Notes to Consolidated Financial Statements
November 30, 2013 and 2012
Note 1. Organization:
BioPower Corporation (“BioPower” 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 intends to grow biomass crops and will use milling operations to produce oils, biofuels, electricity and other biomass products. The Company also intends to license, joint venture and build facilities by utilizing its license for the patented technology that converts, poultry, hog, human and sugar wastes to cellulosic ethanol, fertilizer and other products.
On June 8, 2013, the Company's Chief Executive Officer contributed 100% of his member interest in FTZ Exchange, LLC, and (“FTZ”) which became a
100
% wholly-owned subsidiary to the Company for no consideration. On the date of contribution, FTZ had a 50-50 joint venture, known as, the Qx Health Exchange (“QX”) and a wholly-owned subsidiary, called FTZ Energy Exchange Corporation, which intends to launch an energy exchange. FTZ is a licensing company which intends to use its business know-how to develop Internet exchanges for the sale of various products and services. On the date of contribution, FTZ had a nominal net book value. During 2013, FTZ received notice from Quture that it did not want to go forward with the Qx Health Exchange. FTZ has not launched the Energy Exchange.
The Company’s fiscal year end is November 30.
Reverse Stock Split
On August 2, 2013,
the Company effected a 1-for-5 reverse stock split of its common 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.
On January 14, 2012, the Company formed Global Energy Crops Corporation (“GECC”), a 100% wholly-owned subsidiary. Global Energy Crops Corporation signed the Joint Venture license agreement with AGT Technologies LLC for the conversion of cellulosic sugar to ethanol in November 2013.
On May 12, 2013 the company formed FTZ Energy Exchange Corporation, a 100% wholly-owned subsidiary.
This entity is inactive except for its formation.
On August 2, 2013 the Company formed Agribopo, Inc., a 100% wholly-owned subsidiary for the development of biomass related projects.
Agribopo signed a Testing Services Agreement (See Note 13).
Note 2 Summary of Significant Accounting Policies
Principles of Consolidation
All inter-company accounts and transactions have been eliminated in consolidation.
Development Stage
The Company's consolidated financial statements are presented as those of a development stage enterprise. Activities during the development stage primarily include negotiating licensing agreements, entering into a pilot testing program for castor, doing business development and testing for the use of our licensed technology.
The Company, while seeking to implement its business plan, will look to obtain additional debt and/or equity related funding opportunities. The Company has not generated any operating revenues from its planned and principal operations since inception.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ materially from those estimates.
Such estimates and assumptions for the periods ended November 30, 2013 and 2012, affect, among others, the following:
|
|
·
|
estimated fair value of share based payments,
|
|
|
·
|
estimated carrying value, useful lives and related impairment of equipment and intangible assets; and
|
|
|
·
|
estimated valuation allowance for deferred tax assets, due to continuing and expected future losses
|
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from estimates.
BioPower Operations Corporation and Subsidiaries
(A Development Stage Company)
Notes to Consolidated Financial Statements
November 30, 2013 and 2012
Cash
The Company considers all highly liquid instruments purchased with a maturity of three months or less and money market accounts to be cash equivalents. The Company had no cash equivalents at November 30, 2013 and 2012.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are stated at their estimated net realizable values.
The Company evaluates whether it is necessary to record an allowance for doubtful accounts for estimated losses inherent in the accounts receivable portfolio.
In evaluating the required allowance, management considers historical losses adjusted to take into account current market conditions and financial conditions, the amount of receivables in dispute, and the current receivable’s aging and current payment patterns.
Based on its evaluation, no allowance for doubtful accounts was recorded as of November 30, 2013 and 2012, respectively.
The Company had no bad debt expense for the years ended November 30, 2013 and 2012, respectively.
Marketable Securities
Classification of Securities
At the time of acquisition, a security is designated as held-to-maturity (“HTM”), available-for-sale (“AFS”), or trading, which depends on ability and intent to hold such security to maturity. Securities classified as trading and AFS are reported at fair value, while securities classified as HTM are reported at amortized cost.
Any unrealized gains and losses are reported as other comprehensive income (loss). Realized gains (losses) are computed on a specific identification basis and are recorded in net capital gains (losses) on investments in the combined consolidated statements of operations.
The Company’s cost basis in AFS was as follows:
|
|
|
Amount
|
|
Shares
|
|
|
AFS Acquired – February 2012
|
|
$
|
253,500
|
|
|
15,000,000
|
|
|
Sales in 2012 – at cost
|
|
|
(169,000)
|
|
|
(10,000,000)
|
|
|
Collection fee
|
|
|
(8,450)
|
|
|
(500,000)
|
|
|
Balance – November 30, 2012
|
|
$
|
76,050
|
|
|
4,500,000
|
|
|
Balance – November 30, 2013
|
|
$
|
-
|
|
|
4,500,000
|
|
The composition of the Company’s investments at November 30, as follows:
|
|
|
2013
|
|
2012
|
|
|
Common stock – public company, cost
|
|
$
|
76,050
|
|
$
|
76,050
|
|
|
Unrealized loss on available for sale marketable securities
|
|
|
(37,800)
|
|
|
(37,800)
|
|
|
Reclassification adjustment due to impairment
|
|
|
37,800
|
|
|
|
|
|
Impairment
|
|
|
(76,050)
|
|
|
|
|
|
Fair value
|
|
$
|
-0-
|
|
$
|
38,250
|
|
Investment income (loss) for the year ended November 30, 2013 and 2012 is as follows:
|
|
|
2013
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
Gross realized losses from sale of available for sale securities
|
|
$
|
-
|
|
$
|
(118,640)
|
|
|
Net unrealized holding gain (loss)
|
|
|
-
|
|
|
(37,800)
|
|
|
Net investment income (loss)
|
|
$
|
-
|
|
$
|
(156,440)
|
|
The Company had a
100
% concentration on one publicly traded stock in 2013 and 2012.
