NewHydrogen, Inc. - Quarter Report: 2014 September (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2014
¨ TRANSITION REPORT UNDER SECTION13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER: 000-54819
BIOSOLAR, INC.
(Name of registrant in its charter)
|
Nevada
|
20-4754291
|
|
|
(State or other jurisdiction of
incorporation or organization)
|
(I.R.S. Employer Identification No.)
|
27936 Lost Canyon Road, Suite 202 , Santa Clarita, CA 91387
(Address of principal executive offices) (Zip Code)
Issuer’s telephone Number: (661) 251-0001
Indicate by check mark whether the registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes xNo o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer o
|
Accelerated filer o
|
|
Non-accelerated filer o
|
Smaller reporting company x
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
The number of shares of registrant’s common stock outstanding, as of October 28, 2014 was 11,402,518.
1
|
September 30, 2014
|
December 31, 2013
|
|||||||
|
(Unaudited)
|
||||||||
|
ASSETS
|
||||||||
|
CURRENT ASSETS
|
||||||||
|
Cash
|
$ | 98,347 | $ | 158,350 | ||||
|
Prepaid expenses
|
51,407 | 8,303 | ||||||
|
TOTAL CURRENT ASSETS
|
149,754 | 166,653 | ||||||
|
PROPERTY AND EQUIPMENT
|
||||||||
|
Machinery and equipment
|
82,635 | 81,791 | ||||||
|
Less accumulated depreciation
|
(48,871 | ) | (42,996 | ) | ||||
|
NET PROPERTY AND EQUIPMENT
|
33,764 | 38,795 | ||||||
|
OTHER ASSETS
|
||||||||
|
Patents
|
80,933 | 47,098 | ||||||
|
Deposit
|
770 | 770 | ||||||
|
TOTAL OTHER ASSETS
|
81,703 | 47,868 | ||||||
|
TOTAL ASSETS
|
$ | 265,221 | $ | 253,316 | ||||
|
LIABILITIES AND SHAREHOLDERS' DEFICIT
|
||||||||
|
CURRENT LIABILITIES
|
||||||||
|
Accounts payable
|
$ | 653 | $ | 665 | ||||
|
Accrued expenses
|
161,948 | 50,148 | ||||||
|
Derivative liability
|
1,261,681 | 361,170 | ||||||
|
Convertible promissory notes less debt discount of $190,600 and $152,928 respectively
|
371,400 | 194,072 | ||||||
|
TOTAL CURRENT LIABILITIES
|
1,795,682 | 606,055 | ||||||
|
SHAREHOLDERS' DEFICIT
|
||||||||
|
Preferred stock, $0.0001 par value;
|
||||||||
|
10,000,000 authorized common shares
|
- | - | ||||||
|
Common stock, $0.0001 par value;
|
||||||||
|
500,000,000 authorized common shares
|
||||||||
|
10,460,088 and 9,041,281 shares issued and outstanding, respectively
|
1,045 | 904 | ||||||
|
Additional paid in capital
|
6,772,749 | 6,625,212 | ||||||
|
Accumulated deficit
|
(8,304,255 | ) | (6,978,855 | ) | ||||
|
TOTAL SHAREHOLDERS' DEFICIT
|
(1,530,461 | ) | (352,739 | ) | ||||
|
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT
|
$ | 265,221 | $ | 253,316 | ||||
The accompanying notes are an integral part of these condensed financial statements.
