Attached files
| file | filename |
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| EX-4.1 - DESCRIPTION OF REGISTRANT'S SECURITIES REGISTERED PURSUANT TO SECTION 12 OF THE - NewHydrogen, Inc. | f10k2019ex4-1_biosolarinc.htm |
| EX-32.1 - CERTIFICATION - NewHydrogen, Inc. | f10k2019ex32-1_biosolarinc.htm |
| EX-31.1 - CERTIFICATION - NewHydrogen, Inc. | f10k2019ex31-1_biosolarinc.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2019
☐ TRANSITION REPORT UNDER SECTION 13 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, California 91387
(Address of principal executive offices) (Zip Code)
Issuer’s telephone Number: (661) 251-0001
Securities registered under Section 12(b) of the Exchange Act: None.
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| N/A | N/A | N/A |
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $0.0001 per share
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “small reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |
| Non-accelerated filer | ☒ | Smaller reporting company | ☒ | |
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the voting and non-voting common stock of the issuer held by non-affiliates, computed by reference to the price at which the common stock was sold on June 28, 2019, was approximately $1,594,320.
The number of shares of the registrant’s common stock outstanding, as of March 6, 2020 was 149,871,024.
DOCUMENTS INCORPORATED BY REFERENCE
None.
TABLE OF CONTENTS
i
| ITEM 1. | BUSINESS. |
Overview
We are developing innovative technologies to increase the storage capacity, lower the cost and extend the life of lithium-ion batteries for electric vehicles or EV. We have previously developed an innovative material technology to reduce the cost per watt of electricity produced by Photovoltaic, or PV, solar modules. We are currently working on a silicon anode additive material technology intended to increase the storage capacity of current and future generation of lithium-ion batteries.
Industry Overview
With a modern world running on electricity, the need for battery storage has never been greater. The ability to store energy, take it on the go, and use it later, has opened up a new world of “Killer Apps” such as long range electric vehicles, iPhones, and storage of renewable wind and solar energy for later use. The key to enabling these Killer Apps is better and lower cost batteries.
We are entering a “Golden Age” of electric vehicles, powered by growing demand from environmentally conscious consumers and governments, enabled by the increasing performance and decreasing cost of lithium-ion batteries
Electric vehicles were once a luxury product, but now major car manufacturers such as Ford, General Motors, and Toyota have all announced new EV lineups for the mass market. The world’s second largest car manufacturer, Volkswagen, went as far as betting the farm on EVs by planning to only produce electric vehicles in the future.
Bloomberg’s 2019 Electric Vehicle Outlook report forecast annual passenger EV sales to rise from 2 million in 2018 to 56 million by 2040. With the growth in EVs will result in a corresponding growth in batteries, specifically lithium-ion batteries. A 2019 Research and Markets report projects that the global electric vehicle battery market size, valued at $20 billion in 2017, will grow to $92 billion by 2025, at a compound annual growth rate of 19.04%.
Research and Development
We previously developed robust bio-based components that meet the stringent thermal and durability requirements of current PV module manufacturing processes. We identified certain bio-based materials that are inherently durable, and we then applied proprietary material processes to enhance the desirable characteristics of these bio-based materials – turning them into robust and durable materials to be used as solar panel components. Based on long term environmental testing performed by the Company, we believe our BioBacksheetR is more durable than conventional petroleum based back sheets available in the market today. The BioBacksheetR successfully obtained Underwriters Laboratories’ (UL) material certification in February 2011. This version of our back sheet is designed for conventional c-Si solar modules, which currently represents over 75 percent of solar modules produced in the world, as well as for certain thin film solar modules. The relative thermal index (RTI) rating of 130° C by UL was issued during the 3rd quarter of 2012, and a number of PV panel manufacturers obtained certifications on their PV panels incorporating BioBacksheetR for UL/IEC.
Silicon or Si is one of the most promising anode materials being considered for next generation, high-energy and high-power lithium ion batteries or LIBs. Graphite is currently the most widely used anode material, but Si has attracted great attention because of its natural abundance, non-toxicity, and theoretical storage capacity of nearly 4200 mAh/g, or about 10 times more capacity than conventional graphite anodes. More capacity will mean longer distance EVs can go before needing to recharge. Unfortunately, Si anodes suffer from large volume expansion and contraction during lithium-ion charge-discharge cycling. This continuous volume change pulverizes the Si material over time and leads to battery failure. This is the primary challenge that BioSolar’s innovative technology intends to overcome, as well as maximizing the performance of Si anode batteries.
Our performance boosting additives improve the performance of silicon anodes by: (1) increasing the efficiency of lithium-ion transfer, and (2) preserving the silicon anode structure during silicon’s volume expansion and contraction associated with charge-discharge cycling. This will help increase the storage capacity and life of lithium-ion batteries made from various types of silicon anodes. We are currently preparing commercial-grade prototype battery cells to demonstrate the benefits of our performance boosting additives in a complete silicon anode lithium-ion battery. Commercial partners working on this project include Ferroglobe PLC, one of the world’s largest suppliers of raw silicon materials, and Top Battery, a South Korean manufacturer of EV batteries.
1
Marketing Strategy
We will begin marketing our energy storage component material technology as soon as demonstration prototypes become available. Our marketing plan includes engaging with lithium-ion battery manufacturers, as well as identifying potential licensing partners in the following industries: electric vehicles, consumer electronics and power tools.
We are currently outsourcing our promotion efforts to a public relations firm that is assisting us with comprehensive advertising and promotion of the Company and its silicon additive technology.
Backlog of Orders
We do not have any backlog of orders.
Government Contracts
We do not have any government contracts at this time.
Compliance with Environmental Laws and Regulations
Our operations are subject to local, state and federal laws and regulations governing environmental quality and pollution control. To date, our compliance with these regulations has had no material effect on our operations, capital, earnings, or competitive position, and the cost of such compliance has not been material. We are unable to assess or predict at this time what effect additional regulations or legislation could have on our activities.
Manufacturing and Distribution
We currently do not have any mechanism for the manufacture and distribution of our own technology products, nor do we have adequate financing to undertake these efforts on our own. BioBacksheetR is currently available for licensing only.
Intellectual Property
On May 19, 2011, we filed a U.S. patent to protect the intellectual property rights for “Photovoltaic Module Backsheet, Materials for Use in Module Backsheet and Process for Making the Same,” application number 13/093,549. The inventor listed on the patent application is Stanley Levy, our Chief Technology Officer. The Company is listed as assignee. This patent was issued on July 14, 2015.
On March 26, 2018, North Carolina Agricultural and Technical State University filed a U.S. patent application U.S. Serial No. 62/473,772 titled “Prelithiated Silicon Particles for Lithium Ion Batteries”, and we signed an Exclusive License Agreement for the use of the technology effective September 25, 2017.
We rely upon confidentiality agreements signed by our employees, consultants and third parties to protect our intellectual property.
Competition
There are a number of companies manufacturing lithium-ion batteries including, Panasonic, Samsung, LG Chem, and Tesla. We plan to seek licensing arrangements for our lithium-ion battery technology with a select group of companies such as the ones listed above, and do not expect to be their direct competition.
Technology Development Partners
The Company has entered into a research agreement, effective August 17, 2016 (the “Agreement”), with North Carolina Agricultural and Technical State University, a constituent member of the University of North Carolina system (the “University”), pursuant to which the Company sponsors the University’s project which includes the research, testing and evaluation of a proposal. On September 11, 2017, the Company and the University extended the initial term of the Agreement for another twelve months, through September 11, 2018. The agreement ended on September 11, 2018.
On September 28, 2017, the Company entered into an Exclusive License Agreement (the “License Agreement”) with the University related to the use of the University’s intellectual property in the Company’s business of developing, producing and marketing lithium-ion batteries. Within thirty (30) days after entering into the License Agreement, the Company paid to the University a one-time, non-refundable license fee in the sum of $15,000. Pursuant to the terms of the License Agreement, the Company is obligated to pay all costs of preparing, filing, prosecution, issuance and maintenance related to the patents underlying the intellectual property licensed by the Company. In addition, the Company is obligated to make certain royalty payments and sub-licensing fees. On September 28, 2018 and on September 28, 2019, the Company again paid to the University annual non-refundable licensee fee of $15,000.
On May 26, 2017, the Company executed a joint development agreement with Top Battery Co., Ltd. (“Top Battery”), a leading manufacturer of advanced lithium-ion battery solutions, based in the Republic of Korea, to assess, develop, manufacture, and/or market high power high energy lithium ion batteries integrating BIOSOLAR technology and TOP BATTERY technology.
2
On June 14, 2018, the Company executed a joint development agreement with Silicio Ferrosolar SLU, a subsidiary of Ferroglobe PLC (NASDAQ:GSM), for collaborative efforts to assess, develop, and/or market silicon anode materials for high power, high energy lithium ion batteries by integrating BioSolar technology and Ferroglobe silicon materials.
To assist us in the development of our technology, we intend to seek out and enter into technology development agreements with other entities with battery testing and materials expertise.
Corporate Information and History
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.
Recent Development
Effective March 6, 2020, the Company entered into an agreement with Soelect, Inc. for the Joint Development of low-cost manufacturing of SiO-C-Li Composition material using Solid state process agreement (the “Agreement”).
The Agreement is for a term of 21 months, with three phases of development. However, the parties may extend the term for additional periods as may be mutually agreed to. Either party upon 30 days’ notice may terminate the Agreement. Phase 1 of the project is expected to run for 9 months with estimated cost to the Company of $90,000, with Phase 2 estimated for last 6 months, with estimated cost of $100,000, and the final, Phase 3, expected to run for 6 months at an estimated cost of $100,000.
