Biopower Operations Corp - Quarter Report: 2012 August (Form 10-Q)

U. S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended August 31, 2012

For the transition period from ________________ to __________________

Commission File Number: 333-172139

BioPower Operations Corporation

(Exact name of registrant as specified in its charter)

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

(Address of principal executive offices)

Issuer’s telephone number, including area code: +1 954 607 2800

Securities registered pursuant to Section 12(b) of the Act: None.

Securities registered pursuant to Section 12(g) of the Act: None.

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

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

  Yes ¨ No x

Common Stock $0.0001. As of October 22, 2012, 90,680,000 shares of common stock of the issuer were outstanding.

FORWARD LOOKING STATEMENTS AND ASSOCIATED RISK

Certain statements in this Report, and the documents incorporated by reference herein, constitute forward looking statements. Such forward looking statements involve known and unknown risks, uncertainties and other factors which may cause deviations in actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied. Such factors include, but are not limited to: market and customer acceptance and demand for our products; our ability to market our products; the impact of competitive products and pricing; the ability to develop and launch new products on a timely basis; the regulatory environment, including government regulation in the United States; our ability to obtain the requisite regulatory approvals to commercialize our products; fluctuations in operating results, including spending for development and marketing activities; and other risks detailed from time-to-time in our filings with the U.S. Securities and Exchange Commission (the “SEC”).

The words "believe, expect, anticipate, intend and plan" and similar expressions identify predictive statements. These statements are subject to risks and uncertainties that cannot be known or quantified and, consequently, actual results may differ materially from those expressed or implied by such predictive statements. Readers are cautioned not to place undue reliance on these predictive statements, which speak only as of the date they are made.

Unless otherwise noted, all currency figures in this filing are in U.S. dollars.  

Introductory Comment - Use of Terminology

Throughout this Quarterly Report on Form 10-Q, the terms “we,” “us” and “our” refers to BioPower Operations Corporation and, unless the context indicates otherwise, our subsidiaries in which we hold 100% of such entities’ outstanding equity securities, including BioPower Corporation (“BioPower Corporation”), Green Oil Plantations Americas Inc. (“Green Oil”), Green Energy Crops Corporation (“GECC”), FTZ Exchange LLC. and FTZ Energy Corporation, on a consolidated basis. Unless otherwise indicated, all monetary amounts are reflected in United States Dollars.

BIOPOWER OPERATIONS CORPORATION

(A Developmental Stage Company)

CONTENTS

PART I – FINANCIAL INFORMATION

BioPower Operations Corporation and Subsidiaries

(A Development Stage Company)

Consolidated Financial Statements

August 31, 2012

(Unaudited)

CONTENTS

BioPower Operations Corporation and Subsidiaries

(A Development Stage Company)

Consolidated Balance Sheets

See accompanying notes to consolidated financial statements

BioPower Operations Corporation and Subsidiaries

(A Development Stage Company)

Consolidated Statements of Operations

(Unaudited)

See accompanying notes to consolidated financial statements

BioPower Operations Corporation and Subsidiaries

(A Development Stage Company)

Consolidated Statement of Stockholders' Deficit

From September 13, 2010 (Inception) to August 31, 2012

(Unaudited)

See accompanying notes to consolidated financial statements

BioPower Operations Corporation and Subsidiaries

(A Development Stage Company)

Consolidated Statements of Cash Flows

(Unaudited)

See accompanying notes to consolidated financial statements

BioPower Operations Corporation and Subsidiaries

(A Development Stage Company)

Notes to Consolidated Financial Statements

August 31, 2012

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 and the rules and regulations of the United States Securities and Exchange Commission for interim financial information.

The financial information as of November 30, 2011 is derived from audited consolidated financial statements presented in the Company’s Annual Report on Form 10-K for the year ended November 30, 2011. The unaudited interim consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K, which contains the audited consolidated financial statements and notes thereto, together with the Management’s Discussion and Analysis, for the year ended November 30, 2011.

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 omitted, pursuant to the rules and regulations of the Securities and Exchange Commission 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 management's opinion, however, that all material adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair financial statement presentation. The interim results for the period ended August 31, 2012, are not necessarily indicative of results for the full fiscal year.

