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BOPO > SEC Filings for BOPO > Form 10-Q on 21-Oct-2013All Recent SEC Filings

Show all filings for BIOPOWER OPERATIONS CORP

Form 10-Q for BIOPOWER OPERATIONS CORP


21-Oct-2013

Quarterly Report


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, 2012 (our "2012 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 2012 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, 2013 and 2012. 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 2012 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 Operations 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 grow biomass crops coupled with processing and/or conversion facilities to produce oils, biofuels, electricity and other biomass products. We also intend to utilize licensed patented technology to convert biomass wastes into products and reduce the amount of waste going to landfills through license, joint venture and build and own facilities. Further, we intend to license and create royalties by utilizing our FTZ Exchange subsidiary to help create exchanges.

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 (see below). Revenues recognized to date are not indicative of future expected revenues, once we begin marketing our fertilizer related products to customers. 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, 2013, the Company's business operations have been primarily focused on developing our business plan, developing potential products and biomass projects, becoming a trading public company through an S-1 registration statement, raising money, licensing technologies and licensing and developing on-line exchanges.

Our corporate headquarters are located at 1000 Corporate Drive, Suite 200, Fort Lauderdale, Florida 33334 and our phone number is (954) 202-6660. Our website can be found at www.biopowercorp.com. The information on our website is not incorporated in this report.

Our Business

Biomass is all plant and animal matter on the Earth's surface. Harvesting biomass such as crops, trees or dung and using it to generate energy such as heat, electricity or motion, is bioenergy. 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 trees, crops, algae and other plants, as well as agricultural and forest residues. It also includes many materials that are considered as wastes by our society including food and drink manufacturing effluents, sludge, manures, industrial (organic) by-products and the organic fraction of household waste.

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. As a result, we developed short term plans to produce and sell biomass products which we call our Castor project. We have deferred our plans for the development of our long-term, licensed biomass products until specific funding can be obtained for such projects.

BioPower intends to create a special purpose entity ("SPE") company for each biomass project. Every SPE must have a sustainable, biomass growing project with facilities to process the biomass into saleable products possibly coupled with an end use agreement. 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 land and money. The role BioPower will fulfill in each SPE is executive and general management, procurement of funding and development of markets for the sale of biomass and biomass products. The initial focus for biomass business opportunities will be in the United States of America, the Caribbean, South America and Central America.

The Company also intends to investigate and license and/or joint venture with the most promising, emerging biomass products and processes.

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. and/or international marketplace. 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 engineering firms 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.

The U.S.A. currently imports almost 100% of the castor oil used as a feedstock into the personal care, pharmaceuticals, polymers and plastics, adhesives, coatings and other specialty chemical markets. The Company proposes to develop a project in Florida to grow proven hybrid castor which can be harvested within 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 during the latter half of 2013.

On July 2, 2013, we 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 Developer will provide the land, pay costs for the testing and pay us a monthly project management fee of $45,000 and reimbursement of expenses during the test period for subcontractors on the ground in Paraguay. We 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. We will earn 6% of the net income for ten years or have an option to become a 20% owner of the project. We began the initial test phase in Paraguay and have earned approximately $293,000 in project management fees as of August 31, 2013. The first stage of the project encompasses approximately 1681 hectares or 4,154 acres of land.

Licensed Technology

We recently announced that 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. The Company will also target Fortune 500 companies that seek solutions for their waste sugars.

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, 2013, 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.

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.

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 2 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, 2012, 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, 2013 Compared to the Three and Nine
Months Ended August 31, 2012

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
                                            2013                2012         (Dollars)    (Percentage)
Expenses
General and administrative expenses   $        351,326    $        247,790   $  103,536           41.8 %

Other Income (Expense)
Interest expense                                 (942)            (34,546)     (33,604)          -97.3 %
Interest expense - related party                     1               (343)        (344)         -100.0 %
Loss on settlement of debt                   (190,921)                   -      190,921          100.0 %
Loss on sale of available-for-sale
marketable securities                                -            (32,038)     (32,038)         -100.0 %
Loan cost                                            -             (6,250)      (6,250)         -100.0 %
Consulting revenue                             168,674              20,000      148,674          743.4 %
Consulting expense                            (87,217)                   -       87,217          100.0 %
Total Other Expense - net                    (110,405)            (53,177)       57,228          107.6 %

Net loss                              $      (461,731)    $      (300,967)   $  160,764           53.4 %

                                         Nine Months Ended August 31,        Change         Change
                                           2013               2012          (Dollars)    (Percentage)
Expenses
General and administrative expenses   $       753,469    $       800,641   $  (47,172)           -5.9 %

Other Income (Expense)
Interest expense                             (30,809)          (119,074)      (88,265)          -74.1 %
Interest expense - related party                (807)              (545)           262           48.1 %
Loss on settlement of debt                  (190,921)                  -       190,921          100.0 %
Loss on impairment of
available-for-sale securities                (76,050)                  -        76,050          100.0 %
Loss on sale of available-for-sale
marketable securities                               -           (32,038)      (32,038)         -100.0 %
Loan cost                                           -            (6,250)       (6,250)         -100.0 %
Gain on settlement of consulting
revenue receivable                                  -            133,500     (133,500)         -100.0 %
Consulting revenue                            354,967             43,571       311,396          714.7 %
Consulting expense                          (170,664)                  -       170,664          100.0 %
Total Other Expense - net                   (114,284)             19,164       133,448          696.3 %

