CONDENSED NOTES TO FINANCIAL STATEMENTS
- UNAUDITED
SEPTEMBER 30, 2019 AND 2018
The accompanying condensed 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, 2019 are not necessarily indicative of the results that may be expected
for the year ended June 30, 2020. 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, 2019.
Going
Concern
The
accompanying condensed unaudited 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
condensed unaudited 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 historically obtained funds through private placement offerings of equity and debt. Management believes that it will be able
to continue to raise funds by sale of its securities to its existing shareholders and prospective new investors to 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.
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
In
accordance with accounting principles generally accepted in the United States, management utilizes estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the
financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could
differ from those estimates. These estimates and assumptions relate to useful lives and impairment of tangible and intangible
assets, accruals, income taxes, stock-based compensation expense, Binomial lattice valuation model inputs, derivative liabilities
and other factors. Management believes it has exercised reasonable judgment in deriving these estimates. Consequently, a change
in conditions could affect these estimates.
Intangible
Assets
The
Company has patent applications to protect the inventions and processes behind its proprietary bio-based back-sheet, a protective
covering for the back of photovoltaic solar modules traditionally made from petroleum-based film. Intangible assets that have
finite useful lives continue to be amortized over their useful lives.
The
Company recognized amortization expense of $2,052 and $1,069 for the three months ended September 30, 2019 and 2018, respectively.
Net
Earnings (Loss) per Share Calculations
Net
earnings (Loss) per share dictates the calculation of basic earnings (loss) per share and diluted earnings per share. Basic earnings
(loss) per share are computed by dividing by the weighted average number of common shares outstanding during the year. Diluted
net earnings (loss) per share is computed similar to basic earnings (loss) per share except that the denominator is increased
to include the effect of stock options and stock based awards (Note 4), plus the assumed conversion of convertible debt (Note
5).
For
the three months ended September 30, 2019, the Company calculated the dilutive impact of the outstanding stock options of 196,250,000,
and the convertible debt of $2,118,100, which is convertible into shares of common stock. The stock options and convertible debt
were not included in the calculation of net earnings per share, because their impact was antidilutive.
For
the three months ended September 30, 2018, the Company calculated the dilutive impact of the outstanding stock options of 10,250,000,
and the convertible debt of $2,043,300, which is convertible into shares of common stock. The stock options and the convertible
debt were not included in the calculation of net earnings per share, because their impact was antidilutive.
HYPERSOLAR, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
- UNAUDITED
SEPTEMBER 30, 2019 AND 2018
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
Equity
Incentive Plan and Stock Options
Equity
Incentive Plan
On
December 17, 2018, the Board of Directors approved and adopted the 2019 Equity Incentive Plan (“the Plan”), with 300,000,000
shares set aside and reserved for issuance pursuant to the Plan. The purpose of the Plan is to promote the success of the Corporation
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 awards are performance-based compensation that are granted under the
Plan as incentive stock options (ISO) or nonqualified stock options. The per share exercise price for each option shall not be
less than 100% of the fair market value of a share of common stock on the date of grant of the option. The Company periodically
issues stock options and warrants to employees and non-employees in non-capital raising transactions for services and for financing
cost. The Company accounts for stock option grants issued and vesting to employees and non-employees in accordance with the authoritative
guidance of the Financial Accounting Standards Board whereas the value of the stock compensation is based upon the measurement
date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary
performance to earn the equity instruments is complete. Non-employee stock-based compensation charges generally are amortized
over the vesting period on a straight-line basis. In certain circumstances where there are no future performance requirements
by the non-employee, option grants are immediately vested, and the total stock-based compensation charge is recorded in the period
of the measurement date.
During
the three months ended September 30, 2019, the Company granted 10,000,000 shares of convertible equity incentive stock options
leaving a reserve of 114,000,000.
