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BOPO > SEC Filings for BOPO > Form 10-K on 18-Mar-2013All Recent SEC Filings

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Form 10-K for BIOPOWER OPERATIONS CORP


18-Mar-2013

Annual Report


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

SPECIAL NOTE OF CAUTION REGARDING FORWARD-LOOKING STATEMENTS

Statements made in this 10-K that are not historical or current facts are "forward-looking statements" made pursuant to the safe harbor provisions of
Section 27A of the of the Securities Act of 1933 (the "Act") and Section 21E of the Securities Exchange Act of 1934. In some cases, you can identify forward-looking statements by terminology such as "may", "should", "intends", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential", or "continue" or the negative of these terms or other comparable terminology. We intend that such forward-looking statements be subject to the safe harbors for such statements. We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Any forward-looking statements represent management's best judgment as to what may occur in the future. However, forward-looking statements are subject to risks, uncertainties and important factors beyond our control that could cause actual results and events to differ materially from historical results of operations and events and those presently anticipated or projected. We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events.

Unless the context otherwise requires, The "Company", "we," "us," and "our," refer to (i) BioPower Operations Corporation.; (ii) BioPower Corporation ("BC"),
(iii) Green Oil Plantations Americas, Inc. ("GOP"), (iv) Global Energy Crops Corporation (GECC), FTZ Exchange LLC. and FTZ Energy Exchange Corporation.

Overview

BioPower Operations Corporation was incorporated in Nevada on January 5, 2011. On January 6, 2011, we acquired 100% of BioPower Corporation ("BC"), a Florida corporation incorporated on September 13, 2010, by our CEO and Director contributing 100% of the outstanding shares to the Company. As a result, BC became a wholly-owned subsidiary of the Company.

On November 30, 2010, an exclusive license agreement was signed between BC and Clenergen Corporation. BC has the exclusive license for the United States, Central America, Guam and Mexico to utilize Clenergen's biomass growing technologies.

On January 14, 2011, we formed Global Energy Crops Corporation ("GECC"), a 100% wholly-owned subsidiary for the future development of global business opportunities.

On January 27, 2011, an agreement was signed between Green Oil Plantations Ltd. and their affiliates ("Green Oil") and the Company for the exclusive fully paid up license for fifty (50) years to utilize Green Oil's licensed technologies and turnkey model for growing energy crops in North America, South America, Central America and the Caribbean. The Company formed Green Oil Plantations Americas, Inc., as the operating company for this exclusive license. The Company has recorded a 100% impairment loss of $240,795 as relates to its license for Green Oils Plantations as of November 30, 2012. The company has not received the due diligence necessary to utilize the license and therefore considers the license worthless.

On August 1, 2011, our S-1 was approved by the Securities and Exchange Commission. On October 3, 2011, we closed the S-1.

On April 5, 2012, the Company received notice from The Depository Trust Company "DTC" of the eligibility effective immediately of its common shares for electronic trading under the OTCQB trading symbol "BOPO."

On May 12, 2012 we incorporated FTZ Energy Exchange Corporation, a 100% wholly-owned subsidiary for the future development of an energy exchange.

On June 7, 2012, the Company's Chief Executive Officer contributed 100% of his member interest in FTZ Exchange, LLC, ("FTZ") a 100% wholly owned subsidiary, to the Company for no consideration. FTZ is a licensing company that licenses business know-how and technology to build transaction fee based exchanges for the sale of products and services in vertical markets.

On August 2, 2012, the Company formed Agribopo, Inc., a 100% wholly-owned subsidiary for the future development of biomass related projects.

On November 27, 2012 the Company entered into a non-exclusive global license with Advanced Green Technologies, LLC. to convert biomass wastes from animals, humans and sugar manufacturers to ethanol, fertilizer and derivative products including animal feed.

As of November 30, 2012, we consider the Green Oils license worthless as the Licensor has not provided the due diligence necessary to enable funding for projects.

