Item 1. Business
FORWARD-LOOKING STATEMENTS
This annual report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may", "will", "should", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential" or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable laws, including the securities laws of the United States, we do not intend to update any of the forward-looking statements so as to conform these statements to actual results.
As used in this annual report, the terms "we", "us", "our" and "our company" mean Mantra Venture Group Ltd. and our wholly owned subsidiaries Carbon Commodity Corporation, Mantra China Inc., Mantra China Limited, Mantra Media Corp., Mantra NextGen Power Inc., and Mantra Wind Inc., as well as our majority owned subsidiary Climate ESCO Ltd. and Mantra Energy Alternatives Ltd., unless otherwise indicated.
All dollar amounts refer to US dollars unless otherwise indicated.
Description of Business
We were incorporated in Nevada on January 22, 2007. On December 8, 2008 we continued our corporate jurisdiction out of the state of Nevada and into the Province of British Columbia, Canada. Our principal offices are located at #562 - 800 15355 24th Avenue, Surrey, British Columbia, Canada, V4A 2H9. Our telephone number is (604) 560-1503. Our fiscal year end is May 31.
We are building a portfolio of companies and technologies that mitigate negative environmental and health consequences that arise from the production of energy and the consumption of resources.
Our mission is to develop and commercialize alternative energy technologies and services to enable the sustainable consumption, production and management of resources on residential, commercial and industrial scales. We plan to develop or acquire technologies and services which include electrical power system monitoring technology, wind farm electricity generation, online retail of environmental sustainability solutions through a carbon reduction marketplace, and media solutions to promote awareness of corporate actions that support the environment. To carry out our business strategy we intend to acquire or license from third parties technologies that require further development before they can be brought to market. We also intend to develop such technologies ourselves, and we anticipate that to complete commercialization of some technologies we will enter into joint ventures, partnerships, or other strategic relationships with third parties who have expertise that we may require. We also plan to enter into formal relationships with consultants, contractors, retailers and manufacturers who specialize in the areas of environmental sustainability in order to carry out our online retail strategy.
We are a development stage company that has only recently begun operations. We have generated only nominal revenues from our intended business activities, and we do not expect to generate significant revenues in the next 12 months. Other than our invention for the electro-reduction of carbon dioxide, we have not yet developed or acquired any commercially exploitable technology. Since our inception, we have incurred operational losses and we have completed several rounds of financing to fund our operations.
We carry on our business through our subsidiaries as follows:
Mantra Energy Alternatives Ltd., through which we identify, acquire, develop and market technologies related to alternative energy production, greenhouse gas emissions reduction and resource consumption reduction;
Mantra Media Corp., through which we offer promotional and marketing services to companies in the sustainability sector or those seeking to adopt sustainable practices; and
Climate ESCO Ltd., majority owned, through which we distribute and install LED lighting solutions.
We also have a number of inactive subsidiaries which we plan to engage in various business activities in the future.
On February 29, 2012, our wholly owned subsidiary, Mantra Energy Alternatives Ltd., entered into subscription agreements with a number of non-US investors for the sale of 3,200,000 shares of Mantra Energy at a price of CAD $1.00 per share, for total proceeds of CAD $3,200,000. As of the closing of this financing, our company holds 6,000,000 shares of Mantra Energy out of a total of 9,200,000 issued and outstanding.
On April 3, 2012, we entered into a consulting agreement with BC0848571 Ltd., a company controlled by Tommy David Unger, a director of our company, whereby Mr. Unger agreed to provide consulting services as our company’s vice president of corporate finance for a period of 12 months. In consideration for agreeing to provide such consulting services by Mr. Unger, we agreed to pay a salary of $5,000 per month and to grant 250,000 options to acquire 250,000 shares of our common stock at a purchase price of $0.03 per share. These options are non-transferrable, vest immediately and expire the earlier of 24 months, or upon the termination of the consulting agreement. As of the quarter ended February 28, 2013, the agreement has expired and was not renewed. The options were exercised on November 7, 2012.
Effective June 19, 2012, our company’s subsidiary, Mantra Energy, entered into a service contract with PowerTech Labs Inc., whereby PowerTech would assist Manta Energy in the evaluation and the development of our ERC System under specific terms and conditions until February 19, 2013. As compensation, PowerTech was paid $171,000 plus the cost of materials as further described in the service contract. The contract with PowerTech expired and has not been renewed. PowerTech engaged in two tasks for Mantra Energy: the development of a bench-scale membrane-based carbon dioxide enrichment unit (with the intention of scaling up to a pilot-scale unit), and the experimental operation of Mantra Energy’s ERC reactors. A third task, that being the conceptual design of an ERC pilot plant, was discussed but never pursued. The carbon enrichment unit proved successful at the proof-of-concept scale, and the bench-scale version was then designed and built. This unit, too, proved successful in its goal of enriching a dilute (roughly 20%) stream of carbon dioxide to over 80%. A budget was compiled for a pilot-scale unit, but this has not yet been pursued. The operation of the ERC reactors did not yield any significant breakthroughs in Mantra Energy’s understanding of their operation.
On October 28, 2008, we entered into a convertible debenture with StichtingAdministratiekantoor Carlos Bijl for a principal amount of $150,000 and an annual interest rate of 10%. Bijl started an action in the Supreme Court of British Columbia for non-payment of the convertible debenture.
On July 18, 2012, we entered into a settlement agreement with Bijl dated July 16, 2012, pursuant to which:
the due date of the convertible debenture would be extended to April 11, 2013. On May 6, 2013, we entered into an agreement dated April 29, 2013 with Bijl to amend the settlement agreement, as more particularly described below:
within 5 business days we pay $43,890.41 representing net interest to and including September 30, 2012, less $15,000 we forwarded to Bijl on February 16, 2012. Our company has made monthly interest payments to March 2013.
commencing on October 31, 2012 we will pay accrued monthly interest at 10% per annual until April 11, 2013 (Paid);
we were to pay a $10,000 premium on the $150,000 principal of the convertible debenture when we satisfy it on April 11, 2013. On May 6, 2013, we entered into an agreement dated April 29, 2013 with Bijl to amend the settlement agreement, as more particularly described below.
On May 6, 2013, we entered into an agreement dated April 29, 2013 with Bijl to amend the settlement agreement, pursuant to which:
the due date of the convertible debenture would be extended from April 11, 2013 to September 15, 2013;
upon execution of the amendment to the settlement agreement, we pay USD$6,836 in full satisfaction of future interest payable on the convertible debenture from April 1, 2013 to September 15, 2015; and
we granted to Bijl options to purchase up to 100,000 common shares of our company, exercisable for a period of 24 months from the time of grant and at the exercise price of USD$0.12 per common share.
We issued an aggregate of 100,000 stock options to one accredited investor (as that term is defined in Section 4(2) of the Securities Act of 1933) pursuant to the exemption from registration provided for under Rule 506 of Regulation D, promulgated under the United States Securities Act of 1933, as amended.
On July 31, 2012, our subsidiary, Mantra Energy, entered into a master services agreement with Tekion (Canada), Inc. Mantra Energy’s ERC technology converts carbon dioxide (CO2) in stack gases to a formate salt which can then be further processed into formic acid or used to operate a fuel cell to generate power. Mantra Energy engaged Powertech Labs to do further engineering on the system. In order to get this technology to commercialization, Tekion proposed a program that ran parallel to the Powertech program to help Mantra with some of the critical issues regarding this process. The program has now been completed.
Also on July 31, 2012, Mantra Energy entered into a SOW with Tekion setting out the work summary, deliverables, budgets and timelines in several stages, which have now all been completed:
Mantra Energy provided an upfront payment to Tekion of $50,000 on the signing of the SOW.
On January 8, 2013, our company entered into an employment agreement with our officer and director, Larry Kristof, whereby Larry Kristof has agreed to provide services as chief executive officer of our company for a period of two years. As compensation, pursuant to the terms of the employment agreement, Larry Kristof will receive an annual salary of $60,000, payable in equal monthly installments. The employment agreement may be terminated by Larry Kristof, for any reason, by providing at least three month’s advance written notice to our company.
Also on January 8, 2013, our company’s subsidiary, Mantra Energy Alternatives Ltd., entered into an employment agreement with Larry Kristof, whereby Larry Kristof has agreed to provide services as chief executive officer of Mantra Energy for a period of two years. As compensation, pursuant to the terms of the employment agreement, Larry Kristof will receive an annual salary of $60,000, payable in equal monthly installments. The employment agreement may be terminated by Larry Kristof, for any reason, by providing at least three month’s advance written notice to our company.
On March 13, 2013, we entered into a letter of engagement with BC Research Inc. pursuant to which we engaged BC Research to design and engineer a proposed demonstration unit of our company’s ERC (electro-reduction of carbon dioxide) technology. The scope of work will include determining power requirements for the planned ERC unit, and producing an equipment list, a functional description of equipment and specification, electrical drawings, a drawing package for potential suppliers, and a simplified 3D model of the system. The objective of the engagement is to determine the fabrication and operating costs of the demonstration unit to within a 25% variance. It is estimated that completion of the planned work will be achieved within 15 weeks from the date of our company’s purchase order and payment of a CDN$30,000 retainer. Our company will compensate BC Research based on its customary hourly rates. The total estimated cost of the work plan is CDN$137,000 (approximately USD$134,000). Our company will retain all intellectual property resulting from the services and may elect to terminate the work at its discretion.
Concurrently with the engagement of B.C. Research, our company, through our subsidiary Mantra Energy Alternatives Ltd., has entered into a sublease agreement with B.C. Research, dated as at February 25, 2013, for the sublease of a workshop and office space of approximately 600 square feet located in Burnaby, British Columbia. The term of the sublease will continue until March 1, 2014 at a cost of CDN$18,720 (approximately USD$18,322) payable in monthly installments of CDN$1,560.
On May 7, 2013, we entered into a director agreement with Patrick Dodd. As compensation, under the director agreement, our company granted stock options to Mr. Dodd to purchase up to 200,000 shares of our common stock at a price of $0.10 per share. The stock options shall terminate for exercise the earlier of May 7, 2015 or 180 calendar days after resignation of Mr. Dodd as director, in which case, 100,000 stock options shall remain available to Mr. Dodd at an exercise price of US$0.10 until November 7, 2015.
On June 24, 2013, through our wholly owned subsidiary Mantra Energy Alternatives Inc., our company entered into an agreement with Alstom (Switzerland) Ltd. concerning the joint research and development projects relating to (1) a pilot plant for the conversion of carbon dioxide to formate at a Lafarge cement plant (the “Lafarge pilot project”) and (2) the development of processes for the conversion of carbon dioxide to other valuable chemicals.
