UNITED STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM 10-Q
(Mark
One)
☒ QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY
PERIOD ENDED SEPTEMBER 30, 2014
OR
☐ TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR
THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE
NUMBER: 000-54437
HYPERSOLAR,
INC.
(Exact name
of registrant as specified in its charter)
Nevada |
|
26-4298300 |
(State or other jurisdiction of
incorporation or organization) |
|
(I.R.S. Employer
Identification Number) |
32 E. Micheltorena, Suite A
Santa Barbara, California
93101 |
(Address of principal executive offices) (Zip Code) |
Registrant’s
telephone number, including area code: (805) 966-6566
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the past 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 x No o .
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition
of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule
12b-2 of the Exchange Act.
Accelerated
filer ☐ |
Large
accelerated filer ☐ |
Non
accelerated filer ☐ |
Smaller
reporting company ☒ |
(Do not check if a smaller reporting company) |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2) of the Act. Yes o No x
There were 448,562,529 shares of
the registrant's common stock, par value $0.001, issued and outstanding as of November 7, 2014.
HYPERSOLAR,
INC.
INDEX
|
PAGE |
PART I: FINANCIAL INFORMATION |
|
ITEM 1: |
|
FINANCIAL STATEMENTS (Unaudited) |
3 |
|
|
Condensed Balance Sheets |
3 |
|
|
Condensed Statements of Operations |
4 |
|
|
Condensed Statement of Shareholder’s Deficit |
5 |
|
|
Condensed Statements of Cash Flows |
6 |
|
|
Notes to condensed financial statements |
7 |
ITEM 2: |
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
11 |
ITEM 3: |
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
14 |
ITEM 4: |
|
CONTROLS AND PROCEDURES |
14 |
PART II: OTHER INFORMATION |
15 |
ITEM 1 |
|
LEGAL PROCEEDINGS |
15 |
ITEM 1A : |
|
RISK FACTORS |
15 |
ITEM 2: |
|
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
15 |
ITEM 3: |
|
DEFAULTS UPON SENIOR SECURITIES |
15 |
ITEM 4: |
|
MINE SAFETY DISCLOSURES |
15 |
ITEM 5: |
|
OTHER INFORMATION |
15 |
ITEM 6: |
|
EXHIBITS |
15 |
SIGNATURES: |
|
|
16 |
PART
I. Financial Information
HYPERSOLAR,
INC.
CONDENSED
BALANCE SHEETS
| |
September 30, 2014 | | |
June 30, 2014 | |
| |
(Unaudited) | | |
| |
| |
| | |
| |
ASSETS | |
| | |
| |
| |
| | |
| |
CURRENT ASSETS | |
| | |
| |
Cash | |
$ | 43,833 | | |
$ | 61,628 | |
| |
| | | |
| | |
TOTAL CURRENT ASSETS | |
| 43,833 | | |
| 61,628 | |
| |
| | | |
| | |
PROPERTY & EQUIPMENT | |
| | | |
| | |
Computers and peripherals | |
| 6,218 | | |
| 6,218 | |
Less: accumulated depreciation | |
| (4,730 | ) | |
| (4,479 | ) |
| |
| | | |
| | |
NET PROPERTY AND EQUIPMENT | |
| 1,488 | | |
| 1,739 | |
| |
| | | |
| | |
OTHER ASSETS | |
| | | |
| | |
Deposits | |
| 1,450 | | |
| 925 | |
Domain, net of amortization $2,185 and $2,097, respectively | |
| 3,130 | | |
| 3,218 | |
Patents | |
| 34,736 | | |
| 32,736 | |
| |
| | | |
| | |
TOTAL OTHER ASSETS | |
| 39,316 | | |
| 36,879 | |
| |
| | | |
| | |
TOTAL ASSETS | |
$ | 84,637 | | |
$ | 100,246 | |
| |
| | | |
| | |
LIABILITIES AND SHAREHOLDERS' DEFICIT | |
| | | |
| | |
| |
| | | |
| | |
CURRENT LIABILITIES | |
| | | |
| | |
Accounts payable | |
$ | 94,638 | | |
$ | 92,801 | |
Accrued expenses | |
| 228,739 | | |
| 218,478 | |
Derivative liability | |
| 5,914,220 | | |
| 8,667,274 | |
Convertible promissory notes, net of debt discount of $163,928 and $176,395, respectively | |
| 428,413 | | |
| 345,946 | |
| |
| | | |
| | |
TOTAL CURRENT LIABILITIES | |
| 6,666,010 | | |
| 9,324,499 | |
| |
| | | |
| | |
SHAREHOLDERS' DEFICIT | |
| | | |
| | |
Preferred Stock, $0.001 par value; 5,000,000 authorized preferred shares | |
| - | | |
| - | |
Common Stock, $0.001 par value; 1,500,000,000 authorized common shares 448,562,529 and 429,348,439 shares issued and outstanding, respectively | |
| 448,562 | | |
| 429,348 | |
Additional Paid in Capital | |
| 5,547,090 | | |
| 5,532,679 | |
Accumulated Deficit | |
| (12,577,025 | ) | |
| (15,186,280 | ) |
| |
| | | |
| | |
TOTAL SHAREHOLDERS' DEFICIT | |
| (6,581,373 | ) | |
| (9,224,253 | ) |
| |
| | | |
| | |
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT | |
$ | 84,637 | | |
$ | 100,246 | |
The
accompanying notes are an integral part of these unaudited condensed financial statements
HYPERSOLAR,
INC.
