.

 

 

U. S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended February 28, 2013

 

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ________________ to __________________

 

Commission File Number: 333-172139

 

 

 

BioPower Operations Corporation

(Exact name of registrant as specified in its charter)

 

Nevada		27-4460232
(State or other jurisdiction of		(IRS Employer
incorporation or organization)		Identification No.)

 

1000 Corporate Drive, Suite 200, Fort Lauderdale, Florida 33334

(Address of principal executive offices)

 

Issuer’s telephone number, including area code: (954) 202-6660

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filer ¨ (Do not check if a smaller reporting company)	Smaller reporting company x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

  Yes ¨ No x

 

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.  

As of April 15, 2013, the registrant had 90,280,000 shares of common stock, par value $0.0001 per share, outstanding.

 

 

 

BIOPOWER OPERATIONS CORPORATION

 (A Developmental Stage Company)

 

CONTENTS

 

		Page
PART I.	FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS	3
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	20
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	24
ITEM 4.	CONTROLS AND PROCEDURES	24
PART II.	OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS	25
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	25
ITEM 3.	DEFAULT UPON SENIOR SECURITIES	25
ITEM 4.	MINE SAFETY DISCLOSURES	25
ITEM 5.	OTHER INFORMATION	25
ITEM 6.	EXHIBITS	25
SIGNATURES		27
Exhibit 31.1	Certification Pursuant to Section 302 of the Sarbanes Oxley Act
Exhibit 32.1	Certification Pursuant to Section 906 of the Sarbanes Oxley Act

 

 

 

 

CONTENTS

 

	Page
Consolidated Balance Sheets as of February 28, 2013 (unaudited) and November 30, 2012 (Audited)	4
Consolidated Statements of Operations and Comprehensive Income (Loss) for the three months ended February 28, 2013 and February 29, 2012, and from September 13, 2010 (Inception) to February 28, 2013 (unaudited)	5
Consolidated Statement of Stockholders’ Deficit from September 13, 2010 (Inception) to February 28, 2013 (unaudited)	6
Consolidated Statements of Cash Flows for the three months ended February 28, 2013 and February 29, 2012, and from September 13, 2010 (Inception) to February 28, 2013 (unaudited)	7
Notes to Consolidated Financial Statements (unaudited)	8 - 19

 

 

 

 

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

 

 

BioPower Operations Corporation and Subsidiaries

(A Development Stage Company)

Consolidated Balance Sheets

 

 

		February 28, 2013				November 30, 2012
		(Unaudited)
Assets
Current Assets
Cash		$	5,831			$	16,956
Available-for-sale securities			14,400				38,250
Prepaid expenses			27,751				682
Total Current Assets			47,982				55,888
Equipment - net			17,392				18,761
Security deposit			11,660				11,660
			29,052				30,421
Total Assets		$	77,034			$	86,309
Liabilities and Stockholders' Deficit
Current Liabilities
Accounts payable and accrued expenses		$	424,323			$	413,586
Accounts payable and accrued expenses - related parties			856,830				755,365
Deferred consulting revenue			20,000				31,429
Common stock payable			249,500				208,500
Note payable			89,800				89,800
Notes payable - related parties			40,675				40,675
Convertible debt			25,000				-
Total Current Liabilities			1,706,128				1,539,355
Long-Term Liabilities
Deferred consulting revenue			19,107				25,000
Total Long-Term Liabilities			19,107				25,000
Total Liabilities			1,725,235				1,564,355
Stockholders' Deficit
Preferred stock, $1 par value; 10,000 shares authorized; 1 share issued and outstanding			1				1
Common stock, $0.0001 par value, 500,000,000 shares authorized; 90,280,000 shares issued and outstanding			9,028				9,028
Additional paid-in capital			820,162				795,162
Deficit accumulated during the development stage			(2,415,742	)			(2,244,437	)
Accumulated other comprehensive loss			(61,650	)			(37,800	)
Total Stockholders' Deficit			(1,648,201	)			(1,478,046	)
Total Liabilities and Stockholders' Deficit		$	77,034			$	86,309

 

 

See accompanying notes to consolidated financial statements 

 

 

 

BioPower Operations Corporation and Subsidiaries

(A Development Stage Company)

Consolidated Statements of Operations

(Unaudited)

 

 

										September 13, 2010
		Three Months Ended February 28, 2013				Three Months Ended February 29, 2012				(Inception) to February 28, 2013
						(restated)
General and administrative expenses		$	162,015			$	222,691			$	2,112,824
Other income (expense)
Interest expense			(26,212	)			(30,769	)			(77,877	)
Interest expense - related party			(400	)			-				(73,749	)
Loan cost			-				-				(6,250	)
Loss on impairment			-				-				(240,795	)
Gain on settlement of consulting revenue receivable			-				133,500				133,500
Consulting revenue			17,322				3,571				80,893
Loss on sale of available-for-sale marketable securities			-				-				(118,640	)
Total other income (expense) - net			(9,290	)			106,302				(302,918	)
Net loss		$	(171,305	)		$	(116,389	)		$	(2,415,742	)
Net loss per common share - basic and diluted		$	(0.00	)		$	(0.00	)		$	(0.03	)
Weighted average number of common shares outstanding
during the year/period - basic and diluted			90,280,000				90,316,264				77,519,032
Comprehensive loss
Net loss		$	(171,305	)		$	(116,389	)		$	(2,415,742	)
Unrealized loss on available-for-sale marketable securities			(23,850	)			(58,500	)			(61,650	)
Comprehensive loss		$	(195,155	)		$	(174,889	)		$	(2,477,392	)

 

 

 

See accompanying notes to consolidated financial statements 

 

 

 

 

 

BioPower Operations Corporation and Subsidiaries

(A Development Stage Company)

Consolidated Statement of Stockholders' Deficit

From September 13, 2010 (Inception) to February 28, 2013

(Unaudited)

 