Structure
Pursuant to the agreement Mantra Energy and Alstom will co-operate in one or more research and development projects related to Mantra’s ERC technology. Prospective projects will be associated with the development of technologies and processes for the conversion of CO2 to chemical products and the investigation of the feasibility of scale-up and commercialization of these processes. Prior to undertaking any research and development project under the agreement, Mantra Energy and Alstom will mutually agree to special terms and conditions governing the purpose, aims and objectives of any such project, including technical descriptions, the designation of work phases and project managers, and the allocation of responsibilities and costs between the parties. The commencement of any work phase for any project will be at the sole discretion of Alstom.
Intellectual Property Management
Mantra Energy and Alstom also will establish an intellectual property committee to oversee and manage all intellectual property issues and activities resulting from the Agreement, including the protection of any new intellectual property. Each party will have exclusive right and discretion to prosecute all patents and patent applications resulting from its work on any project. The parties will jointly prosecute any intellectual property in jointly-owned results. Alstom will have the additional option under the agreement to acquire an exclusive license to intellectual property created by Mantra Energy under the agreement, and to a license to Mantra Energy’s ERC technology as may be reasonably required to exploit intellectual property assumed by Alstom. The agreement does not affect ownership of any underlying intellectual property of either party.
Lafarge Pilot Project and Carbon Dioxide to Alternative Products
The Agreement will remain valid for 5 years or the completion of the last active project, whichever last occurs, and may be extended at any time by the written agreement of both parties. The first joint research and development project under the agreement is the Lafarge pilot project, which plans for the design, construction, and installation of a pilot plant for the conversion of 100 kg/day carbon dioxide to formate, followed by a commercialization scale-up study. The Alstom contribution to the Lafarge pilot plant project will be approximately $250,000 CAD in in-kind services. A second integrated research and development project will study carbon dioxide conversion to alternative chemical products by electrochemical reduction, with a focus on catalyst materials and lifetime. The Alstom contribution to the alternative products project will be approximately $190,375 CAD for phase 1. For Phases 2 through 4 Alstom’s planed but not committed contribution is estimated at $456.125 CAD and the final amount of phase 5 will be determined. Mantra and Alstom are actively seeking external funding to support the execution of the projects.
On July 1, 2013, we entered into a consulting agreement with BC0798465 Ltd., whereby BC0798465 Ltd. agreed to provide Mr. Colin Oloman to provide consulting services to our Scientific Advisory Board for an indefinite term. In consideration for such consulting services, we have agreed to compensate BC0798465 Ltd. for its services at CAD$150 per hour and 300,000 options to acquire 300,000 common shares of our capital stock, previously registered on a Form S-8 registration statement, filed with the United States Securities and Exchange Commission on November 24, 2009, at a purchase price of $0.20 per share for a period of two years.
Electro Reduction of Carbon Dioxide (“ERC”)
On November 2, 2007, through our subsidiary, Mantra Energy, we entered into a technology assignment agreement with 0798465 BC Ltd. whereby we acquired 100% ownership in and to a certain chemical process for the electro-reduction of carbon dioxide as embodied by and described in the following patent cooperation treaty application:
As of the date of this quarterly report, we have been awarded the following patents:
The reactor at the core of the chemical process, referred to as the electrochemical reduction of carbon dioxide (CO2), or ERC, has been proven functional through small scale prototype trials. ERC offers a possible solution to reduce the impact of CO2 on Earth’s environment by converting CO2 into chemicals with a broad range of commercial applications, including a fuel for a next generation of fuel cells. Powered by electricity, the ERC process combines captured carbon dioxide with water to produce materials, such as formic acid, formate salts, oxalic acid and methanol, that are conventionally obtained from the thermo-chemical processing of fossil fuels. However, while thermo-chemical reactions must be driven at relatively high temperatures that are normally obtained by burning fossil fuels, ERC operates at near ambient conditions and is driven by electric energy that can be taken from an electric power grid supplied by hydro, wind, solar or nuclear energy.
In fuel cells liquid fuels are indirectly burned with air to form carbon dioxide and water, while generating electricity. This process is known as electrochemical combustion or electro-oxidation. The complementary nature of ERC and electro-oxidation makes it possible to use ERC in a regenerative fuel cell cycle, where carbon dioxide is converted to a fuel that is consumed in a fuel cell to regenerate carbon dioxide. As shown in the figure, the net energy input required in this cycle could be supplied from a renewable or non-fossil fuel source.
ERC has been shown to produce a range of compounds, including formic acid, formate salts, oxalic acid, and methanol. The efficiency for generation of each compound depends on the experimental conditions, most importantly the material of the cathode, which catalyzes the electrochemical reactions.
Until appropriate cathodes are found some products of CO2 reduction (methanol, for instance) are obtained at efficiencies too low for practical use. Other products can be generated on known cathodes with high current yields that could support valuable practical processes. For example, formic acid has been obtained on tin cathodes with current yields above 80%. Formate salts and sodium bicarbonate are obtained at similarly high yields.
ERC Development to Date
We have retained one of the creators of the technology, Professor Colin Oloman, as a member of our scientific advisory board, to further develop the carbon dioxide reduction process to achieve optimal results on a consistent basis. On June 1, 2008, we entered into a technology development and support agreement with Kemetco Research Inc., an integrated science, technology and innovation company. Pursuant to that agreement, we have established a research and development facility for the ERC in Vancouver, British Columbia, staffed by a dedicated research team provided by Kemetco.
In October of 2008, we completed our first ERC prototype reactor capable of processing 1 kilogram of CO2 per day. In order to facilitate the testing and development of this reactor, we entered into an agreement with Kemetco on January 29, 2010. The agreement was intended to govern the development and testing of our prototype reactor for a period of 10 months and contemplated costs of approximately $250,000 including labor and materials purchases. On March 18, 2010 we entered into another agreement with Kemetco which amended and replaced the January 29, 2010 agreement. Under the terms of the latest agreement, we have agreed to proceed with the testing and development of our ERC prototype reactor for a period of 5 months at an estimated cost of approximately $125,000.
Pictured Above, Design for Bench Scale ERC Reactor
We anticipate that commercialization of ERC will require us to develop reactors capable of processing not less than 100 tons of CO2 per day; however, there is no guarantee that we will successfully produce reactors of that size. Production of commercially viable ERC reactors will depend on continued research and development, successful testing of small scale ERC reactors, and securing of additional financing. At the conclusion of our current agreement and development program with Kemetco, an assessment will be made of the project’s progress and the next phase to be conducted.
Established and Emerging Market for ERC and By-Products:
The technology behind ERC can be applied to any scale commercial venture which outputs CO2into the atmosphere. We anticipate that, once fully commercialized, we will be able to offer ERC as a CO2 management system to various industry including steel, power generation and lumber.
The existing applications of ERC by-products include use as feedstock preservatives, de-icing solutions, and baking soda, among others. Sodium formate and formic acid, two of the main by-products of ERC, currently have an average market value of $1,200/ton, with more than 600,000 tons of formic acid produced annually (Li, 2006). Their applications are diverse, including feedstock preservatives, de-icing solutions, cleaning solutions and baking soda to name a few. The market for formic acid has experienced continual growth and demand over the past several years, mainly attributed to the following: European and developing country demand for formic acid in silage, rising raw materials, energy and logistics costs; and animal feed preservative and Asian demand for formic acid in leather, rubber, food and pharmaceutical industries. The average market price of formic acid is expected to increase by as much as 20% in 2012. (Dunia Frontier Consultants, 2008).
However, if the ERC process reaches market acceptance as a way to deal with CO2 emissions from industry facilities, it will likely lead to supply of formic acid in excess of current market demand. We have identified several potential future applications for formic acid, which may lead to an expansion in current market demand. The application we have identified and are currently focusing on is steel pickling.
Steel Pickling
Steel pickling is part of the finishing process in the production of certain steel products in which oxide and scale are removed from the surface of strip steel, steel wire, and other forms of steel, by dissolution in acid. A solution of either hydrochloric acid (HCl) or sulfuric acid is generally used to treat carbon steel products, while a combination of hydrofluoric and nitric acids is often used for stainless steel. Approximately one quarter of the HCl produced in the U.S. is used for pickling steel (American Chemistry, 2003), consuming an estimated 5Mt/year. As an organic acid, formic acid would be a very attractive replacement for HCl in the steel pickling process. Formic acid has many potential advantages over HClin this application, including: less iron lost from the steel surface, improvement in final surface quality, and the elimination of corrosion inhibiting and neutralizing rinse processes to prevent rust development. In addition, formic acid is both bio-degradable and reusable which would allow water used in the picking process to be recycled more easily.
Competition
There are several existing alternative methods to ERC which convert CO2 into useful products. Other methods include, for example:
Thermo-chemical reactions to produce carbon monoxide, formic acid, methane or methanol;
Bio-chemical reactions to produce methane;
Photo-chemical reactions to produce carbon monoxide, formaldehyde or formic acid; and
Photo-electro-chemical reaction to produce carbon monoxide and possibly methane & methanol.
Some thermo-chemical methods are established commercial industrial processes (e.g. production of methanol from CO2) however, like ERC, most of these alternative methods of CO2 conversion are still at the level of laboratory research and development projects. These alternative methods typically suffer from the following problems:
Low reaction rate and low CO2 space velocity make it too costly and time consuming to process industrial quantities of CO2 ;
Low selectivity for specified product(s) makes it harder to control product yield;
High operating temperature and pressure requires large quantities of fossil fuels to power reaction;
Fast cathode deterioration raises costs and makes the method labour intensive; and
Highly expensive and cumbersome hydrogen (H2 ) is required as a feed reactant.
Based on scholarship and test results to date, we believe that, compared with alternative methods of CO2conversion, ERC, when converting CO2 to formate or formic acid, has several notable advantages including the following:
Medium reaction rate allows for commercially viable CO2 processing times;
Medium CO2 space velocity gives the ability to treat comparatively large volumes of CO2 ;
High product selectivity for formate and formic acid;
Low operating temperature and pressure make it possible to rely on renewable sources of electricity instead of fossil fuels; and
Hydrogen (H2 ) is not required as feed reactant.
However, because ERC has not yet been tested at a commercially viable scale, there is no guarantee that any of the advantages cited by us will translate into actual competitive advantages for ERC over competing methods for CO2 conversion. Also, like other competing methods, ERC suffers from fast cathode deterioration, and we must successfully isolate or develop a better ERC cathode in order to gain a competitive advantage in this regard.