CONDENSED
STATEMENTS OF OPERATIONS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013
(UNAUDITED)
| |
For the Three Months Ended | |
| |
September 30, 2014 | | |
September 30, 2013 | |
| |
| | |
| |
REVENUE | |
$ | - | | |
$ | - | |
| |
| | | |
| | |
OPERATING EXPENSES | |
| | | |
| | |
General and administrative expenses | |
| 116,974 | | |
| 125,276 | |
Research and development cost | |
| - | | |
| 26,947 | |
Depreciation and amortization | |
| 339 | | |
| 98 | |
| |
| | | |
| | |
TOTAL OPERATING EXPENSES | |
| 117,313 | | |
| 152,321 | |
| |
| | | |
| | |
LOSS FROM OPERATIONS BEFORE OTHER EXPENSES | |
| (117,313 | ) | |
| (152,321 | ) |
| |
| | | |
| | |
OTHER INCOME/(EXPENSES) | |
| | | |
| | |
Net Gain/(Loss) on change in derivative liability | |
| 2,853,054 | | |
| (1,400,013 | ) |
Interest expense | |
| (126,486 | ) | |
| (108,172 | ) |
| |
| | | |
| | |
TOTAL OTHER INCOME/(EXPENSES) | |
| 2,726,568 | | |
| (1,508,185 | ) |
| |
| | | |
| | |
NET INCOME BEFORE TAXES | |
| 2,609,255 | | |
| 1,660,506 | |
| |
| | | |
| | |
INCOME TAXES | |
| - | | |
| - | |
| |
| | | |
| | |
NET INCOME/ (LOSS) | |
$ | 2,609,255 | | |
$ | (1,660,506 | ) |
| |
| | | |
| | |
BASIC AND DILUTED INCOME (LOSS) PER SHARE | |
$ | 0.01 | | |
$ | (0.01 | ) |
| |
| | | |
| | |
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING BASIC AND DILUTED | |
| 443,550,158 | | |
| 199,722,588 | |
The
accompanying notes are an integral part of these unaudited condensed financial statements
HYPERSOLAR,
INC.
CONDENSED
STATEMENTS OF SHAREHOLDERS' DEFICIT
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2014
(UNAUDITED)
| |
| | |
| | |
| | |
| | |
Additional | | |
| | |
| |
| |
Preferred
stock | | |
Common
stock | | |
Paid-in | | |
Accumulated | | |
| |
| |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Total | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance at June 30, 2014 | |
| - | | |
$ | - | | |
| 429,348,439 | | |
$ | 429,348 | | |
$ | 5,532,679 | | |
$ | (15,186,280 | ) | |
$ | (9,224,253 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance of common stock
for conversion of debt | |
| - | | |
| - | | |
| 19,214,090 | | |
| 19,214 | | |
| 14,411 | | |
| - | | |
| 33,625 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net income for
the three months ended September 30, 2014 | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 2,609,255 | | |
| 2,609,255 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance at September
30, 2014 (unaudited) | |
| - | | |
$ | - | | |
| 448,562,529 | | |
$ | 448,562 | | |
$ | 5,547,090 | | |
$ | (12,577,025 | ) | |
$ | (6,581,373 | ) |
The accompanying notes are an integral part of these unaudited condensed financial statements
HYPERSOLAR,
INC.