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013
(Unaudited)
|
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
|
September 30, 2014
|
September 30, 2013
|
September 30, 2014
|
September 30, 2013
|
|||||||||||||
|
REVENUE
|
$ | - | $ | - | $ | - | $ | - | ||||||||
|
OPERATING EXPENSES
|
||||||||||||||||
|
General and administrative expenses
|
132,093 | 173,868 | 400,638 | 494,642 | ||||||||||||
|
Research and development
|
34,904 | 707 | 34,904 | 2,736 | ||||||||||||
|
Depreciation and amortization
|
2,042 | 2,051 | 5,875 | 6,152 | ||||||||||||
|
TOTAL OPERATING EXPENSES
|
169,039 | 176,626 | 441,417 | 503,530 | ||||||||||||
|
LOSS FROM OPERATIONS BEFORE OTHER INCOME
|
(169,039 | ) | (176,626 | ) | (441,417 | ) | (503,530 | ) | ||||||||
|
TOTAL OTHER INCOME/(EXPENSES)
|
||||||||||||||||
|
Interest income
|
5 | 46 | 24 | 66 | ||||||||||||
|
Loss on change in derivative liability
|
(633,148 | ) | (214,908 | ) | (746,027 | ) | (454,350 | ) | ||||||||
|
Interest expense
|
(42,017 | ) | (74,164 | ) | (137,980 | ) | (180,517 | ) | ||||||||
|
TOTAL OTHER INCOME/(EXPENSES)
|
(675,160 | ) | (289,026 | ) | (883,983 | ) | (634,801 | ) | ||||||||
|
NET LOSS
|
$ | (844,199 | ) | $ | (465,652 | ) | $ | (1,325,400 | ) | $ | (1,138,331 | ) | ||||
|
BASIC AND DILUTED LOSS PER SHARE
|
$ | (0.08 | ) | $ | (0.06 | ) | $ | (0.13 | ) | $ | (0.16 | ) | ||||
|
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
|
||||||||||||||||
|
BASIC AND DILUTED
|
10,460,088 | 8,043,574 | 10,085,026 | 7,232,969 | ||||||||||||
The accompanying notes are an integral part of these condensed financial statements.
|
Preferred Stock
|
Common Stock
|
Additional
Paid-in
|
|
|||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Accumulated
Deficit |
Total
|
||||||||||||||||||||||
|
Balance at December 31, 2013
|
- | $ | - | 9,041,281 | $ | 904 | $ | 6,625,212 | $ | (6,978,855 | ) | $ | (352,739 | ) | ||||||||||||||
|
Issuance of common shares for converted promissory notes
|
- | - | 1,418,807 | 141 | 105,383 | - | 105,524 | |||||||||||||||||||||
|
Stock based compensation
|
- | - | - | - | 42,154 | - | 42,154 | |||||||||||||||||||||
|
Net loss for the nine months ended September 30, 2014
|
- | - | - | - | - | (1,325,400 | ) | (1,325,400 | ) | |||||||||||||||||||
|
Balance at September 30, 2014 (Unaudited)
|
- | $ | - | 10,460,088 | $ | 1,045 | $ | 6,772,749 | $ | (8,304,255 | ) | $ | (1,530,461 | ) | ||||||||||||||
The accompanying notes are an integral part of these condensed financial statements.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013
(Unaudited)
|
Nine Months Ended
|
||||||||
|
September 30, 2014
|
September 30, 2013
|
|||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
|
Net loss
|
$ | (1,325,400 | ) | $ | (1,138,331 | ) | ||
|
Adjustment to reconcile net loss to net cash
|
||||||||
|
used in operating activities
|
||||||||
|
Depreciation and amortization expense
|
5,875 | 6,152 | ||||||
|
Stock based compensation
|
42,154 | 104,813 | ||||||
|
Beneficial conversion feature
|
- | (4,584 | ) | |||||
|
Loss on change in derivative liability
|
746,027 | 454,350 | ||||||
|
Amortization of debt discount recognized as interest expense
|
116,813 | 175,504 | ||||||
|
Changes in Assets and Liabilities
|
||||||||
|
(Increase) Decrease in:
|
||||||||
|
Prepaid expenses
|
(43,104 | ) | (4,562 | ) | ||||
|
Increase (Decrease) in:
|
||||||||
|
Accounts payable
|
(12 | ) | (6,933 | ) | ||||
|
Accrued expenses
|
117,323 | 87,242 | ||||||
|
NET CASH USED IN OPERATING ACTIVITIES
|
(340,324 | ) | (326,349 | ) | ||||
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
|
Purchase of equipment
|
(844 | ) | - | |||||
|
Patent expenditures
|
(33,835 | ) | (5,808 | ) | ||||
|
NET CASH USED IN INVESTING ACTIVITIES
|
(34,679 | ) | (5,808 | ) | ||||
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
|
Proceeds from convertible promissory notes
|
315,000 | 177,500 | ||||||
|
Proceeds from issuance of common stock, net of issuance cost
|
- | 398,291 | ||||||
|
NET CASH PROVIDED IN FINANCING ACTIVITIES
|
315,000 | 575,791 | ||||||
|
NET INCREASE/(DECREASE) IN CASH
|
(60,003 | ) | 243,634 | |||||
|
CASH, BEGINNING OF PERIOD
|
158,350 | 42,942 | ||||||
|
CASH, END OF PERIOD
|
$ | 98,347 | $ | 286,576 | ||||
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
|
||||||||
|
Interest paid
|
$ | 529 | $ | - | ||||
|
Taxes paid
|
$ | - | $ | - | ||||
|
SUPPLEMENTAL SCHEDULE OF NON-CASH TRANSACTIONS
|
||||||||
|
Accrued salaries exhcanged for promissory notes
|
$ | - | $ | 242,000 | ||||
|
Common stock issued for debt
|
$ | 105,524 | $ | 213,119 | ||||
The accompanying notes are an integral part of these condensed financial statements.
