Quarterly Report (10-q)

 

 

 

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 29, 2016

 

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

 

For the quarterly period ended February 29, 2016

 

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: [phone]

 

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 [X] 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 [  ] No [X]

 

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 20, 2016, there were 50,107,680 shares outstanding including 8,000,000 shares authorized to be issued of the registrant’s common stock, par value $0.0001.

 

 

 

 

BIOPOWER OPERATIONS CORPORATION

 

CONTENTS

 

		Page
PART I.	FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS	4
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	13
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	17
ITEM 4.	CONTROLS AND PROCEDURES	17
PART II.	OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS	18
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	18
ITEM 3.	DEFAULT UPON SENIOR SECURITIES	18
ITEM 4.	MINE SAFETY DISCLOSURES	18
ITEM 5.	OTHER INFORMATION	18
ITEM 6.	EXHIBITS	18
SIGNATURES		19
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

 

2

 

CONTENTS

 

	Page
Consolidated Balance Sheets as of February 29, 2016 (unaudited) and November 30, 2015	4
Consolidated Statements of Operations and Comprehensive Loss for the three months ended February 29, 2016 and February 28, 2015 (unaudited)	5
Consolidated Statements of Cash Flows for the three months ended February 29, 2016 and February 28, 2015 (unaudited)	6
Notes to Consolidated Financial Statements (unaudited)	7-12

 

3

 

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

 

BioPower Operations Corporation and Subsidiaries

(A Development Stage Company)

Consolidated Balance Sheets

 

		February 29, 2016				November 30, 2015
		(Unaudited)
Assets
Current Assets
Cash		$	215			$	1,281
Prepaid expenses			2,825				12,708
Total Current Assets			3,040				13,989
Equipment - net			9,219				10,876
Security deposit			6,937				6,937
			16,156				17,813
Total Assets		$	19,196			$	31,802
Liabilities and Stockholders’ Deficit
Current Liabilities
Accounts payable and accrued expenses		$	432,818			$	435,567
Accounts payable and accrued expenses - related parties			3,482,387				3,043,282
Derivative liability			26,116				60,356
Notes payable			137,500				132,500
Notes payable - related parties			525				525
Convertible debt, net of discount of $28,993			164,038				189,366
Convertible debt - related parties, net of discount of $4,873			161,075				44,394
Total Current Liabilities			4,404,459				3,905,990
Total Liabilities			4,404,459				3,905,990
Stockholders’ Deficit
Preferred stock, $1 par value; 10,000 shares authorized; 1 share issued and outstanding			1				1
Common stock, $0.0001 par value, 100,000,000 shares authorized; 47,107,680 and 42,107,680 shares issued and outstanding			4,712				4,212
Additional paid-in capital			4,520,979				4,013,145
Deficit accumulated during the development stage			(8,910,955	)			(7,891,546	)
Total Stockholders’ Deficit			(4,385,263	)			(3,874,188	)
Total Liabilities and Stockholders’ Deficit		$	19,196			$	31,802

 

See accompanying notes to unaudited consolidated financial statements

 

4

 

 

BioPower Operations Corporation and Subsidiaries

(A Development Stage Company)

Consolidated Statements of Operations and Comprehensive Loss

( Unaudited )

 

		Three Months Ended
		February 29, 2016				February 28, 2015
General and administrative expenses		$	986,675			$	248,385
Other income (expense)
Interest expense			(49,199	)			(3,926	)
Interest expense - related party			(17,775	)			(2,082	)
Gain on derivatives			34,240				-
Total other income (expense) - net			(32,734	)			(6,008	)
Net loss		$	(1,019,409	)		$	(254,393	)
Net loss per common share - basic and diluted		$	(0.02	)		$	(0.01	)
Weighted average number of common shares outstanding during the period - basic and diluted			42,382,401				41,371,465
Comprehensive loss
Net loss		$	(1,019,409	)		$	(254,393	)
Comprehensive loss		$	(1,019,409	)		$	(254,393	)