CONDENSED
STATEMENTS OF CASH FLOWS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013
(UNAUDITED)
| |
For the Three Months Ended | |
| |
September 30, 2014 | | |
September 30, 2013 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | |
| | |
| |
Net income/(loss) | |
$ | 2,609,255 | | |
$ | (1,660,506 | ) |
Adjustment to reconcile net income/(loss) to net cash used in operating activities | |
| | | |
| | |
Depreciation & amortization expense | |
| 339 | | |
| 98 | |
(Gain)/Loss on change in derivative liability | |
| (2,853,054 | ) | |
| 1,400,013 | |
Amortization of debt discount and beneficial conversion feature recorded as interest expense | |
| 112,467 | | |
| 97,679 | |
Change in Assets and Liabilities: | |
| | | |
| | |
(Increase) Decrease in: | |
| | | |
| | |
Prepaid expenses and other current assets | |
| - | | |
| (22,356 | ) |
Deposits | |
| (525 | ) | |
| - | |
Increase (Decrease) in: | |
| | | |
| | |
Accounts payable | |
| 1,837 | | |
| 42,135 | |
Accrued expenses | |
| 13,886 | | |
| 69,897 | |
| |
| | | |
| | |
NET CASH USED IN OPERATING ACTIVITIES | |
| (115,795 | ) | |
| (73,040 | ) |
| |
| | | |
| | |
NET CASH FLOWS FROM INVESTING ACTIVITIES: | |
| | | |
| | |
Purchase of fixed assets | |
| - | | |
| (2,020 | ) |
Purchase of intangible assets | |
| (2,000 | ) | |
| - | |
| |
| | | |
| | |
NET CASH USED IN INVESTING ACTIVITIES | |
| (2,000 | ) | |
| (2,020 | ) |
| |
| | | |
| | |
NET CASH FLOWS FROM FINANCING ACTIVITIES: | |
| | | |
| | |
Proceeds from convertible notes payable | |
| 100,000 | | |
| 82,500 | |
| |
| | | |
| | |
NET CASH PROVIDED BY FINANCING ACTIVITIES | |
| 100,000 | | |
| 82,500 | |
| |
| | | |
| | |
NET (DECREASE)/INCREASE IN CASH | |
| (17,795 | ) | |
| 7,440 | |
| |
| | | |
| | |
CASH, BEGINNING OF PERIOD | |
| 61,628 | | |
| 15,937 | |
| |
| | | |
| | |
CASH, END OF PERIOD | |
$ | 43,833 | | |
$ | 23,377 | |
| |
| | | |
| | |
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | |
| | | |
| | |
Interest paid | |
$ | 134 | | |
$ | - | |
Taxes paid | |
$ | - | | |
$ | - | |
| |
| | | |
| | |
SUPPLEMENTAL DISCLOSURES OF NON CASH TRANSACTIONS | |
| | | |
| | |
Issuance of common stock upon conversion of convertible notes | |
$ | 33,625 | | |
$ | 1,895 | |
Issuance of common stock upon cashless conversion of warrants | |
$ | - | | |
$ | 31,211 | |
The accompanying notes are an integral part of these unaudited condensed financial statements
HYPERSOLAR, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS - UNAUDITED
SEPTEMBER 30, 2014
1. Basis of Presentation
The accompanying unaudited financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In
the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included. Operating
results for the three months ended September 30, 2014 are not necessarily indicative of the results that may be expected for the
year ending June 30, 2015. For further information refer to the financial statements and footnotes thereto included in the Company's
Form 10-K for the year ended June 30, 2014.
Going Concern
The accompanying financial statements
have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets and
liabilities and commitments in the normal course of business. The accompanying financial statements do not reflect any adjustments
that might result if the Company is unable to continue as a going concern. The Company does not generate revenue, and has negative
cash flows from operations, which raise substantial doubt about the Company’s ability to continue as a going concern. The
ability of the Company to continue as a going concern and appropriateness of using the going concern basis is dependent upon, among
other things, additional cash infusion. The Company has obtained funds from its shareholders during the period ended September
30, 2014. Management believes this funding will continue, and has also obtained funding from new investors. Management believes
the existing shareholders and the prospective new investors will provide the additional cash needed to meet the Company’s
obligations as they become due, and will allow the development of its core business. There is no assurance that the Company will
be able to continue raising the required capital.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant
accounting policies of HyperSolar, Inc. is presented to assist in understanding the Company’s financial statements. The financial
statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity.
These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently
applied in the preparation of the financial statements.
Revenue Recognition
The Company recognizes revenue when
services are performed, and at the time of shipment of products, provided that evidence of an arrangement exists, title and risk
of loss have passed to the customer, fees are fixed or determinable, and collection of the related receivable is reasonably assured.
To date, the Company has had no revenues.
Cash and Cash Equivalent
The Company considers all highly
liquid investments with an original maturity of three months or less to be cash equivalents.
Use
of Estimates
The preparation of financial statements
in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the
amounts reported in the accompanying financial statements. Significant estimates made in preparing these financial statements include
the estimate of useful lives of intangible assets, and the deferred tax valuation allowance. Actual results could differ from those
estimates.
Fair Value of Financial Instruments
Disclosures about 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 September 30, 2014, the amounts reported for cash, accrued interest and other expenses,
notes payables, and derivative liability approximate the fair value because of their short maturities.
We adopted ASC Topic 820 as of January
1, 2008 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.