6
NOTES TO CONDENSED FINANCIAL STATEMENTS – (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2014
1. Basis of Presentation
The accompanying unaudited 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, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014. 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, 2013.
Going Concern
The accompanying 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 received a purchase order from a specialty PV manufacturer during 2013, and expects to receive additional orders during 2014. The Company has obtained funds from its shareholders since its inception through the nine months ended September 30, 2014. Management believes existing shareholders and prospective new investors will 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.
Cash and Cash Equivalent
The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.
Investments
Certificate of Deposits with banking institutions are short-term investments with initial maturities of more than 90 days. The carrying amount of these investments is a reasonable estimate of fair value due to their short-term nature.
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 is required to provide service in exchange for the award (the vesting period).
Compensation expense for options granted to 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 to non-employees is re-measured each period.
7
BIOSOLAR, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS – (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2014
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 the Black-Scholes option-pricing model to value its stock option awards which incorporate the Company’s stock price, volatility, U.S. risk-free rate, dividend rate, and estimated life.
Loss per Share Calculations
Loss per Share dictates the calculation of basic earnings per share and diluted earnings per share are computed by dividing income available to common shareholders by the weighted-average number of common shares available. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. No shares for employee options or warrants were used in the calculation of the loss per share as they were all anti-dilutive. The Company’s diluted loss per share is the same as the basic loss per share for the nine months ended September 30, 2014, as the inclusion of any potential shares would have had an anti-dilutive effect due to the Company generating a loss. The Company has excluded 774,167 exercisable options and 245,000 warrants for the nine months ended September 30, 2014.
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 September 30, 2014, the amounts reported for cash, inventory, prepaid expenses, accounts payable, and accrued expenses, approximate the fair value because of their short maturities.
We adopted ASC Topic 820 (originally issued as SFAS 157, “Fair Value Measurements”) 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.
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, 2014:
|
Total
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
|||||||||||||
|
Derivative Liability
|
$ | 1,261,681 | $ | - | $ | - | $ | 1,261,681 | ||||||||
|
Total liabilities measured at fair value
|
$ | 1,261,681 | $ | - | $ | - | $ | 1,261,681 | ||||||||
The following is a reconciliation of the derivative liability for which Level 3 inputs were used in determining the approximate fair value:
|
Beginning balance as of January 1, 2014
|
$
|
361,170
|
||
|
Fair value of derivative liabilities issued
|
154,485
|
|||
|
Conversion of notes payable
|
(109,504
|
) | ||
|
Loss on change in derivative liability
|
855,530
|
|||
|
Ending balance as of September 30, 2014
|
$
|
1,261,681
|
8
BIOSOLAR, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS – (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2014
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recently Issued Accounting Pronouncements
Management has reviewed recently issued accounting pronouncements and has adopted the following;
On August 27, 2014, the Company adopted the amendment to ASU 2014-15 on Presentation of Financial Statements Going Concern (Subtopic 205-40). The amendment provides for guidance to reduce diversity in the timing and content of footnote disclosures. The amendment requires management to assess the Company’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. The Company has to define the term of substantial doubt, which has to be evaluated every reporting period including interim periods. Management has to provide principles for considering the mitigating effect of its plan, and disclose when substantial doubt is alleviated as well as when it is not alleviated. The Company is required to assess managements plan for a period of one year after the financial statements are issued (or available to be issued). The amendment is effective for annual periods ending after December 15, 2016. Early adoption is permitted. The Company does not believe the accounting standards currently adopted will have a material effect on the accompanying condensed financial statements.