Our competition consists of a number of small companies capable of competing effectively in the alternative energy market as well as several large companies that possess substantially greater financial and other resources than we do. Many of these competitors are substantially larger and better funded than us, and have significantly longer histories of research, operation and development. Our competitors include technology providers or energy producers using biomass combustion, biomass anaerobic digestion, geothermal, solar, wind, new hydro and other renewable energy sources. In addition, we will face well-established competition from electric utilities and other energy companies in the traditional energy industry who have substantially greater financial resources than we do.
Our competitors may be able to offer more competitively priced and more widely available energy products than ours and they also may have greater resources than us to create or develop new technologies and products.
Therefore, there is no assurance that we will be successful in competing with existing and emerging competitors in the alternative energy industry or traditional energy industry.
We plan to identify business opportunities with interested parties and potential customers by networking and participating in conferences and exhibitions related to greenhouse gas emissions reduction and alternative energy sources and technologies. The strategic and geographic focus of our business is currently the North American market. We believe that one of our competitive advantages is our online carbon reduction marketplace which brings energy/carbon reduction products and service providers into direct contact with consumers and enables the facilitation of business contacts. The focus of our online carbon reduction marketplace is not on business-to-business carbon trading, as is the case with many of our competitors.
While our competitors may be operating similar business models, we plan to build our competitive position in the industry by:
filling our Scientific Advisory Board with skilled and proficient professionals;
developing and acquiring technologies to establish sustainable fuel supply chains;
providing a comprehensive range of services; and
providing marketing and promotion services to generate public awareness and enhance the reputation of sustainability initiatives.
However, since we are a newly-established company, we face the same problems as other start-up companies in other industries. Our competitors may develop similar technologies to ours and use the same methods as we do, and they may generally be able to respond more quickly to new or emerging technologies and changes in legislation and industry regulation. Additionally, our competitors may devote greater resources to the development, promotion and sale of their technologies or services than we do. Increased competition could also result in loss of key personnel, reduced margins or loss of market share, any of which could harm our business.
Government Regulations
Some aspects of our intended operations will be subject to a variety of federal, provincial, state and local laws, rules and regulations in North America and worldwide relating to, among other things, worker safety and the use, storage, discharge and disposal of environmentally sensitive materials. For example, we are subject to the Resource Conservation Recovery Act (“RCRA”), the principal federal legislation regulating hazardous waste generation, management and disposal.
Under some of the laws regulating the use, storage, discharge and disposal of environmentally sensitive materials, an owner or lessee of real estate may be liable for the costs of removing or remediating certain hazardous or toxic substances located on or in, or emanating from, such property, as well as related costs of investigation and property damage. Laws of this nature often impose liability without regard to whether the owner or lessee knew of, or was responsible for, the presence of the hazardous or toxic substances. These laws and regulations may require the removal or remediation of pollutants and may impose civil and criminal penalties for violations. Some of the laws and regulations authorize the recovery of natural resource damages by the government, injunctive relief and the imposition of stop, control, remediation and abandonment orders. The costs arising from compliance with environmental and natural resource laws and regulations may increase operating costs for both us and our potential customers. We are also subject to safety policies of jurisdictional-specific Workers Compensation Boards and similar agencies regulating the health and safety of workers.
In addition to the forgoing, in the future our U.S., Canadian and global operations may be affected by regulatory and political developments at the federal, state, provincial and local levels including, but not limited to, restrictions on offset credit trading, the verification of offset projects and related offset credits, price controls, tax increases, the expropriation of property, the modification or cancellation of contract rights, and controls on joint ventures or other strategic alliances.
We are not aware of any material violations of environmental permits, licenses or approvals issued with respect to our operations. We expect to comply with all applicable laws, rules and regulations relating to our intended business. At this time, we do not anticipate any material capital expenditures to comply with environmental or various regulations and requirements.
While our intended projects or business activities have been designed to produce environmentally friendly green energy or other alternative products for which no specific regulatory barriers exist, any regulatory changes that impose additional restrictions or requirements on us or on our potential customers could adversely affect us by increasing our operating costs and decreasing potential demand for our technologies, products or services, which could have a material adverse effect on our results of operations.
Research and Development Expenditures
During the year ended May 31, 2013 we spent $428,674 on research and development. For the last two fiscal years, we have spent $440,270 on research and development. We anticipate that we will incur $3,500,000 in expenses on research and development for ERC as well as other technologies we may acquire over the next 12 months.
Employees
As of August 16, 2013, we had 2employees engaged in administrative duties, website development and marketing. Larry Kristof is employed by both our company and by our subsidiary Mantra Energy Alternatives Ltd., as chief executive officer. Our employees were engaged on a full-time basis. Additionally, we have retained a number of consultants for legal, accounting and investor relations services.
Intellectual Property
We acquired the process for the “Continuous Co-Current Electrochemical Reduction of Carbon Dioxide”, or the ERC technology, on November 2, 2007 pursuant to a technology assignment agreement with 0798465 BC Ltd. According to the agreement, we paid 0798465 BC Ltd. 40,000 common shares at a fair market value of $0.25 per share and 250,000 options to purchase our common shares at an exercise price of $0.25 per share until October 31, 2012. The process for the ERC technology was developed by Dr. Colin Oloman and Dr. Hui Li at the University of British Columbia's Clean Energy Research Center in Vancouver, British Columbia. They filed the initial patent application for the invention under the Patent Cooperation Treaty in 2006. We acquired all right and title in and to the ERC technology as embodied by and described in the following Patent Cooperation Treaty application:
The Patent Cooperation Treaty, an international patent law treaty, provides a unified procedure for filing patent applications to protect inventions in each of its contracting states.
The Patent Cooperation Treaty filing was made with a Receiving Office in 2006 and a written opinion was issued by International Searching Authority regarding the patentability of the invention which is the subject of the application. Finally, the examination and grant procedures will be handled by the relevant national or regional authorities. On March 31, 2008 we initiated the national patent process. We plan to begin the national patent process initially in Europe, Japan and China. The national phases for other countries, particularly the U.S. and Canada, will be initiated in the near future.
As of the date of this quarterly report, we have been awarded the following patents:
We have not filed for protection of our trademark. We own the copyright of our logo and all of the contents of our website, www.mantraenergy.com.
Reports to Security Holders
We intend to furnish our shareholders annual reports containing financial statements audited by our independent auditors and to make available quarterly reports containing unaudited financial statements for each of the first three quarters of each year.
The public may read and copy any materials that we file with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that site is www.sec.gov.
Item 1A.
Item 1A. Risk Factors
As a “smaller reporting company”, we are not required to provide the information required by this Item.
Item 1B.
Item 1B. Unresolved Staff Comments
As a “smaller reporting company”, we are not required to provide the information required by this Item.
Item 2.
Item 2. Description of Property
Our principal executive offices are located at #562 - 800 15355 24th Avenue, Surrey, British Columbia, Canada, V4A 2H9. Our telephone number is (604) 560-1503. The office is approximately 1,650 square feet in size and is leased for a term of twelve months. The lease began on January 2013 and will end in January 2014. Currently we pay approximately $1,500 per month for our office space in Surrey.
Item 3.
Item 3. Legal Proceedings
On May 23, 2012, a former employee of our company delivered a Notice of Application seeking against our company for approximately $55,000. The hearing of that Application took place on July 31, 2012, at which time the former employee obtained judgment in the approximate amount of $55,000. Our company did not defend the amount of the judgment and the amount is included in accounts payable, but claims a complete set-off on the basis that the former employee retains 1,000,000 shares of common stock of our company as security for payment of the outstanding consulting fees owed to him. On August 31, 2012, our company commenced a separate action against the former employee seeking a return of the 1,000,000 shares of common stock and a stay of execution of the judgment. That application is pending and has not yet been heard or determined by the court. The payment of the judgment claim of approximately $55,000 is dependent upon whether the former employee will first return the 1,000,000 shares of common stock noted above. The probable outcome of our company’s claim for the return of the shares cannot yet be determined.
Item 4.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common stock is not traded on any stock exchange in the United States and Canada and there is no established public trading market for our common stock. Our common stock is quoted on the OTC Bulletin Board, under the trading symbol MVTG.OB. The market for our stock is highly volatile. We cannot assure you that there will be a market in the future for our common stock. OTC Bulletin Board securities are not listed and traded on the floor of an organized national or regional stock exchange. Instead, OTC Bulletin Board securities transactions are conducted through a telephone and computer network connecting dealers in stocks. OTC Bulletin Board stocks are traditionally smaller companies that do not meet the financial and other listing requirements of a regional or national stock exchange.
On February 18, 2008, our common shares began trading on the Frankfurt Stock Exchange under the symbol EDV 5MV. The Frankfurt Stock Exchange is located in Frankfurt, Germany.
The following table reflects the high and low bid information for our common stock obtained from Stockwatch on the OTC Bulletin Board and reflects inter-dealer prices, without retail mark-up, markdown or commission, and may not necessarily represent actual transactions.
Our common shares are issued in registered form. Island Stock Transfer, Roosevelt Office Center, 15500 Roosevelt Boulevard, Suite 301, Clearwater, Florida 33760 (Telephone: (727) 289-0010) is the registrar and transfer agent for our common shares.
Holders
As of September 12, 2013, there were approximately 164 holders of record of our common stock. As of such date, 57,097,864 shares of our common stock were issued and outstanding.
Dividends
To date, we have not paid any dividends on our common shares and we do not expect to declare or pay any dividends on our common shares in the foreseeable future. Payment of any dividends will depend upon future earnings, if any, our financial condition, and other factors as deemed relevant by our board of directors.
Equity Compensation Plans
On November 24, 2009, we registered a2009 Stock Compensation Plan and a 2009 Stock Option Plan which permits our company to grant up to an aggregate of 3,500,000 options to acquire shares of common stock, to directors, officers, employees and consultants of our company.
Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities
On May 7, 2013, we entered into a director agreement with Patrick Dodd. As compensation, under the director agreement, our company granted stock options to Mr. Dodd to purchase up to 200,000 shares of our common stock at a price of $0.10 per share. The stock options shall terminate for exercise the earlier of May 7, 2015 or 180 calendar days after resignation of Mr. Dodd as director, in which case, 100,000 stock options shall remain available to Mr. Dodd at an exercise price of US$0.10 until November 7, 2015. The stock options were to one non-U.S. person (as that term is defined in Regulation S of the Securities Act of 1933), in an offshore transaction relying on Regulation S of the Securities Act of 1933.
