BOPO BioPower Operations Corporation (CE)

 

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 August 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 x 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 x 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 company x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

  Yes ¨ No x

 

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.  

 

As of October 20, 2014, the registrant had 30,781,180 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			17
ITEM 4.		CONTROLS AND PROCEDURES			17
PART II.		OTHER INFORMATION
ITEM 1.		LEGAL PROCEEDINGS			18
ITEM 2.		UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			18
ITEM 3.		DEFAULT UPON SENIOR SECURITIES			18
ITEM 4.		MINE SAFETY DISCLOSURES			18
ITEM 5.		OTHER INFORMATION			18
ITEM 6.		EXHIBITS			18
SIGNATURES					19
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

 

 

CONTENTS

 

		Page
Consolidated Balance Sheets as of August 31, 2014 (unaudited) and November 30, 2013			4
Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended August 31, 2014 and 2013 (unaudited)			5
Consolidated Statements of Cash Flows for the nine months ended August 31, 2014 and 2013  (unaudited)			6
Notes to Consolidated Financial Statements (unaudited)			7-11

 

 

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

  

BioPower Operations Corporation and Subsidiaries

Consolidated Balance Sheets

 

		August 31, 2014				November 30, 2013
		(Unaudited)
Assets
Current Assets
Cash		$	1,272			$	109,172
Consulting receivables			249				27,840
Prepaid expenses			1,528				11,258
Total Current Assets			3,049				148,270
Equipment - net			24,320				28,821
Security deposit			11,193				11,193
			35,513				40,014
Total Assets		$	38,562			$	188,284
Liabilities and Stockholders' Deficit
Current Liabilities
Accounts payable and accrued expenses		$	441,823			$	513,134
Accounts payable and accrued expenses - related parties			1,372,358				1,098,786
Notes payable - related parties			1,375				175
Notes payable			118,000				88,000
Convertible debt			250,000				125,000
Total Current Liabilities			2,183,556				1,825,095
Total Liabilities			2,183,556				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; 30,781,180 shares and 30,281,180 shares, respectively, issued and outstanding			3,078				3,028
Additional paid-in capital			2,183,526				1,947,325
Accumulated deficit			(4,331,599	)			(3,587,165	)
Total Stockholders' Deficit			(2,144,994	)			(1,636,811	)
Total Liabilities and Stockholders' Deficit		$	38,562			$	188,284

 

See accompanying notes to unaudited consolidated financial statements

 

 

BioPower Operations Corporation and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

 

		Three Months Ended August 31,								Nine Months Ended August 31,
		2014				2013				2014				2013
General and administrative expenses		$	198,360			$	351,326			$	837,375			$	753,469
Other income (expense)
Interest expense			(345	)			(942	)			(18,460	)			(30,809	)
Interest expense - related party			-				1				-				(807	)
Loss on settlement of debt and accrued expenses			-				(190,921	)			-				(190,921	)
Loss on impairment of available-for-sale securities			-								-				(76,050	)
Consulting revenue, net of expense			-				81,457				111,401				184,303
Total other income (expense) - net			(345	)			(110,405	)			92,941				(114,284	)
Net loss		$	(198,705	)		$	(461,731	)		$	(744,434	)		$	(867,753	)
Net loss per common share - basic and diluted		$	(0.01	)		$	(0.03	)		$	(0.02	)		$	0.05
Weighted average number of common shares outstanding during the period - basic and diluted			30,457,275				18,056,007				30,995,808				18,056,007
Comprehensive loss
Net loss		$	(198,705	)		$	(461,731	)		$	(744,434	)		$	(867,753	)
Reclassification adjustment due to impairment on available-for-sale securities			-				-				-				37,800
Comprehensive loss		$	(198,705	)		$	(461,731	)		$	(744,434	)		$	(829,953	)

 

See accompanying notes to unaudited consolidated financial statements

 

 

BioPower Operations Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

 

