The accompanying
notes are an integral part of these condensed unaudited financial statements
The accompanying
notes are an integral part of these condensed unaudited financial statements
The accompanying
notes are an integral part of these condensed unaudited financial statements
CONDENSED NOTES TO FINANCIAL STATEMENTS
- UNAUDITED
MARCH 31, 2020 AND 2019
The accompanying unaudited
condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States
of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been
included. Operating results for the nine months ended March 31, 2020 are not necessarily indicative of the results that may be
expected for the year ended June 30, 2020. For further information refer to the financial statements and footnotes thereto included
in the Company's Form 10-K for the year ended June 30, 2019.
Going Concern
The accompanying condensed
unaudited financial statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations,
realization of assets and liabilities and commitments in the normal course of business. The accompanying condensed unaudited financial
statements do not reflect any adjustments that might result if the Company is unable to continue as a going concern. The Company
does not generate revenue, and has negative cash flows from operations, which raise substantial doubt about the Company’s
ability to continue as a going concern. The ability of the Company to continue as a going concern and appropriateness of using
the going concern basis is dependent upon, among other things, raising additional capital. The Company has historically obtained
funds through private placement offerings of equity and debt. Management believes that it will be able to continue to raise funds
by sale of its securities to its existing shareholders and prospective new investors to provide the additional cash needed to
meet the Company’s obligations as they become due and will allow the development of its core business. There is no assurance
that the Company will be able to continue raising the required capital.
|
2.
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
|
This summary of significant
accounting policies of HyperSolar, Inc. is presented to assist in understanding the Company’s financial statements. The
financial statements and notes are representations of the Company’s management, which is responsible for their integrity
and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America
and have been consistently applied in the preparation of the financial statements.
Cash and Cash Equivalent
The Company considers all highly
liquid investments with an original maturity of three months or less to be cash equivalents.
Use
of Estimates
In
accordance with accounting principles generally accepted in the United States, management utilizes estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the
financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could
differ from those estimates. These estimates and assumptions relate to useful lives and impairment of tangible and intangible
assets, accruals, income taxes, stock-based compensation expense, Binomial lattice valuation model inputs, derivative liabilities
and other factors. Management believes it has exercised reasonable judgment in deriving these estimates. Consequently, a change
in conditions could affect these estimates.
Intangible Assets
The Company has patent applications
to protect the inventions and processes behind its proprietary bio-based back-sheet, a protective covering for the back of photovoltaic
solar modules traditionally made from petroleum-based film. Intangible assets that have finite useful lives continue to be amortized
over their useful lives.
The Company recognized amortization
expense of $5,794 and $4,555 for the nine months ended March 31, 2020 and 2019, respectively.
HYPERSOLAR, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
- UNAUDITED
MARCH 31, 2020 AND 2019
|
2.
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)
|
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 nine months ended March
31, 2020, the Company calculated the dilutive impact of the outstanding stock options of 196,250,000, and the convertible debt
of $2,029,545, which is convertible into shares of common stock. The stock options and convertible debt were not included in the
calculation of net earnings per share, because their impact was antidilutive.
For the nine months ended March
31, 2019, the Company calculated the dilutive impact of the outstanding stock options of 186,250,000, and the convertible debt
of $2,456,100, 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.
Equity Incentive Plan and
Stock Options
Equity Incentive Plan
On December 17, 2018, the Board
of Directors approved and adopted the 2019 Equity Incentive Plan (“the Plan”), with 300,000,000 shares of common stock
set aside and reserved for issuance pursuant to the Plan. The purpose of the Plan is to promote the success of the Company and
to increase stockholder value by providing an additional means through the grant of awards to attract, motivate, retain and reward
selected employees and other eligible persons. The awards are performance-based compensation that are granted under the Plan as
incentive stock options (ISO) or nonqualified stock options. The per share exercise price for each option shall not be less than
100% of the fair market value of a share of common stock on the date of grant of the option. The Company periodically issues stock
options and warrants to employees and non-employees in non-capital raising transactions for services and for financing cost. The
Company accounts for stock option grants issued and vesting to employees and non-employees in accordance with the authoritative
guidance of the Financial Accounting Standards Board whereas the value of the stock compensation is based upon the measurement
date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary
performance to earn the equity instruments is complete. Non-employee stock-based compensation charges generally are amortized over
the vesting period on a straight-line basis. In certain circumstances where there are no future performance requirements by the
non-employee, option grants are immediately vested, and the total stock-based compensation charge is recorded in the period of
the measurement date. As of March 31, 2020, the Company has granted 186,000,000 equity incentive stock options leaving a reserve
of 114,000,000. The options are exercisable for common stock.
Stock based Compensation
The Company periodically issues
stock options and warrants to employees and non-employees in non-capital raising transactions for services and for financing costs.