Effective July 15, 2013, we issued and aggregate of 1,871,588 shares of our company’s common stock pursuant to a private placement of 1,871,588 units at a purchase price of USD$0.08 per unit for total proceeds USD$149,727.04 (CAD$154,712.95) . Each unit consists of one common share and one-half of one whole warrant. Each warrant is exercisable into one share of common stock of our company at a price of USD$0.20 per share for the lesser period of 24 months from the date of closing or 5 business days after our company’s common stock trades at least one time per day on the FINRA Over-the-Counter Bulletin Board at a price of or above USD$0.40 per share for seven consecutive trading days.. The common shares were to 11 non-U.S. persons (as that term is defined in Regulation S of the Securities Act of 1933), in an offshore transaction relying on Regulation S of the Securities Act of 1933.
Purchase of Equity Securities
We did not purchase any of our shares of common stock or other securities during our fiscal year ended May 31, 2013.
Item 6.
Item 6. Selected Financial Data
As a “smaller reporting company” we are not required to provide the information required by this Item.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our consolidated financial statements, including the notes thereto, appearing elsewhere in this Annual Report. The discussions of results, causes and trends should not be construed to imply any conclusion that these results or trends will necessarily continue into the future.
Results of Operations
Results of Operations for the Years Ended May 31, 2013 and
The following summary of our results of operations should be read in conjunction with our audited financial statements for the years ended May 31, 2013 and 2012.
Our operating results for the years ended May 31, 2013 and 2012 are summarized as follows:
Revenues
Our revenues for the year ended May 31, 2013 were $3,027, compared to our revenues for the year ended May 31, 2012, which were $13,281, representing approximately a 77.21% decrease.
Operating Expenses
Our operating expenses for the year ended May 31, 2013 and May 31, 2012 are outlined in the table below:
The increase in operating expenses for the year ended May 31, 2013, compared to the same period in fiscal 2012, was mainly due to increases in license fees, management fees, research and development, shareholder communications and awareness, travel and promotion, and wages and benefits.
Our general and administrative expenses consist of office occupation expenses, communication expenses (cellular, internet, fax and telephone), bank charges, foreign exchange, courier, postage costs and office supplies. Our professional fees include legal, accounting and auditing fees. Business development, consulting and advisory costs include fees paid, shares issued and options granted to contractors and advisory board members.
Liquidity and Financial Condition
As of May 31, 2013, our total current assets were $79,823 and our total current liabilities were $1,206,379 and we had a working capital deficit of $1,126,556. Our financial statements report a net loss of $1,420,131 for the year ended May 31, 2013 and a net loss of $8,223,296 for the period from January 22, 2007 (date of inception) to May 31, 2013.
We have suffered recurring losses from operations. The continuation of our company is dependent upon our company attaining and maintaining profitable operations and raising additional capital as needed. In this regard we have raised additional capital through equity offerings and loan transactions.
We had cash in the amount of $25,387 as of May 31, 2013 as compared to $215,600 as of May 31, 2012. We had a working capital deficit of $1,126,556 as of May 31, 2013 compared to working capital deficit of $934,330 as of May 31, 2012.
Our principal sources of funds have been from sales of our common stock.
Liquidity and Capital Resources
We expect that our total expenses will increase over the next year as we increase our business operations. We have not been able to reach the break-even point since our inception and have had to rely on outside capital resources. We do not anticipate making significant revenues for the next year. Over the next 12 months, we plan to primarily concentrate on commercializing our ERC technology and associated projects
In order to fully carry out our business plan, we need additional financing of approximately $4,600,000 for the next 12 months. In order to improve our liquidity, we intend to pursue additional equity financing from private placement sales of our equity securities or shareholders’ loans. We do not presently have sufficient financing to undertake our planned business activities. Issuances of additional shares will result in dilution to our existing shareholders.
We currently do not have any arrangements in place for the completion of any further private placement financings and there is no assurance that we will be successful in completing any further private placement financings. If we are unable to achieve the necessary additional financing, then we plan to reduce the amounts that we spend on our business activities and administrative expenses in order to be within the amount of capital resources that are available to us.
Off-Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our stockholders.
Inflation
The effect of inflation on our revenue and operating results has not been significant.
Critical Accounting Policies
Our consolidated financial statements are impacted by the accounting policies used and the estimates and assumptions made by management during their preparation. A complete summary of these policies is included in note 2 of the notes to our financial statements. We have identified below the accounting policies that are of particular importance in the presentation of our financial position, results of operations and cash flows, and which require the application of significant judgment by management.
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. Our company regularly evaluates estimates and assumptions related to allowance for doubtful accounts, the estimated useful lives and recoverability of long-lived assets, valuation of inventory, stock-based compensation, and deferred income tax asset valuation allowances. Our company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by our company may differ materially and adversely from our company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
Long-lived Assets
In accordance with ASC 360, “Property, Plant and Equipment”, our company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset and its fair value, which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value.
Stock-based Compensation
Our company records stock-based compensation in accordance with ASC 718, “Compensation - Stock Compensation”, using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.
Our company uses the Black-Scholes option pricing model to calculate the fair value of stock-based awards. This model is affected by our company’s stock price as well as assumptions regarding a number of subjective variables. These subjective variables include, but are not limited to our company’s expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. The value of the portion of the award that is ultimately expected to vest is recognized as an expense in the consolidated statement of operations over the requisite service period.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
As a “smaller reporting company”, we are not required to provide the information required by this Item.
Item 8.
Item 8. Financial Statements and Supplementary Data
MANTRA VENTURE GROUP LTD.
(A development stage company)
Consolidated financial statements
May 31, 2013
(Expressed in U.S. dollars)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Mantra Venture Group Ltd.
(A development stage company)
We have audited the accompanying consolidated balance sheets of Mantra Venture Group Ltd. (a development stage company) as of May 31, 2013 and 2012, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for the years then ended and accumulated from January 22, 2007 (date of inception) to May 31, 2013. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. The consolidated financial statements of Mantra Venture Group Ltd. accumulated from January 22, 2007 (date of inception) to May 31, 2008 were audited by other auditors whose reports dated September 15, 2008 and September 20, 2007 included an explanatory paragraph regarding the Company’s ability to continue as a going concern. The consolidated financial statements for the period from January 22, 2007 (date of inception) to May 31, 2008 reflect a net loss of $2,046,612 of the related cumulative totals. The auditors’ reports have been furnished to us, and our opinion, insofar as it related to amounts included for such periods, is based solely on the reports of such auditors.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of May 31, 2013 and 2012, and the consolidated results of its operations and its cash flows for the years then ended and accumulated from January 22, 2007 (date of inception) to May 31, 2013, in conformity with accounting principles generally accepted in the United States.
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has not generated significant revenues, has a working capital deficit, and has incurred operating losses since inception. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also discussed in Note 1 to the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ SATURNA GROUP CHARTERED ACCOUNTANTS LLP
Saturna Group Chartered Accountants LLP
Vancouver, Canada
September 11, 2013
MANTRA VENTURE GROUP LTD.
(A development stage company)
Consolidated balance sheets
(Expressed in U.S. dollars)
(The accompanying notes are an integral part of these consolidated financial statements)
MANTRA VENTURE GROUP LTD.
(A development stage company)
Consolidated statements of operations
(Expressed in U.S. dollars)
(The accompanying notes are an integral part of these consolidated financial statements)
MANTRA VENTURE GROUP LTD.
(A development stage company)
Consolidated statements of stockholder’s equity (deficit)
Period from January 22, 2007 (date of inception) to May 31,
(Expressed in U.S. dollars)
(The accompanying notes are an integral part of these consolidated financial statements)
MANTRA VENTURE GROUP LTD.
(A development stage company)
Consolidated statements of stockholder’s equity (deficit)
Period from January 22, 2007 (date of inception) to May 31,
(Expressed in U.S. dollars)
(The accompanying notes are an integral part of these consolidated financial statements)
MANTRA VENTURE GROUP LTD.
(A development stage company)
Consolidated statements of stockholder’s equity (deficit)
Period from January 22, 2007 (date of inception) to May 31,
(The accompanying notes are an integral part of these consolidated financial statements)
MANTRA VENTURE GROUP LTD.
(A development stage company)
Consolidated statements of stockholder’s equity (deficit)
Period from January 22, 2007 (date of inception) to May 31,
(The accompanying notes are an integral part of these consolidated financial statements)
MANTRA VENTURE GROUP LTD.
(A development stage company)
Consolidated statements of stockholder’s equity (deficit)
Period from January 22, 2007 (date of inception) to May 31,
(The accompanying notes are an integral part of these consolidated financial statements)
MANTRA VENTURE GROUP LTD.
(A development stage company)
Consolidated statements of stockholder’s equity (deficit)
Period from January 22, 2007 (date of inception) to May 31,
(The accompanying notes are an integral part of these consolidated financial statements)
MANTRA VENTURE GROUP LTD.
(A development stage company)
Consolidated statements of cash flows
(Expressed in U.S. dollars)
(The accompanying notes are an integral part of these consolidated financial statements)
MANTRA VENTURE GROUP LTD.
(A development stage company)
Notes to the consolidated financial statements
Year ended May 31, 2013
(Expressed in U.S. dollars)
1.
Nature of Operations and Continuance of Business
The Company was incorporated in the State of Nevada on January 22, 2007 to acquire and commercially exploit various new energy related technologies through licenses and purchases. On December 8, 2008, the Company continued its corporate jurisdiction out of the State of Nevada and into the province of British Columbia, Canada. The Company is a development stage company, as defined by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 915, “Development Stage Entities,” in the business of developing and providing energy alternatives. The Company also provides marketing and graphic design services to help companies optimize their environmental awareness presence through the eyes of government, industry and the general public.
These consolidated financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The Company has yet to acquire commercially exploitable energy related technology, has not generated significant revenues since inception, and is unlikely to generate earnings in the immediate or foreseeable future. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of management to raise additional equity capital through private and public offerings of its common stock, and the attainment of profitable operations. As at May 31, 2013, the Company has a working capital deficit of $1,126,556, has not generated significant revenues, and has accumulated losses of $8,023,639 since inception. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Management requires additional funds over the next twelve months to fully implement its business plan. Management is currently seeking additional financing through the sale of equity and from borrowings from private lenders to cover its operating expenditures. There can be no certainty that these sources will provide the additional funds required for the next twelve months.
2.
