Indicate by check
mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company
or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller
reporting company” or emerging growth company in Rule 12b-2 of the Exchange Act.
The aggregate market value of the common stock held by non-affiliates of the registrant, based upon the
last sale price of the common stock of the Company as of the last business day of its most recently completed second fiscal quarter
was approximately $3,749,550.
PART
I
Unless
otherwise stated or the context requires otherwise, references in this annual report on Form 10-K to “Hypersolar”,
the “Company”, “we”, “us”, or “our” refer to Hypersolar, Inc.
Overview
At
HyperSolar, Inc., our goal is to replace all forms of energy on earth with renewable energy.
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.
Hydrogen
is the lightest and most abundant chemical element, constituting roughly 75% of the universe’s chemical elemental mass
(Palmer, D. (13 September 1997). “
Hydrogen in the Universe.” NASA
). In its purest form, hydrogen is a
non-toxic colorless and odorless gas. 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.
Hydrogen
(when used as a fuel), like electricity, is an energy carrier rather than an energy resource. We believe that if hydrogen
was easily accessed from the earth and the world could depend on it for fuel, eliminating our reliance on fossil fuels such
as oil, coal, and natural gas, our carbon footprint and global climate change issues would be erased.
Over 99% of hydrogen produced today is
produced using a fossil fuel, methane (natural gas) in a method called steam reforming, SMR. Although commercially optimized over
decades, the SMR process is capital intensive and will remain so due to the fundamental nature of the process which includes:
(1) three separate reactors with different catalysts operating at different temperatures, (2) large amounts of heat transfer needed
for the endothermic reforming and exothermic water gas shift, and (3) the need to remove all carbon oxides using capital and energy
intensive methods. (source: Nikolaidis, P.; Poullikkas, A., A comparative overview of hydrogen production processes. Renewable
and Sustainable Energy Reviews 2017, 67, 597-611.)
Besides
being capital intensive, the SMR method releases harmful levels of carbon dioxide into the air further contributing to our global
climate crisis.
Despite
the current method of production, the benefits of hydrogen for transportation emissions are far better than other fossil fuel
alternatives of oil and gas, as the only emission of hydrogen is pure water. This fact dictates that we look for another method
of making hydrogen to make it the world’s premier fuel by producing it in a more sustainable green way.
Market
Opportunity
We believe we are still in the early
stages of the hydrogen fuel market development, and yet, this market continues to grow exponentially. One of the reasons for
this growth is the adoption of hydrogen fuel technologies within an increased number of major industries and spanning many
applications.
Market Growth
According
to Grandview Research Report released in June of 2018, the global hydrogen generation market size is predicted to be valued at
USD 180.2 billion by 2025. It is expected to expand at a CAGR of 5.8% over the forecast period. Rising demand for renewable sources
of energy and safe fuels is projected to boost market growth.
Increasing
adoption of hydrogen and growing awareness of the importance of energy conservation are expected to boost the global market for
hydrogen generation by 2025. Rising efforts to shift focus from fossil fuels to renewable fuels is expected to further propel
market expansion. Numerous countries are introducing stringent regulations to significantly reduce indiscriminate use of conventional
fuels responsible for excessive greenhouse gas emissions. Hydrogen is among the most abundantly available elements on earth and
it plays an important role in agriculture, fertilizer and chemical manufacturing, and pharmaceutical production among others.
Over the next two decades, hydrogen is expected to be on par with electricity as an effective energy carrier. It is safely derived
from renewable sources of energy and is effective in reducing emissions.
The
merchant segment includes both small and large dealers, wholesalers, and companies deriving hydrogen as an excess byproduct. In
terms of volume, captive hydrogen is the fastest growing segment with a CAGR of 9.2%. Captive is defined as on-site hydrogen generation,
which eliminates numerous problems linked to conveyance and distribution of hydrogen. Therefore, the market is expected to grow
substantially in future.
In terms of application, the steam methane reforming segment accounted for 68.8% of the
global hydrogen generation market volume in 2016. In this method, methane containing raw material like natural gas is heated at
a temperature between 700°C to 1,000°C, which produces hydrogen as a by-product. The coal gasification technology segment
is anticipated to expand at a steady CAGR over the forecast period. Gasification of coal is one of the processes applied to produce
liquid fuels, power, hydrogen, and chemicals. (Source: Grandview Research Report, June 2018)
It
is within these industries that we believe our renewable hydrogen producing technology possesses significant market
opportunity, especially as innovation and infrastructure continue to develop. This is further evidenced by studies that
specifically address the fuel cell market, which was valued at $3.21 billion in 2015, but expected to reach nearly $25
billion by 2025 according to a Grand View Market report released in September 2018.
Hydrogen
Fuel Cell Vehicles
One
of the most recognized applications for hydrogen fuel technologies falls within the auto manufacturing and vehicles industries.
The three leading manufacturers of hydrogen fuel cell vehicles (FCVs) are in order, Toyota, Hyundai, and Honda – three internationally
recognized companies. Industry reports cite the need for increased infrastructure, such as fueling stations, for the industry
to garner even greater market acceptance. However, the same report indicates there will be 22.2 million hydrogen fuel cell vehicles
sold or leased by 2032, driving revenues upwards of $1.1 trillion. (https://www.researchandmarkets.com/reports/4200873/global-market-for-hydrogen-fuel-cell-vehicles)
Blending
Hydrogen into Natural Gas Networks and Hydrogen Storage
One
of the areas of greatest potential for hydrogen fuel is its ability to be successfully integrated into existing natural gas
pipelines. It is well documented that hydrogen storage maintains energy for longer periods of time. We believe that, were it
to be produced cost effectively, utilities could use hydrogen to store and deploy energy produced via solar and wind through
existing natural gas plants and pipelines, without having such strong dependency on fossil fuels as a
backup.
Our
Technology
Technology
for Making Renewable Hydrogen from Sunlight
Hydrogen
(H2) is the third most abundant element on earth and cleanest fuel in the universe, (
Dresselhaus,
Mildred et al. (May 15, 2003). “Basic Research Needs for the Hydrogen Economy”
). Unlike hydrocarbon fuels such
as oil, coal and natural gas where carbon dioxide and other contaminants are released into the atmosphere when used, hydrogen
fuel usage produces only pure water (H2O) as the byproduct. Unfortunately, pure hydrogen does not exist naturally on earth and
therefore must be manufactured. Historically, the cost of manufacturing hydrogen as an alternative fuel has been higher than the
cost of the energy used to make it. This is the dilemma of the hydrogen economy, and one that we aim to address.
For
over a century, splitting water molecules into hydrogen and oxygen using electrolysis has been well known. This technology can
be used to produce an unlimited amount of clean and renewable hydrogen fuel to power a carbon-free world. However, in practice,
current commercial electrolysis technologies require (a) expensive electricity and (b) highly purified water to prevent fouling
of system components. We believe these are the major barriers to affordable production of renewable hydrogen.
The
Perfect and Sustainable Energy Cycle
As
it turns out, Mother Nature has been making hydrogen using sunlight since the beginning of time by splitting water molecules (H2O)
into its basic elements - hydrogen and oxygen. This is exactly what plant leaves do every day using photosynthesis. Since the
produced hydrogen is immediately consumed inside the plant, we cannot simply grow trees to make hydrogen.
If
technology can be developed to mimic photosynthesis to split water into hydrogen, we believe then a truly sustainable, low
cost, and renewable energy cycle can be created to power the earth. However, cost has been the biggest barrier to realizing
this vision.