|
3.
|
CAPITAL STOCK
|
During the nine months ended September 30, 2014, the Company issued 1,418,807 shares of common stock at prices ranging from $0.046 to $0.10, for conversion of $100,000 in convertible promissory notes, including $5,524 in accrued interest.
4. STOCK OPTIONS AND WARRANTS
During the nine months ended September 30, 2014, the Company did not grant any stock options.
|
Weighted
|
|||||
|
Number
|
average
|
||||
|
of
|
exercise
|
||||
|
Options
|
price
|
||||
|
Outstanding, January 1, 2014
|
836,667
|
$
|
1.43
|
||
|
Granted
|
-
|
-
|
|||
|
Exercised
|
-
|
-
|
|||
|
Expired
|
-
|
-
|
|||
|
Outstanding, September 30, 2014
|
836,667
|
$
|
1.43
|
||
|
Exercisable at September 30, 2014
|
774,167
|
$
|
1.52
|
||
The weighted average remaining contractual life of options outstanding as of September 30, 2014 was as follows:
|
Weighted
|
||||||||||||||
|
Average
|
||||||||||||||
|
Stock
|
Stock
|
Remaining
|
||||||||||||
|
Exercisable
|
Options
|
Options
|
Contractual
|
|||||||||||
|
Prices
|
Outstanding
|
Exercisable
|
Life (years)
|
|||||||||||
| $ | 4.05 | 236,667 | 236,667 | 1.48 | ||||||||||
| 0.40 | 600,000 | 500,000 | 3.42 | |||||||||||
|
Total
|
836,667 | 736,667 | ||||||||||||
The stock-based compensation expense recognized in the statement of operations during the nine months ended September 30, 2014 and 2013, related to the granting of these options was $42,154 and 104,813, respectively.
Warrants
During the nine months ended September 30, 2014, the Company did not grant any warrants. As of September 30, 2014, 245,000 warrants are outstanding. The warrant terms are 5 years with 95,000 warrants expiring in October 2016 and 150,000 warrants expiring in October 2017.
9
BIOSOLAR, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS – (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2014
4. STOCK OPTIONS AND WARRANTS (Continued)
|
Weighted
|
||||||||||
|
Number
|
average
|
|||||||||
|
of
|
exercise
|
|||||||||
|
Warrants
|
price
|
|||||||||
|
Outstanding, January 1, 2014
|
245,000
|
$
|
0.97
|
|||||||
|
Granted
|
-
|
-
|
||||||||
|
Exercised
|
-
|
-
|
||||||||
|
Expired
|
-
|
-
|
||||||||
|
Outstanding, September 30, 2014
|
245,000
|
$
|
0.97
|
|||||||
|
Exercisable at September 30, 2014
|
245,000
|
$
|
0.97
|
|||||||
5. CONVERTIBLE PROMISSORY NOTES
On January 18, 2013, the Company entered into a securities purchase agreement for the sale of 10% convertible promissory note for the aggregate principal amount of $80,000, to be advanced in amounts at the lender’s discretion. Upon execution of the securities purchase agreement, the Company received an advance of $10,000. On April 16, 2013, the Company received an additional advance of $25,000. The total advances received were $35,000, of which principal in the amount of $10,000, and $687 in accrued interest was converted into 106,877 shares of common stock at fair value of $0.43 per share on September 29, 2013, leaving a balance of $25,000. During the month of July 2013, the Company extended the maturity date of the note from six (6) months to eighteen (18) months from the effective date of each advance. The note is convertible into shares of common stock of the Company at a price equal to a variable conversion price of the lesser of a) $0.40 per share b) fifty percent (50%) of the lowest trading price of common stock recorded on any trade day after the effective date, or c) the lowest effective price per share granted after the effective date. The fair value of the notes has been determined by using Black-Scholes pricing model with an expected life of more than a year. The Company recorded amortization of debt discount, which was recognized as interest expense in the amount of $7,387 during the nine months ended September 30, 2014.