EMPLOYEES
As of March 6, 2020, we had one (1) full time employee. We have not experienced any work stoppages and we consider relations with our employees to be good.
| ITEM 1A. | RISK FACTORS |
WE HAVE A LIMITED HISTORY OF LOSSES AND HAVE NEVER REALIZED REVENUES TO DATE.
Since inception, we have incurred losses and have negative cash flows from operations and have realized only minimal revenues. From inception through December 31, 2019, we have an accumulated deficit of $24,530,841. These factors, among others discussed in Note (1) to the financial statements included in this Annual Report, raise substantial doubt about our ability to continue as a going concern. We expect to continue to incur net losses until we are able to realize revenues to fund our continuing operations. We may fail to achieve any or significant revenues from sales or achieve or sustain profitability. Accordingly, there can be no assurance of when, if ever, we will be profitable or be able to maintain profitability.
WE ARE A DEVELOPMENT STAGE COMPANY AND MAY BE UNABLE TO MANAGE OUR GROWTH OR IMPLEMENT OUR EXPANSION STRATEGY IF WE ARE ABLE TO LAUNCH OUR PRODUCT AND SERVICE OFFERINGS.
We are a development stage company that was formed on April 24, 2006 and may not be able to launch our product and service offerings or implement the other features of our business strategy at the rate or to the extent presently planned. If we are able to launch our product and service offerings, our projected growth will place a significant strain on our administrative, operational and financial resources. If we are unable to successfully manage our future growth, establish and upgrade our operating and financial control systems, recruit and hire necessary personnel or effectively manage unexpected expansion difficulties, our financial condition and results of operations could be materially and adversely affected.
WE MAY NOT BE ABLE TO SUCCESSFULLY DEVELOP AND COMMERCIALIZE OUR TECHNOLOGIES WHICH WOULD RESULT IN CONTINUED LOSSES.
While we have made progress in the development of our products, we have generated only minimal revenues and are unable to project when we will achieve profitability, if at all. As is the case with any new technology, we are a development stage company and expect the development process to continue. We may not be able to develop our product offering, develop a customer base and markets, or implement the other features of our business strategy at the rate or to the extent presently planned. Growth beyond the product development stage will place a significant strain on our administrative, operational and financial resources. In addition, our operations will not be able to move out of the development stage without additional funding.
OUR REVENUES ARE DEPENDENT UPON ACCEPTANCE OF OUR PRODUCTS BY THE MARKET; THE FAILURE OF WHICH WOULD CAUSE TO CURTAIL OR CEASE OPERATIONS.
We believe that virtually all of our revenues will come from the sale or license of our products. As a result, we will continue to incur substantial operating losses until such time as we are able to sell and license our products and generate revenue. There can be no assurance that businesses and customers will adopt our technology and products, or that businesses and prospective customers will agree to pay for or license our products. In the event that we are not able to significantly increase the number of customers that purchase or license our products, or if we are unable to charge the necessary prices or license fees, our financial condition and results of operations will be materially and adversely affected.
3
WE DO NOT MAINTAIN THEFT OR CASUALTY INSURANCE, AND ONLY MAINTAIN MODEST LIABILITY AND PROPERTY INSURANCE COVERAGE AND THEREFORE WE COULD INCUR LOSSES AS A RESULT OF AN UNINSURED LOSS.
We do not maintain theft or casualty insurance and we have modest liability and property insurance coverage. We cannot assure you that we will not incur uninsured liabilities and losses as a result of the conduct of our business. Any such uninsured loss or liability could have a material adverse effect on our results of operations.
IF WE LOSE KEY EMPLOYEES AND CONSULTANTS OR ARE UNABLE TO ATTRACT OR RETAIN QUALIFIED PERSONNEL, OUR BUSINESS COULD SUFFER.
Our success is highly dependent on our ability to attract and retain qualified scientific, engineering and management personnel. We are highly dependent on our sole officer, Dr. David Lee, who has been critical to the development of our technologies and business. The loss of the services of Dr. Lee could have a material adverse effect on our operations. We do not have an employment agreement with Dr. Lee and do not maintain key man insurance with respect to Dr. Lee. Accordingly, there can be no assurance that he will remain associated with us. His efforts will be critical to us as we continue to develop our technology and as we attempt to transition from a development stage company to a company with commercialized products and services. If we were to lose Dr. Lee, or any other key employees or consultants, we may experience difficulties in competing effectively, developing our technology and implementing our business strategies.
THE LOSS OF STRATEGIC RELATIONSHIPS USED IN THE DEVELOPMENT OF OUR PRODUCTS AND TECHNOLOGY COULD IMPEDE OUR ABILITY TO COMPLETE OUR PRODUCT.
We may rely on strategic relationships with technology development partners to provide personnel, and expertise in the research and development of our technology and manufacturing process underlying our product. A loss of these relationships for any reason could cause us to experience difficulties in completing the development of our product and implementing our business strategy. There can be no assurance that we could establish other relationships of adequate expertise in a timely manner or at all.
OUR CURRENT AND POTENTIAL COMPETITORS, SOME OF WHOM HAVE GREATER RESOURCES THAN WE DO, MAY DEVELOP PRODUCTS AND TECHNOLOGIES THAT MAY CAUSE DEMAND FOR, AND THE PRICES OF, OUR PRODUCTS TO DECLINE.
While there are a number of companies manufacturing components for PV devices and electrical energy storage devices, we do not know of any employing the use of bio-based materials or polymer-based supercapacitor designs. We may face competition from these companies as they may expand or combine with other combines to extend their product offering to incorporate bio-based materials. In addition, other companies may enter our markets by acquiring or entering into strategic relationships with our competitors. Current and potential competitors have established, or may establish, cooperative relationships among themselves or with third parties to increase the abilities of their PV components to address the needs of our prospective customers.
Many of our current and potential competitors have longer operating histories, significantly greater financial, technical, product development and marketing resources, greater name recognition and larger customer bases than we do. Our present or future competitors may be able to develop products comparable or superior to those we offer, adapt more quickly than we do to new technologies, evolving industry trends and standards or customer requirements, or devote greater resources to the development, promotion and sale of their products than we do. Accordingly, we may not be able to compete effectively in our markets, competition may intensify and future competition may harm our business.
WE ARE CONTROLLED BY CURRENT OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS.
Our directors, executive officers and principal stockholders and their affiliates beneficially own approximately 15.6% of the outstanding shares of our common stock as of December 31, 2019. Accordingly, our executive officers, directors, principal stockholders and certain of their affiliates will have the ability to control the election of our Board of Directors and the outcome of matters submitted to a vote of our stockholders.
Risks Related to Our Common Stock
BECAUSE THERE IS A LIMITED MARKET IN OUR COMMON STOCK, STOCKHOLDERS MAY HAVE DIFFICULTY IN SELLING OUR COMMON STOCK AND OUR COMMON STOCK MAY BE SUBJECT TO SIGNIFICANT PRICE SWINGS.
There is a very limited market for our common stock. Since trading commenced in February 2007, there has been little activity in our common stock and on some days, there is no trading in our common stock. Because of the limited market for our common stock, the purchase or sale of a relatively small number of shares may have an exaggerated effect on the market price for our common stock. We cannot assure stockholders that they will be able to sell common stock or, that if they are able to sell their shares, that they will be able to sell the shares in any significant quantity at the quoted price.
IF WE FAIL TO REMAIN CURRENT ON OUR REPORTING REQUIREMENTS, WE COULD BE REMOVED FROM THE OTC BULLETIN BOARD WHICH WOULD LIMIT THE ABILITY OF BROKER-DEALERS TO SELL OUR SECURITIES AND THE ABILITY OF STOCKHOLDERS TO SELL THEIR SECURITIES IN THE SECONDARY MARKET.
Securities traded on the OTCQB must be registered with the Securities and Exchange Commission and the issuer must be current with its filings pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1933, as amended in order to maintain price quotation privileges on the OTCQB. If we fail to remain current in our reporting requirements, we could be removed from the OTCQB. As a result, the market liquidity for our securities could be severely adversely affected by limiting the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market. In addition, we may be unable to get re-listed on the OTCQB, which may have an adverse material effect on our Company.
4
OUR COMMON STOCK IS SUBJECT TO THE “PENNY STOCK” RULES OF THE SEC AND THE TRADING MARKET IN OUR SECURITIES IS LIMITED, WHICH MAKES TRANSACTIONS IN OUR STOCK CUMBERSOME AND MAY REDUCE THE VALUE OF AN INVESTMENT IN OUR STOCK.
The Securities and Exchange Commission has adopted Rule 15g-9 which establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require:
| ● | that a broker or dealer approve a person’s account for transactions in penny stocks; and |
| ● | the broker or dealer receives from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased. |
In order to approve a person’s account for transactions in penny stocks, the broker or dealer must:
| ● | obtain financial information and investment experience objectives of the person; and |
| ● | make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks. |
The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the Commission relating to the penny stock market, which, in highlight form:
| ● | sets forth the basis on which the broker or dealer made the suitability determination; and |
| ● | that the broker or dealer received a signed, written agreement from the investor prior to the transaction. |
Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.
Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.
WE DO NOT EXPECT TO PAY DIVIDENDS IN THE FUTURE; ANY RETURN ON INVESTMENT MAY BE LIMITED TO THE VALUE OF OUR COMMON STOCK.