We are a development stage company and have not yet generated or realized any revenues from business operations. Our auditors have issued a going concern opinion. This means there is substantial doubt that we can continue as an on-going business for the next twelve (12) months unless we obtain additional capital to pay our bills. This is because we have not generated any revenues and no revenues are anticipated until we begin marketing our products to customers. Accordingly, we must raise cash from sources other than revenues generated such as from the proceeds of loans, sale of common shares and advances from related parties.

From inception (September 13, 2010) to November 30, 2012, the company's business operations have been primarily focused on developing our business plan, developing potential biomass projects, with a focus on castor oil projects, becoming a trading public company through an S-1 registration statement, raising money, and more recently, licensing technologies that can convert sugar, human, poultry and hog wastes into products such as ethanol, fertilizer and derivative products.

The Company has two primary focuses at this time, the castor projects in South America and Florida and the utilization of the license for the patented technology for the conversion of sugar, hog, poultry and human wastes.

Castor project

The Company has begun the process to obtain financing for a castor plantation and milling operation to supply castor oil to the U.S.A. We have located a hybrid seed that should result in high yields per acre. We have identified unique growing protocols that also may enhance the yield of seed thus oil by weight. We have identified an engineering firm to prepare both general and site specific engineering for permitting and construction purposes. We have identified the mill equipment to process the seed into oil and the agricultural equipment required to facilitate the growing protocols that have been identified. We are currently working on the development of a long-term (greater than one year) purchase agreement for the sale of castor oil. Although we have discussed various potential sites in the center of Florida, we have not made a final determination of the specific location.

We have also been in discussions for a Castor project in South America with a landowner who would provide initially 1681 hectares or 4,150 acres of land and the initial investment of approximately $10 Million USD financing for the project including a mill. The Company's consultants have been to South America for initial review of the project and planned testing procedures. The discussions include the landowner setting up a special purpose entity wherein the Company would receive certain fees and a percentage of profits. It is contemplated the growing tests will be completed in less than one year, and if successful, the project would commence. The Company may have minimal revenues in 2013 from the testing. There can be no assurance that the South American Castor project will ever commence or be profitable.

The U.S.A. currently imports almost 100% of the castor oil used as a feedstock for the production of personal care, pharmaceuticals, polymers and plastics, adhesives, coatings and other specialty chemical products. The Company proposes to develop a project in Florida to grow proven hybrid castor which can be harvested within approximately 110 days per crop. Given the rainfall, the temperature profile and the nature of the soil, it is anticipated that the land when developed will produce 2.6 to 3.0 metric tons of oil seeds per acre based on two crops per year. We will process the seeds into oil (43% of seed weight) with our own, vertically integrated mill which we consider critical to this project. Based on our ability to obtain financing in this fiscal year, we hope to realize revenues and profits from this operation in 2014.

There can be no assurance the above Castor projects will ever be achieved.

Licensed Technology

We have a global License for the patented one-step enzyme technology which converts wastes from poultry, hogs, humans and sugar to products such as fertilizer, cellulosic ethanol and other products. The patent expires in June 2029. We pay our Licensor 50% of any sub-license fees that we receive. We also 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.

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.

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.

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 potentially reduce or significantly 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. 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 potentially reduce or significantly eliminate their sludge volumes and create saleable Class A fertilizer in lieu of delivering pressed sludge to a landfill in an environmentally unsound method. Savings result from less energy used in the processing of sludge, elimination of the hauling costs of treated sludge, reduced costs for land filling because of reduced volumes of 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.

FTZ Exchange, LLC

On June 7, 2012, the Company's Chief Executive Officer contributed 100% of his member interest in FTZ Exchange, LLC, ("FTZ") a 100% wholly owned subsidiary, to the Company for no consideration. FTZ is a licensing company that licenses business know-how to build transaction fee based internet exchanges for the sale of products and services. The Company retains 10% of all license fees.

Health Exchange

FTZ has been in the development stage of a health exchange since January, 2012. FTZ currently owns 50% of the Qx Health Exchange with Quture, Inc. ("QUTR"). This exchange is for the sale of health products and services for the communities of health product manufacturers, insurance companies, hospitals, physicians, healthcare providers, medical tourism and patients. Quture and FTZ need to raise significant funds to build out the exchange. There can be no assurance such funding will ever be achieved or that the Qx Health Exchange will ever be launched.

