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BSRC > SEC Filings for BSRC > Form 10-Q on 25-Oct-2013All Recent SEC Filings

Show all filings for BIOSOLAR INC

Form 10-Q for BIOSOLAR INC


25-Oct-2013

Quarterly Report


ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Special Note on Forward-Looking Statements.

Certain statements in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" below, and elsewhere in this 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 contained herein after the date of this report. Subsequent written and oral forward looking statements attributable to us or to persons acting in our behalf are expressly qualified in their entirety by the cautionary statements and risk factors set forth in our annual report on Form 10-K filed with the SEC on February 26,2013, and in other reports filed by us with the SEC

You should read the following description of our financial condition and results of operations in conjunction with the financial statements and accompanying notes included in this report.

Overview

We are developing an innovative technology to produce bio-based materials from renewable plant sources that will reduce the cost per watt of Photovoltaic solar modules. Most of the solar industry is focused on photovoltaic efficiency to reduce cost, but we are introducing a new dimension of cost reduction by replacing petroleum-based plastic solar module components with durable bio-based components. The process for producing electricity from sunlight is known as Photovoltaics. Photovoltaic ("PV") is the science of capturing and converting sun light into electricity.

We are focusing our research and product development efforts on producing bio-based components that meet the thermal and durability requirements of current PV solar module manufacturing processes for conventional crystalline cell designs as well as thin film PV devices in an effort to capitalize on what we perceive as cost advantages to current petroleum based PV solar module components. We currently use Nylon 11, which is derived from castor oil in the development of our technology. Our current supplier of this product is Arkema, Inc. We do not currently have an agreement with Arkema for the supply of Nylon 11 and there is currently no other known supplier of Nylon 11. If we are unable to obtain Nylon 11 for our products, we will seek alternative options which may include similar biobased materials such as Nylon 1010 for which there are many known suppliers.

We were incorporated in the State of Nevada on April 24, 2006, as BioSolar Labs, Inc. Our name was changed to BioSolar, Inc. on June 8, 2006. Our principal executive offices are located at 27936 Lost Canyon Road, Suite 202, Santa Clarita, California 91387, and our telephone number is (661) 251-0001. Our fiscal year end is December 31.

Application of Critical Accounting Policies


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Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to impairment of property, plant and equipment, intangible assets, deferred tax assets and fair value computation using the Black Scholes option pricing model. We base our estimates on historical experience and on various other assumptions, such as the trading value of our common stock and estimated future undiscounted cash flows, that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions; however, we believe that our estimates, including those for the above-described items, are reasonable.

Use of Estimates

In accordance with accounting principles generally accepted in the United States, management utilizes estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. These estimates and assumptions relate to recording net revenue, collectability of accounts receivable, useful lives and impairment of tangible and intangible assets, accruals, income taxes, inventory realization, stock-based compensation expense and other factors. Management believes it has exercised reasonable judgment in deriving these estimates. Consequently, a change in conditions could affect these estimates.

Fair Value of Financial Instruments

Our cash, cash equivalents, investments, inventory, prepaid expenses, and accounts payable are stated at cost which approximates fair value due to the short-term nature of these instruments.

Recently Issued Accounting Pronouncements

Management reviewed accounting pronouncements issued during the nine months ended September 30, 2013 and no pronouncements were adopted during the period.

Results of Operations - Three Months Ended September 30, 2013 Compared to the Three Months Ended September 30, 2012

OPERATING EXPENSES

General and Administrative Expenses

General and administrative ("G&A") expenses decreased by $1,390 to $173,868 for the three months ended September 30, 2013, compared to $175,258 for the prior period ended September 30, 2012. This decrease in G&A expenses was the result of a decrease in non-cash stock compensation expense of $17,735, an increase in license fees of $2,514, delivery expense of $3,976, professional fees of $9,263 and an overall increase of $592 in other G&A expenses.

Research and Development

Research and Development ("R&D") expenses were $707 for the three months ended September 30, 2013, compared to $36,399 for the prior period ended September 30, 2012. R&D costs have decreased due to the Company shifting its focus to product marketing.


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Other Income/(Expenses)

Other income and (expenses) increased by $288,589 to $289,026 for the three months ended September 30, 2013, compared to $437 for the prior period ended September 30, 2012. The increase was the result of an increase in interest income of $40, an increase on gain in settlement of debt of $2,090, the change in fair value of the derivative instruments of $216,998, amortization of debt discount in the amount of $66,758, and an increase in interest expense in the amount of $6,963. The increase in other income and (expenses) was due to the Company entering into debt financing with convertible promissory notes.

Net Loss

Our loss increased by $251,507 to $465,652 for the three months ended September 30, 2013, compared to $214,145 for the prior period ended September 30, 2012. The increase in net loss was due to an increase in other income and (expenses), and an overall decrease in operating expenses. Currently the Company is in its development stage and has no revenues.

