
000-54437
SUNHYDROGEN, INC.
(Name of registrant in
its charter)
10 E. Yanonali St.,Suite 36Santa Barbara,CA93101
(Address of principal
executive offices) (Zip Code)
Issuer’s telephone
Number: (805)966-6566
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
None None None
Securities registered
pursuant to section 12(g) of the Act: common stock, par value $0.001 per share
Indicate by check mark
if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐No☒
Indicate by check mark
if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐No☒
Indicate by check
mark whether the registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes☒ No ☐
Indicate by check mark
whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
such files). Yes☒ No ☐
Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller
reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated Filer ☐
Non-accelerated filer ☒ Smaller reporting company ☒
Emerging growth company ☐
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark
whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting
firm that prepared or issued its audit report. ☐
Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐No☒
The aggregate market
value of the common stock held by non-affiliates of the registrant, based upon the last sale price of the common stock of the Company
as of the last business day of its most recently completed second fiscal quarter was approximately $267,705,946.
The number of shares of registrant’s
common stock outstanding, as of October 8, 2021 was 4,054,676,450.
DOCUMENTS
INCORPORATED BY REFERENCE
None
TABLE OF CONTENTS
Page
PART I
Item 1. Business 1
Item 1A. Risk Factors 6
Item 2. Properties 11
Item 3. Legal Proceedings 11
Item 4. Mine Safety Disclosures 11
PART II
Item 6. [Reserved.] 13
Item 7A. Quantitative and Qualitative Disclosures about Market Risk. 16
Item 8. Financial Statements and Supplementary Data 16
Item 9A. Controls and Procedures 16
Item 9B. Other Information. 17
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 17
PART III
Item 10. Directors, Executive Officers and Corporate Governance 18
Item 11. Executive Compensation 20
Item 14. Principal Accountant Fees and Services 23
Item 15. Exhibit and Financial Statement Schedules 24
SIGNATURES 26
i
PART I
Item 1. Business.
Unless
otherwise stated or the context requires otherwise, references in this annual report on Form 10-K to “SunHydrogen”, the “Company”,
“we”, “us”, or “our” 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 release carbon dioxide and other contaminants
into the atmosphere when used. However, naturally occurring elemental hydrogen is rare – so rare, in fact, that today over 95% of
hydrogen still comes from methane, a fossil fuel (Source: Forbes, Estimating the Carbon Footprint of Hydrogen Production). This
hydrogen is procured through steam methane reforming (SMR), a capital-intensive process that emits carbon dioxide and other harmful pollutants.
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 is the fuel of the
future, 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. 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 the University
of Iowa, through a sponsored research agreement. A longtime development partner to SunHydrogen, The University of Iowa research team has
worked over the past several years to both lead and optimize the scale-up of our nanoparticle technology.
In 2021, we made strides toward the commercialization
of our nanoparticle technology and entered agreements with two new technology development partners; InRedox in Longmont, Colorado and
SCHMID Group in Freudenstadt, Germany.
Under our agreement with InRedox, they support
the design and production of essential materials for our nanoparticle technology.
Concurrently,
SCHMID has worked to develop the process and equipment to manufacture and scale up our nanoparticle technology.
In 2021, we also successfully completed production
of 100 demonstration units of our Gen 1 technology, and added a Chief Operating Officer, Woosuk Kim, a seasoned senior operations executive
with global business management and financial market expertise spanning the U.S. and Wall Street, Europe, Asia and the Middle East.
1
We will continue working diligently with our existing
technology partners to drive our technology to commercialization while we simultaneously prepare for mass production and seek out potential
manufacturing partners for production facility, equipment design and engineering.
Market Opportunity
The global hydrogen market
is large and growing rapidly. Current fossil fuels can’t sustain future energy requirements environmentally or economically, and
hydrogen fuel technologies are being adopted across all sectors as the world moves toward renewable alternatives.