Stock
based Compensation
The
Company periodically issues stock options and warrants to employees and non-employees in non-capital raising transactions for
services and for financing costs. The Company accounts for stock option and warrant grants issued and vesting to employees based
on the authoritative guidance provided by the Financial Accounting Standards Board whereas the value of the award is measured
on the date of grant and recognized over the vesting period. The Company accounts for stock option and warrant grants issued and
vesting to non-employees in accordance with the authoritative guidance of the Financial Accounting Standards Board whereas the
value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance
commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Non-employee
stock-based compensation charges generally are amortized over the vesting period on a straight-line basis. In certain circumstances
where there are no future performance requirements by the non-employee, option grants are immediately vested and the total stock-based
compensation charge is recorded in the period of the measurement date.
Fair
Value of Financial Instruments
Fair
value of financial instruments, requires disclosure of the fair value information, whether or not recognized in the balance sheet,
where it is practicable to estimate that value. As of September 30, 2019, 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 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.
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 1 measurements) 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.
|
HYPERSOLAR, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
- UNAUDITED
SEPTEMBER 30, 2019 AND 2018
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
Fair
Value of Financial Instruments (Continued)
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, 2019 (See Note 6):
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability measured at fair value at September 30, 2019
|
|
$
|
3,877,339
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,877,339
|
|
The following is a reconciliation of the derivative liability for which Level 3 inputs were used
in determining the approximate fair value:
Balance as of June 30, 2019
|
|
|
3,905,721
|
|
Fair value of derivative liabilities issued
|
|
|
160,807
|
|
Gain on change in derivative liability
|
|
|
(189,189
|
)
|
Balance as of September 30, 2019
|
|
$
|
3,877,339
|
|
Research
and Development
Research
and development costs are expensed as incurred. Total research and development costs were $143,395 and $74,588 for the three
months ended September 30, 2019 and 2018, respectively
Accounting
for Derivatives
The
Company evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify
as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument
is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported
in the statements of operations. For stock-based derivative financial instruments, the Company uses a probability weighted average
series Binomial lattice formula pricing models to value the derivative instruments at inception and on subsequent valuation dates.
The
classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is
evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current
or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of
the balance sheet date.
Recently
Issued Accounting Pronouncements
In
August 2017, FASB issued accounting standards update ASU-2017-12, (Topic 815) – “Targeted Improvements to Accounting
for Hedging Activities”, to require an entity to present the earnings effect of the hedging instrument in the same statement
line item in which the earnings effect of the hedged item is reported. The amendments in this update are effective for fiscal
years beginning after December 15, 2018, and interim periods within those fiscal years. For all other entities, the amendments
are effective for fiscal years beginning after December 15, 2019, and interim periods with the fiscal years beginning after December
15, 2020. Early adoption is permitted in any interim period after issuance of the update. The Company is currently evaluating
the impact of the adoption of ASU-2017 on the Company’s financial statements.
In
June 2018, FASB issued accounting standards update ASU 2018-07, (Topic 505) – “Shared-Based Payment Arrangements with
Nonemployees”, which simplifies the accounting for share-based payments granted to nonemployees for goods and services.
Under the ASU, most of the guidance on such payments to nonemployees will be aligned with the requirements for share-based payments
granted to employees. Under the ASU 2018-07, the measurement of equity-classified nonemployee share-based payments will be fixed
on the grant date, as defined in ASC 718, and will use the term nonemployee vesting period, rather than requisite service period.
The amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within
those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and
interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted if financial statements have
not yet been issued. The Company is currently evaluating the impact of the adoption of ASU 2018-07 on the Company’s financial
statements.
In
August 2018, the FASB issued to accounting standards update ASU 2018-13, (Topic 820) - “Fair Value Measurement”, which
changes the unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level
3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the
most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied
retrospectively to all periods presented upon their effective date. The amendments in this update are effective for fiscal years,
and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted upon issuance. The
Company is currently evaluation the impact of the adoption of ASU 2018-13, on the Company’s financial statements.
