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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q
(Mark One)

x QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2013
 
¨ TRANSITION REPORT UNDER SECTION13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________

COMMISSION FILE NUMBER: 000-54819

BIOSOLAR, INC.
(Name of registrant in its charter)

Nevada
 
20-4754291
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
27936 Lost Canyon Road, Suite 202 , Santa Clarita, CA 91387
(Address of principal executive offices) (Zip Code)

Issuer’s telephone Number: (661) 251-0001


Indicate by check mark whether the registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  xNo  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  x No  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o
Accelerated filer o
Non-accelerated filer o
Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o No  x
 
The number of shares of registrant’s common stock outstanding, as of October 24, 2013 was 8,464,709.

 
1

 
 

 
2

 
 
PART I   –FINANCIAL INFORMATION 
 
BIOSOLAR, INC.
(A Development Stage Company)
 
   
September 30, 2013
   
December 31, 2012
 
   
(Unaudited)
       
ASSETS
           
             
CURRENT ASSETS
           
   Cash
  $ 286,576     $ 42,942  
   Prepaid expenses
    16,085       11,523  
                 
                        TOTAL CURRENT ASSETS
    302,661       54,465  
                 
PROPERTY AND EQUIPMENT
               
   Machinery and equipment
    78,863       78,863  
   Computer
    2,928       2,928  
      81,791       81,791  
   Less accumulated depreciation
    (40,945 )     (34,793 )
                 
                       NET PROPERTY AND EQUIPMENT
    40,846       46,998  
                 
OTHER ASSETS
               
   Patents
    47,098       41,290  
   Deposit
    770       770  
                 
                       TOTAL OTHER ASSETS
    47,868       42,060  
                 
                       TOTAL ASSETS
  $ 391,375     $ 143,523  
                 
                 
                 
LIABILITIES AND SHAREHOLDERS' DEFICIT
               
                 
CURRENT LIABILITIES
               
   Accounts payable
  $ 2,320     $ 9,253  
   Accrued expenses
    25,836       180,594  
   Derivative liability
    718,799       -  
   Convertible promissory notes less debt discount of $221,648
    187,852       54,631  
                 
                       TOTAL CURRENT LIABILITIES
    934,807       244,478  
                 
SHAREHOLDERS' DEFICIT
               
   Preferred stock, $0.0001 par value;
               
   10,000,000 authorized common shares
    -       -  
   Common stock, $0.0001 par value;
               
   500,000,000 authorized common shares
               
   8,464,709 and 6,434,413 shares issued and outstanding, respectively
    846       644  
   Additional paid in capital
    6,372,332       5,676,680  
   Deficit accumulated during the development stage
    (6,916,610 )     (5,778,279 )
                 
                      TOTAL SHAREHOLDERS' DEFICIT
    (543,432 )     (100,955 )
                 
                      TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT
  $ 391,375     $ 143,523  

 
3

 
 
BIOSOLAR, INC.
(A Development Stage Company)
                           
From Inception
 
                           
April 24, 2006
 
   
Three Months Ended
   
Nine Months Ended
   
through
 
   
September 30, 2013
   
September 30, 2012
   
September 30, 2013
   
September 30, 2012
   
September 30, 2013
 
                               
REVENUE
  $ -     $ -     $ -     $ -     $ -  
                                         
OPERATING EXPENSES
                                       
General and administrative expenses
    173,868       175,258       494,642       627,987       5,395,905  
Research and development
    707       36,399       2,736       74,134       817,093  
Depreciation and amortization
    2,051       2,051       6,152       6,045       40,945  
                                         
TOTAL OPERATING EXPENSES
    176,626       213,708       503,530       708,166       6,253,943  
                                         
LOSS FROM OPERATIONS BEFORE  OTHER INCOME
    (176,626 )     (213,708 )     (503,530 )     (708,166 )     (6,253,943 )
                                         
TOTAL OTHER INCOME/(EXPENSES)
                                       
