Notes to Consolidated Financial Statements
August 31, 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 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 and nine months ended August 31, 2013 are not necessarily indicative of the results to be expected for the year ending November 30, 2013 or for any future interim periods.
Reverse Stock Split
On August 6, 2013, the Company effected a 1-for-5 reverse stock split of its common stock (“Reverse Split”). As a result of the Reverse Split, every five shares of the common stock of the Company were combined into one share of common stock. Immediately after the September 4, 2013 effective date, the Company had
18,056,007
shares of common stock issued and outstanding. All share and per share amounts have been retroactively restated to reflect the Reverse Split. Effective at the same time as the Reverse Split, the authorized number of shares of our common stock was proportionately decreased from
500,000,000
shares to
100,000,000
shares. The par value remained the same.
Note 2. Nature of Operations and Summary of Significant Accounting Policies
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 is a development stage company and has primarily generated revenues from a consulting agreement and from revenues earned from the testing phase in connection with the Testing Services Agreement in Paraguay (see Note 10). Revenues recognized to date are not indicative of future expected revenues, once the Company begins marketing its fertilizer related products and bio oils to customers.
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 its fertilizer related products and bio oils. 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.
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.
9
BioPower Operations Corporation and Subsidiaries
(A Development Stage Company)
Notes to Consolidated Financial Statements
August 31, 2013
Unaudited
Currently, the Company derives revenue from the consulting services provided to third parties. Revenue is recognized when the contract is signed, the fees are fixed or 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 or as services are rendered. 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.
Reclassification
Reclassifications have been made to certain prior period amounts to conform to the current period presentation. These reclassifications have no effect on the financial position or on the results of operations or cash flows for the periods presented.
Marketable Securities
At the time of acquisition, a security is designated as held-to-maturity, available-for-sale or trading, depending on the Company’s 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. The Company undertook a review of the value of its available-for-sale securities and determined that the value of its securities had been impaired. Accordingly, the Company recorded an impairment charge of $76,050 in the accompanying unaudited consolidated statement of operations during the nine months ended August 31, 2013. The impairment results from the Company’s inability to obtain the underlying shares of common stock from its escrow agent, as the escrow agent has refused to release these shares to the Company (see Note 9).
The following table summarizes marketable securities held at August 31, 2013 and November 30, 2012, all of which are classified as available-for-sale:
|
|
|
Cost
|
|
Impairment
Charge
|
|
Fair Value
|
|
|
August 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
76,050
|
|
$
|
76,050
|
|
$
|
-
|
|
|
Total available-for-sale securities
|
|
$
|
76,050
|
|
$
|
76,050
|
|
$
|
-
|
|
|
|
|
Cost
|
|
Unrealized Loss
|
|
Fair Value
|
|
|
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 and nine months ended August 31, 2013. During the three and nine months ended August 31, 2012, the Company sold 2,436,000 shares of its available-for-sale securities, for proceeds of $11,330, resulting in a loss on sale of $29,838. In addition, the Company was required to pay 500,000 shares in available-for-sale securities, having a cost basis of $8,450 and a fair market value of $6,250 as a loan collection fee, which resulted in an additional loss of $2,200 (see Note 11).
The Company did not recognize any dividend or interest income during the three and nine months ended August 31, 2013 and 2012. The Company has a 100% concentration in one publicly traded stock.
10
BioPower Operations Corporation and Subsidiaries
(A Development Stage Company)
Notes to Consolidated Financial Statements
August 31, 2013
Unaudited
Earnings per share
Basic loss 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 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 and nine months ended August 31, 2013 and 2012, excludes the common stock equivalents of the following potentially dilutive securities because their inclusion would be anti-dilutive:
|
|
|
August 31,
|
|
|
|
|
2013
|
|
2012
|
|
|
Convertible debt ($120,000 at $1.25 per share)
|
|
-
|
|
96,000
|
|
|
Common stock payable
|
|
6,773,617
|
|
80,000
|
|
|
Total common stock equivalents
|
|
6,773,617
|
|
176,000
|
|
Customer Concentration
During the three months ended August 31, 2013, one customer accounted for 96% of consulting revenue. During the nine months ended August 31, 2013, two customers accounted for 82% and 16%, respectively, of consulting revenue. During the three and nine months ended August 31, 2012, one customer accounted for 100% of consulting revenue. At August 31, 2013, all accounts receivable are with one customer.