The Company accounts for stock option and warrant grants issued and vesting to employees based on the authoritative guidance provided
by the Financial Accounting Standards Board whereas the value of the award is measured on the date of grant and recognized over
the vesting period. The Company accounts for stock option and warrant grants issued and vesting to non-employees in accordance
with the authoritative guidance of the Financial Accounting Standards Board whereas the value of the stock compensation is based
upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date at
which the necessary performance to earn the equity instruments is complete. Non-employee stock-based compensation charges generally
are amortized over the vesting period on a straight-line basis. In certain circumstances where there are no future performance
requirements by the non-employee, the option grants immediately vest, and the total stock-based compensation charge is recorded
in the period of the measurement date. As of March 31, 2020, the Company has granted 10,250,000 stock-based compensation stock
options, which are exercisable for common stock.
Fair Value of
Financial Instruments
Fair value of financial instruments,
requires disclosure of the fair value information, whether or not recognized in the balance sheet, where it is practicable to estimate
that value. As of March 31, 2020, the amounts reported for cash, accrued interest and other expenses, notes payables, convertible
notes, and derivative liability approximate the fair value because of their short maturities.
HYPERSOLAR, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
- UNAUDITED
MARCH 31, 2020 AND 2019
|
2.
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)
|
Fair Value of Financial
Instruments
We adopted ASC Topic 820 for
financial instruments measured as fair value on a recurring basis. ASC Topic 820 defines fair value, established a framework for
measuring fair value in accordance with accounting principles generally accepted in the United States and expands disclosures
about fair value measurements.
Fair value is defined as the
price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. ASC Topic 820 established a three-tier fair value hierarchy which prioritizes the inputs used in measuring
fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities
(level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:
|
●
|
Level 1, defined as observable
inputs such as quoted prices for identical instruments in active markets;
|
|
●
|
Level 2, defined as inputs
other than quoted prices in active markets that are either directly or indirectly observable
such as quoted prices for similar instruments in active markets or quoted prices for
identical or similar instruments in markets that are not active; and
|
|
●
|
Level 3, defined as unobservable
inputs in which little or no market data exists, therefore requiring an entity to develop
its own assumptions, such as valuations derived from valuation techniques in which one
or more significant inputs or significant value drivers are unobservable.
|
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 March 31, 2020 (See Note 6):
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability measured at fair value at 3/31/20
|
|
$
|
7,522,845
|
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
7,522,845
|
|
The following is a reconciliation
of the derivative liability for which Level 3 inputs were used in determining the approximate fair value:
Balance as of June 30, 2019
|
|
|
3,905,721
|
|
Fair value of derivative liabilities issued
|
|
|
598,043
|
|
Loss on change in derivative liability
|
|
|
3,019,081
|
|
Balance as of March 31, 2020
|
|
$
|
7,522,845
|
|
Research and Development
Research and development costs
are expensed as incurred. Total research and development costs were $393,265 and $207,234 for the nine months ended March
31, 2020 and 2019, respectively
Accounting for
Derivatives
The Company evaluates all of
its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives.
For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at
its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations.
For stock-based derivative financial instruments, the Company uses a probability weighted average series Binomial lattice formula
pricing models to value the derivative instruments at inception and on subsequent valuation dates.
The classification of derivative
instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each
reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether
or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.
HYPERSOLAR, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
- UNAUDITED
MARCH 31, 2020 AND 2019
|
2.
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)
|
Recently
Issued Accounting Pronouncements
In August
2017, FASB issued accounting standards update ASU-2017-12, (Topic 815) – “Targeted Improvements to Accounting for
Hedging Activities”, to require an entity to present the earnings effect of the hedging instrument in the same statement
line item in which the earnings effect of the hedged item is reported. The amendments in this update are effective for fiscal
years beginning after December 15, 2018, and interim periods within those fiscal years. For all other entities, the amendments
are effective for fiscal years beginning after December 15, 2019, and interim periods with the fiscal years beginning after December
15, 2020. Early adoption is permitted in any interim period after issuance of the update. The Company does not believe the adoption
of ASU-2017 would have a material impact on the Company’s financial statements.
In June 2018, FASB issued accounting
standards update ASU 2018-07, (Topic 505) – “Shared-Based Payment Arrangements with Nonemployees”, which simplifies
the accounting for share-based payments granted to nonemployees for goods and services. Under the ASU, most of the guidance on
such payments to nonemployees will be aligned with the requirements for share-based payments granted to employees. Under the ASU
2018-07, the measurement of equity-classified nonemployee share-based payments will be fixed on the grant date, as defined in
ASC 718, and will use the term nonemployee vesting period, rather than requisite service period. The amendments in this update
are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. For all
other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal
years beginning after December 15, 2020. Early adoption is permitted if financial statements have not yet been issued. The Company
is currently evaluating the impact of the adoption of ASU 2018-07 on the Company’s financial statements.