    Interest income
    46       5       66       19       87,328  
    Penalties
    -       -       -       -       (180 )
    Loss on patent impairment
    -       -       -       -       (107,704 )
    Gain on settlement of debt
    2,090       -       6,765       -       6,765  
    Loss on change in derivative liability
    (216,998 )     -       (461,115 )     -       (461,115 )
    Interest expense
    (74,164 )     (442 )     (180,517 )     (632 )     (187,761 )
                                         
TOTAL OTHER INCOME/(EXPENSES)
    (289,026 )     (437 )     (634,801 )     (613 )     (662,667 )
                                         
                                         
         NET LOSS
  $ (465,652 )   $ (214,145 )   $ (1,138,331 )   $ (708,779 )   $ (6,916,610 )
                                         
                                         
BASIC AND DILUTED LOSS PER SHARE
  $ (0.06 )   $ (0.03 )   $ (0.16 )   $ (0.12 )        
                                         
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
                                 
      BASIC AND DILUTED
    8,043,574       6,284,908       7,232,969       6,151,345          
                                         

 
4

 
 
BIOSOLAR, INC.
(A Development Stage Company)
                                 
Deficit
                                 
Accumulated
 
                           
Additional
   
during the
 
   
Preferred Stock
   
Common Stock
   
Paid-in
   
Development
Stage
 
   
Shares
   
Amount
   
Shares
   
Amount
   
Capital
         
Total
 
Balance at December 31, 2012  (Audited)
    -     $ -       6,434,413     $ 644     $ 5,676,680     $ (5,778,279 )   $ (100,955 )
                                                         
Issuance of common shares for cash at a price of $0.22 and $0.28 per share
    -       -       1,530,631       153       398,138       -       398,291  
                                                         
Issuance of common shares for converted promissory notes
    -       -       499,665       49       213,070       -       213,119  
                                                         
Adjustment of beneficial conversion feature
    -       -       -       -       (20,369 )     -       (20,369 )
                                                         
Stock compensation cost
    -       -       -       -       104,813       -       104,813  
                                                         
Net loss for the nine months ended September 30,2013
    -       -       -       -       -       (1,138,331 )     (1,138,331 )
                                                         
Balance at September 30, 2013
    -     $ -       8,464,709     $ 846     $ 6,372,332     $ (6,916,610 )   $ (543,432 )

 
5

 
BIOSOLAR, INC.
(A Development Stage Company)
                   
               
From Inception
 
               
April 24, 2006
 
   
Nine Months Ended
   
through
 
   
September 30, 2013
   
September 30, 2012
   
September 30, 2013
 
CASH FLOWS FROM OPERATING ACTIVITIES:
                 
    Net loss
  $ (1,138,331 )   $ (708,779 )   $ (6,916,610 )
    Adjustment to reconcile net loss to net cash
                       
      used in operating activities
                       
    Depreciation and amortization expense
    6,152       6,045       40,945  
    Issuance of stock for services
    -       -       325,260  
    Stock compensation cost
    104,813       226,924       812,890  
    Beneficial conversion feature
    (4,584 )     -       -  
    Loss on patent impairment
    -       -       107,704  
    Loss on change in derivative liability
    461,115       -       461,115  
    Gain on settlement of debt
    (6,765 )     -       (6,765 )
    Debt discount recognized as interest expense
    171,817       -       171,817  
    Common stock issued for interest payable
    3,687       -       3,687  
  Changes in Assets and Liabilities
                       
    (Increase) Decrease in:
                       
    Prepaid expenses
    (4,562 )     16,686       (16,085 )
    Deposits
    -       -       (770 )
    Increase (Decrease) in:
                       
    Accounts payable
    (6,933 )     32,769       2,320  
    Accrued expenses
    87,242       154,399       267,836  
                         
NET CASH USED IN OPERATING ACTIVITIES
    (326,349 )     (271,956 )     (4,746,656 )
                         
CASH FLOWS FROM INVESTING ACTIVITIES:
                       