Over 110 countries have set
goals to achieve net-zero emissions by 2050, and as governments look to clean energy sources to help them meet their targets, hydrogen
is emerging as a promising solution (Source: United Nations, The race to zero emissions, and why the world depends on it). It is
estimated that nearly 25% of global energy will come from clean hydrogen alone by 2050, which could bring in a projected $2.5 trillion
in annual revenues (Source: Bank of America Securities, New Energy Behind Green Hydrogen).
In the US, California is leading
the way in hydrogen strategies, with more fuel cell passenger vehicles on the road than any other state and one of the largest hydrogen
refueling station networks in the world (Source: Sierra Nevada Ally, Hydrogen Fuel Cell Vehicles are Building Momentum in California).
Globally, over 320 green hydrogen production demonstration projects have been announced, and governments around the world have put forth
ambitious strategies to utilize hydrogen and fuel cell technologies across all sectors of the economy including transportation, feedstock
and industrial heat use (Source: International Energy Agency, Hydrogen Projects Database).
By 2050, the hydrogen market
is expected to increase tenfold compared to where it stands today (Source: The Hydrogen Council, Hydrogen, scaling up).
Existing Market Growth
According
to a Grand View Research study released in March 2021, the global hydrogen generation
market size was valued at $120.7 billion in 2020 and is expected to expand at a compound annual growth rate (CAGR) of 5.7% from 2021 to
2028. This places the market’s projected value at $184 billion in 2028.
Among
the factors driving the global hydrogen generation market size are regulations intended to reduce sulfur content and measures to reduce
the carbon footprint. U.S. federal and state governments have adopted various programs, including the Tier 3 program, to reduce the sulfur
content in gasoline, motor oil and diesel.
Growing
demand for petroleum products from developing countries is also anticipated to drive the hydrogen generation market in the coming years.
Hydrogen is used in various refining processes including hydrocracking and hydrodesulfurization to crack bigger molecules into lighter
ones and produce more usable products.
We believe increasing demand for clean fuel energy will be
affected by:
● Stringent government regulation toward desulphurization of petroleum products
● Deteriorating crude oil quality; and
● Transportation and storage issues
Therefore, we believe our
renewable hydrogen-producing technology possesses significant early market opportunity, especially as innovation and infrastructure continue
to develop.
2
Utility Scale Hydrogen Electricity
According to a March 2013
report from NREL, a national laboratory of the U.S. Department of Energy, hydrogen can be blended into existing natural gas pipeline networks,
thus bypassing the high cost of dedicated hydrogen pipelines to use hydrogen at a large scale. If implemented with relatively low concentrations,
less than 5%–15% hydrogen by volume, this strategy of storing and delivering renewable hydrogen to markets appears to be viable
without significantly increasing risks associated with utilization of the gas blend in end-use devices (such as household appliances),
overall public safety, or the durability and integrity of the existing natural gas pipeline network (Source: NREL, Blending Hydrogen
into Natural Gas Pipeline Networks: A review of Key Issues).
Hydrogen Fuel Cell Vehicles
The auto manufacturing and
vehicle industries are among the most recognized applications for hydrogen fuel technologies. According to a 2021 study by Information
Trends, over 27,500 hydrogen fuel cell vehicles had been sold by year-end 2020 since their sales first began. Sales were held back due
to the lack of a solid hydrogen refueling infrastructure, but the numbers are projected to rise quickly, and fuel cell vehicles are gaining
momentum around the world. In the same study, Information Trends projected that close to 600,000 hydrogen fuel cell buses and minibuses
will be in service by 2035 (Source: Information Trends, Global Market for Hydrogen Fuel Cell Buses). In California, executives
from 25 multinational companies including Toyota, Hyundai, BMW, Chevron and other key players have called on Governor Gavin Newsom to
heavily invest in hydrogen infrastructure in the state (Source: Ways2H, Executives Pen Letter to Newsom Calling for Major Investments
in Hydrogen Infrastructure). Stories and projections like these suggest a promising future for fuel cell vehicles.