In August
2018, the FASB issued accounting standards update ASU 2018-13, (Topic 820) - "Fair Value Measurement”, which changes
the unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair
value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most
recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively
to all periods presented upon their effective date. The amendments in this update are effective for fiscal years, and interim
periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted upon issuance. The Company is
currently evaluation the impact of the adoption of ASU 2018-13, on the Company’s financial statements.
Management does not believe
that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect
on the accompanying condensed financial statements.
Nine months
ended March 31, 2020
During the
nine months ended March 31, 2020, the Company issued 683,999,878 shares of common stock upon conversion of convertible notes in
the amount of $917,441 in principal, plus accrued interest of $149,000 and other fees of $10,100 based upon conversion prices
ranging from $0.00095 - $0.0041.
During the
nine months ended March 31, 2020, the Company issued 74,787,283 shares of common stock for services rendered at fair value prices
of $0.002 - $0.0072 per share in the amount of $267,789.
Nine months
ended March 31, 2019
During the nine months ended
March 31, 2019, the Company issued 79,148,469 shares of common stock upon conversion of convertible notes in the amount of $152,200,
plus accrued interest of $32,940, with an aggregate fair value loss on conversion of debt of $550,800, based upon conversion
prices ranging from $0.0083- $0.0099.
During the nine months ended March
31, 2019, the Company issued 17,139,250 shares of common stock for services rendered at air value prices of $0.008 - $0.0105 per
share in the amount of $161,122.
HYPERSOLAR, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
- UNAUDITED
MARCH 31, 2020 AND 2019
Stock Option Plan
As of March 31, 2020, 10,250,000
non-qualified common stock options were outstanding. Each option expires on the date specified in the option agreement, which
date is not later than the fifth (5th) anniversary from the grant date of the options. As of March 31, 2020, 250,000
options are fully vested with a maturity date of March 31, 2020, and are exercisable at an exercise price of $0.02245 per share;
10,000,000 non-qualified common stock options, which vest one-third immediately, and one-third the second and third year, whereby,
the options are fully vested with a maturity date of October 2, 2022, and are exercisable at an exercise price of $0.01 per share.
On January 23, 2019, the
Company issued 170,000,000 stock options, of which one-third (1/3) vest immediately, and the remaining shall vest one-twenty
fourth (1/24) after the date of these options (remaining block). The first block shall become exercisable immediately and is
exercisable for a period of seven (7) years. The options fully vest by January 23, 2022.
On January 31, 2019, the
Company issued 6,000,000 stock options, of which two-third (2/3) vest immediately, and the remaining shall vest one-twelfth
(1/12) per month from after the date of these options (remaining block). The first block shall become exercisable immediately
and is exercisable for a period of seven (7) years. The options fully vested on January 31, 2020.
On July 22, 2019, the
Company issued 10,000,000 stock options, of which one-third (1/3) vest immediately, and the remaining shall vest one-twenty
fourth (1/24) per month from after the date of these options (remaining block). The first block shall become exercisable
immediately and is exercisable for a period of seven (7) years. The options fully vest by July 22, 2020.
A summary
of the Company’s stock option activity and related information follows:
|
|
3/31/2020
|
|
|
3/31/2019
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
Number
|
|
|
average
|
|
|
Number
|
|
|
average
|
|
|
|
of
|
|
|
exercise
|
|
|
of
|
|
|
exercise
|
|
|
|
Options
|
|
|
price
|
|
|
Options
|
|
|
price
|
|
Outstanding, beginning of period
|
|
|
186,250,000
|
|
|
$
|
0.01
|
|
|
|
10,250,000
|
|
|
$
|
0.01
|
|
Granted
|
|
|
10,000,000
|
|
|
$
|
0.01
|
|
|
|
176,000,000
|
|
|
$
|
0.01
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited/Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding, end of period
|
|
|
196,250,000
|
|
|
$
|
0.01
|
|
|
|
186,250,000
|
|
|
$
|
0.01
|
|
Exercisable at the end of period
|
|
|
179,117,579
|
|
|
$
|
0.01
|
|
|
|
67,583,334
|
|
|
$
|
0.01
|
|
The weighted average remaining contractual life
of options outstanding as of March 31, 2020 and 2019 was as follows:
3/31/20
|
|
|
3/31/19
|
|
Exercisable
Price
|
|
|
Stock Options Outstanding
|
|
|
Stock Options Exercisable
|
|
|
Weighted Average Remaining
Contractual Life (years)
|
|
|
Exercisable Price
|
|
|
Stock Options Outstanding
|
|
|
Stock Options Exercisable
|
|
|
Weighted Average Remaining
Contractual Life (years)
|
|
$
|
0.02
|
|
|
|
250,000
|
|
|
|
250,000
|
|
|
|
0.25
|
|
|
$
|
0.02
|
|
|
|
250,000
|
|
|
|
250,000
|
|
|
|
1.00
|
|
$
|
0.01
|
|
|
|
10,000,000
|
|
|
|
10,000,000
|
|
|
|
2.76
|
|
|
$
|
0.01
|
|
|
|
10,000,000
|
|
|
|
6,666,667
|
|
|
|
3.51
|
|
$
|
0.0097-0.0099
|
|
|
|
176,000,000
|
|
|
|
162,867,579
|
|
|
|
6.07 - 6.09
|
|
|
$
|
-
|
|
|
|
176,000,000
|
|
|
|
60,666,667
|
|
|
|
6.82 - 6.84
|
|
$
|
0.0046
|
|
|
|
10,000,000
|
|
|
|
6,000,000
|
|
|
|
6.56
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
196,250,000
|
|
|
|
179,117,579
|
|
|
|
|
|
|
|
|
|
|
|
186,250,000
|
|
|
|
67,583,334
|
|
|
|
|
|
The stock-based compensation
expense recognized in the statement of operations during the nine months ended March 31, 2020 and 2019, related to the granting
of these options was $571,594 and $598,043, respectively.