    Purchase of equipment
    -       (2,583 )     (81,791 )
    Patent expenditures
    (5,808 )     (1,081 )     (154,802 )
                         
NET CASH USED IN INVESTING ACTIVITIES
    (5,808 )     (3,664 )     (236,593 )
                         
CASH FLOWS FROM FINANCING ACTIVITIES:
                       
    Proceeds from convertible promissory notes
    177,500       -       252,500  
    Proceeds from common stock subcription payable
    -       -       203,000  
Proceeds from issuance of common stock, net of issuance cost
    398,291       255,365       4,814,325  
                         
NET CASH PROVIDED IN FINANCING ACTIVITIES
    575,791       255,365       5,269,825  
                         
NET INCREASE/(DECREASE) IN CASH
    243,634       (20,255 )     286,576  
                         
CASH, BEGINNING OF PERIOD
    42,942       52,422       -  
                         
CASH, END OF PERIOD
  $ 286,576     $ 32,167     $ 286,576  
                         
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
                 
   Interest paid
  $ -     $ 442     $ 1,262  
   Taxes paid
  $ -     $ -     $ -  
                         
SUPPLEMENTAL SCHEDULE OF NON-CASH TRANSACTIONS
                 
   Common stock issued for prepaid services
  $ -     $ -     $ 5,867  
                         
During the nine months ended September 30, 2013, the Company entered into securities purchase agreements in the amount of $242,000 to purchase common stock in exchange
 
for accrued salaries. The accrued salaries were reclassified as convertible promissory notes during the period. Also, the Company converted an aggregate of $85,000 convertible
 
promissory notes, including accrued interest in the amount of $3,687, for 499,665 shares of common stock. During the nine months ended September 30, 2012, the Company issued
 
332,602 shares of common stock for warrants through a cashless exercise. Also, the Company issued 18,812 shares of common stock for a subscription receivable, of which 17,577
 
   was unsubscribed.
                       

 
6

 
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS-UNAUDITED
SEPTEMBER 30, 2013
 
1.     Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included.  Operating results for the nine months ended September 30, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013.  For further information refer to the financial statements and footnotes thereto included in the Company's Form 10-K for the year ended December 31, 2012.

Going Concern
The accompanying financial statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets and liabilities and commitments in the normal course of business.  The accompanying financial statements do not reflect any adjustments that might result if the Company is unable to continue as a going concern.  The Company does not generate significant revenue, and has negative cash flows from operations, which raise substantial doubt about the Company’s ability to continue as a going concern.  The ability of the Company to continue as a going concern and appropriateness of using the going concern basis is dependent upon, among other things, additional cash infusion.  The Company has obtained funds through the issuance and sale of its securities to its shareholders since its inception. It is management's plan to generate additional working capital from the issuance and sale of its securities to enable to the Company to pursue its business plan and purposes.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

This summary of significant accounting policies of Biosolar, Inc. 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.

Development Stage Activities and Operations
The Company is in its initial stages of formation and has had no revenues. A development stage activity is one in which all efforts are devoted substantially to establishing a new business and even if planned principal operations have commenced, revenues are insignificant.

Revenue Recognition
The Company will recognize revenue when services are performed, and at the time of shipment of products, provided that evidence of an arrangement exists, title and risk of loss have passed to the customer, fees are fixed or determinable, and collection of the related receivable is reasonably assured. To date, the Company has had no 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.

Investments
Certificate of Deposits with banking institutions are short-term investments with initial maturities of more than 90 days. The carrying amount of these investments is a reasonable estimate of fair value due to their short-term nature.

Loss per Share Calculations
Loss per Share calculates basic earnings per share and diluted earnings per share. Basic earnings per share is computed by dividing income available to common shareholders by the weighted-average number of common shares available. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. The Company’s diluted loss per share is the same as the basic loss per share for the nine months ended September 30, 2013 as the inclusion of any potential shares would have had an anti-dilutive effect due to the Company generating a loss.