On March 1, 2013, the Company entered into a securities purchase agreement, providing for the sale by the Company of a 10% unsecured Convertible Note in the aggregate principal amount of $100,000, to be advanced in amounts at the lender’s discretion. Upon execution of the securities purchase agreement, the Company received advances of $35,000 during the year ended December 31, 2013. The note was amended on February 24, 2014, and was extended for six (6) months to mature on August 28, 2014. The note matured and was extended to August 28, 2015. The note is convertible into shares of common stock of the Company at a price equal to a variable conversion price of the lesser of $0.20 per share or fifty percent (50%) of the lowest trading price recorded on any trade day after the effective date. The fair value of the note has been determined by using the Black-Scholes pricing model with an expected life of less than a year. The Company recorded amortization of debt discount, which was recognized as interest expense in the amount of $7,055 during the nine months ended September 30, 2014.
|
|
On June 5, 2013, the Company issued two 5% convertible promissory notes in exchange for services rendered by the Company’s Chief Executive Officer ($114,000) and Chief Technology Officer ($128,000) in the aggregate amount of $242,000. On March 5, 2014, the Company issued 694,191 upon partial conversion of principal in the amount of $55,000, plus accrued interest of $2,063, leaving a remaining balance of $187,000. The notes are convertible into shares of common stock of the Company at a conversion price equal to the lesser of $0.24 per share or the closing price per share of common stock recorded on the trading day immediately preceding the date of conversion. The notes mature two (2) years from their effective dates. The fair value of the notes has been determined by using the Black-Scholes pricing model with an expected life of two (2) years. The Company recorded amortization of debt discount, which was recognized as interest expense in the amount of $53,851 during the nine months ended September 30, 2014.
|
On June 21, 2013, the Company entered into a securities purchase agreement for the sale of a 10% convertible promissory note in the aggregate principal amount of $100,000, to be advanced in amounts at the lender’s discretion. Upon execution of the securities purchase agreement, the Company received advances of $45,000 during the year ended December 31, 2013. During the nine months ended September 30, 2014, the Company issued 724,616 shares of common stock upon conversion of principal in the amount of $45,000, plus accrued interest of $3,462. The Company recorded amortization of debt discount, which was recognized as interest expense in the amount of $23,603 during the nine months ended September 30, 2014.
10
BIOSOLAR, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS – (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2014
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 in the aggregate principal amount of $500,000, to be advanced in amounts at the lender’s discretion. Upon execution of the securities purchase agreement, the Company received additional advances in the aggregate of $50,000. On various dates, the Company received additional advances in the aggregate sum of $265,000. The principal balance at September 30, 2014 was $315,000. The note matures from the effective date of each advance. The note is convertible into shares of common stock of the Company at a price equal to a variable conversion price of the lesser of $0.25 per share or fifty percent (50%) of the three (3) lowest trading prices recorded on any trade day after the effective date. The fair value of the note has been determined by using the Black-Scholes pricing model with an expected life of eighteen (18) months. The Company recorded amortization of debt discount, which was recognized as interest expense in the amount of $31,971 during the nine months ended September 30, 2014.
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 according to the stock price fluctuations.
6. DERIVATIVE LIABILITIES
The convertible notes issued and described in Note 5 do not have fixed settlement provisions because their conversion prices are not fixed. The conversion features have 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. At December, 31, 2013, the outstanding fair value of the convertible notes accounted as derivative liabilities amounted to $361,170.
During the nine months ended September 30, 2014, approximately $100,000 convertible notes were converted. As a result of the conversion of these notes, the Company recorded a gain of $109,504 due to the extinguishment of the corresponding derivative liability. Furthermore, during the nine months ended September 30, 2014, the Company recognized a loss of $855,530 to account for the change in fair value of the derivative liabilities. At September 30, 2014, the fair value of the derivative liability was $1,261,681.
