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HYPERSOLAR, INC. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations(Edgar Glimpses Via Acquire Media NewsEdge) 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. Unless the context otherwise requires, references in this Form 10-Q to "we," "us," "our," or the "Company" refer to Hypersolar, Inc. Forward-looking statements in this Report may also include references to anticipated sales volume and product margins, efforts aimed at establishing new or improving existing relationships with customers, other business development activities, anticipated financial performance, business prospects and similar matters. Actual events or results may differ materially from the anticipated results or other expectations expressed in the forward-looking statements. In evaluating these statements, you should consider various factors, including the risks included from time to time in other reports or registration statements filed 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. Overview Inspired by the photosynthetic process that plants use to harness the power of the sun to create energy molecules, we are developing a novel solar-powered nanoparticle system that mimics photosynthesis to separate hydrogen from water. On November 15, 2011, we filed a patent application for the production of renewable hydrogen and natural gas using sunlight, water, and carbon dioxide. Our technology will allow free hydrogen to be reacted with carbon dioxide to produce methane, the primary component in natural gas. Hydrogen is the lightest and abundant chemical element, constituting roughly 75% of the universe's chemical elemental mass (Palmer, D. (13 September 1997). "Hydrogen in the Universe". NASA). However, naturally occurring elemental hydrogen is relatively rare on earth and hydrogen gas is most often produced using fossil fuels. Industrial production is mainly from the steam reforming of natural gas and is usually employed near its production site, with the two largest uses being crude oil processing (hydrocracking) and ammonia production, mostly for the fertilizer market. We are developing what we believe is a cleaner and greener way to produce this high value product. In addition to the many industrial uses of hydrogen, one of the most intriguing uses is for fuel cells for transportation. A fuel cell is a device that converts the chemical energy from a fuel into electricity through a chemical reaction with oxygen or another oxidizing agent, using hydrogen as the most common fuel. Although there are currently no fuel cell vehicles available for commercial sale, carmakers are hopeful that hydrogen fuel cells and infrastructure technologies will be developed in the future. (http://world.honda.com/FuelCell/) Our management had determined that because of high manufacturing costs and a steady decline in the cost of silicon solar cells and silicon modules, to put our solar concentrator technology development on hold while we develop our renewable hydrogen and natural gas technology. Critical Accounting Policies Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to impairment of property, plant and equipment, intangible assets, deferred tax assets and fair value computation using the Black Scholes option pricing model. We base our estimates on historical experience and on various other assumptions, such as the trading value of our common stock and estimated future undiscounted cash flows, that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions; however, we believe that our estimates, including those for the above-described items, are reasonable. Revenue Recognition Revenue on product sales is recognized when persuasive evidence of an arrangement exists, such as when a purchase order or contract is received from the customer, the selling price is fixed, title to the goods has changed and there is a reasonable assurance of collection of the sales proceeds. We obtain written purchase authorizations from our customers for a specified amount of product at a specified price and consider delivery to have occurred at the time of shipment. Revenue is recognized at shipment and we record a reserve for estimated sales returns, which is reflected as a reduction of revenue at the time of revenue recognition. 11 -------------------------------------------------------------------------------- Use of Estimates In accordance with accounting principles generally accepted in the United States, management utilizes estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. These estimates and assumptions relate to recording net revenue, collectibility of accounts receivable, useful lives and impairment of tangible and intangible assets, accruals, income taxes, inventory realization, stock-based compensation expense and other factors. Management believes it has exercised reasonable judgment in deriving these estimates. Consequently, a change in conditions could affect these estimates. Fair Value of Financial Instruments The Company's cash, accounts payable, accrued interest, and note payable are stated at cost which approximates fair value due to the short-term nature of these instruments. Recently Issued Accounting Pronouncements Management reviewed accounting pronouncements issued during the three months ended March 31, 2012, and no pronouncements were adopted during the period. Liquidity and Capital Resources As of March 31, 2012, we had a working capital deficit of $(24,704) as compared to $(6,945) as of June 30, 2011. This increase of $(17,759) was due primarily to an increase in promissory notes and a decrease in prepaid expenses for the current period. Cash flow