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 May 31, 2016

 

  [  ] 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 [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 July 20, 2016, the registrant had 47,107,680 shares outstanding.

 

 

 

     
 

 

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 17
     
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 21
     
ITEM 4. CONTROLS AND PROCEDURES 21
     
PART II. OTHER INFORMATION  
     
ITEM 1. LEGAL PROCEEDINGS 22
     
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 22
     
ITEM 3. DEFAULT UPON SENIOR SECURITIES 22
     
ITEM 4. MINE SAFETY DISCLOSURES 22
     
ITEM 5. OTHER INFORMATION 22
     
ITEM 6. EXHIBITS 22
     
SIGNATURES 23
     
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 May 31, 2016 (unaudited) and November 30, 2015 4
   
Consolidated Statements of Operations for the three and six months ended May 31, 2016 and 2015 (unaudited)

5

   
Consolidated Statements of Cash Flows for the six months ended May 31, 2016 and 2015 (unaudited) 6
   
Notes to Consolidated Financial Statements (unaudited) 7 - 16

 

3
 

 

PART I

FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

BioPower Operations Corporation and Subsidiaries

Consolidated Balance Sheets

 

    May 31, 2016     November 30, 2015  
    (Unaudited)        
             
Assets                
Current Assets                
Cash   $ 59,578     $ 1,281  
Accounts Receivable     317,250       -  
Retainage Receivable     33,250       -  
Prepaid expenses and other current assets     1,099       12,708  
Total Current Assets     411,177       13,989  
                 
Equipment - net     8,286       10,876  
Security deposit     6,937       6,937  
      15,223       17,813  
                 
Total Assets   $ 426,400     $ 31,802  
                 
Liabilities and Stockholders’ Deficit                
                 
Current Liabilities                
Accounts payable and accrued expenses   $ 482,288     $ 435,567  
Accounts payable and accrued expenses - related parties     815,091       3,043,282  
Billings in excess of costs and estimated earnings     101,864       -  
Derivative liability     81,739       60,356  
Notes payable     137,500       132,500  
Notes payable - related parties     195,464       525  
Convertible debt     143,031       189,366  
Convertible debt - related parties, net of discount of $20,931     195,017       44,394  
Total Current Liabilities     2,151,994       3,905,990  
                 
Long Term Liabilities                
Notes payable - related parties   $ 2,053,582     $ -  
Convertible debt, net of discount of $23,321     1,679       -  
Convertible debt - related parties, net of discount of $46,293     103,707       -  
Other     44       -  
Other - related parties     3,015       -  
Total Long Term Liabilities     2,162,027       -  
                 
Total Liabilities     4,314,021       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     5,339,729       4,013,145  
Accumulated deficit     (9,232,063 )     (7,891,546 )
Total Stockholders’ Deficit     (3,887,621 )     (3,874,188 )
                 
Total Liabilities and Stockholders’ Deficit   $ 426,400     $ 31,802  

 

See accompanying notes to unaudited consolidated financial statements

 

4
 

 

BioPower Operations Corporation and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

 

    Three Months Ended May 31,     Six Months Ended May 31,  
    2016     2015     2016     2015  
Revenues                                
Construction management fees   $ 239,783     $ -     $ 239,783     $ -  
Consulting income     31,460       17,363       31,460       17,363  
Total revenues     271,243       17,363       271,243       17,363  
                                 
Costs of services     231,177       -       231,177       -  
                                 
Gross profit     40,066       17,363       40,066       17,363  
                                 
General and administrative expenses     347,326       526,217       1,334,002       1,014,602  
Loss from operations     (307,260 )     (508,854 )     (1,293,936 )     (997,239 )
                                 
Other income (expense)                                
Interest expense     (4,951 )     (5,408 )     (54,149 )     (9,333 )
Interest expense - related party     (23,985 )     (2,747 )     (41,760 )     (4,830 )
Gain on derivatives     15,088       -       49,328       -  
Total other income (expense) - net     (13,848 )     (8,155 )     (46,581 )     (14,163 )
                                 
Net loss   $ (321,108 )   $ (517,009 )   $ (1,340,517 )   $ (1,011,402 )
                                 