Note 2 Nature of Operations and Summary of Significant Accounting Policies

BioPower Corporation (“BioPower” or “the Company”) was incorporated in the State of Florida on September 13, 2010. On January 5, 2011, the Company re-domiciled to Nevada and formed BioPower Operations Corporation, a Nevada corporation. On January 6, 2011, the shareholders of BioPower Corporation contributed their shares of BioPower Corporation to BioPower Operations Corporation and BioPower Corporation became a wholly-owned subsidiary.

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

To date, the activities of the Company have been limited to implementing the business plan and raising capital. The Company is still in the development stage.

The Company’s fiscal year end is November 30.

Principles of Consolidation

All inter-company accounts and transactions have been eliminated in consolidation.

Development Stage

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

BioPower Operations Corporation and Subsidiaries

(A Development Stage Company)

Notes to Consolidated Financial Statements

August 31, 2012

Unaudited

Risks and Uncertainties

The Company intends to operate in an industry that is subject to rapid change. The Company's operations will be subject to significant risk and uncertainties including financial, operational, technological, regulatory and other risks, including the potential risk of business failure. Also, see Note 3 regarding going concern matters.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Such estimates and assumptions for the periods ended August 31, 2012 and 2011, and assumptions affect, among others, the following:

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 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 estimates.

Cash and Cash Equivalents

The Company considers all highly liquid instruments purchased with a maturity of three months or less and money market accounts to be cash equivalents. The Company had no cash equivalents at August 31, 2012 and 2011.

BioPower Operations Corporation and Subsidiaries

(A Development Stage Company)

Notes to Consolidated Financial Statements

August 31, 2012

Unaudited

Marketable Securities

(A) Classification of Securities

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

Any unrealized gains and losses are reported as other comprehensive income (loss). Realized gains (losses) are computed on a specific identification basis and are recorded in net capital gains (losses) on investments in the combined consolidated statements of operations.

During 2012, the Company sold 2,436,000 shares of their AFS having a cost basis of $41,168, for proceeds of $11,330, resulting in a loss on sale of AFS of $29,838.

The Company’s cost basis in AFS was as follows:

The composition of the Company’s investments at August 31, 2012, classified as current assets, is as follows:

Investment income (loss) for the nine months ended August 31, 2012 and 2011 is as follows:

The Company has a 100% concentration in one publicly traded stock.

(B) Other than Temporary Impairment

The Company reviews its equity investment portfolio for any unrealized losses that would be deemed other-than-temporary and require the recognition of an impairment loss in income. If the cost of an investment exceeds its fair value, the Company evaluates, among other factors, general market conditions, the duration and extent to which the fair value is less than cost, and the Company’s intent and ability to hold the investments. Management also considers the type of security, related-industry and sector performance, as well as published investment ratings and analyst reports, to evaluate its portfolio. Once a decline in fair value is determined to be other than temporary, an impairment charge is recorded and a new cost basis in the investment is established. If market, industry, and/or investee conditions deteriorate, the Company may incur future impairments.

The Company has not recorded any impairment losses as of August 31, 2012 and 2011, respectively.

BioPower Operations Corporation and Subsidiaries

(A Development Stage Company)

Notes to Consolidated Financial Statements

August 31, 2012

Unaudited

Equipment

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

Equipment is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  There were no impairment charges taken during the periods ended August 31, 2012 and 2011.

Intangible Assets

Identifiable intangible assets with finite lives are amortized over their estimated useful lives and are reviewed for impairment if indicators of potential impairment exist. Also see Note 8 regarding license agreement.

Investment in Joint Venture

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

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

As of August 31, 2012, the Joint Venture had no activity.

Beneficial Conversion Feature and Debt Discount

For conventional convertible debt where the rate of conversion is below market value at the date of the agreement, the Company records a “beneficial conversion feature” (“BCF”) and related debt discount.

When the Company records a BCF, the relative fair value of the BCF would be recorded as a debt discount against the face amount of the respective debt instrument. The discount would be amortized to interest expense over the life of the debt. When a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately expensed.

BioPower Operations Corporation and Subsidiaries

(A Development Stage Company)

Notes to Consolidated Financial Statements

August 31, 2012

Unaudited

Derivative Liabilities

Fair value accounting requires bifurcation of embedded derivative instruments such as conversion features in convertible debt or equity instruments, and measurement of their fair value for accounting purposes. In determining the appropriate fair value, the Company expects to use the Black-Scholes option-pricing model. In assessing the convertible debt instruments, management would determine if the convertible debt host instrument is conventional convertible debt and further if there is a beneficial conversion feature requiring measurement. If the instrument is not considered conventional convertible debt, the Company will continue its evaluation process of these instruments as derivative financial instruments.