																						Deficit
																						Accumulated				Accumulated
		Preferred Stock,								Common Stock,								Additional				during				Other				Total
		$1 Par Value								$0.0001 Par Value								Paid In				Development				Comprehensive				Stockholder's
		Shares				Amount				Shares				Amount				Capital				Stage				Loss				Deficit
Issuance of common stock - founders ($0.0001)			-			$	-				10,000			$	1			$	-			$	-			$	-			$	1
Net loss - September 13, 2010 (Inception) to November 30, 2010			-				-				-				-				-				(1,334	)							(1,334	)
Balance - November 30, 2010			-				-				10,000				1				-				(1,334	)			-				(1,333	)
Cancellation of common stock - founders			-				-				(10,000	)			(1	)			-				-				-				(1	)
Issuance of preferred stock - founders ($1/share)			1				1				-				-				-				-				-				1
Issuance of common stock - founders ($0.0001/share)			-				-				32,500,000				3,250				-				-				-				3,250
Issuance of common stock - related parties ($0.0001/share)			-				-				12,300,000				1,230				-				-				-				1,230
Issuance of common stock ($0.0001/share)			-				-				39,100,000				3,910				-				-				-				3,910
Issuance of common stock ($0.25/share)			-				-				1,200,000				120				299,880				-				-				300,000
Issuance of common stock ($0.50/share)			-				-				30,000				3				14,997				-				-				15,000
Issuance of common stock for services rendered ($0.012/share)			-				-				4,150,000				415				49,585				-				-				50,000
Issuance of common stock for license ($0.25/share)			-				-				1,000,000				100				249,900				-				-				250,000
Warrants issued for services rendered			-				-				-				-				60,800				-				-				60,800
Debt discount - related party			-				-				-				-				30,000				-				-				30,000
Net loss for the year ended November 30, 2011			-				-				-				-				-				(968,655	)			-				(968,655	)
Balance - November 30, 2011			1				1				90,280,000				9,028				705,162				(969,989	)			-				(255,798	)
Debt discount			-				-				-				-				50,000				-				-				50,000
Debt discount - related party			-				-				-				-				40,000				-				-				40,000
Unrealized loss on available-for-sale marketable securities			-				-				-				-				-				-				(37,800	)			(37,800	)
Net loss for the year ended November 30, 2012			-				-				-				-				-				(1,274,448	)			-				(1,274,448	)
Balance - November 30, 2012			1				1				90,280,000				9,028				795,162				(2,244,437	)			(37,800	)			(1,478,046	)
Beneficial conversion feature			-				-				-				-				25,000				-				-				25,000
Unrealized loss on available-for-sale marketable securities			-				-				-				-				-				-				(23,850	)			(23,850	)
Net loss for the period ended February 28, 2013			-				-				-				-				-				(171,305	)			-				(171,305	)
Balance - February 28, 2013			1			$	1				90,280,000			$	9,028			$	820,162			$	(2,415,742	)		$	(61,650	)		$	(1,648,201	)

 

 

See accompanying notes to consolidated financial statements 

 

 

 

BioPower Operations Corporation and Subsidiaries

(A Development Stage Company)

Consolidated Statements of Cash Flows

(Unaudited)

 

 

		Three Months Ended								September 13, 2010 (Inception) to
		February 28, 2013				February 29, 2012				February 28, 2013
							(restated)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(171,305	)		$	(116,389	)		$	(2,415,742	)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of license			-				1,247				9,205
Impairment of license			-				-				240,795
Depreciation			1,369				1,381				10,368
Amortization of beneficial conversion feature			25,000				30,215				145,000
Loan cost			-				-				6,250
Stock issued for services rendered			13,667				15,000				63,667
Warrants issued for services rendered			-				-				60,800
Available-for-sale securities received as consideration for consulting revenue			-				(120,000	)			(120,000	)
Gain on settlement of consulting revenue receivable			-				(133,500	)			(133,500	)
Loss on sale of available-for-sale marketable securities			-				-				118,640
Changes in operating assets and liabilities:
Prepaid expenses			264				(453	)			(418	)
Security deposit			-				-				(11,660	)
Accounts payable and accrued liabilities			10,737				(32,392	)			424,323
Accounts payable and accrued liabilities - related party			101,465				154,795				856,830
Common stock payable for services rendered			-				-				108,500
Deferred revenue			(17,322	)			116,429				39,107
Net Cash Used In Operating Activities			(36,125	)			(83,667	)			(597,835	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of available-for-sale securities			-				-				52,560
Purchase of equipment			-				-				(27,760	)
Net Cash Provided By (Used In) Investing Activities			-				-				24,800
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from convertible debt			25,000				-				75,000
Proceeds from convertible debt - related party			-				40,000				70,000
Proceeds from notes payable - related parties			-				2,500				65,973
Proceeds from notes payable			-				-				20,800
Repayment of notes payable - related parties			-				-				(25,298	)
Repayment of notes payable			-				-				(1,000	)
Proceeds from issuance of preferred stock			-				-				1
Proceeds from issuance of common stock			-				-				323,390
Proceeds from common stock to be issued			-				50,000				50,000
Net Cash Provided By Financing Activities			25,000				92,500				578,866
Net Increase (Decrease) in Cash			(11,125	)			8,833				5,831
Cash - Beginning of Period			16,956				6,111				-
Cash - End of Period		$	5,831			$	14,944			$	5,831
SUPPLEMENTARY CASH FLOW INFORMATION:
Cash Paid During the Year/Period for:
Income Taxes		$	-			$	-			$	-
Interest		$	-			$	-			$	-
SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock for license		$	-			$	-			$	250,000
Common stock to be issued for services rendered		$	41,000			$	-			$	41,000
Debt discount recorded on convertible debt		$	25,000			$	-			$	75,000
Debt discount recorded on convertible debt - related party		$	-			$	40,000			$	70,000
Conversion of convertible debt to common stock payable		$	-			$	-			$	50,000
Reclassification of related party note to third party note payable		$	-			$	-			$	70,000
Cancellation of common stock - founders		$	-			$	1			$	1

 

 

 

 

See accompanying notes to consolidated financial statements 

 

BioPower Operations Corporation and Subsidiaries

(A Development Stage Company)

Notes to Consolidated Financial Statements

February 28, 2013

Unaudited

 

 

Note 1 Basis of Presentation

 

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the instructions to Form 10-Q and Article 8 of Regulation S-X of the United States Securities and Exchange Commission (“SEC”). Certain information or footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting.  Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows. It is our opinion, however, that the accompanying unaudited interim condensed consolidated financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented.

 

The accompanying unaudited interim consolidated financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended November 30, 2012 as filed with the SEC, which contains the audited financial statements and notes thereto, together with Management’s Discussion and Analysis, for the years ended November 30, 2012 and 2011. The financial information as of November 30, 2012 is derived from the audited financial statements presented in our Annual Report on Form 10-K for the year ended November 30, 2012.  The interim results for the three months ended February 28, 2013 are not necessarily indicative of the results to be expected for the year ending November 30, 2013 or for any future interim periods.