 

See accompanying notes to unaudited consolidated financial statements

 

5

 

BioPower Operations Corporation and Subsidiaries

(A Development Stage Company)

Consolidated Statements of Cash Flows

(Unaudited)

 

		Three Months Ended February,
		2016				2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(1,019,409	)		$	(254,393	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation			1,657				3,085
Stock-based compensation expense			500,000				-
Amortization of debt discount			58,187				1,667
(Gain) loss on derivatives			(34,240	)			-
Changes in operating assets and liabilities:
Prepaid expenses			9,883				614
Accounts payable and accrued expenses			13,751				(1,274	)
Accounts payable and accrued expenses - related parties			439,105				191,496
Net Cash Used In Operating Activities			(31,066	)			(58,805	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment			-				-
Net Cash Provided By Investing Activities			-				-
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from convertible debt - related parties			25,000				7,500
Proceeds from notes payable			5,000				-
Repayment notes payable - related parties			-				(850	)
Proceeds from issuance of common stock			-				60,000
Net Cash Provided By Financing Activities			30,000				66,650
Net (Decrease) Increase in Cash			(1,066	)			7,845
Cash - Beginning of Period			1,281				15,118
Cash - End of Period		$	215			$	22,963
SUPPLEMENTARY CASH FLOW INFORMATION:
Cash Paid During the Period for:
Income Taxes		$	-			$	-
Interest		$	-			$	-
SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Common stock issued for conversion of notes payable		$	-			$	-
Debt discount recorded on convertible debt			-				5,000
Debt discount recorded on convertible debt - related party			8,333				5,000
Reclassification of note payable from convertible to non convertible			-				62,500
Reclassification of related note payable from non convertible to convertible			-				7,500
Convertible debt borrowed to settle AP			16,500				-

 

See accompanying notes to unaudited consolidated financial statements

 

6

 

BioPower Operations Corporation and Subsidiaries

(A Development Stage Company)

Notes to Consolidated Financial Statements

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 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, 2015 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, 2015 and 2014. The financial information as of February 29, 2016 is derived from the audited financial statements presented in our Annual Report on Form 10-K for the year ended November 30, 2015. The interim results for the three months ended February 29, 2016 are not necessarily indicative of the results to be expected for the year ending November 30, 2016 or for any future interim periods.

  

Derivative Liabilities

 

Fair Value of Financial Instruments

 

The Company’s financial instruments consist of cash and cash equivalents, accounts payable and accrued expenses and shareholder loans. The carrying amount of these financial instruments approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in these financial statements.

 

Financial assets and liabilities recorded at fair value in our balance sheets are categorized based upon a fair value hierarchy established by GAAP, which prioritizes the inputs used to measure fair value into the following levels:

 

Fair Value of Financial Instruments

 

Level 1— Quoted market prices in active markets for identical assets or liabilities at the measurement date.

Level 2— Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable and can be corroborated by observable market data.

Level 3— Inputs reflecting management’s best estimates and assumptions of what market participants would use in pricing assets or liabilities at the measurement date. The inputs are unobservable in the market and significant to the valuation of the instruments.

 

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

 

Financial assets and liabilities measured at fair value on a recurring basis are summarized below for the quarter ended February 29, 2016

 

		Level 1				Level 2				Level 3				Total
Assets
Securities -available for sale		$	-			$	-			$	-			$	-
Liabilities
Derivative Financial Instruments		$	-			$	-			$	26,116			$	26,116

  

The following table presents details of the Company’s level 3 derivative liabilities as of February 29, 2016 and November 30, 2015:

 

		Amount
Balance November 30, 2015		$	60,356
Change in fair market value of derivative liabilities			(34,240	)
Balance February 29, 2016		$	26,116

 

7

 

BioPower Operations Corporation and Subsidiaries

Notes to Consolidated Financial Statements

February 29, 2016

Unaudited

 

Note 2. Going Concern

 

As reflected in the accompanying consolidated financial statements, the Company had a net loss of $1,019,409 and $254,393, for the three months ended February 29, 2016 and February 28, 2015, respectively, and net cash used in operations of $31,066 and $58,805 for the three months ended February 29, 2016 and February 28, 2015, respectively. Additionally, the Company had a working capital deficit of $4,401,419, for the three months ended February 29, 2016 and a stockholders’ deficit of $4,385,263 at February 29, 2016. 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.

