U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended May 31, 2014
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________________ to __________________
Commission File Number: 333-172139
BioPower Operations Corporation
(Exact name of registrant as specified in its charter)
| Nevada | 27-4460232 | |
| (State or other jurisdiction of | (IRS Employer | |
| incorporation or organization) | Identification No.) |
1000 Corporate Drive, Suite 200, Fort Lauderdale, Florida 33334
(Address of principal executive offices)
Issuer’s telephone number, including area code: (954) 202-6660
Indicate by check mark whether the registrant (1) has filed all reports required to be filed 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 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¨ No¨
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 the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer¨ | Accelerated filer¨ |
| Non-accelerated filer¨ (Do not check if a smaller reporting company) | Smaller reporting companyx |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes¨ No¨
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
As of July 15, 2014, the registrant had 30,531,180 shares of common stock, par value $0.0001 per share, outstanding.
BIOPOWER OPERATIONS CORPORATION
CONTENTS
| Page | ||
| PART I. | FINANCIAL INFORMATION | |
| ITEM 1. | FINANCIAL STATEMENTS | 4 |
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 12 |
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 16 |
| ITEM 4. | CONTROLS AND PROCEDURES | 16 |
| PART II. | OTHER INFORMATION | |
| ITEM 1. | LEGAL PROCEEDINGS | 17 |
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 17 |
| ITEM 3. | DEFAULT UPON SENIOR SECURITIES | 17 |
| ITEM 4. | MINE SAFETY DISCLOSURES | 17 |
| ITEM 5. | OTHER INFORMATION | 17 |
| ITEM 6. | EXHIBITS | 17 |
| SIGNATURES | 18 | |
| Exhibit 31.1 | Certification Pursuant to Section 302 of the Sarbanes Oxley Act | |
| Exhibit 32.1 | Certification Pursuant to Section 906 of the Sarbanes Oxley Act |
| 2 |
CONTENTS
| 3 |
FINANCIAL INFORMATION
BioPower Operations Corporation and Subsidiaries
| May 31, 2014 | ||||||||
| (Unaudited) | November 30, 2013 | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash | $ | 9,254 | $ | 109,172 | ||||
| Consulting receivables | 53,693 | 27,840 | ||||||
| Prepaid expenses | 2,643 | 11,258 | ||||||
| Total Current Assets | 65,590 | 148,270 | ||||||
| Equipment - net | 27,405 | 28,821 | ||||||
| Security deposit | 11,193 | 11,193 | ||||||
| 38,598 | 40,014 | |||||||
| Total Assets | $ | 104,188 | $ | 188,284 | ||||
| Liabilities and Stockholders' Deficit | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued expenses | $ | 466,434 | $ | 513,134 | ||||
| Accounts payable and accrued expenses - related parties | 1,298,369 | 1,098,786 | ||||||
| Notes payable - related parties | 175 | 88,000 | ||||||
| Notes payable | 88,000 | 175 | ||||||
| Convertible debt | 250,000 | 125,000 | ||||||
| Total Current Liabilities | 2,102,978 | 1,825,095 | ||||||
| Total Liabilities | 2,102,978 | 1,825,095 | ||||||
| Stockholders' Deficit | ||||||||
| Preferred stock, $1 par value; 10,000 shares authorized; 1 share issued and outstanding | 1 | 1 | ||||||
| Common stock, $0.0001 par value, 100,000,000 shares authorized; 30,531,180 shares issued and outstanding | 3,053 | 3,028 | ||||||
| Additional paid-in capital | 2,131,050 | 1,947,325 | ||||||
| Accumulated deficit | (4,132,894 | ) | (3,587,165 | ) | ||||
| Total Stockholders' Deficit | (1,998,790 | ) | (1,636,811 | ) | ||||
| Total Liabilities and Stockholders' Deficit | $ | 104,188 | $ | 188,284 | ||||
See accompany notes to consolidated unaudited financial statements
| 4 |
BioPower Operations Corporation and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
| Three Months Ended May 31, | Six Months Ended May 31, | |||||||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||||||
| General and administrative expenses | $ | 278,562 | $ | 240,128 | $ | 639,015 | $ | 402,143 | ||||||||
| Other income (expense) | ||||||||||||||||
| Interest expense | (12,220 | ) | (3,655 | ) | (18,115 | ) | (29,867 | ) | ||||||||
| Interest expense - related party | - | (408 | ) | - | (808 | ) | ||||||||||
| Loss on impairment of available-for-sale securities | - | (76,050 | ) | - | (76,050 | ) | ||||||||||
| Consulting revenue, net of expense | 34,868 | 85,524 | 111,401 | 102,846 | ||||||||||||
| Total other income (expense) - net | 22,648 | 5,411 | 93,286 | (3,879 | ) | |||||||||||