Impairment
The Company reviews its equity investment portfolio for any unrealized losses that would be deemed other-than-temporary and require the recognition of an impairment loss in income. If the cost of an investment exceeds its fair value, the Company evaluates, among other factors, general market conditions, the duration and extent to which the fair value is less than cost, and the Company’s intent and ability to hold the investments. Management also considers the type of security, related-industry and sector performance, as well as published investment ratings and analyst reports, to evaluate its portfolio. Once a decline in fair value is determined to be other than temporary, an impairment charge is recorded and a new cost basis in the investment is established. If market, industry, and/or investee conditions deteriorate, the Company may incur future impairments. The company recognized $
76,050
and -
0
- loss on impairment for the years ended November 30, 2013 and 2012, respectively.
BioPower Operations Corporation and Subsidiaries
(A Development Stage Company)
Notes to Consolidated Financial Statements
November 30, 2013 and 2012
Equipment
Equipment is stated at cost, less accumulated depreciation computed on a straight-line basis over the estimated useful lives. Maintenance and repairs are charged to operations when incurred. Betterments and renewals are capitalized when deemed material. When equipment is sold or otherwise disposed of, the asset account and related accumulated depreciation account are relieved, and any gain or loss is included in operations.
Equipment is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. There were no impairment charges taken during the periods ended November 30, 2013 and 2012.
Intangible Assets
Identifiable intangible assets with finite lives are amortized over their estimated useful lives and are reviewed for impairment if indicators of potential impairment exist.
Investment in Joint Venture
FTZ
entered into a 50-50 Joint Venture with QX, a third party, to engage in the business of becoming an independent medical & health network for hospitals, physicians, outpatient and urgent care centers, dental care, vision care, insurance companies, alternative medicine, medical tourism, pharmaceutical companies, vendors and patients. As of November 30, 2013, Quture notified the Company it did not want to proceed with the joint venture.
GECC signed an agreement to form a 50-50 Joint Venture with AGT Technologies, LLC. in November 2013 for the technology used for the conversion of cellulosic sugar to ethanol.
GECC owns fifty percent of MicrobeSynergy, LLC joint venture and will record its investment on the equity basis of accounting. The Company’s proportionate share of expenses incurred by the Joint Venture will be charged to the statement of operations and adjusted against the Investment in Joint Venture. Losses from the Joint Venture are only recognized until the investment in the Joint Venture is reduced to zero. Losses in excess of the investment must be restored from future profits before the Company can recognize its proportionate share of profits.
As of November 30, 2013, the Joint Venture had no activity.
Convertible debt,
Beneficial Conversion Feature and Debt Discount
For conventional convertible debt where the rate of conversion is below market value at the date of the agreement, the Company records a “beneficial conversion feature” (“BCF”) and related debt discount.
When the Company records a BCF, the relative fair value of the BCF would be recorded as a debt discount against the face amount of the respective debt instrument. The discount would be amortized to interest expense over the life of the debt. When a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately expensed.
Share-based payments
The Company recognizes all forms of share-based payments, including stock option grants, warrants, and restricted stock grants, at their fair value on the grant date, which are based on the estimated number of awards that are ultimately expected to vest.
BioPower Operations Corporation and Subsidiaries
(A Development Stage Company)
Notes to Consolidated Financial Statements
November 30, 2013 and 2012
Share-based payments, cont’d.
Share based payments, excluding restricted stock, are valued using a Black-Scholes option pricing model. Share based payment awards issued to non-employees for services rendered are recorded at either the fair value of the services rendered or the fair value of the share-based payment, whichever is more readily determinable.
The grants are amortized on a straight-line basis over the requisite service periods, which is generally the vesting period. If an award is granted, but vesting does not occur, any previously recognized compensation cost is reversed in the period related to the termination of service.
When computing fair value, the Company may consider the following variables:
|
•
|
The risk-free interest rate assumption is based on the U.S. Treasury yield for a period consistent with the expected term of the option in effect at the time of the grant.
|
|
•
|
The Company has not paid any dividends on common stock since inception and does not anticipate paying dividends on its common stock in the near future.
|
|
•
|
The expected option term is computed using the “simplified” method as permitted under the provisions of Staff Accounting Bulletin (“SAB”) 110.
|
|
•
|
The expected volatility is based on the historical volatility of the Company’s common stock, based on the daily quoted closing trading prices.
|
|
•
|
The forfeiture rate is based on the historical forfeiture rate for unvested stock options.
|
As of November 30, 2013, there are no shares to be issued.
As of November 30, 2012, all shares not yet issued are included as a component of common stock payable.
Earnings per share
Basic earnings (loss) per share is computed by dividing net income (loss) by weighted average number of shares of common stock outstanding during each period. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period. The Company does not include shares not yet issued that were included as a component of common stock payable in the earnings per share calculation.
Since the Company reflected a net loss in 2013 and 2012, considering any common stock equivalents, if exercisable, would have been anti-dilutive. A separate computation of diluted earnings (loss) per share is not presented.
The Company has the following potential common stock equivalents at November 30, 2013 and 2012:
|
|
|
November 30,
|
|
|
November 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants (1)
|
|
|
-
|
|
|
|
-
|
|
|
Convertible debt (2)
|
|
|
625,000
|
|
|
|
-
|
|
|
Total common stock equivalents
|
|
|
625,000
|
|
|
|
-
|
|
(1) On January 11, 2012, the
1,000,000
warrants expired unexercised.
(2) As of November 30, 2012, the convertible notes matured and were reclassified to demand notes.
Also see Note 6.
Income Taxes
Provisions for income taxes are calculated based on reported pre-tax earnings and current tax law.
Significant judgment is required in determining income tax provisions and evaluating tax positions. The Company periodically assesses its liabilities and contingencies for all periods that are currently open to examination or have not been effectively settled based on the most current available information. When it is not more likely than not that a tax position will be sustained, the Company records its best estimate of the resulting tax liability and any applicable interest and penalties in the financial statements.