Net loss per common share - basic and diluted   $ (0.01 )   $ (0.01 )   $ (0.03 )   $ (0.02 )
                                 
Weighted average number of common shares outstanding during the period - basic and diluted     47,107,680       41,623,880       44,757,949       41,499,060  

 

See accompanying notes to unaudited consolidated financial statements

 

5
 

 

BioPower Operations Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

 

    Six Months Ended May,  
    2016     2015  
             
CASH FLOWS FROM OPERATING ACTIVITIES:                
Net loss   $ (1,340,517 )   $ (1,011,402 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Depreciation     2,590       6,170  
Stock-based compensation expense     500,000       2,500  
Loss on sale of equipment     -       4,183  
Amortization of debt discount     72,218       5,166  
(Gain) loss on derivatives     (49,328 )     -  
Changes in operating assets and liabilities:                
Accounts receivable     (317,250 )     -  

Retainage receivable

    (33,250 )     -  
Prepaid expenses and other current assets     11,609       2,953  
Accounts payable and accrued expenses     67,268       9,862  
Accounts payable and accrued expenses - related parties     640,095       874,977  
Billings in excess of costs and estimated earnings     101,864       -  
Other liabilities     44       -  
Other liabilities - related parties     3,015       -  
Net Cash Used In Operating Activities     (341,642 )     (105,591 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:                
Proceeds from convertible debt     25,000       22,500  
Proceeds from convertible debt - related parties     175,000       -  
Proceeds from notes payable     5,000       22,500  
Proceeds from notes payable - related parties     194,939       -  
Repayment notes payable - related parties     -       (850 )
Proceeds from issuance of common stock     -       60,000  
Net Cash Provided By Financing Activities     399,939       104,150  
                 
Net (Decrease) Increase in Cash     58,297       (1,441 )
                 
Cash - Beginning of Period     1,281       15,118  
                 
Cash - End of Period   $ 59,578     $ 13,677  
                 
SUPPLEMENTARY CASH FLOW INFORMATION:                
Cash Paid During the Period for:                
Income Taxes   $ -     $ -  
Interest   $ -     $ -  
                 
SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:                
Related party accounts payable settled by sale of asset to related party   $ -     $ 6,000  
Related party accrued compensation reclassified to additional paid in capital     818,751       -  
Reclassification of accrued expenses to accrued expenses related party     4,047       -  
Related party accrued compensation reclassified to non-convertible debt     2,053,582       -  
Reclassification of convertible debt to convertible debt related party     124,448       -  
Reclassification of note payable from convertible to non convertible     -       62,500  
Reclassification of related note payable from non convertible to convertible     -       22,500  
Debt discount recorded on convertible debt     -       7,000  
Debt discount recorded on convertible debt - related party due to beneficial conversion features     8,333       7,000  
Debt discount recorded on derivative on convertible debt due to derivative liabilities     70,711       -  
Convertible debt issued to pay accounts payable     16,500       -  

 

See accompanying notes to unaudited consolidated financial statements

 

6
 

 

BioPower Operations Corporation and Subsidiaries

Notes to Consolidated Financial Statements

May 31, 2016 and 2015

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 May 31, 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 and six months ended May 31, 2016 are not necessarily indicative of the results to be expected for the year ending November 30, 2016 or for any future interim periods.

 

Fair Value of Financial Instruments

 

BioPower evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. The Company’s financial instruments consist of cash and cash equivalents, accounts payable and accrued expenses and 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.

 

For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

 

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 November 30, 2015

 

    Level 1     Level 2     Level 3     Total  
Assets                                
Securities -available for sale   $ -     $ -     $ -     $ -  
Liabilities                                
Derivative Financial Instruments   $ -     $ -     $ 60,356     $ 60,356  

 

7
 

 

BioPower Operations Corporation and Subsidiaries

Notes to Consolidated Financial Statements

May 31, 2016 and 2015

Unaudited

 

Financial assets and liabilities measured at fair value on a recurring basis are summarized below for the quarter ended May 31, 2016

 