Our Technology
Technology for
Making Renewable Hydrogen from Sunlight and Water
Powered by
solar energy, billions of our microscopic nanoparticles split apart water at the molecular level, extracting hydrogen for use as a clean
energy source and leaving behind only clean oxygen as a byproduct. This process is similar to what happens inside a plant cell during
photosynthesis: Each Photoelectrochemically Active Heterostructures (or PAH) nanoparticle is a microscopic machine, composed of multiple
layers enabling the solar electrolysis reaction to take place.
Water Splitting
In
the process of splitting a water molecule, input energy is transferred into the chemical bonds. Essentially, manufactured hydrogen serves
as a carrier or battery-like storage of the input energy. If the input energy is from fossil fuels, such as oil and gas, then carbon fossil
fuel energy is simply transferred into hydrogen. If the input energy is renewable, such as solar or wind, then new and clean energy is
stored in hydrogen.
While
the concept of water splitting is very appealing, the following challenges must be addressed for renewable hydrogen to be commercially
viable:
3
Technology
Water electrolysis
in its simplest form is the transfer of “input electrons” in the following chemical reactions:
● Cathode (reduction): 2H2O + 2e- ® H2 + 2OH-
● Anode (oxidation): 4OH- ® O2 + 2H2O + 4 e-
From
these equations, one can deduce that if every input electron (e-) is put to work and not lost, then a maximum amount
of input electrons (i.e. energy) is transferred and stored in the hydrogen molecules (H2). Additionally, if there were
a very high number of cathode and anode reaction areas within a given volume of water, then a very high number of these reactions could
happen simultaneously throughout the medium to split each water molecule into hydrogen wherever electrons are available.
SunHydrogen PanelTM
Since
our particles are intended to mimic the natural temperature conditions of photosynthesis, they can be housed in very low-cost reactors.
To facilitate the commercial use of our self-contained particle technology, we are developing a modular system that will enable the onsite
daily production and storage of hydrogen for any time use in electricity generation.
We
refer to our potential product as the SunHydrogen Panel which is comprised of the following components:
1. The Generator Housing
– Our novel device design is the first of its kind to safely separate oxygen and hydrogen in the water splitting process without
sacrificing efficiency. This device houses the water, and 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 - Powered
by solar energy, billions of our microscopic nanoparticle solar cells split apart water at the molecular level, extracting hydrogen for
use as a clean energy source and leaving behind only clean oxygen as a byproduct.
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.
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; and 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 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 the Gen 1 hydrogen generators for proof of concept and demonstration purposes
only. We anticipate these hydrogen panels will be demonstrated in various parts of the world as further proof of concept of our technology
and to promote our nanoparticle technology that will be more efficient and economical.
4
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 our target cost of hydrogen
production is $2.50 per kilogram before pressurization.
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 Freudenstadt, Germany to design and define a
process platform that enables mass manufacturing of SunHydrogen’s Gen 2 NanoParticle hydrogen panels. In April 2021, we entered
into an agreement with InRedox of Longmont, Colorado to produce the material components needed for Gen 2 manufacturing development. Both
Schmid and InRedox work alongside the research team at the University of Iowa, a longtime technology development partner to SunHydrogen
under sponsored research agreement.
Intellectual Property
On November 14, 2011, we filed
a provisional application with the U.S. Patent and Trademark Office to protect the intellectual property rights for “Photoelectrochemically
Active Heterostructures, methods for their manufacture, and methods and systems for producing desired products.” A year later on
November 14, 2012, we filed a non-provisional application claiming priority to the provisional application. On March 14, 2017, a first
patent covering the structural design of Photoelectrochemically Active Heterostructures (PAH) was granted as United States Patent No.
9,593,053B1. A divisional application claiming priority to the foregoing applications was filed, and on April 3, 2018, a second patent
covering the method for manufacturing PAH was granted as United States Patent No. 9,593,053B2. These patents protect the Company’s
proprietary design and manufacturing method of a self-contained solar-to-hydrogen device made up of millions of solar-powered water-splitting
nanoparticles, per square centimeter. These nanoparticles are coated with a separate patent-pending protective coating that prevents corrosion
during extended periods of hydrogen production. The aim of these nanoparticles is high conversion efficiency and low cost. This patent
expires on November 14, 2032.