Water
Splitting
In
the process of splitting a water molecule, input energy is transferred into the chemical bonds of the resulting hydrogen molecule.
So in essence, manufactured hydrogen is simply a carrier or battery-like storage of the input energy. If the input energy is from
fossil fuels, such as oil and gas, then carbon fossil fuel energy is simply transferred into hydrogen. If the input energy
is renewable such as solar and wind, then new and clean energy is stored in hydrogen.
While
the concept of water splitting is very appealing, the following challenges must be addressed for renewable hydrogen to be commercially
viable:
●
|
Energy Inefficiency
— Since hydrogen is an energy carrier, the most energy it can store is 100% of the input energy. However, conventional
systems approach to electrolysis lose so much of the input energy in system components, wires and electrodes resulting in
only a small portion of electricity making it into the hydrogen molecules. This translates to high production cost and is
the fundamental problem with water splitting for hydrogen production. We intend to address this problem with our low cost
and energy efficient particle technology.
|
●
|
Need for Clean
Water
— Conventional electrolysis requires highly purified clean water to prevent fouling of system components.
This prevents current technology from using large quantities of available water from oceans, rivers, industrial waste and
municipal waste as feedstock. Our technology is being designed to use any natural water or waste water for the unlimited production
of renewable hydrogen.
|
Technology
Electrolysis
water-splitting in its simplest form is the transfer of “input electrons” in the following chemical reactions:
●
|
Cathode (reduction):
2 H
2
O + 2e- -> H
2
+ 2 OH-
|
|
|
●
|
Anode (oxidation):
4 OH- -> O
2
+ 2 H
2
O + 4 e-
|
From
these equations it can be deduced that if every input electron (e-) is put to work and not lost, then a maximum amount of input
electrons (i.e. energy) is transferred and stored in the hydrogen molecules (H2). Additionally, if there were a very high
number of cathode and anode reaction areas within a given volume of water, then a very high number of these reactions could happen
simultaneously throughout the medium to split each water molecule into hydrogen wherever electrons are available.
HyperSolar
H2Generator™
Since
our particles are intended to mimic the natural room temperature conditions of photosynthesis, they can be housed in very low-cost reactors such as glass vessels or clear plastic bags. To facilitate the commercial use of our self-contained particle technology
we are developing a modular system that will enable the onsite daily production and storage of hydrogen for any time use in electricity
generation.
We
refer to our technology as the HyperSolar H2Generator which is comprised of the following components:
|
1.
|
The
Generator Housing
- Novel (patent pending) is the first of its type to safely separate oxygen and hydrogen in the water
splitting process without sacrificing efficiency. This device houses the water, the solar particles/cells and is designed
with inlets and outlets for water and gasses. Utilizing a special membrane for separating the oxygen side from the hydrogen
side, proton transport is increased which is the key to safely increasing solar-to-hydrogen efficiency. Our design can be
scaled up and manufactured for commercial use.
|
|
2.
|
The
NanoParticle or Solar Cell
- Our patented nanoparticle consists of thousands of tiny solar cells that are
electrodeposited into one tiny structure to provide the charge that splits the water molecule when the sun excites the
electron. In the process of optimizing our nanoparticles to be efficient and only use earth abundant materials, (an ongoing
process), we experimented with commercially available triple junction silicon solar cells to perform tests with our generator
housing and other components. Through this experimentation, our discovery makes us believe we can bring a system to market
utilizing these readily available cells while our nanoparticles are still being optimized. These solar cells also absorb the
sunlight and produce the necessary charge for splitting the water molecule to produce the hydrogen and oxygen.
|
|
3.
|
Oxygen
Evolution Catalyst
- This proprietary catalyst developed at the University of Iowa lab is uniformly applied onto the
solar cell or nanoparticle and efficiently collects holes to oxidize water molecule to generate oxygen gas. The oxygen
evolution catalyst must be transparent to absorb the sun’s energy or light. It must be stable in alkaline, neutral and
acidic environments.
|
|
4.
|
Hydrogen
Evolution Catalyst
- Necessary for collecting electrons to reduce protons for generating hydrogen gas, we recently
announced the successful integration of a low-cost hydrogen catalyst into our generator system successfully coating a triple
junction solar cell with a catalyst comprised primarily of ruthenium, carbon and nitrogen that can function as well as
platinum, the current catalyst used for hydrogen production, but at a 20x reduced cost.
|
|
5.
|
Transparent
Conductive Coating
- A patent pending coating to protect our nanoparticles and solar cells from photo corrosion and
efficiently transfer charges to catalysts for oxygen and hydrogen evolution reactions.
|
|
6.
|
A
concentrator equal to two suns
- This inexpensive Fresnel lens concentrator to increase sunlight to equal two suns
reduces our necessary footprint for a 1000 KG per day system by 40%.
|
Our
business and commercialization plan calls for two generations of our panels or generators. The
first generation
utilizes
readily available commercial solar cells, coated with a stability polymer and catalysts, and inserted into our proprietary panels
to efficiently and safely split water into hydrogen and oxygen to produce very pure and green hydrogen that can be piped off the
panel, pressurized, and stored for use in a fuel cell to power anything electric.
The
second
generation
of our panels will feature a nanoparticle based technology where billions of autonomous solar cells
are electrodeposited onto porous alumina sheets and manufactured in a roll to roll process and inserted into our proprietary
panels. For this generation, we have received multiple patents and it is estimated that it will produce hydrogen for less
than $4 per kilogram before pressurization.
Our
team at the University of Iowa led by our CTO Dr. Joun Lee, has reach a milestone of 300 consecutive hours of
continuous hydrogen production utilizing completely immersed solar cells with no external biases achieving simulated
production equal to one year. We believe this to be a record for completely immersed cells. Now ready to take our technology
out of the lab, we are working with several vendors to commercialize and manufacturer our first generation of renewable
hydrogen panels that use sunlight and water to generate hydrogen. We are currently working towards building a pilot plant in
2019 adjacent to a large company distribution or fulfillment center so they can power their
fuel cell forklifts and materials handling equipment with completely renewable hydrogen vs. having to transport steam
reformed hydrogen where the production process emits tons of harmful emissions and must be transported.
We
anticipate that the HyperSolar H2Generator will be a self-contained renewable hydrogen production system that requires only
sunlight and any source of water. As a result, it can be installed almost anywhere to produce hydrogen fuel at or near the
point of distribution, for local use. We believe this model of hydrogen production addresses one of the biggest challenges of
using clean hydrogen fuel on a large scale which is the transportation of hydrogen.
Each
stage of the HyperSolar H2Generator can be scaled independently according to the hydrogen demands and length of storage required
for a specific application. A small-scale system can be used to produce continuous renewable electricity for a small house, or
a large scale system can be used to produce hydrogen to power a community.
Intellectual
Property
On
November 15, 2011 we filed a provisional patent application with the U.S. Patent and Trademark Office to protect the intellectual
property rights for “Photoelectrochemically Active Heterostructures, methods for their manufacture, and methods and systems
for producing desired products.” On March 14, 2017, this patent was granted as
United
States Patent No. 9,593,053. The patent protects the Company’s proprietary design of a self-contained solar-to-hydrogen
device made up of millions of solar powered water-splitting nanoparticles, per square centimeter. These nanoparticles are coated
with a separate patent-pending protective coating that prevents corrosion during extended periods of hydrogen production. The
aim of these nanoparticles is high conversion efficiency and low cost.