We do not currently anticipate paying cash dividends in the foreseeable future. The payment of dividends on our Common Stock will depend on earnings, financial condition and other business and economic factors affecting it at such time as the board of directors may consider relevant. Our current intention is to apply net earnings, if any, in the foreseeable future to increasing our capital base and development and marketing efforts. There can be no assurance that the Company will ever have sufficient earnings to declare and pay dividends to the holders of our Common Stock, and in any event, a decision to declare and pay dividends is at the sole discretion of the our Board of Directors. If we do not pay dividends, our Common Stock may be less valuable because a return on your investment will only occur if its stock price appreciates.
| ITEM 2. | PROPERTIES. |
Our headquarters are located at 27936 Lost Canyon Road, Suite 202, Santa Clarita, California 91387. We lease our facility under a month to month lease without an expiration date. Our monthly lease payment is $550. The size of our office is 144 square feet.
| ITEM 3. | LEGAL PROCEEDINGS. |
We are not currently a party to, nor are any of our property currently the subject of, any pending legal proceeding that will have a material adverse effect on our business.
| ITEM 4. | MINE SAFETY DISCLOSURES |
N/A
5
| ITEM 5. | MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER REPURCHASES OF EQUITY SECURITIES. |
On February 22, 2007, our common stock became eligible for quotation on the OTC Bulletin Board under the ticker symbol “BSRC” and is currently quoted on the OTCQB maintained by the OTC Markets Group, Inc. under the ticker symbol “BSRC”.
For the periods indicated, the following table sets forth the high and low bid prices per share of common stock. These high and low bid prices represent prices quoted by broker-dealers on the OTCQB. These prices represent inter-dealer quotations without retail markup, markdown, or commission and may not necessarily represent actual transactions.
| Fiscal 2019 | Fiscal 2018 | |||||||||||||||
| Quarter Ended | High | Low | High | Low | ||||||||||||
| March 31 | $ | .04 | $ | .02 | $ | .03 | $ | .02 | ||||||||
| June 30 | $ | .04 | $ | .02 | $ | .18 | $ | .01 | ||||||||
| September 30 | $ | .04 | $ | .01 | $ | .17 | $ | .04 | ||||||||
| December 31 | $ | .03 | $ | .01 | $ | .03 | $ | .02 | ||||||||
Common Stock
As of March 6, 2020, our common stock was held by 85 stockholders of record and we had 149,871,024 shares of common stock issued and outstanding. We believe that the number of beneficial owners is substantially greater than the number of record holders because a significant portion of our outstanding common stock is held of record in broker street names for the benefit of individual investors.
Dividend Policy
We have never declared or paid any cash dividends on our common stock. We do not anticipate paying any cash dividends to stockholders in the foreseeable future. In addition, any future determination to pay cash dividends will be at the discretion of the board of directors and will be dependent upon our financial condition, results of operations, capital requirements, and such other factors as the Board of Directors deem relevant. There are no restrictions in our articles of incorporation or bylaws that restrict us from declaring dividends.
Transfer Agent
The Company’s registrar and transfer agent is Worldwide Stock Transfer, LLC, One University Plaza, Suite 505, Hackensack, NJ 07601.
Securities Authorized for Issuance Under Equity Compensation Plan
We currently do not have an equity compensation plan.
Unregistered Sales of Equity Securities
None.
Issuer Purchases of Equity Securities
None.
| ITEM 6. | SELECTED FINANCIAL DATA |
N/A
| ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
Special Note on Forward-Looking Statements.
Certain statements in “Management’s Discussion and Analysis or Plan of Operation” below, and elsewhere in this annual 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 annual 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 below and elsewhere in this annual report, and in other reports filed by us with the SEC.
6
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 Annual Report beginning on page F-1.
Overview
We are engaged in the development of innovative technologies and materials that we believe will reduce the cost per watt of electricity generated by Photovoltaic (PV) solar modules and the cost per watt of storing electrical energy.
Our current focus is on developing technologies and materials for storing electrical energy. We are currently investigating high capacity silicon alloy anode materials recognizing the fact that the overall battery capacity is determined by combination of both cathode and anode. We are focusing our research and product development efforts on increasing the storage capacity as well as lowering the cost of storage compared to existing electrical storage devices.
RESULTS OF OPERATIONS - YEAR ENDED DECEMBER 31, 2019 COMPARED TO THE YEAR ENDED DECEMBER 31, 2018
General and Administrative Expenses
General and administrative (“G&A”) expenses increased by $5,026 to $428,668 for the year ended December 31, 2019, compared to $423,642 for the prior period December 31, 2018. This increase in G&A expenses was the result of an increase in professional fees of $2,943 and insurance of $3,372, with an overall decrease of $1,289 in other G&A expenses.
Research and Development
Research and Development (“R&D”) expenses increased by $25,080 to $264,687 for the year ended December 31, 2019, compared to $239,607 for the prior period ended December 31, 2018. This overall increase in R&D expenses was the result of an increase in corporate outside services and consultant fees.
Depreciation and amortization Expense
Depreciation and amortization expense for the year ended December 31, 2019 decreased by $813 to $5,289 compared to $6,102 for the prior year ended December 31, 2018. The decrease was primarily due to the decrease in value of the fixed assets.
Other Income/(Expenses)
Other income and (expenses) decreased by $13,989,936 to $4,822,610 of other income for the year ended December 31, 2019, compared to $(9,167,326) of other expense for the prior period ended December 31, 2018. The decrease in non-cash loss on change in fair value of the derivative instruments of $14,168,409, interest expense in the amount of $564,015, which includes the net change in amortization of debt discount in the amount of $531,214, and a decrease in loss on conversion of debt of $385,531, and interest income of $10. The decrease in other income and (expenses) was primarily due to the non-cash net change in derivatives for our outstanding convertible promissory notes.
Net Loss
Our net income was $4,122,365 for the year ended December 31, 2019, compared to a net loss of $9,866,829 for the prior period ended December 31, 2018. The increase in net income was due to an increase in non-cash other income (expenses) associated with the net change in derivative instruments estimated each period. These estimates are based on multiple inputs, including the market price of our stock, interest rates, our stock price volatility, variable conversion prices based on market prices as defined in the respective agreements and probabilities of certain outcomes based on the calculated estimates. These inputs are used to determine the fair value of the derivative liabilities and are subject to significant changes from period to period based on these valuations, therefore, the estimated fair value of the derivative liabilities will fluctuate from period to period, and the fluctuation may be material. The Company has not generated any revenues.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2019, we had $10,048,922 in working capital deficit as compared to $15,062,687 for the prior year ended December 31, 2018. The decrease in working capital deficit was due primarily to a decrease in cash, accounts payable, and convertible debt, with an increase in prepaid expenses, accrued expenses, and derivative liability.
During the year ended December 31, 2019, the Company used $718,403 of cash for operating activities, as compared to $630,979 for the prior year ended December 31, 2018. The increase in the use of cash for operating activities was a result of an increase in insurance, research and development, and professional fees in the fiscal year ended December 31, 2019 compared to December 31, 2018. The Company is focused on development of silicon anode additive technology for next generation lithium-ion batteries.
Cash used in investing activities was $0 for the year ended December 31, 2019 as compared to cash used by investing activities of $5,770 for the prior year ended December 31, 2018. In the year ended December 31, 2018, the Company purchased office equipment with no spend on investing activities in the fiscal year ended December 31, 2019.
7
Cash provided from financing activities during the year ended December 31, 2019 was $697,500 as compared to $600,000 for the prior year ended December 31, 2018. Our capital needs have primarily been met from the proceeds of convertible debt offerings. We are currently in the development stage of our business and have no revenues.
Our financial statements as of December 31, 2019 and 2018 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 9, 2020 that included an explanatory paragraph expressing substantial doubt in our ability to continue as a going concern without additional capital becoming available. Our ability to continue as a going concern ultimately is dependent on our ability to generate a profit which is dependent upon our ability to obtain additional equity or debt financing, attain further operating efficiencies and, ultimately, 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 we believe will reduce the cost per watt of electricity generated by Photovoltaic solar modules. We have previously developed BioBacksheetR, our first commercial product, and we are currently focusing on developing a silicon anode additive material technology for lithium-ion batteries by 2019
Our plan of operation within the next six months is to utilize our cash balances to finish developing our silicon anode additive material technology for high capacity and low cost Lithium-ion batteries. 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 2020, based upon its current operating plan and condition. We expect increased expenses during the second quarter of 2020 as we ramp up prototyping efforts for Lithium-ion batteries incorporating our silicon-based anode material as well as commence an additional related technology program. 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 twelve 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.
| ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
All financial information required by this Item is attached hereto at the end of this report beginning on page F-1 and is hereby incorporated by reference.
| ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. |
None.
| ITEM 9A. | CONTROLS AND PROCEDURES. |
Evaluation of Disclosure Controls and Procedures.
We maintain “disclosure controls and procedures,” as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Act (15 U.S.C. 78a et seq.) is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
As of December 31, 2019, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in our periodic reports is recorded, processed, summarized and reported, within the time periods specified for each report and that such information is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
8
Management’s Report of Internal Control over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Exchange Act Rule 13a - 15(f). Our internal control system was designed to provide reasonable assurance to our management and the Board of Directors regarding the preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2019. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control - Integrated Framework - Guidance for Smaller Public Companies (the COSO criteria). Based on our assessment we believe that, as of December 31, 2019, our internal controls over financial reporting are effective based on those criteria.
This annual report does not include an attestation report by M&K CPAS, PLLC, our independent registered public accounting firm, regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to temporary rules of the SEC that permits the Company to only provide management’s report in this Form 10-K.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the fourth quarter ended December 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| ITEM 9B. | OTHER INFORMATION. |
None.