BioPower Operations Corporation and Subsidiaries
(A Development Stage Company)
Notes to Consolidated Financial Statements
November 30, 2013 and 2012
Deferred tax assets and liabilities are recorded for temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements using statutory rates in effect for the year in which the differences are expected to reverse. The Company presents the tax effects of these deferred tax assets and liabilities separately for each major tax jurisdiction.
The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that the changes are enacted. The Company records a valuation allowance to reduce deferred tax assets when it is more likely than not that some portion of the asset may not be realized. The Company evaluates its deferred tax assets and liabilities on a periodic basis.
Deferred Revenue
Deferred revenue represents revenues that were received, but not earned as of November 30, 2012. This is composed of revenues for advisory fees that were received in advance and will be recorded as revenue when earned over the term of the consulting agreement. See Note 12.
Recent Accounting Pronouncements
There are no new accounting pronouncements that are expected to have any material impact on the Company’s consolidated financial statements.
Reclassification
We have reclassified certain prior period amounts to conform to the current period presentation. These reclassifications have no effect on the financial position or on the results of operations or cash flows for the periods presented.
Note 3 Going Concern
As reflected in the accompanying consolidated financial statements, the Company had a net loss of $
1,342,728
and net cash used in operations of $
236,578
for the year ended November 30, 2013; and a working capital deficit of $
1,676,825
and a stockholders’ deficit of $
1,636,811
at November 30, 2013. 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 or equity financings. The Company will likely rely upon related party debt 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.
Note 4 Equipment
At November 30, 2013 and 2012, equipment consists of the following:
|
|
|
2013
|
|
2012
|
|
Estimated Useful Life
|
|
|
Computer Equipment
|
|
$
|
27,760
|
|
$
|
27,760
|
|
5 years
|
|
|
Testing Equipment
|
|
|
15,612
|
|
|
-
|
|
3 years
|
|
|
Less: Accumulated depreciation
|
|
|
(14,551)
|
|
|
(8,999)
|
|
|
|
|
Equipment, net
|
|
$
|
28,821
|
|
$
|
18,761
|
|
|
|
BioPower Operations Corporation and Subsidiaries
(A Development Stage Company)
Notes to Consolidated Financial Statements
November 30, 2013 and 2012
Note 5 Income Taxes
The Company recognizes deferred tax assets and liabilities for both the expected impact of differences between the financial statements and the tax basis of assets and liabilities, and for the expected future tax benefit to be derived from tax losses and tax credit carryforwards. The Company has established a valuation allowance to reflect the likelihood of the realization of deferred tax assets.
The Company has a net operating loss carryforward for tax purposes totaling approximately $
1,146,208
at November 30, 2013, expiring through 203
3
. U.S. Internal Revenue Code Section 382 places a limitation on the amount of taxable income that can be offset by carryforwards after a change in control (generally greater than a
50
% change in ownership). Temporary differences, which give rise to a net deferred tax asset, are as follows:
Significant deferred tax assets at November 30, 2013 and 2012 are approximately as follows:
|
|
|
2013
|
|
2012
|
|
|
Gross deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
431,000
|
|
$
|
229,000
|
|
|
Accrued and deferred expenses
|
|
|
490,000
|
|
|
340,000
|
|
|
Total deferred tax assets
|
|
|
921,000
|
|
|
569,000
|
|
|
Less: valuation allowance
|
|
|
(921,000)
|
|
|
(569,000)
|
|
|
Net deferred tax asset recorded
|
|
$
|
-
|
|
$
|
-
|
|
The valuation allowance at November 30, 201
3
was approximately $
921
,000. The net change in valuation allowance during the period ended November 30, 2013 was an increase of approximately $3
52
,000.
In assessing the reliability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred income tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based on consideration of these items, management has determined that enough uncertainty exists relative to the realization of the deferred income tax asset balances to warrant the application of a full valuation allowance as of November 30, 2013.
The actual tax benefit differs from the expected tax benefit for the period ended November 30, 2013 and 2012 (computed by applying the U.S. Federal Corporate tax rate of
34
% to income before taxes and
5.5
% for State income taxes, a blended rate of
37.63
%) approximately as follows:
|
|
|
2013
|
|
2012
|
|
|
Expected tax expense (benefit) - Federal
|
|
$
|
(422,000)
|
|
$
|
(410,000)
|
|
|
Expected tax expense (benefit) - State
|
|
|
(72,000)
|
|
|
(70,000)
|
|
|
Meals and entertainment at 50%
|
|
|
3,000
|
|
|
4,000
|
|
|
Impaired loss on license agreement
|
|
|
29,000
|
|
|
91,000
|
|
|
Stock/stock options/warrants issued for services
|
|
|
110,000
|
|
|
41,000
|
|
|
Change in valuation allowance
|
|
|
352,000
|
|
|
344,000
|
|
|
Actual tax expense (benefit)
|
|
$
|
-
|
|
$
|
-
|
|
BioPower Operations Corporation and Subsidiaries
(A Development Stage Company)
Notes to Consolidated Financial Statements
November 30, 2013 and 2012
Note 6 Notes Payable and Convertible Debt
Notes payable consists of the following:
|
|
|
|
|
|
Interest
|
|
|
|
|
|
|
|
Balance
|
|
Rate
|
|
|
Maturity
|
|
|
Balance - November 30, 2011
|
|
$
|
30,000
|
|
|
|
|
|
|
|
Borrowings
|
|
|
70,800
|
|
4
|
%
|
|
Due on demand
|
|
|
Repayments/Conversions
|
|
|
(51,000)
|
|
|
|
|
|
|
|
Balance - November 30, 2012
|
|
$
|
89,800
|
|
|
|
|
|
|
|
Borrowings
|
|
|
181,506
|
|
8
|
%
|
|
Due on demand
|
|
|
Conversion of borrowings to equity
|
|
|
(183,306)
|
|
|
|
|
|
|
|
Balance - November 30, 2013
|
|
$
|
88,000
|
|
|
|
|
|
|
During December 2011 and January 2012, the Company’s former President, until August 2012, advanced $
40,000
. The loans bear interest at
4
%, are unsecured and due on demand. Originally, the lender had the option to convert the loan into
32,000
restricted shares of the Company at $
1.25
per share. As of November 30, 2012, the note has matured and demand has been made so the Company has reclassified this note as a demand note.
