Biopower Operations Corp - Quarter Report: 2016 August (Form 10-Q)

U. S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended August 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)

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.

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 October 21, 2016, the registrant had 47,361,606 shares of common stock, par value $0.0001 per share, outstanding.

BIOPOWER OPERATIONS CORPORATION

CONTENTS

CONTENTS

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

BioPower Operations Corporation and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

See accompanying notes to unaudited consolidated financial statements

BioPower Operations Corporation and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

See accompanying notes to unaudited consolidated financial statements

BioPower Operations Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

See accompanying notes to unaudited financial statements

BioPower Operations Corporation and Subsidiaries

Notes to Consolidated Financial Statements

August 31, 2016

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 November 30, 2015 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 nine months ended August 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 year ended November 30, 2015

BioPower Operations Corporation and Subsidiaries

Notes to Consolidated Financial Statements

August 31, 2016

Unaudited

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

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

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.

Reclassification of Prior Year Presentation

Certain prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reported results of operations.

Note 2 Going Concern

As reflected in the accompanying consolidated financial statements, the Company had a net loss of $1,797,349 and net cash used in operations of $360,617 for the nine months ended August 31, 2016. Additionally, the Company had a working capital deficit of $1,531,665 and a stockholders’ deficit of $3,801,830 at August 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 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

Notes to Consolidated Financial Statements

August 31, 2016

Unaudited

Note 3 Notes Receivable 

Notes Receivable at August 31, 2016 consists of the following:

Promissory Note (the “Note”) dated July 29, 2016 for $50,000 from a third party construction company (“Maker”) involved in the Company’s projects in Kenya. The principal amount, with interest, is due and payable no later than the earlier to occur of (a) the receipt by Maker of funds representing the aggregate minimum loan with an interest of at least 20% or (b) July 28, 2017 (the “Maturity Date”). On the Maturity Date, Maker shall offer payment of the principal amount in full plus accrued interest, supersede the agreement with a new one, or offer the option to convert the principal amount into a deposit for one of the Maker’s condominiums (the “Unit”)  as outlined in the agreement. The current value of the Unit is set at $200,000. The Company has the option, at any time within two months of Maturity Date (before or after), to (a) pay the remaining balance of $150,000 to receive ownership rights for the Unit after the maturity date, or (b) decline the option. If the payment due under the Note is not paid on the due date and an agreement as how this matter is settled is not signed off by both parties, the Maker will have to add a penalty of $10,000 that be due and payable to the Company for each month that the Note remains outstanding. The Company’s Chief Operating Officer (COO) loaned the Company $50,000 for the Note and as a business accommodation with the Maker. The COO owns the Note and has the right to receive the principal, interest and all other payments under the Note. The COO controls and makes all decisions under the Note. (See Note 6 – Related Party Transactions)

Note 4 Equipment

At August 31, 2016 and November 30, 2015, equipment consists of the following:

Note 5. Notes Payable and Convertible Debt

Notes payable consists of the following:

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. Loan has been repaid in full.

In July, 2016 the former President and Chief Operating Officer of the Company agreed to reduce his accrued compensation by $23,334, as a contribution to additional paid in capital. He also agreed to reclassify $193,667 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 August 9, 2012.

 BioPower Operations Corporation and Subsidiaries

Notes to Consolidated Financial Statements

August 31, 2016

Unaudited

Convertible debt consists of the following:

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 August 31, 2016 is $25,919. The note is shown net of a derivative debt discount of $20,349 at August 31, 2016.

On June 1, 2016, the Company entered into convertible debt agreements with a third party investor totaling $200,000 at 8% interest, due on May 31, 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 $200,000 from the initial valuation of the derivative liability of $345,554 and resulting in an initial loss on the derivative liability of $145,554 based on the Black Sholes pricing model. The fair value of the derivative liability at August 31, 2016 is $207,356. The note is shown net of a derivative debt discount of $175,034 at August 31, 2016.

