UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended May 31, 2014
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from [ ] to [ ]
Commission file number 000-53461
MANTRA VENTURE GROUP LTD.
(Exact name of registrant as specified in its charter)
| Nevada | 26-0592672 |
| (State or other jurisdiction of incorporation or | (I.R.S. Employer Identification No.) |
| organization) | |
| 1562 128th Street, Surrey, British Columbia, Canada | V4A 3T7 |
| (Address of principal executive offices) | (Zip Code) |
| Registrant's telephone number, including area code: | (604) 560-1503 |
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Name of Each Exchange On Which Registered |
| N/A | N/A |
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.00001 par value
(Title of class)
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 the Securities Act.
Yes
[ ] No [X]
Indicate by check mark if the registrant is not required to
file reports pursuant to Section 13 or Section 15(d) of the Act
Yes
[ ] No [X]
Indicate by check mark whether the registrant: (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports) and (2) has been subject
to such filing requirements for the last 90 days.
Yes
[X] No [ ]
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Website, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-K (§229.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer [ ] | Accelerated filer [ ] |
| Non-accelerated filer [ ] | Smaller reporting company [X] |
Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No
[X]
The aggregate market value of Common Stock held by non-affiliates of the Registrant on November 29, 2013 was $2,138,003 based on a $0.10 average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of the latest practicable date.
70,692,692 common shares as of September 12, 2014.
DOCUMENTS INCORPORATED BY REFERENCE
None.
Table of Contents
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PART I
Item 1. Business
FORWARD-LOOKING STATEMENTS
This annual report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “will”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable laws, including the securities laws of the United States, we do not intend to update any of the forward-looking statements so as to conform these statements to actual results.
In this annual report, unless otherwise specified, all dollar amounts are expressed in United States dollars. All references to “US$” refer to United States dollars and all references to “common stock” refer to the common shares in our capital stock.
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.
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 1562 128th Street, Surrey, British Columbia, Canada, V4A 3T7. 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. 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 generating revenue from our operations. At this time we own a technology for the electro-reduction of carbon dioxide and have the exclusive world license for a mixed-reactant fuel cell. Since our inception, we have incurred operational losses and we have completed several rounds of financing to fund our operations.
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We carry on our business through our subsidiary, Mantra Energy Alternatives Ltd. (“MEA”), through which we identify, acquire, develop and market technologies related to alternative energy production, greenhouse gas emissions reduction and resource consumption reduction;
We also have a number of inactive subsidiaries which we plan to engage in various business activities in the future.
Effective June 19, 2012, our company’s subsidiary, MEA, entered into a service contract with PowerTech Labs Inc., whereby PowerTech assisted MEA in the evaluation and the development of our ERC(electro-reduction of carbon dioxide) system. As compensation, PowerTech was paid $171,000 plus the cost of materials. 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%. The program has now been completed.
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%. Stichting started an action in the Supreme Court of British Columbia for non-payment of the convertible debenture.
We entered into a settlement agreement with Stichting dated July 16, 2012, pursuant to which:
- the due date of the Convertible Debenture would be extended to April 11, 2013;
- within 5 business days we were to pay $43,890 representing net interest to and including September 30, 2012, less $15,000 we forwarded to Stichting on February 16, 2012;
- commencing on October 31, 2012 we were to pay accrued monthly interest at 10% per annual until April 11, 2013 (this amount has been paid);
- we were to pay a $10,000 premium on the $150,000 principal of the convertible debenture payable by April 11, 2013.
We entered into an agreement dated April 29, 2013 with Stichting to amend the settlement agreement, pursuant to which:
- the due date of the convertible debenture was extended from April 11, 2013 to September 15, 2013;
- upon execution of the amendment to the settlement agreement, we paid $6,836 in full satisfaction of future interest payable on the convertible debenture from April 1, 2013 to September 15, 2013; and
- we granted to Stichting 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 $0.12 per common share.