| Net loss | $ | (255,914 | ) | $ | (234,717 | ) | $ | (545,729 | ) | $ | (406,022 | ) | ||||
| Net loss per common share - basic and diluted | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.02 | ) | ||||
| Weighted average number of common shares outstanding during the period - basic and diluted | 30,429,532 | 18,056,000 | 30,355,356 | 18,056,000 | ||||||||||||
| Comprehensive loss | ||||||||||||||||
| Net loss | $ | (255,914 | ) | $ | (234,717 | ) | $ | (545,729 | ) | $ | (406,022 | ) | ||||
| Unrealized loss on available-for-sale marketable securities | - | 23,850 | - | - | ||||||||||||
| Reclassification adjustment due to impairment on available-for-sale securities | - | 37,800 | - | 37,800 | ||||||||||||
| Comprehensive loss | $ | (255,914 | ) | $ | (173,067 | ) | $ | (545,729 | ) | $ | (368,222 | ) | ||||
See accompany notes to consolidated unaudited financial statements
| 5 |
BioPower Operations Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
| Six Months Ended May 31, | ||||||||
| 2014 | 2013 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (545,729 | ) | $ | (406,022 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Loss on impairment of marketable securities | - | 76,050 | ||||||
| Depreciation | 6,170 | 3,009 | ||||||
| Stock based compensation | 183,650 | |||||||
| Amortization of debt discount | - | 25,000 | ||||||
| Amortization of stock to be issued for services rendered | - | 45,133 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (25,853 | ) | (38,512 | ) | ||||
| Prepaid expenses | 8,615 | (4,355 | ) | |||||
| Accounts payable and accrued expenses | 199,583 | 16,209 | ||||||
| Accounts payable and accrued expenses - related parties | (46,700 | ) | 214,891 | |||||
| Deferred revenue | (56,429 | ) | ||||||
| Net Cash Used In Operating Activities | (220,264 | ) | (125,026 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of equipment | (4,754 | ) | ||||||
| Net Cash Provided By Investing Activities | (4,754 | ) | - | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from convertible debt | 125,000 | 25,000 | ||||||
| Proceeds from notes payable | 125,000 | |||||||
| Proceeds from issuance of common stock | 100 | - | ||||||
| Net Cash Provided By Financing Activities | 125,100 | 150,000 | ||||||
| Net Increase (Decrease) in Cash | (99,918 | ) | 24,974 | |||||
| Cash - Beginning of Period | 109,172 | 16,956 | ||||||
| Cash - End of Period | $ | 9,254 | $ | 41,930 | ||||
| SUPPLEMENTARY CASH FLOW INFORMATION: | ||||||||
| Cash Paid During the Period for: | ||||||||
| Income Taxes | $ | - | $ | - | ||||
| Interest | $ | - | $ | - | ||||
| SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Common stock to be issued for services rendered | $ | $ | 44,400 | |||||
| Debt discount recorded on convertible debt | $ | $ | 25,000 | |||||
See accompany notes to consolidated unaudited financial statements
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BioPower Operations Corporation and Subsidiaries
Notes to Consolidated Financial Statements
May 31, 2014
Unaudited
Note 1 Basis of Presentation
The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the instructions to Form 10-Q and Article 8 of Regulation S-X of the United States Securities and Exchange Commission (“SEC”). Certain information or footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows. It is our opinion, however, that the accompanying unaudited interim consolidated financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented.
In the quarter ending May 31, 2014, the Company has elected to early adopt Accounting Standards Update No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements. The adoption of this ASU allows the Company to remove the inception to date information and all references to development stage.
The accompanying unaudited interim consolidated financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended November 30, 2013 as filed with the SEC, which contains the audited financial statements and notes thereto, together with Management’s Discussion and Analysis, for the years ended November 30, 2013 and 2012. The financial information as of May 31, 2014 is derived from the audited financial statements presented in our Annual Report on Form 10-K for the year ended November 30, 2013. The interim results for the three and six months ended May 31, 2014 are not necessarily indicative of the results to be expected for the year ending November 30, 2014 or for any future interim periods.