As of the November 30, 2013 the amount is still due, and is classified as a demand note.
During April 2012 and May 2012, a third party investor advanced $
50,000
due on July 31, 2012. The loan bears interest at
4
% and is unsecured. The lender may convert the loan into
40,000
restricted shares of the Company at $
1.25
per share. On July 31, 2012, the notes maturity dates were extended until November 30, 2012. On October 18, 2012, the third party investor converted the above $
50,000
loan into
40,000
restricted shares of the Company's common stock at $
1.25
/share. See Note 7(C). As of November 30, 2012, the
40,000
shares had not been issued and were included in common stock payable.
The shares were issued as of November 30, 2013.
During June 2012, a third party investor advanced $
1,000
. The loan bears interest at
4
%, is unsecured and due on demand. In June 2012, the Company repaid an advance of $
1,000
to a third party investor.
During July 2012, a third party investor advanced $
12,000
, with interest at
4
%. The loan is unsecured and is due on demand.
During October 2012, a third party investor advanced $
7,800
, with interest at
4
%.
The loan is unsecured and is due on demand.
As of November 30, 2012, the convertible notes were reclassified to demand notes give the maturity of the notes and demand for payment
being made.
As of November 30, 2012, the Company owed $
3,674
in accrued interest, which has been recorded as a component of accounts payable and accrued expenses.
On June 21, 2013, the Company issued two of its investors a total of
3,122,800
shares of its common stock in full satisfaction of notes payable, amounting to $
183,306
, along with accrued interest of $
4,062
.
On the date of conversion, the notes payable and accrued interest were valued at $
281,052
, or $
0.09
per share, based on the closing price of the common stock. The Company recorded a loss on the settlement of debt and accrued expenses of $
93,684
during the year ended November 30, 2013 as a result of the conversion.
Convertible debt consists of the following:
|
|
|
|
|
|
Interest
|
|
|
|
|
Conversion
|
|
|
|
|
Balance
|
|
Rate
|
|
Maturity
|
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - November 30, 2011
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
Borrowings
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Conversion of borrowings to equity
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Balance - November 30, 2012
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
Borrowings
|
|
|
25,000
|
|
4
|
%
|
Due on demand
|
|
$
|
0.25
|
|
|
Conversion of borrowings to equity
|
|
|
(25,000)
|
|
|
|
|
|
|
|
|
|
Borrowings
|
|
|
125,000
|
|
8
|
%
|
January 22, 2015
|
|
|
0.10
|
|
|
Balance - November 30, 2013
|
|
$
|
125,000
|
|
|
|
|
|
|
|
|
In January 2013, a third party investor advanced $
25,000
. The lender could convert the loan into
100,000
restricted shares of the Company at $
0.25
per share. The Company determined that the loan met the definition of a conventional convertible debt since the holder of the note could only realize the benefit of the conversion option by exercising it and receiving the entire amount of proceeds in a fixed number of shares or cash. The loan was deemed to have a beneficial conversion feature because the fair value of the stock exceeded the effective conversion price embedded in the loan on the commitment date. Accordingly, the Company recorded the value of the beneficial conversion feature, which was determined to be $25,000, as a discount to the loan and a corresponding increase to additional paid in capital. The amount was immediately recognized as interest expense since the loan is due on demand.
In order to induce the investor to convert his loan promptly, the Company reduced the conversion price to $
0.06
per share, thereby increasing the number of shares issuable upon conversion to
416,667
shares. The carrying value of the loan on June 10, 2013, the date of conversion, was $
25,000
and the closing price of the Company’s common stock on that date was $
0.06
per share. The Company accounted for the conversion of loan in accordance with ASC 470, “Debt with Conversion and Other Options.” The Company determined the fair value of the securities issued in connection with the conversion to be $
25,000
and the fair value of the securities issuable pursuant to the original terms of the loan agreement to be $6,000, thereby resulting in $
19,000
of incremental consideration paid by the Company upon conversion of the note. In addition, the Company issued the lender
5,500
shares of its common stock in full satisfaction of accrued interest of $
330
related to this note.
The Company recorded a loss on the settlement of debt and accrued expenses of $
19,165
for the year ended November 30, 2013 as a result of the conversion.
As of November 30, 2013, the Company owes $
6,368
in accrued interest, which has been recorded as a component of accounts payable and accrued expenses.
Debt Discount
For the years ended November 30, 2013, November 30, 2012 and November 30, 2011, the Company recorded debt discounts totaling of $
0
, $
0
and $
90,000
, respectively.
As a component of the computation for BCF, the Company’s market price was determined based upon recent third party cash offerings at the date of issuance prior to February 2012 when the Company's stock began to trade.
The following is a summary of the Company’s convertible debt discount at November 30, 2013, November 30, 2012 and November 30, 2011.
|
|
|
2013
|
|
2012
|
|
2011
|
|
|
Debt Discount
|
|
$
|
-
|
|
$
|
120,000
|
|
$
|
(30,000)
|
|
|
Amortization of Debt Discount
|
|
|
-
|
|
|
(120,000)
|
|
|
3,571
|
|
|
Remaining debt discount
|
|
$
|
-
|
|
$
|
-
|
|
$
|
(26,429)
|
|
|
|
|
2013
|
|
2012
|
|
2011
|
|
|
Convertible Debt
|
|
$
|
-
|
|
$
|
120,000
|
|
$
|
30,000
|
|
|
Debt Discount
|
|
|
-
|
|
|
(120,000)
|
|
|
(30,000)
|
|
|
Amortization of Debt Discount
|
|
|
-
|
|
|
120,000
|
|
|
3,571
|
|
|
Conversion of Debt into 40,000 shares of common stock to be issued
|
|
|
-
|
|
|
(50,000)
|
|
|
-
|
|
|
Reclassification of Convertible Note to Demand Note - former related party
|
|
|
-
|
|
|
(70,000)
|
|
|
-
|
|
|
Convertible Debt – Net
|
|
$
|
-
|
|
$
|
-
|
|
$
|
3,571
|
|
As of November 30, 2012, the convertible notes were reclassified to demand notes given the maturity of the notes and demand for payment being made.