 

Note 3. Equipment

 

At February 29, 2016 and February 28, 2015, equipment consists of the following:

 

		2016				2015				Estimated Useful Life
Computer Equipment		$	36,800			$	27,760			5 years
Testing Equipment			-				20,366			3 years
Less: Accumulated depreciation			(27,581	)			(29,977	)
Equipment, net		$	9,219			$	18,149

 

Depreciation expense was $1,657 and $3,085 for the three months ended February 29, 2016 and February 28, 2015, respectively.

  

Note 4. Notes Payable and Convertible Debt

 

Notes payable consists of the following: 

 

		Balance				Interest Rate				Maturity
Balance – November 30, 2015		$	132,500				8	%			Various
Borrowings			5,000				8	%			June 30, 2016
Balance – February 29, 2016		$	137,500

  

In January, 2016 a third party investor advanced $5,000, at 8% interest, which is due on June 30, 2016.

 

Convertible debt consists of the following:

 

		Balance				Interest Rate				Maturity				Conversion Price
Balance – November 30, 2015		$	189,366				8	%			Various				In Default
Reclass non related to related			(74,778	)			8	%			December 30, 2015				0.15
Debt Discount			49,120
Balance – February 29, 2016		$	164,038

 

8

 

BioPower Operations Corporation and Subsidiaries

Notes to Consolidated Financial Statements

February 29, 2016

Unaudited

 

Accrued interest on notes payable and convertible debt at February 29, 2016 and November 30, 2015 amounted to $27,343 and $23,316, respectively, which is included as a component of accounts payable and accrued expenses.

 

Interest expense on notes payable and convertible debt with third parties amounted to $49,199 and $3,926 for the three months ended February 29, 2016 and February 28, 2015, respectively.

 

Note 5. Related Party Transactions

 

Notes payable to related parties at February 29, 2016 and November 30, 2015 is $525 and $525, respectively. Convertible notes payable to related parties at February 29, 2016 and November 30, 2015 is $50,000 and $44,394, respectively.

 

On December 15, 2015 a related party investor advanced $25,000 due on or before June 15, 2016. Pursuant to the agreement, the investor is allowed to convert 100% of the debt at a share price of $0.15. The company accounted for the conversion of loan in accordance with ASC 470, “Debt with Conversion and Other Options”. 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 $8,333 as a discount to the loan and a corresponding increase to additional paid in capital.

 

On February 18, 2016 a related party investor advanced $16,500 due on or before June 17, 2016. Pursuant to the agreement, the investor is allowed to convert 100% of the debt at a share price of $0.15. The company accounted for the conversion of loan in accordance with ASC 470, “Debt with Conversion and Other Options”. The fair market value of the shares on February 18, 2016 was $0.10 per share and accordingly deemed to have no Beneficial Conversion Factor.

 

Accrued interest on related party notes payable and convertible debt at February 29, 2016 and November 30, 2015, amounted to $9,464 and $4,250, respectively and is a component of accounts payable and accrued expenses – related parties.

 

Interest expense on notes payable and convertible debt with related parties amounted to $17,775 and $2,082 for the three months ended February 29, 2016 and February 28, 2015, respectively.  