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| ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE |
The following table sets forth information about our executive officers, key employees and directors.
| Name | Age | Position | ||
| David Lee | 60 | Chief Executive Officer, Acting Chief Financial Officer and Director | ||
| Stanley Levy | 80 | Vice President and Chief Technology Officer | ||
| Steven C. Bartling | 58 | Director | ||
| Dennis LePon | 73 | Director |
The principal occupations for the past five years (and, in some instances, for prior years) of each of our executive officers and directors, are as follows:
David Lee - Chief Executive Officer and Acting Chief Financial Officer and Director of the Company since inception (April 24, 2006). Dr. Lee has over 30 years of engineering, marketing, sales, and corporate management experience in the areas of military and consumer communication systems, automotive electronics, software development and consulting. From 2004 to 2006, he was with Ramsey-Shilling Co. in the business of Commercial Real Estate Investment and Brokerage. From 2000 to 2004, he served as Chief Operating Officer for Applied Reasoning, Inc., a Delaware company engaged in the business of Internet Software Development. From 1994 to 2000, he served as Vice Present and General Manager for RF-Link Technology, Inc., a California company engaged in the business of Wireless Technology Development and Manufacturing. Dr. Lee received a Ph.D. in Electrical Engineering from Purdue University in 1989, a Master of Science in Electrical Engineering from University of Michigan in 1986 and a Bachelor of Science in Electrical Engineering from the University of Texas at Austin in 1984.
The Board of Directors has concluded that Dr. Lee is qualified to serve as a director of the Company because of his diverse experience in technology, marketing, and executive management.
Stanley Levy - Vice President and Chief Technology Officer of the Company since August 2007. Dr. Levy has over 50 years of engineering and technical experience in the areas of plastics and film development. Dr. Levy spent 27 years at DuPont working on many of their premiere films, including Teflon, Mylar and Kapton. He holds 12 patents, his work has been published in numerous technical publications and he has received several awards for technical excellence. Prior to joining BioSolar, Dr. Levy was a consultant on module packaging for photovoltaic manufacturing companies including Global Solar, MiaSole, and Solar Integrated Technologies. In addition, he is a member of the National Renewable Energy Laboratory’s Thin Film PV Module Reliability Team. Dr. Levy holds a Ph.D in Mechanical Engineering from the University of Connecticut, a Master of Science in Mechanical Engineering from the University of Connecticut and a Bachelor of Science in Mechanical Engineering from the University of Rhode Island.
Steven C. Bartling – Director since May 11, 2006. Steven C. Bartling has over 30 years of engineering and corporate management experience in the areas of ultra-high performance digital CMOS (Complementary Metal Oxide Semiconductor) circuit design, high performance microprocessor architecture/design, systems on a chip, packaging, and testing. From 2002 to the present, Mr. Bartling has been employed by Texas Instruments, Inc. in advanced research and development activities for various TI internal businesses and is currently serving as MCU Technology Development Manager for TI’s Micro-Controller Division. From 2001 to 2002, he served as Director of Custom Design for Celerence, an Oregon company engaged in the business of Optical Communication Networking. Mr. Bartling received a Master of Science in Electrical Engineering from Georgia Institute of Technology in 1987 and a Bachelor of Science in Electrical Engineering from the University of Texas at Austin in 1985. We concluded that Mr. Bartling’s wealth of technical and business experience he gained through his successful technical and corporate management career made him qualified to serve on the Board of Directors. Mr. Bartling does not currently hold any other directorship.
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The Board of Directors has concluded that Mr. Bartling is qualified to serve as a director of the Company because of his extensive experience in technology and business development.
Dennis LePon – Director since May 11, 2006. Dennis LePon has over 45 years of financial, managerial, and business experience working for a bank, real estate finance companies, as well as a startup high tech company. From 1992 to the present, Mr. LePon has served as Chief Financial officer of Catalyst Resource Group, Inc., a real estate finance and consulting firm offering specialized financing for healthcare, C-Store, gasoline station and other varied commercial properties nationwide. From 2002 to 2004, he served as Chief Financial Officer for FoodMarket Place.com, a California company engaged in the business of Web Based marketing for food and restaurant industry partnered with Hewlett Packard. Mr. LePon received a Bachelor of Arts from California State University at Northridge in 1969 and a Master of Business Administration from the University of Southern California in 1977. We concluded that Mr. LePon’s strong financial and business experience he gained throughout his successful financial and corporate management career made him qualified to serve on the Board of Directors. Mr. LePon does not currently hold any other directorship.
The Board of Directors has concluded that Mr. LePon is qualified to serve as a director of the Company because of his extensive experience in corporate and finance management.
COMMITTEES OF THE BOARD
We currently do not maintain any committees of the Board of Directors. Given our size and the development of our business to date, we believe that the board through its meetings can perform all of the duties and responsibilities which might be performed by a committee. We do not currently have an audit committee financial expert.
INDEBTEDNESS OF EXECUTIVE OFFICERS AND DIRECTORS
No executive officer, director or any member of these individuals’ immediate families or any corporation or organization with whom any of these individuals is an affiliate is or has been indebted to us since the beginning of our last fiscal year.
FAMILY RELATIONSHIPS
There are no family relationships among our executive officers and directors.
CODE OF ETHICS
We have adopted a Code of Ethics that applies to all of our directors, officers and employees. The text of the Code of Ethics is filed as an exhibit to this annual report on Form 10-K for the year ended December 31, 2008 filed with the Securities and Exchange Commission on March 25, 2008. The Company will provide to any person without charge, upon request to the Company at its office, a copy of the Code of Ethics. Any waiver of the provisions of the Code of Ethics for executive officers and directors may be made only by the Audit Committee and, in the case of a waiver for members of the Audit Committee, by the Board of Directors. Any such waivers will be promptly disclosed to our shareholders.
LEGAL PROCEEDINGS
During the past ten years, none of our directors, executive officers, promoters, control persons, or nominees has been:
| ● | the subject of any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; | |
| ● | convicted in a criminal proceeding or is subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); |
| ● | subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or any Federal or State authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; | |
| ● | found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law. |
| ● | the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of (a) any Federal or State securities or commodities law or regulation; (b) any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or (c) any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or |
| ● | the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. |
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Board Leadership Structure and Role in Risk Oversight
Although we have not adopted a formal policy on whether the Chairman and Chief Executive Officer positions should be separate or combined, we have traditionally determined that it is in the best interests of the Company and its shareholders to combine these roles. Due to the small size and early stage of the Company, we believe it is currently most effective to have the Chairman and Chief Executive Officer positions combined. In addition, having one person serve as both Chairman and Chief Executive Officer eliminates potential for confusion and provides clear leadership for the Company, with a single person setting the tone and managing our operations. The Board oversees specific risks, including, but not limited to:
| ● | appointing, retaining and overseeing the work of the independent auditors, including resolving disagreements between the management and the independent auditors relating to financial reporting; | |
| ● | approving all auditing and non-auditing services permitted to be performed by the independent auditors; |
| ● | reviewing annually the independence and quality control procedures of the independent auditors; |
| ● | reviewing, approving, and overseeing risks arising from proposed related party transactions; |
| ● | discussing the annual audited financial statements with the management; |
| ● | meeting separately with the independent auditors to discuss critical accounting policies, management letters, recommendations on internal controls, the auditor’s engagement letter and independence letter and other material written communications between the independent auditors and the management; and | |
| ● | monitoring the risks associated with management resources, structure, succession planning, development and selection processes, including evaluating the effect the compensation structure may have on risk decisions. |
Board of Directors Meetings and Attendance
We have no formal policy regarding director attendance at the annual meeting of stockholders. The Board of Directors held eighteen (18) meetings in 2019 including three (3) meetings prior to filing our quarterly reports and one (1) meetings prior to filing this Annual Report. All Board members were present at all of the meetings.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company’s directors, executive officers and persons who own more than 10% of the Company’s stock (collectively, “Reporting Persons”) to file with the SEC initial reports of ownership and changes in ownership of the Company’s common stock. Reporting Persons are required by SEC regulations to furnish the Company with copies of all Section 16(a) reports they file. To the Company’s knowledge, based solely on its review of the copies of such reports received or written representations from certain Reporting Persons that no other reports were required, the Company believes that during its fiscal year ended December 31, 2019 all Reporting Persons timely complied with all applicable filing requirements.
| ITEM 11. | EXECUTIVE COMPENSATION. |
The following table summarizes all compensation recorded by us in each of the last two completed fiscal years for the named executive officers.
| Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Non-Qualified Deferred Compensation | All Other Compensation ($) | Total ($) | |||||||||||||||||||||||||||
| David Lee | 2019 | $ | 144,000 | 0 | 0 | 0 | 0 | 0 | 0 | $ | 144,000 | |||||||||||||||||||||||||
| - CEO and Acting CFO | 2018 | $ | 144,000 | 0 | 0 | 0 | 0 | 0 | 0 | $ | 144,000 | |||||||||||||||||||||||||
| Stanley Levy | 2019 | $ | 0 | $ | 0 | |||||||||||||||||||||||||||||||
| - CTO | 2019 | $ | 0 | 0 | 0 | 0 | 0 | 0 | 0 | $ | 0 | |||||||||||||||||||||||||
12
Employment Agreements
The Company currently has no employment agreements with its executive officers.
Employee Benefit Plans
The Company currently has no benefit plans in place for its employees.
Stock Option Plan
The Company has no stock option plan.