An
important aspect of the patented technology is the integrated structures of high-density arrays of nano-sized solar cells as part
of hydrogen production nanoparticles. The technology enables manufacturing of ultra-thin sheets for solar-to-hydrogen production,
requiring substantially less material as compared to conventional solar cells used in rooftop power applications.
In
September of 2012, we jointly filed with the University of California, Santa Barbara (“UCSB”) an additional patent
application to protect the intellectual property rights of our proprietary coating for protecting our semiconductor devices from
corrosion in various types of water. This patent was titled: “Process and Systems for Stable Operation of Electroactive
Devices”. We abandoned this patent late in 2017 for budgetary reasons and utilization of a different method in our research
and development.
In
March of 2015, we jointly filed a full utility patent application with UCSB for the “method of manufacture of multi-junction
artificial photosynthetic cells.” The patent’s full coverage excludes others from making, using, or selling the technology
process, and creates licensing opportunities. This patent was granted in Australia in June of 2018 and we have received notice
of allowance from the US Patent Office.
On
December 21, 2016, we filed jointly with the University of Iowa a patent for “Integrated Membrane Solar Fuel Assembly”
to protect the intellectual property for our generator housing system that safely separates oxygen and hydrogen in the water splitting
process without sacrificing efficiency. This device houses the water, the solar particles/cells and is designed with inlets and
outlets for water and gasses. Utilizing a special membrane for separating the oxygen side from the hydrogen side, proton transport
is increased which is the key to safely increasing solar-to-hydrogen efficiency. In December of 2017, we filed the utility patent
for this important invention and prosecution is ongoing.
Strategic
Partners
Effective September
19, 2018, we entered a one-year agreement with GreenTech Development Corporation. This consulting firm will advise the Company
the development and commercialization of the Company’s technology, and the ongoing operations of the company. In addition,
they will aid the Company in solicitation and acquisition of the financing for the development and commercialization of the company’s
technology as well as help identify potential engineering and construction firms that are qualified to design and build a pilot
plant to test and operate the Company’s technology in a steady state condition. This Agreement may be terminated by either
party at any time, for any or no reason, by written notice to the other party not less than thirty (30) days prior to the effective
date of termination. In the event of such termination, Company will be obligated to pay Consultant any outstanding fees and expenses
due under this Agreement only for or in connection with such services actually completed by Consultant and reasonably acceptable
to Company as of the date of termination notice
.
Competition
Currently,
most hydrogen is produced by steam reforming of natural gas or methane. This production technology dominates due to easy availability
and low prices of natural gas. Partial oxidation of petroleum oil is second in production capacity after steam reforming of natural
gas. The third largest production technology in terms of production capacity is steam gasification of coal. The current industry
is heavily dominated by large players such as Air Products and Chemicals Inc. and Air Liquide.
Green
or Renewable hydrogen can be produced through electrolyzers if they are powered by solar or wind. There has been an
emergence of these companies in the past few years. ITM Power in England and Proton Onsite in Norway are two of the largest
companies in this industry. If not powered by solar panels or wind power, they require external electricity most likely
created by coal, gas, or oil. We believe that our process when fully developed will offer a competitive advantage as it is
completely green and renewable and utilizes no external power other than the sun.
Corporate
Information
We
were incorporated in the State of Nevada on February 18, 2009. Our executive offices are located at 10 E. Yanonali St., Suite
36, Santa Barbara, CA 93101.
EMPLOYEES
As
of September 24, 2018 we had 1 full-time employee and several consultants. We have not experienced any work stoppages and we consider
relations with our employees and consultants to be good. Our Chief Technology Officer hired on June 1, 2016 is on a fulltime consulting
basis.
RISKS
RELATED TO OUR BUSINESS AND INDUSTRY
OUR
LIMITED OPERATING HISTORY DOES NOT AFFORD INVESTORS A SUFFICIENT HISTORY ON WHICH TO BASE AN INVESTMENT DECISION.
We
were formed in February 2009 and are currently developing a new technology that has not yet gained market acceptance. There can
be no assurance that at this time we will operate profitably or that we will have adequate working capital to meet our obligations
as they become due.
Investors
must consider the risks and difficulties frequently encountered by early stage companies, particularly in rapidly evolving markets.
Such risks include the following:
●
|
competition;
|
|
|
●
|
need for acceptance
of products;
|
|
|
●
|
ability to continue
to develop and extend brand identity;
|
|
|
●
|
ability to anticipate
and adapt to a competitive market;
|
|
|
●
|
ability to effectively
manage rapidly expanding operations;
|
|
|
●
|
amount and timing
of operating costs and capital expenditures relating to expansion of our business, operations, and infrastructure; and
|
|
|
●
|
dependence upon
key personnel.
|
We
cannot be certain that our business strategy will be successful or that we will successfully address these risks. In the event
that we do not successfully address these risks, our business, prospects, financial condition, and results of operations could
be materially and adversely affected and we may have to curtail our business.
WE
HAVE A HISTORY OF LOSSES AND HAVE NEVER REALIZED REVENUES TO DATE. WE EXPECT TO CONTINUE TO INCUR LOSSES AND NO ASSURANCE CAN
BE GIVEN THAT WE WILL REALIZE REVENUES. ACCORDINGLY, WE MAY NEVER ACHIEVE AND SUSTAIN PROFITABILITY.
As of June 30,
2018, we have incurred an aggregate net loss, and had an accumulated deficit, of $(21,999,514). For the years ended June 30, 2018
and 2017, we incurred a net loss of $(10,199,397) and net income of $2,243,731, respectively. The net (loss) income for the years
ended June 30, 2018 and 2017, included non-cash loss of ($9,448,570) and non-cash income of $2,845,916, respectively, associated
with the Company’s derivative instruments. We expect to continue to incur net losses until we are able to realize revenues
to fund our continuing operations. We may fail to achieve any or significant revenues from sales or achieve or sustain profitability.
Accordingly, there can be no assurance of when, if ever, we will be profitable or be able to maintain profitability.
We
have historically raised funds through various capital raising transactions. We may require additional funds in the future to
fund our business plans, either through additional equity or debt financings or collaborative agreements or from other sources.
We have no commitments to obtain such additional financing, and we may not be able to obtain any such additional financing on
terms favorable to us, or at all. In the event we are unable to obtain additional financing, we may be unable to implement our
business plan. Even with such financing, we have a history of operating losses and there can be no assurance that we will ever
become profitable.
WE
MAY BE UNABLE TO MANAGE OUR GROWTH OR IMPLEMENT OUR EXPANSION STRATEGY.
We may not be able to develop our product
or
implement the other features of our business strategy at the rate or to the extent presently planned. Our projected growth
will place a significant strain on our administrative, operational and financial resources. If we are unable to successfully
manage our future growth, establish and continue to upgrade our operating and financial control systems, recruit and hire
necessary personnel or effectively manage unexpected expansion difficulties, our financial condition and results of
operations could be materially and adversely affected.
WE
MAY NOT BE ABLE TO SUCCESSFULLY DEVELOP AND COMMERCIALIZE OUR TECHNOLOGIES WHICH WOULD RESULT IN CONTINUED LOSSES AND MAY REQUIRE
US TO CURTAIL OR CEASE OPERATIONS.
In
May of 2012, we completed a lab scale prototype of our technology. This prototype demonstrates hydrogen production from small
scale solar devices coated with our unique, low-cost polymer coating, and submerged in waste water from a pulp and paper mill.
