FORWARD LOOKING STATEMENTS AND ASSOCIATED RISK
The information contained in this Quarterly Report on Form 10-Q (this "Quarterly Report") is intended to update the information contained in our Annual Report on Form 10-K for the year ended
November 30, 2013(our "2013 Annual Report") and presumes that readers have access to, and will have read, the "Management's Discussion and Analysis of Financial Condition and Results of Operations" and other information contained in our 2013 Annual Report. The following discussion and analysis also should be read together with our consolidated financial statements and the notes to the consolidated financial statements included elsewhere in this Quarterly Report. This discussion summarizes the significant factors affecting the consolidated operating results, financial condition and liquidity and cash flows of BioPower Operations Corp.for the three and six months ended May 31, 2014and 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 Corporationand, 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 StatesDollars. Overview BioPower Corporation("we," "our," "BioPower," "BIO" or the "Company") was incorporated in the State of Floridaon September 13, 2010. On January 5, 2011, the Company re-domiciled to Nevadaand formed BioPower Operations Corporation, a Nevadacorporation. On January 6, 2011, the shareholders of BioPower Corporationcontributed their shares of BioPower Corporationto BioPower Operations Corporationand BioPower Corporationbecame a wholly-owned subsidiary. The Company and its subsidiaries intend to convert biomass wastes into products and reduce the amount of waste going to landfills through license, joint venture and build and own facilities. We intend to accomplish this goal through the conversion of municipal solid waste to electricity and conversion of medical waste to electricity. Further, we intend to license and create royalties by utilizing our FTZ Exchange subsidiary to help create exchanges. We have primarily generated revenues from a consulting agreement and from revenues earned from the testing phase in connection with the Testing Services Agreement in Paraguay. Revenues recognized to date are not indicative of future expected revenues. Accordingly, we must raise cash from other sources, such as from the proceeds of loans, sale of common shares, advances from related parties and consulting agreements.
From inception (
Our corporate headquarters are located at
1000 Corporate Drive, Suite 200, Fort Lauderdale, Florida33334 and our phone number is (954) 202-6660. Our website can be found at www.biopowercorp.com. The information on our website is not
incorporated in this report. Our Business Biomass is a very broad term which is used to describe material of recent biological origin that can be used either as a source of energy or for its chemical components. As such, it includes municipal solid waste better known as trash, sludge from wastewater treatment plants, animal wastes, manures, industrial wastes, trees, crops, algae and other plants, as well as agricultural and forest residues. Initially we developed a strategy to license and grow long-term biomass products that take five to seven years to reach maturation. After commencing development activities we recognized that the economic climate for lending and investment is focused on shorter term returns of two to three years. Therefore, BioPower analyzed various shorter term biomass technologies and market niche opportunities. 12 BioPower intends to convert municipal solid waste to electricity and convert medical waste to electricity through gasification. We will create a special purpose entity ("SPE") company for each project. Every SPE must have a sustainable, project with facilities to convert the wastes coupled with an end use agreement for the sale of electricity or biofuels. This end use agreement may enable the SPE to obtain financing based upon the potential profitability of each project. The Company intends to offer ownership in our initial SPEs to partners who can provide equity financing. The role BioPower will fulfill in each SPE is executive and general management, procurement of funding and development of markets for the business development of projects and the sale of electricity or biofuels.
The Company also intends to investigate and license, acquire and/or joint venture with the most promising conversion processes.
Licensed Technology We obtained a non-exclusive global license from
AGT Technologies LLC("AGT") until June 2029when the patent expires. The license is for the patented one-step enzyme technology which converts wastes from poultry, hogs, humans and sugar to products such as, fertilizer, ethanol and other products. BioPower intends to focus initially on municipalities who have a significant need to reduce their costs of the handling of sewage by utilizing the Company's licensed technology to reduce landfill costs by converting a portion of the sewage into products that do not have to go to the landfill but can be used for energy and fertilizer. The utilization of biomass residues is of paramount importance to achieve environmental sustainability by harnessing the potential of renewable resources in the production of clean energy and value added products. We are required to pay AGT 50% of any sub-license fees that we receive. We are also required to pay AGT 12% in royalties on all revenues we earn from utilizing the technology. As of May 31, 2014, no amounts are due under the license agreement. The patented technology is a one-step platform that integrates enzymatic fermentation process that requires no pretreatment of the feedstock before fermentation. During the fermentation process the bacteria within the wastes are inactivated by the injected proprietary microbes that also hydrolyze natural biopolymers and simultaneously convert the hydrolyzed fermentable sugars into ethanol. 13 The process can also convert human waste which is reduced from the conversion of it to ethanol and CO2. Once commercialized, BioPower believes that the process will allow sewage treatment plants to reduce or entirely eliminate their sludge volumes and create saleable Class A fertilizer in lieu of delivering pressed sludge to a landfill in an environmentally unsound method. The process allows farmers to utilize the bacteria free solids to be sold and utilized as an environmentally safe soil amendment or fertilizer. Savings result from less energy used in the processing of sludge, elimination of the hauling costs of treated sludge, and the added profit from ethanol and fertilizer sales. Water utilized in the fermentation stage is recycled back into the process minimizing waste streams from the process.
To date, we have not commercialized this process.
