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BOPO > SEC Filings for BOPO > Form 10-K on 17-Mar-2014All Recent SEC Filings

Show all filings for BIOPOWER OPERATIONS CORP

Form 10-K for BIOPOWER OPERATIONS CORP


17-Mar-2014

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.

The Company is a development stage company and intends 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. Further we intend to utilize a licensed technology to convert cellulosic sugars into advanced biofuels.

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.

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 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.

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 for the testing and development of a project with up to $10,000,000 in financing upon certification of the castor yield.

On November 13, 2013 we entered into a joint venture agreement for the exclusive distribution of a cellulosic ethanol technology. We have to meet certain Milestones to maintain exclusivity, otherwise we would have a non-exclusive license. The Company believes that we met Milestone I but we have received notification from our joint venture partner that we did not meet Milestone 1. At this time, we are in discussions regarding the exclusivity of this Agreement.

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, 2013, the company's business operations have been primarily focused on developing our business plan, developing a castor oil project, 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 advanced biofuels, fertilizer and derivative products.

The Company is focused on growing 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. Further we intend to utilize a licensed technology to convert cellulosic sugars into advanced biofuels.

Castor project

We entered into a testing contract for a Castor project in South America with a landowner who would provide initially 1681 hectares of land and the initial investment of approximately $10 Million USD financing for the project including a mill, provided the test was successful. In late March 2013, we began initial testing operations which could take up to a year or more to complete. This included planning for the test, helping the management for the clearing of the land and the planting of the castor. The Company's consultants have been working in South America for the past year. We set up a special purpose entity wherein the Company would receive certain fees and a percentage of profits.

Because of bad weather and flooding the test is on-going. If successful, the project could grow to 20,000 hectares over the next 5 years. The Company had minimal revenues in 2013 from the testing which was accounted for as non-operating revenues. There can be no assurance that the South American Castor project testing will be successful or that we will ever commence operations or be profitable.

Licensed Technology

We have a non-exclusive global License for a 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 need to reduce their costs of the handling of sewage by utilizing the Company's licensed technology to reduce operating and landfill costs by reducing sewage with its licensed enzymes and 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 their sludge volumes and create saleable Class A fertilizer in lieu of delivering pressed sludge to a landfill in an environmentally unsound method. Further 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.

Cellulosic Sugars

We formed a 50-50 exclusive joint venture in November, 2013 utilizing a technology to convert cellulosic sugars into advanced biofuels. We had to meet two milestones to maintain the exclusivity worldwide, or we will have a non-exclusive license to the technology.

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 exchanges for the sale of products and services.

Health Exchange

FTZ had been in the development stage of a health exchange since January, 2012. FTZ owned 50% of the Qx Health Exchange with Quture, Inc. ("QUTR"). This exchange, if and when fully developed, was 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 needed to raise significant funds to build out the exchange. Quture determined that they wanted to proceed with their main product line in 2013 and no longer be involved in the Health Exchange. FTZ has put the health exchange on the shelf. Only if we found a potential joint venture partner in the health field or investor would we proceed to develop a health exchange. There can be no assurance such health partner or investor will ever materialize or that a health exchange will ever be launched.

Capacity Exchange

FTZ executed a Strategic Alliance with Capacity 360, LLC to develop excess capacity transactions leading to the build out of a capacity exchange. Capacity 360, LLC is a company that assists Global 2000 and smaller 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 the 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, 2013, the Company has spent a total of $3,223,629 on the general and administrative costs. We have not yet generated any revenue from 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 technologies, reviewing technologies, preparing an S-1and 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
(2) utilizing patented technology to convert sugar, human, hog and poultry wastes into ethanol, fertilizer and derivative products.

We entered into a testing contract for a Castor project in Paraguay with a landowner who would provide initially 1681 hectares of land and the initial investment of approximately $10 Million USD financing for the project including a mill, provided the test was successful. In late March 2013, we began initial testing operations. To date the testing is on-going. The Company's consultants have been working in South America for the past year. We set up a special purpose entity wherein the Company would receive certain fees and a percentage of profits provided the test is successful. If successful, the project could grow to 20,000 hectares over the next 5 years. The Company had minimal revenues of $469,173 in 2013 from the testing which was accounted for as non-operating revenues. There can be no assurance that the South American Castor project testing will be successful or that we will ever commence operations or be profitable.

Second, we are focused on utilizing our Joint Venture patented technology to convert cellulosic sugars to ethanol and advanced biofuels.

Third, we are focused on utilizing patented licensed technology to reduce sludge and convert human wastes to fertilizer and ethanol. Municipal sewage facilities are our first target for the utilization of this process.

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

Business development costs                       $   300,000
Research & development costs including patents       150,000
Management and Consulting                            300,000
General and Administrative                           250,000
Total                                            $ 1,000,000

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 $1,000,000, 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 $250,000 remaining for working capital. We expect these amounts will be sufficient to initiate and sustain our business development activities for one year.