Fair Value of Financial Instruments
Fair Value of Financial Instruments, requires disclosure of the fair value information, whether or not recognized in the balance sheet, where it is practicable to estimate that value. As of September 30, 2013, the amounts reported for cash, inventory, prepaid expenses, accounts payable, and accrued expenses, approximate the fair value because of their short maturities.

We adopted ASC Topic 820 (originally issued as SFAS 157, “Fair Value Measurements”) as of January 1, 2008 for financial instruments measured as fair value on a recurring basis. ASC Topic 820 defines fair value, established a framework for measuring fair value in accordance with accounting principles generally accepted in the United States and expands disclosures about fair value measurements.
 
 
7

 

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 established a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:

 
·
Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;
 
·
Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and
 
·
Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

We measure certain financial instruments at fair value on a recurring basis. Assets and liabilities measured at fair value on a recurring basis are as follows at  September 30, 2013:

Fair Value of Financial Instruments

   
Total
   
(Level 1)
   
(Level 2)
   
(Level 3)
 
                         
Assets
  $ -     $ -     $ -     $ -  
                                 
Total assets measured at fair value
  $ -     $ -     $ -     $ -  
                                 
Liabilities
                               
                                 
Derivative Liability
  $ 718,799     $ -     $ -     $ 718,799  
Convertible Promissory Notes, net of discount
    187,852       -       -       187,852  
Total liabilities measured at fair value
  $ 906,651     $ -     $ -     $ 906,651  
 
        Recently Issued Accounting Pronouncements

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

3.
CAPITAL STOCK

On July 10, 2013, the Company filed an amendment to its Articles of Incorporation to increase its authorized common and preferred stock. As of September 30, 2013, the Company’s authorized stock consisted of 500,000,000 shares of common stock, with a par value of $0.0001, and 10,000,000 preferred stock, with a par value of $0.0001.

During the nine months ended September 30, 2013, the Company issued 504,773 shares of common stock at a price of $0.22 per share for cash of $111,050; issued 1,025,858 shares of common stock at a price of $0.28 per share for cash of $287,241. Also, the Company issued 499,665 shares of common stock at prices ranging from $0.10 to $0.39, for conversion of $85,000 in convertible promissory notes, including $3,687 for accrued interest payable.

4.      STOCK OPTIONS AND WARRANTS

On March 1, 2013, the Board of Directors of the Company granted non-qualified stock options to purchase 600,000 shares of common stock of the Company to its employees, directors and consultants. The stock options vest at various times, and are exercisable for a period of five years from the date of grant at an exercise price of $0.40 per share, the market value of the Company’s common stock on the date of grant.
 
Risk free interest rate
0.75%
Stock volatility factor
82%
Weighted average expected option life
5 years
Expected dividend yield
None
 
 
8

 
 
4.      STOCK OPTIONS AND WARRANTS (Continued)

A summary of the Company’s stock option activity and related information follows:

   
September 30, 2013
   
2007
 
         
Weighted
         
Weighted
 
   
Number
   
average
   
Number
   
average
 
   
of
   
exercise
   
of
   
exercise
 
   
Options
   
price
   
Options
   
price
 
Outstanding, beginning of period
    236,667     $ 4.05       1,740,000     $ 0.255  
Granted
    600,000       0.40       -       -  
Exercised
    -       -       (50,000 )     -  
Expired
    -       -       -       -  
Outstanding, end of period
    836,667     $ 1.43       1,690,000     $ 0.255  
Exercisable at the end of period
    499,167     $ 2.13       1,650,425     $ 0.260  
Weighted average fair value of
                               
options granted during the period
    $ 0.40             $ 0.500  

The weighted average remaining contractual life of options outstanding as of September 30, 2013 was as follows:

                 
Weighted
 
                 
Average
 
     
Stock
   
Stock
   
Remaining
 
Exercisable
   
Options
   
Options
   
Contractual
 
Prices
   
Outstanding
   
Exercisable
   
Life (years)
 
$ 4.05       236,667       236,667       2.48  
$ 0.40       600,000       262,500       4.42  
          836,667       499,167          
 
The stock-based compensation expense recognized in the statement of operations during the three months ended September 30, 2013, related to the granting of these options is $104,813.