Once determined, derivative liabilities are adjusted to reflect fair value at each reporting period end, with any increase or decrease in the fair value being recorded in results of operations as an adjustment to fair value of derivatives. In addition, the fair value of freestanding derivative instruments such as warrants, are also valued using the Black-Scholes option-pricing model.

Share-based payments

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

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

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

When computing fair value, the Company may consider the following variables:

BioPower Operations Corporation and Subsidiaries

(A Development Stage Company)

Notes to Consolidated Financial Statements

August 31, 2012

Unaudited

Earnings per share

Basic earnings (loss) per share is computed by dividing net income (loss) by weighted average number of shares of common stock outstanding during each period. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period.

Since the Company reflected a net loss in 2012 and 2011, considering any common stock equivalents, if exercisable, would have been anti-dilutive. A separate computation of diluted earnings (loss) per share is not presented.

The Company has the following potential common stock equivalents at August 31, 2012 and 2011:

(1) On January 11, 2012, the 1,000,000 warrants expired unexercised.

Reclassifications

Certain amounts have been reclassified to conform to the current period presentation. Such reclassifications had no effect on the reported results of operations or cash flows.

On August 9, 2012, Dale Shepherd resigned as President and Chief Operating Officer. As a result of the resignation, related convertible debt was reclassified from convertible debt - related party to notes payable for purposes of financial statement presentation. The related debt is currently in default, see note 6 (B).

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 $696,598 and net cash used in operations of $207,556 for the nine months ended August 31, 2012; and a working capital deficit of $1,115,728 and a stockholders’ deficit of $841,900 at August 31, 2012. 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 or equity financings. The Company will likely rely upon related party debt or equity financing in order to ensure the continuing existence of the business.

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.

BioPower Operations Corporation and Subsidiaries

(A Development Stage Company)

Notes to Consolidated Financial Statements

August 31, 2012

Unaudited

Note 4 Equipment

At August 31, 2012 and November 30, 2011, equipment consists of the following:

Note 5 Notes Payable – Related Parties

During November 2010, the Company’s Chief Executive Officer advanced $10,927. The loan bears interest at 4%, is unsecured and due on demand.

During November 2010, a Company Director advanced $10,000. The loan bears interest at 4%, is unsecured and due on demand.

During December 2010, a Company Director advanced $506. The loan bears interest at 4%, is unsecured and due on demand.

During January 2011, the Company’s Chief Executive Officer advanced $832. The loan bears interest at 4%, is unsecured and due on demand.

During January 2011, a Company Director advanced $631. The loan bears interest at 4%, is unsecured and due on demand.

During February 2011, a Company Director advanced $985. The loan bears interest at 4%, is unsecured and due on demand.

During May 2011, the Company repaid all related party advances totaling $23,881.

As of November 30, 2011, the Company owed $385 in accrued interest, which has been recorded as a component of accounts payable and accrued expenses.

BioPower Operations Corporation and Subsidiaries

(A Development Stage Company)

Notes to Consolidated Financial Statements

August 31, 2012

Unaudited

During February 2012, the Company’s Chief Executive Officer advanced $2,500. The loan bears interest at 4%, is unsecured and due on demand.

During March 2012, the Company’s Chief Executive Officer advanced $17,000. The loan bears interest at 4%, is unsecured and due on demand.

During April 2012, the Company’s Chief Executive Officer advanced $9,000. The loan bears interest at 4%, is unsecured and due on demand.

During June 2012, the Company’s Chief Executive Officer advanced $1,592. The loan is non-interest bearing, unsecured and due on demand.

During July 2012, the Company’s Chief Executive Officer advanced $12,000. The loan bears interest at 4%, is unsecured and due on demand.

As of August 31, 2012, the Company owes $924 in accrued interest, which has been recorded as a component of accounts payable and accrued expenses. 

Note 6 Notes Payable – and Convertible Debt

(A) Year Ended November 30, 2011

During October 2011, a third party investor advanced $25,000. The loan bears interest at 4%, is unsecured and due on demand. The lender may convert the loan into 100,000 restricted shares of the Company at $0.25 per share. The Company has determined that this is conventional convertible debt, with a BCF. See Note 6(C).