Summary of Significant Accounting Policies
(a)
Basis of Presentation
These consolidated financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States. These consolidated financial statements include the accounts of the Company and its subsidiaries, Carbon Commodity Corporation, Climate ESCO Ltd., Mantra Energy Alternatives Ltd., Mantra China Inc., Mantra China Limited, Mantra Media Corp., Mantra NextGen Power Inc., and Mantra Wind Inc. All the subsidiaries are wholly-owned with the exception of Climate ESCO Ltd., which is 64.84% owned and Mantra Energy Alternatives Ltd., which is 89.09% owned. All inter- company balances and transactions have been eliminated.
(b)
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. The Company regularly evaluates estimates and assumptions related to allowance for doubtful accounts, the estimated useful lives and recoverability of long-lived assets, valuation of inventory, equity component of convertible debt, stock-based compensation, and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
(c)
Cash and Cash Equivalents
The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents.
MANTRA VENTURE GROUP LTD.
(A development stage company)
Notes to the consolidated financial statements
Year ended May 31, 2013
(Expressed in U.S. dollars)
2.
Summary of Significant Accounting Policies (continued)
(d)
Accounts Receivable
The Company recognizes allowances for doubtful accounts to ensure accounts receivable are not overstated due to the inability or unwillingness of its customers to make required payments. The allowance is based on the age of receivable and the specific identification of receivables the Company considers at risk.
(e)
Inventory
Inventory consists of LED lighting which is carried at the lower of cost or net realizable value on a first-in, first-out basis. The Company establishes inventory reserves for estimated obsolete or unmarketable inventory equal to the difference between the acquisition cost of inventory and net realizable value based upon market conditions.
(f)
Property and Equipment
Property and equipment are stated at cost. The Company depreciates the cost of property and equipment over their estimated useful lives at the following annual rates:
(g)
Long-lived Assets
In accordance with ASC 360, “Property, Plant and Equipment”, the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset and its fair value, which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value.
(h)
Foreign Currency Translation
Transactions in foreign currencies are translated into the currency of measurement at the exchange rates in effect on the transaction date. Monetary balance sheet items expressed in foreign currencies are translated into U.S. dollars at the exchange rates in effect at the balance sheet date. The resulting exchange gains and losses are recognized in income.
The Company’s integrated foreign subsidiaries are financially or operationally dependent on the Company. The Company uses the temporal method to translate the accounts of its integrated operations into U.S. dollars. Monetary assets and liabilities are translated at the exchange rates in effect at the balance sheet date. Non-monetary assets and liabilities are translated at historical rates. Revenues and expenses are translated at average rates for the period, except for amortization, which is translated on the same basis as the related asset. The resulting exchange gains or losses are recognized in income.
MANTRA VENTURE GROUP LTD.
(A development stage company)
Notes to the consolidated financial statements
Year ended May 31, 2013
(Expressed in U.S. dollars)
2.
Summary of Significant Accounting Policies (continued)
(i)
Income Taxes
The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, “Accounting for Income Taxes”. The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
As of May 31, 2013 and 2012, the Company did not have any amounts recorded pertaining to uncertain tax positions.
The Company files federal and provincial income tax returns in Canada and federal, state and local income tax returns in the U.S., as applicable. The Company may be subject to a reassessment of federal and provincial income taxes by Canadian tax authorities for a period of three years from the date of the original notice of assessment in respect of any particular taxation year. For Canadian and U.S. income tax returns, the open taxation years range from 2010 to 2013. In certain circumstances, the U.S. federal statute of limitations can reach beyond the standard three year period. U.S. state statutes of limitations for income tax assessment vary from state to state. Tax authorities of Canada and U.S. have not audited any of the Company’s, or its subsidiaries’, income tax returns for the open taxation years noted above.
The Company recognizes interest and penalties related to uncertain tax positions in tax expense. During the years ended May 31, 2013 and 2012, there were no charges for interest or penalties.
(j)
Revenue Recognition
The Company earns revenue from the sale of LED lighting and the provision of media design services. The Company recognizes revenue in accordance with ASC 605, “Revenue Recognition”. Revenue is recognized when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed or goods have been shipped, and collectability is reasonably assured.
(k)
Financial Instruments and Fair Value Measures
ASC 820, “Fair Value Measurements and Disclosures” requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:
Level 1
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
The Company’s financial instruments consist principally of cash, amounts receivable, accounts payable and accrued liabilities, loans payable, convertible debentures, obligations under capital lease, and amounts due to related parties. Pursuant to ASC 820, the fair value of cash is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.
MANTRA VENTURE GROUP LTD.
(A development stage company)
Notes to the consolidated financial statements
Year ended May 31, 2013
(Expressed in U.S. dollars)
2.
Summary of Significant Accounting Policies (continued)
(l)
Research and Development Costs
Research and development costs are expensed as incurred.
(m)
Stock-based Compensation
The Company records stock-based compensation in accordance with ASC 718, “Compensation - Stock Compensation”, using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.
The Company uses the Black-Scholes option pricing model to calculate the fair value of stock-based awards. This model is affected by the Company’s stock price as well as assumptions regarding a number of subjective variables. These subjective variables include, but are not limited to the Company’s expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. The value of the portion of the award that is ultimately expected to vest is recognized as an expense in the consolidated statement of operations over the requisite service period.
(n)
Loss Per Share
The Company computes loss per share in accordance with ASC 260, "Earnings per Share" which requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing the loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti dilutive. As at May 31, 2013, the Company had 10,329,619 (2012 - 9,545,992) dilutive potential shares outstanding.
(o)
Comprehensive Loss
ASC 220, “Comprehensive Income,” establishes standards for the reporting and display of comprehensive loss and its components in the financial statements. As at May 31, 2013 and 2012, the Company has no items that represent a comprehensive loss and, therefore, has not included a schedule of comprehensive loss in the consolidated financial statements.
(p)
Recent Accounting Pronouncements
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
3.
Restricted Cash
Restricted cash represents cash pledged as security for the Company’s credit cards.
4.
Property and Equipment
MANTRA VENTURE GROUP LTD.
(A development stage company)
Notes to the consolidated financial statements
Year ended May 31, 2013
(Expressed in U.S. dollars)
MANTRA VENTURE GROUP LTD.
(A development stage company)
Notes to the consolidated financial statements
Year ended May 31, 2013
(Expressed in U.S. dollars)
7.
Obligations Under Capital Lease
On July 31, 2012 and December 21, 2012, the Company entered into two agreements to lease two vehicles for three years each. The vehicle leases are classified as a capital leases. The following is a schedule by years of future minimum lease payments under capital leases together with the present value of the net minimum lease payments as of May 31, 2013:
At the end of both leases, the Company has the option to purchase the vehicles for $9,000 each.
8.
Convertible Debentures
In October 2008, the Company issued three convertible debentures for total proceeds of $250,000 which bear interest at 10% per annum, are unsecured, and due one year from date of issuance. The unpaid amount of principal and accrued interest can be converted at any time at the holder’s option into 625,000 shares of the Company’s common stock at a price of $0.40 per share. The Company also issued 250,000 detachable, non- transferable share purchase warrants. Each share purchase warrant entitles the holder to purchase one additional share of the Company’s common stock for a period of two years from the date of issuance at an exercise price of $0.50 per share.
In accordance with ASC 470-20, “Debt with Conversion and Other Options”, the Company determined that the convertible debentures contained no embedded beneficial conversion feature as the convertible debentures were issued with a conversion price higher than the fair market value of the Company’s common shares at the time of issuance.
In accordance with ASC 470-20, “Debt with Conversion and
Other Options”, the Company allocated the proceeds of issuance between the convertible debt and the detachable share purchase warrants based on their relative fair values. Accordingly, the Company recognized the fair value of the share purchase warrants of $45,930 as additional paid-in capital and an equivalent discount against the convertible debentures. The Company had recorded accretion expense of $45,930, increasing the carrying value of the convertible debentures to $250,000.
On January 19, 2012, the Company entered into a settlement agreement with one of the debenture holders to settle a $50,000 convertible debenture and $122,535 in accounts payable and accrued interest with the debt holder. Pursuant to the agreement, the debt holder agreed to reduce the debt to Cdn$100,000 on the condition that the Company pays the amount of Cdn$2,500 per month for 40 months, beginning March 1, 2012 and continuing on the first day of each month thereafter.
On July 18, 2012, the Company entered into a settlement agreement with the $150,000 debenture holder. Pursuant to the settlement agreement, the lender has agreed to extend the due date until April 11, 2013 and the Company has agree to paid $43,890 of accrued interest within five days of the agreement (paid), pay the accruing interest on a monthly basis (paid), and pay a $10,000 premium in addition to the $150,000 principal outstanding on April 11, 2013. On April 29, 2013, the Company entered into an amended settlement agreement whereby the lender has agree to extend the due date to September 15, 2013 and the Company has agreed to pay $6,836 of interest for the period from April 1 to September 15, 2013 upon execution of the agreement (paid) and granted the lender 100,000 stock options exercisable at $0.12 per share for a period of two years.
MANTRA VENTURE GROUP LTD.
(A development stage company)
Notes to the consolidated financial statements
Year ended May 31, 2013
(Expressed in U.S. dollars)
8.
Convertible Debentures (continued)
The Company evaluated the modifications and determined that the creditor did not grant a concession. In addition, as the present value of the amended future cash flows had a difference of less than 10% of the cash flows of the original debt, it was determined that the original and new debt instruments are not substantially different. As a result, the modification was not treated as an extinguishment of the debt and no gain or loss was recognized. The Company recorded the fair value of $12,901 for the stock options as additional paid-in capital and a discount. As at May 31, 2013 the Company had accreted $2,998 of the discount bring the carrying value of the convertible debenture to $150,097.
9.
Common Stock
Stock transactions during the year ended May 31, 2013:
(a)
As at May 31, 2013, the Company had received proceeds of $43,000 for subscriptions for 100,000 units at $0.17 and 325,000 units at $0.08 per unit. Refer to Note 14(b).
(b)
As at May 31, 2013 the Company’s subsidiary, Mantra Energy Alternatives Ltd., had received subscriptions for 67,000 shares of common stock at Cdn$1.00 per share for proceeds of $66,277 (Cnd$67,000), which is included in common stock subscribed net of the non-controlling interest portion of $7,231.
(c)
As at May 31, 2013, the Company’s subsidiary, Climate ESCO Ltd., had received subscriptions for 210,000 shares of common stock at $0.10 per share for proceeds of $21,000, which is included in common stock subscribed net of the non-controlling interest portion of $7,384.
(d)
On May 30, 2013, the Company issued 62,000 units at $0.17 per unit for proceeds of $10,540. Each unit consisted of one share of common stock and one half of one share purchase warrant exercisable at $0.40 per common share for a period of two years or five business days after the Company’s common stock trades at least one time per day on the FINRA Over-the-Counter Bulletin Board at a price at or above $0.60 per share for seven consecutive trading days.