Accrued interest on notes payable and convertible debt at August 31, 2016 and November 30, 2015 amounted to $44,106 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 $11,660 and $60,375 for the three months ended August 31, 2016 and 2015, respectively.

Note 6. Related Party Transactions

Notes payable to related parties consists of the following:

BioPower Operations Corporation and Subsidiaries

Notes to Consolidated Financial Statements

August 31, 2016

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 June 1, 2016 he agreed to reduce his accrued compensation by $25,000 as a contribution to additional paid in capital. He also agreed to reduce his long term note by $214,000 as a contribution to additional paid in capital.

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 June 1, 2016 she agreed to reduce her accrued compensation by $225,000 as a contribution to additional paid in capital. She also agreed to reduce her long term note by $9,583 as a contribution to additional paid in capital.

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 July 26, 2016 he agreed to reclassify an additional $25,000 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.

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 July 26, 2016 he agreed to reclassify an additional $20,000 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.

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 July 26, 2016 he agreed to reclassify an additional $24,000 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.

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. On July 26, 2016 he agreed to reclassify an additional $24,000 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.

 BioPower Operations Corporation and Subsidiaries

Notes to Consolidated Financial Statements

August 31, 2016

Unaudited

Convertible debt to related parties consists of the following:

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 due on or before June 17, 2016. Pursuant to the agreement, the investor is allowed to convert 100% of the debt at a share price of $0.15. The company accounted for the conversion of the debt 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. The agreement included an additional $1,270 payment as profit participation for work performed by the investor. The agreement also 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 certain equipment then investor shall receive a penalty of 253,926 shares of the Company’s common stock in consideration for the delay in payment. On August 31, 2016, the Company repaid the principal and interest and authorized the issuance of the shares of common stock in accordance with the penalty provision.

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.

 BioPower Operations Corporation and Subsidiaries

Notes to Consolidated Financial Statements

August 31, 2016

Unaudited

In May, 2016 the Chief Operating Officer made a loan of $50,000, bearing interest at 8% due on or before May 18, 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 $47,132 from the initial valuation of the derivative liability of $47,132 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 August 31, 2016 is $51,813. The note is shown net of a derivative debt discount of $40,353 at August 31, 2016.

In July, 2016 the Chief Operating Officer made a loan of $50,000 as collateral (See Note 3 – Notes Receivable), bearing interest at 8% due on or before July 31, 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 $50,000 from the initial valuation of the derivative liability of $62,346 and resulting in an initial loss on the derivative liability of $12,346 based on the Black Sholes pricing model. The fair value of the derivative liability at August 31, 2016 is $52,483. The note is shown net of a derivative debt discount of $47,681 at August 31, 2016.

Accrued interest on related party notes payable and convertible debt at August 31, 2016 and November 30, 2015, amounted to $40,451 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 $26,798 and $10,319 for the three months ended August 31, 2016 and 2015, respectively.

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

Note 7. Derivative Liabilities

On July 23, 2015, the Company entered into a convertible loan agreement with a third party investor who became The Company’s Chief Operating Officer. 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 August 31, 2016, $38,497 of the debt discount has been amortized. The fair value of the derivative liability at August 31, 2016 is $15,828 resulting in a gain on the change in fair value of the derivative of $44,528. The Note is shown net of a derivative debt discount of $11,503 at August 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 August 31, 2016 the fair value of the conversion feature is summarized as follows:

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 August 31, 2016 and commitment date:

 BioPower Operations Corporation and Subsidiaries

Notes to Consolidated Financial Statements

August 31, 2016

Unaudited

On May 18, 2016, the Company and its Chief Operating Officer entered into a convertible loan agreement. 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 August 31, 2016, $6,779 of the debt discount has been amortized. The fair value of the derivative liability at August 31, 2016 is $51,813 resulting in a loss on the change in fair value of the derivative of $4,681. The Note is shown net of a derivative debt discount of $40,353 at August31, 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.