An important aspect of the
patented technology referred to in the preceding paragraph is the integrated structures of high-density arrays of nano-sized solar cells
as part of hydrogen production nanoparticles. The technology enables manufacturing of ultra-thin sheets for solar-to-hydrogen production,
requiring substantially less material as compared to conventional solar cells used in rooftop power applications.
On March 21, 2014, we jointly
filed a provisional application with UCSB for the “Multi-junction artificial photosynthetic cell with enhanced photovoltages.”
Thereafter, we filed a non-provisional application on March 16, 2015 and a corresponding PCT Application on March 17, 2015. These applications
cover our semiconductor designs to enhance the photovoltages of the nano-sized solar cells in the PAH structures. The semiconductor designs
stacking multiple junctions inside the PAH structures would be an efficient and economic solution for the photovoltaic and the photoelectrochemical
industries. Patents were granted in Australia in April of 2018, China and Europe in March of 2019, and in the U.S. as United States Patent
No. 10,100,415 in October of 2018. A patent application is currently pending in India. This patent expires on March 17, 2025.
On September 26, 2016, we
filed jointly with the University of Iowa a provisional application for “Integrated Membrane Solar Fuel Production Assembly”
to protect the intellectual property for our generator housing system that safely separates 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 gases. Utilizing a special membrane for separating the oxygen side from the hydrogen side, proton transport is increased
which is the key to safely increasing solar-to-hydrogen efficiency. On September 26, 2017, we filed a PCT Application that was later nationalized
in the U.S. on March 26, 2019. The U.S. patent application for this important invention is pending and prosecution is ongoing.
5
Strategic Partners
As
of September 1, 2021, we have renewed our sponsored research agreement with the University of Iowa, As consideration under the research
agreement, the University of Iowa will receive a maximum of $299,966 from the Company. The research agreement may be terminated by either
party upon 60 days prior written notice or by either party upon notice of a material breach or default which is not cured within 90 days
of receipt of written notice of such breach. This term of the research agreement runs through August 31, 2022 but may be extended upon
mutual agreement of the parties.
In
February 2021, we entered into a cooperation agreement with SCHMID Group of Freudenstadt, Germany. Due to delays associated with supply
chain challenges brought on by the Covid-19 pandemic, the cooperation agreement has been extended to fully complete the work scope with
no additional cost to the company.
In
April 2021, we entered into an additional agreement with InRedox of Longmont, Colorado to support the design and production of essential
materials for our nanoparticle technology.
Competition
Currently,
most hydrogen is produced by steam reforming of natural gas or methane. This production technology dominates due to easy availability
and low prices of natural gas. Partial oxidation of petroleum oil is second in production capacity after steam reforming of natural gas.
The third largest production technology in terms of production capacity is steam gasification of coal. The current industry is heavily
dominated by large players such as Air Products, Chemicals Inc. and Air Liquide.
Green
or renewable hydrogen can be produced through electrolyzers if the electrolyzers are powered by solar or wind energy. Several companies
of this nature have emerged in the past few years. ITM Power in England and Proton Onsite in Norway are two of the largest companies in
this industry. If not powered by solar panels or wind power, they require external electricity most likely created by coal, gas or oil.
We believe that our process when fully developed may potentially offer a competitive advantage as we anticipate it will be completely
green and renewable and utilize no external power other than the sun.
Corporate Information
We
were incorporated in the State of Nevada on February 18, 2009. Our executive offices are located at 10 E. Yanonali St., Suite 36, Santa
Barbara, CA 93101.
Employees
As of September 27, 2021,
we have 4 full-time employees and several consultants. We have not experienced any work stoppages and we consider relations with our employees
and consultants to be good. Most of our research and development work is performed by the University of Iowa, through a sponsored research
agreement, and in collaboration with our development partners SCHMID and InRedox.
Item 1A. Risk Factors.
Risks related to our
business and industry
Our limited operating
history does not afford investors a sufficient history on which to base an investment decision.
We
were formed in February 2009 and are currently developing a new technology that has not yet gained market acceptance. There can be no
assurance that we will ever operate profitably or that we will have adequate working capital to meet our obligations as they become due.