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 3. Going Concern
As reflected in the accompanying consolidated financial statements, the Company had a net loss of $
867,753
and net cash used in operations of $
185,779
for the nine months ended August 31, 2013. Additionally, the Company had a working capital deficit of $
2,260,186
and a stockholders’ deficit of $
2,222,999
at August 31, 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.
11
BioPower Operations Corporation and Subsidiaries
(A Development Stage Company)
Notes to Consolidated Financial Statements
August 31, 2013
Unaudited
Note 4. Notes Payable and Convertible Debt
Notes payable consists of the following:
|
|
|
Balance
|
|
Interest
Rate
|
|
Maturity
|
|
|
Balance - November 30, 2012
|
|
$
|
89,800
|
|
|
|
|
|
|
Borrowings
|
|
|
181,506
|
|
8
|
%
|
Due on demand
|
|
|
Conversions of borrowings to equity
|
|
|
(183,306)
|
|
|
|
|
|
|
Balance - August 31, 2013
|
|
$
|
88,000
|
|
|
|
|
|
On June 21, 2013, the Company issued two of its investors a total of
3,122,800
shares of its common stock in full satisfaction of notes payable, amounting to $
183,306
, along with accrued interest of $
4,062
.
On the date of conversion, the notes payable and accrued interest were valued at $
281,052
, or $
0.09
per share, based on the closing price of the common stock. The Company recorded a loss on the settlement of debt and accrued expenses of $
93,684
during the three months ended August 31, 2013 as a result of the conversion. As of August 31, 2013, the
3,122,800
shares have not been issued and are included in common stock payable.
Accrued interest at August 31, 2013 and November 30, 2012 amounted to $
5,092
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 $
942
and $
1,214
for the three months ended August 31, 2013 and 2012, respectively, and $
5,479
and $
2,645
for the nine months ended August 31, 2013 and 2012, respectively.
Convertible debt consists of the following:
|
|
|
Balance
|
|
Interest
Rate
|
|
Maturity
|
|
Conversion
Price
|
|
|
Balance - November 30, 2012
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
Borrowings
|
|
|
25,000
|
|
4
|
%
|
Due on demand
|
|
$
|
0.25
|
|
|
Conversions of borrowings to equity
|
|
|
(25,000)
|
|
|
|
|
|
|
|
|
|
Balance - August 31, 2013
|
|
$
|
-
|
|
|
|
|
|
|
|
|
In January 2013, a third party investor advanced $
25,000
. The lender could convert the loan into
100,000
restricted shares of the Company at $
0.25
per share. The Company determined that the loan met the definition of a conventional convertible debt since the holder of the note could 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.
In order to induce the investor to convert his loan promptly, the Company reduced the conversion price to $
0.06
per share, thereby increasing the number of shares issuable upon conversion to
416,667
shares. The carrying value of the loan on June 10, 2013, the date of conversion, was $
25,000
and the closing price of the Company’s common stock on that date was $0.06 per share. The Company accounted for the conversion of loan in accordance with ASC 470, “Debt with Conversion and Other Options.” The Company determined the fair value of the securities issued in connection with the conversion to be $
25,000
and the fair value of the securities issuable pursuant to the original terms of the loan agreement to be $
6,000
, thereby resulting in $
19,000
of incremental consideration paid by the Company upon conversion of the note. In addition, the Company issued the lender
5,500
shares of its common stock in full satisfaction of accrued interest of $
330
related to this note.
The Company recorded a loss on the settlement of debt and accrued expenses of $
19,165
during the three months ended August 31, 2013 as a result of the conversion. As of August 31, 2013, the
422,167
shares have not been issued and are included in common stock payable.