On November 15, 2013, we entered into a second settlement agreement amendment with Stichting, pursuant to which we agreed to pay interest of $4,438 and commencing February 1, 2014, to make monthly payments of $10,000 on the outstanding principal and interest. Our company has made monthly payments for a total of $50,000 as at May 31, 2014.
On July 31, 2012, our subsidiary, MEA, entered into a master services agreement with Tekion (Canada), Inc. MEA’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. MEA 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, MEA entered into a statement of work with Tekion setting out the work summary, deliverables, budgets and timelines in several stages, which have now all been completed.
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.
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Also on January 8, 2013, our company’s subsidiary, MEA, entered into an employment agreement with Larry Kristof, whereby Larry Kristof has agreed to provide services as chief executive officer of MEA 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 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 compensated BC Research based on its customary hourly rates. BC Research completed this project at a cost of $161,759and our company retains all intellectual property resulting from the services performed.
Concurrently with the engagement of B.C. Research, our company, through our subsidiary, MEA, 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 continued until March 1, 2014 at a cost of CDN$18,720 (CDN$1,560 monthly). The sublease has not been renewed. We moved out of the facility on May 31, 2014 and now lease our own laboratory space in Vancouver, British Columbia at a cost of approximately $3,600 per month.
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 $0.10 until November 7, 2015. On March 1, 2014, we amended this agreement which granted Mr. Dodd options to purchase 150,000 common shares of our company at $0.02 per common share. On August 25, 2014, Mr. Dodd notified us and provided payment for the exercise of the options.
Collaboration with Alstom (Switzerland) Ltd.
On June 24, 2013, through our majority owned subsidiary, MEA 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.
Pursuant to the agreement with Alstom, MEA and Alstom will co-operate in one or more research and development projects related to MEA’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, MEA 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
MEA 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 MEA under the agreement, and to a license to MEA’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.
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Lafarge Pilot Project and Carbon Dioxide to Alternative Products
The agreement with Alstom 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. Alstom’s contribution to the Lafarge pilot plant project will be approximately CDN$250,000 for 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. Alstom’s contribution to the alternative products project will be approximately CDN$190,375 for Phase 1. For Phases 2 through 4 Alstom’s planed, but not committed, contribution is estimated at CDN$456.125 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 for 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 Mr. Oloman’s services at CDN$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.
On October 10 and October 17, 2013, our company’s subsidiary, MEA, entered into employment agreements with Amin Aziznia and Sona Kazemi, whereby Mr. Aziznia and Mrs. Kazemi have each agreed to perform services as senior process engineers of MEA for a term of one year. As compensation for services rendered, Mr. Aziznia and Mrs. Kazemi shall each receive base gross remuneration of $65,000 per annum with an increase to $70,000 per annum subject to receipt by MEA of an Industrial Research and Development Fellowship from the Natural Sciences and Engineering Research Council of Canada (the “NSERC IRDF Grant”). The compensation is payable in twelve equal monthly installments. In addition, we have agreed to grant to each of Mr. Aziznia and Ms. Kazemi, 100,000 stock options to acquire up to 100,000 common shares of our company at a purchase price of $0.10 per share. The options will, when granted, be non-transferrable, vest immediately and expire upon the earlier of 24 months, or upon termination of the employment agreements. The agreements would terminate if MEA did not receive the NSERC IRDF Grant. The NSERC IRDF Grants have been granted and are effective as of August 1, 2014.
On March 1, 2014, we entered into an agreement with Small Cap Invest Ltd., a Frankfurt-based financial service company. Serving as a contractor, Small Cap Invest will develop investor and public relations across Europe, and use an impressive breadth of experience to ultimately facilitate the penetration and development of Mantra’s technologies in European markets.
On March 13, 2014, we entered into a consulting agreement with DC Consulting LLC (“DCC”), dated effective March 13, 2014, whereby DCC has agreed to provide our company with various services including management consulting, business advisory, shareholder information and public relations which commenced March 17, 2014 and terminates on March 16, 2015. The agreement provides for a monthly cash payment in the amount of $7,250 per month and the issuance of 25,000 shares of our company’s common stock upon execution of the agreement and 20,000 shares of our company’s common stock per month for months 2 to 12.