Net loss                              $     (867,753)    $     (781,477)   $    86,276           11.0 %

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 increase in our general and administrative expenses for the three months ended August 31, 2013 is primarily attributable to stock-based compensation expense of $60,000 related to the 4,000,000 shares granted in June 2013 to our CEO and Director of Business Strategy, as well as increased compensation expense due to the hiring of our Chief Technology Officer in June 2013 and increased professional and consulting fees. The increase in general and administrative expenses for the three months ended August 31, 2013 was offset by the decrease in insurance expense as a result of not renewing our directors' and officers' liability insurance. The decrease in our general and administrative expenses for the nine months ended August 31, 2013, compared to the nine months ended August 31, 2012 is primarily attributable to lower compensation expense due to the departure of our former President/Chief Operating Officer in August 2012, as well as lower professional and consulting fees. Additionally, insurance expense decreased during the nine months ended August 31, 2013 as a result of not renewing our directors' and officers' liability insurance. The decrease in general and administrative expenses for the nine months ended August 31, 2013 was offset by the stock-based compensation expense recorded in connection with the shares granted to our CEO and Director of Business Strategy.

Interest Expense. Interest expense for the three and nine months ended August 31, 2013 and 2012 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, 2013, we recognized a loss of $190,921 due to the conversions and settlements of notes, convertible notes and accrued expenses.

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.

Consulting Revenue. During the three months ended August 31, 2013 and 2012, the Company recognized $0 and $20,000, respectively, in consulting revenue related to the consulting agreement entered into with a third party in February 2012. During the nine months ended August 31, 2013 and 2012, the Company recognized $56,429 and $43,571, respectively, in consulting revenue related to this same agreement. During the three and nine months ended August 31, 2013, the Company recognized $162,669 and $292,533, respectively, in consulting revenue related to our Testing Services Agreement entered into to develop a castor plantation and milling operation in Paraguay.

Consulting expense. Consulting expense represents our cost to provide services under the Testing Services Agreement to develop a castor plantation and milling operation in Paraguay. These costs are mainly comprised of third party outsourcing expenses and certain reimbursable expenses. During the three and nine months ended August 31, 2013, we recognized $87,217 and $170,664, respectively, in consulting expense.

Loss on sale of available-for-sale marketable securities. The Company recognized a loss on the sale of available-for-sale securities of $32,038 during the three months ended August 31, 2012 in connection with the sale of 2,436,000 shares of common stock.

Loan Cost. During the three months ended August 31, 2012, we recognized $6,250 in loan costs related to the loan agreement entered into with a third party lender in August 2012.

Gain on Settlement of Consulting Revenue Receivable. In February 2012, 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, 2012, 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.

Liquidity and Financial Condition

                                                        Nine Months Ended
                                                           August 31,
        Category                                       2013          2012

        Net cash used in operating activities       $ (185,779)   $ (207,556)
        Net cash provided by investing activities             -        11,330
        Net cash provided by financing activities       219,406       194,292
        Net increase (decrease) in cash             $    33,627   $   (1,934)

Cash Flows from Operating Activities

Net cash used in operating activities was $185,779 for the nine months ended August 31, 2013, compared to $207,556 for the comparable period in 2012. 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 settlement of debt of $190,921, loss on impairment of securities of $76,050, stock-based compensation expense of $60,000, amortization of stock to be issued for services rendered of $51,333, amortization of debt discount of $25,000, and an overall increase in working capital of $274,243, mainly comprised of an increase in accounts payable and accrued expenses due to related parties of $310,830. Net cash used in operating activities for the nine months ended August 31, 2012 is mainly attributable to our net loss of $781,477, available for sale securities received as consideration for consulting revenue of $120,000 and gain on the sale of consulting revenue receivable of $133,500. Offsetting these amounts was the amortization of debt discount of $116,429 and an overall increase working capital of $664,764.

Cash Flows from Investing Activities

Net cash provided by investing activities for the nine months ended August 31, 2012 is attributable to the proceeds from the sale of available-for-sale securities of $11,330 received by the Company.

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, 2013, cash flows provided by financing activities was $219,406, compared to $194,292 for the comparable period in 2012. We received $206,506 in proceeds from convertible debt and notes payable with third parties and $12,900 in proceeds from common stock to be issued during the nine months ended August 31, 2013, compared to $102,000 in proceeds from convertible debt and notes payable with third parties, $42,092 in proceeds from notes payable with related parties, and $50,200 in proceeds from common stock to be issued during the nine months ended August 31, 2012. 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, 2013, the Company had cash of $50,583 and current liabilities of $2,344,577. Our current liabilities include accounts payable and accrued expenses to related parties of $938,551. Our operations used $747,489 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.

As reflected in the accompanying unaudited interim consolidated financial statements, the Company has a net loss of $867,753 and net cash used in operations of $185,779 for the nine months ended August 31, 2013; and a working capital deficit of $2,260,186 and a deficit accumulated during the development stage of $3,112,190 at August 31, 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 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 2 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.

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