    Level 1     Level 2     Level 3     Total  
Assets                                
Securities -available for sale   $ -     $ -     $ -     $ -  
Liabilities                                
Derivative Financial Instruments   $ -     $ -     $ 81,739     $ 81,739  

 

The following table presents details of the Company’s level 3 derivative liabilities as of May 31, 2016 and November 30, 2015:

 

    Amount  
Balance November 30, 2015   $ 60,356  
Debt discount originated from derivative liabilities     70,711  
Change in fair market value of derivative liabilities     (49,328 )
Balance May 31, 2016   $ 81,739  

 

Revenue Recognition Policy

 

The Company recognizes revenues from construction contracts on the percentage-of-completion method, measured by the percentage of direct labor and material costs to date to estimated total direct labor and material costs for each contract. This method is used because management considers total cost to be the best available measure of progress on the contracts. Because of the inherent uncertainties in estimating costs, it is at least reasonably possible that the estimates used will change in the near term.

 

Contract costs include all direct labor and material cost and those indirect costs related to contract performance. General and administrative costs are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions and estimated profitability may result in revisions to cost and income, which are recognized in the period in which the revisions are determined.

 

The asset, costs and estimated earnings in excess of billings on uncompleted contracts represents revenues recognized in excess of amounts billed. The liability, billings in excess of costs and estimated earnings, represents billing in excess of revenues recognized.

 

Revenues generated from services and consulting agreements are recognized when the services have been performed, all significant contractual obligations have been satisfied and collection of the resulting fees is reasonably assured.

 

8
 

 

Note 2 Going Concern

 

As reflected in the accompanying consolidated financial statements, the Company had a net loss of $1,340,517 and net cash used in operations of $341,642 for the six months ended May 31, 2016. Additionally, the Company had a working capital deficit of $1,740,817and a stockholders’ deficit of $3,887,621at May 31, 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 funding of waste to energy projects, implementation of waste remediation projects, further implementation of its business plan and continuing to raise funds through debt and/or equity financings. The Company will likely rely upon 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 May 31, 2016 and November 30, 2015, equipment consists of the following:

 

    2016     2015     Estimated Useful Life
Computer Equipment   $ 36,800     $ 36,800     5 years
Less: Accumulated depreciation     (28,514 )     (25,924 )    
Equipment, net   $ 8,286     $ 10,876      

 

Note 4. Notes Payable and Convertible Debt

 

      Balance     Interest Rate     Maturity  
Balance – November 30, 2015       $   132,500       Various       Various  
Borrowings         5,000       8%     June 30, 2016  
Balance – May 31, 2016       $   137,500                  

 

In January, 2016 a third party investor advanced $5,000 unsecured at 8% interest , which was due on June 30, 2016 and paid in full as of the due date.  

 

9
 

 

BioPower Operations Corporation and Subsidiaries

Notes to Consolidated Financial Statements

May 31, 2016 and 2015

Unaudited

 

Convertible debt consists of the following:

 

    Balance     Interest Rate     Maturity   Conversion Price  
                       
Balance – November 30, 2015   $ 189,366       8 %   In Default     Various
Reclass non related to related     (74,448 )     8 %   December 30, 2015     0.15  
Reclass non related to related     (50,000 )     8 %   December 30, 2016     0.15  
Reclass debt discount to related     78,113                      
Borrowings     25,000       8 %   May 23, 2018     0.10  
Debt discount  on derivative     (23,579 )                    
Debt discount amortization     258                      
Balance – May 31, 2016   $ 144,710                      
                             
Current portion     (143,031 )                    
                             
Long term portion   $ 1,679                      

 

In February, 2016 a third party investor’s convertible debt totaling $74,448, net of related debt discount of $40,470, was reclassified as related party because during the period, as the investor’s ownership of common stock increased to greater than 10%, which, due to materiality, required his transactions to be reclassified as “related party transactions.”

 

On March 10, 2016, a third party investor’s convertible debt totaling $50,000, net of related debt discount of $37,643, was reclassified as a related party transaction due to the investor being hired as the Company’s Chief Operating Officer and Director of Business Development.