However, we have not completed a large scale commercial prototype of our technology and are uncertain at this time when completion
of a commercial scale prototype will occur. Although, the lab scale prototype demonstrates the viability of our technology, there
can be no assurance that we will be able to commercialize our technology.
OUR
REVENUES ARE DEPENDENT UPON ACCEPTANCE OF OUR PRODUCTS BY THE MARKET; THE FAILURE OF WHICH WOULD CAUSE US TO CURTAIL OR CEASE
OPERATIONS.
We
believe that virtually all of our revenues will come from the sale or license of our products. As a result, we will continue to
incur substantial operating losses until such time as we are able to develop our product and generate revenues from the sale or
license of our products. There can be no assurance that businesses and customers will adopt our technology and products, or that
businesses and prospective customers will agree to pay for or license our products. Our technology and product, when fully developed,
may not gain market acceptance due to various factors such as not enough cost savings between our method of producing hydrogen
and other more conventional methods. In the event that we are not able to significantly increase the number of customers that
purchase or license our products, or if we are unable to charge the necessary prices or license fees, our financial condition
and results of operations will be materially and adversely affected.
WE
FACE INTENSE COMPETITION, AND MANY OF OUR COMPETITORS HAVE SUBSTANTIALLY GREATER RESOURCES THAN WE DO.
We
operate in a competitive environment that is characterized by price fluctuation and technological change. We will compete with
major international and domestic companies. Some of our current and future potential competitors may have greater market recognition
and customer bases, longer operating histories and substantially greater financial, technical, marketing, distribution, purchasing,
manufacturing, personnel and other resources than we do. In addition, competitors may be developing similar technologies with
a cost similar to, or lower than, our projected costs. As a result, they may be able to respond more quickly to changing customer
demands or to devote greater resources to the development, promotion and sales of solar and solar-related products than we can.
Our
business plan relies on sales of our products based on either a demand for truly renewable clean hydrogen or economically produced
clean hydrogen. If we fail to compete successfully, our business would suffer and we may lose or be unable to gain market share.
Neither the demand for our product nor our ability to manufacture have yet been proven.
BECAUSE
OUR INDUSTRY IS HIGHLY COMPETITIVE AND HAS LOW BARRIERS TO ENTRY, WE MAY LOSE MARKET SHARE TO LARGER COMPANIES THAT ARE BETTER
EQUIPPED TO WEATHER A DETERIORATION IN MARKET CONDITIONS DUE TO INCREASED COMPETITION.
Our
industry is highly competitive and fragmented, subject to rapid change and has low barriers to entry. We may, in the future, compete
for potential customers with solar and heating companies and other providers of solar power equipment or electric power. Some
of these competitors may have significantly greater financial, technical and marketing resources and greater name recognition
than we have.
We
believe that our ability to compete depends in part on a number of factors outside of our control, including:
●
|
the ability of our competitors to hire, retain
and motivate qualified personnel;
|
|
|
●
|
the ownership by competitors of proprietary
tools to customize systems to the needs of a particular customer;
|
|
|
●
|
the price at which others offer comparable services
and equipment;
|
|
|
●
|
the extent of our competitors’ responsiveness
to customer needs; and
|
|
|
●
|
installation technology.
|
Competition
in the solar power services industry may increase in the future, partly due to low barriers to entry, as well as from other alternative
energy resources now in existence or developed in the future. Increased competition could result in price reductions, reduced
margins or loss of market share and greater competition for qualified personnel. There can be no assurance that we will be able
to compete successfully against current and future competitors. If we are unable to compete effectively, or if competition results
in a deterioration of market conditions, our business and results of operations would be adversely affected.
A
DROP IN THE RETAIL PRICE OF CONVENTIONAL ENERGY OR NON-SOLAR ALTERNATIVE ENERGY SOURCES MAY NEGATIVELY IMPACT OUR PROFITABILITY.
We
believe that a customer’s decision to purchase or install solar power capabilities is primarily driven by the cost of electricity
from other sources and their anticipated return on investment resulting from solar power systems. Fluctuations in economic and
market conditions that impact the prices of conventional and non-solar alternative energy sources, such as decreases in the prices
of oil and other fossil fuels, could cause the demand for solar power systems to decline, which would have a negative impact on
our profitability. Changes in utility electric rates or net metering policies could also have a negative effect on our business.
OUR
BUSINESS DEPENDS ON PROPRIETARY TECHNOLOGY THAT WE MAY NOT BE ABLE TO PROTECT AND MAY INFRINGE ON THE INTELLECTUAL PROPERTY RIGHTS
OF OTHERS.
Our success will depend, in part, on our technology’s commercial viability and on the strength of
our intellectual property rights. We currently hold patents in the US and Australia, but still have several patents pending in
multiple countries. There is no guarantee the pending patents will be granted. In addition, any agreements we enter into with our
employees, consultants, advisors, customers and strategic partners will contain restrictions on the disclosure and use of trade
secrets, inventions and confidential information relating to our technology may not provide meaningful protection in the event
of unauthorized use or disclosure.
Third parties may assert that our technology, or the products we, our customers or partners commercialize
using our technology, infringes upon their proprietary rights. We have yet to complete an infringement analysis and, even if such
an analysis were available at the current time, it is virtually impossible for us to be certain that no infringement exists, particularly
in our case where our products have not yet been fully developed.
We
may need to acquire licenses from third parties in order to avoid infringement. Any required license may not be available to us
on acceptable terms, or at all.
We
could incur substantial costs in defending ourselves in suits brought against us for alleged infringement of another party’s
intellectual property rights as well as in enforcing our rights against others, and if we are found to infringe, the manufacture,
sale and use of our or our customers’ or partners’ products could be enjoined. Any claims against us, with or without
merit, would likely be time-consuming, requiring our management team to dedicate substantial time to addressing the issues presented.
Furthermore, the parties bringing claims may have greater resources than we do.
WE
DO NOT MAINTAIN THEFT OR CASUALTY INSURANCE AND ONLY MAINTAIN MODEST LIABILITY AND PROPERTY INSURANCE COVERAGE AND THEREFORE,
WE COULD INCUR LOSSES AS A RESULT OF AN UNINSURED LOSS.
We
do not maintain theft, casualty insurance, or property insurance coverage. We cannot assure that we will not incur uninsured liabilities
and losses as a result of the conduct of our business. Any such uninsured or insured loss or liability could have a material adverse
effect on our results of operations.
IF
WE LOSE KEY EMPLOYEES AND CONSULTANTS OR ARE UNABLE TO ATTRACT OR RETAIN QUALIFIED PERSONNEL, OUR BUSINESS COULD SUFFER.
Our success is highly dependent on our ability to attract and retain qualified scientific, engineering
and management personnel. We are highly dependent on our CEO, Timothy Young, and our development team at the University of Iowa.
The loss of this valuable resource could have a material adverse effect on our operations. Our officers are employed on “at
will” basis. Accordingly, there can be no assurance that they will remain associated with us. Our management’s efforts
will be critical to us as we continue to develop our technology and as we attempt to transition from a development stage company
to a company with commercialized products and services. If we were to lose Mr. Young or the services of the development team at
the university or any other key employees or consultants, we may experience difficulties in competing effectively, developing our
technology and implementing our business strategies.