		Nine Months Ended August 31,
		2014				2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(744,434	)		$	(867,753	)
Adjustments to reconcile net loss to net cash used in operating activities:
Loss on impairment of marketable securities			-				76,050
Loss on settlement of debt and accrued expenses							190,921
Depreciation			9,256				4,427
Stock based compensation			236,151				60,000
Amortization of debt discount			-				25,000
Amortization of stock to be issued for services rendered			-				51,333
Changes in operating assets and liabilities:
Accounts receivable			27,591				(25,389	)
Prepaid expenses			9,730				(11,070	)
Security deposit			-				(11,193	)
Accounts payable and accrued expenses			273,572				67,494
Accounts payable and accrued expenses - related parties			(71,311	)			310,830
Deferred revenue			-				(56,429	)
Net Cash Used In Operating Activities			(259,445	)			(185,779	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment			(4,755	)			-
Net Cash Provided By Investing Activities			(4,755	)			-
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from convertible debt			125,000				25,000
Proceeds from notes payable			30,000				181,506
Proceeds from  notes payable - related parties			1,200				-
Proceeds from issuance of common stock			100				12,900
Net Cash Provided By Financing Activities			156,300				219,406
Net Increase (Decrease)  in Cash			(107,900	)			33,627
Cash - Beginning of Period			109,172				16,956
Cash - End of Period		$	1,272			$	50,583
SUPPLEMENTARY CASH FLOW INFORMATION:
Cash Paid During the Period for:
Income Taxes		$	-			$	-
Interest		$	-			$	-
SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Common stock issued for conversion of debt and accrued expenses		$				$	29,392
Common stock  issued for conversion of debt and accrued expenses - related party		$				$	127,644
Common stock  issued for conversion of notes payable		$				$	183,306
Common stock issued for conversion of notes payable - related party		$				$	40,500
Debt discount recorded on convertible debt		$				$	25,000

 

See accompanying notes to unaudited consolidated financial statements

 

 

BioPower Operations Corporation and Subsidiaries

Notes to Consolidated Financial Statements

August 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 August 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 nine months ended August 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 $744,434 and net cash used in operations of $259,445 for the nine months ended August 31, 2014. Additionally, the Company had a working capital deficit of $2,180,507 and a stockholders’ deficit of $2,144,994 at August 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.

 

See accompanying notes to unaudited consolidated financial statements

 

 

BioPower Operations Corporation and Subsidiaries

 

Notes to Consolidated Financial Statements

August 31, 2014

Unaudited

 

Note 3 Equipment

 

At August 31, 2014 and November 30, 2013, equipment consists of the following:

 

		2014				2013				Estimated Useful Life
Computer Equipment and Testing Equipment		$	48,127			$	43,402			5 years
Less: Accumulated depreciation			(23,807	)			(14,581	)
Equipment, net		$	24,320			$	28,821

 

Note 4. Notes Payable and Convertible Debt

 

Notes payable consists of the following:

 

Notes payable to third parties at August 31, 2014 and November 30, 2013, in the amount of $118,000 due on demand at 4% and $88,000 due on demand at 8%. A third party investor advanced $30,000 in July 2014, which was due August 8, 2014. The debt has not been repaid. Accrued interest at August 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 $345 and $687 for the three months ended August 31, 2014 and 2013, respectively.

 

The following is a summary of the Company’s convertible debt at August 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 - August 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 August 31, 2014 and November 30, 2013 amounted to $7,998 and $6,368, respectively, which is included as a component of accounts payable and accrued expenses.

 

Interest expense on convertible debt with third parties amounted to $345 and $942 for the three month period ending August 31, 2014 and August 31, 2013, respectively.

 

Note 5 .Related Party Transactions

 

Notes payable to related parties at August 31, 2014 and November 30, 2013 is $1,375 and $175, respectively.

 

Accrued interest at August 31, 2014 and November 30, 2013, amounted to $20 and $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 $(1) for the three months ended August 31, 2014 and August 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.

 

See accompanying notes to unaudited consolidated financial statements

 

 

BioPower Operations Corporation and Subsidiaries

Notes to Consolidated Financial Statements

August 31, 2014

Unaudited

 

Note 6. Stockholders’ Deficit

 

(A) Common Stock

 

The Company authorized 250,000 shares, which have not yet been issued, during the quarter ended August 31, 2104, pursuant to the terms of a consulting agreement. There are 30,781,180 shares and 30,281,180 shares issued and outstanding at August 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 August 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 nine months ended August 31, 2014. All of the shares have vested as of August 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 vested 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 $ 210,000 of compensation expense during the nine months ended August 31, 2014 with respect to these awards.

 

A summary of the restricted stock award activity for the twelve months 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 – August 31, 2014			-			$	-				-			$	-

 

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 August 31, 2014, 250,000 shares were issued and 250,000 shares had been authorized, but not issued, according to the terms of the agreement. The 500,000 shares were recorded and valued at $49,900.

 

See accompanying notes to unaudited consolidated financial statements

 

 

BioPower Operations Corporation and Subsidiaries

Notes to Consolidated Financial Statements

August 31, 2014

Unaudited

 

Note 7. Commitments and Contingencies

 

Commitments

 

Employment Agreements – Officers and Directors

 

As of August 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 for Bonnie Nelson, Director

Salary   $ 120,000

Term of contract July 14, 2014 expiring on November 30, 2015 for Robert Kohn, CEO and CFO

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 $33,317 and $34,309 for the nine month period ended August 31, 2014 and August 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.

 

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. We entered into a Settlement Agreement with our sub-contractor in June 2014 for final payment for services related to the testing services agreement and all receivables and payables related to the testing services agreement were satisfied in June 2014.

