The accompanying notes are an integral part
of these unaudited condensed financial statements
The accompanying notes are an integral part
of these unaudited condensed financial statements
The accompanying notes are an integral
part of these unaudited condensed financial statements
NOTES TO CONDENSED FINANCIAL STATEMENTS
– UNAUDITED
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
2017 AND 2016
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 September 30, 2017 are not necessarily indicative of the results that may be expected
for the year ending December 31, 2017. For further information refer to the financial statements and footnotes thereto included
in the Company's Form 10-K for the year ended December 31, 2016.
Going Concern
The accompanying 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 financial statements do not reflect
any adjustments that might result if the Company is unable to continue as a going concern. The Company has not generated significant
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 placements
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 of business. There is no assurance that the Company will be able
to continue raising the required capital for its operations.
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
This summary of significant
accounting policies of the Company are 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.
Revenue Recognition
The Company will recognize revenue
when services are performed, and at the time of shipment of products, provided that evidence of an arrangement exists, title and
risk of loss have passed to the customer, fees are fixed or determinable, and collection of the related receivable is reasonably
assured. To date, the Company has not had significant revenues and is in the development stage.
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 property and equipment, the deferred tax valuation allowance, derivative liabilities and
the fair value of stock options. Actual results could differ from those estimates.
Intangible Assets
Intangible assets consist of
patents that are initially measured at the lower of cost or fair value. The patents are deemed to have an indefinite
life and are not amortized. The patents are assessed annually for impairment, or whenever conditions indicate the asset may be
impaired, and any such impairment will be recognized in the period identified.
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 uses Black Scholes to value its stock option awards which incorporate the
Company’s stock price, volatility, U.S. risk-free rate, dividend rate, and estimated life. On March 24, 2015, the Company
granted 2,475,000 stock options with an exercise price of $0.09 per share, and on September 2, 2015 the Company granted an additional
13,500,000 stock options with an exercise price of $0.26 per share. The options will vest 1/25 on monthly basis, starting April
24, 2015 and October 1, 2015, respectively, and terminate seven (7) years from the date of grant or upon termination of employment.
As of September 30, 2017, 15,975,000 stock options are outstanding.
BIOSOLAR, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
– UNAUDITED
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
2017 AND 2016
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 September
30, 2017, the Company’s diluted loss per share is the same as the basic loss per share, and the inclusion of any potential
shares would have had an anti-dilutive effect due to the Company generating a loss. The Company has excluded 15,975,000 stock options
and warrants of 150,000, and the shares issuable from convertible debt of $2,094,150, because their impact was anti-dilutive.
For the nine months ended September
30, 2016, the Company’s diluted loss per share is the same as the basic loss per share, and the inclusion of any potential
shares would have had an anti-dilutive effect due to the Company generating a loss. The Company has excluded 15,975,000 stock options,
and warrants of 245,000, and the shares issuable from convertible debt of $1,852,700, because their impact was anti-dilutive.
Fair Value of Financial Instruments
Fair Value of Financial Instruments,
requires disclosure of the fair value information, whether recognized in the balance sheet, where it is practicable to estimate
that value. As of September 30, 2017, the amounts reported for cash, inventory, prepaid expenses, accounts payable, and accrued
expenses, approximate the fair value because of their short maturities.
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 September 30, 2017:
|
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Liability
|
|
$
|
5,985,575
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
5,985,575
|
|
|
Total Liabilities measured at fair value
|
|
$
|
5,985,575
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
5,985,575
|
|
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 December 31, 2016
|
|
$
|
5,044,897
|
|
|
Fair value of derivative liabilities issued
|
|
|
14,173
|
|
|
Elimination of liability on conversion
|
|
|
(368,867
|
)
|
|
Loss on conversion of debt and change in derivative liability
|
|
|
1,295,372
|
|
|
Balance as of September 30, 2017
|
|
$
|
5,985,575
|
|
BIOSOLAR, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
– UNAUDITED
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
2017 AND 2016
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
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 2017-12 on the Company’s financial statements.
Management 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.