For purpose of determining the fair market value of the derivative liability for the embedded conversion, the Company used Black Scholes option valuation model. The significant assumptions used in the Black Scholes valuation of the derivative are as follows:
|
Risk free interest rate
|
0.02% - 0.58 | % | ||
|
Stock volatility factor
|
104.46% - 149.81 | % | ||
|
Weighted average expected option life
|
1 months - 1.5 years
|
|||
|
Expected dividend yield
|
None
|
|||
|
7.
|
COMMITMENTS AND LITIGATIONS
|
|
|
The Company entered into an agreement with a non-profit organization to perform research activities for a period from July 1, 2014 through June 30, 2015. The cost shall not exceed $139,617. The Company has a commitment to pay quarterly installments of $34,904 due on or before July 1, 2014, October 1, 2014, January 1, 2015 and April 1, 2015. During the period ended September 30, 2014, the Company prepaid $34,904 for the October installment, and recognized research and development cost in the amount of $34,904 for the period. The remaining balance of $69,809 will be paid on the specified due dates.
|
|
8. SUBSEQUENT EVENT
|
|
|
Management evaluated subsequent events as of the date of the financial statements pursuant to ASC TOPIC 855, and reported the following events:
|
|
|
On October 2, 2014, the Company issued 473,419 shares of common stock for a converted note of $15,000 in principal, plus accrued interest of $2,360.
|
|
|
On October 3, 2014, the Company issued 469,011 shares of common stock for a converted note of $15,000 in principal, plus accrued interest of $2,199.
|
|
|
On October 21, 2014, the Company received $50,000 additional advance on note dated May 2, 2014.
|
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS
Special Note on Forward-Looking Statements.
Certain statements in “Management’s Discussion and Analysis or Plan of Operation” below, and elsewhere in this quarterly report, are not related to historical results, and are forward-looking statements. Forward-looking statements present our expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements frequently are accompanied by such words such as “may,” “will,” “should,” “could,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” or the negative of such terms or other words and terms of similar meaning. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, achievements, or timeliness of such results. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of such forward-looking statements. We are under no duty to update any of the forward-looking statements after the date of this quarterly report. Subsequent written and oral forward looking statements attributable to us or to persons acting in our behalf are expressly qualified in their entirety by the cautionary statements and risk factors set forth in our annual report on Form 10-K filed with the SEC on March 24, 2014, and in other reports filed by us with the SEC.
You should read the following description of our financial condition and results of operations in conjunction with the financial statements and accompanying notes included in this report.
Overview
We are developing innovative technologies to reduce the cost per watt of electricity produced by Photovoltaic solar modules. The process for producing electricity from sunlight is known as Photovoltaics. Photovoltaic ("PV") is the science of capturing and converting sun light into electricity.
We are continuing our research efforts on further improving bio-based components that meet the thermal and durability requirements of current PV solar module manufacturing processes for conventional crystalline cell designs as well as thin film PV devices in an effort to capitalize on cost advantages to current petroleum based PV solar module components.
We are currently focusing on developing a supercapacitor technology for reducing the cost of storing the energy of the sun. Existing battery technologies, such as lithium-ion batteries, are good for longer-term energy storage, but cannot be charged or discharged rapidly. This limits the use of batteries to power backup applications. BioSolar is developing a low cost polymer-based supercapacitor that can be charged and discharged hundreds of times faster than batteries, and will complement batteries for the storage of solar energy.
We were incorporated in the State of Nevada on April 24, 2006, as BioSolar Labs, Inc. Our name was changed to BioSolar, Inc. on June 8, 2006. Our principal executive offices are located at 27936 Lost Canyon Road, Suite 202, Santa Clarita, California 91387, and our telephone number is (661) 251-0001. Our fiscal year end is December 31.
Application of 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.
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, collectability 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
Our cash, cash equivalents, investments, inventory, prepaid expenses, and accounts payable are stated at cost which approximates fair value due to the short-term nature of these instruments.
Recently Issued Accounting Pronouncements
Management adopted a recently issued accounting pronouncement during the three months ended September 30, 2014, as disclosed in the notes to the financial statements included in this report.