 

See accompanying notes to unaudited consolidated financial statements

 

 

BioPower Operations Corporation and Subsidiaries

Notes to Consolidated Financial Statements

August 31, 2014

Unaudited

 

Note 9. Subsequent Events

 

The Company signed a Binding Term Sheet on September 9, 2014 to acquire Green3Power Holding Company under the following terms and conditions:

 

Purchase Price: BOPO will acquire 100% of the outstanding stock of G3P in a stock for stock transaction. BOPO will provide both Common Stock and a Convertible Preferred Stock in exchange for 100% of the shares (“G3P Shares”) on terms acceptable to G3P. The purchase price (the “Purchase Price”) to be paid by BOPO to the Existing Shareholders will equal:

 

(i) 20% of the outstanding Common Stock (“CS”) of BOPO to be paid on the Closing Date with a two year lock-up agreement.

 

(ii) a Convertible Preferred Stock (“PS”) to be converted up to 50% of the outstanding CS (approximately 30,000,000 common stock shares) at the time of closing prior to the issuance of the CS contemplated by this Transaction as determined in Paragraph 4 below. The Parties agree that they will structure the payments of the Purchase Price in a tax efficient manner and that any such structure will be subject to the mutual agreement of the Parties. The Parties intend to structure the Transaction as an exchange of G3P stock.

 

Conversion Rights of Convertible Preferred Stock:

 

At the end of two (2) years, G3P Existing Shareholders have the right to convert the PS into CS on the following basis:

 

If BOPO earns $ 0 net cash flow and G3P earns a minimum of $1,000,000 net cash flow then the PS can be converted into 50% of the CS outstanding prior to the issuance of the CS in this Transaction or a total of 70% of the outstanding shares at Closing including the CS issued at Closing; or

 

If BOPO and G3P earn a similar amount of net cash flow then G3P can convert the PS into 30% of the outstanding CS prior to the issuance of the CS in this Transaction or a total of 50% of the outstanding shares at Closing including the CS issued at Closing; or

 

If G3P earns $-0- net cash flow, then G3P cannot convert the PS but will retain the original 20% of the CS issued at Closing.

 

G3P also has an option, which can be exercised at the end of two (2) years to delay the conversion of the PS for an additional one year. If G3P exercises the option to delay the conversion for one more year, then G3P must provide evidence that one project is under construction or all contracts for the project are executed and funding is in place to commence construction.

 

Additionally, it should be noted that Green3Power Holding Company (G3P) had certain shareholders and personnel previously employed by EPM.

 

See accompanying notes to unaudited consolidated financial statements

 

 

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 nine months ended August 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 are a development stage company and 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 August 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 and licensing technologies.

 

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. 

 

See accompanying notes to unaudited consolidated financial statements

 

 

BioPower intends to utilize licensed technology to convert wastes into electricity and biofuels. We will create a special purpose entity (“SPE”) company for each project. Every SPE must have a sustainable, project with facilities to process the biomass into saleable products 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 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 August 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.

 

See accompanying notes to unaudited consolidated financial statements

 

 

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 Nine Months Ended August 31, 2014 Compared to the Three and Nine Months Ended August 31, 2014

 

The following tables set forth, for the periods indicated, results of operations information from our unaudited interim consolidated financial statements:

 

		Three Months Ended August 31,								Change				Change
		2014				2013				(Dollars)				(Percentage)
Expenses
General and administrative expenses		$	198,360			$	351,326			$	(152,966	)			(52.1	)%
Other Income (Expense)
Interest expense			(345	)			(942	)			(597	)			(63.4	)%
Interest expense - related party			-				1				(1	)			(100.0	)%
Loss on settlement of debt and accrued expenses			-				(190,921	)			(190,921	)			(100.0	)%
Consulting revenue, net			-				81,457				(81,457	)			(100.0	)%
Total Other Income - net			(345	)			(110,405	)			(110,060	)			(99.7	)%
Net loss		$	(198,705	)		$	(461,731	)		$	(263,026	)			(56.9	)%

 

See accompanying notes to unaudited consolidated financial statements

 

 

		Nine Months Ended August 31,								Change				Change
		2014				2013				(Dollars)				(Percentage)
Expenses
General and administrative expenses		$	837,375			$	753,469			$	83,906				11.1	%
Other Income (Expense)
Interest expense			(18,460	)			(30,809	)			(12,349	)			(40.1	)%
Interest expense - related party			-				(807	)			(807	)			(100.0	)%
Loss on settlement of debt and accrued expenses			-				(190,921	)			(190,921	)			(100.0	)%
Loss on impairment of available-for-sale securities			-				(76,050	)			(76,050	)			(100.0	)%
							-				-
Consulting revenue, net			111,401				184,303				(72,902	)			8.32	%
Total Other Income - net			92,941				(114,284	)			(207,225	)			(181.3	)%
Net loss		$	(744,434	)		$	(867,753	)		$	(123,319	)			(17.7	)%

 

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 nine months ended August 31, 2014 as a result of not renewing our directors’ and officers’ liability insurance.