Results of Operations - Nine Months Ended September 30, 2013 Compared to the Nine Months Ended September 30, 2012

OPERATING EXPENSES

General and Administrative Expenses

G&A expenses decreased by $133,345 to $494,642 for the nine months ended September 30, 2013, compared to $627,987 for the prior period ended September 30, 2012. This decrease in G&A expenses was the result of an increase in professional fees of $11,448, with a decrease in non-cash stock compensation expense of $122,111, payroll tax expense of $13,696, travel expenses of $10,774 and an overall increase of $1,788 in other G&A expenses.

Research and Development

R&D expenses were $2,736 for the nine months ended September 30, 2013, compared to $74,134 for the prior period ended September 30, 2012. R&D costs have decreased due to the Company shifting its focus to product marketing.

Other Income/(Expenses)

Other income and (expenses) increased by $634,188 to $634,801 for the nine months ended September 30, 2013, compared to $613 the prior period ended September 30, 2012. The increase was the result of an increase in interest income of $46, an increase on gain in settlement of debt of $6,766, the change in fair value of derivative instruments of $461,115, amortization of debt discount in the amount of $167,232, and an increase in interest expense in the amount of $12,653. The increase in other income and (expenses) was due to the Company entering into debt financing with convertible promissory notes.

Net Loss

Our loss increased by $429,552 to $1,138,331 for the nine months ended September 30, 2013, compared to $708,779 for the prior period ended September 30, 2012. The increase in net loss was due to an increase in other income and (expenses), and an overall decrease in operating expenses. Currently the Company is in its development stage and has no revenues.


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LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2013, we had a capital deficit of $632,146 compared to working capital of $190,013 for the year ended December 31, 2012. This increase in capital deficit of $442,133 was due primarily to an increase in cash, prepaid expenses, derivative liability, and convertible notes issued by the Company, with a decrease in accounts payable and accrued expenses

During the nine months ended September 30, 2013, the cash used in operating activities was $326,349 as compared to $271,956 for the prior period ended September 30, 2012. The increase of $54,393 in the use of cash for operating activities was primarily due to an overall increase in net loss due to the non-cash cost associated with debt financing transactions consummated by the Company, and an increase in prepaid expenses, with a decrease in accounts payable, accrued expenses, and non cash stock compensation.

Cash used in investing activities for the nine months ended September 30, 2013 was $5,808, as compared to $3,664 for the prior period ended September 30, 2012. The overall net change of $2,144 in investing activities was primarily due to an increase in patent expenditures, and no purchase of equipment for the current period compared to the prior period.

Cash provided from financing activities was $575,791 for the nine months ended September 30, 2013, as compared to $255,365 for the prior period ended September 30, 2012. Our capital needs have primarily been met from the proceeds of equity financing and convertible debt, as we are currently in the development stage and have not generated any revenues since inception.

We do not have any material commitments for capital expenditures during the next twelve months. Although proceeds from our financing activities are currently sufficient to fund our operating expenses through the next four months, we will need to raise additional funds in the future so that we can expand our operations. Therefore, our future operations are dependent on our ability to secure additional financing. Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. However, the trading price of our common stock and a downturn in the U.S. equity and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, or experience unexpected cash requirements that would force us to seek additional financing. Furthermore, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. The inability to obtain additional capital may restrict our ability to grow and may reduce our ability to continue to conduct business operations. If we are unable to obtain additional financing, we may have to curtail our marketing and development plans and possibly cease our operations.

We believe that we have assets to ensure that we can continue to operate without liquidation over the next four months, due to our cash on hand, and our ability to raise money from our investor base. Based on the aforesaid, we believe we have the ability to continue our operations for the next twelve months and will be able to realize assets and discharge liabilities in the normal course of our operations.

Our financial statements as of September 30, 2013 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 February 25, 2013 that included an explanatory paragraph expressing substantial doubt in our ability to continue as a going concern without additional capital becoming available. Our ability to continue as a going concern ultimately is dependent on our ability to generate revenue, which is dependent upon our ability to obtain additional equity or debt financing, attain further operating efficiencies and, ultimately, to achieve profitable operations. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.


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PLAN OF OPERATION AND FINANCING NEEDS

We are engaged in the development of an innovative technology to produce bio-based materials from renewable plant sources that will reduce the cost per watt of Photovoltaic solar cells. We plan to develop our products and thereafter focus our efforts on establishing markets in related sectors by the end of 2013.

Our plan of operation within the next nine months is to utilize our cash balances to fully commercialize our bio-based backsheet component (BioBacksheetTM) to replace the petroleum based backsheet in crystalline photovoltaic modules. In addition, we intend to further enhance test programs to determine the physical properties and characteristics that will be most suitable for the further development of biobased solar module components, and build solar panels, as we attempt to validate the commercial viability of our product. We believe that our current cash and investment balances will be sufficient to support development activity and general and administrative expenses for the next four months. Management estimates that it will require additional cash resources during 2014, based upon its current operating plan and condition. We expect increased expenses during the first half of 2014 as we ramp up sales and marketing efforts associated with gradual production volume increase. 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 scale back our operations, which could have a material adverse impact on, or cause us to curtail and/or cease the development of our products.

Off-Balance Sheet Arrangements

We do not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, result of operations, liquidity or capital expenditures.

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