Reverse Stock Split
On August 6, 2013, the Company effected a 1-for-5 reverse stock split of its commons stock (“Reverse Split”). As a result of the Reverse Split, every five shares of the common stock of the Company were combined into one share of common stock. Immediately after the September 4, 2013 effective date, the Company had 18,056,007 shares of common stock issued and outstanding. All share and per share amounts have been retroactively restated to reflect the Reverse Split. Effective at the same time as the Reverse Split, the authorized number of shares of our common stock was proportionately decreased from 500,000,000 shares to 100,000,000 shares. The par value remained the same.
Note 2 Going Concern
As reflected in the accompanying consolidated financial statements, the Company had a net loss of $545,729 and net cash used in operations of $220,264 for the six months ended May 31, 2014. Additionally, the Company had a working capital deficit of $2,037,388 and a stockholders’ deficit of $1,998,790 at May 31, 2014. These factors 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 is dependent on Management's plans, which include potential asset acquisitions, mergers or business combinations with other entities, further implementation of its business plan and continuing to raise funds through debt and/or equity financings. The Company will likely rely upon related party debt and/or equity financing in order to ensure the continuing existence of the business.
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.
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BioPower Operations Corporation and Subsidiaries
Notes to Consolidated Financial Statements
May 31, 2014
Unaudited
Note 3 Equipment
At May 31, 2014 and November 30, 2013, equipment consists of the following:
| 2014 | 2013 | Estimated Useful Life | ||||||||
| Computer Equipment and Testing Equipment | $ | 48,126 | $ | 43,402 | 5 years | |||||
| Less: Accumulated depreciation | (20,721 | ) | (14,551 | ) | ||||||
| Equipment, net | $ | 27,405 | $ | 28,821 | ||||||
Note 4. Notes Payable and Convertible Debt
Notes payable consists of the following:
Notes payable to third parties at May 31, 2014 and November 30, 2013, in the amount of $70,000 due on demand at 4% and $18,000 due on demand at 8%. Accrued interest at May 31, 2014, and November 30, 2013 amounted to $1,887 and $6,149, respectively, which is included as a component of accounts payable and accrued expenses. Interest expense on notes payable to third parties amounted to $381 and $3,655 for the three months ended May 31, 2014 and 2013, respectively.
The following is a summary of the Company’s convertible debt at May 31, 2014 and November 30, 2013:
| Interest | ||||||||||
| Balance | Rate | Maturity | ||||||||
| Balance - November 30, 2013 | $ | 125,000 | 8 | % | Jan. 22, 2015 | |||||
| Borrowings | 125,000 | 8 | % | Feb. 3, 2015 | ||||||
| Balance - May 31, 2014 | $ | 250,000 | ||||||||
On December 3, 2013 a third party investor advanced $125,000 due in 14 months from the date of the loan. Up to 50% of the original amount of the debt is convertible into the Company’s commons shares at a price of $0.10 per share, which the investor can choose to convert prior to the maturity date and before the redemption date. If the closing price per share of common stock exceeds $0.25 for any ten consecutive trading days, the Company has the right to redeem the Notes by providing investor notice of redemption to redeem the note (“redemption date”).
Accrued interest at May 31, 2014 and November 30, 2013 amounted to $24,289 and $1,263, respectively, which is included as a component of accounts payable and accrued expenses.
Interest expense on convertible debt with third parties amounted to $5,729 and $252 for the three month period ending May 31, 2014 and May 31, 2013, respectively.
Note 5 .Related Party Transactions
Notes payable to related parties at May 31, 2014 and November 30, 2013 is $175.
Accrued interest at May 31, 2014 and November 30, 2013, amounted to $190 and is a component of accounts payable and accrued expenses – related parties. Interest expense on notes payable to related parties amounted to $-0- and $400 for the three months ended May 31, 2014 and May 31, 2013, respectively.
The Company has separated accounts payable and accrued expenses on the balance sheet to reflect amounts due to related parties primarily consisting of officer compensation, health insurance, interest on notes and reimbursable expenses to officers for travel, meals and entertainment, vehicle and other related business expenses.
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BioPower Operations Corporation and Subsidiaries
Notes to Consolidated Financial Statements
May 31, 2014
Unaudited
Note 6. Stockholders’ Deficit
(A) Common Stock
The Company issued 250,000 shares during the quarter ended May 31, 2014, pursuant to the terms of a consulting agreement. The Company has entered into a six month consulting agreement with Caro Capital LLC to provide services for management consulting, business advisory, shareholder information and public relations. The Company will pay the consulting firm up to $12,000 and provide 500,000 shares of restricted common stock, according to the terms of the agreement. As of May 31, 2014, 250,000 shares valued at $27,400 were issued according to the terms of the agreement. There are 30,531,180 shares and 30,281,180 shares issued and outstanding at May 31, 2014 and November 30, 2013, respectively.