BioPower Operations Corporation and Subsidiaries
(A Development Stage Company)
Notes to Consolidated Financial Statements
November 30, 2013 and 2012
Note 7 Notes Payable – Related Parties
(A) Year Ended November 30, 2010
During November 2010, the Company’s Chief Executive Officer advanced $
10,927
. The loan bears interest at
4
%, is unsecured and due on demand.
During November 2010, a Company Director advanced $
10,000
. The loan bears interest at
4
%, is unsecured and due on demand.
(B)
Year Ended November 30, 2011
During December 2010, a Company Director advanced $
506
. The loan bears interest at
4
%, is unsecured and due on demand.
During January 2011, the Company’s Chief Executive Officer advanced $
832
. The loan bears interest at
4
%, is unsecured and due on demand.
During January 2011, a Company Director advanced $
631
. The loan bears interest at
4
%, is unsecured and due on demand.
During February 2011, a Company Director advanced $
985
. The loan bears interest at
4
%, is unsecured and due on demand.
During May 2011, the Company repaid all related party advances totaling $
23,881
.
During October 2011, the Company's former President/Chief Operating Officer, advanced $
25,000
. The loan bears interest at
4
%, is unsecured and due on demand. The lender may convert the loan into
20,000
restricted shares of the Company at $
1.25
per share. The Company has determined that this is conventional convertible debt, with a BCF.
As of November 30, 2012, this loan has been reflected as on demand payable to a third party given the individual has resigned from his position as of August of 2012 and has made a demand for payment. Given the Company’s inability to repay the note, the note is currently in default.
During November 2011, the Company's former President/Chief Operating Officer until August 2012, advanced $
5,000
. The loan bears interest at
4
%, is unsecured and due on demand. The lender may convert the loan into
4,000
restricted shares of the Company at $
1.25
per share. The Company has determined that this is conventional convertible debt, with a BCF.
As of November 30, 2012, this loan has been reflected on demand payable to a third party given the individual has resigned from his position as of August of 2012 and has made a demand for payment. Given the Company’s inability to repay the note, the note is currently in default.
As of November 30, 2011, the Company owed $
479
in accrued interest, which has been recorded as a component of accounts payable and accrued expenses
(C) Year Ended November 30, 2012
During February 2012, the Company’s Chief Executive Officer advanced $
2,500
. The loan bears interest at
4
%, is
unsecured and due on demand
.
During March 2012, the Company’s Chief Executive Officer advanced $
17,000
.
The loan bears interest at
4
%,
is unsecured and due on demand
.
During April 2012, the Company’s Chief Executive Officer advanced $
9,000
.
The loan bears interest at
4
%,
is unsecured and due on demand
.
During June 2012, the Company’s Chief Executive Officer advanced $
1,592
. The loan is non-interest bearing, unsecured and due on demand. In October 2012, the Company repaid an advance of $
1,417
to its Chief Executive Officer.
During July 2012, the Company’s Chief Executive Officer advanced $
12,000
.
The loan bears interest at
4
%,
is unsecured and due on demand
.
As of November 30, 2012, the Company owes $
854
in accrued interest,
which has been recorded as a component of accounts payable and accrued expenses
.
(D) Year Ended November 30, 2013
On June 21, 2013, the Company issued its Chief Executive Officer
707,500
shares of its common stock in full satisfaction of his notes payable, amounting to $
40,500
, along with accrued interest of $
1,950
.
On the date of conversion, the notes payable and accrued interest were valued at $
63,675
, or $
0.09
per share, based on the closing price of the common stock. The Company recorded a loss on the settlement of debt and accrued expenses of $
21,225
for the year ended November 30, 2013 as a result of the conversion.
As of November 30, 2013, the Company owes $
190
in accrued interest, which has been recorded as a component of accounts payable and accrued expenses – related party.
Note 8 Stockholders’ Deficit
(A)
Preferred Stock
On January 28, 2011, the Company issued one share of Series A, preferred stock for $
1
. This series of preferred stock had a provision that the holder of the one share, a related party controlled by the Company’s Chief Executive Officer and a Director, can vote
50.1
% of the total votes. There are no preferences, dividends, or conversion rights.
(B)
Common Stock
On September 13, 2010, the Company issued 2,000 shares of common stock to its founders for $1 ($0.0005/share). On January 5, 2011, in connection with the re-domiciling to Nevada, these shares were cancelled for no consideration.
In 2011, the Company issued the following shares for cash and services:
|
Type
|
|
Quantity
|
|
Valuation
|
|
Range of Value per share
|
|
|
Cash
|
|
8,066,000
|
|
$
|
318,910
|
|
$
|
0.0005 – 2.50
|
|
|
Cash – related parties
|
|
8,960,000
|
|
|
4,480
|
|
|
0.0005
|
|
|
License agreement (1)
|
|
200,000
|
|
|
250,000
|
|
|
1.25
|
|
|
Services rendered (2)
|
|
830,000
|
|
|
50,000
|
|
|
.06
|
|
|
Total
|
|
18,056,000
|
|
$
|
623,390
|
|
$
|
0.0005 - $2.50
|
|
(1) See Note 8(C)
(2) In connection with the stock issued for services rendered, the Company determined fair value based upon the value of the services provided, which was the most readily available evidence.
