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 SIX MONTHS ENDED JUNE 30, 2019 AND
2018
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 six months ended June 30, 2019 are not necessarily indicative of the results that may be expected for
the year ending December 31, 2019. 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, 2018.
Going Concern
The accompanying unaudited 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 unaudited condensed 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 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. No assurance can be given that any future
financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company
is able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing or
cause substantial dilution for our stock holders, in case of equity financing.
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
This summary of significant accounting
policies of the Company 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 unaudited condensed 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 unaudited condensed financial statements. Significant estimates made in preparing these
unaudited condensed 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
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
Stock-Based Compensation
The Company measures the cost
of employee services received in exchange for an equity award based on the grant-date fair value of the award. All grants under
our stock-based compensation programs are accounted for at fair value and that cost is recognized over the period during which
an employee, consultant, or director are required to provide service in exchange for the award (the vesting period). Compensation
expense for options granted to employees and non-employees is determined in accordance with the standard as the fair value of the
consideration received or the fair value of the equity instruments issued, whichever is more reliably measured. Compensation expense
for awards granted is re-measured each period.
Determining the appropriate
fair value of the stock-based compensation requires the input of subjective assumptions, including the expected life of the stock-based
payment and stock price volatility. The Company used Black Scholes to value its stock option awards which incorporated the
Company’s stock price, volatility, U.S. risk-free rate, dividend rate, and estimated life. The stock options terminate seven
(7) years from the date of grant or upon termination of employment. As of June 30, 2019, 15,950,000 stock options are outstanding.
BIOSOLAR, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
– UNAUDITED
FOR THE SIX MONTHS ENDED JUNE 30, 2019 AND
2018
|
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 six months ended June
30, 2019, 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 15,950,000 stock options
and the shares issuable from convertible debt of $2,839,026, because their impact was anti-dilutive.
For the six months ended June
30, 2018, 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 15,950,000 stock options,
and the shares issuable from convertible debt of $2,436,220, 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 June 30, 2019, the amounts reported for cash, 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 June 30, 2019:
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Liability
|
|
$
|
10,609,017
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
10,609,017
|
|
Total Liabilities measured at fair value
|
|
$
|
10,609,017
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
10,609,017
|
|
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, 2018
|
|
$
|
14,032,942
|
|
Fair value of derivative liabilities issued
|
|
|
346,193
|
|
(Gain) on change in derivative liability
|
|
|
(3,770,118
|
)
|
Balance as of June 30, 2019
|
|
$
|
10,609,017
|
|
Recently Issued
Accounting Pronouncements
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
has evaluated the impact of the adoption of ASU 2018-07, which has no impact on the Company’s financial statements.
BIOSOLAR, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
– UNAUDITED
FOR THE SIX MONTHS ENDED JUNE 30, 2019 AND
2018
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
Recently Issued
Accounting Pronouncements
(Continued)
In August 2018, the FASB issued
to 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 evaluating the
impact of the adoption of ASU 2018-13 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
unaudited condensed financial statements.
During the six months ended
June 30, 2019, the Company issued 27,394,459 shares of common stock upon conversion of convertible promissory notes in the amount
of $259,134, plus accrued interest of $27,776, with an aggregate fair value loss of $404,741 at prices ranging from $0.0192 - $0.0341.
Stock Options
The Company did not grant any
stock options during the six months ended June 30, 2019 and 2018, respectively.
|
|
6/30/2019
|
|
|
6/30/2018
|
|
|
|
Number of Options
|
|
|
Weighted average exercise price
|
|
|
Number of Options
|
|
|
Weighted average exercise price
|
|
Outstanding as of the beginning of the periods
|
|
|
15,950,000
|
|
|
$
|
0.23
|
|
|
|
15,975,000
|
|
|
$
|
0.23
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
(25,000
|
)
|
|
|
0.40
|
|
Outstanding as of the end of the periods
|
|
|
15,950,000
|
|
|
$
|
0.23
|
|
|
|
15,950,000
|
|
|
$
|
0.23
|
|
Exercisable as of the end of the periods
|
|
|
15,950,000
|
|
|
$
|
0.23
|
|
|
|
15,950,000
|
|
|
$
|
0.23
|
|
The weighted average remaining
contractual life of options outstanding as of June 30, 2019 and 2018 was as follows:
6/30/2019
|
|
|
6/30/2018
|
|
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)
|
|
$
|
0.09
|
|
|
|
2,450,000
|
|
|
|
2,450,000
|
|
|
|
2.73
|
|
|
$
|
0.09
|
|
|
|
2,450,000
|
|
|
|
2,450,000
|
|
|
|
3.73
|
|
$
|
0.26
|
|
|
|
13,500,000
|
|
|
|
13,500,000
|
|
|
|
3.18
|
|
|
$
|
0.26
|
|
|
|
13,500,000
|
|
|
|
13,500,000
|
|
|
|
4.18
|
|
|
|
|
|
|
15,950,000
|
|
|
|
15,950,000
|
|
|
|
|
|
|
|
|
|
|
|
15,950,000
|
|
|
|
15,950,000
|
|
|
|
|
|
The stock-based compensation expense recognized in
the statement of operations during the six months ended June 30, 2019 and 2018, related to the granting of these options was $0
and $0, respectively.