Capacity Exchange

FTZ has executed a Strategic Alliance with Capacity 360, LLC to develop excess capacity transactions. Capacity 360, LLC is a company that assists Global 2000 corporations and other corporations to develop excess capacity strategies to optimize and monetize their unused, under-utilized manufacturing capacities and assets, with the goal of meeting each corporation's strategic goals. Capacity 360 needs to raise funding for their exchange. There can be no assurance such funding will ever be achieved or that the capacity exchange will ever be launched.

FTZ Energy Exchange Corporation

FTZ Energy Exchange Corporation was incorporated on May 14, 2012 as a wholly-owned subsidiary of BioPower to launch an energy exchange. FTZ will require funding to launch an energy exchange. There can be no assurance such funding will ever be achieved or that the energy exchange will ever be launched.

PLAN OF OPERATION

Since inception (September 13, 2010) to November 30, 2012, the Company has spent a total of $1,950,809 on the general and administrative costs. We have only generated minimal consulting revenue from non-business operations.

Since inception (September 13, 2010), the majority of the company's time has been spent refining its business plan, conducting industry research, developing potential projects, licensing biomass opportunities, reviewing technologies, preparing an S-1 and preparing for additional financing, funding of operations and funding of projects.

The Company is a development stage company primarily focused on (1) growing castor coupled with processing and/or conversion facilities to produce oils and biofuels and other derivative products and (2) to utilize the licensed waste conversion technology to convert human, sugar, hog and poultry wastes into ethanol, fertilizer and derivative products.

We have been in discussions for a Castor project in South America with a landowner who would provide the land and financing for the project. The Company's consultants have been to South America for initial review of the project and planned testing procedures. The discussions include setting up a special purpose entity wherein the initial investment of approximately $10 Million USD would be made by the landowner. The Company could receive certain fees and a percentage of profits. It is contemplated the growing tests will be completed within one year, and if successful, the project would commence. There can be no assurance that the South American Castor project will ever commence or be profitable.

Second, we are focused on utilizing our patented licensed technology to convert human, sugar, poultry and hog waste to fertilizer and ethanol. Municipalities are our first target for the utilization of this process.

We estimate our maximum operating expenses and working capital requirements for the next twelve month period to be as follows:

Business development costs                       $   500,000
Research & development costs including patents       600,000
Management and Consulting                          1,200,000
General and Administrative                           600,000
Total                                            $ 2,900,000

We anticipate that we will be required to raise additional funds through private sales of debt or equity securities of our company, to fund our operations and execute our business plan. There is no assurance that the financing will be completed on terms advantageous to us, or at all. If we are not successful in raising additional funding, we may be forced to curtail or cease some of all of our operations and/or curtail or elect not to proceed with certain aspects of our business plan.

We may also encounter unforeseen costs that could also require us to seek additional capital. As a result, we will need to raise additional debt and/or equity funding. However, no assurance can be given that we will be able to sell any of such securities. An inability to obtain such funding would prevent us from developing any biomass feedstock plantations. Our ability to obtain additional capital also will depend on market conditions, national and global economies and other factors beyond our control. The terms of any future debt or equity funding that we may obtain may be unfavorable to us and to our stockholders.

If we are successful and we are able to raise the entire $2,900,000, we will have sufficient funds to meet business development costs, management and consulting fees, and research and development costs for the current fiscal year, and we will be able to implement key aspects of our business plan, including business development costs for our energy growing operations and use of the license for the patented biomass waste conversion process. We would have a total of $600,000 remaining for working capital. We expect these amounts will be sufficient to initiate and sustain our business development activities for one year.

Upon having been successful in raising $2,500,000, the salary obligation to our CEO and Director of Business Strategy will come into effect, and one year's salary accrual will be due with amounts accrued for expenses to date, and then monthly salary amounts going forward. The initial annual amounts are $200,000 and $125,000 respectively.