THE
LOSS OF STRATEGIC ALLIANCES USED IN THE DEVELOPMENT OF OUR PRODUCTS AND TECHNOLOGY COULD IMPEDE OUR ABILITY TO COMPLETE OUR PRODUCT
AND RESULT IN A MATERIAL ADVERSE EFFECT CAUSING THE BUSINESS TO SUFFER.
We
pursue strategic alliances with other companies in areas where collaboration can produce technological and industry advancement.
We have entered into the sponsored research agreement
with the University of Iowa which is set to terminate May 31, 2019. If we are unable to extend the terms of the agreements, we
could suffer delays in product development or other operational difficulties which could have a material adverse effect on our
results of operations.
THERE
IS SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN.
Our independent public accounting firm in their report dated
September
25, 2018 i
ncluded an explanatory
paragraph expressing substantial doubt in our ability to continue as a going concern without additional capital becoming available.
Going concern contemplates the realization of assets and the satisfaction of liabilities in the normal course of business over
a reasonable length of time. 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. As a result, our financial statements do not reflect any adjustment which would result from our
failure to continue to operate as a going concern. Any such adjustment, if necessary, would materially affect the value of our
assets.
RISKS
RELATING TO OUR COMMON STOCK
BECAUSE
THERE IS A LIMITED MARKET IN OUR COMMON STOCK, STOCKHOLDERS MAY HAVE DIFFICULTY IN SELLING OUR COMMON STOCK AND OUR COMMON STOCK
MAY BE SUBJECT TO SIGNIFICANT PRICE SWINGS.
There
is a very limited market for our common stock. Since trading commenced in May 26, 2010, there has been little activity in our
common stock and on some days there is no trading in our common stock. Because of the limited market for our common stock, the
purchase or sale of a relatively small number of shares may have an exaggerated effect on the market price for our common stock.
We cannot assure stockholders that they will be able to sell common stock or, that if they are able to sell their shares, that
they will be able to sell the shares in any significant quantity at the quoted price.
WE
DO NOT EXPECT TO PAY DIVIDENDS IN THE FUTURE; ANY RETURN ON INVESTMENT MAY BE LIMITED TO THE VALUE OF OUR COMMON STOCK.
We
do not currently anticipate paying cash dividends in the foreseeable future. The payment of dividends on our common stock will
depend on earnings, financial condition and other business and economic factors affecting it at such time as the Board of Directors
may consider relevant. Our current intention is to apply net earnings, if any, in the foreseeable future to increasing our capital
base and development and marketing efforts. There can be no assurance that the Company will ever have sufficient earnings to declare
and pay dividends to the holders of our common stock, and in any event, a decision to declare and pay dividends is at the sole
discretion of the our Board of Directors. If we do not pay dividends, our common stock may be less valuable because a return on
your investment will only occur if our stock price appreciates.
OUR
COMMON STOCK COULD BE SUBJECT TO EXTREME VOLATILITY.
The
trading price of our common stock may be affected by a number of factors, including events described in the risk factors set forth
in this report, as well as our operating results, financial condition and other events or factors. In addition to the uncertainties
relating to future operating performance and the profitability of operations, factors such as variations in interim financial
results or various, as yet unpredictable, factors, many of which are beyond our control, may have a negative effect on the market
price of our common stock. In recent years, broad stock market indices, in general, and smaller capitalization companies, in particular,
have experienced substantial price fluctuations. In a volatile market, we may experience wide fluctuations in the market price
of our common stock and wide bid-ask spreads. These fluctuations may have a negative effect on the market price of our common
stock. In addition, the securities market has, from time to time, experienced significant price and volume fluctuations that are
not related to the operating performance of particular companies. These market fluctuations may also materially and adversely
affect the market price of our common stock.
THERE
IS A LARGE NUMBER OF AUTHORIZED BUT UNISSUED SHARES OF CAPITAL STOCK AVAILABLE FOR ISSUANCE, WHICH MAY RESULT IN SUBSTANTIAL DILUTION
TO EXISTING SHAREHOLDERS.
Our Certificate
of Incorporation authorizes the issuance of up to 3,000,000,000 shares of common stock, par value $0.001 and 5,000,000 shares
of preferred stock, par value $0.001, of which
885,073,786
shares of common stock
and no shares of preferred stock are currently outstanding as of September 21, 2018. Our Board of Directors has the ability to
authorize the issuance of an additional 2,114,926,213 shares of common stock and 5,000,000 shares of preferred stock without shareholder
approval. Any such issuance will result in substantial dilution to existing shareholders. In addition, the availability of such
a large number of capital stock could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing
a change in control of the Company.
WE
HAVE NEVER PAID COMMON STOCK DIVIDENDS AND HAVE NO PLANS TO PAY DIVIDENDS IN THE FUTURE, AS A RESULT OUR COMMON STOCK MAY BE LESS
VALUABLE BECAUSE A RETURN ON AN INVESTOR’S INVESTMENT WILL ONLY OCCUR IF OUR STOCK PRICE APPRECIATES.
Holders
of shares of our common stock are entitled to receive such dividends as may be declared by our Board of Directors. To date, we
have paid no cash dividends on our shares of common stock and we do not expect to pay cash dividends on our common stock in the
foreseeable future. We intend to retain future earnings, if any, to provide funds for operations of our business. Therefore, any
return investors in our common stock will be in the form of appreciation, if any, in the market value of our shares of common
stock. There can be no assurance that shares of our common stock will appreciate in value or even maintain the price at which
our stockholders have purchased their shares.
IF
OUR COMMON STOCK REMAINS SUBJECT TO THE SEC’S PENNY STOCK RULES, BROKER-DEALERS MAY EXPERIENCE DIFFICULTY IN COMPLETING
CUSTOMER TRANSACTIONS AND TRADING ACTIVITY IN OUR SECURITIES MAY BE ADVERSELY AFFECTED.
Unless
our common stock is listed on a national securities exchange, including the Nasdaq Capital Market, or we have stockholders’
equity of $5,000,000 or less and our common stock has a market price per share of less than $4.00, transactions in our common
stock will be subject to the SEC’s “penny stock” rules. If our common stock remains subject to the “penny
stock” rules promulgated under the Securities Exchange Act of 1934, broker-dealers may find it difficult to effectuate customer
transactions and trading activity in our securities may be adversely affected.
In
accordance with these rules, broker-dealers participating in transactions in low-priced securities must first deliver a risk disclosure
document that describes the risks associated with such stocks, the broker-dealer’s duties in selling the stock, the customer’s
rights and remedies and certain market and other information. Furthermore, the broker-dealer must make a suitability determination
approving the customer for low-priced stock transactions based on the customer’s financial situation, investment experience
and objectives. Broker-dealers must also disclose these restrictions in writing to the customer, obtain specific written consent
from the customer, and provide monthly account statements to the customer. The effect of these restrictions will probably decrease
the willingness of broker-dealers to make a market in our common stock, decrease liquidity of our common stock and increase transaction
costs for sales and purchases of our common stock as compared to other securities. Our management is aware of the abuses that
have occurred historically in the penny stock market.
As
a result, if our common stock becomes subject to the penny stock rules, the market price of our securities may be depressed, and
you may find it more difficult to sell our securities.
WE
MAY NEED ADDITIONAL CAPITAL, AND THE SALE OF ADDITIONAL SHARES OR OTHER EQUITY OR CONVERTIBLE DEBT SECURITIES COULD RESULT IN
ADDITIONAL DILUTION TO OUR STOCKHOLDERS.