HYPERSOLAR, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
- UNAUDITED
MARCH 31, 2020 AND 2019
|
5.
|
CONVERTIBLE PROMISSORY
NOTES
|
As of March 31, 2020, the
outstanding convertible promissory notes, net of debt discount of $350,730 are summarized as follows:
Convertible Promissory Notes, net of debt discount
|
|
$
|
1,678,815
|
|
Less current portion
|
|
|
90,675
|
|
Total long-term liabilities
|
|
$
|
1,588,140
|
|
Maturities of long-term debt
net of debt discount for the next five years are as follows:
Period Ended March 31,
|
|
Amount
|
|
2021
|
|
|
90,675
|
|
2022
|
|
|
518,140
|
|
2023
|
|
|
725,000
|
|
2024
|
|
|
345,000
|
|
|
|
$
|
1,678,815
|
|
At March 31, 2020, the $2,029,545
in convertible promissory notes had a remaining debt discount of $350,730, leaving a net balance of $1,678,815.
On April 9, 2015, the
Company issued a 10% convertible promissory note (the “April 2015 Note”) in the aggregate principal amount of up
to $500,000. Upon execution of the convertible promissory note, the Company received a tranche of $50,000. The Company
received additional tranches in the amount of $450,000 for an aggregate sum of $500,000. The April 2015 Note matured nine (9)
months from the effective dates of each respective tranche. A second extension was granted to October 9, 2016. On January 19,
2017, the investor extended the April 2015 Note for an additional (60) months from the effective date of each tranche, which
matures on April 9, 2020. The April 2015 Note is convertible into shares of common stock of the Company at a price equal to a
variable conversion price of the lesser of $0.01 per share or fifty percent (50%) of the lowest trading price since the
original effective date of each respective advance or the lowest effective price per share granted to any person or entity
after the effective date to acquire common stock. If the Company fails to deliver shares in accordance with the timeframe of
three (3) business days of the receipt of a notice of conversion, the lender, at any time prior to selling all of those
shares, may rescind any portion, in whole or in part of that particular conversion attributable to the unsold shares and have
the rescinded conversion amount returned to the principal sum with the rescinded conversion shares returned to the Company.
In no event shall the lender be entitled to convert any portion of the April 2015 Note such that would result in beneficial
ownership by the lender and its affiliates of more than 4.99% of the outstanding shares of common stock of the Company. In
addition, for each conversion, in the event, that shares are not delivered by the fourth business day (inclusive of the day
of conversion), a penalty of $1,500 per day shall be assessed for each day after the third business day (inclusive of the day
of the conversion) until the shares are delivered. During the nine months ended March 31, 2020, the Company issued
212,079,164 common shares, upon conversion of $192,600, plus accrued interest of $74,285. The balance of the April 2015 Note as of
March 31, 2020 was $0.
On January 28, 2016, the Company
issued a 10% convertible promissory note (the “Jan 2016 Note”) in the aggregate principal amount of up to $500,000.
Upon execution of the convertible promissory note, the Company received a tranche of $10,000. The Company received additional
tranches in the amount of $490,000 for an aggregate sum of $500,000. The Jan 2016 Note matures twelve (12) months from the effective
dates of each respective tranche. On January 19, 2017, the investor extended the Jan 2016 Note for an additional sixty (60) months
from the effective date of each tranche, which matures on January 27, 2022.The Jan 2016 Note is convertible into shares of common
stock of the Company at a price equal to a variable conversion price of the lesser of $0.01 per share or fifty percent (50%) of
the lowest trading price since the original effective date of each respective tranche or the lowest effective price per share
granted to any person or entity after the effective date to acquire common stock. If the Company fails to deliver shares in accordance
with the timeframe of three (3) business days of the receipt of a notice of conversion, the lender, at any time prior to selling
all of those shares, may rescind any portion, in whole or in part of that particular conversion attributable to the unsold shares
and have the rescinded conversion amount returned to the principal sum with the rescinded conversion shares returned to the Company.