Results of Operations – Three Months Ended September 30, 2014 Compared to the Three Months Ended September 30, 2013
OPERATING EXPENSES
General and Administrative Expenses
General and administrative (“G&A”) expenses decreased by $41,775 to $132,093 for the three months ended September 30, 2014, compared to $173,868 for the prior period September 30, 2013. This decrease in G&A expenses was the result of an increase in professional fees of $9,636, and investor relations of $6,366, with a decrease in non-cash stock compensation expense of $19,456, salaries in the amount of $19,800, payroll tax expense of $9,722, travel in the amount of $7,849 and an overall decrease of $950 in G&A expenses.
Research and Development
Research and Development (“R&D”) expenses increased by $34,197 to $34,904 for the three months ended September 30, 2014, compared to $707 for the prior period ended September 30, 2013. This overall increase in R&D expenses was the result of focusing on bringing the product to market.
Other Income/(Expenses)
Other income and (expenses) increased by $386,134 to $675,160 for the three months ended September 30, 2014, compared to $289,026 for the prior period ended September 30, 2013. The increase was the result of a decrease in interest income of $41, and amortization of debt discount in the amount of $34,532, with an increase in the change in fair value of the derivative instruments of $418,240, and an increase in interest expense in the amount
of $2,467. The increase in other income and (expenses) was due to the Company entering into debt financing through the issuance of convertible promissory notes.
Net Loss
Our net loss increased by $378,547 to $844,199 for the three months ended September 30, 2014, compared to $465,652 for the prior period ended September 30, 2013. The increase in net loss was due to an increase in other income (expenses), and an overall decrease in operating expenses. The Company has not generated any revenues.
Results of Operations – Nine Months Ended September 30, 2014 Compared to the Nine Months Ended September 30, 2013
OPERATING EXPENSES
General and Administrative Expenses
G&A expenses decreased by $94,004 to $400,638 for the nine months ended September 30, 2014, compared to $494,642 for the prior period September 30, 2013. This decrease in G&A expenses was the result of an increase in payroll tax expense of $9,722, and professional fees of $3,873, with a decrease in non-cash stock compensation expense of $62,658, salaries in the amount of $33,000, travel expense of $10,348, and an overall decrease of $1,593 in G&A expenses.
Research and Development
R&D expenses increased by $32,168 to $34,904 for the nine months ended September 30, 2014, compared to $2,736 for the prior period ended September 30, 2013. This overall decrease in R&D expenses was the result of focusing on bringing the product to market.
Other Income/(Expenses)
Other income and (expenses) increased by $249,182 to $883,983 for the nine months ended September 30, 2014, compared to $634,801 for the prior period ended September 30, 2013. The increase was the result of a decrease in interest income of $42, and amortization of debt discount in the amount of $50,338, with a increase in the net change in fair value of the derivative instruments of $291,677, and an increase in interest expense in the amount of $7,885. The increase in other income and (expenses) was due to the Company entering into debt financing with convertible promissory notes.
Net Loss
Our net loss increased by $187,069 to $1,325,400 for the nine months ended September 30, 2014, compared to $1,138,331 for the prior period ended September 30, 2013. The increase in net loss was due to a increase in other income (expenses), and an overall decrease in operating expenses. Currently the Company had no revenues.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2014, we had a capital deficit of $1,645,928 compared to capital deficit of $439,402 for the year ended December 31, 2013. This increase in capital deficit of $1,206,526 was due primarily to an increase in prepaid expenses, accrued expenses, the issuance of convertible promissory notes and the resultant increase in derivative liability, with a decrease in accounts payable.
During the nine months ended September 30, 2014, we used $340,324 of cash for operating activities, as compared to $326,349 for the prior period ended September 30, 2013. The increase of $13,975 in the use of cash for operating activities was primarily due to an increase in net loss, non cash net change in derivative liability, prepaid
expense, and accrued expenses, with an overall decrease in accounts payable, non cash amortization of debt discount, and stock compensation.