used in operating activities was $(477,688) for the nine months ended March 31, 2012 and $(595,769) for the prior period March 31, 2011. The decrease in cash used by operating activities was primarily due to an decrease in prepaid expenses, deposits, and accounts payable, and an increase in accrued expenses. The Company is in its development stage and has had no revenues. Cash used in investing activities for the nine months ended March 31, 2012 was $0, compared to $987 used for the purchase of fixed assets in the prior period. Cash provided by financing activities during the nine months ended March 31, 2012 was $487,000 and $250,000 for the prior period ending March 31, 2011. The increase of $237,000 in financing activities was due to equity financing during the current period. Our financial statements as of March 31, 2012 have been prepared under the assumption that we will continue as a going concern from inception (February 18, 2009) through March 31, 2012. Our independent registered public accounting firm has issued their report dated September 27, 2011, that included an explanatory paragraph expressing substantial doubt in our ability to continue as a going concern without additional capital becoming available. Our ability to continue as a going concern ultimately is dependent on our ability to generate a profit which is dependent upon our ability to obtain additional equity or debt financing, attain further operating efficiencies and, ultimately, to achieve profitable operations. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. We believe our current cash balance as of May 15, 2012 will fund our operations for the next three months as we develop a working prototype of our technology. However, there may be unforeseen operational issues such as multiple rounds of design and redesign of the prototype that may exceed our current projected budget. If any unforeseen circumstances should 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. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our stockholders. If we are unable to obtain additional financing, we may be forced to curtail our operations. PLAN OF OPERATION AND FINANCING NEEDS Our plan of operation within the next twelve months is to utilize our cash balances to further research and develop our technology. We are currently working on a proof of concept video to demonstrate our technology which should be very helpful in raising future capital. In February of 2012, we entered into a sponsorship research agreement with the University of California, Santa Barbara that will last one year. The focus of this agreement is to accomplish the following: 12 -------------------------------------------------------------------------------- The focus of the UCSB SRA from February 2012 to February 2013 is to accomplish the following three specific aims: 1) Develop and demonstrate inorganic coating materials that will allow conventional photovoltaic device structures to be used as photoelectrochemical conversion devices immersed in electrolyte solution. 2) Measure the electrochemical oxidation properties of several simulated and actual sampled wastewater solutions. 3) Demonstrate hydrogen production in a device structure based on a porous alumina membrane with semiconducting materials deposited within the pores and capped with anode and cathode electrocatalysts. The basic element of a photocatalytic system is an independent photoelectrochemically active heterostructure (PAH) consisting of semiconductor particles (planes, rods or spheres) in a protective coating with exposed cathode and anode catalyst contacts. The PAHs will be capable of absorbing sunlight in the semiconductor to drive the production of hydrogen (at the cathode) and oxidation of a fuel (at the anode). We will first use commercial photovoltaic structures, which we will coat with protective layers to prevent corrosion of the semiconductor and prevent back reactions on the photoelectrodes. In addition we will synthesize absorber materials with band gaps in the visible region (to use a large portion of the solar spectrum) based on metal sulfides. Coatings will include insulating oxides and polymers. The synthesis of new semiconductors will utilize: a) electrodeposition, and b) hydrothermal synthesis. Promising absorber materials are low band gap materials such as Si, GaAs, InP and metal sulfides Cu2S, SnS, Cu2ZnSnS4, etc. The issue with many of these is their instability in common electrolytes. However, by using a protective outer coating, such as Al2O3, and anode and cathode catalysts, such as transition metals, the electrolyte can be removed from direct contact with the absorber. Additional protective coatings will be added to cover the cathode to preferentially allow protons and hydrogen to pass through, blocking the oxidation products from being reduced and thus increasing the Faradaic efficiency for production of hydrogen. Operating Expenses Operating expenses for the nine months ended March 31, 2012 were $535,938 and $596,002 for the prior period March 31, 2011. The net change in operating expenses consisted primarily of the net change in salaries, and research and development. Net Loss For the nine months ended March 31, 2012, our net loss was $(540,353) and $(596,198) for the prior period March 31, 2011. The change in net loss was related primarily to operating expenses for research and development, salaries and professional fees. We recently began operating our business, and no revenues were generated to cover our operating costs, since we are in the development stage of our Company. 13 -------------------------------------------------------------------------------- |