 

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 6. Derivative Liabilities

 

On July 23, 2015, the Company entered into a convertible loan agreement with an investor. The Company received a total of $50,000 which bears interest at 8% per annum and is due on December 30, 2016. Interest shall accrue from the advancement date and shall be payable on December 30, 2016. Any portion of the loan and unpaid interest are convertible at any time at the option of the lender into shares of common stock of the Company at a conversion price of $0.15 per share. If an equity transaction occurs at a price below $0.15, then the conversion price will adjust to such price.

 

On this date of issuance, the Company recorded a debt discount in the amount of $50,000 in connection with the initial valuation of the derivative liability of the note to be amortized utilizing the effective interest method of accretion over the term of the note. Further, the Company recognized a derivative liability of $111,074 and initial loss on derivative liability of $61,074 based on the Black Scholes pricing model. As of February 29, 2016, $21,007 of the debt discount has been amortized. The fair value of the derivative liability at February 29, 2016 is $26,116 resulting in a gain on the change in fair value of the derivative of $34,240. The Note is shown net of a derivative debt discount of $28,993 at February 29, 2016. (See Note 4 –Convertible Debt).

 

9

 

BioPower Operations Corporation and Subsidiaries

Notes to Consolidated Financial Statements

February 29, 2016

Unaudited

 

Since equity classification is not available for the conversion feature, we were required to bifurcate the embedded conversion feature and carry it as a derivative liability, at fair value. Derivative financial instrument is carried initially and subsequently at its fair values.

 

We estimated the fair value of the derivative on the inception date, and subsequently, using the Black-Scholes valuation technique, adjusted for the effect of dilution, because that technique embodies all of the assumptions (including, volatility, expected terms, and risk free rates) that are necessary to fair value complex derivate instruments.

 

As a result of the application of ASC No. 815 in period ended February 29, 2016 the fair value of the conversion feature is summarized as follows:

 

		Amount
Balance November 30, 2015		$	60,356
Change in fair market value of derivative liabilities			(34,240	)
Balance February 29, 2016		$	26,116

 

The fair value at the commitment and re-measurement dates for the Company’s derivative liabilities were based upon the following management assumptions as of February 29, 2016 and commitment date:

 

10

 

BioPower Operations Corporation and Subsidiaries

Notes to Consolidated Financial Statements

February 29, 2016

Unaudited

 

		Commitment Date				February 29, 2016
Expected dividends			-				-
Expected volatility			296.84	%			293.61	%
Expect term			1.44				.84
Risk free interest rate			0.33	%			0.62	%

  

Note 7. Stockholders’ Deficit

 

For the three months ended February 29, 2016:

 

On February 24, 2016, the Board of Directors approved the following stock compensation because of the Company not making any cash payments toward salary during the year ended November 30, 2015. The stock compensation is to be paid by November 30, 2016 provided the Company has revenues from operations that can provide for the taxes due for the stock compensation, or the stock will be returned to the Company. The stock will be issued and held by the Transfer Agent until November 30, 2016 and then returned to the Company or distributed to the employee. The employee has the option to pay the Company for the employer taxes due and their own taxes due for the stock compensation on or before November 30, 2016.

 

The company fair valued these shares as of the date of issuance and recorded $500,000 stock-based compensation for the three months ended February 29, 2016.

 

Dr. Neil Williams, CEO G3P		2,000,000		common stock shares
Robert Kohn, CEO BioPower		1,250,000		common stock shares
Bonnie Nelson, Director of Strategy		1,250,000		common stock shares
Benjamin Williams, Sr. Vice President		500,000		common stock shares
Total		5,000,000		common stock shares

 

There are 47,107,680 and 42,107,680 shares outstanding at February 29, 2016 and November 30, 2015, respectively.

  

Note 8. Commitments and Contingencies

 

Commitments

 

Employment Agreements – Officers and Directors

  

As of November 30, 2014, the Company had employment agreements with certain officers and directors (two individuals) containing the following provisions:

 

	Term of contract		4 years, expiring on November 30, 2018
	Salary		$275,000 commencing December 1, 2014
	Salary deferral		All salaries will be accrued but may be paid from the Company’s available cash flow funds.