 

On May 23, 2016, the Company entered into convertible debt agreements with a third party investor totaling $25,000 at 8% interest, due on May 23, 2018. The debt is convertible into common shares of stock at a conversion price of $.10 per share. On this date the Company recorded a debt discount of $23,579 from the initial valuation of the derivative liability of $23,579 and resulting in no initial gain or loss on the derivative liability based on the Black Sholes pricing model. The fair value of the derivative liability at May 31, 2016 is $23,579. The note is shown net of a derivative debt discount of $23,321 at May 31, 2016.

 

Accrued interest on notes payable and convertible debt at May 31, 2016 and November 30, 2015 amounted to $32,611 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 $6,496 and $5,330 for the three months ended May 31, 2016 and 2015, respectively.

 

Note 5. Related Party Transactions

 

Notes payable to related parties consists of the following:

 

    Balance     Interest Rate     Maturity
Balance – November 30, 2015   $ 525       0 %   On Demand
Borrowings     194,939       12 %   May 30, 2016
Reclass accrued compensation     874,000       4 %   December 1, 2017
Reclass accrued compensation     669,582       4 %   December 1, 2017
Reclass accrued compensation     150,000       4 %   December 1, 2017
Reclass accrued compensation     120,000       4 %   December 1, 2017
Reclass accrued compensation     120,000       4 %   December 1, 2017
Reclass accrued compensation     120,000       4 %   December 1, 2017
Balance – May 31, 2016   $ 2,249,046              
                     
Current portion     (195,464 )            
                     
Long term portion   $ 2,053,582              

 

10
 

 

BioPower Operations Corporation and Subsidiaries

Notes to Consolidated Financial Statements

May 31, 2016 and 2015

Unaudited

 

In April, 2016 the Chief Operating Officer made an advance of $194,939 to a subsidiary of the Company, bearing interest at 12% which is due May 30, 2016. The $194,939 non-convertible advance included an additional $15,000 payment as Profit Participation for work rendered. The agreement included a provision where the Company agreed that in the event that the Investor had not been repaid within 75 days from date of delivery of Equipment then Investor shall receive a penalty of 3,000,000 shares of BioPower Common Stock in consideration for the delay in payment. The Investor was repaid in full on June 30, 2016.

 

On May 27, 2016 the Chief Executive Officer agreed to reduce his accrued compensation by $206,250 as a contribution to additional paid in capital. He also agreed to reclassify $874,000 in accrued compensation to long term debt upon the issuance of a non-convertible 4% interest bearing note with a maturity date of December 1, 2017. The compensation included was accrued during the period from January 2, 2011 to February 29, 2016. This compensation will be paid as bonuses out of future income only and is further subject to a cap of 20% of operating net cash flow in any given period. If bonuses are paid accrued compensation will be paid with an amount decided by the Board.

 

On May 27, 2016 the Director of Strategy agreed to reduce her accrued compensation by $206,250 as a contribution to additional paid in capital. She also agreed to reclassify $669,582 in accrued compensation to long term debt upon the issuance of a non-convertible 4% interest bearing note with a maturity date of December 1, 2017. The compensation included was accrued during the period from January 2, 2011 to February 29, 2016. This compensation will be paid as bonuses out of future income only and is further subject to a cap of 20% of operating net cash flow in any given period. If bonuses are paid accrued compensation will be paid with an amount decided by the Board.

 

On May 27, 2016 the Chief Executive Officer of G3P agreed to reduce his accrued compensation by $243,750 as a contribution to additional paid in capital. He also agreed to reclassify $150,000 in accrued compensation to long term debt upon the issuance of a non-convertible 4% interest bearing note with a maturity date of December 1, 2017. The compensation included was accrued during the period from January 2, 2011 to February 29, 2016. This compensation will be paid as bonuses out of future income only and is further subject to a cap of 20% of operating net cash flow in any given period. If bonuses are paid accrued compensation will be paid with an amount decided by the Board.

 

On May 27, 2016 the Senior Vice President of G3P agreed to reduce his accrued compensation by $162,500 as a contribution to additional paid in capital. He also agreed to reclassify $120,000 in accrued compensation to long term debt upon the issuance of a non-convertible 4% interest bearing note with a maturity date of December 1, 2017. The compensation included was accrued during the period from January 2, 2011 to February 29, 2016. This compensation will be paid as bonuses out of future income only and is further subject to a cap of 20% of operating net cash flow in any given period. If bonuses are paid accrued compensation will be paid with an amount decided by the Board.