Management
does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a
material effect on the accompanying condensed financial statements.
HYPERSOLAR, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
- UNAUDITED
SEPTEMBER 30, 2019 AND 2018
Three months ended September
30, 2019
During the three months ended September
30, 2019, the Company issued 217,641,145 shares of common stock upon conversion of convertible notes in the amount of $388,886
in principal, plus accrued interest of $57,594 and other fees of $3,500, with an aggregate fair value loss on settlement of $623,594
based upon conversion prices ranging from $0.0035 - $0.0069
During the three months ended September
30, 2019, the Company issued 22,995,143 shares of common stock for services rendered at a fair value prices of $0.0035 - $0.0050
per share in the amount of $89,450.
Three months ended September
30, 2018
During the three months ended September
30, 2018, the Company issued 32,615,769 shares of common stock upon conversion of convertible notes in the amount of $44,500, plus
accrued interest of $14,208, with an aggregate fair value loss on conversion of debt of $234,834, based upon a conversion price
of $0.009.
Stock
Option Plans
As of September 30, 2019, 10,250,000
non-qualified common stock options were outstanding. Each option expires on the date specified in the option agreement, which date
is not later than the fifth (5th) anniversary from the grant date of the options. 250,000 options are fully vested with a maturity date of March 31, 2020, and are exercisable at an exercise price of $0.02245 per share;
10,000,000 non-qualified common stock options, which vest one-third immediately, and one-third the second and third year, whereby,
the options are fully vested with a maturity date of October 2, 2022, and are exercisable at an exercise price of $0.01 per share.
On January 23, 2019, the Company
issued 170,000,000 stock options, which one-third (1/3) vest immediately, and the remaining shall vest one-twenty fourth (1/24)
after the date of these options (remaining block). The first block shall become exercisable immediately and is exercisable for
a period of seven (7) years. The options fully vest by January 23, 2021.
On January 31, 2019, the Company
issued 6,000,000 stock options, which two-third (2/3) vest immediately, and the remaining shall vest one-twelfth (1/12) per month
from after the date of these options (remaining block). The first block shall become exercisable immediately and is exercisable
for a period of seven (7) years. The options fully vest by January 31, 2020.
On July 22, 2019, the
Company issued 10,000,000 stock options, which two-third (1/3) vest immediately, and the remaining shall vest one-twenty
fourth (1/24) per month from after the date of these options (remaining block). The first block shall become exercisable
immediately and is exercisable for a period of seven (7) years. The options fully vest by July 22, 2021. The fair value of
the stock options issued was determined using the binomial lattice formula with the following assumptions; exercise price:
$0.006; dividend yield: 0%; volatility 144%; risk free rate: 1.92%; term: 7 years.
A
summary of the Company’s stock option activity and related information follows:
|
|
9/30/2019
|
|
|
9/30/2018
|
|
|
|
Number of Options
|
|
|
Weighted average exercise price
|
|
|
Number of Options
|
|
|
Weighted average exercise price
|
|
Outstanding, beginning of period
|
|
|
186,250,000
|
|
|
$
|
0.01
|
|
|
|
10,250,000
|
|
|
$
|
0.01
|
|
Granted
|
|
|
10,000,000
|
|
|
$
|
0.01
|
|
|
|
-
|
|
|
$
|
0.01
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited/Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding, end of period
|
|
|
196,250,000
|
|
|
$
|
0.01
|
|
|
|
10,250,000
|
|
|
$
|
0.01
|
|
Exercisable at the end of period
|
|
|
108,916,667
|
|
|
$
|
0.01
|
|
|
|
3,583,333
|
|
|
$
|
0.01
|
|
HYPERSOLAR, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
- UNAUDITED
SEPTEMBER 30, 2019 AND 2018
The
weighted average remaining contractual life of options outstanding as of September 30, 2019 and 2018 was as follows:
9/30/2019
|
|
|
9/30/2018
|