6
Investors
must consider the risks and difficulties frequently encountered by early stage companies, particularly in rapidly evolving markets. Such
risks include the following:
● competition;
● need for acceptance of products;
● ability to continue to develop and extend brand identity;
● ability to anticipate and adapt to a competitive market;
● ability to effectively manage rapidly expanding operations;
● dependence upon key personnel.
We
cannot be certain that our business strategy will be successful or that we will successfully address these risks. In the event that we
do not successfully address these risks, our business, prospects, financial condition, and results of operations could be materially and
adversely affected and we may have to curtail our business.
We have a history
of losses and have never realized revenues to date. We expect to continue to incur losses and no assurance can be given that we will realize
revenues. Accordingly, we may never achieve and sustain profitability.
As
of June 30, 2021, we have an accumulated deficit of $172,976,952. For the year ended June 30, 2021 we incurred a net loss of $81,498,123.
We expect to continue to incur net losses until we are able to realize revenues to fund our continuing operations. We may fail to achieve
any or significant revenues from sales or achieve or sustain profitability. Accordingly, there can be no assurance of when, if ever,
we will be profitable or be able to maintain profitability.
We
have historically raised funds through various capital raising transactions. We will require additional funds in the future to fund our
business plans, either through additional equity or debt financings or collaborative agreements or from other sources. We have no commitments
to obtain such additional financing, and we may not be able to obtain any such additional financing on terms favorable to us, or at all.
In the event we are unable to obtain additional financing, we may be unable to implement our business plan. Even with such financing,
we have a history of operating losses and there can be no assurance that we will ever become profitable.
We may be unable
to manage our growth or implement our expansion strategy.
We may not be able to develop
our product or implement the other features of our business strategy at the rate or to the extent presently planned. Our projected growth
will place a significant strain on our administrative, operational and financial resources. If we are unable to successfully manage our
future growth, establish and continue to upgrade our operating and financial control systems, recruit and hire necessary personnel or
effectively manage unexpected expansion difficulties, our financial condition and results of operations could be materially and adversely
affected.
We may not be able
to successfully develop and commercialize our technologies which would result in continued losses and may require us to curtail or cease
operations.
In
early-to-mid , we entered into agreements with development partners InRedox and SCHMID Group, who are working alongside the University
of Iowa research team to take the lab-scale prototypes of our nanoparticle technology to larger, commercial-scale prototypes. However,
we have not completed a large-scale commercial prototype of our technology and are uncertain at this time when completion of a commercial
scale prototype will occur. Although the lab scale prototype demonstrates the viability of our technology, there can be no assurance that
we will be able to commercialize our technology.
7
Our revenues will
be dependent upon acceptance of our products by the market; the failure of which would cause us to curtail or cease operations.
We
believe that virtually all of our revenues will come from the sale or license of our products. As a result, we will continue to incur
substantial operating losses until such time as we are able to develop our product and generate revenues from the sale or license of our
products. There can be no assurance that businesses and customers will adopt our technology and products, or that businesses and prospective
customers will agree to pay for or license our products. Our technology and product, when fully developed, may not gain market acceptance
due to various factors such as not enough cost savings between our method of producing hydrogen and other more conventional methods. In
the event that we are not able to significantly increase the number of customers that purchase or license our products, or if we are unable
to charge the necessary prices or license fees, our financial condition and results of operations will be materially and adversely affected.
We anticipate that
we will face intense competition, and many of our competitors have substantially greater resources than we do.
We
operate in a competitive environment that is characterized by price fluctuation and technological change. We anticipate that we will compete
with major international and domestic companies. Some of our current and future potential competitors may have greater market recognition
and customer bases, longer operating histories and substantially greater financial, technical, marketing, distribution, purchasing, manufacturing,
personnel and other resources than we do. In addition, competitors may be developing similar technologies with a cost similar to, or lower
than, our projected costs. As a result, they may be able to respond more quickly to changing customer demands or to devote greater resources
to the development, promotion and sales of solar and solar-related products than we can.