(e)
On May 10, 2013, the Company issued 400,000 units at $0.12 per unit for proceeds of $48,000. Each unit consisted of one share of common stock and one share purchase warrant exercisable at $0.20 per common share for a period of two years or five business days after the Company’s common stock trades at least one time per day on the FINRA Over-the-Counter Bulletin Board at a price at or above $0.40 per share for seven consecutive trading days.
(f)
On March 18, 2013, the Company issued 1,481,136 units at $0.17 per unit for proceeds of $251,794. Each unit consisted of one share of common stock and one half of a share purchase warrant exercisable at $0.40 per common share for a period of two years or five business days after the Company’s common stock trades at least one time per day on the FINRA Over-the-Counter Bulletin Board at a price at or above $0.60 per share for seven consecutive trading days.
(g)
On December 11, 2012, the Company issued 2,925,001 units at $0.12 per unit for proceeds of $351,000. Each unit consisted of one share of common stock and one share purchase warrant exercisable at $0.20 per common share for a period of two years or five business days after the Company’s common stock trades at least one time per day on the FINRA Over-the-Counter Bulletin Board at a price at or above $0.40 per share for seven consecutive trading days.
(h)
On December 1, 2012, the Company’s subsidiary, Mantra Energy Alternatives Ltd., issued 210,000 shares of common stock at Cdn$1.00 per share for proceeds of $207,731 (Cdn$210,000).
(i)
On November 16, 2012, the Company issued 200,000 shares of common stock at $0.05 per share for proceeds of $10,000 pursuant to the exercise of stock options.
(j)
On November 7, 2012, the Company issued 250,000 shares of common stock at $0.03 per share for proceeds of $7,500 pursuant to the exercise of stock options.
(k)
On September 23, 2012, the Company issued 100,000 units at $0.10 per unit for proceeds of $10,000. Each unit consisted of one share of common stock and one share purchase warrant exercisable at $0.15 per common share for a period of two years or five business days after the Company’s common stock trades at least one time per day on the FINRA Over-the-Counter Bulletin Board at a price at or above $0.30 per share for seven consecutive trading days.
MANTRA VENTURE GROUP LTD.
(A development stage company)
Notes to the consolidated financial statements
Year ended May 31, 2013
(Expressed in U.S. dollars)
MANTRA VENTURE GROUP LTD.
(A development stage company)
Notes to the consolidated financial statements
Year ended May 31, 2013
(Expressed in U.S. dollars)
10.
Share Purchase Warrants
The following table summarizes the continuity of share purchase warrants:
As at May 31, 2013, the following share purchase warrants were outstanding:
11.
Stock Options
The following table summarizes the continuity of the Company’s stock options:
MANTRA VENTURE GROUP LTD.
(A development stage company)
Notes to the consolidated financial statements
Year ended May 31, 2013
(Expressed in U.S. dollars)
11.
Stock Options (continued)
Additional information regarding stock options as of May 31, 2013 is as follows:
The fair values for stock options granted have been estimated using the Black-Scholes option pricing model assuming no expected dividends and the following weighted average assumptions:
During the year ended May 31, 2013, the Company recorded stock-based compensation of $62,892 (2012 -$38,742) for stock options granted.
The weighted average fair value of the stock options granted during 2013 was $0.15 (2012 - $0.04) per option.
The Company is to pay the licensor a royalty calculated as 2% of the gross revenue and 15% of any and all consideration directly or indirectly received by the Company from the grant of any sublicense rights. The Company will pay interest at a rate of 1% per month on any amounts past due. In addition, the Company is responsible for the timely payment of all future costs relating to patent expenses and any new or useful art, process, machine, manufacture or composition of matter arising out of any licensor improvements or joint improvements licensed under this agreement and identified by the licensor as potentially patentable. The Company must also invest a minimum of Cdn$250,000 in research and development directly associated with the technology.
MANTRA VENTURE GROUP LTD.
(A development stage company)
Notes to the consolidated financial statements
Year ended May 31, 2013
(Expressed in U.S. dollars)
13.
Income Taxes
The Company has net operating losses carried forward of $7,327,615 available to offset taxable income in future years which expires in beginning in fiscal 2027.
The Company is subject to United States federal and state income taxes at an approximate rate of 34%. The reconciliation of the provision for income taxes at the United States federal statutory rate compared to the Company’s income tax expense as reported is as follows:
The significant components of deferred income tax assets and liabilities as at May 31, 2013 and 2012 are as follows:
Item 9.
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
There were no disagreements with our accountants related to accounting principles or practices, financial statement disclosure, internal controls or auditing scope or procedure during the two fiscal years and subsequent interim periods.
Item 9A.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"), that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer (our principal executive officer, principal financial officer and principal accounting officer), as appropriate to allow timely decisions regarding required disclosure.
We carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer (our principal executive officer, principal financial officer and principal accounting officer), of the effectiveness of the design and operation of our disclosure controls and procedures as of May 31, 2013. Based on the evaluation of these disclosure controls and procedures, and in light of the weaknesses identified below, the chief executive officer and chief financial officer (our principal executive officer, principal financial officer and principal accounting officer) concluded that our disclosure controls and procedures were not effective.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining effective internal control over financial reporting. Under the supervision of our chief executive officer and chief financial officer (our principal executive officer, principal financial officer and principal accounting officer), our company conducted an evaluation of the effectiveness of our internal control over financial reporting as of May 31, 2013 using the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our company’s annual or interim financial statements will not be prevented or detected on a timely basis. In its assessment of the effectiveness of internal control over financial reporting as of May 31, 2013, our company determined that there were significant deficiencies that constituted material weaknesses, as described below.
1.
Certain entity level controls establishing a “tone at the top” were considered material weaknesses. Our company does not have any independent directors and thus no independent directors sit on the audit committee.
2.
Our company has not formally adopted internal controls surrounding its cash and financial reporting procedures including the absence of sufficient management review controls and separation of duties.
3.
There is no segregation of duties in the area of accounts receivable as one person receives, deposits and records all checks received.
4.
The lack of a functioning audit committee and lack of a majority of outside directors on our company’s board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures.
5.
Inadequate controls over equity transactions.
Management is currently evaluating remediation plans for the above control deficiencies.
In light of the existence of these control deficiencies, management concluded that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis by our company’s internal controls.
As a result, management has concluded that our company did not maintain effective internal control over financial reporting as of May 31, 2013 based on criteria established in Internal Control-Integrated Framework issued by COSO.
Saturna Group Chartered Accountants LLP, an independent registered public accounting firm, was not required to and has not issued a report concerning the effectiveness of our internal control over financial reporting as of May 31, 2013.
Changes in Internal Control
During the quarter ended May 31, 2013 there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B.
Item 9B. Other Information
On May 7, 2013, our company accepted the resignation of Tommy Unger as director of our company, effective April 8, 2013. Mr. Unger’s resignation was not the result of any disagreement with our company regarding its operations, policies, practices or otherwise.
Concurrently with Mr. Unger’s resignation, on May 7, 2013, our company accepted a consent to act from our chief technology officer, Patrick Dodd, to act as a director of our company to fill the ensuing vacancy, until the next annual general meeting.
PART III
Item 10.
Item 10. Directors, Executive Officers and Corporate Governance
Our bylaws state that the authorized number of directors shall be not less than one and not more than fifteen and shall be set by resolution of the board of directors. Our board of directors has fixed the number of directors at three.
Our current directors and officers are as follows:
Our directors serve until our next annual shareholder meeting or until his successor is elected who accepts the position. Officers hold their positions at the pleasure of the board of directors. There are no arrangements, agreements or understandings between non-management security holders and management under which non-management security holders may directly or indirectly participate in or influence the management of our affairs.
Larry Kristof - President, Chief Executive Officer, Chief Financial Officer, Secretary, Treasurer and Director
Larry Kristof has been our president, chief executive officer, secretary, treasurer and a director since our inception on January 22, 2007 and was appointed as our chief financial officer on January 18, 2011. Mr. Kristof has over 15 years of experience in business development and management. From 2003 until April 2007 he was the president and chief executive officer of Lexington Energy Services Inc., a public company quoted on the OTC Bulletin Board under the symbol LXES.OB.
Mr. Kristof co-founded Lexington Energy in 2003 and successfully built the company from concept through assets of over $7 million. Under Mr. Kristof’s direction, Lexington Energy designed and commercialized innovative mobile drilling rigs and nitrogen generation technologies. From 2003 to 2005, Mr. Kristof co-founded Lexington Communications Ltd., a company in the business of providing investor and corporate communications expertise to public companies. In early 2003, Mr. Kristof worked as the corporate communications manager of Trivello Energy Corp. (TSX-V: TRV.V), a company engaged in oil and gas exploration and production in western Canada. From 1998 to 2001, Mr. Kristof was the founder and president of Westec Venture Group Inc., a business development and venture capital service provider.
Jonathan Michael Boughen-Director
Jonathan Michael Boughen has been a director of our company since February 28, 2011.
From May of 2000 to January of 2006, Mr. Boughen was a sales manager at Ropak Corporation, a company that specializes in plastic packaging, container and film technologies worldwide. His responsibilities and duties included managing the sales team and key distributors and sharing the profit and loss responsibility with the regional plant manager.
Since June of 2006, Mr. Boughen has been a general manager at Scientek Technology Corporation, a company that specializes in building hospital and laboratory products such as washers and dryers for the processing of surgical instruments and utensils, operating room carts, and laboratory glassware. His responsibilities and duties includes leading the company with full profit and loss responsibility and managing the sales and growth profit through major changes in technology and currency value in a highly competitive market.
Patrick Dodd - Chief Technology Officer and Director
Patrick Dodd has been acting as our company’s chief technology officer since January 8, 2013 and as director since May 7, 2013.
Patrick Dodd began a bachelor’s degree in Chemical Engineering in 2006. This time was rife with experience, as, aside from playing on the varsity football team for five years, he worked as a process engineering intern for two terms at Nexen Inc. in Calgary, Alberta (in 2007 and 2008). At Nexen, Mr. Dodd was responsible for developing an electronic line list and complete set of process flow diagrams for the company’s Balzac gas plant. The following year saw Mr. Dodd engaged as a research assistant in the Chemical Engineering Department at McGill University, where he supplemented multiple Master’s theses by synthesizing a series of “green” succinate-based plasticizers and testing their performance. This work resulted in his being named in two publications.