(B) Restricted Stock
On June 21, 2013, the Company granted 1,500,000 shares of common stock to a consultant for services to be provided over a twelve month period, commencing June 1, 2013. The shares will vest after one year of service; however the Company issued the shares in September 2013. The value of the shares is trued up quarterly over the period. For the three months ended May 31, 2014, the company recognized a $37,500 decrease in expense, bringing the total expense for these restricted shares to $120,000 and a reduction of $23,750 for the six months ended May 31, 2014. All of the shares have vested as of May 31, 2014.
In addition, the Company will pay the consultant a fee of $7,500 per month, cash flow permitting, over the same twelve month period. Accrued consulting fees at May 31, 2014 amounted to $ 75,000 related to the cash portion of fees due, which is included as a component of accounts payable and accrued expenses. Consulting fee expense amounted to $ 22,500 for the three months ended May 31, 2014.
On June 25, 2013, the Company’s Chief Executive Officer and Director of Business Strategy were each granted 2,000,000 shares of common stock in exchange for continuing to work without cash payment of their full salary and to convert accrued expenses and a note payable (see Note 9). The shares will vest after one year of service and will not replace the Company’s obligation to pay the required salary over the next year. The fair value of the common stock at the date of grant was $ 0.09 per share based upon the closing market price on the date of grant. The aggregate grant date fair value of the awards amounted to $ 360,000, which will be recognized as compensation expense over the vesting period. The Company recorded $ 180,000 of compensation expense during the six months ended May 31, 2014 with respect to these awards. Total unrecognized compensation expense related to unvested stock awards at May 31, 2014 and November 30, 2013, amounts to $30,000 and $210,000 respectively, and is expected to be recognized over a weighted average period of 0.08 years.
A summary of the restricted stock award activity for the six months ended May 31, 2014 and the year ended November 30, 2013 is as follows:
| Weighted Average | ||||||||||||||||
| Weighted | Remaining | |||||||||||||||
| Number of | Average Grant | Contractual Life | Aggregate | |||||||||||||
| Shares | Date Fair Value | (in Years) | Intrinsic Value | |||||||||||||
| Unvested - November 30, 2013 | 5,500,000 | $ | 0.07 | 0.6 | $ | - | ||||||||||
| Unvested – May 31, 2014 | 5,500,000 | $ | 0.07 | 0.08 | $ | - | ||||||||||
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BioPower Operations Corporation and Subsidiaries
Notes to Consolidated Financial Statements
May 31, 2014
Unaudited
Note 7. Commitments and Contingencies
Commitments
Employment Agreements – Officers and Directors
As of May 31, 2014, the Company had employment agreements with certain officers and directors (two individuals) containing the following provisions:
Term of contract 5 years, expiring on December 31, 2015
Salary $ 120,000
Salary deferral All salaries will be accrued but may be paid from the Company’s available cash flow funds.
Lease Agreement
On June 3, 2013, the Company entered into a new lease agreement with its current landlord. The lease is for a 24 month period, expiring on May 31, 2015 , and requires monthly base rental payments of $ 4,000 for the period from June 1, 2013 through May 31, 2014 and $ 4,080 for the period from June 1, 2014 through May 31, 2015 plus adjustments for Common Area Expenses.
Rent expense was $ 20,549 and $22,029 for the six month period ended May 31, 2014 and May 31, 2013, respectively.
Contingencies
From time to time, the Company may be involved in legal matters arising in the ordinary course of business. While the Company believes that such matters are currently not material, there can be no assurance that matters arising in the ordinary course of business for which the Company is, or could be, involved in litigation, will not have a material adverse effect on its business, financial condition or results of operations.
Note 8. Testing Services Agreement
On July 2, 2013, the Company entered into agreements for the first stage of a project to develop a castor plantation and milling operation in the Republic of Paraguay with offshore entities (aka “Ambrosia” and “Developer”) for the testing and development of a project with up to $ 10,000,000 in financing upon certification of the castor yield effective. Under the terms of the Testing Services Agreement (the “TSA”), the Developer will provide the land, pay costs for the testing and pay the Company a monthly project management fee of $ 45,000 and reimbursement of expenses during the test period for subcontractors on the ground in Paraguay. The Company will provide project management testing services through the testing phase for up to 12 months until the successful certification of the yield from growing castor is proven, subject to material and adverse events. Once Ambrosia approves the project, then under the Castor Master Farm Management Services Agreement, the $10,000,000 to be invested from Ambrosia will go towards the development and operations of the first stage of the castor plantation and the building of the mill and its operations. The Company will earn 6 % of the net income for ten years or have an option to become a 20 % owner of the project. The Company began the initial test phase in Paraguay on March 20, 2013, and subject to the terms of the TSA, is entitled to project management fees. The Company recorded other consulting revenue, net of expense, of $38,868 and $85,524 during the three month period ended May 31, 2014 and May 31, 2013, respectively, in connection with services provided under the TSA.
