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BOPO > SEC Filings for BOPO > Form 10-Q on 14-Apr-2014All Recent SEC Filings

Show all filings for BIOPOWER OPERATIONS CORP

Form 10-Q for BIOPOWER OPERATIONS CORP


14-Apr-2014

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, 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 months ended February 28, 2014 and the three months ended February 28, 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 Operations Corporation ("we," "our," "BioPower", "BIO" or the "Company") was organized in Nevada on January 5, 2011. 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. We have a joint venture and are in the testing stage of a cellulosic ethanol conversion technology.

We are a development stage company, have generated minimal revenues from a consulting agreement and anticipate minimal revenues until we begin marketing our 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 February 28, 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 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 2014. There can be no assurance the above Castor Project will ever be achieved.

On July 2, 2013, the Company entered into agreements for the first stage of a project to develop a castor plantation and milling operation in the Republic of Paraguay with offshore entities (aka "Ambrosia" and "Developer") for the testing and development of a project with up to $10,000,000 in financing upon certification of the castor yield effective. Under the terms of the Testing Services Agreement (the "TSA"), the Developer will provide the land, pay costs for the testing and pay the Company a monthly project management fee of $45,000 and reimbursement of expenses during the test period for subcontractors on the ground in Paraguay. The Company will provide project management testing services through the testing phase for up to 12 months until the successful certification of the yield from growing castor is proven, subject to material and adverse events. Once Ambrosia approves the project, then under the Castor Master Farm Management Services Agreement, the $10,000,000 to be invested from Ambrosia will go towards the development and operations of the first stage of the castor plantation and the building of the mill and its operations. The Company will earn 6% of the net income for ten years or have an option to become a 20% owner of the project. The Company began the initial test phase in Paraguay on March 20, 2013, and subject to the terms of the TSA, is entitled to project management fees. The Company recorded consulting revenue of $76,533 during the quarter ended February 28, 2014, in connection with services provided under the TSA.

The Company has been notified that at the end of the Testing Agreement, April 30, 2014, the project will not be approved because of material and adverse events related to the necessity for building roads due to extreme flooding conditions and infrastructure issues.

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 Months Ended February 28, 2014 Compared to the Three Months Ended February 28, 2013

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

                                           Three Months Ended           Change          Change
                                              February 28,
                                           2014           2013        (Dollars)      (Percentage)
General and administrative expenses     $  360,453     $  162,015     $  198,438             122.5 %

Other income (expense)
Interest expense                            (5,895 )      (26,212 )       20,317             -77.5 %
Interest expense - related party                 -           (400 )         (400 )           100.0 %
Loss on settlement of debt and
accrued expenses                                 -              -              -                 -
Loss on impairment of
available-for-sale securities                    -              -              -                 -
Loss on sale of available-for-sale
marketable securities                            -              -              -                 -
Loan cost                                        -              -              -                 -
Loss on impairment of license                    -              -              -                 -
Gain on settlement of consulting
revenue receivable                               -              -              -                 -
Consulting revenue, net of expense          76,533         17,322         59,211             341.8 %
Total other income (expense) - net          70,638         (9,290 )       79,128             364.3 %

Net loss                                $ (289,815 )   $ (171,305 )   $ (118,510 )            69.2 %

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 is primarily attributable to higher compensation expense due to the hiring of a business consultant and the increase in stock based compensation of two officers.

Interest Expense. Interest expense for the three months ended February 28, 2014 is attributable to interest accrued on debt and convertible debt. February 28, 2013 primarily represents the accretion of debt discount to interest expense on our convertible notes, as well as contractual interest expense on our notes payable and convertible debt.

Consulting Revenue. During the three months ended February 28, 2014 and February 28, 2013, the Company recognized $76,533 and $17,322, respectively, in net consulting revenue related to consulting agreements entered into with third parties.

Liquidity and Financial Condition



                                                         Three Months Ended
                                                    February 28       February 28
                    Category                           2014              2013

Net cash used in operating activities              $    (125,284 )   $     (36,125 )
Net cash provided (used) in investing activities               -                 -
Net cash provided by financing activities                125,000            25,000

Net (decrease) increase in cash                    $      (5,038 )   $     (11,125 )

Cash Flows from Operating Activities

Net cash used in operating activities was $125,284 for the three month period ended February 28, 2014, compared with net cash used of $36,125 for the comparable period in 2013. Net cash used in operating activities for the three months ended February 28, 2014 is mainly attributable to our net loss of $289,815, offset by an increase in stock based compensation expense and an increase in accounts payable and accrued expenses due to related parties. Net cash used in operating activities for the three months ended February 28, 2013 is mainly attributable to our net loss of $171,305, offset by an increase in accounts payable and accrued expenses due to related parties and an increase in amortization of debt discount.

Cash Flows from Financing Activities

We have financed our operations primarily from either advancements or the issuance of equity and debt instruments. For the three month period ended February 28, 2014 cash flows provided by financing activities was $125,000, compared to $25,000 for the comparable period in 2013. We received 1$25,000 in proceeds from convertible debt with a third party during the three months ended February 28, 2014, compared to $25,000 in proceeds from convertible debt during the three months ended February 28, 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 February 28, 2014, the Company had cash of $104,134 and current liabilities of $1,992,633. Our current liabilities include accounts payable and accrued expenses to related parties of $1,213,739. Our operations used $937,321 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 $289,815 and net cash used in operations of $125,284 for the three months ended February 28, 2014; and a working capital deficit of $1,864,559 and a deficit accumulated during the development stage of $3,876,980 at February 28, 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.

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