Cautionary Statement Regarding Forward-Looking Statements
The information in this discussion may contain forward-looking statements. These
forward-looking statements involve risks and uncertainties, including statements
regarding our capital needs, business strategy and expectations. Any statements
that are not of historical fact may be deemed to be forward-looking statements.
These forward-looking statements involve substantial risks and uncertainties. In
some cases you can identify forward-looking statements by terminology such as
"may," "will," "should," "expect," "plan," "intend," "anticipate," "believe,"
"estimate," "predict," "potential," or "continue", the negative of the terms or
other comparable terminology. Actual events or results may differ materially
from the anticipated results or other expectations expressed in the
forward-looking statements. In evaluating these statements, you should consider
various factors, including the risks included from time to time in our reports
filed with the United States Securities and Exchange Commission. These factors
may cause our actual results to differ materially from any forward-looking
statements. We disclaim any obligation to publicly update these statements, or
disclose any difference between actual results and those reflected in these
statements, except as may be required under applicable law.
Unless the context otherwise requires, references in this Form 10-Q to "we,"
"us," "our," or the "Company" refer to Hypersolar, Inc.
Overview
At HyperSolar, Inc., our goal is to replace all forms of energy on earth with
renewable energy.
We refer to our technology as the HyperSolar H2Generator which is comprised of
the following components:
1. The Generator Housing - Novel (patent pending) device design 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 leads us to
believe that 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 into 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 oxidize water molecule to generate oxygen
gas. The oxygen evolution catalyst must be robust to withstand the long
operating hours of the hydrogen generation device to ensure long lifetime.
It must be stable in alkaline, neutral and acidic environments.
4. Hydrogen Evolution Catalyst - Necessary for collecting electrons to reduce
protons for generating hydrogen gas, we have successfully integrated a
low-cost hydrogen catalyst into our generator system successfully coating
a triple junction solar cell with a catalyst comprised primarily of
ruthenium, carbon and nitrogen that can function as well as platinum, the
current catalyst used for hydrogen production, but at one twentieth of the
cost.
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5. Coating Technologies - Two major coating technologies were developed to
protect the nanoparticles and solar cells from photocorrosion under water.
A transparent conducive coating to protect our nanoparticles and solar
cells from photo corrosion and efficiently transfer charges to catalysts
for oxygen and hydrogen evolution reactions. A polymer combination that
protects the triple junction solar cells from any corrosive water
environments for long lifetime of the hydrogen generation device.
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 reached a
milestone of 1000 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 mid 2020 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 - 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.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations
are based upon our financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United States of America.
The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosures of contingent assets and liabilities. On an
ongoing basis, we evaluate our estimates, including those related to impairment
of property, plant and equipment, intangible assets, deferred tax assets and
fair value computation using the Binomial valuation option pricing model. We
base our estimates on historical experience and on various other assumptions,
such as the trading value of our common stock and estimated future undiscounted
cash flows, that we believe to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying value of
assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or
conditions; however, we believe that our estimates, including those for the
above-described items, are reasonable.
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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.
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, 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.
Recently Issued Accounting Pronouncements
Management reviewed currently issued pronouncements during the nine months ended
March 31, 2020, and does not believe that any recently issued, but not yet
effective, accounting standards if currently adopted would have a material
effect on the accompanying condensed financial statements. Pronouncements
disclosed in notes to the financials.
Results of Operations for the Three Months Ended March 31, 2020 compared to
Three Months Ended March 31, 2019.
Operating Expenses
Operating expenses for the three months ended March 31, 2020 were $426,943 and
$860,939 for the prior period ended March 31, 2019. The net decrease of $433,996
in operating expenses consisted primarily of decreases in non-cash stock
compensation expense of $430,294, and consulting fees of $89,500, partially
offset byan increase in research and development cost of $80,363, and other
operating expenses of $5,435.
Other Income/(Expenses)
Other income and (expenses) for the three months ended March 31, 2020 were
$(148,497) and $3,224,079 for the prior period ended March 31, 2019. The
increase in other expenses of $3,372,576 was the result of the non-cash loss in
net change in derivative of $3,720,979, interest expense of $32,436, which
includes the net change in amortization of debt discount of $32,172, and the
non-cash loss on conversion of debt of $315,967.
Net Income/(Loss)
For the three months ended March 31, 2020, our net loss was $(575,440) as
compared to net income of $2,363,140 for the prior period ended March 31, 2019.
The majority of the decrease in net income of $2,938,580, was related primarily
to the decrease in net change of derivative instruments estimated each period.
These estimates are based on multiple inputs, including the market price of our
stock, interest rates, our stock price, volatility, variable conversion prices
based on market prices defined in the respective agreements and probabilities of
certain outcomes based on managements' estimates. These inputs are subject to
significant changes from period to period, therefore, the estimated fair value
of the derivative liabilities will fluctuate from period to period, and the
fluctuation may be material. The Company has not generated any revenues.
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Results of Operations for the Nine Months Ended March 31, 2020 compared to Nine
Months Ended March 31, 2019.