During the years ended November 30, 2013 and 2012, the Company authorized for issuance the following shares for cash and services:
|
Type
|
|
Quantity
|
|
Valuation
|
|
Range of Value
per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock Payable
|
|
|
|
|
|
|
|
|
|
|
For the year ended November 30, 2012, shares authorized but not issued:
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
40,000
|
|
$
|
50,000
|
|
$
|
1.25
|
|
|
Services rendered – related parties, vested (See note 9 (E))
|
|
10,000
|
|
|
11,000
|
|
|
1.10
|
|
|
Services rendered – related party, not vested ( See note 9 (E))
|
|
30,000
|
|
|
97,500
|
|
|
3.25
|
|
|
Debt Conversion (See note 6 )
|
|
40,000
|
|
|
50,000
|
|
|
1.25
|
|
|
Total shares authorized but not issued (included in Common Stock Payable at November 30, 2012)
|
|
120,000
|
|
$
|
208,500
|
|
$
|
1.10-3.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
For the year ended November 30, 2013
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
215,000
|
|
|
12,900
|
|
$
|
0.06
|
|
|
Services rendered – related parties, vested
|
|
1,666,667
|
|
|
150,000
|
|
|
0.09
|
|
|
Services rendered – related party, not vested
|
|
2,333,333
|
|
|
-
|
|
|
-
|
|
|
Services rendered
|
|
82,813
|
|
|
142,470
|
|
|
0.18-0.80
|
|
|
Services rendered, not vested
|
|
1,500,000
|
|
|
143,750
|
|
|
0.09
|
|
|
Debt and accrued expense conversion – related party
|
|
2,802,400
|
|
|
246,496
|
|
|
0.06-0.09
|
|
|
Debt Conversion
|
|
3,624,967
|
|
|
425,547
|
|
|
0.06-0.09
|
|
|
Total
|
|
12,225,180
|
|
$
|
1,121,163
|
|
$
|
0.06-0.80
|
|
The Company authorized
120,000
shares of stock for the year ended November 30, 2012, for cash and services, but the shares were not issued at November 30, 2012 nor were the shares used in calculating earnings per share.
The shares were recorded as Common Stock Payable at November 30, 2012. The Company expensed the issuance of shares for services as a component of general and administrative expenses.
As of November 30, 2013 all authorized shares have been recorded and issued.
C) Stock issued for license
In connection with the license agreement, the following occurred:
On January 27, 2011, an agreement was executed with Green Oil Plantations Ltd. and their affiliates (“Green Oil”) for an exclusive license of fifty years in exchange for
200,000
shares of common stock, having a fair value of $
250,000
($
1
.25/share), based upon recent cash offerings to third parties, at that time, to utilize Green Oil’s licensed technologies and turnkey model for growing energy crops in North America, South America, Central America and the Caribbean excluding Cuba.
On November 30, 2012, we determined that the license was worthless because we could not get the technical information we needed to proceed with utilizing the license. Therefore, we recorded an impairment loss of $240,795 as of November 30, 2012.
As of November 30, 2012 and 2011 the license is summarized as follows:
|
|
|
2012
|
|
2011
|
|
|
License
|
|
$
|
250,000
|
|
$
|
250,000
|
|
|
Accumulated Amortization
|
|
|
(9,205)
|
|
|
(4,205)
|
|
|
Impairment
|
|
|
(240,795)
|
|
|
-
|
|
|
License - Net
|
|
$
|
-
|
|
$
|
245,795
|
|
(D) Warrants
On January 11, 2011, the Company issued 1-year warrants for 200,000 shares with a consultant, with an exercise price of $
5
.00 per share. The warrants were granted for services rendered. The warrants had a fair value of $
60,800
, based upon the Black-Scholes option-pricing model. The Company used the following weighted average assumptions:
|
Expected dividends
|
|
0
|
%
|
|
Expected volatility
|
|
150
|
%
|
|
Expected term
|
|
1 year
|
|
|
Risk free interest rate
|
|
0.28
|
%
|
|
Expected forfeitures
|
|
0
|
%
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
|
Weighted
|
|
Remaining
|
|
|
|
|
|
|
|
|
Average
|
|
Contractual
|
|
|
|
|
|
|
|
|
Exercise
|
|
Life in
|
|
Intrinsic
|
|
|
|
|
Warrants
|
|
Price
|
|
Years
|
|
Value
|
|
|
Balance - November 30, 2011
|
|
200,000
|
|
$
|
5.00
|
|
.12
|
|
|
|
|
Granted
|
|
-
|
|
|
-
|
|
|
|
|
|
|
Forfeited/Cancelled(1)
|
|
(200,000)
|
|
|
-
|
|
|
|
|
|
|
Exercised
|
|
-
|
|
|
-
|
|
|
|
|
|
|
Balance – November 30, 2012-outstanding
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
Balance – November 30, 2012-exercisable
|
|
-
|
|
$
|
-
|
|
-
|
|
-
|
|
|
|
(1)
|
On January 11, 2012, the
200,000
warrants expired unexercised.
|
E)
Restricted Stock
On March 26, 2012, the Company entered into a consulting agreement to provide investment banking services including developing a business model for project finance and introducing the Company to potential lenders for a castor project.
The Company paid a fee of
30,000
shares, having a fair value of $
97,500
($
3.25
per share), based on the quoted closing trading price.
During the year ended November 30, 2012 the Company expensed this as a component of general and administrative expenses and the shares were included in common stock payable.
The shares were not issued at year end November 30, 2012, and were not included in earnings per share calculations as of November 30, 2012.
The shares were issued as of November 30, 2013.
During June, 2012, the Company issued
10,000
shares to an individual for payment of director’s fees.
The shares had a fair value of $
11,000
($
1.10
per share), based on the quoted closing trading price.
During the year ended November 30, 2012 the Company expensed this as a component of general and administrative expenses and the shares were included in common stock payable.
The shares were not issued at year end November 30, 2012, and were not included in earnings per share calculations as of November 30, 2012.