The amount and timing of additional funds that might be required cannot be definitively stated as at the date of this report and will be dependent on a variety of factors, including the success of our initial operations and the rate of future expansion that we might plan to undertake. If we were to determine that additional funds are required, we would be required to raise additional capital either by way of loans or equity, which, in the case of equity, would be potentially dilutive to existing stockholders.
The Company cannot be certain that we will be able to raise any additional capital to fund our operations or expansion past the current fiscal year.

OUR CHALLENGES

Our ability to successfully operate our business and achieve our goals and strategies is subject to numerous challenges and risks as discussed more fully in the section titled "Risk Factors," including for example:

any failure to develop our projects and our inability to sufficiently meet our customers' demands for our products;

any inability to effectively manage rapid growth;

risks associated with future joint ventures, strategic alliances or acquisitions;

economic, political, regulatory, legal and foreign risks associated with alternative energy; and,

any loss of key members of our management.

You should read and consider the information set forth in "Risk Factors" and all other information set forth in this filing.

Regulation

The Company will comply with all U.S.A. and foreign regulations and laws where they apply to agricultural production, mill operation, safety and environmental standards.

CONSOLIDATED RESULTS OF OPERATIONS

The following analysis reflects the consolidated results of operations of BioPower Operations Corporation and its subsidiaries.

Fiscal 2012 as Compared with Fiscal 2011



                BioPower Operations
2012                   Corp               BioPower Corporation       FTZ Exchange, LLC         Total
Operating
expenses (1)   $            (912,773 )   $              (57,766 )   $            (3,779 )   $   (974,318 )
Depreciation
and
amortization                 (10,552 )                        -                       -          (10,552 )
Consulting
revenue                       63,571                          -                       -           63,571
Other income
(expense)                   (352,638 )                     (511 )                     -         (353,149 )
Net income
(loss) (1)     $          (1,212,392 )   $              (58,277 )   $            (3,779 )   $ (1,274,448 )

                                              BioPower Operations
2011                                                 Corp               BioPower Corporation       FTZ Exchange, LLC        Total
Operating expenses                           $            (868,360 )   $              (88,593 )   $                 -     $ (956,953 )
Depreciation and amortization                               (7,652 )                        -                       -         (7,652 )
Other income (expense)                                      (3,690 )                     (360 )                     -         (4,050 )
Net income (loss)                            $            (879,702 )   $              (88,953 )   $                 -     $ (968,655 )

(1) Includes $400.00 for Global Energy Crops Corporation and Green Oils Plantations of America filing fees of $150.00 each and FTZ Energy Corporation $100.00 in filing fees.

Other Income - Consulting Fee. Other income from consulting fees was 63,571 for the year ended November 30, 2012, compared to $0 for the comparable period in 2011, for an increase of $63,571. The increase is due to a non-operating business consulting agreement.

Cost of Sales. There is no cost of sales as operations have not commenced.

Operating Expenses and Depreciation. Operating expenses and depreciation for the year ended November 30, 2012, increased $20,465 (2%) to $984,870 for 2012 as compared to $964,605 for the same period in 2011. The table below details the components of operating expense, as well as the dollar and percentage changes for the year ended November 30.

                                                 For Years Ended November 30,
                                        2012          2011        $ Change      % Change

Wage and wage related costs           $ 551,243     $ 535,048     $  16,195             3 %
Professional fees                       232,530       207,798        24,732            12 %
Insurance costs                          45,853        20,409        25,444           125 %
Rent - building and equipment            44,058        29,372        14,686            50 %
Travel and related                       61,000        79,602       (18,602 )         -23 %
Miscellaneous expenses                   39,634        84,723       (45,089 )         -53 %
Depreciation and amortization            10,552         7,652         2,900            38 %

Total Operating Exp. & Depreciation   $ 984,870     $ 964,604     $  20,266             2 %

Wage and wage related costs, which includes salaries, commissions, taxes and benefits, increased $16,195 (3%), due to salaries being recorded for a full year in 2012 versus 11 months in 2011.