Cash used in investing activities for the nine months ended September 30, 2014 was $34,679, as compared to $5,808 for the prior period ended September 30, 2013. The overall net change of $28,871 in investing activities was primarily due to increase in patent expenditures and the purchase of fixed assets for the current period compared to the prior period.
Cash provided from financing activities was $315,000 for the nine months ended September 30, 2014, as compared to $575,791 for the prior period September 30, 2013. Our capital needs have primarily been met from the proceeds of private placements, as we are currently in the development stage and have not generated any revenues since inception.
We have a material commitment for capital expenditures in the form of a sponsored research agreement with University of California Santa Barbara during the next twelve months. Although proceeds from our financing activities are currently sufficient to fund our operating expenses through the next four months, we will need to raise additional funds in the future so that we can expand our operations. Therefore, our future operations are dependent on our ability to secure additional financing. Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. However, the trading price of our common stock and a downturn in the U.S. equity and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, or experience unexpected cash requirements that would force us to seek additional financing. Furthermore, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. The inability to obtain additional capital may restrict our ability to grow and may reduce our ability to continue to conduct business operations. If we are unable to obtain additional financing, we may have to curtail our marketing and development plans and possibly cease our operations.
We believe that we have assets to ensure that we can continue to operate without liquidation over the next four months, due to our cash on hand, and our ability in the past to raise money from our investor base. Based on the aforesaid, we believe we have the ability to continue our operations for the next twelve months and will be able to realize assets and discharge liabilities in the normal course of our operations.
Our financial statements as of September 30, 2014 have been prepared under the assumption that we will continue as a going concern. Our independent registered public accounting firm has issued their report dated March 24, 2014 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 revenue, which is dependent upon our ability to obtain additional equity or debt financing, attain further operating efficiencies and, ultimately, to achieve profitable operations. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.
PLAN OF OPERATION AND FINANCING NEEDS
We are engaged in the development of innovative technologies that will reduce the cost per watt of electricity generated by Photovoltaic solar modules. We have developed BioBacksheetTM, our first commercially available product, and we are currently focusing on developing a low cost supercapacitor technology for solar energy storage by 2015.
Our plan of operation within the next six months is to utilize our cash balances to further develop and improve our polymer-based supercapacitor technonology and components for PV energy storage. We believe that our current cash and investment balances will be sufficient to support development activity and general and administrative expenses for the next four months. Management estimates that it will require additional cash resources during 2014, based upon its current operating plan and condition. We will be investigating additional financing alternatives, including equity and/or debt financing. There is 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 during the next fifteen months, we may be forced to reduce the size of our organization, 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, result of operations, liquidity or capital expenditures.
n/a
As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is: (i) recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms, and (ii) accumulated and communicated to our management, including our chief executive officer and chief financial officer, or person performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There was no change to our internal control over financial reporting that occurred during our second fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
We are not a party to any pending legal proceeding, nor is our property the subject of a pending legal proceeding, that is not in the ordinary course of business or otherwise material to the financial condition of our business. None of our directors, officers or affiliates is involved in a proceeding adverse to our business or has a material interest adverse to our business.
There are no material changes from the risk factors previously disclosed in the Registrant’s Form 10-K filed on March 24, 2014.
None
None
Not applicable
None
|
Description
|
||
|
31.1
|
Certification by Chief Executive Officer and Acting Chief Financial Officer pursuant to Sarbanes-Oxley Section 302 (filed herewith).
|
|
|
32.2
|
Certification by Chief Executive Officer and Acting Chief Financial Officer pursuant to 18 U.S.C. Section 1350 (filed herewith).
|
|
|
EX-101.INS
|
XBRL Instance Document
|
|
|
EX-101.SCH
|
XBRL Taxonomy Extension Schema Document
|
|
|
EX-101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase
|
|
|
EX-101.DEF
|
XBRL Taxonomy Extension Definition Linkbase
|
|
|
EX-101.LAB
|
XBRL Taxonomy Extension Labels Linkbase
|
|
|
EX-101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase
|
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on October 29, 2014.
|
BIOSOLAR
|
|||
|
By:
|
/s/ David Lee
|
||
|
Chief Executive Officer (Principal Executive
Officer ) and Acting Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
|
|||
18