Upon the completion of his degree at McGill University, in 2010, Mr. Dodd immediately began working toward a Master’s degree in Clean Energy Engineering at the University of British Columbia. In 2012, he capitalized on an opportunity to work as a process engineering intern at Iceland’s Carbon Recycling International, and thus became involved with the concept of carbon utilization. This project led to Mr. Dodd’s involvement with our company, and to complete his degree Patrick completed the early stages of design for our company’s ERC pilot plant, work which has served as the basis for its completed design. Mr. Dodd obtained his Master Degree in 2012 and was immediately engaged with our company wherein he has primarily been engaged in setting up our new internal research and development lab.
Our board of directors now consists of Larry Kristof, Jonathan Michael Boughen and Patrick Dodd.
Other than as described above, there have been no other transactions since the beginning of our last fiscal year or any currently proposed transactions, in which our company is, or plans to be, a participant and the amount involved exceeds $120,000 or one percent of the average of our total assets at year end for the last two completed fiscal years, and in which any related persons had or will have a direct or indirect material interest. There are no family relationships between any of the directors and officers described in the preceding disclosure.
Corporate Advisory Board
Our Corporate Advisory Board provides information and recommendations to our directors and management regarding the economic and regulatory aspects of our various technologies, solutions and services. Our Corporate Advisory Board is composed of specialists in the legal, finance, environmental policy, development, and marketing fields whom we have engaged as consultants on a part-time basis.
Our Corporate Advisory Board provides advice and expertise on regulatory and corporate governance issues, strategic partnership and joint venture opportunities, project management, financing, marketing, sales, software and new technology issues and development opportunities. We also intend to use the diverse network of individuals on the Corporate Advisory Board to promote our business, products and services in the sustainability industry and to attract desirable strategic partners.
Scientific Advisory Board
Our Scientific Advisory Board provides information and recommendations to our directors and management regarding the scientific and technical aspects of our various technologies, solutions and services. Our Scientific Advisory Board is composed of specialists in the scientific, environmental, electrical and systems engineering fields whom we have engaged as consultants on a part-time basis.
Our Scientific Advisory Board provides advice and expertise on technology and software design, sustainability, environmental policy, and technology and service assessment and implementation. The board also provides input on the technical, ethical and environmental consequences associated with our technologies, projects and operations.
We have entered into consulting agreements with the individuals listed below and appointed them as members of our Scientific Advisory Board. We have also identified other suitable candidates and are currently in negotiations with them regarding the terms of their respective services. However, there is no assurance that we will be able to identify, attract or retain any or a sufficient number of qualified professionals.
Professor Colin Oloman, P.Eng.
Prof. Colin Oloman has been a member of our Scientific Advisory Board since November 2, 2007. Prof. Oloman is a graduate of the Universities of Sydney and British Columbia and has been engaged in the field of chemical engineering for 40 years, both on the academic and industry sides. As a faculty member in the Department of Chemical and Biological Engineering at the University of British Columbia, Prof. Oloman taught a range of undergraduate and graduate courses until his retirement in 2004.
In addition to his status as a professor emeritus at the University of British Columbia, Prof. Oloman is a professional engineer, a member of the Chemical Institute of Canada and the Electrochemical Society, has and the author or coauthor of three books (Ol's Notes on Material and Energy Balances, Electrochemical Processing for the Pulp and Paper Industry and Handbook of Fuel Cell Modeling) as well as numerous proprietary reports and publications in technical journals. He is also the holder or co-holder of some twenty U.S. and international patents. Prof. Oloman’s ongoing research and consulting work focuses on electrochemical systems and in particular the design of electrochemical reactors for electro-synthesis and power generation
Norman Chow, P.Eng.
Norman Chow has been a member of our Scientific Advisory Board since July 22, 2008. Mr. Chow earned a B.A.Sc. in Metals and Materials Engineering from the University of British Columbia, graduating top of his class. Continuing his education, he received a Masters of Applied Science Degree and then became a Registered Professional Engineer (P. Eng.) in British Columbia. Mr. Chow has over 10 years of technology development experience and contract research experience. Mr. Chow also co-invented a patented electrochemical metal cleaning process that is used worldwide by multi-national companies. He has a background in technology development, business management, international sales, project management and manufacturing. Mr. Chow has been the winner of several prestigious awards that recognize his skills in engineering and business. In 1996, his patented metal cleaning technology, won the Financial Post Gold Award for being the Top Environmental Technology in Canada, and then in 2004 he was named the winner of the Business in Vancouver Top Forty under 40 Award.
Joey Jung, P.Eng.
Joey Jung has been a member of our Scientific Advisory Board since July 22, 2008. Mr. Jung earned his Masters of Applied Science Degree from the University of British Columbia in Chemical Engineering and subsequently became a Registered Professional Engineer (P. Eng.) in British Columbia. Mr. Jung has had a successful career in electrochemical engineering and battery research, formerly serving as vice president and chief technology officer of a publicly traded battery development company.
Significant Employees
Other than as described above, we do not expect any other individuals to make a significant contribution to our business.
Family Relationships
There are no family relationships among our officers, directors or persons nominated for such positions.
Involvement in Certain Legal Proceedings
To the best of our knowledge, none of our directors or executive officers has, during the past ten years:
1.
been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offences);
2.
had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two years prior to that time;
3.
been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity;
4.
been found by a court of competent jurisdiction in a civil action or by the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;
5.
been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
6.
been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
Audit Committee
The functions of the Audit Committee are currently carried out by our board of directors. Our board of directors has determined that we do not have an audit committee financial expert on our board of directors carrying out the duties of the Audit Committee. Our board of directors has determined that the cost of hiring a financial expert to act as our director and a member of the Audit Committee or otherwise perform Audit Committee functions outweighs the benefits of having a financial expert on our board of directors.
Code of Ethics
We adopted a Code of Ethics applicable to all of our directors, officers, employees and consultants, which is a “code of ethics” as defined by applicable rules of the SEC. Our Code of Ethics was attached as an exhibit to our Registration Statement filed on Form S-1filed with the SEC on February 26, 2008. If we make any amendments to our Code of Ethics other than technical, administrative, or other non-substantive amendments, or grant any waivers, including implicit waivers, from a provision of our Code of Ethics to our chief executive officer, chief financial officer, or certain other finance executives, we will disclose the nature of the amendment or waiver, its effective date and to whom it applies in a Current Report on Form 8-K filed with the SEC.
We will provide a copy of the Code of Business Conduct and Ethics to any person without charge, upon request. Requests may be sent in writing to: Mantra Ventures Group Ltd., #562 - 800 15355 24th Avenue, Surrey, British Columbia, Canada V4A 2H9.
Audit Committee and Audit Committee Financial Expert
Our audit committee consists of our entire board of directors.
Our board of directors has determined that it does not have a member of its audit committee that qualifies as an "audit committee financial expert" as defined in Item 407(d)(5)(ii) of Regulation S-K.
Our audit committee is governed by an Audit Committee Charter adopted by our board of directors.
We believe that the members of our audit committee are collectively capable of analyzing and evaluating our financial statements and understanding internal controls and procedures for financial reporting. We believe that retaining an independent director who would qualify as an "audit committee financial expert" would be overly costly and burdensome and is not warranted in our circumstances given the early stages of our development and the fact that we have not generated any material revenues to date. In addition, we currently do not have nominating, compensation or committees performing similar functions nor do we have a written nominating, compensation. Our board of directors does not believe that it is necessary to have such committees because it believes the functions of such committees can be adequately performed by our board of directors.
Director Nominees
We do not have a nominating committee. Our board of directors selects individuals to stand for election as members of the board. The board will consider candidates for directors proposed by security holders, although no formal procedures for submitting candidates have been adopted. Unless otherwise determined, not less than 90 days prior to the next annual board of directors' meeting at which the slate of board nominees is adopted, the board will accept written submissions of proposed nominees that include the name, address and telephone number of the proposed nominee; a brief statement of the nominee’s qualifications to serve as a director; and a statement as to why the shareholder submitting the proposed nominee believes that the nomination would be in the best interests of shareholders. If the proposed nominee is not the same person as the shareholder submitting the name of the nominee, a letter from the nominee agreeing to the submission of his or her name for consideration should be provided at the time of submission. The letter should be accompanied by a résumé supporting the nominee's qualifications to serve on the board of directors, as well as a list of references.
The board identifies director nominees through a combination of referrals from different people, including management, existing board members and security holders. Once a candidate has been identified, the board reviews the individual's experience and background and may discuss the proposed nominee with the source of the recommendation. If the board believes it to be appropriate, board members may meet with the proposed nominee before making a final determination whether to include the proposed nominee as a member of management's slate of director nominees submitted to shareholders for election to the board.
Among the factors that the board considers when evaluating proposed nominees are their knowledge of, and experience in business matters, finance, capital markets and mergers and acquisitions. The board may request additional information from the candidate prior to reaching a determination. The board is under no obligation to formally respond to all recommendations, although as a matter of practice, it will endeavor to do so.
Section 16(a) Beneficial Ownership Compliance Reporting
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors and persons who own more than 10% of a registered class of our equity securities to file with the SEC initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our shares of common stock and other equity securities, on Forms 3, 4 and 5, respectively. Executive officers, directors and greater than 10% shareholders are required by the SEC regulations to furnish us with copies of all Section 16(a) reports they file.
Based solely on our review of the copies of such forms received by our company, or written representations from certain reporting persons that no Form 5s were required for those persons, we believe that, during the fiscal year ended May 31, 2013, all filing requirements applicable to our officers, directors and greater than 10% beneficial owners as well as our officers, directors and greater than 10% beneficial owners of our subsidiaries were complied with, with the exception of the following:
(1) the insider was late filing a Form 3, Initial Statement of Beneficial Ownership.
Item 11.
Item 11. Executive Compensation
The particulars of the compensation paid to the following persons:
our principal executive officer;
each of our two most highly compensated executive officers who were serving as executive officers at the end of the years ended May 31, 2013 and 2012; and
up to two additional individuals for whom disclosure would have been provided under (b) but for the fact that the individual was not serving as our executive officer at the end of the years ended May 31, 2013 and 2012,
who we will collectively refer to as the named executive officers of our company, are set out in the following summary compensation table, except that no disclosure is provided for any named executive officer, other than our principal executive officers, whose total compensation did not exceed $100,000 for the respective fiscal year:
(1)
Larry Kristof was appointed president, chief executive officer, secretary and treasurer on January 22, 2007 and was appointed chief financial officer on January 18, 2011.