The shares were issued as of November 30, 2013
During April and May, 2012, a third party investor advanced $
50,000
, due on July, 2012 but extended to November 30, 2012.
On October 18, 2013, the third party investor converted the above $50,000 loan into
40,000
restricted shares of the Company’s common stock at $
1.25
per share.
As of November 30, 2012 the shares had not been issued and were included in common stock payable.
The shares were issued as of November 30, 2013.
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 $
150,000
of compensation expense during the year ended November 30, 2013 with respect to this award. Total unrecognized compensation expense related to unvested stock awards at November 30, 2013 amounts to $
210,000
and is expected to be recognized over a weighted average period of
0.6
years.
E)
Restricted Stock, cont’d.
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. As of November 30, 2013, $
143,750
has been recognized in expense. The remaining value of the unvested shares is $
330,625
as of November 30, 2013.
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 November 30, 2013 amounted to $
37,500
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 $
45,000
for the three months ended November 30, 2013.
A summary of the restricted stock award activity for the twelve months ended November 30, 2013 and 2012 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, 2011
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Vested
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Unvested – November 30, 2012
|
|
-
|
|
$
|
|
|
|
|
$
|
-
|
|
|
Granted
|
|
5,500,000
|
|
|
0.07
|
|
|
|
|
|
|
|
Vested
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Unvested – November 30, 2013
|
|
5,500,000
|
|
$
|
0.07
|
|
0.6
|
|
$
|
-
|
|
Note 9 Related Party Transactions
A) License Agreement – Former Affiliate of Chief Executive Officer
On November 30, 2010, the Company entered into an exclusive license agreement with a company that is a former affiliate of the Company’s Chief Executive Officer. The license gives the Company the right to utilize Intellectual Property rights (“IP”) and technology licenses to produce high-density short rotation biomass energy crops on an exclusive basis in the United States, Central America, Mexico, and Guam in perpetuity.
If the former affiliate company charges a lesser percentage to another entity, then the first $
50,000,000
will be decreased to the lowest percentage charged.
(B) Other related party transactions
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.
On June 12, 2013, the Company issued one of its directors
200,000
shares of its common stock in full satisfaction of director’s fees and consulting fees owed, amounting to $
12,000
.
On the date of conversion, the fair value of the Company’s common stock was $
0.06
per share, based on the closing price of the common stock.
On June 21, 2013, the Company issued its Chief Executive Officer
894,900
shares of its common stock in full satisfaction of amounts due to him for reimbursable expenses, amounting to $
53,694
.
On the date of conversion, the fair value of the Company’s common stock was $
0.09
per share, based on the closing price of the common stock. The Company recorded a loss on the settlement of debt and accrued expenses of $
26,847
during the year ended August 31, 2013 as a result of the conversion.
On June 21, 2013, the Company issued its Director of Business Strategy
1,000,000
shares of its common stock in full satisfaction of amounts due to her for reimbursable expenses, amounting to $
60,000
.
On the date of conversion, the fair value of the Company’s common stock was $
0.09
per share, based on the closing price of the common stock. The Company recorded a loss on the settlement of debt and accrued expenses of $
30,000
during the year ended November 30, 2013 as a result of the conversion.
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 8). 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 $
150,000
of compensation expense during the year ended November 30, 2013 with respect to this award. Total unrecognized compensation expense related to unvested stock awards at November 30, 2013 amounts to $
210,000
and is expected to be recognized over a weighted average period of
0.6
years.
During the years ended November 30, 2013 and 2012, the Company recorded related party interest expense of $
807
and $
69,299
, respectively.
Note 10 Formation of Subsidiaries
On January 14, 2011, the Company formed Global Energy Crops Corporation (“GECC”), a
100
% wholly-owned subsidiary. GECC intends to:
- Seek financing from US aid and similar organizations for energy crop growing projects in third world countries for the conversion to electricity and biofuels,
- Joint venture with both international and smaller technology companies who are currently producing electricity and biofuels wherein GECC intends to provide biomass feedstock, and
- Execute supply chain contracts with major buyers of energy crop products including electricity and biofuels.
On May 12, 2012 the company formed FTZ Energy Exchange Corporation, a
100
% wholly-owned subsidiary.
On August 2, 2012 the Company formed Agribopo, Inc., a
100
% wholly-owned subsidiary for the development of biomass related projects.
All of the above subsidiaries other than GECC and Agribopo, Inc. are currently inactive except for their formation. Global Energy Crops Corporations signed the license agreement with AGT Technologies LLC. and Agribopo, Inc. signed the Testing Services Agreement.
Note 11 Commitments and Contingencies
Commitments
Employment Agreements – Officers and Directors
As of November 30, 2013, 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
|
$
200,000
|
|
Salary deferral
|
All salaries will be accrued but may be paid from the Company’s available cash flow funds.
|
On January 5, 2012, the Company entered into a consulting agreement for financing. The Company paid a retainer fee of $
15,000
by agreeing to issue
12,000
shares of restricted common stock at $
1.25
per share. The fair value of the Company’s common stock was based upon third party cash offerings at that time. The Company expensed this issuance as a component of general and administrative expenses. The consultant failed to honor the commitments in the agreement. On May 18, 2012, the Company reversed the expense and the shares were cancelled.
Lease Agreement
The Company’s lease on its office space expired on
May 31, 2013
. 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 $
58,249
and $
44,058
for the year ended November 30, 2013 and 2012, 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 12 –Other Income
On February 13, 2012, the Company was engaged by a third party to provide consulting services in a three year contract for $
60,000
per year plus a non-refundable $
60,000
initial payment upon execution. The Company may earn fees in the form of cash or common stock of the third party, a public company, at their election. In lieu of cash payments for services to be rendered under the terms of the agreement, the third party elected to pay the Company
15,000,000
shares of public company restricted common stock, at a fifty percent discount using the preceding five days average trading price per the terms of the agreement. $
120,000
was due upon execution of agreement. The fair value of the shares received upon the execution of this agreement was $
253,500
, as evidenced by the quoted closing trading price. The Company recorded the value of the shares received as deferred revenue totaling $120,000 which evidenced the fair value of the services to be performed and recorded a gain of $
133,500
, with a corresponding asset classified as available for sale securities. A gain was recorded since the value of the shares received was greater than the value of the services to be rendered upon the execution of the agreement.