Operating Expenses
Operating expenses for the nine months ended March 31, 2020 were $1,393,069 and
$1,419,603 for the prior period ended March 31, 2019. The net decrease of
$26,534 in operating expenses consisted primarily of a decrease in non-cash
stock compensation expense of $26,449, consulting fees of $195,926, and
insurance of $20,664, partially offset by an increase in research and
development of $186,028, professional fees of $36,864, and an increase in
overall other operating expenses of $20,147.
Other Income/(Expenses)
Other income and (expenses) for the nine months ended March 31, 2020 were
$(3,715,392) and $2,261,870 for the prior period ended March 31, 2019. The
increase in other expenses of $5,977,262 in other income and (expenses) was the
result of an increase in non-cash loss on net change in derivative of
$6,366,967, and an increase in interest expense of $161,095, which includes
amortization of debt discount of $153,066, with a decrease in non-cash loss on
conversion of debt of $550,800.
Net Income/(Loss)
For the nine months ended March 31, 2020, our net loss was $(5,108,461) as
compared to net income of $842,267 for the prior period March 31, 2019. The
majority of the increase in net loss of $5,950,728, was related primarily to the
increase in net change of derivative instruments estimated each period. These
estimates are based on multiple inputs, including the market price of our stock,
interest rates, our stock price, volatility, variable conversion prices based on
market prices defined in the respective agreements and probabilities of certain
outcomes based on managements' estimates. These inputs are subject to
significant changes from period to period, therefore, the estimated fair value
of the derivative liabilities will fluctuate from period to period, and the
fluctuation may be material. The Company has not generated any revenues.
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LIQUIDITY AND CAPITAL RESOURCES
Liquidity is the ability of a company to generate funds to support its current
and future operations, satisfy its obligations, and otherwise operate on an
ongoing basis. Significant factors in the management of liquidity are funds
generated by operations, levels of accounts receivable and accounts payable and
capital expenditures.
As of March 31, 2020, we had a working capital deficit of $8,210,600 as compared
to $4,829,162 as of June 30, 2019. This increase in working capital deficit of
$3,381,438 was due primarily to an increase in cash, accrued expenses,
derivative liability, with a decrease in prepaid expenses, accounts payable and
convertible notes.
Cash used in operating activities was $(525,542) for the nine months ended March
31, 2020 and $(685,485) for the prior period ended March 31, 2019. The decrease
in cash used in operating activities was due to a decrease in consulting fees
and insurance. The Company has had no revenues.
Cash used in investing activities during the nine months ended March 31, 2020
and 2019 was $780 and $13,059, respectively. The decrease in investing
activities was due to fewer tangible assets purchased in the current period.
Cash provided by financing activities during the nine months ended March 31,
2020 and 2019 was $626,500 and $683,500, respectively. The decrease in cash
provided in financing activities was a result of less equity financing in the
current period. Our ability to continue as a going concern is dependent upon
raising capital through financing transactions and future revenue. Our capital
needs have primarily been met from the proceeds of private placements of our
securities, as we currently have not generated any revenues.
The condensed 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 financial statements do not reflect any adjustments that
might result if we are unable to continue as a going concern. During the nine
months ended March 31, 2020, we did not generate any revenues, and incurred a
net loss of $5,108,461, which was primarily associated with the non-cash loss in
change in derivative liability, and we had a working capital deficiency of
$8,210,600 and a shareholders' deficit of $9,703,821 as of March 31, 2020. These
factors, among others raise substantial doubt about our ability to continue as a
going concern. Our independent auditors, in their report on our audited
financial statements for the year ended June 30, 2019, expressed substantial
doubt about our ability to continue as a going concern. Our ability to continue
as a going concern ultimately is dependent on our ability to generate revenue,
which is dependent upon our ability to obtain additional equity or debt
financing, attain further operating efficiencies and, ultimately, achieve
profitable operations. We have historically obtained funds from our shareholders
through the sale of our securities. Management believes that we will be able to
continue to raise funds through the sale of our securities to existing and new
investors. Management believes that funding from existing and prospective new
investors and future revenue will provide the additional cash needed to meet our
obligations as they become due, and will allow the development of our core
business operations.
PLAN OF OPERATION AND FINANCING NEEDS
Our plan of operation within the next twelve months is to further research,
develop, and protect our technology.
We believe that our current cash balances will be sufficient to support
development activity, intellectual property protection, and all general and
administrative expenses for the next 30 days. Management estimate that we will
require additional cash resources for the remainder of 2020, based upon its
current operating plan and condition. We are investigating additional financing
alternatives, including continued equity and/or debt financing. There can be no
assurance that capital in any form would be available to us, and if available,
on terms and conditions that are acceptable. If we are unable to obtain
sufficient funds, we may be forced to reduce the size of our operations, which
could have a material adverse impact on, or cause us to curtail and/or cease the
development of our products.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that are reasonably likely to
have a current or future effect on our financial condition, revenues or
expenses, result of operations, liquidity or capital expenditures.
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