 

On May 27, 2016 the Chief Operating Officer of G3P agreed to reclassify $120,000 in accrued compensation to long term debt upon the issuance of a non-convertible 4% interest bearing note with a maturity date of December 1, 2017. The compensation included was accrued during the period from January 2, 2011 to February 29, 2016. This compensation will be paid as bonuses out of future income only and is further subject to a cap of 20% of operating net cash flow in any given period. If bonuses are paid accrued compensation will be paid with an amount decided by the Board.

 

On May 27, 2016 the Chief Administrative Officer of G3P agreed to reclassify $120,000 in accrued compensation to long term debt upon the issuance of a non-convertible 4% interest bearing note with a maturity date of December 1, 2017. The compensation included was accrued during the period from January 2, 2011 to February 29, 2016. This compensation will be paid as bonuses out of future income only and is further subject to a cap of 20% of operating net cash flow in any given period. If bonuses are paid accrued compensation will be paid with an amount decided by the Board.

 

11
 

 

BioPower Operations Corporation and Subsidiaries

Notes to Consolidated Financial Statements

May 31, 2016 and 2015

Unaudited

 

Convertible debt to related parties consists of the following:

 

      Balance       Interest Rate       Maturity       Conversion Price  
                                 
Balance – November 30, 2015   $ 44,394       8 %     December 30, 2015       0.15  
Reclass non related to related     74,448       8 %     December 30, 2015       0.15  
Reclass non related to related     50,000       8 %     December 30, 2016       0.15  
Reclass debt discount to related     (78,113 )                        
Borrowings     25,000       8 %     June 15, 2016       0.15  
Debt discount on convertible debt     (8333 )                        
Accounts payable settlement     16,500       8 %     June 17, 2016       0.15  
Borrowings     100,000       8 %     March 2, 2018       0.15  
Borrowings     50,000       8 %     May 18, 2018       0.10  
Debt discount on derivative     (47,132 )                        
Debt discount amortization     (71,960 )                        
Balance – May 31, 2016   $ 298,724                          
                                 
Current portion     (195,017 )                        
                                 
Long term portion   $ 103,707                          

 

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 settled $16,500 in accounts payable for the Company in exchange for debt du  e 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 the debit 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.

 

In March, 2016 the Chief Operating Officer made a loan of $100,000, bearing interest at 8% due on or before March 2, 2018. Pursuant to the agreement, the investor is allowed to convert 100% of the debt on the maturity date 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 March 2, 2016 was $0.10 per share and accordingly deemed to have no Beneficial Conversion Factor. On May 18, 2016 the Officer loaned an additional $50,000 with conversion rights at $0.10 per share. Therefore, effective May 18, 2016, $50,000 of the officers’ note payable had conversion rights of $0.10 per share. 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 May 18, 2016 was $0.10 per share and accordingly deemed to have no Beneficial Conversion Factor. On May 23, 2016, a third party investor loaned the company $25,000 with conversion rights at $0.10 per share. Therefore, effective May 23, 2016, an additional $25,000 of the officers’ $100,000 note payable had conversion rights of $0.10 per share. 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 May 18, 2016 was $0.10 per share and accordingly deemed to have no Beneficial Conversion Factor.

 

In May, 2016 the Chief Operating Officer made a loan of $50,000, bearing interest at 8% due on or before May 18, 2018. Pursuant to the agreement, the investor is allowed to convert 100% of the debt at a share price of $0.10 . 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 $0.10  then the conversion price will adjust to such price. 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 May 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 May 31, 2016 and November 30, 2015, amounted to $19,101 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 $8,881 and $2,747 for the three months ended May 31, 2016 and 2015, respectively.