Warrants
During the nine months ended September 30, 2013, the Company granted no warrants. As of September 30, 2013, 245,000 warrants are outstanding.

5. CONVERTIBLE PROMISSORY NOTES

During the year ended December 31, 2012, the Company entered into two securities purchase agreements  each providing for the sale by the Company of 8% unsecured Convertible Notes in the principal amounts of $42,500, and $32,500 for an aggregate total of $75,000. The notes matured on July 5, 2013, and August 14, 2013. After one hundred and eighty days (180) the holder converted both notes with an aggregate principal amount of $75,000, plus accrued interest of $3,000 on various dates during the period ended September 30, 2013 into 392,788 shares of common stock at prices ranging from $0.13 to $0.39 per share. The notes were measured at fair value using the Black-Scholes pricing model, and the Company recognized a gain on conversion of $4,676. The Company recorded debt discount of $55,493 related to the conversion feature of the notes, along with derivative liabilities at inception. During the nine months ended September 30, 2013, the debt discount was amortized, and recorded as interest expense in the amount of $55,493, resulting in a net debt discount of $0 at September 30, 2013.

On January 18, 2013, the Company entered into a securities purchase agreement for the sale of 10% convertible promissory note for the aggregate principal amount of $80,000, to be advanced in amounts at the lender’s discretion.  Upon execution of the securities purchase agreement, the Company received an advance of $10,000.  On April 16, 2013, the Company received an additional advance of $25,000. The total advances received as of September 30, 2013 was $35,000, of which $10,000 in principal, and $687 in accrued interest was converted into 106,577 shares of common stock on September 29, 2013. During July 2013, the Company extended the maturity date of the note from six (6) months to eighteen (18) months from the effective date of each advance. The note is convertible into shares of common stock of the Company at a price equal to a variable conversion price of the lesser of a) $0.40 per share b) fifty percent (50%) of the lowest trading price of common stock recorded on any trade day after the effective date, or c) the lowest effective price per share granted after the effective date. The fair value of the notes has been determined by using Black-Scholes pricing model with the following weighted average assumptions: no dividend yield, expected volatility ranging from 71.48% to 274.85%, risk-free interest rate ranging from .01% to .10%, and an expected life of more than a year. The Company recorded debt discount of $35,000 related to the conversion feature of the notes, along with derivative liabilities at inception. During the nine months ended September 30, 2013, the debt discount was amortized, and recorded as interest expense in the amount of $22,831, resulting in a net debt discount of $12,169 at September 30, 2013.

 
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5. CONVERTIBLE PROMISSORY NOTES (Continued)

On March 1, 2013, the Company entered into a securities purchase agreement, providing for the sale by the Company of a 10% unsecured Convertible Note in the aggregate principal amount of $100,000, to be advanced in amounts at the lender’s discretion. The total advance received on the note as of September 30, 2013 was $10,000. The note matures one (1) year from the effective date of each advance. The note is convertible into shares of common stock of the Company at a price equal to a variable conversion price of the lesser of $0.20 per share or fifty percent (50%) of the lowest trading price recorded on any trade day after the effective date. The fair value of the note has been determined by using the Black-Scholes pricing model with the following weighted average assumptions: no dividend yield, expected volatility ranging from 65.07% to 168.03%, risk-free interest rate ranging from .04% to .16%, and an expected life of a year. The Company recorded debt discount of $10,000 related to the conversion feature of the note, along with derivative liability at inception. During the nine months ended September 30, 2013, the debt discount was amortized, and recorded as interest expense in the amount of $5,836, resulting in a net debt discount of $4,164 at September 30, 2013.