During November 2011, a third party investor advanced $5,000. The loan bears interest at 4%, is unsecured and due on demand. The lender may convert the loan into 20,000 restricted shares of the Company at $0.25 per share. The Company has determined that this is conventional convertible debt, with a BCF. See Note 6(C).

As of November 30, 2011, the Company owed $94 in accrued interest, which has been recorded as a component of accounts payable and accrued expenses.

(B) Nine Months Ended August 31, 2012

During December 2011 and January 2012, third party investors advanced $40,000. The loan bears interest at 4%, is unsecured and due on demand. The lender may convert the loan into 160,000 restricted shares of the Company at $0.25 per share. The Company has determined that this is conventional convertible debt, with a BCF. See Note 6(C).

BioPower Operations Corporation and Subsidiaries

(A Development Stage Company)

Notes to Consolidated Financial Statements

August 31, 2012

Unaudited

During April 2012 and May 2012, a third party investor advanced $50,000. The loan bears interest at 4%, is unsecured and due on demand. The lender may convert the loan into 200,000 restricted shares of the Company at $0.25 per share. The Company has determined that this is conventional convertible debt, with a BCF. See Note 6(C).

During July 2012, a third party investor advanced $12,000. The loan bears interest at 4%, is unsecured and due on demand.

During August, 2012, the Company received a demand from a former related party to repay $70,000 of convertible debt. The Company is in default.

As of August 31, 2012, the Company owes $2,805 in accrued interest, which has been recorded as a component of accounts payable and accrued expenses.

(C) Debt Discount

At August 31, 2012 and November 30, 2011, the Company recorded gross debt discounts of $120,000 and $30,000, respectively.

As a component of the computation for BCF, the Company’s market price was determined based upon the quoted trading price (once publicly traded in February 2012) or based upon recent third party cash offerings at the date of issuance (prior to February 2012).

At August 31, 2012, the Company had fully amortized $120,000 in debt discount.

The following is a summary of the Company’s convertible debt at August 31, 2012 and November 30, 2011.

Amortization expense for the nine months ended August 31, 2012 and 2011 was $116,429 and $0, respectively.

Note 7 Stockholders’ Deficit

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

BioPower Operations Corporation and Subsidiaries

(A Development Stage Company)

Notes to Consolidated Financial Statements

August 31, 2012

Unaudited

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

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

During the nine months ended August 31, 2012, the Company issued the following shares for cash and services:

(1) See Note 7(C)

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

(C) Stock issued for license

In connection with the license agreement above, the following occurred:

On January 27, 2011, an agreement was executed with Green Oil Plantations Ltd. and their affiliates (“Green Oil”) for an exclusive license of fifty years in exchange for 1,000,000 shares of common stock, having a fair value of $250,000 ($0.25/share), based upon recent cash offerings to third parties, at that time, to utilize Green Oil’s licensed technologies and turnkey model for growing energy crops in North America, South America, Central America and the Caribbean excluding Cuba. 

BioPower Operations Corporation and Subsidiaries

(A Development Stage Company)

Notes to Consolidated Financial Statements

August 31, 2012

Unaudited

The Company has agreed to pay a royalty fee, as a percentage, of gross revenue as follows:

5% of the first $50,000,000 of gross revenue;

3% of the second $50,000,000 of gross revenue; and

1% of anything in excess of $100,000,000

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

No such transactions have occurred as of November 30, 2011 and through October 16, 2012.

As of August 31, 2012 and November 30, 2011 the license is summarized as follows:

Amortization expense for the fiscal years is as follows:

(D) Warrants

On January 11, 2011, the Company issued 1-year warrants for 1,000,000 shares with a consultant, with an exercise price of $1 per share. The warrants were granted for services rendered. The warrants had a fair value of $60,800, based upon the Black-Scholes option-pricing model. The Company used the following weighted average assumptions:

BioPower Operations Corporation and Subsidiaries

(A Development Stage Company)

Notes to Consolidated Financial Statements

August 31, 2012

Unaudited

Note 8 Related Party Transactions

License Agreement – Former Affiliate of Chief Executive Officer

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

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

Note 9 Formation of Subsidiaries

On January 14, 2011, the Company formed Global Energy Crops Corporation (“GECC”), a 100% wholly owned subsidiary. GECC intends to:

BioPower Operations Corporation and Subsidiaries

(A Development Stage Company)

Notes to Consolidated Financial Statements

August 31, 2012

Unaudited

On January 27, 2011, the Company formed Green Oil Plantations Americas, Inc. (“Green Oil”), a 100% wholly owned subsidiary as the operating company for the exclusive license agreement with Green Oil Plantations, Ltd. (See Note 7(C)).