|
Exercisable Price
|
|
|
Stock Options Outstanding
|
|
|
Stock Options Exercisable
|
|
|
Weighted Average Remaining Contractual Life (years)
|
|
|
Exercisable Price
|
|
|
Stock Options Outstanding
|
|
|
Stock Options Exercisable
|
|
|
Weighted Average Remaining Contractual Life (years)
|
|
$
|
0.02
|
|
|
|
250,000
|
|
|
|
250,000
|
|
|
|
0.50
|
|
|
$
|
0.02
|
|
|
|
250,000
|
|
|
|
250,000
|
|
|
|
1.75
|
|
$
|
0.01
|
|
|
|
10,000,000
|
|
|
|
5,000,000
|
|
|
|
3.01
|
|
|
$
|
0.01
|
|
|
|
10,000,000
|
|
|
|
3,333,333
|
|
|
|
4.26
|
|
$
|
0.0097-0.0099
|
|
|
|
176,000,000
|
|
|
|
99,777,777
|
|
|
|
6.32 - 6.34
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
$
|
0.006
|
|
|
|
10,000,000
|
|
|
|
3,888,889
|
|
|
|
6.81
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
196,250,000
|
|
|
|
108,916,667
|
|
|
|
|
|
|
|
|
|
|
|
10,250,000
|
|
|
|
3,583,333
|
|
|
|
|
|
The stock based compensation
expense recognized in the statement of operations during the three months ended September 30, 2019 and 2018, related to the granting
of these options was $246,994 and $0, respectively.
|
5.
|
CONVERTIBLE
PROMISSORY NOTES
|
As of September 30, 2019, the outstanding
convertible promissory notes, net of debt discount of $200,198 are summarized as follows:
Convertible Promissory Notes, net of debt discount
|
|
$
|
1,917,902
|
|
Less current portion
|
|
|
140,553
|
|
Total long-term liabilities
|
|
$
|
1,777,349
|
|
Maturities of long-term debt for the next five years are as follows:
Period Ended September 30,
|
|
Amount
|
|
2020
|
|
|
340,500
|
|
2021
|
|
|
437,600
|
|
2022
|
|
|
575,000
|
|
2023
|
|
|
725,000
|
|
2024
|
|
|
40,000
|
|
|
|
$
|
2,118,100
|
|
At September 30, 2019, the $2,118,100
in convertible promissory notes had a remaining debt discount of $200,198, leaving a net balance of $1,917,902.
On
April 9, 2015, the Company issued a 10% convertible promissory note (the “April 2015 Note”) in the aggregate principal
amount of up to $500,000. Upon execution of the convertible promissory note, the Company received a tranche of $50,000. The Company
received additional tranches in the amount of $450,000 for an aggregate sum of $500,000. The April 2015 Note matured nine (9)
months from the effective dates of each respective tranche. A second extension was granted to October 9, 2016. On January 19,
2017, the investor extended the April 2015 Note for an additional (60) months from the effective date of each tranche, which matures
on April 9, 2020.The April 2015 Note is convertible into shares of common stock of the Company at a price equal to a variable
conversion price of the lesser of $0.01 per share or fifty percent (50%) of the lowest trading price since the original effective
date of each respective advance or the lowest effective price per share granted to any person or entity after the effective date
to acquire common stock. If the Company fails to deliver shares in accordance with the timeframe of three (3) business days of
the receipt of a notice of conversion, the lender, at any time prior to selling all of those shares, may rescind any portion,
in whole or in part of that particular conversion attributable to the unsold shares and have the rescinded conversion amount returned
to the principal sum with the rescinded conversion shares returned to the Company. In no event shall the lender be entitled to
convert any portion of the April 2015 Note such that would result in beneficial ownership by the lender and its affiliates of
more than 4.99% of the outstanding shares of common stock of the Company. In addition, for each conversion, in the event, that
shares are not delivered by the fourth business day (inclusive of the day of conversion), a penalty of $1,500 per day shall be
assessed for each day after the third business day (inclusive of the day of the conversion) until the shares are delivered. During
the three months ended September 30, 2019, the Company issued 86,918,611, upon conversion of 105,000, plus accrued interest of
$39,946, with a fair value loss on conversion of debt in the amount of $286,019. The balance of the April 2015 Note as of September
30, 2019 was $87,600.