 

Annual Salaries:

 

Name		Starting Dec. 1, 2014				2014-15				2015-2016				2016-2017
Robert Kohn						$	275,000			$	325,000			$	375,000
Bonnie Nelson						$	275,000			$	325,000			$	375,000

 

The accrued officers and directors payroll at February 29, 2016 is $2,156,082.

 

11

 

BioPower Operations Corporation and Subsidiaries

Notes to Consolidated Financial Statements

February 29, 2016

Unaudited

 

Lease Agreement

 

On June 3, 2013, the Company entered into a new lease agreement with its current landlord. The lease is for a 24 month period, expiring on May 31, 2015 , and requires monthly base rental payments of $ 4,000 for the period from June 1, 2013 through May 31, 2014 and $ 4,080 for the period from June 1, 2014 through May 31, 2015 plus adjustments for Common Area Expenses. On May 29, 2015, the Company Amended the lease agreement extending it for an additional 12 month period, expiring May 31, 2016, and requiring monthly base rental payments of $4,583 plus adjustments for Common Area Expenses.

 

Rent expense was $14,336 and $12,821 for the three months ended February 29, 2016 and February 28, 2015, respectively.

 

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 9. Subsequent Events

 

On March 2, 2016, Mr. Baruch Halpern joined the Company as Chief Operating Officer. For more than 20 years, Mr. Halpern has been involved in equity research, advisory, capital raises, and has served as managing director of Halpern Capital, Inc., a boutique investment banking firm founded by Mr. Halpern in 2002. He has also held senior finance positions at major corporations. Since 2009, Mr. Halpern has been managing director of CrossCredit Capital, LLC, a firm focused on structured financial solutions, and since 2010 he has been managing director of Carbon Capital Advisors, LLC, a firm focused on green energy and carbon footprint amelioration. He is a founder of Sustain:Green, a firm founded in 2012 offering financial products such as prepaid debit and credit cards designed to fight climate change. Prior to founding Halpern Capital in 2002, Mr. Halpern held various sell-side analyst positions. Additionally, he gained substantial buy-side experience as vice president and portfolio manager at Fred Alger & Co., an investment advisory firm. At Fred Alger & Co., Mr. Halpern served as a research group leader, managing a $1 billion portfolio with more than 600 companies in a broad range of industries. Mr. Halpern has an extensive corporate and industry background, having also held positions with Celanese Corporation and Beech-Nut, Inc. He has served as a Director of RiceBran Technologies (NASDAQ: RIBT) since 2012. Mr. Halpern received his masters of business administration in finance from Baruch College. Mr. Halpern has been a CFA Charter holder since 1982 and holds numerous FINRA certifications.

 

As part of Mr. Halpern’s Employment Contract, the Company authorized the issuance of 3,000,000 shares of its common stock to remain in the possession of the Transfer Agent for one year. The 3,000,000 common shares will be released to Mr. Halpern after one year as long as he does not voluntarily resign. At that time a standard two-year lock-up agreement will also be executed. If Mr. Halpern voluntarily resigns before his first anniversary, there will be a claw-back of 2,250,000 common shares and Mr. Halpern will be issued the remaining 750,000 common shares with a two-year lock-up agreement.

 

On March 2, 2016, Mr. Halpern also loaned the Company $100,000 and entered into a convertible debt agreement at 8% interest, due on March 2, 2018. The debt is convertible into common shares of stock at a conversion price of $0.15 per share. The loan includes a provision for matching future conversion rights with any new loans made by the Company with the exception of a Right of First Refusal. In addition, if an equity transaction is done at a price below $0.15 then the conversion price will adjust to such price.

 

On March 11, 2016 we finalized an agreement awarding G3P a well installation and abandonment project in the amount of $17,800 to install and abandon monitoring wells and write the reports for Broward County. G3P hired a sub-contractor to install the wells. G3P completed the work on March 26, 2016.