All of the above subsidiaries are currently inactive except for their formation.

Note 10 Commitments and Contingencies

Commitments

(A) Employment Agreements – Officers and Directors

As of August 31, 2012, the Company had employment agreements with certain officers and directors (two individuals) containing the following provisions:

(B) Lease Agreement

On March 18, 2011, the Company entered into a 26-month lease that commenced on April 1, 2011 and will expire on May 31, 2013. The Company’s monthly lease payment of $4,150 commenced on July 1, 2011. The Company will amortizes rent expense on a straight-line basis over the occupancy period.

Rent expense was $33,043 and $18,357 for the nine months ended August 31, 2012 and 2011, respectively.

Deferred rent payable (component of accounts payable and accrued expenses) at August 31, 2012 and November 30, 2011 was $4,310 and $8,620, respectively. Deferred rent payable is the sum of the difference between the monthly rent payment and the monthly rent expense of an operating lease that contains escalated payments in future periods.

(C) Consulting Agreements

On January 5, 2012, the Company entered into a consulting agreement for financing. The Company paid a retainer fee of $15,000 by issuing 60,000 shares of restricted common stock at $0.25 per share. The fair value of the Company’s common stock was based upon third party cash offerings at that time. The Company expensed this issuance as a component of general and administrative expenses. As of May 18, 2012, the Company rescinded the agreement, the expense was reversed and the shares were cancelled.

BioPower Operations Corporation and Subsidiaries

(A Development Stage Company)

Notes to Consolidated Financial Statements

August 31, 2012

Unaudited

On March 26, 2012, the Company entered into a consulting agreement. The Company paid a fee of 150,000 shares of common stock, having a fair value of $97,500 ($0.65/share), based upon the quoted closing trading price. During the nine months ended August 31, 2012, the Company expensed this issuance as a component of general and administrative expenses.

Contingencies

From time to time, the Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise that may harm its business. The Company is currently not aware of any such legal proceedings or claims that they believe will have, individually or in the aggregate, a material adverse effect on its business, financial condition or operating results.

Note 11 Revenue - other

On February 13, 2012, the Company was engaged by a third party to provide consulting services; The Company will earn fees in the form of cash or common stock of the third party, a public company, at the discretion of the third party, as follows:

● $120,000 was earned upon execution of agreement (this amount has been received in the form of 15,000,000 shares ($0.008/share). The quantity of shares issued was determined based upon a formula that would require a discount to market calculation to be performed by the public entity. The Company recorded the quantity of shares received as revenues, with a corresponding asset classified as available for sale securities. The fair value of the shares received upon the execution of this agreement was $253,500, as evidenced by the quoted closing trading price.

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

● $60,000 is due on February 13, 2014

Fees are payable in the form of cash or common stock of the third party, a public company, at their discretion.

See Note 2 for reconciliation of amounts associated with the purchase and sale of certain AFS securities.

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.

BioPower Operations Corporation and Subsidiaries

(A Development Stage Company)

Notes to Consolidated Financial Statements

August 31, 2012

Unaudited

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

The Company has assets measured at fair market value on a recurring basis. Consequently, the Company had gains and losses reported in the statement of comprehensive income (loss), that were attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date for the period ended August 31, 2012.

The following is the Company’s assets measured at fair value at August 31, 2012 and November 30, 2011:

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

Note 13 Subsequent Events

In September 2012, the Company repaid an advance of $1,200 to its Chief Executive Officer.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

SPECIAL NOTE OF CAUTION REGARDING FORWARD-LOOKING STATEMENTS

Statements made in this 10-Q that are not historical or current facts are “forward-looking statements” made pursuant to the safe harbor provisions of Section 27A of the of the Securities Act of 1933 (the “Act”) and Section 21E of the Securities Exchange Act of 1934.  In  some  cases, you can  identify  forward-looking statements by terminology such  as "may",  "should", "intends", "expects", "plans", "anticipates", "believes",  "estimates", "predicts", "potential", or  "continue"  or  the  negative of  these  terms  or  other  comparable terminology.  We intend that such forward-looking statements be subject to the safe harbors for such statements.  We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made.  Any forward-looking statements represent management’s best judgment as to what may occur in the future.  However, forward-looking statements are subject to risks, uncertainties and important factors beyond our control that could cause actual results and events to differ materially from historical results of operations and events and those presently anticipated or projected.  We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events.