(2)
Tommy David Unger was appointed a director of our company on February 20, 2012 and as vice president corporate finance on April 3, 2012. Mr. Unger resigned from all positions on May 7, 2013, effective April 8, 2013.
(3)
Includes fair value of 250,000 options held indirectly by Tommy David Unger through his company BC0848571 Ltd. these options were exercised by Mr. Unger on November 7, 2012.
Stock Option Plan
On November 24, 2009, we registered a2009 Stock Compensation Plan and a 2009 Stock Option Plan which permits our company to grant up to an aggregate of 3,500,000 options to acquire shares of common stock, to directors, officers, employees and consultants of our company.
Option Grants in the Last Fiscal Year
The following table outlines unexercised options, stock that have not vested and equity incentive plan awards for each named executive officer outstanding as of the end of our last completed fiscal year:
(1)
We have omitted certain columns in the outstanding equity awards table pursuant to Item 402(a)(5) of Regulation S- K as no equity awards were awarded to, earned by, or paid to any of the executive officers or directors required to be reported in that table or column in any fiscal year covered by that table.
Management Compensation Narrative
On April 3, 2012, we entered into a consulting agreement with BC0848571 Ltd., a company controlled by Tommy David Unger, a director of our company, whereby Mr. Unger has agreed to provide consulting services as our company’s vice president of corporate finance for a period of twelve months. In consideration for agreeing to provide such consulting services by Mr. Unger, we have agreed to salary of Cdn$5,000 per month and to grant 250,000 options to acquire 250,000 shares of our common stock at a purchase price of Cdn$0.03 per share. These options are non-transferrable, vest immediately and expire the earlier of 24 months, or upon the termination of the consulting agreement. These options were exercised on November 7, 2012. Mr. Unger resigned from our company effective April 8, 2013.
On January 8, 2013, we entered into an employment agreement with Larry Kristof, whereby Larry Kristof has agreed to provide services as chief executive officer of our company for a period of two years. As compensation, pursuant to the terms of the employment agreement, Larry Kristof will receive an annual salary of $60,000, payable in equal monthly installments. The employment agreement may be terminated by Larry Kristof, for any reason, by providing at least three month’s advance written notice to our company.
Also on January 8, 2013, our company’s subsidiary, Mantra Energy Alternatives Ltd., entered into an employment agreement with Larry Kristof, whereby Larry Kristof has agreed to provide services as chief executive officer of Mantra Energy for a period of two years. As compensation, pursuant to the terms of the employment agreement, Larry Kristof will receive an annual salary of $60,000, payable in equal monthly installments. The employment agreement may be terminated by Larry Kristof, for any reason, by providing at least three month’s advance written notice to our company.
Compensation of Directors
Other than as set out below, we have no formal plan for compensating our directors for their service in their capacity as directors, although such directors are expected in the future to receive stock options to purchase common shares as awarded by our board of directors or (as to future stock options) a compensation committee which may be established. Directors are entitled to reimbursement for reasonable travel and other out-of-pocket expenses incurred in connection with attendance at meetings of our board of directors. Our board of directors may award special remuneration to any director undertaking any special services on our behalf other than services ordinarily required of a director. No director received and/or accrued any compensation for their services as a director, including committee participation and/or special assignments.
The following table sets forth a summary of the compensation paid to our non-employee directors in our fiscal year ended May 31, 2013:
On February 20, 2012, we entered into a director agreement with Tommy David Unger. As compensation, under the director agreement, we granted stock options to Mr. Unger to purchase up to 500,000 shares of our common stock at a price of Cdn$0.01 per share. Mr. Unger exercised these options on March 15, 2012.
On April 3, 2012 we issued 250,000 stock options to acquire 250,000 shares of our common stock at a purchase price of Cdn$0.03 per share pursuant to a consulting agreement with BC0848571 Ltd., a company operated by our director Tommy David Unger. These options are non-transferrable, vest immediately and expire the earlier of 24 months, or upon the termination of the consulting agreement. These options were exercised on November 7, 2012.
On May 7, 2013, our company entered into a director agreement with Patrick Dodd. As compensation, under the director agreement, our company granted stock options to Mr. Dodd to purchase up to 200,000 shares of our common stock at a price of $0.10 per share. The stock options shall terminate for exercise the earlier of May 7, 2015 or 180 calendar days after resignation of Mr. Dodd as director, in which case, 100,000 stock options shall remain available to Mr. Dodd at an exercise price of US$0.10 until November 7, 2015.
Pension, Retirement or Similar Benefit Plans
There are no arrangements or plans in which we provide pension, retirement or similar benefits to our directors or executive officers. We have no material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to our directors or executive officers, except that stock options may be granted at the discretion of the board of directors or a committee thereof.
Compensation Committee
We do not currently have a compensation committee of our board of directors. Our board of directors as a whole determines executive compensation.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table lists, as of August 16, 2013 the number of shares of our common stock beneficially owned by (i) each person or entity known to us to be the beneficial owner of more than 5% of our outstanding common stock; (ii) each of our officers and directors; and (iii) all of our officers and directors as a group. Information relating to the beneficial ownership of common stock by our principal shareholders and management is based upon information furnished by each person using "beneficial ownership" concepts under the rules of the Securities and Exchange Commission. Under these rules, a person is deemed to be the beneficial owner of a security if that person has or shares voting power or investment power, which includes the power to vote or direct the voting of the security. The person is also deemed to be a beneficial owner of any security of which that person has a right to acquire beneficial ownership within 60 days. Under the rules of the Securities and Exchange Commission, more than one person may be deemed to be a beneficial owner of the same security, and a person may be deemed to be a beneficial owner of securities as to which he or she may not have any pecuniary beneficial interest.
The percentages below are calculated based on 57,097,864 issued and outstanding shares of our common stock as of September 12, 2013.
*represents an amount less than 1%
(1)
Under Rule 13d-3, a beneficial owner of a security includes any person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise has or shares: (i) voting power, which includes the power to vote, or to direct the voting of shares; and (ii) investment power, which includes the power to dispose or direct the disposition of shares. Certain shares may be deemed to be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of the shares). In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire the shares (for example, upon exercise of an option) within 60 days of the date as of which the information is provided. In computing the percentage ownership of any person, the amount of shares outstanding is deemed to include the amount of shares beneficially owned by such person (and only such person) by reason of these acquisition rights. As a result, the percentage of outstanding shares of any person as shown in this table does not necessarily reflect the person’s actual ownership or voting power with respect to the number of shares of common stock actually outstanding on August 16, 2013. As of August 16, 2013, there were 57,097,864shares of our company’s common stock issued and outstanding.
(2)
Larry Kristof is our president, chief executive officer, chief financial officer, secretary, treasurer and a director of our company.
(3)
Includes:
a)
100,000 common shares held by 0770987 BC Ltd. and Larry Kristof’s spouse, Kelly Kristof, in street name; and
b)
13,250,000 common shares held by 0770987 BC Ltd.
c)
Mr. Kristof has sole voting and investment control over 0770987 BC Ltd.
(4)
Jonathan Michael Boughen is a director of our company.
(5)
Patrick Dodd is a director of our company.
(6)
Includes options to acquire 200,000 shares of common stock by Mr. Dodd exercisable within 60 days.
Changes in Control
There are currently no arrangements or agreements which would result in a change in control of our company.
Item 13.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Except as set forth below, we have not entered into any transactions with our officers, directors, persons nominated for these positions, beneficial owners of 5% or more of our common stock, or family members of these persons wherein the amount involved in the transaction or a series of similar transactions exceeded the lesser of $120,000 or 1% of the average of our total assets for the last three fiscal years:
(a)
During the year ended May 31, 2013, our company incurred management fees of $50,901 (2012 - $30,000) to directors of our company.
(b)
As at May 31, 2012, our company owes $11,515 (2012 - $42,033) to the spouse of the President of our company which is non-interest bearing, unsecured, and due on demand.
(c)
As at May 31, 2013, our company owes $22,383 (2012 - $22,444) to a director of our company, which is non-interest bearing, unsecured, and due on demand.
(d)
As at May 31, 2012, our company owes a total of $138,526 (2012 - $179,978) to the president of our company and a company controlled by the president of our company which is non-interest bearing, unsecured, and due on demand.
Director Independence
Our securities are quoted on the OTC Bulletin Board which does not have any director independence requirements.
However, we currently use NASDAQ’s general definition for determining director independence, which states that “independent director” means a person other than an officer or employee of the company or its subsidiaries or any other individual having a relationship, that, in the opinion of the company’s board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of the director. Currently, we act with one independent director, Jonathan Michael Boughen.
Our audit committee consists of our entire board of directors.
We do not have a standing compensation or nominating committee, but our entire board of directors acts in such capacities.
Item 14.
Item 14. Principal Accountant Fees and Services
The aggregate fees billed for the most recently completed fiscal year ended May 31, 2013 and for fiscal year ended May 31, 2012 for professional services rendered by the principal accountant for the audit of our annual financial statements and review of the financial statements included in our quarterly reports on Form 10-Q and services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for these fiscal periods were as follows:
Our board of directors pre-approves all services provided by our independent auditors. All of the above services and fees were reviewed and approved by the board of directors either before or after the respective services were rendered.
Our board of directors has considered the nature and amount of fees billed by our independent auditors and believes that the provision of services for activities unrelated to the audit is compatible with maintaining our independent auditors’ independence.
PART IV
Item 15.
Item 15. Exhibits, Financial Statement Schedules
(a)
Financial Statements
(1)
Financial statements for our company are listed in the index under Item 8 of this document.
(2)
All financial statement schedules are omitted because they are not applicable, not material or the required information is shown in the financial statements or notes thereto.
(b)
Exhibits
*
Filed herewith.
**
Furnished herewith. Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of any registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, and otherwise are not subject to liability under those sections.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
MANTRA VENTURE GROUP LTD.
Date: September 13, 2013 By: /s/ Larry Kristof
Larry Kristof
President, Chief Executive Officer, Chief Financial
Officer, Secretary, Treasurer and Director
(Principal Executive Officer, Principal Financial
Officer and Principal Accounting Officer)
Pursuant to the requirements of the Exchange Act this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Date: September 13, 2013 By: /s/ Larry Kristof
Larry Kristof
President, Chief Executive Officer, Chief
Financial
Officer, Secretary, Treasurer and Director
(Principal Executive Officer, Principal
Financial
Officer and Principal Accounting Officer)
Date: September 13, 2013 By: /s/ Jonathan Boughen
Jonathan Boughen
Director
Date: September 13, 2013
By: /s/ Patrick Dodd
Patrick Dodd
Director