 

On April 8, 2016 we finalized two agreements awarding G3P a waste remediation project for $458,525 to design and construct a methane gas mitigation system including soil preparation. G3P has begun work on the project and will be responsible for the design, procurement, and construction of the System. G3P is partnering with a construction company to complete the project. The project is expected to be completed by our fiscal third quarter, 2016.

 

12

 

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, 2015 (our “2015 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 2014 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 29, 2015 and February 28, 2014. 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 2015 Annual Report.

 

Throughout this Quarterly Report, the terms “we,” “us” and “our” refers to BioPower Operations Corporation and, Unless the context otherwise requires, The “Company”, “we,” “us,” and “our,” refer to (i) BioPower Operations Corporation.; (ii) BioPower Corporation (“BC”), Green ³ Power Holdings Company and its subsidiaries (“G ³ P”), and FTZ Energy Corporation. Unless otherwise indicated, all monetary amounts are reflected in United States Dollars.

 

OVERVIEW

 

From inception (September 13, 2010) to November 30, 2014, the Company focused on growing biomass crops coupled with the project development of processing and/or conversion facilities to produce oils, biofuels, electricity and other biomass products. We also intended to utilize licensed patented technology to convert biomass wastes into products and reduce the amount of waste going to landfills. We are organized as a holding company. On October 24, 2014, the Company executed a Share Exchange Agreement with Green3Power Holdings Company (“G3P”) to acquire G3P and its wholly-owned subsidiaries Green3Power Operations Inc., a Delaware corporation (“G3P OPS”) and Green3Power International Company, a Nevis Corporation (“G3PI”), which are wholly-owned subsidiaries of the Company. This transaction was a stock for stock exchange, (See Share exchange Agreement). We conduct all of our operations through Green3Power Holdings Company and their subsidiaries which are primarily engaged in the development of Renewable Waste-to-Energy (WtE) Facilities using their unique turnkey exclusive global license to the gasification technology to convert wastes into electricity and ultra-low sulfur renewable fuels. G3P intends to design, permit, procure equipment, manage construction and provide operations and maintenance of the intended facilities. We intend to hold equity interests in the waste-to-energy facilities on a global basis.

 

We will also provide waste remediation services on a global basis. Remediation waste is defined in 40 Code of Federal Regulations (CFR) 260.10 as “all solid and hazardous wastes, and all media (including groundwater, surface water, soils, and sediments) and debris, that are managed for implementing cleanup.”

 

On August 4, 2015 the St. Lucie County Commissioners approved the contract and its revisions with G3P to build a $175 Million Renewable Energy Facility on the St. Lucie County, Florida landfill using the G3P Gasification Technology. The contract provides for a 20 year waste stream of 1,000 tons per day of municipal solid waste, construction and demolition waste, green waste and tires. The facility will convert the waste into approximately 60,000 gallons per day of ultra-low sulfur renewable synthetic fuel and 20,000 gallons of Naptha. Vanderweil Engineers and G3P have completed the Site Plan and are putting together the necessary documentation for permit applications. There can be no assurance that G3P will successfully fund the $175 Million facility.

 

Strategy

 

Our mission is to provide waste and energy solutions on a global basis. We intend to do this through a variety of service offerings, including partially owning and operating and maintaining facilities for the conversion of waste to energy (known as “Waste-to-Energy” or “WtE”). Waste-to-Energy serves two key markets as both an on-going waste management solution that is environmentally superior to landfilling and as a source of clean energy that reduces overall greenhouse gas emissions.

 

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We intend to use the following key strategies:

 

● Our exclusively licensed gasification technology can convert a variety of wastes into electricity or ultra-low sulfur, renewable synthetic fuel. The technology is modular and built to handle approximately 300 to 400 tons per day of waste per line of equipment. We can only use up to twelve (12) lines of equipment at a facility location because of the constraints of truck traffic per location. Because our licensed gasification is built in a series of lines, we are able to service and maintain the lines and systems while operating the facilities continuously.