Unless the context otherwise requires, The "Company", "we," "us," and "our," refer to (i) BioPower Operations Corporation.; (ii) BioPower Corporation (“BC”), (iii) Green Oil Plantations Americas, Inc. (“GOP”), and (iv) Global Energy Crops Corporation (GECC) .

Overview

BioPower Corporation was incorporated September 13, 2010, in the State of Florida and re-domiciled as BioPower Operations Corporation which was incorporated in the State of Nevada on January 5, 2011.

We are a development stage company and have not yet generated or realized any revenues from business operations. 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. This is because we have not generated minimal revenues from a consulting agreement and minimal revenues are anticipated until we begin marketing our products to customers. Accordingly, we must raise cash from sources other than revenues generated such as from the proceeds of loans, sale of common shares, advances from related parties and consulting agreements.

From inception (September 13, 2010) to August 31, 2012, the company's business operations have primarily been focused on developing our business plan, developing potential products and biomass projects, becoming a trading public company through an S-1 registration statement, raising money and developing on-line exchanges.

Castor Project

The Company has begun the process to obtain financing for a castor plantation and milling operation to supply castor oil to the U.S.A. and/or international marketplace. We have identified a hybrid seed that we believe may result in high yields per acre. We have identified unique growing protocols that also may enhance the yield of seed thus oil by weight. We have identified engineering firms to prepare both general and site specific engineering for permitting and construction purposes. We have identified the mill equipment to process the seed into oil and the agricultural equipment required to facilitate the growing protocols that have been identified. We are currently working on the development of a long-term (greater than one year) purchase agreement for the sale of castor oil. Although we have discussed various potential sites in the center of Florida, we have not made a final determination of the specific location. 

The U.S.A. currently imports almost 100% of the castor oil used as a feedstock into the personal care, pharmaceuticals, polymers and plastics, adhesives, coatings and other specialty chemical markets. The Company proposes to develop a project in Florida to grow proven hybrid castor which can be harvested within 110 days per crop.  Given the rainfall, the temperature profile and the nature of the soil, it is anticipated that the land when developed will produce 2.6 to 3.0 metric tons of oil seeds per acre based on two crops per year. We will process the seeds into oil (43% of seed weight) with our own, vertically integrated mill which we consider critical to this project. Based on our ability to obtain financing in this fiscal year, we hope to realize revenues and profits from this operation in 2013.

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

Potential Business Opportunities

Our experienced management team has been reviewing and doing due diligence for biomass products, biofuels production and processes that we believe will provide revenue and profitability for the Company. We may license or acquire such opportunities after we review such opportunities to determine if they meet our potential goals and criteria. There can be no assurance that the Company will ever successfully commence any of the above.

FTZ Exchange, LLC

On June 8, 2012, the Company’s Chief Executive Officer contributed 100% of his member interest in FTZ Exchange, LLC, (“FTZ”) a 100% wholly owned subsidiary, to the Company for no consideration. FTZ is a licensing company that licenses business know-how and technology to build transaction fee based exchanges for the sale of products and services in vertical markets. FTZ combines on-line and off-line commercial trade strategies with transaction fee based revenue models to create internet exchanges to sell or source products and services to business to business (B2B), business to consumer (B2C) and in some instances (B2B2C) business to business and business to consumer. FTZ exchanges also include government communities. 

Health Exchange

FTZ has been in the development stage of a health exchange since January 2012. FTZ currently owns 50% of the Qx Health Exchange with Quture, Inc. (“QUTR”).  This exchange is for the sale of health products and services for the communities of health product manufacturers, insurance companies, hospitals, physicians, healthcare providers, medical tourism and patients.  

Quture and FTZ have been working jointly to develop the exchange in conjunction with Quture joint venture partners for the backbone. The initial phase requires no investment from Quture or FTZ until the system is proven. Quture and FTZ are in discussions with investors to fund the operations and build out of the exchange. There can be no assurance such funding will ever be achieved or that the Qx Health Exchange will ever be launched.