If
our resources are insufficient to satisfy our cash requirements, we may seek to sell additional equity or debt securities or obtain
a credit facility. 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. Financing may not be available in amounts and on terms acceptable to us, or at all. In addition,
the successful execution of our business plan requires significant cash resources, including cash for investments and acquisition.
Changes in business conditions and future developments could also increase our cash requirements. To the extent we are unable
to obtain external financing, we will not be able to execute our business plan effectively, if 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.
Our principal
office is located at 10 E. Yanonali, Suite 36, Santa Barbara, CA, 93101. We believe that our current premises are sufficient to
handle our activities for the near future as adequate lab space and equipment is attained through our agreement with the University
of Iowa
ITEM 3.
|
LEGAL PROCEEDINGS.
|
We
are not currently a party to, nor is any of our property currently the subject of, any pending legal proceeding that will have
a material adverse effect on our business.
ITEM 4.
|
MINE SAFETY DISCLOSURES.
|
Not
Applicable.
The accompanying notes are an integral
part of these audited financial statements
The accompanying notes are an integral
part of these audited financial statements
The accompanying notes are an integral
part of these audited financial statements
The accompanying notes are an integral
part of these audited financial statements
NOTES
TO FINANCIAL STATEMENTS
JUNE
30, 2018 AND 2017
|
1.
|
ORGANIZATION
AND LINE OF BUSINESS
|
Organization
HyperSolar,
Inc. (the “Company”) was incorporated in the state of Nevada on February 18, 2009. The Company, based in Santa Barbara,
California, began operations on February 19, 2009 to develop and market a solar concentrator technology.
Line
of Business
The
company is currently developing a novel solar-powered nanoparticle system that mimics photosynthesis to separate hydrogen from
water. We intend for technology of this system to be licensed for the production of renewable hydrogen to produce renewable electricity
and hydrogen for fuel cells.
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 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
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.
Property
and Equipment
Property
and equipment are stated at cost, and are depreciated using straight line over its estimated useful lives:
Computers
and peripheral equipment
|
5
Years
|
Depreciation
expense for the years ended June 30, 2018 and 2017 was $209 and $159, respectively.
Stock
based Compensation
The
Company measures the cost of employee services received in exchange for an equity award based on the grant-date fair value of
the award. All grants under our stock-based compensation programs are accounted for at fair value and that cost is recognized
over the period during which an employee, consultant, or director are required to provide service in exchange for the award (the
vesting period). Compensation expense for options granted to employees and non-employees is determined in accordance with the
standard as the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more
reliably measured. Compensation expense for awards granted is re-measured each period.
Determining
the appropriate fair value of the stock-based compensation requires the input of subjective assumptions, including the expected
life of the stock-based payment and stock price volatility. The Company used the Black Scholes pricing model to value the
stock option awards which incorporate the Company’s stock price, volatility, U.S. risk-free rate, dividend rate, and estimated
life. On March 31, 2015, the Company granted 250,000 stock options with an exercise price of $0.02245 per share, which have fully
vested and expires March 31, 2020. On October 2, 2017, the Company granted an additional 10,000,000 stock options with an exercise
price of $0.01 per share, which vest one third (1/3) immediately, and the remaining vest one third (1/3) each year thereafter
and expire October 2, 2022.
HYPERSOLAR,
INC.
NOTES
TO FINANCIAL STATEMENTS
JUNE
30, 2018 AND 2017
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
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. During the years ended June
30, 2018 and 2017, the Company reviewed the capitalized patents for impairment in accordance with ASC 350, and determined there
was no impairment. Intangible assets that have finite useful lives continue to be amortized over their useful lives.
|
|
|
Useful
Lives
|
|
6/30/2018
|
|
|
6/30/2017
|
|
|
|
|
15
years
|
|
|
|
|
|
|
|
Domain-gross
|
|
|
|
$
|
5,315
|
|
|
$
|
5,315
|
|
|
Less
accumulated amortization
|
|
|
|
|
(3,514
|
)
|
|
|
(3,160
|
)
|
|
Domain-net
|
|
|
|
$
|
1,801
|
|
|
$
|
2,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents-gross
|
|
|
|
$
|
95,572
|
|
|
$
|
78,478
|
|
|
Less
accumulated amortization
|
|
|
|
|
(4,642
|
)
|
|
|
-
|
|
|
Patents-net
|
|
|
|
$
|
90,930
|
|
|
$
|
78,478
|
|
The Company recognized amortization expense of $4,996 and $355 for the years ended June 30, 2018 and 2017.
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 year ended June 30, 2018, the Company calculated the dilutive impact of the outstanding stock options of 10,250,000, and the
convertible debt of $1,924,800, 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.
For
the year ended June 30, 2017, the Company calculated the dilutive impact of the outstanding stock options of 250,000, and the
convertible debt of $1,533,000, which is convertible into shares of common stock. The stock options of $250,000, and the convertible
debt of $1,228,000 were included in the calculation of net earnings per share, because their impact was dilutive. The remaining
$305,000 in convertible debt was not included in the calculation of net earnings per share, because the impact was anti-dilutive.
|
|
|
For
the years ended
|
|
|
|
|
June 30,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss) to common shareholders (Numerator)
|
|
$
|
(10,199,397
|
)
|
|
$
|
2,243,731
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted average number of common shares outstanding (Denominator)
|
|
|
758,786,508
|
|
|
|
637,798,226
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
weighted average number of common shares outstanding (Denominator)
|
|
|
758,786,508
|
|
|
|
960,785,068
|
|
Fair
Value of Financial Instruments
Fair
value of financial instruments, requires disclosure of the fair value information, whether or not recognized in the balance sheet,
where it is practicable to estimate that value. As of June 30, 2018, 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:
HYPERSOLAR,
INC.
NOTES
TO FINANCIAL STATEMENTS
JUNE
30, 2018 AND 2017
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
Fair
Value of Financial Instruments
(Continued)
|
●
|
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 June 30, 2018 and 2017 (See Note 6):
|
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability measured at fair value at 6/30/2018
|
|
$
|
10,857,698
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
10,857,698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability measured at fair value at 6/30/2017
|
|
$
|
2,482,842
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,482,842
|
|
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, 2016
|
|
$
|
6,230,102
|
|
|
Fair value of derivative liabilities issued
|
|
|
206,418
|
|
|
Gain on change in derivative liability
|
|
|
(3,953,678
|
)
|
|
Balance as of July 1, 2017
|
|
$
|
2,482,842
|
|
|
Fair value of derivative liabilities issued
|
|
|
206,795
|
|
|
Loss on change in derivative liability
|
|
|
8,168,061
|
|
|
Balance as of June 30, 2018
|
|
$
|
10,857,698
|
|
Research
and Development
Research
and development costs are expensed as incurred. Total research and development costs were $245,738 and $140,286 for the
years ended June 30, 2018 and 2017, respectively.
Income
Taxes
Deferred
income taxes are provided using the liability method whereby deferred tax assets are recognized for deductible temporary differences
and operating loss and tax credit carry-forwards and deferred tax liabilities are recognized for taxable temporary differences.
Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred
tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion
or all the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of
the changes in tax laws and rates of the date of enactment.
When
tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities,
while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately
sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on
all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including
the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions.
Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that
is more than (50%) fifty percent likely of being realized upon settlement with the applicable taxing authority. The portion
of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability
for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be
payable to the taxing authorities upon examination.
HYPERSOLAR,
INC.