HYPERSOLAR, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS - UNAUDITED
SEPTEMBER 30, 2014
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fair Value of Financial Instruments
(Continued)
Fair value is defined as the price
that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. ASC Topic 820 established a three-tier fair value hierarchy which prioritizes the inputs used in measuring
fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities
(level 1measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:
| · | Level 1, defined as observable inputs such as quoted prices for identical instruments in active
markets; |
| · | Level 2, defined as inputs other than quoted prices in active markets that are either directly
or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar
instruments in markets that are not active; and |
| · | Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring
an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant
inputs or significant value drivers are unobservable. |
We measure certain financial instruments
at fair value on a recurring basis. Assets and liabilities measured at fair value on a recurring basis are as follows at September
30, 2014:
|
| |
Total | | |
(Level 1) | | |
(Level 2) | | |
(Level 3) | |
|
| |
| | |
| | |
| | |
| |
|
Assets | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
|
| |
| | | |
| | | |
| | | |
| | |
|
Total assets measured at fair value | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
|
| |
| | | |
| | | |
| | | |
| | |
|
Liabilities | |
| | | |
| | | |
| | | |
| | |
|
| |
| | | |
| | | |
| | | |
| | |
|
Derivative liability | |
| 5,914,220 | | |
| - | | |
| - | | |
| 5,914,220 | |
|
Total liabilities measured at fair value | |
$ | 5,914,220 | | |
$ | - | | |
$ | - | | |
$ | 5,914,220 | |
The following is a reconciliation
of the derivative liability for which Level 3 inputs were used in determining the approximate fair value:
|
Beginning balance as of July 1, 2014 | |
$ | 8,667,274 | |
|
Fair value of derivative liabilities issued | |
| 652,187 | |
|
Conversion of notes payable | |
| (514,656 | ) |
|
Loss on change in fair value of derivative
liability | |
| (2,890,585 | ) |
|
Ending balance as of June 30, 2015 | |
$ | 5,914,220 | |
Loss per Share Calculations
Loss per Share dictates the
calculation of basic earnings per share and diluted earnings per share. Basic earnings per share are computed by dividing
income available to common shareholders by the weighted-average number of common shares available. Diluted earnings per share
is computed similar to basic earnings per share except that the denominator is increased to include the number of additional
common shares that would have been outstanding if the potential common shares had been issued and if the additional common
shares were dilutive. No shares for the convertible notes were used in the calculation of the loss per share as they were all
anti-dilutive. The Company’s diluted loss per share is the same as the basic loss per share for the period ended
September 30, 2014, as the inclusion of any potential shares would have had an anti-dilutive effect due to the Company
generating a loss. As of September 30, 2014, 250,000 options and 329,574,354 in shares issuable from convertible notes are
excluded from this calculation.
Income Taxes
The Company uses the liability method
of accounting for income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable
to financial statements carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and
tax credit carry-forwards. The measurement of deferred tax assets and liabilities is based on provisions of applicable tax law.
The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance based on the amount of tax benefits that,
based on available evidence, is not expected to be realized.
Stock based Compensation
Share-based Payment applies to transactions
in which an entity exchanges its equity instruments for goods or services and also applies to liabilities an entity may incur for
goods or services that are to follow a fair value of those equity instruments. The Company will be required to follow a fair value
approach using an option-pricing model, such as the Black Scholes option valuation model, at the date of a stock option grant.
The deferred compensation calculated under the fair value method would then be amortized over the respective vesting period of
the stock option.
HYPERSOLAR, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS - UNAUDITED
SEPTEMBER 30, 2014
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
| | Recently issued pronouncements |
| | Management reviewed accounting pronouncements issued during the year ended June 30, 2014, and adopted
the following pronouncements: |
On August
27, 2014, the Company adopted the amendment to ASU 2014-15 on Presentation of Financial Statements Going Concern (Subtopic 205-40).
The amendment provides for guidance to reduce diversity in the timing and content of footnote disclosures. The amendment
requires management to assess the Company’s ability to continue as a going concern by incorporating and expanding upon certain
principles that are currently in U.S. auditing standards. The Company has to define the term of substantial doubt, which has to
be evaluated every reporting period including interim periods. Management has to provide principles for considering the mitigating
effect of its plan, and disclose when substantial doubt is alleviated as well as when it is not alleviated. The Company is required
to assess managements plan for a period of one year after the financial statements are issued (or available to be issued). The
amendment is effective for annual periods ending after December 15, 2016. Early adoption is permitted. The Company does not believe
the accounting standards currently adopted will have a material effect on the accompanying condensed financial statements.
| | During the three months ended September 30, 2014, the Company issued 19,214,090 shares of common
stock upon conversion of $30,000 in principal, plus $3,625 in accrued interest. |
Options
As of September 30, 2014, 250,000
non-qualified stock options common stock to a contractor were outstanding. Each option shall be exercisable to the nearest whole
share, in installments or otherwise, as the respective agreements may provide. Notwithstanding any other provisions of the Option
agreement, each Option expires on the date specified in the Option agreement, which date shall not be later than the fifth (5th)
anniversary from the grant date of the options. The stock options are fully vested and are exercisable for a period of five years
from the date of grant at an exercise price $0.04 per share.