Capacity Exchange

FTZ has executed a Strategic Alliance with Capacity 360, LLC and Founder Tom Settineri to develop excess capacity transactions through off-line in-house associates. Capacity 360, LLC is a company that assists Global 2000 corporations and other corporations to develop excess capacity strategies to optimize and monetize their unused, under-utilized manufacturing capacities and assets, with the goal of meeting each corporation's strategic goals. Capacity 360's business model increases a corporate return on investment by utilizing excess capacity and realizing economies of scale combined with the development of new channels of distribution for the corporation's products, services and assets. Capacity 360’s business model also addresses excess inventories.

The exchange is not necessary for Capacity 360 to generate revenues. FTZ is working with Capacity 360 to develop an on-line exchange which both believe would enhance the transactions and activities of Capacity 360’s business and provide for a faster reach into global business development. Capacity 360 and FTZ will seek investors for the capacity exchange. There can be no assurance such funding will ever be achieved or that the capacity exchange will ever be launched.

FTZ Energy Exchange Corporation

FTZ formed FTZ Energy Exchange Corporation on May 14, 2012 as a wholly-owned subsidiary to launch an energy exchange. FTZ will require funding to launch an energy exchange. There can be no assurance such funding will ever be achieved or that the energy exchange will ever be launched.

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 or debt securities.

Three Months Ended August 31, 2012 Compared to the Three Months Ended August 31, 2011

The following analysis reflects the condensed consolidated results of operations of BioPower Operations Corporation and its subsidiaries.

The following analysis reflects the condensed consolidated results of operations of BioPower Operations Corporation and its subsidiaries.

Neither Net Sales nor Cost of Sales was realized during either three month period. There is no Net Sales nor Cost of Sales as operations have not commenced.

Operating Expenses and Depreciation. Operating expenses and depreciation for the three month period ended August 31, 2012 of $247,790 decreased $23,921 (9%) as compared with $271,711 for the three month comparable period ended in 2011. below details the components of operating expense, as well as the dollar and percentage changes for the three-month period ended August 31.

General and administrative expenses primarily consist of development costs, corporate overhead, accrued payroll and payroll taxes, financial and administrative contracted services for professional fees including legal and accounting, SEC filing fees, insurance and stock based compensation.

Wage and wage related costs which include salaries, commissions, taxes and benefits, decreased $17,068(11%), due to Mr. Shepherd resigning as President during the quarter and three months compensation for an executive assistant compared with 2011 which includes three months compensation for Ms. Nelson and Messrs. Kohn and Shepherd and two months’ compensation for an executive assistant.

Professional fees include legal, accounting, stock transfer agent, SEC filing, and general consulting fees. Professional fees increased for the three months ended August 31, 2012 versus the same period last year by $20,765 for an increase of 52% primarily resulting from a significant increase in consulting fees incurred in conjunction with the engagement of investment banking firms for fund raising which were paid in restricted common stock at fair market value.

Insurance costs for the three months ended August 31, 2012, were $16,320 compared to $4,040 for the same period in 2011, an increase of $12,280 (3,040%) attributable to the cost of directors’ and officers’ liability insurance in 2012 which was not in effect in 2011.

Rent was $11,014 for the three months ended August 31, 2012, as compared to $11,014 for the same period in 2011, for the Company’s corporate office rental which commenced in April 2011 and terminates in May 2013.

Travel expense for the three months ended August 31, 2012 of $12,823 as compared with the same period for 2011 of $37,676 for a decrease of $24,853 (66%) is a result of international travel associated with our licensed technologies in 2011 that was not repeated during the same period of 2012 and less travel related to business development activities in 2012.

Miscellaneous expense decreased by $14,795 (61%) to $9,528 for the three months ended August 31, 2012, as compared to $24,323 for the same period in 2011. The decrease is attributable to a mix of increasing and decreases expenses that are not material in aggregate.

Depreciation and amortization expense remained the same at $2,656 for the three months ended August 31, 2012 as compared with $2,656 for the same period of 2011 as a result of no changes to depreciable or amortizable assets.

Interest Expense increased significantly from $0 in 2011 as compared with $34,889 for the three month period in 2012. This is attributable to the debt discount on the convertible note for the $70,000 loan to the Company from the former President, Dale Shepherd.