 

Note 2 Restatement of Financial Statements

 

The unaudited interim consolidated financial statements as of and for the three months ended February 29, 2012, filed with the SEC on April 20, 2012, have been restated as a result of management’s determination that the Company’s accounting treatment pertaining to (a) revenue recognition on its non-operating consulting advisory agreement executed in February 2012 and (b) common stock authorized but not issued should be modified. This change in accounting treatment resulted in a restatement of consulting revenue, gain on settlement of consulting revenue receivable, net loss, basic and diluted loss per share and basic and diluted weighted average number of common shares outstanding on the Company’s consolidated statement of operations for the three months ended February 29, 2012 and deferred consulting revenue, common stock payable, common stock, additional paid in capital and accumulated deficit in the Company’s consolidated balance sheet at February 29, 2012. The restatement had no effect on the Company’s cash or net cash (used in) provided by operating, investing and financing activities for the three months ended February 29, 2012. The effect of the restatement on our previously issued unaudited interim consolidated financial statements as of and for the three months ended February 29, 2012 is as follows:

 

 

BioPower Operations Corporation and Subsidiaries

(A Development Stage Company)

Notes to Consolidated Financial Statements

February 28, 2013

Unaudited

 

 

		Restated Consolidated Balance Sheet
		As Reported				Adjustments				Restated				Notes
Total Assets		$	495,891			$	-			$	495,891
Deferred consulting revenue		$	-			$	77,322			$	77,322				1
Common stock payable			-				50,000				50,000				2
Total Current Liabilities			705,149				127,322				832,471
Deferred consulting revenue			-				39,107				39,107
Total Long-Term Liabilities			-				39,107				39,107
Common stock			9,054				(20	)			9,034				2
Additional paid-in capital			810,136				(49,980	)			760,156				2
Deficit accumulated during the development stage			(969,949	)			(116,429	)			(1,086,378	)			1
Accumulated other comprehensive income			(58,500	)			-				(58,500	)
Total Stockholders' Deficit			(209,258	)			(166,429	)			(375,687	)
Total Liabilities and Stockholders' Deficit		$	495,891			$	-			$	495,891

 

 

		Three Months Ended												September 13, 2010 (Inception)
		February 29, 2012												to February 29, 2012
Consolidated Statement of Operations		As Reported				Adjustments				Restated					As Reported	Adjustments						Restated				Notes
Revenue		$	253,500			$	(253,500	)		$	-			$	253,500			$	(253,500	)		$	-
General and administrative expenses			222,691				-				222,691				1,188,630				-				1,188,630
Consulting revenue			-				3,571				3,571				-				3,571				3,571			1
Interest expense			(30,769	)			-				(30,769	)			(34,819	)			-				(34,819	)
Gain on settlement of consulting revenue receivable			-				133,500				133,500				-				133,500				133,500			1
Net income (loss)		$	40			$	(116,429	)		$	(116,389	)		$	(969,949	)		$	(116,429	)		$	(1,086,378	)
Net income (loss) per common share - basic and diluted		$	0.00							$	(0.00	)		$	(0.01	)						$	(0.02	)
Weighted average number of common shares outstanding during the period - basic and diluted			90,331,648								90,316,264				68,805,449								68,805,449
Comprehensive loss		$	(58,460	)		$	(116,429	)		$	(174,889	)		$	(1,028,449	)		$	(116,429	)		$	(1,144,878	)		1

 

 

		Three Months Ended												September 13, 2010 (Inception)
		February 29, 2012												to February 29, 2012
Consolidated Statement of Cash Flows		As Reported				Adjustments				Restated				As Reported				Adjustments				Restated				Notes
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)		$	40			$	(116,429	)		$	(116,389	)		$	(969,949	)		$	(116,429	)		$	(1,086,378	)		1
Available-for-sale securities received as consideration for consulting revenue			(253,500	)			133,500				(120,000	)			(253,500	)			133,500				(120,000	)		1
Gain on settlement of consulting revenue receivable			-				(133,500	)			(133,500	)			-				(133,500	)			(133,500	)		1
Deferred revenue			-				116,429				116,429				-				116,429				116,429			1
Net Cash Used In Operating Activities			(83,667	)			-				(83,667	)			(403,188	)			-				(403,188	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock			50,000				(50,000	)			-				373,390				(50,000	)			323,390			2
Proceeds from common stock to be issued			-				50,000				50,000				-				50,000				50,000			2
Net Cash Provided By Financing Activities			92,500				-				92,500				445,891				-				445,891

 

Notes:

 

1.

Adjustment to recognize revenue on a straight-line basis on (a) the $60,000 non-refundable fee paid upon execution of the consulting agreement over the term of the agreement and (b) the $60,000 first year consulting fee over the first year of the agreement.

 

2.

Adjustment to record common stock authorized but not yet issued.

 

 

BioPower Operations Corporation and Subsidiaries

(A Development Stage Company)

Notes to Consolidated Financial Statements

February 28, 2013

Unaudited

 

 

Note 3 Nature of Operations and Summary of Significant Accounting Policies

 

BioPower Corporation (“BioPower” 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 is a development stage company, has generated minimal revenues from a consulting agreement and anticipates minimal revenues until it begins marketing its products to customers.

 

On June 8, 2012, the Company's Chief Executive Officer contributed 100% of his member interest in FTZ Exchange, LLC, (“FTZ”) which became a 100% wholly subsidiary to the Company for no consideration. On the date of contribution, FTZ has a 50-50 joint venture, known as, the Qx Health Exchange (“QX”) and a wholly-owned subsidiary, called FTZ Energy Exchange Corporation, which intends to launch an energy exchange. FTZ is a licensing company which intends to use its business know-how to develop multiple distribution channels, known as exchanges, for the sale of various products and services. On the date of contribution, FTZ had a nominal net book value.

 

Principles of Consolidation

 

The accompanying unaudited interim consolidated financial statements include the accounts of BioPower and its wholly-owned and majority owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

 

Development Stage

 

The Company's unaudited interim consolidated financial statements are presented as those of a development stage enterprise. Activities during the development stage primarily include negotiating distribution agreements and marketing the territory for distribution outlets for the product. The Company, while seeking to implement its business plan, will look to obtain additional debt and/or equity related funding opportunities. The Company has not generated any revenues from its planned and principal operations since inception.