Director Compensation
Directors receive compensation for their services and reimbursement for their expenses as shall be determined from time to time by resolution of the Board. Currently, our directors do not receive monetary compensation for their service on the Board of Directors.
| ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. |
The following table sets forth, as of March 6, 2020, the number of and percent of our common stock beneficially owned by:
| ● | all directors and nominees, naming them, | |
| ● | our executive officers, | |
| ● | our directors and executive officers as a group, without naming them, and | |
| ● | persons or groups known by us to own beneficially 5% or more of our common stock: |
We believe that all persons named in the table have sole voting and investment power with respect to all shares of common stock beneficially owned by them.
A person is deemed to be the beneficial owner of securities that can be acquired by him within 60 days from March 6, 2020 upon the exercise of options, warrants or convertible securities. Each beneficial owner’s percentage ownership is determined by assuming that options, warrants or convertible securities that are held by him, but not those held by any other person, and which are exercisable within 60 days of March 6, 2020 have been exercised and converted. Unless otherwise indicated, the address of each of the following beneficial owner is c/o Biosolar, Inc., 27936 Lost Canyon Road, Suite 202, Santa Clarita, CA 91387
| Title of Class | Name of Beneficial Owner | Number of Shares Beneficially Owned |
Percent of Total (1) |
|||||||
| Common Stock | David Lee (2) | 16,769,290 | 10.4 | % | ||||||
| Common Stock | Stanley Levy (3) | 3,665,078 | 2.4 | % | ||||||
| Common Stock | Steven C. Bartling (4) | 1,150,063 | * | % | ||||||
| Common Stock | Dennis LePon (4) | 683,334 | * | % | ||||||
| Common Stock | All Executive Officers and Directors as a Group (4 persons) | 22,267,765 | 14.0 | % | ||||||
| * | Less than one percent. |
| 1. | Based upon 149,871,024 shares of common stock outstanding as of March 6, 2020. |
| 2. | Includes 12,000,000 shares underlying options to purchase shares of the Company’s common stock are fully vested. |
| 3. | Includes 650,000 shares underlying options to purchase shares of the Company’s common stock that are fully vested. |
| 4. | Includes 650,000 shares underlying options to purchase shares of the Company’s common stock that are fully vested. |
13
| ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE. |
There were no material related party transactions which we entered into during the last two fiscal years.
Director Independence
Steven C. Bartling is independent as the term “independent” is defined under the NASDAQ Marketplace Rules.
| ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES. |
Liggett and Webb, PA (“Liggett”) served as the Company’s independent registered accountants from October 31, 2013 until December 2, 2019, when the Company appointed M&K CPA’s PLLC (“M&K”), who currently serves as our independent auditors.
Audit Fees
The following table shows that fees that were billed to the Company by our independent registered public accounting firm for professional services rendered in 2019 and 2018.
The audit fees represent fees for professional services performed by M&K CPAS, PLLC (“M&K”) or Liggett & Webb, P.A. (“Liggett & Webb”), as applicable, for the audit of our financial statements and the review of our quarterly financial statements, as well as services that are normally provided in connection with statutory and regulatory filings or engagements.
| Year | Audit Fees | Audit-Related Fees | Tax Fees | All Other Fees | ||||||||||||
| 2019 – M&K CPAS, PLLC | $ | 11,000 | $ | $ | $ | |||||||||||
| 2019 – Liggett & Webb, P.A. (1) | $ | 12,000 | $ | $ | $ | |||||||||||
| 2018 – Liggett & Webb, P.A. | $ | 25,500 | $ | $ | $ | |||||||||||
| (1) | Through December 2, 1019 |
Audit-Related Fees
We did not incur assurance and audit-related fees during 2019 and 2018, to M&K or Liggett & Webb, as applicable, nor in connection with the audit of our financial statements for the reviews of registration statements and issuance of related consents and assistance with SEC comment letters.
Tax Fees
We did not incur fees for tax compliance, tax advice, or tax planning for the years ended December 31, 2019 and 2018, respectively.
All Other Fees
There were no other fees billed to us by M&K or Liggett& Webb, as applicable, for services rendered to us during the years ended December 31, 2019 and 2018, respectively, other than the services described above under “Audit Fees” and “Audit-Related Fees.”
As of the date of this filing, our current policy is to not engage our independent registered public accounting firm to provide, among other things, bookkeeping services, appraisal or valuation services, or international audit services. The policy provides that we engage our independent registered public accounting firm to provide audit and other assurance services, such as review of SEC reports or filings, as set forth above.
14
| ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES. |
15
16
17
18
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 March 9, 2020.
| BIOSOLAR, INC. | ||
| By: | /s/ David Lee | |
| CHIEF
EXECUTIVE OFFICER (PRINCIPAL EXECUTIVE OFFICER) AND | ||
| ACTING
CHIEF FINANCIAL OFFICER (ACTING PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER) | ||
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the date indicated:
| SIGNATURE | TITLE | DATE | ||
| /s/ DAVID LEE | CHIEF EXECUTIVE OFFICER | March 9, 2020 | ||
| DAVID LEE | (PRINCIPAL EXECUTIVE OFFICER), ACTING CHIEF FINANCIAL OFFICER | |||
| (PRINCIPAL
ACCOUNTING AND FINANCIAL OFFICER) AND CHAIRMAN OF THE BOARD |
||||
| /s/ Steven C. Bartling | DIRECTOR | |||
| STEVEN C. BARTLING | March 9, 2020 | |||
| /s/ DENNIS LEPON | DIRECTOR | |||
| DENNIS LEPON | March 9, 2020 |
19
INDEX TO FINANCIAL STATEMENTS
BIOSOLAR, INC.
FINANCIAL STATEMENTS
CONTENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of BioSolar, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheet of BioSolar, Inc. (the Company) as of December 31, 2019, and the related statements of operations, shareholders’ deficit, and cash flows for period ended December 31, 2019, and the related notes and schedules (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019, and the results of its operations and its cash flows for each of the years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America. The financial statements of BioSolar, Inc., as of December 31, 2018, were audited by other auditors whose report dated March 21, 2019, expressed an unqualified opinion on those financial statements.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
The accompanying financial statements have been prepared assuming that the Company will continues as a going concern. As discussed in Note 1 to the financial statements, in past years, the Company has suffered net losses from operations and has a net capital deficiency, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are discussed in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
M&K CPAS, PLLC.
We have served as the Company’s auditor since 2019.
Houston, TX
March 9, 2020
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of BioSolar, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheet of BioSolar, Inc. (the "Company") as of December 31, 2018, the related statement of operations, shareholders’ deficit, and cash flows for the year then ended, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
The Company’s Ability to Continue as a Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company does not generate revenue and has negative cash flows from operations. This raises substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting in accordance with the standards of the PCAOB. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion in accordance with the standards of the PCAOB.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
| /s/ Liggett & Webb, P.A. |
We have served as the Company’s auditor since 2013 to 2019.