During the nine months ended
September 30, 2017, the Company issued 9,533,951 shares of common stock upon conversion of convertible promissory notes in the
amount of $62,850, plus accrued interest of $17,871, with an aggregate fair value loss of $338,652 at prices ranging from $0.0371
- $0.0549.
4. STOCK OPTIONS AND WARRANTS
Stock Options
The Company did not grant any
stock options during the nine months ended September 30, 2017 and 2016, respectively.
|
|
|
9/30/2017
|
|
|
9/30/2016
|
|
|
|
|
Number of Options
|
|
|
Weighted average exercise price
|
|
|
Number of Options
|
|
|
Weighted average exercise price
|
|
|
Outstanding as of the beginning of the periods
|
|
|
15,975,000
|
|
|
$
|
0.23
|
|
|
|
15,978,333
|
|
|
$
|
0.23
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,333
|
)
|
|
$
|
4.05
|
|
|
Outstanding as of the end of the periods
|
|
|
15,975,000
|
|
|
$
|
0.23
|
|
|
|
15,975,000
|
|
|
$
|
0.23
|
|
|
Exercisable as of the end of the periods
|
|
|
15,435,000
|
|
|
$
|
0.23
|
|
|
|
8,269,000
|
|
|
$
|
0.22
|
|
The weighted average remaining
contractual life of options outstanding as of September 30, 2017 was as follows:
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Remaining
|
|
|
Exercisable
|
|
Options
|
|
|
Options
|
|
|
Contractual
|
|
|
Prices
|
|
Outstanding
|
|
|
Exercisable
|
|
|
Life (years)
|
|
|
0.40
|
|
|
25,000
|
|
|
|
25,000
|
|
|
|
0.42
|
|
|
0.09
|
|
|
2,450,000
|
|
|
|
2,450,000
|
|
|
|
4.48
|
|
|
0.26
|
|
|
13,500,000
|
|
|
|
12,960,000
|
|
|
|
4.93
|
|
|
Total
|
|
|
15,975,000
|
|
|
|
15,435,000
|
|
|
|
|
|
BIOSOLAR, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
– UNAUDITED
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
2017 AND 2016
4.
|
STOCK OPTIONS AND WARRANTS (Continued)
|
The weighted average remaining
contractual life of options outstanding as of September 30, 2017 was as follows:
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Remaining
|
|
|
Exercisable
|
|
Options
|
|
|
Options
|
|
|
Contractual
|
|
|
Prices
|
|
Outstanding
|
|
|
Exercisable
|
|
|
Life (years)
|
|
|
$0.40
|
|
|
25,000
|
|
|
|
25,000
|
|
|
|
0.42
|
|
|
$0.09
|
|
|
2,450,000
|
|
|
|
1,470,000
|
|
|
|
4.48
|
|
|
$0.26
|
|
|
13,500,000
|
|
|
|
4,860,000
|
|
|
|
4.93
|
|
|
Total
|
|
|
15,975,000
|
|
|
|
6,355,000
|
|
|
|
|
|
The stock-based compensation expense recognized in
the statement of operations during the nine months ended September 30, 2017 and 2016, related to the granting of these options
was $1,141,684 and $1,178,827, respectively.
As of September 30, 2017, and
2016, respectively, there was no intrinsic value with regards to the outstanding options.
Warrants
The warrants outstanding as
of September 30, 2017 and 2016, were 150,000 and 245,000, respectively. The remaining warrants have a five (5) year term with an
expiration date of October 2017.
|
|
|
9/30/2017
|
|
|
9/30/2016
|
|
|
|
|
Number of Warrants
|
|
|
Weighted average exercise price
|
|
|
Number of Warrants
|
|
|
Weighted average exercise price
|
|
|
Outstanding at the beginning of the periods
|
|
$
|
150,000
|
|
|
$
|
0.55
|
|
|
$
|
245,000
|
|
|
$
|
0.97
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
Outstanding at the end of the periods
|
|
$
|
150,000
|
|
|
$
|
0.55
|
|
|
$
|
245,000
|
|
|
$
|
0.97
|
|
|
Exercisable at the end of the periods
|
|
$
|
150,000
|
|
|
$
|
0.55
|
|
|
$
|
245,000
|
|
|
$
|
0.97
|
|
5.