 

● The Company intends to earn revenues from design, engineering, permitting, operations and maintenance fees and may also earn procurement fees from WtE projects.

 

● We have strategically aligned with Vanderweil Engineers to develop WtE facilities in the United States and internationally. Vanderweil has been in business since 1950 and its Power Engineering group is expert at developing, designing, engineering and permitting power generation facilities worldwide.

 

● The Company intends to maintain an equity interest of between twenty percent (20%) to one hundred percent (100%) in each of its developed projects.

 

● We have partnered and will partner with project development groups globally who have been in different stages of development of WtE projects.

 

● We intend to maximize the long-term value of WtE facilities by adding waste and off-take energy contracts, seeking incremental revenue opportunities and deploying new or improved technologies, systems and processes targeted at increasing revenue and reducing costs.

 

● We seek to grow primarily through the development of new facilities selected in markets where we believe that the tipping fees and off-take agreements will enable us to secure funding for the projects. We believe that our approach to these opportunities is highly-disciplined, both with regard to our required rates of return, necessary contract elements, regulatory issues and the manner in which potential new projects will be structured and financed.

 

● We intend to provide waste remediation services on a global basis by working with local contractors.

  

Our corporate headquarters are located at 1000 Corporate Drive, Suite 200, Fort Lauderdale, Florida 33334 and our phone number is [phone]. Our website can be found at www.wtepower.com. The information on our website is not incorporated in this report. 

 

Our Business

 

Our Waste-to-Energy Business

 

The WtE facilities we intend to build may earn revenue from the following potential revenue streams:

 

Prior to the start-up of the facility:

 

●	Design fees
●	Engineering fees
●	Permitting fees
●	Procurement of equipment fees (usually 10% of the cost of equipment)
●	Management of construction fees

   

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We will always have an Operations and Maintenance Agreement to operate and maintain the facility for a minimum of fifteen years, for each facility using our technology, with or without ownership in the facility.

 

After the start-up of a facility if we are an equity owner in the facility, we may earn:

 

●	Tipping fees from the disposal and processing of each ton of waste – Waste Agreement usually twenty to thirty years; and
●	Sale of electricity – Power Purchase Agreement (PPA) usually twenty to thirty years; or
●	Sale of ultra-low sulfur renewable synthetic fuel (usually one year renewable to fifteen year);
●	Recyclables recovered during the WtE process;
●	Carbon credits, if available;
●	RINS – Renewable Identification Number under the Renewable Fuel Standard Program, good until 2022 and in California to 2033.

  

In order to finance projects through traditional project finance, long-term contracts (off-take agreements) need to be executed for the sale of electricity or fuels in combination with a waste contract. There can be no assurance we will ever fund a facility, bring the development of a WtE facility into operation, partially own a WtE facility or operate and maintain a WtE facility.

 

Licensed Technology

 

Green ³ Power Holdings Company – Licensed gasification technology for Waste-to-Energy Conversion

 

G ³ P has an exclusive global License for the use of the technologies and processes for building gasification facilities to convert wastes into electricity and ultra-low sulfur renewable synthetic fuels. Once the royalties paid for the use of these technologies equal $10,000,000, G ³ P will then own 100% of the technologies and processes without any further license fees. The initial license fees are paid based on a one-time fee and then a royalty is paid generally based on the gross revenues of the facilities and their waste conversion operations using the gasification technologies and processes.