Effective March 25, 2014, our company, through our subsidiary MEA, entered into letter of engagement with BC Research Inc. pursuant to which BC Research has undertaken to design, engineer and build our company’s ERC demonstration unit. Based in Vancouver, British Columbia, BC Research is the technology commercialization and innovation center of NORAM Engineering and Constructors Ltd., a globally active firm which provides innovative solutions and engineering and equipment packages to the chemical, pulp and paper, minerals processing and electrochemical industries.
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The BC Research facility houses a wet chemical laboratory and over 10,000 square feet of pilot plant space, and is where our company is performing its ongoing research and development work on ERC. Pursuant to the letter of engagement BC Research (in collaboration with NORAM) has been engaged to engineer, design and build our company’s ERC demonstration unit for the estimated cost of CDN$360,000 (approximately $326,000). Engineering and design services for the project will be provided primarily by NORAM engineers and scientists. Our company has delivered the first payment installment of CDN$190,000 to BC Research and project work has commenced and is estimated to take approximately 24 weeks. We may terminate the agreement at any time and will retain all prior-owned and new intellectual property related to the project.
On August 22, 2014, we entered into an agreement with Green Baron Ventures Inc., doing business as Evergreen Marketing, Inc. Pursuant to the terms of this agreement, Green Baron is to provide us with investor relation services. In exchange for the service provided by Green Baron, we compensated Green Baron with a total of USD$3,500 and of 12,000 common shares of our company.
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:
| Country |
Application
Number |
File Date |
Status |
| Patent Cooperation Treaty (PCT) | W02207 | 10/13/2006 | PCT |
On January 14, 2014, our company and Mantra Energy, received acceptance of our primary ERC patent application in Australia. This patent application covers the reactor and process for the electrochemical conversion of carbon dioxide to chemical products, and is a crucial component of Mantra's intellectual property portfolio. The Australian patent was officially issued on May 1, 2014.
As of the date of this annual report, we have been awarded the following patents:
| Country | Patent Number | Patent Date | Name of Patent |
| India | 251493 | March 20, 2012 | “An Electrochemical Process for Reducing of Carbon Dioxide” |
| China | ZL 2006 8 0037810.8 | May 8, 2013 | “Continuous Co-Current Electrochemical Reduction of Carbon Dioxide” |
| Australia | 2012202601 | May 1, 2014 | “Continuous Co-Current Electrochemical Reduction of Carbon Dioxide” |
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 and limited scale-up 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.
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In a fuel cell a fuel is oxidized and an oxidant reduced, resulting in the production of an electric current to drive and external load. Because ERC can be used to produce such a fuel from CO2, a regenerative fuel cell cycle can be developed using the technology in conjunction with an appropriate fuel cell. As shown in the figure, this concept can be used to provide energy storage, whereby clean electricity produced by intermittent renewable resources can be stored and its supply correlated with demand.
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.
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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 had established a research and development facility for the ERC in Vancouver, British Columbia, staffed by a dedicated research team provided by Kemetco. The use of the research and development facility by our company ended in 2010.
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 January 29, 2010 agreement, we 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. We have not renewed our agreement with Kemetco and have not been involved with Kemetco since approximately May 2010.
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. This testing is underway in our research facilities, and is complemented by the parallel engineering of a scaled-up demonstration plant by BC Research Inc.
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Established and Emerging Market for ERC and its Chemical Products:
The technology behind ERC can be applied to any scale commercial venture which outputs CO2 into the atmosphere, though it is expected to be most effective when applied to large scale stationary sources. We anticipate that, once fully commercialized, we will be able to offer ERC as a CO2 management system to various industry including steel, cement, fermentation processes, power generation and pulp and paper.