|
CONVERTIBLE PROMISSORY NOTES
|
On May 2, 2014, the Company
entered into a securities purchase agreement, providing for the sale by the Company of a 10% unsecured convertible note (the “May
Note”) in the aggregate principal amount of up to $500,000, to be advanced in amounts at the lender’s discretion. Upon
execution of the securities purchase agreement, the Company received a tranche in the amount of $50,000. On various dates, the
Company received additional tranches in the aggregate sum of $450,000, for a total aggregate sum of $500,000. As of December 31,
2016, the remaining principal balance was $385,000. During the nine months ended September 30, 2017, the Company issued 9,533,951
shares of common stock upon conversion of $62,850 in principal, plus accrued interest of $17,871, leaving a principal balance of
$287,000 as of September 30, 2017. Each tranche matures eighteen (18) months from the effective date of each tranche, which was
extended on January 12, 2016 to sixty (60) months, with maturity dates ranging from June 12, 2019 to December 21, 2019. The May
Note is convertible into shares of common stock of the Company at a price equal to a variable conversion price of a) the lesser
of $0.25 per share of common stock, b) fifty percent (50%) of the average three (3) lowest trading prices of three (3) separate
trading days recorded after the effective date, or c) the lowest effective price granted to any person or entity after the effective
date to acquire common stock. The fair value of the May Note has been determined by using the Binomial lattice formula with an
expected life of sixty (60) months from the effective date of each tranche.
On January
30, 2015, the Company entered into a securities purchase agreement, providing for the sale by the Company of a 10% unsecured convertible
note (the “January Note”) in the aggregate principal amount of up to $500,000, to be advanced in amounts at the lender’s
discretion. Upon execution of the securities purchase agreement, the Company received a tranche in the amount of $50,000. On various
dates, the Company received additional tranches in the aggregate sum of $450,000. The principal balance at September 30, 2017
was $500,000. Each tranche matured eighteen (18) months from the effective date of each tranche, which was extended on January
12, 2016 to sixty (60) months from the effective date of each tranche, with maturity dates ranging from January 29, 2020 to August
25, 2020. The January Note is convertible into shares of common stock of the Company at a price equal to a variable conversion
price of a) the lesser of $0.15 per share of common stock, b) fifty percent (50%) of the lowest trade price recorded since the
original effective date of the January Note, or c) the lowest effective price per share granted to any person or entity after
the effective date to acquire common stock. The fair value of the January Note has been determined by using the Binomial lattice
formula with an expected life of sixty (60) months from the effective date of each tranche. The Company recorded amortization
of debt discount, which was recognized as interest expense in the amount of $25,966 during the nine months ended September 30,
2017.
BIOSOLAR, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
– UNAUDITED
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
2017 AND 2016
5.
|
CONVERTIBLE PROMISSORY NOTES (Continued)
|
On October 1, 2015, the Company
entered into a securities purchase agreement, providing for the sale by the Company of a 10% unsecured convertible note (the “October
Note”) in the aggregate principal amount of up to $500,000, to be advanced in amounts at the lender’s discretion. Upon
execution of the securities purchase agreement, the Company received a tranche in the amount of $90,000. On various dates, the
Company received additional tranches in the aggregate sum of $395,000. The principal balance at September 30, 2017 was $485,000.
Each tranche matures twelve (12) months from the effective date of each tranche, which was extended on October 13, 2016 to sixty
(60) months from the effective date of each tranche, with maturity dates ranging from October 1, 2020 to March 9, 2021.The October
Note is convertible into shares of common stock of the Company at a price equal to a variable conversion price of a) the lesser
of $0.25 per share of common stock, b) fifty percent (50%) of the lowest trade price recorded since the original effective date
of the October Note, or c) the lowest effective price per share granted to any person or entity after the effective date to acquire
common stock. The fair value of the October Note has been determined by using the Binomial lattice formula with an expected life
of twelve (12) months. The Company recorded amortization of debt discount, which was recognized as interest expense in the amount
of $9,912 during the nine months ended September 30, 2017.