As of June 30, 2019 and 2018, respectively, there
was no intrinsic value with regards to the outstanding options.
BIOSOLAR, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
– UNAUDITED
FOR THE SIX MONTHS ENDED JUNE 30, 2019 AND
2018
|
5.
|
CONVERTIBLE PROMISSORY NOTES
|
As of June 30, 2019, the outstanding convertible
promissory notes net of debt discount are summarized as follows:
Convertible Promissory Notes, net of debt discount
|
|
$
|
2,564,821
|
|
Less current portion
|
|
|
667,287
|
|
Total long-term liabilities
|
|
$
|
1,897,534
|
|
Maturities of long-term debt, net of debt
discount for the next five years are as follows:
June 30,
|
|
Amount
|
|
2020
|
|
|
667,287
|
|
2021
|
|
|
748,000
|
|
2022
|
|
|
510,000
|
|
2023
|
|
|
533,855
|
|
2024
|
|
|
105,679
|
|
|
|
$
|
2,564,821
|
|
At June 30, 2019, the $2,839,026
in convertible promissory notes had a remaining debt discount of $274,205, leaving a net balance of $2,564,821.
The Company issued an unsecured
convertible promissory note (the May 2014 Note”), in the amount of $500,000 on May 2, 2014. The May Note matures September
18, 2019. The May 2014 Note bears interest at 10% per annum. The May 2014 Note is convertible into shares of the Company’s
common stock at a conversion price of a) the lesser of $0.25 per share of common stock (subject to adjustment for stock splits,
dividends, combinations and other similar transactions) or 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. If the Borrower fails to deliver shares in accordance with the time frame
of three (3) business days, 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 Borrower. In addition, for each conversion, in the event 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 fair value
of the May 2014 Note has been determined by using the Binomial lattice formula from the effective date of each tranche. During
the six months ended the Company issued 10,057,907 shares of common stock upon conversion of principal in the amount of $37,134,
plus accrued interest of $16,676, with a fair value loss on conversion of debt in the amount of $213,121. As of June 30, 2019,
the remaining balance of the May 2014 Note was $170,026.
The Company issued various unsecured
convertible promissory notes (the 2015-2018 Notes”) in the aggregate amount of $2,500,000 on various dates of January 30,
2015 through February 26, 2018. On January 17, 2019, the Company received an additional tranche in the amount of $25,000, associated
with the February 26, 2018 Note for a total aggregate of $2,340,000. The 2015-2018 Notes matures on dates from January 30, 2020
thru January 17, 2024. The 2015-2018 Notes bears interest at 10% per annum. The 2015-2018 Notes are convertible into shares of
the Company’s common stock at conversion prices ranging from the a) the lesser of $0.03 to $0.25 per share of common stock
(subject to adjustment for stock splits, dividends, combinations and other similar transactions) or b) fifty percent (50%) of the
lowest trade price recorded since the original effective date, or c) the lowest effective price per share granted to any person
or entity after the effective date to acquire common stock. If the Borrower fails to deliver shares in accordance within the time
frame of three (3) business days, 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 Borrower. In addition, for each conversion, in the event
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
fair value of the 2015-2018 Notes have been determined by using the Binomial lattice formula from the effective date of each tranche.
The Company recorded amortization of debt discount, which was recognized as interest expense in the amount of $89,089 during the
six months ended June 30, 2019. As of June 30, 2019, the aggregate balances of the 2015-2018 Notes were $2,340,000.