We received notification of termination of the TSA project as of April 1, 2014 due to material and adverse events related to the necessity for building roads due to extreme flooding conditions and issues associated with clearing of the land. All receivables and payables related to the testing services agreement were satisfied in June 2014.
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BioPower Operations Corporation and Subsidiaries
Notes to Consolidated Financial Statements
May 31, 2014
Unaudited
Note 9. Subsequent Events
On July 9, 2014.a third party investor advanced $30,000 at 4% interest due in 60 days from the date of the loan. After 60 days it becomes a demand loan.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
FORWARD LOOKING STATEMENTS AND ASSOCIATED RISK
The information contained in this Quarterly Report on Form 10-Q (this “Quarterly Report”) is intended to update the information contained in our Annual Report on Form 10-K for the year ended November 30, 2013 (our “2013 Annual Report”) and presumes that readers have access to, and will have read, the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other information contained in our 2013 Annual Report. The following discussion and analysis also should be read together with our consolidated financial statements and the notes to the consolidated financial statements included elsewhere in this Quarterly Report.
This discussion summarizes the significant factors affecting the consolidated operating results, financial condition and liquidity and cash flows of BioPower Operations Corp. for the three and six months ended May 31, 2014 and 2013. Except for historical information, the matters discussed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “future,” “opportunity,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result” and similar expressions. Forward-looking statements involve risks and uncertainties and are based upon judgments concerning various factors that are beyond our control. Forward-looking statements are based on current expectations and assumptions and actual results could differ materially from those projected in the forward-looking statements as a result of, among other things, those factors set forth in “Risk Factors” contained in Item 1A of our 2013 Annual Report.
Throughout this Quarterly Report, the terms “we,” “us” and “our” refers to BioPower Operations Corporation and, unless the context indicates otherwise, our subsidiaries in which we hold 100% of such entities’ outstanding equity securities, including BioPower Corporation (“BioPower Corporation”), Green Oil Plantations Americas Inc. (“Green Oil”) and Green Energy Crops Corporation (“GECC”), on a consolidated basis. Unless otherwise indicated, all monetary amounts are reflected in United States Dollars.
Overview
BioPower Corporation (“we,” “our,” “BioPower,” “BIO” or the “Company”) was incorporated in the State of Florida on September 13, 2010. On January 5, 2011, the Company re-domiciled to Nevada and formed BioPower Operations Corporation, a Nevada corporation. On January 6, 2011, the shareholders of BioPower Corporation contributed their shares of BioPower Corporation to BioPower Operations Corporation and BioPower Corporation became a wholly-owned subsidiary. The Company and its subsidiaries intend to convert biomass wastes into products and reduce the amount of waste going to landfills through license, joint venture and build and own facilities. We intend to accomplish this goal through the conversion of municipal solid waste to electricity and conversion of medical waste to electricity. Further, we intend to license and create royalties by utilizing our FTZ Exchange subsidiary to help create exchanges.
We have primarily generated revenues from a consulting agreement and from revenues earned from the testing phase in connection with the Testing Services Agreement in Paraguay. Revenues recognized to date are not indicative of future expected revenues. Accordingly, we must raise cash from other sources, such as from the proceeds of loans, sale of common shares, advances from related parties and consulting agreements.
From inception (September 13, 2010) to May 31, 2014, the Company’s business operations have been primarily focused on developing our business plan, developing potential products and biomass projects, becoming a trading public company through an S-1 registration statement, raising money licensing technologies and licensing and developing on-line exchanges.
Our corporate headquarters are located at 1000 Corporate Drive, Suite 200, Fort Lauderdale, Florida 33334 and our phone number is (954) 202-6660. Our website can be found at www.biopowercorp.com. The information on our website is not incorporated in this report.
Our Business
Biomass is a very broad term which is used to describe material of recent biological origin that can be used either as a source of energy or for its chemical components. As such, it includes municipal solid waste better known as trash, sludge from wastewater treatment plants, animal wastes, manures, industrial wastes, trees, crops, algae and other plants, as well as agricultural and forest residues.
Initially we developed a strategy to license and grow long-term biomass products that take five to seven years to reach maturation. After commencing development activities we recognized that the economic climate for lending and investment is focused on shorter term returns of two to three years. Therefore, BioPower analyzed various shorter term biomass technologies and market niche opportunities.