A summary of the Company’s
stock option activity and related information follows:
|
| |
| | |
Weighted | |
|
| |
Number | | |
average | |
|
| |
of | | |
exercise | |
|
| |
Options | | |
price | |
|
Outstanding, beginning of period | |
| 250,000 | | |
$ | 0.04 | |
|
Granted | |
| - | | |
| - | |
|
Exercised | |
| - | | |
| - | |
|
Forfeited/Expired | |
| - | | |
| - | |
|
Outstanding, end of period | |
| 250,000 | | |
$ | 0.04 | |
|
Exercisable at the end of period | |
| 250,000 | | |
$ | 0.04 | |
|
Weighted average fair value of options granted during the period | |
| | | |
$ | - | |
5. CONVERTIBLE PROMISSORY NOTES
On May 9, 2013, the Company entered
into a securities purchase agreement for the sale of a 10% convertible promissory note entered into for the extinguishment of a
previous note in the aggregate principal amount of $127,841. The lender converted $85,500 of the note leaving a remaining balance
of $42,341 as of September 30, 2014. The note is convertible into shares of common stock of the Company at a price equal to the
lesser of $0.009 or 50% of the lowest trade price after the effective date. The note matured on November 5, 2013, and was extended
for six months to May 5, 2014. On May 9, 2014, the note was extended to May 9, 2015.
On August 9, 2013, the Company received
funds of $15,000 in consideration for issuance of a securities purchase agreement entered into for the sale of a 10% convertible
promissory note in the aggregate principal amount of up to $100,000. The Company received additional advances in the aggregate
amount of $85,000 for a total aggregate principal sum of $100,000. The notes are convertible into shares of common stock of the
Company at a price equal to a variable conversion price of the lesser of a) $0.0048 per share; b) fifty percent (50%) of the lowest
trading price after the effective date of each respective advance or c) the lowest conversion price offered by the Company with
respect to any financing occurring before or after the date of each respective advance. The note matured, and each advance was
extended for another six (6) months. On January 9, 2014, the note was extended to January 9, 2015.
HYPERSOLAR, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS - UNAUDITED
SEPTEMBER 30, 2014
5. CONVERTIBLE PROMISSORY NOTES (Continued)
On December 16, 2013, the Company
received funds of $26,000 in consideration for issuance of a securities purchase agreement entered into for the sale of a 10% convertible
promissory note in the aggregate principal amount of up to $100,000. The Company received additional advances in the amount of
$74,000 for an aggregate sum of $100,000.The note is convertible into shares of common stock of the Company at a price equal to
a variable conversion price of the lesser of $0.0048 per share or fifty percent (50%) of the lowest trading price after the effective
date of each respective advance. The note matured on May 16, 2014, and was extended to May 16, 2015. The Company recorded amortization
of debt discount, which was recognized as interest expense in the amount of $6,437 during the three months ended September 30,
2014.
On March 5, 2014, the Company received
funds of $30,000 in consideration for issuance of a securities purchase agreement entered into for the sale of a 10% convertible
promissory note in the aggregate principal amount of up to $100,000. On April 15, 2014, the lender and borrower agreed to amend
the note to increase the principle sum to $150,000. The Company received additional advances in the amount of $120,000 for an aggregate
sum of $150,000. The note is convertible into shares of common stock of the Company at a price equal to a variable conversion price
of the lesser of $0.0048 per share or fifty percent (50%) of the lowest trading price after the effective date of each respective
advance. The note matured six (6) months from the effective dates of each respective advance. On September 4, 2014, the note was
extended to September 5, 2015.The Company recorded amortization of debt discount, which was recognized as interest expense in the
amount of $68,222 during the three months ended September 30, 2014.
On May 23, 2014, the Company received
funds of $50,000 in consideration for issuance of a securities purchase agreement entered into for the sale of a 10% convertible
promissory note in the aggregate principal amount of up to $100,000. The Company received additional advances in the amount of
$150,000 for an aggregate sum of $200,000. The note is convertible into shares of common stock of the Company at a price equal
to a variable conversion price of the lesser of $0.0048 per share or fifty percent (50%) of the lowest trading price after the
effective date of each respective advance. The note matures six (6) months from the effective dates of each respective advance.
The Company recorded amortization of debt discount, which was recognized as interest expense in the amount of $37,808 during the
three months ended September 30, 2014.
ASC Topic 815 provides guidance
applicable to convertible debt issued by the Company in instances where the number into which the debt can be converted is not
fixed. For example, when a convertible debt converts at a discount to market based on the stock price on the date of conversion,
ASC Topic 815 requires that the embedded conversion option of the convertible debt be bifurcated from the host contract and recorded
at their fair value. In accounting for derivatives under accounting standards, the Company recorded a liability representing the
estimated present value of the conversion feature considering the historic volatility of the Company’s stock, and a discount
representing the imputed interest associated with the embedded derivative. The discount is amortized over the life of the convertible
debt, and the derivative liability is adjusted periodically according to stock price fluctuations.