Interest expense on convertible debt with third parties amounted to $
0
and $
330
for the three and nine months ended August 31, 2013 and 2012, respectively.
12
BioPower Operations Corporation and Subsidiaries
(A Development Stage Company)
Notes to Consolidated Financial Statements
August 31, 2013
Unaudited
Note 5. Notes Payable – Related Parties
Notes payable – related parties consists of the following:
|
|
|
Balance
|
|
Interest
Rate
|
|
Maturity
|
|
|
Balance - November 30, 2012
|
|
$
|
40,675
|
|
|
|
|
|
|
Conversions of borrowings to equity
|
|
|
(40,500)
|
|
|
|
|
|
|
Balance - August 31, 2013
|
|
$
|
175
|
|
0
|
%
|
Due on demand
|
|
On June 21, 2013, the Company issued its Chief Executive Officer
707,500
shares of its common stock in full satisfaction of his notes payable, amounting to $
40,500
, along with accrued interest of $
1,950
.
On the date of conversion, the notes payable and accrued interest were valued at $
63,675
, or $
0.09
per share, based on the closing price of the common stock. The Company recorded a loss on the settlement of debt and accrued expenses of $
21,225
during the three months ended August 31, 2013 as a result of the conversion.
As of August 31, 2013, the 707,500 shares have not been issued and are included in common stock payable.
Accrued interest at August 31, 2013 and November 30, 2012 amounted to $
185
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 $(
1
) and $
343
for the three months ended August 31, 2013 and 2012, respectively, and $
807
and $
545
for the nine months ended August 31, 2013 and 2012, respectively.
Note 6. Stockholders’ Deficit
(A)
Common Stock
The following represents the Company’s shares authorized for issuance as of August 31, 2013:
|
Type
|
|
Quantity
|
|
Valuation
|
|
Range of Value
per share
|
|
|
Balance - November 30, 2012
|
|
120,000
|
|
$
|
208,500
|
|
$
|
1.10 – 3.25
|
|
|
Services rendered (1)
|
|
91,250
|
|
|
48,000
|
|
|
0.18 – 0.80
|
|
|
Cash
|
|
215,000
|
|
|
12,900
|
|
|
0.06
|
|
|
Debt and accrued expense conversions
|
|
3,544,967
|
|
|
325,547
|
|
|
0.06 – 0.09
|
|
|
Debt and accrued expense conversions – related parties
|
|
2,802,400
|
|
|
246,216
|
|
|
0.06 – 0.09
|
|
|
Balance – August 31, 2013 (2)
|
|
6,773,617
|
|
$
|
841,163
|
|
$
|
0.06 – 3.25
|
|
|
|
(1)
|
Fair value based upon the quoted closing market price of the Company’s common stock as of the authorized issuance date (date of grant).
|
|
|
(2)
|
The 6,773,617 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 and nine months ended August 31, 2013 and 2012.
|
(B)
Restricted Stock
On June 25, 2013, the Company’s Chief Executive Officer and Director of Business Strategy were each granted
2,000,000
shares of common stock in exchange for continuing to work without cash payment of their full salary and to convert accrued expenses and a note payable (see Notes 5 and 7). The shares will vest after one year of service and will not replace the Company’s obligation to pay the required salary over the next year. The fair value of the common stock at the date of grant was $
0.09
per share based upon the closing market price on the date of grant. The aggregate grant date fair value of the awards amounted to $
360,000
, which will be recognized as compensation expense over the vesting period. The Company recorded $
60,000
of compensation expense during the three months ended August 31, 2013 with respect to this award. Total unrecognized compensation expense related to unvested stock awards at August 31, 2013 amounts to $
300,000
and is expected to be recognized over a weighted average period of
0.8
years.