On March 20, 2013, the Company entered into a securities purchase agreement, providing for the sale by the Company a 10% unsecured Convertible Note in the aggregate principal amount of $100,000, to be advanced in amounts at the lender’s discretion. The total advance received on the note as of September 30, 2013 was $25,000. The note matures one (1) year from the effective date of each advance. The note is convertible into shares of common stock of the Company at a price equal to a variable conversion price of the lesser of $0.20 per share or fifty percent (50%) of the lowest trading price recorded on any trade day after the effective date. The fair value of the note has been determined by using the Black-Scholes pricing model with the following weighted average assumptions: no dividend yield, expected volatility ranging from 88.93% to 165.50%, risk-free interest rate ranging from .04% to .16%, and an expected life of a year. The Company recorded debt discount of $25,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2013, the debt discount was amortized, and recorded as interest expense in the amount of $13,288, resulting in a net debt discount of $11,712 at September 30, 2013.

On May 1, 2013, the Company entered into a securities purchase agreement for the sale of an 8% convertible promissory note for the aggregate principal amount of $32,500. The note matures on February 3, 2014. After one hundred and eighty days (180) the holder may convert into shares of common stock at a variable conversion price of 58% multiplied by the market price of the average lowest three (3) trading prices for the common stock during the ten (10) trading days prior to the conversion date. The fair value of the note has been determined by using Black-Scholes pricing model with the following weighted average assumptions: no dividend yield, expected volatility ranging from 112.61% to 182.26%, risk-free interest rate ranging from .10% to .15%, and an expected life of less than a year. The Company recorded a debt discount of $32,492 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2013, the debt discount was amortized, and recorded as interest expense in the amount of $17,765, resulting in a net debt discount of $14,727 at September 30, 2013.

On May 13, 2013, the Company entered into a securities purchase agreement for the sale of a 10% convertible promissory note in the aggregate principal amount of $80,000, to be advanced in amounts at the lender’s discretion. Upon execution of the securities purchase agreement, the Company received an advance of $25,000.  The note matures six (6) months from the effective date of each advance. The note is convertible into shares of common stock of the Company at a price equal to a variable conversion price of the lesser of $0.40 per share or fifty percent (50%) of the lowest trading price recorded on any trade day after the effective date. The fair value of the notes has been determined by using the Black-Scholes pricing model with the following weighted average assumptions: no dividend yield, expected volatility ranging from 98.91% to 184.0%, risk-free interest rate ranging from .02% to .09%, and an expected life of less than a year. The Company recorded a debt discount of $25,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2013, the debt discount was amortized, and recorded as interest expense in the amount of $19,444, resulting in a net debt discount of $5,556 at September 30, 2013.

 
On June 5, 2013, the Company issued two 5% convertible promissory notes in exchange for services rendered in the aggregate amount of $242,000. The notes are convertible into shares of common stock of the Company at a conversion price equal to the lesser of $0.24 per share or the closing price per share of common stock recorded on the trading day immediately preceding the date of conversion. The notes mature two (2) years from their effective dates. The fair value of the notes has been determined by using the Black-Scholes pricing model with the following weighted average assumptions: no dividend yield, expected volatility ranging from 95.58% to 117.40%, risk-free interest rate ranging from .22% to .34%, and an expected life of two (2) years. The Company recorded a debt discount of $160,479 related to the conversion feature of the note, along with a derivative liability at inception.  During the nine months ended September 30, 2013, the debt discount was amortized, and recorded as interest expense in the amount of $25,721, resulting in a net debt discount of $134,758 at September 30, 2013.
 