HYPERSOLAR, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
- UNAUDITED
SEPTEMBER 30, 2019 AND 2018
|
5.
|
CONVERTIBLE
PROMISSORY NOTES (Continued)
|
On
January 28, 2016, the Company issued a 10% convertible promissory note (the “Jan 2016 Note”) in the aggregate principal
amount of up to $500,000. Upon execution of the convertible promissory note, the Company received a tranche of $10,000. The Company
received additional tranches in the amount of $490,000 for an aggregate sum of $500,000. The Jan 2016 Note matures twelve (12)
months from the effective dates of each respective tranche. On January 19, 2017, the investor extended the Jan 2016 Note for an
additional sixty (60) months from the effective date of each tranche, which matures on January 27, 2022.The Jan 2016 Note is convertible
into shares of common stock of the Company at a price equal to a variable conversion price of the lesser of $0.01 per share or
fifty percent (50%) of the lowest trading price since the original effective date of each respective tranche or the lowest effective
price per share granted to any person or entity after the effective date to acquire common stock. If the Company fails to deliver
shares in accordance with the timeframe of three (3) business days of the receipt of a notice of conversion, the lender, at any
time prior to selling all of those shares, may rescind any portion, in whole or in part of that particular conversion attributable
to the unsold shares and have the rescinded conversion amount returned to the principal sum with the rescinded conversion shares
returned to the Company. In no event shall the lender be entitled to convert any portion of the Jan 2016 Note such that would
result in beneficial ownership by the lender and its affiliates of more than 4.99% of the outstanding shares of common stock of
the Company. In addition, for each conversion, in the event that shares are not delivered by the fourth business day (inclusive
of the day of conversion), a penalty of $1,500 per day shall be assessed for each day after the third business day (inclusive
of the day of the conversion) until the shares are delivered. The balance of the Jan 2016 Note as of September 30, 2019 was $500,000.
On
February 3, 2017, the Company issued a 10% convertible promissory note (the “Feb 2017 Note”) in the aggregate
principal amount of up to $500,000. Upon execution of the convertible promissory note, the Company received a tranche of
$60,000. The Company received additional tranches in the amount of $440,000 for an aggregate sum of $500,000. The Feb 2017
Note matures twelve (12) months from the effective dates of each respective tranche. The Feb 2017 Note matures on February 3,
2018, with an automatic extension of sixty (60) months from the effective date of each tranche. The Feb 2017 Note is
convertible into shares of common stock of the Company at a price equal to a variable conversion price of the lesser of $0.01
per share or fifty percent (50%) of the lowest trading price since the original effective date of each respective tranche or
the lowest effective price per share granted to any person or entity after the effective date to acquire common stock. If the
Company fails to deliver shares in accordance with the timeframe of three (3) business days of the receipt of a notice of
conversion, the lender, at any time prior to selling all of those shares, may rescind any portion, in whole or in part of
that particular conversion attributable to the unsold shares and have the rescinded conversion amount returned to the
principal sum with the rescinded conversion shares returned to the Company. In no event shall the lender be entitled to
convert any portion of the Feb 2017 Note such that would result in beneficial ownership by the lender and its affiliates of
more than 4.99% of the outstanding shares of common stock of the Company. In addition, for each conversion, in the event,
that shares are not delivered by the fourth business day (inclusive of the day of conversion), a penalty of $1,500 per day
shall be assessed for each day after the third business day (inclusive of the day of the conversion) until the shares are
delivered. The balance of the Feb 2017 Note as of September 30, 2019 was $500,000.