 

Interest Expense. Interest expense for the three and nine months ended August 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 settlement of debt. During the three and nine months ended August 31, 2014, we recognized a loss of $0 and $190,921, respectively, due to the conversions and settlements of notes, convertible notes and accrued expenses in August 2013.

 

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 August 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 August 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 August 31, 2014 and 2013, the Company recognized $0 and $81,457, respectively; in net consulting revenue related to the consulting agreement entered into with a third party in February 2013. During the nine months ended August 31, 2014 and 2013, the Company recognized $111,401 and $184,303, respectively, in consulting revenue related to this same agreement.

 

See accompanying notes to unaudited consolidated financial statements

 

 

Liquidity and Financial Condition

 

		Nine Months Ended August 31,
Category		2014				2013
Net cash used in operating activities		$	(259,445	)		$	(185,779	)
Net cash provided (used) in investing activities			(4,755	)			-
Net cash provided by financing activities			156,300				219,406
Net increase in cash		$	(107,900	)		$	33,627

 

Cash Flows from Operating Activities

 

Net cash used in operating activities was $259,445 for the nine months ended August 31, 2014, compared with 185,779 for the comparable period in 2013. Net cash used in operating activities for the nine months ended August 31, 2014 is mainly attributable to our net loss of $744,434, offset by an increase in accounts payable and accrued expenses and stock based compensation. Net cash used in operating activities for the nine months ended August 31, 2013 is mainly attributable to our net loss of $867,753, 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 nine months ended August 31, 2014 cash flows provided by financing activities was $156,300, compared to $219,406 for the comparable period in 2013. We received $156,200 in proceeds from convertible debt and notes payable with third parties and related parties during the nine months ended August 31, 2014, compared to $206,506 in proceeds from convertible debt during the nine months ended August 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.

 

The Company does not currently have sufficient resources to cover on-going expenses and expansion. As of August 31, 2014, the Company had cash of $1,272 and current liabilities of $2,183,556.  Our current liabilities include accounts payable and accrued expenses to related parties of $1,814,181. 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 $744,434 and net cash used in operations of $259,445 for the nine months ended August 31, 2014; and a working capital deficit of $2,180,507 at August 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.

 

See accompanying notes to unaudited consolidated financial statements

 

 

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 August 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 of August 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 August 31, 2014, there have not been any significant changes in our internal control over financial reporting during the fiscal quarter ended August 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;
	•	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.

 

See accompanying notes to unaudited consolidated financial statements

 

 

PART II – OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS.

 

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.

 

ITEM 5. OTHER INFORMATION.

 

None.

 

ITEM 6. EXHIBITS.

 

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.

 

See accompanying notes to unaudited consolidated financial statements

 

 

SIGNATURES

 

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: October 20, 2014	BioPower Operations Corporation
	By:	/s/ Robert D. Kohn
		Robert D. Kohn, Chairman and Chief Executive Officer and Chief Financial Officer

 

See accompanying notes to unaudited consolidated financial statements

 

 

EXHIBIT 31.1

 

CERTIFICATION OF

PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002

 

I, Robert D. Kohn, certify that:

 

1.    I have reviewed this Quarterly Report on Form 10-Q of the Registrant;

 

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.     As the Registrant’s certifying officer, I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:

 

(a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;

 

(b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)   Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)   Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the  registrant’s internal control over financial reporting; and

 

5.    As the Registrant’s certifying officer, I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date:  October 20, 2014		BioPower Operations Corporation
		By /s/ ROBERT D. KOHN
		Robert D. Kohn, Chief Executive Officer, Chief Financial Officer, Principal Executive Officer and Director

 

See accompanying notes to unaudited consolidated financial statements

 

 

EXHIBIT 32.1

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the quarterly report of BioPower Operations Corporation (the “Company”) on Form 10-Q for the quarter ending May 31, 2014, as filed with the Securities and Exchange Commission on the date hereof, I, Robert Kohn, Principal Accounting and Financial Officer, Chief executive Officer, Chief Financial Officer, Secretary and Director of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

 

1.

The quarterly report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and

 

2.

The information contained in the quarterly report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: October 20, 2014		BioPower Operations Corporation
		By /s/ ROBERT D. KOHN
		Robert D. Kohn, Chief Executive Officer, Chief Financial Officer, Principal Accounting and Financial Officer and Director

 

See accompanying notes to unaudited consolidated financial statements