In August 2012, the Company executed a loan agreement with a lender, who is also a shareholder, to obtain
10,000,000
free trading shares of the public company, Quture, Inc. The shares received were sold during 2013. In exchange for the free trading shares, the Company was required to repay
10,500,000
shares in free trading stock of this public company. The
500,000
shares are deemed to be a loan cost, having a fair value of $
6,250
($
0.0125
/share), based upon the quoted closing trading price on the date of the agreement.
During 2012, the Company, received 15,000,000 shares of the public company for services to be rendered and sold 10,000,000 shares as noted above based upon the ability to obtain the 10,000,000 shares of free trading stock from the lender. The
15,000,000
shares is currently held in escrow of which
4,500,000
shares will be released to the Company and the balance of the 10,500,000 shares will be paid to the shareholder for the 10,000,000 shares borrowed and the 500,000 shares for the loan cost as noted above upon the shares becoming unrestricted. The Company does not have any rights to the 10,500,000 shares. The Company has not recorded any asset or liability for the shares held in escrow.
As of November 30, 2013, the Company has not received the $
60,000
due on February 13, 2013 under the contract. Collectability of this amount is not reasonably assured, therefore the Company has not recorded the related revenue, accounts receivable or deferred revenue associated with this amount as of November 30, 2013. Additionally, in May 2013, the Company was notified by the third party of its intent to terminate the agreement. Given this notification, the Company recognized the remaining portion of the deferred consulting revenue of $
39,107
as other income in the accompanying statement of operations as of November 30, 2013.
Note 13 License Agreement
On November 27, 2012, the Company entered into a non-exclusive global License from AGT Technologies LLC 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 cellulosic ethanol, fertilizer and other products. We would pay our Licensor
50
% of any sub-license fees that we receive. We also would pay our Licensor
12
% of all royalties on all revenues we earn from utilizing the technology. This 12% is calculated on the basis of net gross revenues which equal gross revenues less all direct costs associated with the production of the revenues. Once we order a facility we have 120 days to pay $
300,000
for the enzymes.
Note 14 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 income of $
469,173
and expenses of $
266,868
during the year ended November 30, 2013, in connection with services provided under the TSA.
BioPower Operations Corporation and Subsidiaries
(A Development Stage Company)
Notes to Consolidated Financial Statements
November 30, 2013 and 2012
Note 15. Investor Relations Agreement
On February 5, 2013, the Company entered into an investor relations agreement with a third party, pursuant to which the third party will provide certain investor relations services including, but not limited to, consulting and liaison services relating to the conception and implementation of its corporate and business development plan. The agreement was for a one-year term, commencing February 5, 2013 and is cancelable on a quarterly basis. In consideration for the services, the Company will issue
160,000
shares of common stock, to be delivered in four equal quarterly installments of
40,000
shares each. The first 40,000 shares were to be delivered upon execution of the agreement. In addition to the shares, the Company will pay the consultant $
3,000
per month, in cash or stock, at the option of the Company. If the Company elects to pay the monthly fee in shares of the Company’s common stock, the number of shares to be issued will be calculated by dividing the fee owed by the closing price of the Company’s common stock.
On April 30, 2013, the Company entered into an amendment to the investor relations agreement, whereby the parties agreed to (i) amend the term of the agreement such that it would be a twelve month agreement commencing from April 8, 2013 and (ii) the Company would be required to pay the third party $2,000 per month, in cash or stock, at the option of the third party, commencing May 8, 2013.
Additionally, the third party would still be entitled to the first 40,000 shares delivered upon execution of the original agreement and the $9,000 worth of common stock originally earned under the original agreement.
On July 31, 2013, the Company canceled the agreement with the third party and issued
42,813
shares of the Company’s stock in full and final settlement of its obligation.
At the time the shares were due, the fair value was $
0.80
per share, for a total value of $
34,250
.
Note 16. Fair Value of Financial Assets and Liabilities
The Company measures assets and liabilities at fair value based on an expected exit price as defined by the authoritative guidance on fair value measurements, which represents the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level. The following are the hierarchical levels of inputs to measure fair value:
•
Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
• Level 2: Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
• Level 3: Unobservable inputs reflecting the Company’s assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.
The Company has assets measured at fair market value on a recurring basis. Consequently, the Company had gains and losses reported in the statement of comprehensive income (loss), that were attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date for the period ended November 30, 2013.
The following is the Company’s assets measured at fair value at November 30, 2013 and 2012:
|
|
|
2013
|
|
2012
|
|
|
Level 1 – None
|
|
$
|
-
|
|
$
|
-
|
|
|
Level 2 – Marketable Securities (AFS)
|
|
|
-
|
|
|
38,250
|
|
|
Level 3 – None
|
|
|
-
|
|
|
-
|
|
|
Total
|
|
$
|
-
|
|
$
|
38,250
|
|
BioPower Operations Corporation and Subsidiaries
(A Development Stage Company)
Notes to Consolidated Financial Statements
November 30, 2013 and 2012
The carrying amounts reported in the balance sheet for available for sale securities, prepaid expenses, accounts payable and accrued expenses, accounts payable and accrued expenses – related parties, notes payable, notes payable – related parties, convertible debt and convertible debt – related party, approximate fair value based on the short-term nature of these instruments.
Note 17. Subsequent Events
During December 2013, a third party investor advanced $
125,000
. The loan bears interest at
8
%, is unsecured and due 14 months from the date of issue.
50
% of the debt may be converted into common shares at a conversion price of $
0.10
per share.