On
November 9, 2017, for the sale of a 10% convertible promissory note (the “Nov 2017 Note”) in the aggregate
principal amount of up to $500,000. Upon execution of the convertible promissory note, the Company received a tranche of
$45,000. The Company received additional tranches in the amount of $455,000 for an aggregate sum of $500,000. The Nov 2017
Note matures twelve (12) months from the effective dates of each respective tranche. The Nov 2017 Note matures on November 9,
2018, with an automatic extension of sixty (60) months from the effective date of each tranche. The Nov 2017 Note is
convertible into shares of common stock of the Company at a price equal to a variable conversion price of the lesser of $0.01
per share or fifty percent (50%) of the lowest trading price since the original effective date of each respective tranche or
the lowest effective price per share granted to any person or entity after the effective date to acquire common stock. If the
Company fails to deliver shares in accordance with the timeframe of three (3) business days of the receipt of a notice of
conversion, the lender, at any time prior to selling all of those shares, may rescind any portion, in whole or in part of
that particular conversion attributable to the unsold shares and have the rescinded conversion amount returned to the
principal sum with the rescinded conversion shares returned to the Company. In no event shall the lender be entitled to
convert any portion of the Nov 2017 Note such that would result in beneficial ownership by the lender and its affiliates of
more than 4.99% of the outstanding shares of common stock of the Company. In addition, for each conversion, in the event that
shares are not delivered by the fourth business day (inclusive of the day of conversion), a penalty of $1,500 per day shall
be assessed for each day after the third business day (inclusive of the day of the conversion) until the shares are
delivered. The balance of the Nov 2017 Note as of September 30, 2019 was $500,000.
On
June 27, 2018, for the sale of a 10% convertible promissory note (the “Jun 2018 Note”) in the aggregate
principal amount of up to $500,000. Upon execution of the convertible promissory note, the Company received a tranche of
$50,000. On October 9, 2018, the Company received another tranche of $40,000, for a total aggregate of $90,000 as of
September 30, 2019. The Jun 2018 Note matures twelve (12) months from the effective dates of each respective tranche. The Jun
2018 Note matured on June 27, 2019, which was automatically extended for sixty (60) months from the effective date of each
tranche. The Jun 2018 Note is convertible into shares of common stock of the Company at a price equal to a variable
conversion price of the lesser of $0.01 per share or fifty percent (50%) of the lowest trading price since the original
effective date of each respective tranche or the lowest effective price per share granted to any person or entity after the
effective date to acquire common stock. If the Company fails to deliver shares in accordance with the timeframe of three (3)
business days of the receipt of a notice of conversion, the lender, at any time prior to selling all of those shares, may
rescind any portion, in whole or in part of that particular conversion attributable to the unsold shares and have the
rescinded conversion amount returned to the principal sum with the rescinded conversion shares returned to the Company. In no
event shall the lender be entitled to convert any portion of the Jun 2018 Note such that would result in beneficial ownership
by the lender and its affiliates of more than 4.99% of the outstanding shares of common stock of the Company. In addition,
for each conversion, in the event, that shares are not delivered by the fourth business day (inclusive of the day of
conversion), a penalty of $1,500 per day shall be assessed for each day after the third business day (inclusive of the day of
the conversion) until the shares are delivered. The Company recorded amortization of debt discount, which was recognized as
interest expense in the amount of $2,572 during the three months ended September 30, 2019. The balance of the Jun 2018
Note as of September 30, 2019 was $90,000.