 

Risks and Uncertainties

 

The Company intends to operate in an industry that is subject to rapid change. The Company's operations will be subject to significant risk and uncertainties including financial, operational, technological, regulatory and other risks, including the potential risk of business failure. Also, see Note 4 regarding going concern matters.

 

Use of Estimates

 

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets at liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

 

Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the unaudited interim consolidated financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from our estimates.

 

Currently, the Company derives revenue from the consulting services provided to a third party. Revenue is recognized when the contract is signed, the fees are fixed and determinable, delivery of service has occurred, and collectability of the fees is considered probable. Consulting services are recognized ratably over the term of the agreement. Amounts billed to customers or payments received from customers prior to providing services and for which the related revenue recognition criteria have not been met are recorded as deferred revenue and recognized ratably as revenue over the term of the agreement.

 

 

BioPower Operations Corporation and Subsidiaries

(A Development Stage Company)

Notes to Consolidated Financial Statements

February 28, 2013

Unaudited

 

Cash

 

The Company considers all highly liquid instruments purchased with a maturity of three months or less and money market accounts to be cash equivalents. The Company had no cash equivalents at February 28, 2013 and November 30, 2012.

 

We minimize credit risk associated with cash by periodically evaluating the credit quality of our primary financial institutions. At times, our cash may be uninsured or in deposit accounts that exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance limit. On February 28, 2013 and November 30, 2012, our deposits did not exceed the FDIC limit.

 

Marketable Securities

 

At the time of acquisition, a security is designated as held-to-maturity, available-for-sale or trading, which depends on ability and intent to hold such security to maturity. Securities classified as trading and available-for-sale are reported at fair value, while securities classified as held-to-maturity are reported at amortized cost.

 

Marketable securities are composed of available-for-sale securities and are reported at fair value. Realized gains and losses on sales of investments are recognized in net income on the specific identification basis. Changes in the fair values of securities that are considered temporary are recorded as unrealized gains and losses in accumulated other comprehensive income (loss) within stockholders’ equity. Other-than-temporary declines in market value from original cost are reflected in operating income in the period in which the unrealized losses are deemed other than temporary. In order to determine whether other-than-temporary declines in market value have occurred, the duration of the decline in value and the Company’s ability to hold the investment are considered in conjunction with an evaluation of the strength of the underlying collateral and the extent to which the investment’s amortized cost or cost, as appropriate, exceeds its related market value. At February 28, 2013, no such impairments were recorded.

 

The following table summarizes marketable securities held at February 28, 2013 and November 30, 2012, all of which are classified as available-for-sale:

 

		Cost				Unrealized Loss				Fair Value
February 28, 2013
Common stock		$	76,050			$	61,650			$	14,400
Total available-for-sale securities		$	76,050			$	61,650			$	14,400

 

November 30, 2012
Common stock		$	76,050			$	37,800			$	38,250
Total available-for-sale securities		$	76,050			$	37,800			$	38,250

 

The Company did not realize any gains and/or losses on sales of investments during the three months ended February 28, 2013 and February 29, 2012, nor did it recognize any dividend or interest income during those same periods. The Company has a 100% concentration in one publicly traded stock.

  

Equipment

 

Equipment is stated at cost, less accumulated depreciation computed on a straight-line basis over the estimated useful lives. Maintenance and repairs are charged to operations when incurred.  Betterments and renewals are capitalized when deemed material.  When equipment is sold or otherwise disposed of, the asset account and related accumulated depreciation account are relieved, and any gain or loss is included in operations.

 

 

BioPower Operations Corporation and Subsidiaries

(A Development Stage Company)

Notes to Consolidated Financial Statements

February 28, 2013

Unaudited

 

Equipment is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  There were no impairment charges taken during the three months ended February 28, 2013.

 

Investment in Joint Venture

 

FTZ has entered into a Joint Venture with QX, a third party, to engage in the business of becoming an independent medical & health network for hospitals, physicians, outpatient and urgent care centers, dental care, vision care, insurance companies, alternative medicine, medical tourism, pharmaceutical companies, vendors and patients.

 

FTZ owns fifty percent of the QX joint venture and will record its investment on the equity basis of accounting. The Company’s proportionate share of expenses incurred by the Joint Venture will be charged to the statement of operations and adjusted against the Investment in Joint Venture. Losses from the Joint Venture are only recognized until the investment in the Joint Venture is reduced to zero. Losses in excess of the investment must be restored from future profits before the Company can recognize its proportionate share of profits.

 

As of February 28, 2013, the Joint Venture had no activity.

 

Convertible Instruments

 

We review all of our convertible instruments for the existence of an embedded conversion feature which may require bifurcation, if certain criteria are met. These criteria include circumstances in which:

 

a)

The economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract,

 

	b)	The hybrid instrument that embodies both the embedded derivative instrument and the host contract is not remeasured at fair value under otherwise applicable GAAP with changes in fair value reported in earnings as they occur, and
	c)	A separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument subject to certain requirements (except for when the host instrument is deemed to be conventional).

 

A bifurcated derivative financial instrument may be required to be recorded at fair value and adjusted to market at each reporting period end date, with any increase or decrease in the fair value being recorded in results of operations as an adjustment to fair value of derivatives. In addition, we may be required to classify certain stock equivalents issued in connection with the underlying debt instrument as derivative liabilities. In determining the appropriate fair value, the Company expects to use the Black-Scholes option-pricing model.

 

For convertible instruments that we have determined should not be bifurcated from their host instruments, we record discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their earliest date of redemption. 

 

In addition, we review all of our convertible instruments for the existence of a beneficial conversion feature. Upon the determination that a beneficial conversion feature exists, the relative fair value of the beneficial conversion feature would be recorded as a discount from the face amount of the respective debt instrument and the discount would be amortized to interest expense over the life of the debt.

 

Share-based payments

 

The Company recognizes all forms of share-based payments, including stock option grants, warrants, restricted stock grants and stock appreciation rights, at their fair value on the grant date, which are based on the estimated number of awards that are ultimately expected to vest.

 

 

BioPower Operations Corporation and Subsidiaries

(A Development Stage Company)

Notes to Consolidated Financial Statements

February 28, 2013

Unaudited

 

Share based payments, excluding restricted stock, are valued using a Black-Scholes option pricing model.  Share based payment awards issued to non-employees for services rendered are recorded at either the fair value of the services rendered or the fair value of the share-based payment, whichever is more readily determinable.