6. DERIVATIVE LIABILITIES
The convertible
notes issued and described in Note 5 do not have fixed settlement provisions because their conversion prices are not fixed. The
conversion features have been characterized as derivative liabilities to be re-measured at the end of every reporting period with
the change in value reported in the statement of operations. At June 30, 2014, the outstanding fair value of the derivative liabilities
amounted to $8,667,274.
During the three months ended
September 30, 2014, approximately $30,000 convertible notes were converted. As a result of the conversion of these notes, the
Company recorded a gain of $514,656 due to the extinguishment of the corresponding derivative liability. Furthermore, during
the three months ended September 30, 2014, the Company recognized a net gain of $2,853,054 to account for the change in fair
value of the derivative liabilities. At September 30, 2014, the fair value of the derivative liability was $5,914,220.
For purpose of determining the
fair market value of the derivative liability for the embedded conversion, the Company used Black Scholes option valuation
model. The significant assumptions used in the Black Scholes valuation of the derivative are as follows:
|
Risk free interest rate | |
| 0.03% - 0.13% | |
|
Stock volatility factor | |
| 133.84% - 318.08% | |
|
Weighted average expected option life | |
| 3 months - 1 year | |
|
Expected dividend yield | |
| None | |
7. SUBSEQUENT EVENTS
| | Management evaluated subsequent events as of the date of the financial statements pursuant to ASC
TOPIC 855, and reported the following events: |
| | On October 27, 2014, the Company entered into an agreement for research consulting with a contract
period from November 1, 2014 through October 30, 2015. |
ITEM 2. Management’s Discussion
and Analysis of Financial Condition and Results of Operations
Cautionary Statement Regarding
Forward-Looking Statements
The information in this discussion
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. Forward-looking
statements in this Report may also include references to anticipated sales volume and product margins, efforts aimed at establishing
new or improving existing relationships with customers, other business development activities, anticipated financial performance,
business prospects and similar matters. 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 other reports or registration statements filed by the Company with the United
States Securities and Exchange Commission. 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.
Unless the context otherwise
requires, references in this Form 10-Q to “we,” “us,” “our,” or the “Company” refer
to Hypersolar, Inc.
Overview
Inspired by
the photosynthetic process that plants use to harness the power of the sun to create energy molecules, we are developing a novel
solar-powered particle system that mimics photosynthesis to separate hydrogen from water. On November 15, 2011, we filed
a patent application to protect the intellectual property rights to the production of renewable hydrogen and natural gas using
sunlight, water, and carbon dioxide.
Hydrogen is
the lightest and abundant chemical element, constituting roughly 75% of the universe's chemical elemental mass (Palmer, D. (13
September 1997). "Hydrogen in the Universe".NASA). However, naturally occurring elemental hydrogen
is relatively rare on earth and hydrogen gas is most often produced using fossil fuels. Industrial production is mainly from the
steam reforming of natural gas and is usually employed near its production site, with the two largest uses being crude oil processing
(hydrocracking) and ammonia production, mostly for the fertilizer market. We are developing what we believe is a cleaner
and greener way to produce this high value product.
In addition
to the many industrial uses of hydrogen, one of the most intriguing uses, is for fuel cells for transportation. A fuel cell is
a device that converts the chemical energy from a fuel into electricity through a chemical reaction with oxygen or another oxidizing
agent, using hydrogen as the most common fuel. In 2013, many automotive manufacturers announced plans to develop hydrogen vehicles
including Toyota, Honda, Hyundai, and BMW. Source:
(http://www.driveclean.ca.gov/Search_and_Explore/Technologies_and_Fuel_Types/Hydrogen_Fuel_Cell.php)
On May 20,
2014 the first Hyundai fuel cell vehicles (FCEV’s) rolled onto U.S. soil marking the first delivery of mass-produced fuel
cell hydrogen vehicles in the U.S. market. (Source: http://www.hyundainews.com/us/en-us/Media/PressRelease.aspx?mediaid=40852&title=hyundais-first-mass-produced-tucson-fuel-cell-cuvs-arrive-in-southern-california)
Our research
is centered on developing a low-cost and submersible hydrogen production particle that can split water molecules under the sun,
emulating the core functions of photosynthesis. Each particle is a complete hydrogen generator that contains a novel high voltage
solar cell bonded to chemical catalysts by a proprietary encapsulation coating. We are striving to reach an open circuit
voltage (OCV) goal of 1.5 to effectively split the water molecules to produce hydrogen with our technology. On February 11, 2014,
we announced that we had reached open circuit voltage of 1.2. We are currently working on increasing the OCV to 1.5 and building
a larger proof of concept prototype of our technology.