HYPERSOLAR, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
- UNAUDITED
SEPTEMBER 30, 2019 AND 2018
|
5.
|
CONVERTIBLE
PROMISSORY NOTES (Continued)
|
On
August 10, 2018, the Company entered into a convertible promissory note with an investor, providing for the sale by the Company
of a 10% unsecured convertible note (the “Aug 2018 Note”) in the aggregate principal amount of up to $100,000. The
Aug 2018 Note matures on August 10, 2019, with an extension of sixty (60) months from the date of the note. The Aug 2018 Note
may be converted into shares of the Company’s common stock at a conversion price of the lesser of a) $0.005 per share or
b) sixty-one (61%) percent of the lowest trading price per common stock recorded on any trade day after the effective date. The
conversion feature of the Aug 2018 Note was considered a derivative in accordance with current accounting guidelines because of
the reset conversion features of the Note. The Company recorded amortization of debt discount, which was recognized as interest
expense in the amount of $11,233 during the three months ended September 30, 2019. The balance of the Aug 2018 Note as of
September 30, 2019 was $100,000.
On February 14, 2019 through
August 12, 2019, the Company entered into convertible promissory notes with an investor, providing for the sale by the
Company of a 10% unsecured convertible note (the “Feb-Aug Notes”) in the aggregate principal amount of up to
$252,000 of which $53,000 was provided this period. The Feb-Aug Notes matures on February 14, 2020 through August 12, 2020. The
Feb-Aug Notes may be converted into shares of the Company’s common stock at a conversion price of sixty-one (61%)
percent of the lowest average two (2) trading prices per common stock during the fifteen (15) trading day prior to the
conversion date. The conversion feature of the Feb-Aug Notes was considered a derivative in accordance with current
accounting guidelines because of the reset conversion features of the Notes. During the three months ended September 30,
2019, the Company issued 29,277,330 shares of common stock upon conversion of principal in the amount of $78,000, plus
accrued interest of $3,900, with a fair value loss on conversion of debt in the amount of $51,821. The Company recorded
amortization of debt discount, which was recognized as interest expense in the amount of $76,880 during the three months
ended September 30, 2019. The balance of the Feb-Aug Notes as of September 30, 2019 was $174,000.
On December 14, 2018 and July
3, 2019, the Company entered into convertible promissory notes (the “Dec-Jul Notes”) with an investor, providing
for the sale by the Company of a 10% unsecured convertible note (the “Dec-Jul Notes”) in the total aggregate
principal amount of $140,000, of which $53,500 was provided in this period. The Dec-Jul Notes matures on December 14, 2019 and July
3, 2020. The Dec-Jul Notes may be converted into shares of the Company’s common stock at a conversion price
of sixty-one (61%) percent of the lowest trading prices per common stock during the fifteen (25) trading day prior to
the conversion date. The conversion feature of the Dec-Jul Notes was considered a derivative in accordance with
current accounting guidelines because of the reset conversion features of the Note. During the three months ended September
30, 2019, the Company issued 24,853,361 shares of common stock upon conversion of $45,886 in principal, plus accrued interest
of $5,350, and legal fees of $2,000, with a fair value loss on conversion in the amount of $96,516. The Company
recorded amortization of debt discount, which was recognized as interest expense in the amount of $44,704 during the three
months ended September 30, 2019. The balance of the Dec-Jul Notes as of September 30, 2019 was $86,500.
On January 31, 2019 and March 6,
2019, the Company entered into convertible promissory notes (the “Jan-Mar Note”) with an investor, providing for the
sale by the Company of a 10% unsecured convertible notes (the “Jan-Mar Note”) in the total aggregate principal amount
of $160,000. The Jan-Mar Notes matures on January 31, 2020 and March 6, 2020. The Jan-Mar Notes may be converted into shares of
the Company’s common stock at a conversion price of sixty-one (61%) percent of the lowest two (2) trading prices per common
stock during the fifteen (15) trading day prior to the conversion date. The conversion feature of the Jan-Mar Notes was considered
a derivative in accordance with current accounting guidelines because of the reset conversion features of the Jan-Mar Notes. The
Company issued 76,591,844 shares of common stock upon the conversion of principal in the amount of $160,000, plus accrued interest
of $8,399, and legal fees of $1,500, with a fair value loss on conversion of debt in the amount of $189,237. The Company recorded
amortization of debt discount, which was recognized as interest expense in the amount of $101,698 during the three months ended
September 30, 2019. The balance of the Jan-Mar Notes as of September 30, 2019 was $0.