 

12
 

 

BioPower Operations Corporation and Subsidiaries

Notes to Consolidated Financial Statements

May 31, 2016 and 2015

Unaudited

 

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 May 31, 2016, $29,752  of the debt discount has been amortized. The fair value of the derivative liability at May 31, 2016 is $11,046 resulting in a gain on the change in fair value of the derivative of $49,310. The Note is shown net of a derivative debt discount of $20,247  at May 31, 2016.

 

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 May 31, 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     (49,310 )
Balance May 31, 2016   $ 11,046  

 

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 May 31, 2016 and commitment date:

 

    Commitment Date     May 31, 2016  
Expected dividends     -       -  
Expected volatility     296.84 %     153.55 %
Expect term     1.44       .58  
Risk free interest rate     0.33 %     0.68 %

 

On May 18, 2016, the Company entered into a convertible loan agreement with a related party investor. The Company received a total of $50,000 which bears interest at 8% per annum and is due on May 18, 2018. Interest shall accrue from the advancement date and shall be payable on May 18, 2018. 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 $0.10 per share. If an equity transaction occurs at a price below $0.10, then the conversion price will adjust to such price.

 

On this date of issuance, the Company recorded a debt discount in the amount of $47,132 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 $47,132 resulting in no initial gain or loss on the derivative liability based on the Black Scholes pricing model. As of May 31, 2016, $839 of the debt discount has been amortized. The fair value of the derivative liability at May 31, 2016 is $47,114 resulting in a gain on the change in fair value of the derivative of $18. The Note is shown net of a derivative debt discount of $46,293 at May 31, 2016. (See Note 4 –Convertible Debt).

 

13
 

 

BioPower Operations Corporation and Subsidiaries

Notes to Consolidated Financial Statements

May 31, 2016 and 2015

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 May 31, 2016 the fair value of the conversion feature is summarized as follows:

 

    Amount  
Balance November 30, 2015   $ -  
Debt discount originated from derivative liabilities     47,132  
Change in fair market value of derivative liabilities     (18 )
Balance May 31, 2016   $ 47,114  

 

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 May 31, 2016 and commitment date:

 

    Commitment Date     May 31, 2016  
Expected dividends     -       -  
Expected volatility     268.40 %     270.72 %
Expect term     2.00       1.96  
Risk free interest rate     0.63 %     0.68 %

 

On May 23, 2016, the Company entered into a convertible loan agreement with a third party investor. The Company received a total of $25,000 which bears interest at 8% per annum and is due on May 23, 2018. Interest shall accrue from the advancement date and shall be payable on May 23, 2018. 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 $0.10 per share. If an equity transaction occurs at a price below $0.10, then the conversion price will adjust to such price.

 

On this date of issuance, the Company recorded a debt discount in the amount of $23,579 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 $23,579 resulting in no initial gain or loss on the derivative liability based on the Black Scholes pricing model. As of May 31, 2016, $258 of the debt discount has been amortized. The fair value of the derivative liability at May 31, 2016 is $23,579. The Note is shown net of a derivative debt discount of $23,321 at May 31, 2016. (See Note 4 –Convertible Debt).

 

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.

 

14
 

 

BioPower Operations Corporation and Subsidiaries

Notes to Consolidated Financial Statements

May 31, 2016 and 2015

Unaudited

 

As a result of the application of ASC No. 815 in period ended May 31, 2016 the fair value of the conversion feature is summarized as follows:

 

      Amount  
Balance November 30, 2015   $ -  
Debt discount originated from derivative liabilities     23,579  
Change in fair market value of derivative liabilities     -  
Balance May 31, 2016   $ 23,579  

 

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 May 31, 2016 and commitment date:

 

      Commitment Date       May 31, 2016  
Expected dividends     -       -  
Expected volatility     268.94 %     270.29 %
Expect term     2.00       1.98  
Risk free interest rate     0.69 %     0.68 %

 

Note 7. Stockholders’ Deficit

 

For the six months ended May 31, 2016:

 

On February 24, 2016, the Board of Directors approved the following stock compensation because the Company did 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 during the first quarter 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

 

On March 2, 2016, the Company authorized the issuance of 3,000,000 shares of its common stock, as part of Mr. Baruch Halpern’s Employment contract, 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.  

 

There are 47,107,680 and 42,107,680 shares issued and outstanding at May 31, 2016 and November 30, 2015, respectively.