Our
business plan relies on sales of our products based on either a demand for truly renewable clean hydrogen or economically produced clean
hydrogen. If we fail to compete successfully, our business would suffer and we may lose or be unable to gain market share. Neither the
demand for our product nor our ability to manufacture at commercial scale have yet been proven.
Because our industry
is highly competitive and has low barriers to entry, we may lose market share to larger companies that are better equipped to weather
a deterioration in market conditions due to increased competition.
Our
industry is highly competitive and fragmented, subject to rapid change and has low barriers to entry. We may, in the future, compete for
potential customers with solar and heating companies and other providers of solar power equipment or electric power. Some of these competitors
may have significantly greater financial, technical and marketing resources and greater name recognition than we have.
We
believe that our ability to compete depends in part on a number of factors outside of our control, including:
● the price at which others offer comparable services and equipment;
● the extent of our competitors’ responsiveness to customer needs; and
● installation technology.
Currently, competing methods
of hydrogen production include steam reforming of natural gas or methane, which dominates due to its easy availability and low price;
partial oxidation of petroleum oil; steam gasification of coal; and electrolyzers powered by solar or wind energy. There can be no assurance
that we will be able to compete successfully against current and future competitors. If we are unable to compete effectively, or if competition
results in a deterioration of market conditions, our business and results of operations would be adversely affected.
8
Our business depends
on proprietary technology that we may not be able to protect and may infringe on the intellectual property rights of others.
Our success will depend, in
part, on our technology’s commercial viability and on the strength of our intellectual property rights. We currently hold patents
in the US, China and Australia, but still have several patents pending in multiple countries. There is no guarantee the pending
patents will be granted. In addition, any agreements we enter into with our employees, consultants, advisors, customers and strategic
partners will contain restrictions on the disclosure and use of trade secrets, inventions and confidential information relating to our
technology may not provide meaningful protection in the event of unauthorized use or disclosure.
Third
parties may assert that our technology, or the products we, our customers or partners commercialize using our technology, infringes upon
their proprietary rights. We have yet to complete an infringement analysis and, even if such an analysis were available at the current
time, it is virtually impossible for us to be certain that no infringement exists, particularly in our case where our products have not
yet been fully developed.
We
may need to acquire licenses from third parties in order to avoid infringement. Any required license may not be available to us on acceptable
terms, or at all.
We
could incur substantial costs in defending ourselves in suits brought against us for alleged infringement of another party’s intellectual
property rights as well as in enforcing our rights against others, and if we are found to infringe, the manufacture, sale and use of our
or our customers’ or partners’ products could be enjoined. Any claims against us, with or without merit, would likely be time-consuming,
requiring our management team to dedicate substantial time to addressing the issues presented. Furthermore, the parties bringing claims
may have greater resources than we do.
We do not maintain
theft or casualty insurance and only maintain modest liability and property insurance coverage and therefore, we could incur losses as
a result of an uninsured loss.
We
do not maintain theft, casualty insurance, or property insurance coverage. We cannot assure that we will not incur uninsured liabilities
and losses as a result of the conduct of our business. Any such uninsured or insured loss or liability could have a material adverse effect
on our results of operations.
If we lose key
employees and consultants or are unable to attract or retain qualified personnel, our business could suffer.
Our success is highly dependent
on our ability to attract and retain qualified scientific, engineering and management personnel. We are highly dependent on our CEO, Timothy
Young, and our development team at the University of Iowa. The loss of this valuable resource could have a material adverse effect
on our operations. There can be no assurance that they will remain associated with us. Our management’s efforts will be critical
to us as we continue to develop our technology and as we attempt to transition from a development stage company to a company with commercialized
products and services. If we were to lose Mr. Young or the services of the development team at the university or any other key employees
or consultants, we may experience difficulties in competing effectively, developing our technology and implementing our business strategies.
The loss of strategic
alliances used in the development of our products and technology could impede our ability to complete our product and result in a material
adverse effect causing the business to suffer.