The Company issued various unsecured
convertible promissory notes (the “Jul-Jun 2019 Notes”) in the aggregate principal amount of $444,000 on various dates
of July 23, 2018 through June 3, 2019, with $222,000 of the notes issued in 2019. The Jul-Jun 2019 Notes matures on dates from
July 23, 2019 thru June 3, 2020. The Jul-Jun 2019 Notes bears interest at 10% per annum. The Jul-Jun 2019 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 during the fifteen (15) trading day prior to the conversion date. The conversion feature of the Jul-Jun 2019 Note
was considered a derivative in accordance with current accounting guidelines because of the reset conversion features of the Jul-Jun
2019 Notes. The fair value of the Jul-Jun 2019 Notes has been determined by using the Binomial lattice formula from the effective
date of each note. During the period ended June 30, 2019, the Company issued 17,336,552 upon conversion of principal in the amount
of $222,000, plus accrued interest of $11,100, with a fair value loss on conversion of debt in the amount of $191,619, The Company
recorded amortization of debt discount, which was recognized as interest expense in the amount of $111,444 during the six months
ended June 30, 2019. As of June 30, 2019, the remaining aggregate balances of the Jul-Jun 2019 Notes were $222,000.
BIOSOLAR, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
– UNAUDITED
FOR THE SIX MONTHS ENDED JUNE 30, 2019 AND
2018
|
5.
|
CONVERTIBLE PROMISSORY NOTES (Continued)
|
The Company issued various unsecured
convertible promissory notes (the “Feb-Apr 2019 Notes”) in the aggregate principal amount of $107,000. The Company
paid an original issue discount of $4,000 and received funds in the amount of $103,000. The Feb-Apr 2019 Notes mature on dates
from February 25, 2020 and April 5, 2020. The Feb-Apr 2019 Notes bears interest at 10% per annum. The Feb-Apr 2019 Notes may be
converted into shares of the Company’s common stock at a conversion price of sixty-one (61%) percent of the lowest one (1)
day trading price during the fifteen (15) trading days prior to the conversion date. The parties agree that if delivery of the
common stock issuable upon conversion of these Notes are not delivered by the deadline, the Borrower shall pay to the Holder $2,000
per day in cash, for each day beyond the deadline that the Borrower fails to deliver such common stock. The conversion feature
of the Feb-Apr 2019 Notes was considered a derivative in accordance with current accounting guidelines because of the reset conversion
features of the Feb-Apr 2019 Notes. The fair value of the Feb-Apr 2019 Notes has been determined by using the Binomial lattice
formula from the effective date of the notes. The Company recorded amortization of debt discount, which was recognized as interest
expense in the amount of $31,333 during the six months ended June 30, 2019. As of June 30, 2019, the balance of the Feb-Apr
2019 Notes was $107,000.
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.
|
DERIVATIVE LIABILITIES
|
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.
The convertible
notes issued and described in Note 5 do not have fixed settlement provisions because their conversion prices are not fixed. The
conversion feature has 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 six months ended June
30, 2019, as a result of the convertible notes (“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 $346,193, based upon a Binomial-Model
calculation. 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 six months ended
June 30, 2019, the Company converted $259,134 in principal of convertible notes, plus accrued interest of $27,776. As a result
of the conversion of these notes the Company recorded a fair value loss on the conversion of debt in the amount of $404,741 in
the statement of operations for the six months ended June 30, 2019. At June 30, 2019, the fair value of the derivative liability
was $10,609,017.
For purpose of determining the
fair market value of the derivative liability for the embedded conversion, the Company used the Binomial lattice valuation
model. The significant assumptions used in the Binomial lattice valuation model for the derivative are as follows:
|
|
6/30/2019
|
Risk free interest rate
|
|
|
1.71% - 2.44%
|
|
Stock volatility factor
|
|
|
91.0% -174.0%
|
|
Weighted average expected option life
|
|
|
6 months - 5 years
|
|
Expected dividend yield
|
|
|
None
|
|
BIOSOLAR, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
– UNAUDITED
FOR THE SIX MONTHS ENDED JUNE 30, 2019 AND
2018
Management
has evaluated subsequent events according to the requirements of ASC TOPIC 855 and has determined that there are the following
subsequent events:
On July 1,
2019, the Company issued 2,540,878 shares of common stock upon conversion of principal in the amount of $9,250, plus accrued interest
of $4,344.
On July 16,
2019, the Company entered into a convertible promissory note with an investor providing for the sale by the Company of a 10% unsecured
convertible note (the “Jul Note”) in the principal amount of $53,000. The Jul Note is convertible into shares of common
stock of the Company at a price equal to a variable conversion price of 61% of the average of the two lowest (1) day trading prices
for common stock during the fifteen (15) trading day period prior to the conversion date.
During the
month of July 2019, the Company issued 4,797,413 shares of common stock upon conversion of principal in the amount of $53,000,
plus accrued interest of $2,650.
On August 2, 2019, the Company issued 4,040,827 shares
of common stock upon conversion of principal in the amount of $14,645, plus accrued interest of $7,006.