 

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 Note 1 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, 2015, 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 29, 2016 Compared to the Three Months Ended February 28, 2015

 

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 29, 2016				February 28, 2015				(Dollars)				(Percentage)
Expenses
General and administrative expenses		$	986,675			$	248,385			$	738,290				297.2	%
Other Income (Expense)
Interest expense			(49,199	)			(3,926	)			45,273				1,153.2	%
Interest expense - related party			(17,775	)			(2,082	)			15,693				753.7	%
Gain on derivatives			34,240				-				(34,240	)			(100.0	)%
Total Other Income - net			(32,734	)			(6,008	)			26,726				444.8	%
Net loss		$	(1,019,409	)		$	(254,393	)		$	765,016				300.7	%

 

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General and Administrative Expenses. Our general and administrative expenses are mainly comprised of compensation expense, corporate overhead, development costs, and financial and administrative contracted services for professional services including legal and accounting, SEC filing fees, and insurance. The increase in our general and administrative expenses is primarily attributable to higher compensation expense including increases in salaries for the two BioPower officers, addition of the four G3P officers, and stock based compensation issued.

 

Interest Expense. Interest expense for the three months ended February 29, 2016 and February 28, 2015 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.

 

Gain on Derivatives. The Company reported a $34,240 gain on derivatives during the three months ended February, 29, 2016.

 

Liquidity and Financial Condition

 

		Three Months Ended
Category		February 29, 2016				February 28, 2015
Net cash used in operating activities		$	(31,066	)		$	(58,805	)
Net cash provided by financing activities			30,000				66,650
Net increase (decrease) in cash		$	(1,066	)		$	7,845

 

Cash Flows from Operating Activities

 

Net cash used in operating activities was $31,066 for the three months ended February 29, 2016, compared with $58,805 for the comparable period in 2015. Net cash used in operating activities for the three months ended February 29, 2016 is mainly attributable to our net loss of $1,019,409, offset by an increase in accounts payable and accrued expenses. Net cash used in operating activities for the three months ended February 28, 2015 is mainly attributable to our net loss of $254,393, 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 three months ended February 29, 2016 cash flows provided by financing activities was $30,000, compared to $66,650 for the comparable period in 2015. We received $30,000 in proceeds from convertible debt and notes payable with third parties during the three months ended February 29, 2016, compared to $7,500 in proceeds from convertible debt during the three months ended February 28, 2015. 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 29, 2016, the Company had cash of $215 and current liabilities of $4,404,459. Our current liabilities include accounts payable and accrued expenses to related parties of $3,482,387. 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 $1,019,409 and net cash used in operations of $31,066 for the three months ended February 29, 2016; and a working capital deficit of $4,401,419 at February 29, 2016. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

 

The ability of the Company to continue as a going concern is dependent on Management’s plans, which include potential asset acquisitions, mergers or business combinations with other entities, further implementation of its business plan and continuing to raise funds through debt and/or equity financings. The Company will likely rely upon related party debt and/or equity financing in order to ensure the continuing existence of the business. The financial statements have been prepared assuming that we will continue as a going concern, which contemplates that we will realize our assets and satisfy our liabilities and commitments in the ordinary course of business.

 

Recent Accounting Pronouncements

 

See Note 3 to our unaudited interim consolidated financial statements regarding recent accounting pronouncements.

 

Off-Balance Sheet Arrangements

 

As of the date of this Quarterly Report, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

 

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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 and Chief Financial 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 29, 2016, the end of the period covered by this report. Based on, and as of the date of such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of February 29, 2016 such that the information required to be disclosed in our SEC reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

 

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 29, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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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.

 

A $70,000 note due on May 31, 2012 is in default. Management is in discussions with the noteholder to extend payment dates.

 

A $62,500 note due on May 25, 2015 is in default. Management is in discussions with the noteholder to extend payment dates.

 

A total of $267,479.06 notes due on December 30, 2015 are in default. Management is in discussions with the noteholders to extend payment dates.

 

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

 

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.

 

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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.

  

	BioPower Operations Corporation
Dated: April 20, 2016	By:	/s/ Robert D. Kohn
		Robert D. Kohn, Chairman and Chief Executive Officer and Chief Financial Officer

 

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