On
August 28, 2019, the Company entered into convertible promissory note (the “Aug Note”) with an investor, providing
for the sale by the Company of a 10% unsecured convertible note (the “Aug Note”) in the principal amount of $80,000.
The Aug Note matures on August 28, 2020. The Aug Note may be converted into shares of the Company’s common stock at a conversion
price of sixty-one (61%) percent of the lowest two (2) trading prices per common stock during the fifteen (15) trading day prior
to the conversion date. The conversion feature of the Aug Note was considered a derivative in accordance with current accounting
guidelines because of the reset conversion features of the Aug Note. The Company recorded amortization of debt discount, which
was recognized as interest expense in the amount of $5,305 during the three months ended September 30, 2019. The balance of the
Aug Note as of September 30, 2019 was $80,000.
HYPERSOLAR, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
- UNAUDITED
SEPTEMBER 30, 2019 AND 2018
|
6.
|
DERIVATIVE
LIABILITIES
|
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.
The
convertible notes (the “Notes”) issued 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.
During
the three months ended September 30, 2019, as a result of the Notes issued that were accounted for as derivative liabilities,
we determined that the fair value of the conversion feature of the convertible notes at issuance was $160,807, based upon the
Binomial lattice formula. We recorded the full value of the derivative as a liability at issuance with an offset to valuation
discount, which will be amortized over the life of the Notes.
During the three months ended September
30, 2019, the Company recorded a net gain in change in derivative of $189,189 in the statement of operations due to the change
in fair value of the remaining notes, for the three months ended September 30, 2019. The Company also recognized a loss on conversion
of debt in the amount of $623,594 in the statement of operations at September 30, 2019. At September 30, 2019, the fair value of
the derivative liability was $3,877,339.
For
purpose of determining the fair market value of the derivative liability for the embedded conversion, the Company used the
Binomial lattice formula. The significant assumptions used in the Binomial lattice formula of the derivatives are as follows:
Risk free interest rate
|
|
|
1.55% - 1.91
|
%
|
Stock volatility factor
|
|
|
79.0% - 114.0
|
%
|
Weighted average expected option life
|
|
|
3 months - 5 year
|
|
Expected dividend yield
|
|
|
None
|
|
7. RELATED PARTY
As of September 30, 2019, the Company
reported an accrual associated with the CEO’s prior years salary in the amount $179,875.
Management
evaluated subsequent events as of the date of the financial statements pursuant to ASC TOPIC 855, and reported the following events:
On October 7, 2019, the Company
received $80,000 on a 10% convertible promissory note. The Note is convertible into shares of common stock of the Company at 61%
of the market price equal to the lowest trading price during the previous fifteen (15) trading days to the date of conversion.
The Note matures on April 7, 2020.
On
October 9, 2019, the Company issued 11,820,000 shares of common stock for services in the amount of $29,550.
On
October 18, 2019, the Company issued 8,235,294 shares of common stock upon conversion of principal in the amount of $14,000.
On
October 21, 2019, the Company issued 12,500,000 shares of common stock upon conversion of principal in the amount of $20,000.
On
October 23, 2019, the Company issued 12,500,000 shares of common stock upon conversion of principal in the amount of $20,000.
On
October 24, 2019, the Company issued 8,000,000 shares of common stock upon conversion of principal in the amount of $8,160, and
other fees of $500.
On
October 28, 2019, the Company issued 9,346,154 shares of common stock upon conversion of principal in the amount of $9,000.
On
October 29, 2019, the Company issued 60,744,000 shares of common stock upon conversion of principal in the amount of $43,800,
plus accrued interest of $16,944.
On
October 31, 2019, the Company issued 8,500,000 shares of common stock upon conversion of principal in the amount of $7,737, and
other fees of $500.