We
pursue strategic alliances with other companies in areas where collaboration can produce technological and industry advancement. We
have entered into a sponsored research agreement with the University of Iowa which is set to terminate August 31, 2022. If we are unable
to extend the terms of this agreement, we could suffer delays in product development or other operational difficulties which could have
a material adverse effect on our results of operations.
9
The COVID-19 pandemic may negatively affect
our operations.
The
COVID-19 pandemic is having widespread, rapidly evolving, and unpredictable impacts on global society, economies, financial markets, and
business practices. The continuing impacts of COVID-19 are highly unpredictable and could be significant, and may have an adverse effect
on our business, operations and our future financial performance.
The
impact of the pandemic on our business, operations and future financial performance could include, but is not limited to, that:
● We may experience delays in our product development;
Risks relating to
our common stock
There is a limited
trading market for our common stock.
Our common stock is not listed
on any national securities exchange. Accordingly, investors may find it more difficult to buy and sell our shares than if our common stock
was traded on an exchange. Although our common stock is quoted on the OTC Pink, it is an unorganized, inter-dealer, over-the-counter market
which provides significantly less liquidity than the Nasdaq Capital Market or other national securities exchange. Further, there is limited
trading in our common stock. These factors may have an adverse impact on the trading and price of our common stock.
Our common stock
could be subject to extreme volatility.
The
trading price of our common stock may be affected by a number of factors, including events described in the risk factors set forth in
this report, as well as our operating results, financial condition and other events or factors. In addition to the uncertainties relating
to future operating performance and the profitability of operations, factors such as variations in interim financial results or various,
as yet unpredictable, factors, many of which are beyond our control, may have a negative effect on the market price of our common stock.
In recent years, broad stock market indices, in general, and smaller capitalization companies, in particular, have experienced substantial
price fluctuations. In a volatile market, we may experience wide fluctuations in the market price of our common stock and wide bid-ask
spreads. These fluctuations may have a negative effect on the market price of our common stock. In addition, the securities market has,
from time to time, experienced significant price and volume fluctuations that are not related to the operating performance of particular
companies. These market fluctuations may also materially and adversely affect the market price of our common stock.
We anticipate that our issuance of common
stock upon conversion of outstanding convertible notes will result in dilution to our stockholders.
As of June 30, 2021, we have
outstanding $1,271,200 in convertible notes that are convertible into common stock at variable conversion prices (see Note 5 to the financial
statements included in this report). We anticipate that our issuance of common stock upon conversion of outstanding convertible notes
will result in dilution to holders of our common stock, which may have a negative effect on the price of our common stock. In addition,
as of June 30, 2021, we have outstanding warrants to purchase 94,895,239 shares of common stock and options to purchase 182,853,174 shares
of common stock, and our issuance of shares of common stock upon exercise of outstanding warrants or options may result in additional
dilution to our stockholders.
10
We have never paid
common stock dividends and have no plans to pay dividends in the future, as a result our common stock may be less valuable because a return
on an investor’s investment will only occur if our stock price appreciates.
Holders
of shares of our common stock are entitled to receive such dividends as may be declared by our Board of Directors. To date, we have paid
no cash dividends on our shares of common stock and we do not expect to pay cash dividends on our common stock in the foreseeable future.
We intend to retain future earnings, if any, to provide funds for operations of our business. Therefore, any return investors in our common
stock will be in the form of appreciation in the market value of our shares of common stock, which may not occur.
Our common stock
is subject to the SEC’s penny stock rules.
Unless
our common stock is listed on a national securities exchange, including the Nasdaq Capital Market, or we have stockholders’ equity
of $5,000,000 or less and our common stock has a market price per share of less than $5.00, transactions in our common stock will be subject
to the SEC’s “penny stock” rules. If our common stock remains subject to the “penny stock” rules promulgated
under the Securities Exchange Act of 1934, broker-dealers may find it difficult to effectuate customer transactions and trading activity
in our securities may be adversely affected.
In
accordance with these rules, broker-dealers participating in transactions in low-priced securities must first deliver a risk disclosure
document that describes the risks associated with such stocks, the broker-dealer’s duties in selling the stock, the customer’s
rights and remedies and certain market and other information. Furthermore, the broker-dealer must make a suitability determination approving
the customer for low-priced stock transactions based on the customer’s financial situation, investment experience and objectives.