In no event shall the lender be entitled to convert any portion of the Jan 2016 Note such that would result in beneficial ownership
by the lender and its affiliates of more than 4.99% of the outstanding shares of common stock of the Company. In addition, for
each conversion, in the event that shares are not delivered by the fourth business day (inclusive of the day of conversion), a
penalty of $1,500 per day shall be assessed for each day after the third business day (inclusive of the day of the conversion)
until the shares are delivered. During the nine months ended March 31, 2020, the Company issued 150,217,622 common shares upon
conversion of principal in the amount of $101,860, plus interest of $40,847. The balance of the Jan 2016 Note as of March 31,
2020 was $398,140.
HYPERSOLAR, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
- UNAUDITED
MARCH 31, 2020 AND 2019
|
5.
|
CONVERTIBLE PROMISSORY
NOTES (Continued)
|
On February 3, 2017, the Company
issued a 10% convertible promissory note (the “Feb 2017 Note”) in the aggregate principal amount of up to $500,000.
Upon execution of the convertible promissory note, the Company received a tranche of $60,000. The Company received additional
tranches in the amount of $440,000 for an aggregate sum of $500,000. The Feb 2017 Note matures twelve (12) months from the effective
dates of each respective tranche. The Feb 2017 Note matures on February 3, 2018, with an automatic extension of sixty (60) months
from the effective date of each tranche. The Feb 2017 Note is convertible into shares of common stock of the Company at a price
equal to a variable conversion price of the lesser of $0.01 per share or fifty percent (50%) of the lowest trading price since
the original effective date of each respective tranche or the lowest effective price per share granted to any person or entity
after the effective date to acquire common stock. If the Company fails to deliver shares in accordance with the timeframe of three
(3) business days of the receipt of a notice of conversion, the lender, at any time prior to selling all of those shares, may
rescind any portion, in whole or in part of that particular conversion attributable to the unsold shares and have the rescinded
conversion amount returned to the principal sum with the rescinded conversion shares returned to the Company. In no event shall
the lender be entitled to convert any portion of the Feb 2017 Note such that would result in beneficial ownership by the lender
and its affiliates of more than 4.99% of the outstanding shares of common stock of the Company. In addition, for each conversion,
in the event, that shares are not delivered by the fourth business day (inclusive of the day of conversion), a penalty of $1,500
per day shall be assessed for each day after the third business day (inclusive of the day of the conversion) until the shares
are delivered. The balance of the Feb 2017 Note as of March 31, 2020 was $500,000.
On November 9, 2017, the
Company issued a 10% convertible promissory note (the “Nov 2017 Note”) in the aggregate principal amount of up to
$500,000. Upon execution of the convertible promissory note, the Company received a tranche of $45,000. The Company received
additional tranches in the amount of $455,000 for an aggregate sum of $500,000. The Nov 2017 Note matures twelve (12) months
from the effective dates of each respective tranche. The Nov 2017 Note matures on November 9, 2018, with an automatic
extension of sixty (60) months from the effective date of each tranche. The Nov 2017 Note is convertible into shares of
common stock of the Company at a price equal to a variable conversion price of the lesser of $0.01 per share or fifty percent
(50%) of the lowest trading price since the original effective date of each respective tranche or the lowest effective price
per share granted to any person or entity after the effective date to acquire common stock. If the Company fails to deliver
shares in accordance with the timeframe of three (3) business days of the receipt of a notice of conversion, the lender, at
any time prior to selling all of those shares, may rescind any portion, in whole or in part of that particular conversion
attributable to the unsold shares and have the rescinded conversion amount returned to the principal sum with the rescinded
conversion shares returned to the Company. In no event shall the lender be entitled to convert any portion of the Nov 2017
Note such that would result in beneficial ownership by the lender and its affiliates of more than 4.99% of the outstanding
shares of common stock of the Company. In addition, for each conversion, in the event that shares are not delivered by the
fourth business day (inclusive of the day of conversion), a penalty of $1,500 per day shall be assessed for each day after
the third business day (inclusive of the day of the conversion) until the shares are delivered. The balance of the Nov 2017
Note as of March 31, 2020 was $500,000.