 

15
 

 

BioPower Operations Corporation and Subsidiaries

Notes to Consolidated Financial Statements

May 31, 2016 and 2015

Unaudited

 

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 Dc. 1, 2014

    2014-15     2015-2016     2016-2017  
Robert Kohn         $ 275,000     $ 325,000     $ 375,000  
Bonnie Nelson           $ 275,000     $ 325,000     $ 375,000  

 

As of May 20, 2016 the salaries have been amended to $120,000 each per annum until financing for a second project is committed. These salary levels will be retroactive to December 1, 2014.

 

On March 10 , 2016, the Company employed Mr. Baruch Halpern join as its’ Chief Operating Officer containing the following provisions:

 

Term of contract   2 years and 5 months, expiring on August 10, 2018
Salary   $120,000 commencing March 10, 2016
Salary deferral   All salaries will be accrued but may be paid from the Company’s available cash flow funds.

 

The accrued officers and directors payroll at May 31, 2016 is $377,000.  

 

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 on May 31, 2016, and requiring monthly base rental payments of $4,583 plus adjustments for Common Area Expenses. On May 23, 2016, the Company amended the lease agreement extending it on a month to month basis. The required monthly base rental payments were kept the same.

 

Rent expense was $28,210 and $25,425 for the six month period ended May 31, 2016 and May 31, 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 May 31, 2016 a third party investor entered into an agreement to loan $200,000 to the Company, due on or before May 31, 2018. Pursuant to the agreement, the investor is allowed to convert 100% of the debt at a share price of $0.10. The funds were not received until June, 2016 and accordingly were not accounted for in the current period.

 

16
 

 

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 2015 Annual Report. The following discussion and analysis also should be read together with our consolidated financial statements and the notes to the consolidated financial statements included elsewhere in this Quarterly Report.

 

This discussion summarizes the significant factors affecting the consolidated operating results, financial condition and liquidity and cash flows of BioPower Operations Corp. for the three and six months ended May 31, 2016 and 2015. 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.

 

17
 

 

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 (954) 202-6660. 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

 

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.

 

We have generated minimal revenues from business operations. Therefore, our auditors have issued a going concern opinion. This means there is substantial doubt that we can continue as an on-going business for the next twelve (12) months unless we obtain additional capital to pay our bills. Because we have not generated enough revenues from operations combined with the revenues anticipated until we finance our first waste-to-energy facility. Accordingly, we must raise cash from sources other than revenues generated such as from the proceeds of loans, sale of common shares and advances or loans from related parties.

 

18
 

 

Licensed Technologies

 

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 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 upon 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 and Six Months Ended May 31, 2016 Compared to the Three and Six Months Ended May 31, 2015

 

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

 

    Three Months Ended May 31,     Change     Change  
    2016     2015     (Dollars)     (Percentage)  
                         
Revenues                                
Construction management fees   $ 239,783     $ -     $ 239,783       100.0 %
Consulting income     31,460       17,363       14,097       81.2 %
Total revenues     271,243       17,363       253,880       1,462.2 %
                                 
Costs of services     231,177       -       231,177       100.0 %
                                 
Gross profit     40,066       17,363       22,903       133.5 %
                                 
Expenses                                
General and administrative expenses   $ 347,326     $ 526,217     $ 178,891       34.0 %
                                 
Loss from operations     (307,260 )     (508,854 )     201,594       39.6 %
                                 
Other Income (Expense)                                
Interest expense     (4,951 )     (5,408 )     457       8.4 %
Interest expense - related party     (23,985 )     (2,747 )     (21,238 )     (773.1 )%
Gain on derivatives     15,088       -       15,088       100.0 %
                                 
Total Other Income (expense) - net     (13,848 )     (8,155 )     (5,693 )     (69.8 )%
                                 
Net loss   $ (321,108 )   $ (517,009 )   $ 195,901       37.9 %

 

19
 

 

    Six Months Ended May 31,     Change     Change  
    2016     2015     (Dollars)     (Percentage)  
                         