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BioPower intends to convert municipal solid waste to electricity and convert medical waste to electricity through gasification. We will create a special purpose entity (“SPE”) company for each project. Every SPE must have a sustainable, project with facilities to convert the wastes coupled with an end use agreement for the sale of electricity or biofuels. This end use agreement may enable the SPE to obtain financing based upon the potential profitability of each project. The Company intends to offer ownership in our initial SPEs to partners who can provide equity financing. The role BioPower will fulfill in each SPE is executive and general management, procurement of funding and development of markets for the business development of projects and the sale of electricity or biofuels.
The Company also intends to investigate and license, acquire and/or joint venture with the most promising conversion processes.
Licensed Technology
We obtained a non-exclusive global license from AGT Technologies LLC (“AGT”) until June 2029 when the patent expires. The license is for the patented one-step enzyme technology which converts wastes from poultry, hogs, humans and sugar to products such as, fertilizer, ethanol and other products.
BioPower intends to focus initially on municipalities who have a significant need to reduce their costs of the handling of sewage by utilizing the Company's licensed technology to reduce landfill costs by converting a portion of the sewage into products that do not have to go to the landfill but can be used for energy and fertilizer. The utilization of biomass residues is of paramount importance to achieve environmental sustainability by harnessing the potential of renewable resources in the production of clean energy and value added products.
We are required to pay AGT 50% of any sub-license fees that we receive. We are also required to pay AGT 12% in royalties on all revenues we earn from utilizing the technology. As of May 31, 2014, no amounts are due under the license agreement.
The patented technology is a one-step platform that integrates enzymatic fermentation process that requires no pretreatment of the feedstock before fermentation. During the fermentation process the bacteria within the wastes are inactivated by the injected proprietary microbes that also hydrolyze natural biopolymers and simultaneously convert the hydrolyzed fermentable sugars into ethanol.
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The process can also convert human waste which is reduced from the conversion of it to ethanol and CO2. Once commercialized, BioPower believes that the process will allow sewage treatment plants to reduce or entirely eliminate their sludge volumes and create saleable Class A fertilizer in lieu of delivering pressed sludge to a landfill in an environmentally unsound method. The process allows farmers to utilize the bacteria free solids to be sold and utilized as an environmentally safe soil amendment or fertilizer. Savings result from less energy used in the processing of sludge, elimination of the hauling costs of treated sludge, and the added profit from ethanol and fertilizer sales. Water utilized in the fermentation stage is recycled back into the process minimizing waste streams from the process.
To date, we have not commercialized this process.
Critical Accounting Policies
In response to financial reporting release FR-60, Cautionary Advice Regarding Disclosure About Critical Accounting Policies, from the SEC, we have selected our more subjective accounting estimation processes for purposes of explaining the methodology used in calculating the estimate, in addition to the inherent uncertainties pertaining to the estimate and the possible effects on the our financial condition. The accounting estimates involve certain assumptions that, if incorrect, could have a material adverse impact on our results of operations and financial condition. Our more significant accounting policies can be found in Note 3 of our unaudited interim consolidated financial statements found elsewhere in this report and in our Annual Report on Form 10-K for the year ended November 30, 2013, as filed with the SEC. There have been no material changes to our critical accounting policies during the period covered by this report.
Results of Operations
Our financial statements have been prepared assuming that we will continue as a going concern and, accordingly, do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to continue in operation. We expect that we will require additional capital to meet our operating requirements. We expect to raise additional capital through, among other things, the sale of equity and/or debt securities.