 

The grants are amortized on a straight-line basis over the requisite service periods, which is generally the vesting period. If an award is granted, but vesting does not occur, any previously recognized compensation cost is reversed in the period related to the termination of service.

 

Earnings per share

 

Basic earnings per share (“EPS”) is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding during the period, excluding the effects of any potentially dilutive securities. Diluted EPS gives effect to all dilutive potential of shares of common stock outstanding during the period including stock options or warrants, using the treasury stock method (by using the average stock price for the period to determine the number of shares assumed to be purchased from the exercise of stock options or warrants), and convertible debt or convertible preferred stock, using the if-converted method. Diluted EPS excludes all dilutive potential of shares of common stock if their effect is anti-dilutive.

 

The computation of basic and diluted loss per share for the three months ended February 28, 2013 and February 29, 2012, excludes the common stock equivalents of the following potentially dilutive securities because their inclusion would be anti-dilutive:

 

		February 28, 2013				February 29, 2012
Convertible debt ($25,000 at $0.05 per share)			500,000				-
Convertible debt – related party ($70,000 at $0.25 per share)			-				280,000
Total common stock equivalents			500,000				280,000

 

Recent Accounting Pronouncements

 

There are no new accounting pronouncements that are expected to have any material impact on the Company’s consolidated financial statements.

 

Note 4 Going Concern

 

As reflected in the accompanying consolidated financial statements, the Company had a net loss of $171,305 and net cash used in operations of $36,125 for the three months ended February 28, 2013; and a working capital deficit of $1,658,146 and a stockholders’ deficit of $1,648,201 at February 28, 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 accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern. 

 

 

BioPower Operations Corporation and Subsidiaries

(A Development Stage Company)

Notes to Consolidated Financial Statements

February 28, 2013

Unaudited

 

 

Note 5 Equipment

 

At February 28, 2013 and November 30, 2012, equipment consists of the following:

 

		2013				2012				Estimated Useful Life
Computer Equipment		$	27,760			$	27,760			5 years
Less: Accumulated depreciation			(10,368	)			(8,999	)
Equipment, net		$	17,392			$	18,761

 

Note 6 Notes Payable – Related Parties

 

(A) Year Ended November 30, 2010

 

During the year ended November 30, 2010, the Company’s Chief Executive Officer advanced $10,927. The loan bore interest at 4%, was unsecured and due on demand.

 

During the year ended November 30, 2010, a Company Director advanced $10,000. The loan bore interest at 4%, was unsecured and due on demand.

 

(B) Year Ended November 30, 2011

 

During the year ended November 30, 2011, a Company Director advanced $2,122. The loan bore interest at 4%, was unsecured and due on demand.

 

During the year ended November 30, 2011, the Company’s Chief Executive Officer advanced $832. The loan bore interest at 4%, was unsecured and due on demand.

 

As of November 30, 2011, the Company repaid all related party advances totaling $23,881.

 

(C) Year Ended November 30, 2012

 

During the year ended November 30, 2012, the Company’s Chief Executive Officer advanced $40,500. The loans bear interest at 4%, are unsecured and due on demand.

 

During the year ended November 30, 3012, the Company’s Chief Executive Officer advanced $1,592. The loan is non-interest bearing, unsecured and due on demand. As of November 30, 2012, the Company repaid $1,417 of the advance.

 

At February 28, 2013, total notes payable to related parties amounted to $40,675. Accrued interest at February 28, 2013 and November 30, 2012 amounted to $1,727 and $854, respectively, which is included as a component of accounts payable and accrued expenses – related parties. Interest expense on notes payable to related parties amounted to $400, $0, and $73,749 for the three months ended February 28, 2013, the three months ended February 29, 2012, and the period from September 13, 2010 (inception) to February 28, 2013, respectively.

 

Note 7 Notes Payable and Convertible Debt

 

(A) Year Ended November 30, 2011

 

During the year ended November 30 2011, the Company's former President/Chief Operating Officer advanced $30,000. The loans bear interest at 4%, are unsecured and due on demand. The lender may convert the loans into 120,000 restricted shares of the Company at $0.25 per share. The Company determined that these were conventional convertible debt, with a beneficial conversion feature. The loan was deemed to have a beneficial conversion feature because the fair value of the stock exceeded the effective conversion price embedded in the loan on the commitment date. Accordingly, the Company recorded the value of the beneficial conversion feature, which was determined to be $30,000, as a discount to the loan and a corresponding increase to additional paid in capital. The discount to the loan was fully amortized to interest expense during the year ended November 30, 2012. Prior to his resignation in August 2012, the loans were classified as notes payable – related party.

 

 

BioPower Operations Corporation and Subsidiaries

(A Development Stage Company)

Notes to Consolidated Financial Statements

February 28, 2013

Unaudited

 

The loans have been reflected as a note payable to a third party given the individual resigned from his position as of August of 2012 and has made a demand for payment. Given the Company’s inability to repay the note, the note is currently in default.

 

(B) Year Ended November 30, 2012

 

During the year ended November 30 2012, the Company’s former President/Chief Operating Officer advanced $40,000. The loans bear interest at 4%, are unsecured and due on demand. Originally, the lender had the option to convert the loan into 160,000 restricted shares of the Company at $0.25 per share. The loans have been reflected as a note payable to a third party given the individual resigned from his position as of August of 2012 and has made a demand for payment. Given the Company’s inability to repay the note, the note is currently in default.

 

During the year ended November 30 2012, a third party investor advanced $50,000 due on July 31, 2012. The loans bore interest at 4% and were unsecured. The lender could convert the loan into 200,000 restricted shares of the Company at $0.25 per share. On July 31, 2012, the notes maturity dates were extended until November 30, 2012. On October 18, 2012, the third party investor converted the loans into 200,000 restricted shares of the Company's common stock at $0.25/share. As of February 28, 2013, the 200,000 shares have not been issued and are included in common stock payable.

 

During June 2012, a third party investor advanced $1,000. The loan bore interest at 4%, was unsecured and due on demand. In June 2012, the Company repaid the advance of $1,000 to the third party investor.

 

During July 2012, a third party investor advanced $19,800. The loans bear interest at 4%, are unsecured and due on demand.