Market Opportunity
Hydrogen
has a number of applications from chemical processing, petroleum recovery and refining, metal production and fabrication, aerospace,
and fuel cells. The sectors with the greatest demand for hydrogen are petroleum refineries for hydrocracking and ammonia production
for fertilizer. Transportation fuel is an emerging sector which we believe has an enormous potential in the future. We
believe fuel cell technology will be the major growth driver of hydrogen in the future as many major automobile manufacturers such
as Honda, Hyundai, BMW and Toyota bring hydrogen powered cars to market.
Hydrogen
production is a large and growing industry Market size of global hydrogen production was estimated to be 53 million metric tons
in 2010, of which 12% was shared by merchant hydrogen and rest with captive production (Markets and Markets Research; Hydrogen
Generation Market). With decreasing sulfur level in petroleum products, lowering crude oil quality and rising demand
of hydrogen operated fuel cell applications, global hydrogen production volume is forecasted to grow by compound annual growth
rate of 5.6% from 2011 to 2016. The hydrogen production market in terms of value was estimated to be approximately $82 billion
in 2011. (Markets and Markets Research; Hydrogen Generation Market)
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 Black Scholes 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.
Revenue Recognition
Revenue on product sales is
recognized when persuasive evidence of an arrangement exists, such as when a purchase order or contract
is received from the customer, the selling price is fixed, title to the goods has changed and there is a reasonable assurance
of collection of the sales proceeds. We obtain written purchase authorizations from our customers for a specified
amount of product at a specified price and consider delivery to have occurred at the time of shipment.
Revenue is recognized at shipment and we record a reserve for estimated sales returns, which
is reflected as a reduction of revenue at the time of revenue recognition.
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 net revenue, collectibility of accounts receivable, useful lives and impairment of
tangible and intangible assets, accruals, income taxes, inventory realization, stock-based compensation expense, Black Scholes
valuation 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
The Company's cash, accounts payable,
accrued interest, and note payable are stated at cost which approximates fair value due to the short-term nature of these instruments.
Recently Adopted Accounting Pronouncements
Management adopted a recently issued
accounting pronouncement during the three months ended September 30, 2014, as disclosed in the Notes to the financial statements
included in this report.
Liquidity and Capital Resources
As of September 30, 2014, we had a working
capital deficit of $6,622,177 as compared to $9,262,871 as of June 30, 2014. This decrease in working capital deficit of $2,640,694
was due primarily to an increase in accounts payable, accrued expenses, and convertible notes, offset with a decrease in non-cash
derivative liability.
Cash flow used in operating activities was $115,795 for the
three months ended September 30, 2014 and $73,040 for the prior period ended September 30, 2013. The increase in cash used by operating
activities was primarily due to a decrease in prepaid expenses, and accrued expenses, with an increase in accounts payable, gain
on derivative liability, and amortization of debt discount. The Company is in its development stage and has had no revenues.
Cash used in investing activities for the three months ended
September 30, 2014 was $2,000, compared to $2,020 for the prior period ended September 31, 2013.
Cash provided by financing activities during the three months
ended September 30, 2014 was $100,000 and $82,500 for the prior period ended September 30, 2013. The increase in financing
activities was due to equity financing with convertible notes through private placements during the current period.
Our financial statements as of September
30, 2014 have been prepared under the assumption that we will continue as a going concern for the year ended June 30, 2015. HJ
Associates & Consultants LLP, in their report dated September 23, 2014, on our financial statements, included an explanatory
paragraph expressing substantial doubt in our ability to continue as a going concern without additional capital becoming available.
Our ability to continue as a going concern ultimately is dependent on our ability to generate a profit which is dependent upon our
ability to obtain additional equity or debt financing, attain further operating efficiencies and, ultimately, to achieve profitable
operations. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
We believe our current cash balance
as of October 31, 2014 will fund our operations for the next sixty days as we continue working to develop a prototype of our technology.
As a result of our inability to raise sufficient financing in our third fiscal quarter, our CEO and certain vendors have not been
fully compensated for their services. We are seeking further financing through the sales of our securities. The sale of additional
equity securities could result in additional dilution to our stockholders. The incurrence of indebtedness would result in increased
debt service obligations and could result in operating and financing covenants that would restrict our operations. There can be
no assurance that financing will be available in amounts and on terms acceptable to us, or at all. To the extent that additional
capital is raised through the sale of equity or convertible debt securities, the issuance of these securities could result in further
dilution to our stockholders. If we are unable to obtain additional financing, we may be forced to curtail our operations.
PLAN OF OPERATION AND FINANCING
NEEDS
Our plan of
operation within the next twelve months is to further research, develop, and protect our technology.
Working with
consultants and academic institutions, we are working towards our goal of open-circuit voltage of 1.5 volts in our self–contained
particles for splitting water molecules. We will be looking to add further expertise to our team in the near future.