Three and Six Months Ended May 31, 2014 Compared to the Three and Six Months Ended May 31, 2013
The following tables set forth, for the periods indicated, results of operations information from our unaudited interim consolidated financial statements:
| Three Months Ended May 31, | Change | Change | ||||||||||||||
| 2014 | 2013 | (Dollars) | (Percentage) | |||||||||||||
| Expenses | ||||||||||||||||
| General and administrative expenses | $ | 278,562 | $ | 240,128 | $ | 38,434 | 16.0 | % | ||||||||
| Other Income (Expense) | ||||||||||||||||
| Interest expense | (12,220 | ) | (3,655 | ) | (8,565 | ) | 234.3 | % | ||||||||
| Interest expense - related party | - | (408 | ) | (408 | ) | 100.0 | % | |||||||||
| Loss on impairment of available-for-sale securities | - | (76,050 | ) | (76,050 | ) | 100.0 | % | |||||||||
| Consulting revenue, net | 34,868 | 85,524 | (50,656 | ) | (59.2 | )% | ||||||||||
| Total Other Income - net | 22,648 | 5,411 | 17,237 | 318.55 | % | |||||||||||
| Net loss | $ | (255,914 | ) | $ | (234,717 | ) | $ | (21,197 | ) | 9.0 | % | |||||
| Six Months Ended May 31, | Change | Change | ||||||||||||||
| 2014 | 2013 | (Dollars) | (Percentage) | |||||||||||||
| Expenses | ||||||||||||||||
| General and administrative expenses | $ | 639,015 | $ | 402,143 | $ | 236,872 | 58.9 | % | ||||||||
| Other Income (Expense) | ||||||||||||||||
| Interest expense | (18,115 | ) | (29,867 | ) | (11,752 | ) | (39.35 | )% | ||||||||
| Interest expense - related party | - | (808 | ) | (808 | ) | 100.0 | % | |||||||||
| Loss on impairment of available-for-sale securities | - | (76,050 | ) | (76,050 | ) | 100.0 | % | |||||||||
| - | - | |||||||||||||||
| Consulting revenue, net | 111,401 | 102,846 | 8,555 | 8.32 | % | |||||||||||
| Total Other Income - net | (93,286 | ) | (3,879 | ) | 97,165 | 2504.9 | % | |||||||||
| Net loss | $ | (545,729 | ) | $ | (406,022 | ) | $ | (139,707 | ) | 34.41 | % | |||||
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General and Administrative Expenses. Our general and administrative expenses are mainly comprised of compensation expense, corporate overhead, development costs, and financial and administrative contracted services for professional services including legal and accounting, SEC filing fees, and insurance. The decrease in our general and administrative expenses is primarily attributable to lower compensation expense due to the departure of our former President/Chief Operating Officer in August 2013. Additionally, insurance expense decreased during the three and six months ended May 31, 2014 as a result of not renewing our directors’ and officers’ liability insurance.
Interest Expense. Interest expense for the three and six months ended May 31, 2014 and 2013 primarily represents the accretion of debt discount to interest expense on our outstanding debt, as well as contractual interest expense on our notes payable and convertible debt.
Loss on impairment. The Company previously reported certain shares due to them by an escrow agent as available-for-sale securities. In May 2013, the Company was notified by the escrow agent that it would not release these shares. Accordingly, the Company determined the value of the available-for-sale securities to be impaired and recorded an impairment charge of $76,050 as of May 31, 2013.
Gain on Settlement of Consulting Revenue Receivable. In February 2013, the Company entered into a consulting agreement with a third party, pursuant to which we received 15,000,000 shares of the third party’s restricted common stock as payment for services to be rendered by us. As of May 31, 2013, the value of the shares received was $253,500, of which $120,000 was recorded as deferred revenue and $133,500 was recorded as gain on settlement of consulting revenue receivable.
Consulting Revenue.During the three months ended May 31, 2014 and 2013, the Company recognized $34,868 and $85,524, respectively; in net consulting revenue related to the consulting agreement entered into with a third party in February 2013. During the six months ended May 31, 2014 and 2013, the Company recognized $111,401 and $102,846, respectively, in consulting revenue related to this same agreement.
Liquidity and Financial Condition
| Six Months Ended May 31, | ||||||||
| Category | 2014 | 2013 | ||||||
| Net cash used in operating activities | $ | (220,264 | ) | $ | (125,026 | ) | ||
| Net cash provided (used) in investing activities | (4,754 | ) | - | |||||
| Net cash provided by financing activities | 125,100 | 150,000 | ||||||
| Net increase in cash | $ | (99,918 | ) | $ | 24,974 | |||
Cash Flows from Operating Activities
Net cash used in operating activities was $220,264 for the six months ended May 31, 2014, compared with $125,026 for the comparable period in 2013. Net cash used in operating activities for the six months ended May 31, 2014 is mainly attributable to our net loss of $545,729, offset by an increase in accounts payable and accrued expenses and stock based compensation. Net cash used in operating activities for the six months ended May 31, 2013 is mainly attributable to our net loss of $406,022, offset by the loss on impairment of securities, an increase in accounts payable and accrued expenses due to related parties and an increase inconvertible debt and notes payable
Cash Flows from Financing Activities
We have financed our operations primarily from either advancements or the issuance of equity and debt instruments. For the six months ended May 31, 2014 cash flows provided by financing activities was $125,100, compared to $150,000 for the comparable period in 2013. We received $125,000 in proceeds from convertible debt and notes payable with third parties during the six months ended May 31, 2014, compared to $150,000 in proceeds from convertible debt during the six months ended May 31, 2013. Management is seeking, and expects to continue to seek to raise additional capital through equity and/or debt financings, including through one or more equity or debt financings to fund its operations, and pay amounts due to its creditors and employees. However, there can be no assurance that the Company will be able to raise such additional equity or debt financing or obtain such bank borrowings on terms satisfactory to the Company or at all.