 

(C) Period Ended February 28, 2013

 

In January 2013, a third party investor advanced $25,000. The loan bears interest at 4%, is unsecured and due on demand. The lender may convert the loan into 500,000 restricted shares of the Company at $0.05 per share. The Company determined that the loan met the definition of a conventional convertible debt since the holder of the note can only realize the benefit of the conversion option by exercising it and receiving the entire amount of proceeds in a fixed number of shares or cash. The loan was deemed to have a beneficial conversion feature because the fair value of the stock exceeded the effective conversion price embedded in the loan on the commitment date. Accordingly, the Company recorded the value of the beneficial conversion feature, which was determined to be $25,000, as a discount to the loan and a corresponding increase to additional paid in capital. The amount was immediately recognized as interest expense since the loan is due on demand.

 

At February 28, 2013, notes payable to third parties amounted to $89,800. Accrued interest at February 28, 2013 and November 30, 2012 amounted to $3,875 and $3,674, respectively, which is included as a component of accounts payable and accrued expenses. Interest expense on notes payable to third parties amounted to $1,135 and $554 for the three months ended February 28, 2013 and February 29, 2012, respectively.

 

At February 28, 2013, convertible debt with third parties amounted to $25,000. Accrued interest at February 28, 2013 amounted to $1,011, which is included as a component of accounts payable and accrued expenses. Interest expense on convertible debt with third parties amounted to $77 for the three months ended February 28, 2013.

 

 

BioPower Operations Corporation and Subsidiaries

(A Development Stage Company)

Notes to Consolidated Financial Statements

February 28, 2013

Unaudited

 

 

Note 8 Stockholders’ Deficit

 

(A)

Preferred Stock

 

On January 28, 2011, the Company issued one share of Series A, preferred stock for $1. This series of preferred stock had a provision that the holder of the one share, a related party controlled by the Company’s Chief Executive Officer and a Director, can vote 50.1% of the total votes. There are no preferences, dividends, or conversion rights.

 

(B)

Common Stock

 

On September 13, 2010, the Company issued 10,000 shares of common stock to its founders for $1 ($0.0001/share). On January 5, 2011, in connection with the re-domiciling to Nevada, these shares were cancelled for no consideration.

 

In 2011, the Company issued the following shares for cash and services.

 

Type			Quantity				Valuation				Range of Value per share
Cash			40,330,000			$	318,910			$	0.0001 – 0.50
Cash – related parties			44,800,000				4,480			$	0.0001
License agreement (1)			1,000,000				250,000			$	0.25
Services rendered (2)			4,150,000				50,000			$	0.012
Total			90,280,000			$	623,390			$	0.0001 - 0.50

  

There were no shares issued during the year ended November 30, 2012.

 

The following represents the Company’s shares authorized for issuance as of February 28, 2013:

 

Type			Quantity				Valuation				Range of Value per share
Cash			200,000			$	50,000			$	0.25
Services rendered – related parties			50,000				11,000			$	0.22
Services rendered (3)			150,000				97,500			$	0.65
Debt conversion			200,000				50,000			$	0.25
Balance - November 30, 2012			600,000			$	208,500			$	0.65
Services rendered (3)			256,250				41,000			$	0.16
Balance - February 28, 2013 (4)			856,250			$	249,500			$	0.16 – 0.65

 

(1)

The value of the license agreement of $250,000, net of the accumulated amortization, was deemed to be impaired during the year ended November 30, 2012 and, accordingly, as of November 30, 2012, the Company recorded an impairment loss of $240,795 related to this license.

(2)

In connection with the stock issued for services rendered, the Company determined fair value based upon the value of the services provided, which was the most readily available evidence.

(3)

Fair value based upon the quoted closing market price of the Company’s common stock as of the authorized issuance date (date of grant).

(4)

The 856,250 shares are recorded as common stock payable because they have not been issued in connection with settling amounts due under contractual arrangements. Given these shares have not been issued; they are not included in earnings per share for the three months ended February 28, 2013 and February 29, 2012 and from September 13, 2010 (inception) to February 28, 2013.

 

(C)

Warrants

  

On January 11, 2011, the Company issued one year warrants for 1,000,000 shares with a consultant, with an exercise price of $1 per share. The warrants were granted for services rendered and had a fair value of $60,800. The warrants expired unexercised on January 11, 2012.

 

Note 9 Related Party Transactions

 

(A) License Agreement – Former Affiliate of Chief Executive Officer

 

On November 30, 2010, the Company entered into an exclusive license agreement with a company that is a former affiliate of the Company’s Chief Executive Officer. The license gives the Company the right to utilize Intellectual Property rights (“IP”) and technology licenses to produce high-density short rotation biomass energy crops on an exclusive basis in the United States, Central America, Mexico, and Guam in perpetuity.

 

If the former affiliate company charges a lesser percentage to another entity, then the first $50,000,000 will be decreased to the lowest percentage charged.

 

 

BioPower Operations Corporation and Subsidiaries

(A Development Stage Company)

Notes to Consolidated Financial Statements

February 28, 2013

Unaudited

 

 

(B) Other Related Party Transactions

 

The Company has separated accounts payable and accrued expenses on the balance sheet to reflect amounts due to related parties primarily consisting of officer compensation, health insurance, interest on notes and reimbursable expenses to officers for travel, meals and entertainment, vehicle and other related business expenses.

 

Note 10 Commitments and Contingencies

 

Employment Agreements – Officers and Directors

 

As of February 28, 2013, the Company has employment agreements with certain officers and directors (two individuals) containing the following provisions:

   

Term of contract		5 years
Salary		$125,000 - $200,000
Salary deferral		All salaries will be accrued until the Company has raised $2,500,000 (see Note 14)

 

Leases

 

The Company’s lease on its office space is due to expire on May 31, 2013. The Company is currently in negotiations with the landlord to renew the lease.

 

Contingencies

 

From time to time, The Company may be involved in legal matters arising in the ordinary course of business. While the Company believes that such matters are currently not material, there can be no assurance that matters arising in the ordinary course of business for which the Company is, or could be, involved in litigation, will not have a material adverse effect on its business, financial condition or results of operations. 

 

Note 11 Revenue – other

 

On February 13, 2012, the Company was engaged by a third party to provide consulting services in a three year contract for $60,000 per year plus a non-refundable $60,000 initial payment upon execution. The Company may earn fees in the form of cash or common stock of the third party, a public company, at their election. In lieu of cash payments for services to be rendered under the terms of the agreement, the third party elected to pay the Company 15,000,000 shares of public company restricted common stock, at a fifty percent discount using the preceding five days average trading price per the terms of the agreement. $120,000 was due upon execution of agreement. The fair value of the shares received upon the execution of this agreement was $253,500, as evidenced by the quoted closing trading price. The Company recorded the value of the shares received as deferred revenue totaling $120,000 which evidenced the fair value of the services to be performed and recorded a gain of $133,500, with a corresponding asset classified as available-for-sale securities. A gain was recorded since the value of the shares received was greater than the value of the services to be rendered upon the execution of the agreement.