Critical Accounting Policies In response to financial reporting release FR-60, Cautionary Advice Regarding Disclosure About Critical Accounting Policies, from the
SEC, we have selected our more subjective accounting estimation processes for purposes of explaining the methodology used in calculating the estimate, in addition to the inherent uncertainties pertaining to the estimate and the possible effects on the our financial condition. The accounting estimates involve certain assumptions that, if incorrect, could have a material adverse impact on our results of operations and financial condition. Our more significant accounting policies can be found in Note 3 of our unaudited interim consolidated financial statements found elsewhere in this report and in our Annual Report on Form 10-K for the year ended November 30, 2013, as filed with the SEC. There have been no material changes to our critical accounting policies during the period covered by this report. Results of Operations
Our financial statements have been prepared assuming that we will continue as a going concern and, accordingly, do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to continue in operation. We expect that we will require additional capital to meet our operating requirements. We expect to raise additional capital through, among other things, the sale of equity and/or debt securities.
Three and Six Months Ended
The following tables set forth, for the periods indicated, results of operations information from our unaudited interim consolidated financial statements:
Three Months Ended May 31, Change Change 2014 2013 (Dollars) (Percentage) Expenses
General and administrative expenses
38,434 16.0 % Other Income (Expense) Interest expense (12,220 ) (3,655 ) (8,565 ) 234.3 %
Interest expense - related party - (408 )
(408 ) 100.0 % Loss on impairment of available-for-sale securities - (76,050 ) (76,050 ) 100.0 % Consulting revenue, net 34,868 85,524 (50,656 ) (59.2 )% Total Other Income - net 22,648 5,411 17,237 318.55 % Net loss
$ (255,914 ) $ (234,717 ) $ (21,197 )9.0 % Six Months Ended May 31, Change Change 2014 2013 (Dollars) (Percentage) Expenses
General and administrative expenses
236,872 58.9 % Other Income (Expense) Interest expense (18,115 ) (29,867 ) (11,752 ) (39.35 )% Interest expense - related party - (808 )
(808 ) 100.0 % Loss on impairment of available-for-sale securities - (76,050 ) (76,050 ) 100.0 % - - Consulting revenue, net 111,401 102,846 8,555 8.32 % Total Other Income - net (93,286 ) (3,879 ) 97,165 2504.9 % Net loss
$ (545,729 ) $ (406,022 ) $ (139,707 )34.41 % 14
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,
SECfiling fees, and insurance. The decrease in our general and administrative expenses is primarily attributable to lower compensation expense due to the departure of our former President/Chief Operating Officer in August 2013. Additionally, insurance expense decreased during the three and six months ended May 31, 2014as a result of not renewing our directors' and officers' liability insurance. Interest Expense. Interest expense for the three and six months ended May 31, 2014and 2013 primarily represents the accretion of debt discount to interest expense on our outstanding debt, as well as contractual interest expense on our notes payable and convertible debt. Loss on 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 $76,050as of May 31, 2013.
Gain on Settlement of Consulting Revenue Receivable. In
February 2013, the Company entered into a consulting agreement with a third party, pursuant to which we received 15,000,000 shares of the third party's restricted common stock as payment for services to be rendered by us. As of May 31, 2013, the value of the shares received was $253,500, of which $120,000was recorded as deferred revenue and $133,500was recorded as gain on settlement of consulting revenue receivable. Consulting Revenue. During the three months ended May 31, 2014and 2013, the Company recognized $34,868and $85,524, respectively; in net consulting revenue related to the consulting agreement entered into with a third party in February 2013. During the six months ended May 31, 2014and 2013, the Company recognized $111,401and $102,846, respectively, in consulting revenue related to this
Liquidity and Financial Condition
Six Months Ended May 31, Category 2014 2013 Net cash used in operating activities
$ (220,264 ) $ (125,026 )Net cash provided (used) in investing activities (4,754 )
Net cash provided by financing activities 125,100 150,000 Net increase in cash
$ (99,918 ) $ 24,974
Cash Flows from Operating Activities
Net cash used in operating activities was
$220,264for the six months ended May 31, 2014, compared with $125,026for the comparable period in 2013. Net cash used in operating activities for the six months ended May 31, 2014is mainly attributable to our net loss of $545,729, offset by an increase in accounts payable and accrued expenses and stock based compensation. Net cash used in operating activities for the six months ended May 31, 2013is mainly attributable to our net loss of $406,022, offset by the loss on impairment of securities, an increase in accounts payable and accrued expenses due to related parties and an increase inconvertible debt and notes payable
Cash Flows from Financing Activities
We have financed our operations primarily from either advancements or the issuance of equity and debt instruments. For the six months ended
May 31, 2014cash flows provided by financing activities was $125,100, compared to $150,000for the comparable period in 2013. We received $125,000in proceeds from convertible debt and notes payable with third parties during the six months ended May 31, 2014, compared to $150,000in proceeds from convertible debt during the six months ended May 31, 2013. Management is seeking, and expects to continue to seek to raise additional capital through equity and/or debt financings, including through one or more equity or debt financings to fund its operations, and pay amounts due to its creditors and employees. However, there can be no assurance that the Company will be able to raise such additional equity or debt financing or obtain such bank borrowings on terms satisfactory to the Company or at all. 15
The Company does not currently have sufficient resources to cover on-going expenses and expansion. As of
May 31, 2014, the Company had cash of $9,254and current liabilities of $2,102,978. Our current liabilities include accounts payable and accrued expenses to related parties of $1,298,369. 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
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.