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The Company does not currently have sufficient resources to cover on-going expenses and expansion. As of May 31, 2014, the Company had cash of $9,254 and current liabilities of $2,102,978. Our current liabilities include accounts payable and accrued expenses to related parties of $1,298,369. We have historically financed our operations primarily through private placements of common stock, loans from third parties and loans from our Officer. We plan on raising additional funds from investors to implement our business model. In the event we are unsuccessful, this will have a negative impact on our operations.
As reflected in the accompanying unaudited interim consolidated financial statements, the Company has a net loss of $545,729 and net cash used in operations of $220,264 for the six months ended May 31, 2014; and a working capital deficit of $2,037,388 at May 31, 2014. These factors 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 is dependent on Management's plans, which include potential asset acquisitions, mergers or business combinations with other entities, further implementation of its business plan and continuing to raise funds through debt and/or equity financings. The Company will likely rely upon related party debt and/or equity financing in order to ensure the continuing existence of the business. The financial statements have been prepared assuming that we will continue as a going concern, which contemplates that we will realize our assets and satisfy our liabilities and commitments in the ordinary course of business.
Recent Accounting Pronouncements
See Note 3 to our unaudited interim consolidated financial statements regarding recent accounting pronouncements.
Off-Balance Sheet Arrangements
As of the date of this Quarterly Report, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
This item is not applicable to smaller reporting companies.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of May 31, 2014, the end of the period covered by this report. Based on, and as of the date of such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as May 31, 2014 such that the information required to be disclosed in our SEC reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
Other than the material weakness discussed below that was identified and remediated during the quarter ended May 31, 2014, there have not been any significant changes in our internal control over financial reporting during the fiscal quarter ended May 31, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Remediation of a Material Weakness in Internal Control Over Financial Reporting
We recognize the importance of the control environment as it sets the overall tone for the organization and is the foundation for all other components of internal control. Consequently, we designed and implemented remediation measures to address the material weakness identified as of November 30, 2013 and enhance our internal control over financial reporting. The material weakness related to the lack of technical resources to apply accounting requirements as they relate to non-routine and highly complex transactions and resulted in restatements to our financial statements which will be filed on Form 10-Q for the periods ended February 29, May 31 and August 31, 2013. The following actions, which we believe remediated the material weakness in internal control over financial reporting, were completed as of the date of this filing:
| • | We retained accounting and consulting personnel with the appropriate level of knowledge, skills and experience in financial accounting and reporting; |
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| • | We have examined significant accounts and improved related account reconciliations; and |
| • | We changed our monitoring practices concerning the review of significant accounts and transactions and related financial results and reporting. |
We are committed to a strong internal control environment and will continue to review the effectiveness of our internal controls over financial reporting and other disclosure controls and procedures. As we continue to evaluate and work to improve our internal control over financial reporting, management may determine to take additional measures.
From time to time, we are a party to, or otherwise involved in, legal proceedings arising in the normal and ordinary course of business. As of the date of this report, we are not aware of any proceeding, threatened or pending, against us which, if determined adversely, would have a material effect on our business, results of operations, cash flows or financial position.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
None.
The following exhibits are being filed as part of this Quarterly Report on Form 10-Q.
| Exhibit | ||
| Number | Exhibit Description | |
| 31.1 | Certification of Chief Executive Officer pursuant to Securities Exchange Act of 1934 Rule 13a-14(a) or 15d- 14(a) | |
| 32.1 | Certification of Chief Executive Officer pursuant to Securities Exchange Act of 1934 Rule 13a-14(b) or 15d- 14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 101.INS | XBRL Instance Document | |
| 101.SCH | XBRL Taxonomy Extension Schema Document | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
Copies of this report (including the financial statements) and any of the exhibits referred to above will be furnished at no cost to our shareholders who make a written request to BioPower Operations Corp., 1000 Corporate Drive, Suite 200, Fort Lauderdale, Florida 33334 Attention: Mr. Robert Kohn.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Dated: July 18, 2014 | BioPower Operations Corporation | |
| By: | /s/ Robert D. Kohn | |
| Robert D. Kohn, Chairman and Chief Executive Officer and Chief Financial Officer | ||
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