NOTES TO CONDENSED
FINANCIAL STATEMENTS – UNAUDITED
FOR THE SIX MONTHS ENDED JUNE 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 six months ended June 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 2,450,000 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.
BIOSOLAR, INC.
NOTES TO CONDENSED
FINANCIAL STATEMENTS – UNAUDITED
FOR THE SIX MONTHS ENDED JUNE 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 six months ended June 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 $2,010,250, because
their impact was anti-dilutive.
For
the six months ended June 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 $1,708,200, 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, 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 June 30, 2017:
|
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Liability
|
|
$
|
5,591,974
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
5,591,974
|
|
|
Total Liabilities measured at fair value
|
|
$
|
5,591,974
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
5,591,974
|
|
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
|
|
|
11,986
|
|
|
Loss on conversion of debt and change in derivative liability
|
|
|
535,091
|
|
|
Balance as of June 30, 2017
|
|
$
|
5,591,974
|
|
BIOSOLAR, INC.
NOTES TO CONDENSED
FINANCIAL STATEMENTS – UNAUDITED
FOR THE SIX MONTHS ENDED JUNE 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.
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 six months ended June
30, 2017, the Company issued 6,428,995 shares of common stock upon conversion of convertible promissory notes in the amount of
$42,750, plus accrued interest of $11,682 with an aggregate fair value loss of $244,968 at prices ranging from $0.0380 - $0.0549.
4.
|
STOCK OPTIONS AND WARRANTS
|
Stock
Options
The
Company did not grant any stock options during the six months ended June 30, 2017 and 2016, respectively.
|
|
|
6/30/2017
|
|
|
6/30/2016
|
|
|
|
|
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
|
)
|
|
$
|
0.23
|
|
|
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
|
|
|
13,815,000
|
|
|
$
|
0.23
|
|
|
|
6,355,000
|
|
|
$
|
0.22
|
|
The
weighted average remaining contractual life of options outstanding as of June 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
|
|
|
|
0.67
|
|
|
0.09
|
|
|
|
2,450,000
|
|
|
|
2,450,000
|
|
|
|
4.73
|
|
|
0.26
|
|
|
|
13,500,000
|
|
|
|
11,340,000
|
|
|
|
5.18
|
|
|
Total
|
|
|
|
15,975,000
|
|
|
|
13,815,000
|
|
|
|
|
|
BIOSOLAR, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
– UNAUDITED
FOR THE SIX MONTHS ENDED JUNE 30, 2017 AND
2016
4.
|
STOCK OPTIONS AND WARRANTS (Continued)
|
The
weighted average remaining contractual life of options outstanding as of June 30, 2016 was as follows:
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Remaining
|
|
|
Exercisable
|
|
|
Options
|
|
|
Options
|
|
|
Contractual
|
|
|
Prices
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
Life (years)
|
|
|
|
$0.40
|
|
|
|
25,000
|
|
|
|
25,000
|
|
|
|
1.67
|
|
|
|
$0.09
|
|
|
|
2,450,000
|
|
|
|
1,470,000
|
|
|
|
5.73
|
|
|
|
$0.26
|
|
|
|
13,500,000
|
|
|
|
4,860,000
|
|
|
|
6.18
|
|
|
|
Total
|
|
|
|
15,975,000
|
|
|
|
6,355,000
|
|
|
|
|
|
The
stock-based compensation expense recognized in the statement of operations during the six months ended June 30, 2017 and 2016,
related to the granting of these options was $771,027 and $785,885, respectively.
As
of June 30, 2017 and 2016, respectively, there was no intrinsic value with regards to the outstanding options.
Warrants
The
warrants outstanding as of June 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.
|
|
|
6/30/2017
|
|
|
6/30/2016
|
|
|
|
|
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 six months ended June 30, 2017,
the Company issued 6,428,995 upon conversion of $42,750 in principal, plus accrued interest of $11,682, leaving a principal balance
of $342,250 as of June 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.
BIOSOLAR, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
– UNAUDITED
FOR THE SIX MONTHS ENDED JUNE 30, 2017 AND
2016
5.
|
CONVERTIBLE PROMISSORY NOTES (Continued)
|
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 June 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 six months ended June 30, 2017.
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 June 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 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 six months ended June 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 June 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 $91,563 during the six months ended June 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 varies dates during the six months ended the Company received additional tranches in the aggregate sum of $158,000.
The principal balance as of June 30, 2017 was $183,000. Each tranche matures twelve (12) months from the effective date of 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 $1,228 during the six months ended June 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.
BIOSOLAR, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
– UNAUDITED
FOR THE SIX MONTHS ENDED JUNE 30, 2017 AND
2016
6.
|
COMMITMENT AND CONTINGENCIES
|
We
have 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 next twelve months. The contract period is from September 12, 2016 through September
11, 2017 and the total cost shall not exceed the sum of $123,993. The cost of the commitment will be financed by the issuance
of equity or debt securities of the Company.
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 14, 2017, the Company issued 1,456,817 shares of common stock at a price of $0.00847, upon conversion of $9,500 in principal,
plus accrued interest of $2,834 associated with the May 2, 2014 securities purchase agreement.