On June 27, 2018, the
Company issued a 10% convertible promissory note (the “Jun 2018 Note”) in the aggregate principal amount of up to
$500,000. Upon execution of the convertible promissory note, the Company received a tranche of $50,000. On October 9, 2018,
the Company received another tranche of $40,000, for a total aggregate of $90,000 as of December 31, 2019. The Jun 2018 Note
matures twelve (12) months from the effective dates of each respective tranche. The Jun 2018 Note matured on June 27, 2019,
which was automatically extended for sixty (60) months from the effective date of each tranche. The Jun 2018 Note is
convertible into shares of common stock of the Company at a price equal to a variable conversion price of the lesser of $0.01
per share or fifty percent (50%) of the lowest trading price since the original effective date of each respective tranche or
the lowest effective price per share granted to any person or entity after the effective date to acquire common stock. If the
Company fails to deliver shares in accordance with the timeframe of three (3) business days of the receipt of a notice of
conversion, the lender, at any time prior to selling all of those shares, may rescind any portion, in whole or in part of
that particular conversion attributable to the unsold shares and have the rescinded conversion amount returned to the
principal sum with the rescinded conversion shares returned to the Company. In no event shall the lender be entitled to
convert any portion of the Jun 2018 Note such that would result in beneficial ownership by the lender and its affiliates of
more than 4.99% of the outstanding shares of common stock of the Company. In addition, for each conversion, in the event,
that shares are not delivered by the fourth business day (inclusive of the day of conversion), a penalty of $1,500 per day
shall be assessed for each day after the third business day (inclusive of the day of the conversion) until the shares are
delivered. The Company recorded amortization of debt discount, which was recognized as interest expense in the amount of
$2,823 during the nine months ended March 31, 2020. The balance of the Jun 2018 Note as of March 31, 2020 was $90,000.
HYPERSOLAR, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
- UNAUDITED
MARCH 31, 2020 AND 2019
|
5.
|
CONVERTIBLE PROMISSORY
NOTES (Continued)
|
On August 10, 2018, the Company
issued a 10% convertible promissory note to an investor, (the “Aug 2018 Note”) in the aggregate principal amount of
up to $100,000. The Aug 2018 Note matures on August 10, 2019, with an extension of sixty (60) months from the date of the note.
The Aug 2018 Note may be converted into shares of the Company’s common stock at a conversion price of the lesser of a) $0.005
per share or b) sixty-one (61%) percent of the lowest trading price per common stock recorded on any trade day after the effective
date. The conversion feature of the Aug 2018 Note was considered a derivative in accordance with current accounting guidelines
because of the reset conversion features of the Note. The Company recorded amortization of debt discount, which was recognized
as interest expense in the amount of $11,233 during the nine months ended March 31, 2020. The balance of the Aug 2018 Note
as of March 31, 2020 was $100,000.
On February 14, 2019 thru August
12, 2019, the Company issued 10% convertible promissory notes to an investor (the “Feb-Aug Notes”) in the aggregate
principal amount of up to $252,000. The Feb-Aug Notes matures on February 14, 2020 thru August 12, 2020. The Feb-Aug Notes may
be converted into shares of the Company’s common stock at a conversion price of sixty-one (61%) percent of the lowest average
two (2) trading prices per common stock during the fifteen (15) trading day prior to the conversion date. The conversion feature
of the Feb-Aug Notes was considered a derivative in accordance with current accounting guidelines because of the reset conversion
features of the Notes. During the nine months ended March 31, 2020, the Company issued 116,025,867 shares of common stock upon
conversion of principal in the amount of $252,000, plus accrued interest of $12,600. The Company recorded amortization of debt
discount, which was recognized as interest expense in the amount of $176,288 during the nine months ended March 31, 2020. The
balance of the Feb-Aug Notes as of March 31, 2020 was $0.
On December 14, 2018, January 18,
2019, and July 3, 2019, the Company issued 10% convertible promissory notes (the “Dec-Jul Notes”) to an investor (the
“Dec-Jan Notes”) in the total aggregate principal amount of $86,500. The Dec-Jan Notes matures on December 14, 2019
and January 18, 2020. The Dec-Jul Notes may be converted into shares of the Company’s common stock at a conversion price
of sixty-one (61%) percent of the lowest trading prices per common stock during the fifteen (25) trading day prior to the conversion
date. The conversion feature of the Dec-Jul Notes was considered a derivative in accordance with current accounting guidelines
because of the reset conversion features of the Note. During the nine months ended March 31, 2020, the Company issued 98,857,592
shares of common stock upon conversion of $130,981 in principal, plus accrued interest of $8,650, and legal fees of $8,000. The
Company recorded amortization of debt discount, which was recognized as interest expense in the amount of $79,136 during the nine
months ended March 31, 2020. The balance of the Dec-Jul Notes as of March 31, 2020 was $1,405.
On January 31, 2019 and March 6,
2019, the Company issued 10% convertible promissory notes (the “Jan-Mar Note”) to an investor in the total aggregate
principal amount of $160,000. The Jan-Mar Notes mature on January 31, 2020 and March 6, 2020. The Jan-Mar Notes may be converted
into shares of the Company’s common stock at a conversion price of sixty-one (61%) percent of the lowest two (2) trading
prices per common stock during the fifteen (15) trading day prior to the conversion date. The conversion feature of the Jan-Mar
Notes was considered a derivative in accordance with current accounting guidelines because of the reset conversion features of
the Jan-Mar Notes. The Company issued 76,591,844 shares of common stock upon the conversion of principal in the amount of $160,000,
plus accrued interest of $8,399, and legal fees of $1,500. The Company recorded amortization of debt discount, which was recognized
as interest expense in the amount of $101,698 during the nine months ended March 31, 2020. The balance of the Jan-Mar Notes as
of March 31, 2020 was $0.