As described, the ERC process can be used to produce a variety of different chemical products from CO2. The first products that Mantra is targeting are formic acid and its salts. These products have existing markets as commodity chemicals and sell for between $1,000 and $1,500 per tonne, with global consumption being in excess of 600,000 tonnes per year. Formic acid and its salts are used in a variety of industrial applications, including silage preservation, leather tanning, textiles production, oil well drilling, and de-icing, and show enormous potential for market expansion through their use in chemical energy storage.
However, if the ERC process reaches market acceptance as a way to deal with CO2 emissions from industryfacilities, 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 applications we have identified and are currently focusing on are energy storage and steel pickling.
Energy Storage
Formic acid and its salts have been recognized as excellent energy carriers. They have high volumetric and gravimetric energy densities compared to conventional storage technologies such as batteries, and as liquids are much easier to store and distribute than gaseous hydrogen. By liberating energy from them using direct fuel cells, these chemicals can be used to produce electricity on demand, and as such can be used for energy storage. Their use in energy storage applications would vastly increase the market for formic acid and its salts, as the value of energy storage market is expected to surpass $20 billion in the coming years.
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 HCl in 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 methodsinclude, 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:
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- 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; 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 CO2 conversion, 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.
In addition to these advantages, we consider most developers of CO2 utilization technologies to not be directly competitive with Mantra. This is because a) the supply of CO2 from industrial sources is very large, allowing for multiple technologies to be successful commercially, and b) most technologies generate different products from CO2 than those produced by Mantra, and thus will not be competitors in the sale of chemical products.
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 at an industrial scale. 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. We have had success developing methods for improving the activity and extending the lifetime of the cathode at the bench scale and expect these methods to translate into significant process improvements as ERC is scaled up.
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;
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- 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, 2014 we spent $396,278 on research and development. For the last two fiscal years, we have spent $824,952 on research and development. We anticipate that we will incur $4,200,000 in expenses on research and development (including wages and commercialization efforts) for ERC as well as other technologies we may acquire over the next 12 months.
13
Employees
As of September 8, 2013, we had 2 employees 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.
As of August 30, 2014, we had 7 employees at our research facilities in Vancouver, British Columbia, including: Patrick Dodd, Amin Aziznia, Sona Kazem, Piotr Forysinski, Christina Gyenge, and two undergraduate students. These employees are engaged in research and development activities to improve our company’s technologies and are employed on a full time basis.
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:
| Country |
Application
Number |
File Date |
Status |
| Patent Cooperation Treaty (PCT) |
W02207 |
10/13/2006 |
PCT(1)
|
| (1) |
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.
On January 14, 2014, our company and Mantra Energy, received acceptance of our primary ERC patent application in Australia. This patent application covers the reactor and process for the electrochemical conversion of carbon dioxide to chemical products, and is a crucial component of Mantra's intellectual property portfolio. The Australian patent was officially issued on May 1, 2014.
As of the date of this annual report, we have been awarded the following patents:
14
| Country | Patent Number | Patent Date | Name of Patent |
| India |
251493 |
March 20, 2012 |
“An Electrochemical Process for Reducing of Carbon Dioxide” |
| China |
ZL 2006 8 0037810.8 |
May 8, 2013 |
“Continuous Co- Current Electrochemical Reduction of Carbon Dioxide” |
| Australia |
2012202601 |
May 1, 2014 |
“Continuous Co- Current Electrochemical Reduction of Carbon Dioxide” |
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. Risk Factors
As a “smaller reporting company”, we are not required to provide the information required by this Item.
Item 1B. Unresolved Staff Comments
As a “smaller reporting company”, we are not required to provide the information required by this Item.
Item 2. Description of Property
Our principal executive offices are located at 1562 128th Street, Surrey, British Columbia, Canada V4A 3T7. Our telephone number is (604) 560-1503. The office is approximately 1,200 square feet in size and is leased for a term of twenty four months. The lease began on June 1, 2014 and will end in June 2016. Currently we pay approximately $1,300 per month for our office space in Surrey.
Our research facilities are located at 202-3590 West 41st Avenue, Vancouver, British Columbia, Canada, V6N 3E6. The telephone number is (604) 267-4005. The facility is approximately 1,400 square feet in size and is leased for a term of two years beginning on July 1, 2014. Currently we pay approximately $3,600 per month in rent.