NOTES
TO FINANCIAL STATEMENTS
JUNE
30, 2018 AND 2017
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
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 (twelve) months
of the balance sheet date.
Recently
Issued Accounting Pronouncements
In
May 2017, FASB issued accounting standards update ASU-2017-09, “Compensation-Stock Compensation” (Topic 718) –Modification
Accounting”, to provide clarity and reduce both (1) diversity in practice and (2) cost and complexity when applying the
guidance in Topic 718, Compensation-Stock Compensation, to a change to the terms or conditions of a share-based payment award.
The amendments in this ASU are effective for all entities for annual periods, and interim periods within those annual periods,
beginning after December 15, 2017. Early adoption is permitted, including adoption in an interim period for public entities for
reporting periods for which financial statements have not yet been issued, and all other entities for reporting periods for which
financial statements have not yet been made available for issuance. The Company is currently evaluating the impact of the adoption
of ASU 2017-09 on the Company’s financial statements.
In
August 2017, FASB issued accounting standards update ASU-2017-12, “D” (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.
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.
During
the year ended June 30, 2018, the Company issued 152,974,759 shares of common stock upon conversion of convertible notes in the
amount of $353,200 in principal, plus accrued interest of $106,003, with an aggregate fair value loss on settlement of $945,943,
based upon conversion prices of $0.0070 and $0.0165.
During
the year ended June 30, 2017, the Company issued 109,930,298 shares of common stock upon the conversion of $426,363 in principal,
plus accrued interest of $114,631, with an aggregate fair value loss of $761,465 at prices ranging from $0.01 to $0.0145.
Options
As
of June 30, 2018, 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 (5
th
) anniversary from the grant date of the options.
As of June 30, 2018, 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, and 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.
A
summary of the Company’s stock option activity and related information follows:
|
|
|
6/30/2018
|
|
|
6/30/2017
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
Number
|
|
|
average
|
|
|
Number
|
|
|
average
|
|
|
|
|
of
|
|
|
exercise
|
|
|
of
|
|
|
exercise
|
|
|
|
|
Options
|
|
|
price
|
|
|
Options
|
|
|
price
|
|
|
Outstanding, beginning of period
|
|
|
250,000
|
|
|
$
|
0.0103
|
|
|
|
500,000
|
|
|
$
|
0.03
|
|
|
Granted
|
|
|
10,000,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Forfeited/Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
(250,000
|
)
|
|
$
|
0.04
|
|
|
Outstanding, end of period
|
|
|
10,250,000
|
|
|
$
|
0.0103
|
|
|
|
250,000
|
|
|
$
|
0.02
|
|
|
Exercisable at the end of period
|
|
|
3,583,333
|
|
|
$
|
0.0095
|
|
|
|
250,000
|
|
|
$
|
0.02
|
|
HYPERSOLAR,
INC.
NOTES
TO FINANCIAL STATEMENTS
JUNE
30, 2018 AND 2017
|
4.
|
STOCK
OPTIONS (Continued)
|
The
weighted average remaining contractual life of options outstanding as of June 30, 2018 and 2017 was as follows:
|
6/30/2018
|
|
|
6/30/2017
|
|
|
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
|
|
|
|
1.75
|
|
|
$
|
0.02
|
|
|
|
250,000
|
|
|
|
250,000
|
|
|
|
2.50
|
|
|
$
|
0.01
|
|
|
|
10,000,000
|
|
|
|
3,333,333
|
|
|
|
4.26
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
10,250,000
|
|
|
|
3,583,333
|
|
|
|
|
|
|
|
|
|
|
|
250,000
|
|
|
|
250,000
|
|
|
|
|
|
The
stock-based compensation expense recognized in the statement of operations during the year ended June 30, 2018 and 2017, related
to the granting of these options was $28,713 and $2,688, respectively.
|
5.
|
CONVERTIBLE
PROMISSORY NOTES
|
As
of June 30, 2018, the outstanding convertible promissory notes are summarized as follows:
|
Convertible Promissory Notes, net of debt discount
|
|
$
|
1,775,400
|
|
|
Less current portion
|
|
|
405,714
|
|
|
Total long-term liabilities
|
|
$
|
1,369,686
|
|
Maturities
of long-term debt for the next three years are as follows:
|
Years Ending June 30,
|
|
Amount
|
|
|
2019
|
|
$
|
-
|
|
|
2020
|
|
|
24,800
|
|
|
2021
|
|
|
540,000
|
|
|
2022
|
|
|
609,886
|
|
|
2023
|
|
|
195,000
|
|
|
|
|
$
|
1,369,686
|
|
At
June 30, 2018, the $1,924,800 in convertible promissory notes had a remaining debt discount of $149,400, leaving a net balance
of $1,775,400.
On
May 23, 2014, the Company issued a 10% convertible promissory note (the “May 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 $415,000 for an aggregate sum of $465,000. The May Note matured on May
23, 2015 and was extended to February 23, 2016. A second extension was granted to November 23, 2016. On January 19, 2017, the
investor extended the May Note for an additional sixty (60) months from the effective date of each tranche, which matures on
November 23, 2021.The May 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 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 May 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 issued 115,737,890 shares of common stock upon conversion of $228,000
in principal, plus accrued interest of $68,642, with an aggregate fair value loss of $945,943. The May Note as of June 30,
2018 was converted in full.
HYPERSOLAR,
INC.
NOTES
TO FINANCIAL STATEMENTS
JUNE
30, 2018 AND 2017
|
5.
|
CONVERTIBLE
PROMISSORY NOTES (Continued)
|
On April 9, 2015, the Company issued a 10% convertible promissory note (the “April 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
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 Note for an additional (60) months from the effective date of each tranche,
which matures on January 28, 2021.The April 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 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 period
ended June 30, 2018, the Company issued 37,236,868, upon conversion of 125,200, plus accrued interest of $37,362, with a fair value
loss of $262,704. The balance of the April Note as of June 30, 2018 was $374,800.
On
January 28, 2016, the Company issued a 10% convertible promissory note (the “January 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 January Note matures twelve (12)
months from the effective dates of each respective tranche. On January 19, 2017, the investor extended the January Note for an
additional sixty (60) months from the effective date of each tranche, which matures on January 27, 2022.The January 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 January 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 $38,514 during the year ended June 30, 2018. The balance of the January Note as of June 30,
2018 was $500,000.
On
February 3, 2017, the Company issued a 10% convertible promissory note (the “February 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 February Note matures twelve (12)
months from the effective dates of each respective tranche. The February Note matures on February 3, 2018, with an automatic extension
of sixty (60) months from the effective date of each tranche. The February 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 February 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 $92,870 during the year ended June 30, 2018. The balance of the February Note as of June 30, 2018 was $500,000.
HYPERSOLAR, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE
30, 2018 AND 2017
|
5.
|
CONVERTIBLE
PROMISSORY NOTES (Continued)
|
On
November 9, 2017, for the sale of a 10% convertible promissory note (the “November 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 November Note matures twelve (12)
months from the effective dates of each respective tranche. The November Note matures on November 9, 2018, with an automatic extension
of sixty (60) months from the effective date of each tranche. The November 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 November 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 $30,671 during the year ended June 30, 2018. The balance of the November Note as of June 30, 2018 was $500,000.