On August 28, 2019, the Company
issued 10% convertible promissory note (the “Aug Note”) to an investor (the “Aug Note”) in the principal
amount of $80,000. The Company received funds of $78,000, less other fees of $2,000. The Aug Note matures on August 28, 2020. The
Aug Note may be converted into shares of the Company’s common stock at a conversion price of sixty-one (61%) percent of the
lowest two (2) trading prices per common stock during the fifteen (15) trading day prior to the conversion date. The conversion
feature of the Aug Note was considered a derivative in accordance with current accounting guidelines because of the reset conversion
features of the Aug Note. During the nine months ended March 31, 2020, the Company issued 30,227,789 shares of common stock upon
conversion of principal in the amount of $80,000, plus accrued interest of $4,219, and legal fees of $600. The Company recorded
amortization of debt discount, which was recognized as interest expense in the amount of $58,835 during the nine months ended March
31, 2020. The balance of the Aug Note as of March 31, 2020 was $0.
HYPERSOLAR, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
- UNAUDITED
MARCH 31, 2020 AND 2019
|
5.
|
CONVERTIBLE PROMISSORY
NOTES (Continued)
|
On October 2, 2019, the Company
issued a 10% convertible promissory note (the “Oct Note”) to an investor (the “Oct Note”) in the principal
amount of $80,000. The Company received funds of $78,000, less other fees of $2,000. The Oct Note matures on October 2, 2020. The
Oct Note may be converted into shares of the Company’s common stock at a conversion price of sixty-one (61%) percent of the
lowest two (2) trading prices per common stock during the fifteen (15) trading day prior to the conversion date. The conversion
feature of the Oct Note was considered a derivative in accordance with current accounting guidelines because of the reset conversion
features of the Oct Note. The Company recorded amortization of debt discount, which was recognized as interest expense in the amount
of $39,563, during the nine months ended March 31, 2020. The balance of the Oct Note as of March 31, 2020 was $80,000.
On December 4, 2019, the Company
issued convertible promissory note (the “Dec Note”) with an investor, providing for the sale by the Company of a 10%
unsecured convertible note (the “Dec Note”) in the principal amount of $80,000. The Company received funds of $78,000,
less other fees of $2,000. The Dec Note matures on December 2, 2020. The Dec Note may be converted into shares of the Company’s
common stock at a conversion price of sixty-one (61%) percent of the lowest two (2) trading prices per common stock during the
fifteen (15) trading day prior to the conversion date. The conversion feature of the Dec Note was considered a derivative in accordance
with current accounting guidelines because of the reset conversion features of the Dec Note. The Company recorded amortization
of debt discount, which was recognized as interest expense in the amount of $25,792 during the nine months ended March 31, 2020.
The balance of the Dec Note as of March 31, 2020 was $80,000.
On January 20, 2020, the Company
issued a 10% convertible promissory note (the “Jan 2020 Note”) to an investor (the “Jan 2020 Note”) in
the principal amount of $80,000. The Company received funds of $78,000, less other fees of $2,000. The Jan 2020 Note matures on
January 20, 2021. The Jan 2020 Note may be converted into shares of the Company’s common stock at a conversion price of sixty-one
(61%) percent of the lowest two (2) trading prices per common stock during the fifteen (15) trading day prior to the conversion
date. The conversion feature of the Jan 2020 Note was considered a derivative in accordance with current accounting guidelines
because of the reset conversion features of the Jan 2020 Note. The Company recorded amortization of debt discount, which was recognized
as interest expense in the amount of $17,705 during the nine months ended March 31, 2020. The balance of the Jan 2020 Note as of
March 31, 2020 was $80,000.
On February 11, 2020, the Company
issued a convertible promissory note (the “Feb 2020 Note”) to an investor (the “Feb 2020 Note”) in the
principal amount of $80,000. The Company received funds of $78,000, less other fees of $2,000. The Feb 2020 Note matures on February
11, 2021. The Feb 2020 Note may be converted into shares of the Company’s common stock at a conversion price of sixty-one
(61%) percent of the lowest two (2) trading prices per common stock during the fifteen (15) trading day prior to the conversion
date. The conversion feature of the Feb 2020 Note was considered a derivative in accordance with current accounting guidelines
because of the reset conversion features of the Feb 2020 Note. The Company recorded amortization of debt discount, which was recognized
as interest expense in the amount of $10,710 during the nine months ended March 31, 2020. The balance of the Feb 2020 Note as of
March 31, 2020 was $80,000.
On March 9, 2020, the Company issued
a convertible promissory note (the “Mar 2020 Note”) to an investor, (the “Mar 2020 Note”) in the principal
amount of $40,000. The Company received funds of $38,000, less other fees of $2,000. The Mar 2020 Note matures on March 9, 2021.