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 2013 as Compared with Fiscal 2012

                                           BioPower Operations
2013                                              Corp            BioPower Corporation     FTZ Exchange, LLC        Total
Operating expenses (1)                    $         (1,158,743)   $           (137,303)   $                 -   $ (1,296,046)
Depreciation and amortization             $               5,552   $                   -   $                 -   $       5,552
Other income (expense) (2)                $           (262,087)   $             220,957   $                 -   $    (41,130)

Net income (loss) (1)                     $         (1,426,382)   $              83,654                         $ (1,342,728)



                                           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)

(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.

(2) Includes Consulting Income of $248,448.

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, 2013, increased $316,728 (32%) to $1,301,598 for 2013 as compared to $984,870 for the same period in 2012. 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,
                                             2013        2012     $ Change   % Change
Stock based compensation              $   305,373   $       -   $  305,373        100 %
Wage and wage related costs               621,674     551,243       70,431         13 %
Professional fees                         170,348     232,530     (62,182)        -27 %
Insurance costs                             3,772      45,853     (42,081)        -92 %
Rent - building and equipment              46,589      44,058        2,531          6 %
Travel and related                         81,582      61,000       20,582         34 %
Miscellaneous expenses                     66,708      39,634       27,074         68 %
Depreciation and amortization               5,552      10,552      (5,000)        -47 %

Total Operating Exp. & Depreciation   $ 1,301,598     984,870   $  316,728         32 %

Wage and wage related costs, which includes salaries, commissions, taxes and benefits, increased $70,431 (13%). The increase is due to two new employees starting in January 2013, increase in Director of Business Development salary in April 2013 and a decrease of the salary of the President and COO who resigned in 2012.

Professional fees include legal, accounting, stock transfer agent, SEC filing, banking consulting fees, and general consulting fees. Professional fees decreased for the year ended November 30, 2013 versus the same period in 2012 by $62,182 (-27%) primarily due to a decrease of $97,500 for investment banking consulting fees

Insurance costs in the year ended November 30, 2013, were $3,772 compared to $45,853 for the same period in 2012, a decrease of $42,081 (-92%). The decrease is attributable to the cost of directors' and officers' liability insurance in 2012 which was not in effect in 2013.

Rent increased by $2,531 (6%) to $46,589 in the year ended November 30, 2013, as compared to $44,058 for the same period in 2012, due to a new lease for the Company's corporate office rental commencing in June 2013.

Travel expense for the year ended November 30, 2013 of $81,582 as compared to the same period for 2012 of $61,000 for an increase of $20,582 (34%) is a result of increased business development travel and travel associated with our development of licensed technologies in 2013.

Miscellaneous expense increased by $27,074 (68%) to $66,708 for the year ended November 30, 2013, as compared to $39,634 for the same period in 2012. The increase 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, 2013 of $5,552 compared to the same period for 2012 of $10,552 decreased as a result of the amortization of the license in 2012.

Other Income (Expense). Other income (expense) includes interest income, interest expense, consulting income and expense and other non-operating income. Other expense for the year ended November 30, 2013 was $41,130 compared to other expense of $289,758 for the same period last year. The decrease in other expense from 2012 of $248,628 was primarily the result of an increase in consulting income of $195,163. For the year ended November 30, 2013 there was a loss on settlement of debt of $190,921 and a loss on marketable securities of $76,050, due to the securities being deemed worthless.

Net Loss and Net Loss per Share. Net loss for the year ended November 30, 2013 was $1,342,728, compared to $1,274,448 for the same period in 2012, for an increased net loss of $68,280. Net loss per share for the year ended November 30, 2013 was $0.06 compared to $0.01 in the same period for 2012, based on the weighted average shares outstanding of and 23,531,311 and 18,056,000, respectively. The increased net loss for the year ended November 30, 2013 compared to the same period in 2012 arose from the following: (i) non-operating loss on settlement of debt and accrued expenses of $190,021, (ii) loss on impairment of available-for sale-marketable securities and an increase in wages and stock based compensation of $445,431. This increase was partially offset partially by an increase in net consulting revenues of $195,163.

We did not have any operating revenues during the years ended November 30, 2013 and 2012, or since inception in September of 2010.

We incurred operating expenses of $1,301,598 and $984,870 for the years ended November 30, 2013 and 2012, respectively. Our operating expenses primarily consisted of development, accounting, audit and legal, consulting, employee accrued salaries, stock based compensation and administrative expenses.

The Company realized a net loss from continuing operations of $1,342,728 and $3,587,165 for the year ended November 30, 2013 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, 2013, the Company had cash of $109,172 and current liabilities of $1,825,095. Our current liabilities include accrued expenses and salaries of related parties of $1,098,786. 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.

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 limited capital resources currently available to us for the implementation of our business strategies. (See "Risk Factors"). To become profitable and competitive, we must develop and execute the business plan. We must raise funds over the next twelve (12) month period partially through advances from related parties, sale of securities; and, we will seek alternative financing through . . .

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