On
June 27, 2018, for the sale of a 10% convertible promissory note (the “June 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 June Note
matures twelve (12) months from the effective dates of each respective tranche. The June Note matures on June 27, 2019, with an
automatic extension of sixty (60) months from the effective date of each tranche. The June 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 June 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 $188 during the year ended June 30, 2018. The balance of the June Note as of June 30, 2018 was
$50,000.
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 (the “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.
During the year ended June
30, 2018, 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 $206,795, 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 year ended June 30, 2018, the Company recorded a net loss in change in derivative of $8,168,061 in the statement of operations
due to the change in fair value of the remaining Notes. At June 30, 2018, the fair value of the derivative liability was $10,857,698.
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
|
|
2.09% - 2.73%
|
|
Stock volatility factor
|
|
80.0% - 183.0%
|
|
Weighted average expected option life
|
|
1 year - 5 year
|
|
Expected dividend yield
|
|
None
|
HYPERSOLAR, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE
30, 2018 AND 2017
The
Company files income tax returns in the U.S. Federal jurisdiction, and the state of California. With few exceptions, the Company
is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before
2015.
Deferred
income taxes have been provided by temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for tax purposes. To the extent allowed by GAAP, we provide valuation allowances against
the deferred tax assets for amount when the realization is uncertain. Included in the balance at June 30, 2018 and 2017, are no
tax positions for which the ultimate deductibility is highly certain, but for which there is uncertainty about the timing of such
deductibility. Because of the impact of deferred tax accounting, other than interest and penalties, the disallowance of
the shorter deductibility period would not affect the annual effective tax rate but would accelerate the payment of cash to the
taxing authority to an earlier period.
The
Company’s policy is to recognize interest accrued related to unrecognized tax benefits in interest expense and penalties
in operating expenses. During the periods ended June 30, 2018 and 2017, the Company did not recognize interest or penalties.
At
June 30, 2018, the Company had net operating loss carry-forwards of approximately $5,829,800, which expires 20 years after the
NOL year. No tax benefit has been reported in the June 30, 2018 and 2017 financial statements, since the potential tax benefit
is offset by a valuation allowance of the same amount.
The
income tax provision differs from the amount of income tax determined by applying the U.S. federal income tax rate to pretax income
from continuing operations for the years ended June 30, 2018 and 2017 due to the following:
|
|
|
6/30/2018
|
|
|
6/30/2017
|
|
|
Book income (loss)
|
|
$
|
(4,079,759
|
)
|
|
$
|
897,493
|
|
|
Non deductible expenses
|
|
|
3,791,305
|
|
|
|
(1,136,941
|
)
|
|
Depreciation and amortization
|
|
|
(395
|
)
|
|
|
(1,018
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Valuation Allowance
|
|
|
288,849
|
|
|
|
240,466
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred
taxes are provided on a liability method, whereby deferred tax assets are recognized for deductible differences and operating
loss and tax credit carry-forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences
are the difference between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced
by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all the deferred
tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates
on the date of enactment.
Deferred
tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion
or all the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes
in tax laws and rates on the date of enactment.
Net
deferred tax liabilities consist of the following components as of June 30, 2018 and 2017:
|
|
|
6/30/2018
|
|
|
6/30/2017
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
NOL carryover
|
|
$
|
2,331,918
|
|
|
$
|
2,048,129
|
|
|
Research & development
|
|
|
69,449
|
|
|
|
51,988
|
|
|
Related party accrual
|
|
|
76,500
|
|
|
|
76,500
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilites:
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(4,352
|
)
|
|
|
(3,368
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Less Valuation Allowance
|
|
|
(2,473,515
|
)
|
|
|
(2,173,249
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
Due
to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry-forwards for Federal income tax
reporting purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carry-forwards may
be limited as to use in future years.
On
December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax
Cut and Jobs Act (the “Tax Act”). The Tax Act establishes new tax laws that affects 2018 and
future years, including a reduction in the U.S. federal corporate income tax rate to 21%, effective January
1, 2018.
The Company is still in the process of analyzing the impact
to the Company of the TCJA. Where the Company has been able to make reasonable estimates of the effects
related to which its analysis is not yet complete, the Company has recorded provisional amounts. The ultimate
impact to the Company’s financial statements of the TCJA may differ from the provisional amounts
due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, additional
regulatory guidance that may be issued, and actions the Company may take as a result of the TCJA.
The
Company’s tax returns for the previous three years remain open for audit by the respective tax jurisdictions.
HYPERSOLAR, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE
30, 2018 AND 2017
|
8.
|
COMMITMENTS AND CONTINGENCIES
|
The
Company rents office space on a month-to-month rental in the amount of $900, which is due by the fifteenth of each month.
In the normal
course of business, the Company may be involved in legal proceedings, claims and assessments arising in the ordinary
course of business. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance. In the opinion
of management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s
consolidated financial position or results of operations.
Management evaluated subsequent
events as of the date of the financial statements pursuant to ASC TOPIC 855, and reported the following events:
On July 12, 2018, the Company
filed a Certificate of Designation with the Secretary of State of Nevada which designates 1,000, shares of the Company’s
preferred stock par value $0.001 per shares, as Series A Preferred Stock.
Pursuant to the terms of the
Designation, holders of Series A Preferred Stock shall not be entitled to dividends or a liquidation preference and shall have
no conversion rights. The holders of Series A Preferred Stock shall have the right to vote separately as a class in an amount equal
to 90% of the total vote with respect to a proposal related to (a) any amendment to the Company’s Articles of Incorporation
changing the name of the Company, (b) increasing the authorized share capital of the Company, (c) any amendment to the Company’s
Bylaws, and (d) effecting any reverse stock split of the Company’s issued and outstanding shares of capital stock. Such vote
shall be determined by the holder(s) of a majority of the then issued and outstanding shares of Series A Preferred Stock. The shares
of Series A Preferred stock shall be redeemed automatically at par value, upon the earlier of (i) the expiration of 120 days after
the effective date of the Designation, (ii) the Company’s CEO no longer services as an officer, director or consultant of
the Company or (iii) the date the Company’s shares of common stock first trades on a national securities exchange.
Effective July 12, 2018, the
Board of Directors of the Company approved the issuance of 1,000 newly designated Series A Preferred Stock to its CEO, Timothy
Young.
On
July 17, 2018, a lender extended the February Note for sixty (60) months from the effective date. The terms and conditions remained
unchanged.
On July 23, 2018, the Company
received $63,000 in consideration upon the execution of a 10% unsecured convertible note (“July Note”) in the aggregate
principal amount of up to $63,000. The July Note is convertible into shares of common stock of the Company at a price equal to
61% of the average lowest two (2) trading prices per common stock during the fifteen (15) trading days prior to the conversion
date.
On August 10, 2018, the Company
received $100,000 in consideration upon the execution of a 10% unsecured convertible note (“August Note”) for an aggregate
principal amount of up to $500,000. The August Note is convertible into shares of common stock of the Company at a price equal
to the lesser of a) $0.005 per share of common stock or b) sixty-one (61%) of the lowest trade price per common stock recorded
on any trade day after the effective date.
On
September 5, 2018, the Company issued 32,615,768 shares of common stock, upon partial conversion of principal in the amount of
$44,500, plus accrued interest of $14,208 associated with the April Note.
On
September 13, 2018, the Company amended its Articles of Incorporation to increase the number of authorized shares of common stock
from 1,000,000,000 to 3,000,000,000
On
September 19, 2018, the Company entered into a consulting agreement with GreenTech Development Corporation for assistance in the
development and commercialization of the Company’s Technology.