On June 21, 2013, the Company granted
1,500,000
shares of common stock to a consultant for services to be provided over a twelve month period, commencing June 1, 2013. The shares will vest after one year of service. In addition, the Company will pay the consultant a fee of $
7,500
per month, cash flow permitting, over the same twelve month period. Accrued consulting fees at August 31, 2013 amounted to $
22,500
related to the cash portion of fees due, which is included as a component of accounts payable and accrued expenses. Consulting fee expense amounted to $22,500 for the three months ended August 31, 2013.
13
BioPower Operations Corporation and Subsidiaries
(A Development Stage Company)
Notes to Consolidated Financial Statements
August 31, 2013
Unaudited
A summary of the restricted stock award activity for the nine months ended August 31, 2013 is as follows:
|
|
|
Number of
Shares
|
|
Weighted
Average Grant
Date Fair Value
|
|
Weighted Average
Remaining
Contractual Life
(in Years)
|
|
Aggregate
Intrinsic Value
|
|
|
Unvested - November 30, 2012
|
|
-
|
|
$
|
-
|
|
-
|
|
$
|
0
|
|
|
Granted
|
|
5,500,000
|
|
|
0.07
|
|
|
|
|
|
|
|
Vested
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
Unvested - August 31, 2013
|
|
5,500,000
|
|
$
|
0.07
|
|
0.8
|
|
$
|
0
|
|
Note 7. 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.
On June 12, 2013, the Company issued one of its directors
200,000
shares of its common stock in full satisfaction of director’s fees and consulting fees owed, amounting to $
12,000
.
On the date of conversion, the fair value of the Company’s common stock was $
0.06
per share, based on the closing price of the common stock. As of August 31, 2013, the
200,000
shares have not been issued and are included in common stock payable.
On June 21, 2013, the Company issued its Chief Executive Officer
894,900
shares of its common stock in full satisfaction of amounts due to him for reimbursable expenses, amounting to $
53,694
.
On the date of conversion, the fair value of the Company’s common stock was $
0.09
per share, based on the closing price of the common stock. The Company recorded a loss on the settlement of debt and accrued expenses of $
26,847
during the three months ended August 31, 2013 as a result of the conversion.
As of August 31, 2013, the
894,900
shares have not been issued and are included in common stock payable.
On June 21, 2013, the Company issued its Director of Business Strategy
1,000,000
shares of its common stock in full satisfaction of amounts due to her for reimbursable expenses, amounting to $
60,000
.
On the date of conversion, the fair value of the Company’s common stock was $
0.09
per share, based on the closing price of the common stock. The Company recorded a loss on the settlement of debt and accrued expenses of $
30,000
during the three months ended August 31, 2013 as a result of the conversion.
As of August 31, 2013, the
1,000,000
shares have not been issued and are included in common stock payable.
Note 8. Commitments and Contingencies
Employment Agreements – Officers and Directors
As of August 31, 2013, the Company has employment agreements with certain executives and directors (two individuals) containing the following provisions:
|
|
Term of contract
|
|
5 years, expiring on December 31, 2015
|
|
|
Salary
|
|
$200,000
|
|
|
Salary deferral
|
|
All salaries will be accrued, but may be paid from the Company’s available cash flow funds.
|
Leases
The Company’s lease on its office space expired on May 31, 2013. 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 $
2,000
for the period from June 1, 2013 through May 31, 2014 and $
2,080
for the period from June 1, 2014 through May 31, 2015.
14
BioPower Operations Corporation and Subsidiaries
(A Development Stage Company)
Notes to Consolidated Financial Statements
August 31, 2013
Unaudited
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. 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 reference above. The shares received by the Company 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 was to 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. In May 2013, the Company was notified by the escrow agent that it would not release the shares to the Company. The Company has determined the value of the
4,500,000
shares to be impaired and has recorded an impairment charge of $76,050 during the nine months ended August 31, 2013 (see Note 2). Management has determined not to take further action on this matter.
The contract had the following remaining payment terms:
|
|
⋅
|
$
60,000
due on February 13, 2013; and
|
|
|
⋅
|
$
60,000
due on February 13, 2014
|
As of August 31, 2013, the Company has not received the $
60,000
due on February 13, 2013 under the contract. 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 August 31, 2013. Additionally, in May 2013, the Company was notified by the third party of its intent to terminate the agreement. Given this notification, the Company recognized the remaining portion of the deferred consulting revenue of $39,107 as consulting revenue in the accompanying statement of operations as of August 31, 2013.