Professional fees include legal, accounting, stock transfer agent, SEC filing, and general consulting fees. Professional fees increased for the year ended November 30, 2012 versus the same period last year by 24,732, 12% due to:
increased accounting and legal fees and transfer agent fees starting in 2012.

Insurance costs in the year ended November 30, 2012, were $45,853 compared to $20,409 for the same period in 2011, an increase of $25,444 (125%). The increase is attributable to the cost of directors' and officers' liability insurance in 2012 which was not in effect in 2011.

Rent increased by $14,686 (50%) to $44,058 in the year ended November 30, 2012, as compared to $29,372 for the same period in 2011, due to the Company's corporate office rental commencing in April 2011.

Travel expense for the year ended November 30, 2012 of $61,000 compared to the same period for 2011 of $79,602 for a decrease of $18,602 (23%) is a result of international travel associated with our licensed technologies in 2011 that was not repeated during 2012 and less travel related to business development activities in 2012.

Miscellaneous expense decreased 45,089 (53%) to $39,634 for the year ended November 30, 2012, as compared to $84,723 for the same period in 2011. The decrease is attributable to a mix of increases and decreases in expenses that are not material in aggregate.

Depreciation expense in our operating expenses for the year ended November 30, 2012 of $10,552 compared to the same period for 2011 of $7,652 increased as a result of the amortization of the license.

Other Income (Expense).Other income (expense) includes interest income, interest expense and other non-operating income. Other expense for the year ended November 30, 2012 was $353,149 compared to other expense of $4,050 for the same period last year. The increase in other expense from 2011 of $349,099 is the result of consulting revenue of $63,571, loss on the sale of securities of $118,640, loss on impairment of $240,795, interest expense of $120,453 and loan cost of $6,250 in 2012 as compared to interest expense of $4,050 in 2011.

Net Loss and Net Loss per Share.Net loss for the year ended November 30, 2012 was $1,274,448, compared to $968,655 for the same period in 2011, for an increased net loss of $305,793 (31.5%). Net loss per share for the year ended November 30, 2012 was $0.01 compared to $0.01 in the same period for 2011, based on the weighted average shares outstanding of 90,280,000 and 78,142,274, respectively. The decreased net loss for the year ended November 30, 2012 compared to the same period in 2011 arose from the following: (i) non-operating consulting revenues of $63,571, (ii) an increase in professional fees of $24,732
(iii) decreased travel and related expenses of $18,602, and (iv) a decrease in miscellaneous expenses if $45,089 offset partially by (i) increased wage and wage related costs of $16,195, (ii) increased insurance costs of $25,444, (iii) increased rent costs of $14,686, and (iv) increased depreciation and amortization expense of $2,900.

We did not have any operating revenues during the years ended November 30, 2012 and 2011, or since inception in September of 2010.

We incurred operating expenses of $984,870 and $964,604 for the years ended November 30, 2012 and 2011, respectively. Our operating expenses primarily consisted of development, accounting, audit and legal, consulting, employee accrued salaries and administrative expenses.

The Company realized a net loss from continuing operations of $1,274,448 and $2,244,437 for the year ended November 30, 2012, and since inception in 2010, respectively.

Liquidity and Capital Resources

The Company does not currently have sufficient resources to cover on-going expenses and expansion. As of November 30, 2012, the Company had cash of $16,956 and current liabilities of $1,539,355. Our current liabilities include accrued salaries of $755,365. Our operations used $561,710 in cash since inception in September 2010. 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.

LIMITED OPERATING HISTORY: NEED FOR ADDITIONAL CAPITAL

There is no historical financial information about us upon which to base an evaluation of our performance. BioPower Corporation was incorporated September 13, 2010 in the State of Florida and re-domiciled as BioPower Operations Corporation which was incorporated in the State of Nevada on January 5, 2011. We are a development stage company. We have not generated any revenues from our operations. We cannot guarantee we will be successful in our business operations. Our business is subject to risks inherent in the establishment of a new business enterprise, including the financial risks associated with the . . .

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