 

In August 2012, the Company executed a loan agreement with a lender, who is also a shareholder, to obtain 10,000,000 free trading shares of the public company. The shares received were sold during 2012. In exchange for the free trading shares, the Company was required to repay 10,500,000 shares in free trading stock of this public company. The 500,000 shares are deemed to be a loan cost, having a fair value of $6,250 ($0.0125/share), based upon the quoted closing trading price on the date of the agreement.

  

During 2012, the Company, received 15,000,000 shares of the public company for services to be rendered and sold 10,000,000 shares as noted above based upon the ability to obtain the 10,000,000 shares of free trading stock from the lender. The 15,000,000 shares is currently held in escrow of which 4,500,000 shares will be released to the Company and the balance of the 10,500,000 shares will be paid to the shareholder for the 10,000,000 shares borrowed and the 500,000 shares for the loan cost as noted above upon the shares becoming unrestricted. The Company does not have any rights to the 10,500,000 shares. The Company has not recorded any asset or liability for the shares held in escrow.

    

 

BioPower Operations Corporation and Subsidiaries

(A Development Stage Company)

Notes to Consolidated Financial Statements

February 28, 2013

Unaudited

 

 

·

$60,000 is due on February 13, 2013; and

·

$60,000 is due on February 13, 2014

 

As of February 28, 2013, the Company has not received the second payment due of $60,000 under the contract. Although the contract has not been terminated by either party, collectability of this amount is not reasonably assured, therefore the Company has not recorded the related revenue, accounts receivable or deferred revenue associated with this amount as of February 28, 2013.  

 

Note 12 Investor Relations Agreement

 

On February 5, 2013, the Company entered into an investor relations agreement with a third party, pursuant to which the third party will provide certain investor relations services including, but not limited to, consulting and liaison services relating to the conception and implementation of its corporate and business development plan. The agreement is for a one-term term, commencing February 5, 2013 and is cancelable on a quarterly basis. The agreement does not contain a termination provision or clawback feature. In consideration for the services to be provided under the agreement, the Company shall issue 800,000 shares of the Company’s common stock in 4 certificates of 200,000 shares each, the first of which was delivered to the third party upon execution of the agreement. The remaining certificates will be delivered to the third party at the beginning of each quarter under the agreement. In addition to the shares, the Company shall pay the consultant $3,000 per month, in cash or stock, at the option of the Company. If the Company elects to pay the monthly fee in shares of the Company’s common stock, the number of shares to be issued will be calculated by dividing the fee owed by the closing price of the Company’s common stock. Shares delivered to the third party are considered to be vested on the date thereof. As of February 28, 2013, the Company agreed to issue 200,000 shares of its common stock due upon execution of the agreement and determined to pay the first quarter’s fee of $9,000 is stock, representing 56,250 shares of the Company’s common stock. The fair value of the 256,250 shares of common stock to be issued to the third party was $41,000, based upon the quoted closing trading price of the Company’s common stock as of the date of grant. The Company has recorded this amount as a prepaid expense and is amortizing the expense over the service term of three months. The Company recorded $13,667 during the three months ended February 28, 2013, as professional fees. Since the 256,250 shares of common stock have not been issued to the third party as of February 28, 2013, the Company has included the value of the shares of $41,000 in common stock payable in the accompanying consolidated balance sheet and has not included these shares in the earnings per share calculations as of February 28, 2013.

 

Note 13 Fair Value of Financial Assets and Liabilities

 

The Company measures assets and liabilities at fair value based on an expected exit price as defined by the authoritative guidance on fair value measurements, which represents the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level. The following are the hierarchical levels of inputs to measure fair value:

•

Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

 

•

Level 2: Inputs reflect: quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

 

•

Level 3: Unobservable inputs reflecting the Company’s assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.

 

The Company has assets measured at fair market value on a recurring basis. Consequently, the Company had gains and losses reported in the statement of comprehensive income (loss), that were attributable to the change in unrealized gains or losses relating to those assets still held at the reporting date for the period ended February 28, 2013.

 

 

BioPower Operations Corporation and Subsidiaries

(A Development Stage Company)

Notes to Consolidated Financial Statements

February 28, 2013

Unaudited

 

 

The following is the Company’s assets measured at fair value on a recurring basis at February 28, 2013 and November 30, 2012, using quoted prices in active markets for identical assets (Level 1); significant other observable inputs (Level 2); and significant unobservable inputs (Level 3):

 

		February 28, 2013				November 30, 2012
Level 1 – None		$	-			$	-
Level 2 – Marketable Securities			14,400				38,250
Level 3 – None			-				-
Total		$	14,400			$	38,250

 

 

The carrying amounts reported in the balance sheet for cash, available-for-sale securities, prepaid expenses, accounts payable and accrued expenses, notes payable, notes payable – related parties and convertible debt, approximate fair value based on the short-term nature of these instruments.

 

Note 14 Subsequent Events

 

On March 5, 2013, a third party investor advanced $125,000 to the Company. The advance is due on demand and bears interest at 8%.

 

On April 1, 2013, the Board of Directors approved an amendment to the employment agreements of its CEO and Director of Business Strategy, pursuant to which their salaries will continue to be accrued, but may be paid from available cash flow funds. Additionally, the Board of Directors approved an increase to the Director of Business Strategy’s salary to $200,000.

 

 

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 months ended February 28, 2013 and the three months ended February 29, 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 thePrivate 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 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. Further, we intend to license and create royalties by utilizing our FTZ Exchange subsidiary to help create exchanges.

 

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

 

We have been in discussions for a Castor project in South America with a landowner who would provide the land and financing for the project. The Company’s consultants have been to South America for initial review of the project and planned testing procedures. The discussions include the landowner setting up a special purpose entity wherein the initial investment of approximately $10 Million USD will be made by the landowner. The Company would receive certain fees and a percentage of profits. It is contemplated the growing tests will be completed by March 2014, and if successful, the project would commence. There can be no assurance that the South American Castor project tests will be successful and that we will ever commence the project or be profitable.