On April 5, 2016, the Company
entered into a securities purchase agreement, providing for the sale by the Company of a 10% unsecured convertible note (the “April
Note”) in the aggregate principal amount of up to $500,000, to be advanced in amounts at the lender’s discretion. Upon
execution of the securities purchase agreement, the Company received a tranche in the amount of $48,000. On various dates, the
Company received additional tranches in the aggregate sum of $452,000. The principal balance at September 30, 2017 was $500,000.
Each tranche matures twelve (12) months from the effective date of each tranche through November 15, 2017. The April Note is convertible
into shares of common stock of the Company at a price equal to a variable conversion price of a) the lesser of $0.13 per share
of common stock, b) fifty percent (50%) of the lowest trade price recorded since the original effective date of the April Note,
or c) the lowest effective price per share granted to any person or entity after the effective date to acquire common stock. The
fair value of the April Note has been determined by using the Binomial lattice formula with an expected life of twelve (12) months.
The Company recorded amortization of debt discount, which was recognized as interest expense in the amount of $102,405 during the
nine months ended September 30, 2017.
On March 20, 2017, the Company
entered into a securities purchase agreement, providing for the sale by the Company of a 10% unsecured convertible note (the “March
Note”) in the aggregate principal amount of up to $500,000, to be advanced in amounts at the lender’s discretion. Upon
execution of the securities purchase agreement, the Company received a tranche in the amount of $25,000. On various dates during
the nine months ended September 30, 2017, the Company received additional tranches in the aggregate sum of $262,000. The principal
balance as of September 30, 2017 was $287,000. Each tranche matures twelve (12) months from the effective date of each tranche,
with an extension of sixty (60) months from each tranche. The March Note is convertible into shares of common stock of the Company
at a price equal to a variable conversion price of a) the lesser of $0.13 per share of common stock, b) fifty percent (50%) of
the lowest trade price recorded since the original effective date of the March Note, or c) the lowest effective price per share
granted to any person or entity after the effective date to acquire common stock. The fair value of the March Note has been determined
by using the Binomial lattice formula with an expected life of twelve (12) months. The Company recorded amortization of debt discount,
which was recognized as interest expense in the amount of $3,290 during the nine months ended September 30, 2017.
We evaluated the financing transactions
in accordance with ASC Topic 815, Derivatives and Hedging, and determined that the conversion feature of the convertible promissory
note was not afforded the exemption for conventional convertible instruments due to its variable conversion rate. The note has
no explicit limit on the number of shares issuable so they did not meet the conditions set forth in current accounting standards
for equity classification. The Company elected to recognize the note under paragraph 815-15-25-4, whereby, there would be a separation
into a host contract and derivative instrument. The Company elected to initially and subsequently measure the note in its entirety
at fair value, with changes in fair value recognized in earnings. The Company recorded a derivative liability representing the
imputed interest associated with the embedded derivative. The derivative liability is adjusted periodically per the stock price
fluctuations.
6.
|
COMMITMENT AND CONTINGENCIES
|
We had a new material commitment
for capital expenditures in the form of a sponsored research agreement with North Carolina Agricultural and Technical State University
during the twelve months ended September 30, 2017. The contract period was from September 12, 2016 through September 11, 2017 and
the total cost was not to exceed the sum of $123,993. The cost of the commitment was financed by the issuance of equity or debt
securities of the Company. The cost of the commitment has been paid as of September 30, 2017.
Management
has evaluated subsequent events according to the requirements of ASC TOPIC 855 and has determined that there are the following
subsequent events:
On October
20, 2017, the Company received an additional tranche of $58,000 on the March Note.
On November 7, 2017, the Company issued 1,274,563 shares of common stock, upon conversion of principal
in the amount of $8,150, plus accrued interest of $2,641 associated with the May Note.