Net Loss and Net Loss per Share.  Net Loss for the three months ended August 31, 2012 was $312,517 as compared with $271,711 for the same period in 2011, for an increase in net loss of $40,806 (15%). The increased net loss for the three months ended August 31, 2012 as compared with the same period in 2011 arose primarily from (i) increased professional fees of $20,765 and (ii) increased insurance costs of $12,280. In addition there were loans to the company in the comparable 2012 period with discounting treatment that resulted in an increase in recorded interest cost of $34,889.

Nine Months Ended August 31, 2012 compared to the Nine Months Ended August 31, 2011

The following analysis reflects the condensed consolidated results of operations of BioPower Operations Corporation and its subsidiaries.

Consolidated Statement of income

Net Revenues. Net revenues were $253,500 for the nine month period ended August 31, 2012 compared to $0 for the nine month comparable period in 2011 for an increase of $253,500. This increase was due to a non-core business consulting agreement paid in stock and valued at the date of agreement during the December to February quarter.

Operating Expenses and Depreciation. Operating expenses and depreciation for the three month period ended August 31, 2012 of $561,273 increased $90,055 (19%) as compared with $471,218 for the three month comparable period ended in 2011. The table below details the components of operating expense, as well as the dollar and percentage changes for the nine month period ended August 31st.

General and administrative expenses primarily consist of development costs, corporate overhead, accrued payroll and payroll taxes, financial and administrative contracted services for professional fees including legal and accounting, SEC filing fees, insurance and stock based compensation.

Wage and wage related costs which include salaries, commissions, taxes and benefits, increased $66,516 (17%), inasmuch as nine months 2012 includes nine month’s compensation for Ms. Nelson and Messrs. Kohn and Shepherd and an executive assistant as compared to nine months ended August 31, 2011 which includes nine months compensation for Ms. Nelson and Mr. Kohn, eight months’ compensation for Mr. Shepherd and five months compensation for an executive assistant.

Professional fees include legal, accounting, stock transfer agent, SEC filing, and general consulting fees. Professional fees decreased for the three months ended August 31, 2012 versus the same period last year by $37,762, a decrease of 16% primarily resulting from a significant decrease in legal and accounting fees incurred in conjunction with the S-1 filing in 2011 offset partially by increased fundraising costs for the engagement of investment banking firms in the June through August period of 2012.

Insurance costs in the nine months ended August 31, 2012, were $48,263 compared to $4,443 for the same period in 2011, an increase of $43,820 (986%). The increase is attributed primarily to directors’ and officers’ liability insurance (D&O) being bound effective August 2011 with no such D&O cost in the comparable 2011 period.

Rent was $33,043 through August 31, 2012 (nine months’ rental cost) an increase of $14,431 (78%) as compared with $18,612 for the nine months ended August 31, 2011(five months’ rental cost) due to the Company’s corporate office rental commencing in April 2011.

Travel expense for the nine months ended August 31, 2012 of $45,021 as compared to the same period for 2011 of $48,115, or a decrease of $3,094 (6%) is a result international travel associated with our licensed technologies in 2011 that was not repeated during the same period of 2012.

Miscellaneous expense decreased by $30,445 (50%) to $30,031 for the nine months ended August 31, 2012, as compared with $60,477 for the same period in 2011. The decrease is attributable to a mix of increasing and decreases expenses that are not material by nature.

Depreciation and amortization expense in our operating expenses for the nine months ended August 31, 2012 of $7,940 increased 57% compared to $5,068 for the same period for 2011 as a result primarily due to the timing of the acquisition of assets during the start-up phase of the business.

Interest Expense for the nine months ended August 31, 2012 was $119,619 as compared with interest expense of $0 for the same period last year. The increase in interest expense is primarily the result of debt discount on the convertible note for the $70,000 loan to the Company from the former President, Dale Shepherd.

Net loss for the nine months ended August 31, 2012 was $696,598 as compared with $745,688 for the same period in 2011, for a decreased net loss of $49,090 (7%). The decreased net loss for the nine months ended August 31, 2012 compared to the same period in 2011 arose primarily from the consulting revenue of $253,500 realized in the December to February quarter of 2012 and reduced professional fees of $37,762 offset partially by (i) increased wage and wage related costs of $66,516, (ii) increased interest costs of $119,619, (iii) increased insurance costs of $43,820 and (iv) increased rent costs of $14,431.

Liquidity and Financial Condition