New York, NY
March 21, 2019
F-2
BALANCE SHEETS
| December 31, 2019 | December 31, 2018 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | 61,794 | $ | 82,697 | ||||
| Prepaid expenses | 29,956 | 23,107 | ||||||
| TOTAL CURRENT ASSETS | 91,750 | 105,804 | ||||||
| PROPERTY AND EQUIPMENT | ||||||||
| Machinery and equipment | 37,225 | 37,225 | ||||||
| Less accumulated depreciation | (30,681 | ) | (26,814 | ) | ||||
| NET PROPERTY AND EQUIPMENT | 6,544 | 10,411 | ||||||
| OTHER ASSETS | ||||||||
| Patents, net of amortization of $12,090 and $9,067, respectively | 33,246 | 36,269 | ||||||
| Deposit | 770 | 770 | ||||||
| TOTAL OTHER ASSETS | 34,016 | 37,039 | ||||||
| TOTAL ASSETS | $ | 132,310 | $ | 153,254 | ||||
| LIABILITIES AND SHAREHOLDERS’ DEFICIT | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | 58 | $ | 896 | ||||
| Accrued expenses | 830,425 | 641,366 | ||||||
| Derivative liability | 8,919,202 | 14,032,942 | ||||||
| Convertible promissory notes net of debt discount of $254,897 and $265,873, respectively | 390,987 | 493,287 | ||||||
| TOTAL CURRENT LIABILITIES | 10,140,672 | 15,168,491 | ||||||
| LONG TERM LIABILITIES | ||||||||
| Convertible promissory notes net of debt discount of $800 and $27, respectively | 2,207,349 | 1,984,973 | ||||||
| TOTAL LONG TERM LIABILITIES | 2,207,349 | 1,984,973 | ||||||
| TOTAL LIABILITIES | 12,348,021 | 17,153,464 | ||||||
| SHAREHOLDERS’ DEFICIT | ||||||||
| Preferred stock, $0.0001 par value; 10,000,000 authorized shares, none issued and outstanding | - | - | ||||||
| Preferred treasury stock, 1000 and 0 shares outstanding, respectively | - | - | ||||||
| Common stock, $0.0001 par value; 3,000,000,000 authorized shares 133,912,520 and 60,639,308 shares issued and outstanding, respectively | 13,391 | 6,064 | ||||||
| Additional paid in capital | 12,301,739 | 11,646,932 | ||||||
| Accumulated deficit | (24,530,841 | ) | (28,653,206 | ) | ||||
| TOTAL SHAREHOLDERS’ DECIFIT | (12,215,711 | ) | (17,000,210 | ) | ||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT | $ | 132,310 | $ | 153,254 | ||||
The accompanying notes are an integral part of these audited financial statements
F-3
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
| Years Ended | ||||||||
| December 31, 2019 | December 31, 2018 | |||||||
| REVENUE | $ | - | $ | - | ||||
| OPERATING EXPENSES | ||||||||
| General and administrative expenses | 428,668 | 423,642 | ||||||
| Research and development | 264,687 | 239,607 | ||||||
| Depreciation and amortization | 6,890 | 6,103 | ||||||
| Loss on abandonment of patents | - | 30,151 | ||||||
| TOTAL OPERATING EXPENSES | 700,245 | 699,503 | ||||||
| LOSS FROM OPERATIONS BEFORE OTHER INCOME (EXPENSES) | (700,245 | ) | (699,503 | ) | ||||
| OTHER INCOME/(EXPENSES) | ||||||||
| Interest income | 36 | 25 | ||||||
| Loss on conversion of debt | - | (385,531 | ) | |||||
| Gain (Loss) on change in derivative liability | 5,777,348 | (8,391,061 | ) | |||||
| Interest expense | (954,774 | ) | (390,759 | ) | ||||
| TOTAL OTHER INCOME (EXPENSES) | 4,822,610 | (9,167,326 | ) | |||||
| NET INCOME (LOSS) | $ | 4,122,365 | $ | (9,866,829 | ) | |||
| BASIC EARNINGS (LOSS) PER SHARE | $ | 0.04 | $ | (0.18 | ) | |||
| DILUTED EARNINGS (LOSS) PER SHARE | $ | 0.01 | $ | (0.18 | ) | |||
| WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING | ||||||||
| BASIC | 92,022,751 | 53,667,779 | ||||||
| DILUTED | 679,815,020 | 53,667,779 | ||||||
The accompanying notes are an integral part of these audited financial statements
F-4
STATEMENTS OF SHAREHOLDERS’ DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
| YEARS ENDED DECEMBER 31, 2019 AND 2018 | ||||||||||||||||||||||||||||||||
| Additional | Additional | |||||||||||||||||||||||||||||||
| Preferred Stock | Paid-in | Common Stock | Paid-in | Accumulated | ||||||||||||||||||||||||||||
| Shares | Amount | Capital | Shares | Amount | Capital | Deficit | Total | |||||||||||||||||||||||||
| Balance at December 31, 2017 | - | $ | - | $ | - | 41,485,051 | $ | 4,149 | $ | 11,127,693 | $ | (18,786,377 | ) | $ | (7,654,535 | ) | ||||||||||||||||
| Issuance of common shares for converted promissory notes and accrued interest | - | - | - | 19,154,257 | 1,915 | 519,239 | - | 521,154 | ||||||||||||||||||||||||
| Net Loss | - | - | - | - | - | - | (9,866,829 | ) | (9,866,829 | ) | ||||||||||||||||||||||
| Balance at December 31, 2018 | - | - | - | 60,639,308 | 6,064 | 11,646,932 | (28,653,206 | ) | (17,000,210 | ) | ||||||||||||||||||||||
| Issuance of common shares for converted promissory notes and accrued interest | - | - | - | 73,273,212 | 7,327 | 654,807 | - | 662,134 | ||||||||||||||||||||||||
| Issuance of preferred shares for services | 1,000 | - | 20,000 | - | - | - | - | 20,000 | ||||||||||||||||||||||||
| Redeemption of preferred shares | (1,000 | ) | - | (20,000 | ) | - | - | - | - | (20,000 | ) | |||||||||||||||||||||
| Net Income | - | - | - | - | - | - | 4,122,365 | 4,122,365 | ||||||||||||||||||||||||
| Balance at December 31, 2019 | - | $ | - | $ | - | 133,912,520 | $ | 13,391 | $ | 12,301,739 | $ | (24,530,841 | ) | $ | (12,215,711 | ) | ||||||||||||||||
The accompanying notes are an integral part of these audited financial statements
F-5
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
| Years Ended | ||||||||
| December 31, 2019 | December 31, 2018 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net Income (Loss) | $ | 4,122,365 | $ | (9,866,829 | ) | |||
| Adjustment to reconcile net income(loss) to net cash used in operating activities | ||||||||
| Depreciation and amortization expense | 6,890 | 6,103 | ||||||
| (Gain) Loss on net change in derivative liability | (5,777,348 | ) | 8,391,061 | |||||
| Loss on conversion of debt | - | 385,531 | ||||||
| Amortization of debt discount recognized as interest expense | 673,812 | 142,598 | ||||||
| Loss on abandonment of patents | - | 30,151 | ||||||
| (Increase) Decrease in Changes in Assets | ||||||||
| Prepaid expenses | (6,849 | ) | (1,464 | ) | ||||
| Increase (Decrease) in Changes in Liabilities | ||||||||
| Accounts payable | (838 | ) | (30,949 | ) | ||||
| Accrued expenses | 263,565 | 312,819 | ||||||
| NET CASH (USED) IN OPERATING ACTIVITIES | (718,403 | ) | (630,979 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of equipment | - | (5,770 | ) | |||||
| NET CASH (USED IN) INVESTING ACTIVITIES | - | (5,770 | ) | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from convertible promissory notes | 697,500 | 600,000 | ||||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | 697,500 | 600,000 | ||||||
| NET DECREASE IN CASH | (20,903 | ) | (36,749 | ) | ||||
| CASH, BEGINNING OF YEAR | 82,697 | 119,446 | ||||||
| CASH, END OF YEAR | $ | 61,794 | $ | 82,697 | ||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | ||||||||
| Interest paid | $ | 979 | $ | 2,262 | ||||
| Taxes paid | $ | - | $ | - | ||||
| SUPPLEMENTAL SCHEDULE OF NON-CASH TRANSACTIONS | ||||||||
| Common stock issued for convertible notes and accrued interest | $ | 662,134 | $ | 521,154 | ||||
| Preferred stock issued for services and redeemed | $ | - | $ | - | ||||
| Initial Debt Discount due to derivative | $ | 663,608 | $ | - | ||||
The accompanying notes are an integral part of these audited financial statements
F-6
NOTES TO FINANCIAL STATEMENTS – AUDITED
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
| 1. | ORGANIZATION AND LINE OF BUSINESS |
Organization
BioSolar, Inc. (the “Company”) was incorporated in the state of Nevada on April 24, 2006. The Company, based in Santa Clarita, California, began operations on April 25, 2006 to develop and market Photovoltaic solar technology products.
Line of Business
We are developing innovative technologies to increase the storage capacity, lower the cost and extend the life of lithium-ion batteries for electric vehicles (EV). We are currently working on a silicon anode additive material technology intended to increase the storage capacity of current and future generation of lithium-ion batteries We previously developed BioBacksheetR, a high performance green back sheet for Photovoltaic solar modules.,
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. During the year ended December 31, 2019, the Company did not generate any revenue, incurred net income of $4,122,365, which includes a non-cash net gain in change in derivative of $5,777,348 and used cash in operations of $718,403. As of December 31, 2019, the Company had a working capital deficiency of $10,048,922 and a shareholders’ deficit of $12,215,711. These factors, among others raise substantial doubt about the Company’s ability to continue as a going concern. Our independent auditors, in their report on our audited financial statements for the year ended December 31, 2019 expressed substantial doubt about our ability to continue as a going concern.
The accompanying financial statements have been prepared in conformity with U.S. GAAP, which contemplates continuation of the Company as a going concern and the realization of assets and satisfaction of liabilities in the normal course of business. The carrying amounts of assets and liabilities presented in the financial statements do not necessarily purport to represent realizable or settlement values. The financial statements do not include any adjustment that might result from the outcome of this uncertainty.
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, achieving a level of profitable operations and receiving additional cash infusions. During the year ended December 31, 2019, the Company obtained funds from the issuance of convertible note agreements. Management believes this funding will continue from its’ current investors and from new investors. Management believes the existing shareholders, and the 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 business operations. 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 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. The Company adopted Accounting Standards Codification (“ASC”) 606, whereby revenue will be recognized as performance obligations are satisfied and customers obtain control of goods or services. However, in the event of a loss on a sale is foreseen, the Company will recognize the loss as it is determined. 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.
F-7
BIOSOLAR, INC.
NOTES TO FINANCIAL STATEMENTS – AUDITED
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Property and Equipment
Property and equipment are stated at cost, and are depreciated using straight line over its estimated useful lives:
| Computer equipment | 5 Years | |||
| Machinery and equipment | 10 Years |
Depreciation expense for the years ended December 31, 2019 and 2018 was $4,623 and $3,080, respectively.
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
| Useful Lives | 2019 | 2018 | ||||||||
| Patents | $ | 45,336 | $ | 75,487 | ||||||
| Write-off of abandoned patents | - | (30,151 | ) | |||||||
| Less accumulated amortization | 15 years | (12,090 | ) | (9,067 | ) | |||||
| $ | 33,246 | $ | 36,269 | |||||||
Amortization expense for the years ended December 31, 2019 and 2018 was $2,267 and $3,022, respectively.
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.
The Company granted 12,000,000 stock options to its’ employee and 3,950,000 stock options to and board of directors for services. As of December 31, 2019, there were 15,950,000 stock options outstanding.
As of December 31, 2019, the Company did not issue any warrants and had no warrants outstanding.
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 December 31, 2019, 15,950,000 stock options are outstanding.
Income Taxes
Deferred income taxes are provided using the liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry-forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of the changes in tax laws and rates of the date of enactment.
When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination.