In tandem with
work on our self-contained particles, we will be working on the system side of the H2 Generator and production unit and larger
prototype.
Our financing
needs consist of general operating expenses, sponsorship agreements with academic institutions, patent prosecution and IP protection
and paying consultants.
Results of Operations for the Three Months Ended September
30, 2014 compared to Three Months Ended September 30, 2013.
Operating Expenses
Operating expenses for the three months
ended September 30, 2014 were $117,313 and $152,321 for the prior period ended September 30, 2014. The net decrease in operating
expenses consisted primarily of the research and development cost. The decrease was due to a reduction in cost associated with
outside consultants.
Other Income/(Expenses)
Other income and (expenses) for the
three months ended September 30, 2014 were $2,726,568 and $(1,508,185) for the prior period ended September 30, 2014. The increase
in other income and (expenses) was the result of an increase in net gain on change in fair value of the derivative instruments
of $4,253,067, amortization of debt discount of $14,789, and interest expense of $3,525. The net increase in other income and (expenses)
was due to the gain in change in derivative liability.
Net Loss
For the three months ended September
30, 2014, our net gain was $2,609,255 as compared to a net loss of $(1,660,506) for the prior period September 30, 2013. The increase
in net gain was related primarily to other income and (expenses) due to non-cash cost associated with the derivatives. The
Company has not generated any revenues.
ITEM 3. Quantitative and Qualitative
Disclosures About Market Risk
N/A
ITEM 4 . Controls and
Procedures
Evaluation of Disclosure Controls
and Procedures
As of the end of the period covered
by this report, we conducted an evaluation, under the supervision and with the participation of our chief executive officer and
chief financial officer of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange
Act). Based upon this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls
and procedures are effective to ensure that information required to be disclosed by us in the 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 chief executive officer and chief financial officer,
as appropriate to allow timely decisions regarding required disclosure.
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.
PART II -
OTHER INFORMATION
ITEM 1. |
Legal Proceedings |
None.
There are no material changes from
the risk factors previously disclosed in our annual report on Form 10-K/A filed with the SEC on September 21, 2014.
ITEM 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
During the three
months ended September 30, 2014 the Company issued 19,214,090 shares of common stock upon conversion of promissory notes in the
amount of $30,000 in principal, plus $3,625 in accrued interest.
The Company
relied on an exemption pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended in connection with the sale and issuances
of its shares of common stock described above.
ITEM 3. |
Defaults Upon Senior Securities |
None.
ITEM 4. |
Mine Safety Disclosures |
Not applicable.
ITEM 5. |
Other Information |
None.
Exhibit No. |
|
Description |
|
|
|
31.1* |
|
Certification of the Chief Executive Officer and Chief Financial Officer of Hypersolar, Inc., pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.1* |
|
Certification
of the Chief Executive Officer and Chief Financial Officer of Hypersolar, Inc., furnished pursuant to Section 1350 of Chapter
63 of 18 U.S.C. as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
EX-101.INS* |
|
XBRL Instance Document |
|
|
|
EX-101.SCH* |
|
XBRL Taxonomy Extension Schema Document |
|
|
|
EX-101.CAL* |
|
XBRL Taxonomy Extension Calculation Linkbase |
|
|
|
EX-101.DEF* |
|
XBRL Taxonomy Extension Definition Linkbase |
|
|
|
EX-101.LAB* |
|
XBRL Taxonomy Extension Labels Linkbase |
|
|
|
EX-101.PRE* |
|
XBRL Taxonomy Extension Presentation Linkbase |
* Filed
herewith
SIGNATURE
Pursuant to the requirements of
the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
HYPERSOLAR, INC. |
|
|
|
|
|
November 10, 2014 |
By: |
/s/ Timothy
Young |
|
|
|
Timothy Young |
|
|
|
Chief Executive Officer and
Acting Chief Financial Officer
(Principal Executive Officer and
Principal Financial and Accounting Officer) |
16
Exhibit
31.1
Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I,
Timothy Young, certify that:
1. |
I have reviewed this quarterly report on Form 10-Q of Hypersolar, Inc. |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c) |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
d) |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function): |
|
a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
|
b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: November 10, 2014
|
|
|
|
|
By: |
/s/ Timothy Young |
|
|
Timothy Young |
|
|
Chief Executive Officer and Acting Chief Financial Officer
(Principal Executive Officer and
Principal Financial and Accounting Officer)
|
Exhibit
32.1
Certification
Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly
Report of Hypersolar, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2014, as filed with the
Securities and Exchange Commission on the date hereof (the “Report”), I, Timothy Young, Chief Executive Officer and
Acting Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of
the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1) |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: November 10, 2014 |
|
|
|
|
By: |
/s/ Timothy Young |
|
|
Chief Executive Officer and
Acting Chief Financial Officer
(Principal Executive Officer and
Principal Financial and Accounting Officer)
|
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