 
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5. CONVERTIBLE PROMISSORY NOTES (Continued)

On June 21, 2013, the Company entered into a securities purchase agreement] for the sale of a 10% convertible promissory note in the aggregate principal amount of $100,000, to be advanced in amounts at the lender’s discretion. Upon execution of the securities purchase agreement, the Company received an advance of $25,000.  On July 26, 2013, the Company received an additional advance of $25,000. The total advances received on the note as of September 30, 2013 was $50,000. The note matures one (1) year from the effective date of each advance. The note is convertible into shares of common stock of the Company at a price equal to a variable conversion price of the lesser of $0.40 per share or fifty percent (50%) of the lowest trading price recorded on any trade day after the effective date. The fair value of the notes has been determined by using the Black-Scholes pricing model with the following weighted average assumptions: no dividend yield, expected volatility ranging from 137.04% to 159.84%, risk-free interest rate ranging from .11% to .15%, and an expected life of one (1) year. The Company recorded a debt discount of $50,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2013, the debt discount was amortized, and recorded as interest expense in the amount of $11,438, resulting in a net debt discount of $38,562 at September 30, 2013.

We evaluated the financing transactions in accordance with ASC Topic 815, Derivatives and Hedging, and determined that the conversion feature of the convertible promissory note was not afforded the exemption for conventional convertible instruments due to its variable conversion rate. The note has no explicit limit on the number of shares issuable so they did not meet the conditions set forth in current accounting standards for equity classification.  The Company elected to recognize the note under paragraph 815-15-25-4, whereby, there would be a separation into a host contract and derivative instrument. The Company elected to initially and subsequently measure the note in its entirety at fair value, with changes in fair value recognized in earnings. The Company recorded a derivative liability representing the imputed interest associated with the embedded derivative. The derivative liability is adjusted periodically according to the stock price fluctuations. At the time of conversion, any remaining derivative liability will be charged to additional paid-in capital.

The derivative liability recognized in the financial statements as of September 30, 2013 was $718,799.

 
6.   SUBSEQUENT EVENT

 
Management has evaluated subsequent events according to the requirements of ASC TOPIC 855, and has reported no subsequent events.
 
 
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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.
n/a
 
ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is: (i) recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms, and (ii) accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
 
Changes in Internal Control Over Financial Reporting

There was no change to our internal control over financial reporting that occurred during our third fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 

We are not a party to any pending legal proceeding, nor is our property the subject of a pending legal proceeding, that is not in the ordinary course of business or otherwise material to the financial condition of our business. None of our directors, officers or affiliates is involved in a proceeding adverse to our business or has a material interest adverse to our business.

 
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ITEM 1A. RISK FACTORS
 
There are no material changes from the risk factors previously disclosed in the Registrant’s Form 10-K filed on February 26, 2013.
 
 
During the three months ended September 30, 2013, the Company issued 106,877 shares of common stock upon conversion of principal of $10,000, plus accrued interest of $687 of a convertible note in the aggregate principal amount of $35,000. Also, the Company issued 1,025,858 shares of common stock at a price of $0.28 per share for cash in the amount of $287,241.

 The Company relied on an exemption pursuant to Section 4(2) of the Securities Act of 1933, as amended in connection with the sale and issuances of its shares of common stock described above.

None
None
 
ITEM 6. EXHIBITS
 
Exhibit No.
 
Description
3.1
 
 
Certificate of Amendment filed with the Secretary of State July 10, 2013
 
     
31.1
 
Certification by Chief Executive Officer and Acting Chief Financial Officer pursuant to Sarbanes-Oxley Section 302 (filed herewith).
     
32.2
 
Certification by Chief Executive Officer and Acting Chief Financial Officer pursuant to 18 U.S.C. Section 1350 (filed herewith).
     

EX-101.INS
 
XBRL Instance Document
     
 
EX-101.SCH
 
XBRL Taxonomy Extension Schema Document
     
EX-101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase
     
EX-101.DEF
 
XBRL Taxonomy Extension Definition Linkbase

 
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EX-101.LAB
 
XBRL Taxonomy Extension Labels Linkbase
     
EX-101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase
 

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on October 25, 2013.
 
 
BIOSOLAR
 
       
 
By:
/s/ David Lee
 
   
Chief Executive Officer (Principal Executive
Officer ) and Acting Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
 
       
       

 
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