As a result of the application of ASC No. 815 in period ended August31, 2016 the fair value of the conversion feature is summarized as follows:

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 August 31, 2016 and commitment date:

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 August 31, 2016, $3,230 of the debt discount has been amortized. The fair value of the derivative liability at August 31, 2016 is $25,919 resulting in a loss on the change in fair value of the derivative of $2,340. The Note is shown net of a derivative debt discount of $20,349 at August 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.

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

 BioPower Operations Corporation and Subsidiaries

Notes to Consolidated Financial Statements

August 31, 2016

Unaudited

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 August 31, 2016 and commitment date:

On June 1, 2016, the Company entered into a convertible loan agreement with a third party investor. The Company received a total of $200,000 which bears interest at 8% per annum and is due on May 31, 2018. Interest shall accrue from the advancement date and shall be payable on May 31, 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 $200,000 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 $345,554 and initial loss on derivative liability of $145,554 based on the Black Scholes pricing model. As of August 31, 2016, $24,966 of the debt discount has been amortized. The fair value of the derivative liability at August 31, 2016 is $207,356 resulting in a gain on the change in fair value of the derivative of $138,198. The Note is shown net of a derivative debt discount of $175,034 at August 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.

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

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 August 31, 2016 and commitment date:

On July 28, 2016, the Company and its Chief Operating Officer entered into a convertible loan agreement. The Company received a total of $50,000 which bears interest at 8% per annum and is due on July 31, 2018. Interest shall accrue from the advancement date and shall be payable on July 31, 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.

 BioPower Operations Corporation and Subsidiaries

Notes to Consolidated Financial Statements

August 31, 2016

Unaudited

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 $62,346 and initial loss on derivative liability of $12,346 based on the Black Scholes pricing model. As of August 31, 2016, $2,319 of the debt discount has been amortized. The fair value of the derivative liability at August 31, 2016 is $52,483 resulting in a gain on the change in fair value of the derivative of $9,863. The Note is shown net of a derivative debt discount of $47,681 at August 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.

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

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 August 31, 2016 and commitment date:

Note 8. Stockholders’ Deficit

For the nine months ended August 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.

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.

On August 31, 2016, the Company authorized the issuance of 253,926 shares of its common stock, as part of a Profit Participation arrangement with a related party investor. 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 certain equipment then investor shall receive a penalty of 253,926 shares of the Company’s common stock in consideration for the delay in payment.

There are 47,361,606 and 42,107,680 shares issued and outstanding at August 31, 2016 and November 30, 2015, respectively.

BioPower Operations Corporation and Subsidiaries

Notes to Consolidated Financial Statements

August 31, 2016

Unaudited

Note 9. 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:

Annual Salaries:

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:

The accrued officers and directors payroll at August 31, 2016 is $105,000.  

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 $42,801 and $39,781 for the nine month period ended August 31, 2016 and August 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 10. Subsequent Events 

In September, 2016, the Company accepted a common stock subscription for 1,000,000 shares of common stock at $0.10 per share or $100,000.

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

FORWARD LOOKING STATEMENTS AND ASSOCIATED RISK

The information contained in this Quarterly Report on Form 10-Q (this “Quarterly Report”) is intended to update the information contained in our Annual Report on Form 10-K for the year ended November 30, 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 nine months ended August 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”), Green³Power Holdings Company and its subsidiaries (“G³P”), 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.

We intend to use the following key strategies:

Our corporate headquarters are located at 1000 Corporate Drive, Suite 200, Fort Lauderdale, Florida 33334 and our phone number is (954) 202-6660. Our website can be found at www.biopowercorp.com. The information on our website is not incorporated in this report.

Our Business

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:

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:

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. 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.

Licensed Technologies

Green³Power Holdings Company – Licensed gasification technology for Waste-to-Energy Conversion

G³P 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 Nine Months Ended August 31, 2016 Compared to the Three and Nine Months Ended August 31, 2015

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