On December 22, 2017, the Tax Cut and Jobs Act (the “Tax Act”) was signed into law by the President of the United States. The TCJA is a tax reform act that among other things, reduced corporate income tax rate to 21%, effective January 1, 2018. Accordingly, the Company adjusted its deferred tax assets and liabilities at January 1, 2018, using the new corporate rate of 21%. See Note 7.
Research and Development
Research and development costs are expensed as incurred. Total research and development costs were $264,687 and $239,607 for the years ended December 31, 2019 and 2018, respectively.
F-8
BIOSOLAR, INC.
NOTES TO FINANCIAL STATEMENTS – AUDITED
FOR THE YEARS ENDED DECEMBER 31, 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).
The Company has included shares issuable from convertible debt of $2,854,033 and 15,950,000 stock options for the year ended December 31, 2019, because their impact on the income per share is dilutive.
The Company has excluded shares issuable from convertible debt of $2,478,260 and 15,950,000 stock options for the year ended December 31, 2018, because their impact on the loss per share is anti-dilutive.
| For the Years Ended | ||||||||
| December 31, | ||||||||
| 2019 | 2018 | |||||||
| Income (Loss) to common shareholders (Numerator) | $ | 4,122,365 | $ | (9,866,829 | ) | |||
| Basic weighted average number of common shares outstanding (Denominator) | 92,022,751 | 53,667,779 | ||||||
| Diluted weighted average number of common shares outstanding (Denominator) | 679,815,020 | 53,667,779 | ||||||
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 December 31, 2019, 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 December 31, 2019 and 2018:
| Total | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
| Assets: | $ | - | $ | - | $ | - | $ | - | ||||||||
| Liabilities: | ||||||||||||||||
| Derivative Liability at fair value as of December 31, 2019 | $ | 8,919,202 | $ | - | $ | - | $ | 8,919,202 | ||||||||
| Derivative Liability at fair value as of December 31, 2018 | $ | 14,032,942 | $ | - | $ | - | $ | 14,032,942 | ||||||||
Fair Value of Financial Instruments
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, 2017 | $ | 5,239,073 | ||
| Fair value of derivative liabilities issued | 402,808 | |||
| Loss on change in derivative liability | 8,391,061 | |||
| Balance as of December 31, 2018 | $ | 14,032,942 | ||
| Fair value of derivative liabilities issued | 663,608 | |||
| Gain on change in derivative liability | (5,777,348 | ) | ||
| Balance as of December 31, 2019 | $ | 8,919,202 |
F-9
BIOSOLAR, INC.
NOTES TO FINANCIAL STATEMENTS – AUDITED
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Accounting for Derivatives
The Company evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments, the Company uses a probability weighted average series Binomial lattice formula pricing models to value the derivative instruments at inception and on subsequent valuation dates.
The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-2, which creates ASC Topic 842, “Leases.” This update increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This guidance is effective for interim and annual reporting periods beginning after December 15, 2018. The Company has evaluated the impact of the adoption of ASC 2016-2, which had no effect on the Company’s financial statements.
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 effect on the Company’s financial statements.
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 has evaluated the impact of the adoption of ASU 2018-13, which has no effect 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.
| 3. | CAPITAL STOCK |
Preferred Stock
On October 28, 2019, the Board of Directors granted 10,000,000 shares of preferred stock, par value $0.0001 per share, and authorized Series A Preferred stock consisting of one thousand (1,000) shares, which shall not be entitled to receive dividends paid on common stock, no liquidation preference, and no conversion rights. The Series A Preferred Stock will have voting rights for as long as the Series A Preferred Stock remains issued and outstanding, shall have the fifty-one percent (51%) majority voting power of the Company’s shareholders.
The Series A Preferred Stock shall be automatically redeemed at par value without any required action by the Company or the holder, and shall be triggered by the following events:
| (i) | A date forty-five (45) days after the effective date of the certificate of designation. |
| (ii) | On the date that Mr. Lee ceases for any reason, to serve as officer, director or consultant of the Company. |
| (iii) | On the date that the Company’s shares of common stock first trade on any national securities exchange. |
The Series A Preferred Stock automatically reverted back to the Company at par value on December 12, 2019. As of December 31, 2019, there were no Series A Preferred Stock outstanding.
Common Stock
On October 28, 2019, the Board of Directors deem it advisable and in the best interest of the Corporation to increase the authorized number of shares of common stock of the Corporation from 500,000,000 shares of common stock, par value $0.0001 per share to 3,000,000,000 shares of common stock, par value $0.0001 per share.
During the year ended December 31, 2019, the Company issued 73,273,212 shares of common stock upon conversion of convertible promissory notes in the amount of $587,628, plus accrued interest of $74,006, and other fees of $500 at prices ranging from $0.00495 - $0.0172.
During the year ended December 31, 2018, the Company issued 19,154,257 shares of common stock upon conversion of convertible promissory notes in the amount of $99,470, plus accrued interest of $36,153, with an aggregate fair value loss of $385,531 at prices ranging from $0.0157 - $0.048.
F-10
BIOSOLAR, INC.
NOTES TO FINANCIAL STATEMENTS – AUDITED
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
| 4. | STOCK OPTIONS |
Stock Options
The Company did not grant any stock options during the years ended December 31, 2019 and 2018, respectively.
| 12/31/2019 | 12/31/2018 | |||||||||||||||
| 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 December 31, 2019 and 2018 was as follows:
| 12/31/2019 | 12/31/2018 | |||||||||||||||||||||||||||||
| 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 | 2.23 | $ | 0.09 | 2,450,000 | 2,450,000 | 3.23 | |||||||||||||||||||||
| $ | 0.26 | 13,500,000 | 13,500,000 | 2.37 | $ | 0.26 | 13,500,000 | 13,500,000 | 3.67 | |||||||||||||||||||||
| 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 years ended December 31, 2019 and 2018, related to the granting of these options was $0 and $0, respectively.
As of December 31, 2019 and 2018, respectively, there was no intrinsic value with regards to the outstanding options.
| 5. | CONVERTIBLE PROMISSORY NOTES |
As of December 31, 2019 and 2018, the outstanding convertible promissory notes net of debt discount are summarized as follows:
| 2019 | 2018 | |||||||
| Convertible Promissory Notes, net of debt discount | $ | 2,598,336 | $ | 2,470,810 | ||||
| Less current portion | 390,987 | 485,837 | ||||||
| Total long-term liabilities | $ | 2,207,349 | $ | 1,984,973 | ||||
Maturities of long-term debt, net of debt discount for the next five years are as follows:
| December 31, | Amount | |||
| 2020 | $ | 390,987 | ||
| 2021 | 685,000 | |||
| 2022 | 570,150 | |||
| 2023 | 927,199 | |||
| 2024 | 25,000 | |||
| $ | 2,598,336 | |||
At December 31, 2019, the Company had $2,854,033 in convertible promissory notes had a remaining debt discount of $255,697, leaving a net balance of $2,598,336.
F-11
BIOSOLAR, INC.
NOTES TO FINANCIAL STATEMENTS – AUDITED
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
| 5. | CONVERTIBLE PROMISSORY NOTES (Continued) |
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 matured on September 18, 2019, and was extended to May 2, 2022 on December 26, 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 year ended December 31, 2019, the Company issued 30,503,493 shares of common stock upon conversion of principal in the amount of $109,010, plus accrued interest of $51,807. As of December 31, 2019, the remaining balance of the May 2014 Note was $98,150.
The Company issued various unsecured convertible promissory notes (the 2015-2019 Notes”) in the aggregate amount of $2,500,000 on various dates of January 30, 2015 through January 17, 2019. On January 17, 2019, the Company received an additional tranche in the amount of $25,000, associated with the January 30, 2015 Note for a total aggregate of $2,340,000. The 2015-2019 Notes mature on dates from January 30, 2020 through January 17, 2024. The 2015-2019 Notes bears interest at 10% per annum. The 2015-2019 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 2015-2019 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 $120,753 during the year ended December 31, 2019. As of December 31, 2019, the aggregate balances of the 2015-2019 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. 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) closing bid prices during the fifteen (15) trading day 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 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 December 31, 2019, the Company issued 39,519,719 upon conversion of principal in the amount of $444,000, plus accrued interest of $22,200. The Company recorded amortization of debt discount, which was recognized as interest expense in the amount of $383,540 during the year ended December 31, 2019. As of December 31, 2019, the remaining aggregate balances of the Jul-Jun 2019 Notes were $0.
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 matures 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 or lowest bid 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 issued 3,250,000 upon conversion of principal of $34,616, plus other fees of $500. The Company recorded amortization of debt discount, which was recognized as interest expense in the amount of $85,199 during the year ended December 31, 2019. As of December 31, 2019, the balance of the Feb-Apr 2019 Notes was $72,384.
F-12
BIOSOLAR, INC.
NOTES TO FINANCIAL STATEMENTS – AUDITED
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
| 5. | CONVERTIBLE PROMISSORY NOTES (Continued) |
The Company issued an unsecured convertible promissory note on July 16, 2019 (the July 2019 Note), in the aggregate principal amount of $53,000. The Company paid an original issue discount of $3,000 and received funds in the amount of $50,000. The July 2019 Note matures on July 16, 2020. The July 2019 Note bears interest at 10% per annum. The July 2019 Note 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) day closing bid prices 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 July 2019 Note was considered a derivative in accordance with current accounting guidelines because of the reset conversion features of the July 2019 Note. The fair value of the July 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 $24,328 during the year ended December 31, 2019. As of December 31, 2019, the balance of the July 2019 Note was $53,000.