The Mar 2020 Note may be converted into shares of the Company’s common stock at a conversion price of sixty-one (61%) percent
of the lowest two (2) trading prices per common stock during the fifteen (15) trading day prior to the conversion date. The conversion
feature of the Mar 2020 Note was considered a derivative in accordance with current accounting guidelines because of the reset
conversion features of the Mar 2020 Note. The Company recorded amortization of debt discount, which was recognized as interest
expense in the amount of $2,244 during the nine months ended March 31, 2020. The balance of the Mar 2020 Note as of March 31, 2020
was $40,000.
HYPERSOLAR, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
- UNAUDITED
MARCH 31, 2020 AND 2019
|
5.
|
CONVERTIBLE PROMISSORY
NOTES (Continued)
|
On March 17, 2020, the Company issued
a 10% convertible promissory note (the “March 2020 Note”) to an investor (the “March 2020 Note”) in the
principal amount of $80,000. The Company received funds of $78,000, less other fees of $2,000. The March 2020 Note matures on March
17, 2021. The March 2020 Note may be converted into shares of the Company’s common stock at a conversion price of sixty-one
(61%) percent of the lowest two (2) trading prices per common stock during the fifteen (15) trading day prior to the conversion
date. The conversion feature of the March 2020 Note was considered a derivative in accordance with current accounting guidelines
because of the reset conversion features of the March 2020 Note. The Company recorded amortization of debt discount, which was
recognized as interest expense in the amount of $3,068 during the nine months ended March 31, 2020. The balance of the March 2020
Note as of March 31, 2020 was $80,000.
|
6.
|
DERIVATIVE LIABILITIES
|
ASC Topic 815 provides guidance
applicable to convertible debt issued by the Company in instances where the number into which the debt can be converted is not
fixed. For example, when a convertible debt converts at a discount to market based on the stock price on the date of conversion,
ASC Topic 815 requires that the embedded conversion option of the convertible debt be bifurcated from the host contract and recorded
at their fair value. In accounting for derivatives under accounting standards, the Company recorded a liability representing the
estimated present value of the conversion feature considering the historic volatility of the Company’s stock, and a discount
representing the imputed interest associated with the embedded derivative. The discount is amortized over the life of the convertible
debt, and the derivative liability is adjusted periodically according to stock price fluctuations.
The convertible notes (the
“Notes”) issued do not have fixed settlement provisions because their conversion prices are not fixed. The conversion
features have been characterized as derivative liabilities to be re-measured at the end of every reporting period with the change
in value reported in the statement of operations.
During the nine months ended
March 31, 2020, 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 $598,043, 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 nine months ended
March 31, 2020, the Company recorded a net loss in change in derivative of $3,019,081 in the statement of operations due to the
change in fair value of the remaining notes, for the nine months ended March 31, 2020. At March 31, 2020, the fair value of the
derivative liability was $7,522,845.
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
|
|
|
0.15%
- 2.55%
|
|
Stock volatility factor
|
|
|
103.0% - 267.0%
|
|
Weighted average expected option life
|
|
|
3 months - 5 year
|
|
Expected dividend yield
|
|
|
None
|
|
Management
evaluated subsequent events as of the date of the financial statements pursuant to ASC TOPIC 855, and reported the following events:
On April 7, 2020, the Company
issued 18,735,363 shares of common stock upon conversion of principal in the amount of $40,000.
On April 7, 2020, the Company
issued 7,365,750 shares of common stock for services in the amount of $29,456.
HYPERSOLAR, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
- UNAUDITED
MARCH 31, 2020 AND 2019
On
April 14, 2020, the Company issued 20,941,259 shares of common stock upon conversion of principal in the amount of $40,000, plus
accrued interest of $4,710.
On April 14, 2020, the Company received
$80,000 for issuance of a 10% convertible promissory note. The Note is convertible into shares of common stock of the Company,
at a conversion price of sixty-one (61%) percent of the lowest two (2) trading prices per common stock during the fifteen (15)
trading day prior to the conversion date.
On April 15, 2020, the Company received
$10,000 for issuance of a 10% convertible promissory note in an aggregate amount of $50,000. The Note is convertible into shares
of common stock of the Company at the lesser of (a) $0.01 per share of common stock or (b) Fifty percent (50%) of the lowest trading
price of common stock recorded on any trade day after the effective date or (c) the lowest effective price granted after the effective
date. The Note matures on April 15, 2021, with an extended maturity of sixty (60) months from the effective date upon written notice.
On April 30, 2020, the Company
issued 4,298,840 shares of common stock for services in the amount of $29,662.
On
May 1, 2020, the Company issued 4,344,593 shares of common stock upon conversion of principal in the amount of $1,405, plus accrued
interest of $5,350.
On
May 8, 2020, the Company issued 40,153,265 shares of common stock upon conversion of principal in the amount of $27,140, plus
accrued interest of $11,005.