Note 10. Testing Services Agreement
On July 2, 2013, the Company entered into agreements for the first stage of a project to develop a castor plantation and milling operation in the Republic of Paraguay with offshore entities (aka “Ambrosia” and “Developer”) for the testing and development of a project with up to $
10,000,000
in financing upon certification of the castor yield effective. Under the terms of the Testing Services Agreement (the “TSA”), the Developer will provide the land, pay costs for the testing and pay the Company a monthly project management fee of $
45,000
and reimbursement of expenses during the test period for subcontractors on the ground in Paraguay. The Company will provide project management testing services through the testing phase for up to 12 months until the successful certification of the yield from growing castor is proven, subject to material and adverse events. Once Ambrosia approves the project, then under the Castor Master Farm Management Services Agreement, the $10,000,000 to be invested from Ambrosia will go towards the development and operations of the first stage of the castor plantation and the building of the mill and its operations. The Company will earn
6
% of the net income for ten years or have an option to become a
20
% owner of the project. The Company began the initial test phase in Paraguay on March 20, 2013, and subject to the terms of the TSA, is entitled to project management fees. The Company recorded consulting revenue of $
162,669
and $
292,533
during the three and nine months ended August 31, 2013, respectively, in connection with services provided under the TSA.
15
BioPower Operations Corporation and Subsidiaries
(A Development Stage Company)
Notes to Consolidated Financial Statements
August 31, 2013
Unaudited
Note 11. 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-year term, commencing February 5, 2013 and is cancelable on a quarterly basis. In consideration for the services, the Company will issue
160,000
shares of common stock, to be delivered in four equal quarterly installments of 40,000 shares each. The first
40,000
shares were to be delivered upon execution of the agreement. In addition to the shares, the Company will 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.
On April 30, 2013, the Company entered into an amendment to the investor relations agreement, whereby the parties agreed to (i) amend the term of the agreement such that it would be a twelve month agreement commencing from April 8, 2013 and (ii) the Company would be required to pay the third party $2,000 per month, in cash or stock, at the option of the third party, commencing May 8, 2013.
Additionally, the third party would still be entitled to the first 40,000 shares delivered upon execution of the original agreement and the $9,000 worth of common stock originally earned under the original agreement.
As of August 31, 2013, the Company was required to issue
80,000
shares of its common stock and determined to pay the first quarter’s fee of $
9,000
in stock, representing
11,250
shares of the Company’s common stock. The fair value of the
91,250
shares of common stock to be issued to the third party was $
48,000
, 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. The third party has elected to receive the second quarter’s fee in cash. The Company recorded $
6,200
and $
51,333
during the three and nine months ended August 31, 2013, respectively, as professional fees. Since the 91,250 shares of common stock have not been issued to the third party as of August 31, 2013, the Company has included the value of the shares of $48,000 in common stock payable in the accompanying consolidated balance sheet and has not included these shares in the earnings per share calculations as of August 31, 2013.
Note 12. 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 had 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 August 31, 2013.
The following is the Company’s assets measured at fair value on a recurring basis at August 31, 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):
|
|
|
August 31, 2013
|
|
November 30, 2012
|
|
|
Level 1 – None
|
|
$
|
-
|
|
$
|
-
|
|
|
Level 2 – Marketable Securities
|
|
|
-
|
|
|
38,250
|
|
|
Level 3 – None
|
|
|
-
|
|
|
-
|
|
|
Total
|
|
$
|
-
|
|
$
|
38,250
|
|
BioPower Operations Corporation and Subsidiaries
(A Development Stage Company)
Notes to Consolidated Financial Statements
August 31, 2013
Unaudited
See Note 2 regarding the impairment charge recognized during the nine months ended August 31, 2013 on the Company’s marketable securities.
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.