The Company issued an unsecured convertible promissory note on August 8, 2019 (the August 2019 Note), in the aggregate principal amount of $53,500. The Company paid an original issue discount of $2,000 and received funds in the amount of $51,500. The August 2019 Note matures on August 8, 2020. The August 2019 Note bears interest at 10% per annum. The August 2019 Note 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 or lowest bid 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 July 2019 Note was considered a derivative in accordance with current accounting guidelines because of the reset conversion features of the August 2019 Note. The fair value of the August 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 $21,195 during the year ended December 31, 2019. As of December 31, 2019, the balance of the August 2019 Note was $53,500.
The Company issued an unsecured convertible promissory note on August 29, 2019 (the August 29, 2019 Note), in the aggregate principal amount of $63,000. The Company paid an original issue discount of $3,000 and received funds in the amount of $60,000. The August 29, 2019 Note matures on August 29, 2020. The August 29, 2019 Note bears interest at 10% per annum. The August 29, 2019 Note 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) day closing bid prices 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 August 29, 2019 Note was considered a derivative in accordance with current accounting guidelines because of the reset conversion features of the August 29, 2019 Note. The fair value of the August 29, 2019 Note 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 $12,507 during the year ended December 31, 2019. As of December 31, 2019, the balance of the August 2019 Note was $63,000.
The Company issued an unsecured convertible promissory note on October 1, 2019 (the Oct 2019 Note), in the aggregate principal amount of $63,000. The Company paid an original issue discount of $3,000 and received funds in the amount of $60,000. The October 1, 2019 Note matures on October 1, 2020. The Oct 2019 Note bears interest at 10% per annum. The Oct 2019 Note 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) day closing bid prices 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 Oct 2019 Note was considered a derivative in accordance with current accounting guidelines because of the reset conversion features of the Oct 2019 Note. The fair value of the Oct 2019 Note 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 $15,664 during the year ended December 31, 2019. As of December 31, 2019, the balance of the Oct 2019 Note was $63,000.
The Company issued an unsecured convertible promissory note on November 4, 2019 (the Nov 2019 Note), in the aggregate principal amount of $53,000. The Company paid an original issue discount of $3,000 and received funds in the amount of $50,000. The November 4, 2019 Note matures on November 4, 2020. The Nov 2019 Note bears interest at 10% per annum. The Nov 2019 Note 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) day closing bid prices 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 Nov 2019 Note was considered a derivative in accordance with current accounting guidelines because of the reset conversion features of the Nov 2019 Note. The fair value of the Nov 2019 Note 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 $9,033 during the year ended December 31, 2019. As of December 31, 2019, the balance of the Nov 2019 Note was $53,000.
F-13
BIOSOLAR, INC.
NOTES TO FINANCIAL STATEMENTS – AUDITED
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
| 5. | CONVERTIBLE PROMISSORY NOTES (Continued) |
The Company issued an unsecured convertible promissory note on December 20, 2019 (the Dec 2019 Note), in the aggregate principal amount of $53,000. The Company paid an original issue discount of $3,000 and received funds in the amount of $50,000. The December 20, 2019 Note matures on December 20, 2020. The Dec 2019 Note bears interest at 10% per annum. The Dec 2019 Note 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) day closing bid prices 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 Dec 2019 Note was considered a derivative in accordance with current accounting guidelines because of the reset conversion features of the Dec 2019 Note. The fair value of the Dec 2019 Note 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 $1,593 during the year ended December 31, 2019. As of December 31, 2019, the balance of the Dec 2019 Note was $53,000.
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 year ended December 31, 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 $663,608, 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 year ended December 31, 2019, the Company converted $587,628 in principal of convertible notes, plus accrued interest of $74,006, and other fees of $500. As a result of the conversion of these notes the Company recorded a gain on extinguishment of debt in the amount of $1,056,558 and a gain in net change in derivative of $4,720,790 in the statement of operations for the year ended December 31, 2019. At December 31, 2019, the fair value of the derivative liability was $8,919,202.
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:
| 12/31/2019 | ||
| Risk free interest rate | 1.55% - 1.69% | |
| Stock volatility factor | 63.0% -159.0% | |
| Weighted average expected option life | 6 months - 5 years | |
| Expected dividend yield | None |
| 7. | INCOME TAXES |
On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the “Act”), which significantly changed U.S. tax law. The Act lowered the Company’s U.S. statutory federal income tax rate from 35% to 21% effective January 1, 2018.
The Company files income tax returns in the U.S. Federal jurisdiction, and the state of California. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2016.
Included in the balance at December 31, 2019, are no tax positions for which the ultimate deductibility is highly certain, but for which there is uncertainty about the timing of such deductibility. Because of the impact of deferred tax accounting, other than interest and penalties, the disallowance of the shorter deductibility period would not affect the annual effective tax rate but would accelerate the payment of cash to the taxing authority to an earlier period.
F-14
BIOSOLAR, INC.
NOTES TO FINANCIAL STATEMENTS – AUDITED
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
| 7. | INCOME TAXES (Continued) |
The Company’s policy is to recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. During the year ended December 31, 2019, the Company did not recognize interest and penalties.
At December 31, 2019, the Company had net operating loss carry-forwards of approximately $9,275,000 that may be offset against future taxable income. No tax benefit has been reported in the December 31, 2019 financial statements since the potential tax benefit is offset by a valuation allowance of the same amount.
The income tax provision differs from the amount of income tax determined by applying the U.S. federal and state income tax rate of 30% to pretax income from continuing operations for the years ended December 31, 2019 and 2018 due to the following:
| 2019 | 2018 | |||||||
| Book Income (Loss) | 1,236,710 | (2,072,035 | ) | |||||
| Depreciation | (230 | ) | 125 | |||||
| Meals and entertainment | 95 | (1,060 | ) | |||||
| Non-deductible non-cash charges | (1,012,945 | ) | 1,924,670 | |||||
| Valuation Allowance | (223,630 | ) | 148,300 | |||||
| Income tax expense | $ | - | $ | - | ||||
Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible differences and operating loss and tax credit carry-forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the difference between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Net deferred tax assets consist of the following components as of December 31, 2019 and 2018:
| 2019 | 2018 | |||||||
| Deferred tax assets: | ||||||||
| NOL carryover | (1,947,750 | ) | (1,811,705 | ) | ||||
| R & D credit | 142,385 | 124,840 | ||||||
| Depreciation | 10,735 | 10,735 | ||||||
| Deferred tax liabilities: | - | |||||||
| Less Valuation Allowance | 1,794,630 | 1,676,130 | ||||||
| Net deferred tax asset | $ | - | $ | - | ||||
Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry-forwards for Federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carry-forwards may be limited as to use in future years.
F-15
BIOSOLAR, INC.
NOTES TO FINANCIAL STATEMENTS – AUDITED
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
| 8. | RELATED PARTY TRANSACTION |
On October 28, 2019, the Company issued 1,000 shares of Series A Preferred Stock at $20 par value to Mr. David Lee as a bonus for services. The Series A Preferred Stock had a fifty-one (51%) voting right only and was redeemed at par value on December 12, 2019. As of December 31, 2019, there were no Series A Preferred Stock outstanding.
| 9. | COMMITMENTS AND CONTINGENCIES |
The Company rents office space on a yearly basis with a monthly rent payment in the amount of $550.
In the normal course of business, the Company may be involved in legal proceedings, claims and assessments arising. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s financial position or results of operations.
At December 31, 2019, there were no legal proceedings against the Company.
| 10. | SUBSEQUENT EVENT |
Management has evaluated subsequent events according to the requirements of ASC TOPIC 855 and has determined that there are the following subsequent events:
On January 16, 2020, the Company issued 1,200,000 shares of common stock upon conversion of principal in the amount of $7,802, plus $250 in other fees.
On January 21, 2020, the Company issued 1,666,667 shares of common stock upon conversion of principal in the amount of $12,000.
On January 23, 2020, the Company issued 2,142,857 shares of common stock upon conversion of principal in the amount of $15,000.
On January 24, 2020, the Company issued 2,272,727 shares of common stock upon conversion of principal in the amount of $15,000.
On January 23, 2020, 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 “January 2020 Note”) in the principal amount of $53,000. The January 2020 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.
On January 27, 2020, the Company issued 2,166,667 shares of common stock upon conversion of principal in the amount of $11,000, plus accrued interest of $2,650.
On February 13, 2020, 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 “February 2020 Note”) in the principal amount of $53,500. The February 2020 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.
On February 25, 2020, the Company issued 2,000,000 shares of common stock upon conversion of principal in the amount of $10,120, plus other fees of $250.
On March 2, 2020, 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 “February 2020 Note”) in the principal amount of $53,000. The March 2020 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.
On March 3, 2020, the Company issued 1,967,213 shares of common stock upon conversion of principal in the amount of $12,000.
On March 6, 2020, the Company issued 2,542,373 shares of common stock upon conversion of principal in the amount of $15,000.
Effective March 6, 2020, the Company entered into an agreement with Soelect, Inc. for the Joint Development of low-cost manufacturing of SiO-C-Li Composition material using Solid state process agreement (the “Agreement”).
The Agreement is for a term of 21 months, with three phases of development. However, the parties may extend the term for additional periods as may be mutually agreed to. Either party upon 30 days’ notice may terminate the Agreement. Phase 1 of the project is expected to run for 9 months with estimated cost to the Company of $90,000, with Phase 2 estimated for last 6 months, with estimated cost of $100,000, and the final, Phase 3, expected to run for 6 months at an estimated cost of $100,000.
F-16