 

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 February 28, 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 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, 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 Months Ended February 28, 2013 Compared to the Three Months Ended February 29, 2012

 

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, 2013				February 29, 2012				(Dollars)				(Percentage)
							(restated)
Expenses
General and administrative expenses		$	162,015			$	222,691			$	(60,676	)			-27.2	%
Other Income (Expense)
Interest expense			(26,212	)			(30,769	)			4,557				-14.8	%
Interest expense - related party			(400	)			-				(400	)			-100.0	%
Gain on settlement of consulting revenue receivable			-				133,500				(133,500	)			-100.0	%
Consulting revenue			17,322				3,571				13,751				385.1	%
Total Other Expense - net			(9,290	)			106,302				(115,592	)			-108.7	%
Net loss		$	(171,305	)		$	(116,389	)		$	(54,916	)			47.2	%

  

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 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 2012. Additionally, insurance expense decreased during the three months ended February 28, 2013 as a result of not renewing our directors’ and officers’ liability insurance.

 

Interest Expense. Interest expense for the three months ended February 28, 2013 and February 29, 2012 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.

 

 

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 February 28, 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.

 

Consulting Revenue. During the three months ended February 28, 2013 and February 29, 2012, the Company recognized $17,322 and $3,571, respectively, in consulting revenue related to the consulting agreement entered into with a third party in February 2012.

 

Liquidity and Financial Condition

 

		Three Months Ended
		February 28,				February 29,
Category		2013				2012
Net cash used in operating activities		$	(36,125	)		$	(83,667	)
Net cash provided (used) in investing activities			-				-
Net cash provided by financing activities			25,000				92,500
Net (decrease) increase in cash		$	(11,125	)		$	8,833

 

Cash Flows from Operating Activities

 

Net cash used in operating activities was $36,125 for the three month period ended February 28, 2013, compared with net cash used of $83,667 for the comparable period in 2012. 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. Net cash used in operating activities for the three months ended February 29, 2012 is mainly attributable to our net loss of $116,389, 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 an increase in accounts payable and accrued expenses due to related parties and an increase in deferred revenue.

 

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, 2013 cash flows provided by financing activities was $25,000, compared to $92,500 for the comparable period in 2012. We received $25,000 in proceeds from convertible debt with a third party during the three months ended February 28, 2013, compared to $40,000 in proceeds from convertible debt with related parties and $50,000 in proceeds from common stock to be issued during the three months ended February 29, 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 February 28, 2013, the Company had cash of $5,831 and current liabilities of $1,706,128.  Our current liabilities include accounts payable and accrued expenses to related parties of $856,830. Our operations used $597,835 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 $171,305 and net cash used in operations of $36,125 for the three months ended February 28, 2013; and a working capital deficit of $1,658,146 and a deficit accumulated during the development stage of $2,415,742 at February 28, 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 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.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

This item is not applicable to smaller reporting companies.

 

ITEM 4. CONTROLS AND PROCEDURES.

 

Evaluation of Disclosure Controls and Procedures

 

Our management, under the supervision and with the participation of our Chief Executive Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of February 28, 2013, the end of the period covered by this report. In connection with this evaluation, management identified a material weakness in our internal controls as of February 28, 2013. Specifically, the lack of technical resources to apply accounting requirements as they relate to non-routine and complex transactions, resulted in restatements to our financial statements as previously filed on Form 10-Q for the periods ended February 29, May 31 and August 31, 2012. The adjustments related to the recognition of consulting services revenue and common stock authorized but not issued. Based on this material weakness, management concluded that our disclosure controls and procedures were not effective as of February 28, 2013.

 

Changes in Internal Control Over Financial Reporting

 

There have not been any significant changes in our internal control over financial reporting during the fiscal quarter ended February 28, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. The material weakness associated with the financial reporting relating to the recognition of consulting services revenue and common stock authorized but issued discussed above was subsequently identified and resulted in remediation activities subsequent to February 28, 2013.

 

Remediation of a Material Weakness in Internal Control Over Financial Reporting

 

We recognize the importance of the control environment as it sets the overall tone for the organization and is the foundation for all other components of internal control. Consequently, we designed and implemented remediation measures to address the material weakness and enhance our internal control over financial reporting. The following actions, which we believe have remediated the material weakness in internal control over financial reporting, were completed as of the date of this filing:

 

·

We retained accounting and consulting personnel with the appropriate level of knowledge, skills and experience in financial accounting and reporting;

 

·

We have examined significant accounts and improved related account reconciliations; and

 

·

We changed our monitoring practices concerning the review of significant accounts and transactions and related financial results and reporting.

 

We are committed to a strong internal control environment and will continue to review the effectiveness of our internal controls over financial reporting and other disclosure controls and procedures. As we continue to evaluate and work to improve our internal control over financial reporting, management may determine to take additional measures.

 

 

PART II – OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS.

 

From time to time, we are a party to, or otherwise involved in, legal proceedings arising in the normal and ordinary course of business. As of the date of this report, we are not aware of any proceeding, threatened or pending, against us which, if determined adversely, would have a material effect on our business, results of operations, cash flows or financial position.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION.

 

None.

 

ITEM 6. EXHIBITS.

 

The following exhibits are being filed as part of this Quarterly Report on Form 10-Q.

 

 

Exhibit
Number		Exhibit Description
31.1		Certification of Chief Executive Officer pursuant to Securities Exchange Act of 1934 Rule 13a-14(a) or 15d- 14(a)
32.1		Certification of Chief Executive Officer pursuant to Securities Exchange Act of 1934 Rule 13a-14(b) or 15d- 14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*		XBRL Instance Document
101.SCH*		XBRL Taxonomy Extension Schema Document
101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document

 

 

101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*		XBRL Taxonomy Extension Label Linkbase Document
101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document

 

* Attached as Exhibit 101 to this report are the Company’s financial statements for the quarter ended February 28, 2013 formatted in XBRL (eXtensible Business Reporting Language).  The XBRL-related information in Exhibit 101 to this report shall not be deemed “filed” or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, and is not filed for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liabilities of those sections.

 

Copies of this report (including the financial statements) and any of the exhibits referred to above will be furnished at no cost to our shareholders who make a written request to BioPower Operations Corp., 1000 Corporate Drive, Suite 200, Fort Lauderdale, Florida 33334 Attention: Mr. Robert Kohn.

 

  

SIGNATURES 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Dated: April 15, 2013	BioPower Operations Corporation
	By:	/s/ Robert D. Kohn
		Robert D. Kohn, Chairman and Chief Executive Officer and Chief Financial Officer