Broker-dealers must also disclose these restrictions in writing to the customer, obtain specific written consent from the customer, and
provide monthly account statements to the customer. The effect of these restrictions will probably decrease the willingness of broker-dealers
to make a market in our common stock, decrease liquidity of our common stock and increase transaction costs for sales and purchases of
our common stock as compared to other securities. Our management is aware of the abuses that have occurred historically in the penny stock
market.
This
may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.
Our articles of incorporation allow for
our board to create new series of preferred stock without further approval by our stockholders, which could adversely affect the rights
of the holders of our common stock.
Our board of directors has
the authority to fix and determine the relative rights and preferences of preferred stock. Our board of directors has the authority to
issue up to 5,000,000 shares of our preferred stock without further stockholder approval. As a result, our board of directors could authorize
the issuance of a series of preferred stock that would grant to holders of preferred stock the right to our assets upon liquidation, or
the right to receive dividend payments before dividends are distributed to the holders of common stock. In addition, our board of directors
could authorize the issuance of a series of preferred stock that has greater voting power than our common stock or that is convertible
into our common stock, which could decrease the relative voting power of our common stock or result in dilution to our existing stockholders.
Additional stock offerings in the future
may dilute then-existing shareholders’ percentage ownership of the Company.
Given our plans and expectations
that we will need additional capital and personnel, we anticipate that we will need to issue additional shares of common stock or securities
convertible or exercisable for shares of common stock, including convertible preferred stock, convertible notes, stock options or warrants.
We anticipate that our issuance of additional common stock or securities convertible into or exercisable into common stock in the future
will dilute the percentage ownership of then current stockholders.
Item 2. Properties.
Our
principal office address is 10 E. Yanonali St., Suite 36, Santa Barbara, CA, 93101. We believe that our current premises are sufficient
to handle our administrative activities for the near future as adequate lab space and equipment is attained through our agreement with
the University of Iowa.
Item 3. Legal Proceedings.
We
are not currently a party to, nor is any of our property currently the subject of, any material legal proceedings.
Item 4. Mine Safety Disclosures.
Not Applicable.
11
PART II
Item 5. Market for Registrant’s Common
Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Our
common stock is quoted on the OTC Pink under the symbol “HYSR”
Common Stock
Our
Articles of Incorporation, as amended, authorizes the issuance of 5,000,000,000 shares of common stock, $0.001 par value per share and
5,000,000 shares of preferred stock, par value $0.001 per share.
All
outstanding shares of common stock are of the same class and have equal rights and attributes. The holders of our common stock are
entitled to one vote per share on all matters submitted to a vote of our stockholders. All stockholders are entitled to share equally
in dividends, if any, as may be declared from time to time by the Board of Directors out of funds legally available. In the event of liquidation,
the holders of our common stock are entitled to share ratably in all assets remaining after payment of all liabilities. The stockholders
do not have cumulative or preemptive rights.
As of October 2, 2021, our
common stock was held by approximately 75 stockholders of record.
Dividend Policy
We
have never declared or paid any cash dividends on our common stock. We do not anticipate paying any cash dividends to stockholders in
the foreseeable future. In addition, any future determination to pay cash dividends will be at the discretion of the Board of Directors
and will be dependent upon our financial condition, results of operations, capital requirements, and such other factors as the Board of
Directors deem relevant. There are no restrictions in our articles of incorporation or bylaws that restrict us from declaring dividends.
Equity Compensation
Plan Information
On January 23, 2019, our Board
adopted the Company’s 2019 Equity Incentive Plan (the “Plan”). The stated purpose of the Plan is to promote the success
of the Company and to increase stockholder value by providing an additional means through the grant of awards to attract, motivate, retain
and reward selected employees and other eligible persons. The maximum number of shares of the Company’s common stock that can be
issued under the Plan is 300,000,000.
The following table sets forth information
about our equity compensation plans as of June 30, 2021.
(a) (b)