Revenues                                
Construction management fees   $ 239,783     $ -     $ 239,783       100.0 %
Consulting income     31,460       17,363       14,097       81.2 %
Total revenues     271,243       17,363       253,880       1,462.2 %
                                 
Costs of services     231,177       -       231,177       100.0 %
                                 
Gross profit     40,066       17,363       22,703       130.8 %
                                 
Expenses                                
General and administrative expenses   $ 1,334,002     $ 1,014,062     $ (319,940 )     (31.5 )%
                                 
Loss from operations     (1,293,936 )     (997,239 )     (296,697 )     (29.8 )%
                                 
Other Income (Expense)                                
Interest expense     (54,149 )     (9,333 )     (44,816 )     (479.9 )%
Interest expense - related party     (41,760 )     (4,830 )     (36,930 )     (764.6 )%
Gain on derivatives     49,328       -       49,328       100.0 %
                                 
Total Other Income (expense) - net     (46,581 )     (14,163 )     (32,418 )     (228.9 )%
                                 
Net loss   $ (1,340,517 )   $ (1,011,402 )   $ (329,115 )     (32.5 )%

 

Revenues. During the three and six months ended May 31, 2016 and 2015, the Company recognized $239,783 and $0, respectively; in gross revenue relating to construction management. During the three and six months ended May 31, 2016 and 2015, the Company recognized $31,460 and $17,363, respectively; in gross revenues relating to consulting.

 

Costs of services. During the three and six months ended May 31, 2016 and 2015, the Company recognized $231,177 and $0, respectively; in costs relating to construction management.

 

Gross profit. During the three and six months ended May 31, 2016 and 2015, the Company reported $40,066 and $0, respectively; in gross profit from construction management projects.

 

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 during the three months ended May 31, 2016 as compared to the same period in 2015 is primarily attributable to the decreased compensation expense (see Note 8 – Commitments and Contingencies). The increase in our general and administrative expenses during the six months ended May 31, 2016 as compared to the same period in 2015 is primarily due to the addition of the four G3P officers and stock based compensation.

 

Interest Expense. Interest expense for the three and six months ended May 31, 2016 and 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 $15,088 and $49,328 gains on derivatives during the three and six months ended May 31, 2016, respectively.

 

Liquidity and Financial Condition

 

    Six Months Ended May 31,  
Category   2016     2015  
             
Net cash used in operating activities   $ (341,642 )   $ (105,591 )
                 
Net cash provided by financing activities     399,939       104,150  
                 
Net increase (decrease) in cash   $ 58,297     $ (1,441 )

 

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Cash Flows from Operating Activities

 

Net cash used in operating activities was $341,642 for the six months ended May 31, 2016, compared with $105,591 for the comparable period in 2015. Net cash used in operating activities for the six months ended May 31, 2016 is mainly attributable to our net loss of $1,340,517, offset by an increase in accounts payable and accrued expenses. Net cash used in operating activities for the six months ended May 31, 2015 is mainly attributable to our net loss of $1,011,402, offset by an increase in accounts payable and accrued expenses

 

Cash Flows from Financing Activities

 

We have financed our operations primarily from either advancements or the issuance of equity and debt instruments. For the six months ended May 31, 2016 cash flows provided by financing activities was $399,939, compared to $104,150 for the comparable period in 2015. We received $399,939 in proceeds from convertible debt and notes payable with third parties and related parties during the six months ended May 31, 2016, compared to $45,000 in proceeds from convertible debt and notes payable with third parties during the six months ended May 31, 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 May 31, 2016, the Company had cash of $59,578 and current liabilities of $2,151,994. Our current liabilities include accounts payable and accrued expenses to related parties of $815,091. We have historically financed our operations primarily through private placements of common stock, loans from third parties and loans from our Officers. 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 $1,340,517 and net cash used in operations of $341,642 for the six months ended May 31, 2016; and a working capital deficit of $1,740,817 at May 31, 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.

 

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 May 31, 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 May 31, 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 May 31, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

21
 

 

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.

 

22
 

 

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: July 20, 2016 By: /s/ Robert D. Kohn
    Robert D. Kohn, Chairman and Chief Executive Officer and Chief Financial Officer

 

23
 

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