15
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 $55,000 is dependent upon whether the former employee will first return the 1,000,000 shares of common stock noted above. The probable outcome of our company’s claim for the return of the shares cannot yet be determined.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is not traded on any stock exchange in the United States and Canada and there is no established public trading market for our common stock. Our common stock is quoted on the OTC Bulletin Board, under the trading symbol MVTG. The market for our stock is highly volatile. We cannot assure you that there will be a market in the future for our common stock. OTC Bulletin Board securities are not listed and traded on the floor of an organized national or regional stock exchange. Instead, OTC Bulletin Board securities transactions are conducted through a telephone and computer network connecting dealers in stocks. OTC Bulletin Board stocks are traditionally smaller companies that do not meet the financial and other listing requirements of a regional or national stock exchange.
On February 18, 2008, our common shares began trading on the Frankfurt Stock Exchange under the symbol EDV 5MV. The Frankfurt Stock Exchange is located in Frankfurt, Germany.
The following table reflects the high and low bid information for our common stock obtained from Stockwatch on the OTC Bulletin Board and reflects inter-dealer prices, without retail mark-up, markdown or commission, and may not necessarily represent actual transactions.
Quarter Ended |
High ($) |
Low ($) |
| May 31, 2014 | 0.744 | 0.18 |
| February 28, 2014 | 0.18 | 0.0471 |
| November 30, 2013 | 0.15 | 0.072 |
| August 31, 2013 | 0.19 | 0.10 |
| May 31, 2013 | 0.23 | 0.1 |
| February 28, 2013 | 0.3 | 0.131 |
| November 30, 2012 | 0.24 | 0.1139 |
| August 31, 2012 | 0.12 | 0.06 |
| May 31, 2012 | 0.1199 | 0.032 |
16
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, 2014, there were approximately 181 holders of record of our common stock. As of such date, 70,692,692 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 a 2009 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
We did not sell any equity securities which were not registered under the Securities Act during the year ended May 31, 2014 that were not otherwise disclosed on our quarterly reports on Form 10-Q or our current reports on Form 8-K filed during the year ended May 31, 2014.
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, 2014.
Item 6. Selected Financial Data
As a “smaller reporting company” we are not required to provide the information required by this Item.
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, 2014 and 2013
The following summary of our results of operations should be read in conjunction with our audited financial statements for the years ended May 31, 2014 and 2013.
17
Our operating results for the years ended May 31, 2014 and 2013 are summarized as follows:
| Year Ended | ||||||
| May 31, | ||||||
| 2014 | 2013 | |||||
| Revenue | $ | 274,584 | $ | 3,027 | ||
| Cost of goods sold | $ | – | $ | 2,500 | ||
| Operating Expenses | $ | (1,568,122 | ) | $ | (1,374,699 | ) |
| Other Income (Expense) | $ | (59,222 | ) | $ | (45,959 | ) |
| Net Loss | $ | (1,352,760 | ) | $ | (1,420,131 | ) |
Revenues
Our revenues for the year ended May 31, 2014 were $274,584, compared to our revenues for the year ended May 31, 2013, which were $3,027, representing approximately a 8,971% increase. During the year ended May 31, 2014, we started generating research and development services revenue.
Operating Expenses
Our operating expenses for the year ended May 31, 2014 and May 31, 2013 are outlined in the table below:
| Year Ended | ||||||
| May 31, | ||||||
| 2014 | 2013 | |||||
| Business development | $ | 40,300 | $ | 18,907 | ||
| Consulting and advisory | $ | 342,307 | $ | 120,787 | ||
| Depreciation and amortization | $ | 25,771 | $ | 30,872 | ||
| Foreign exchange loss (gain) | $ | (88,728 | ) | $ | (13,942 | ) |
| General and administrative | $ | 132,674 | $ | 48,452 | ||
| License fees | $ | 40,000 | $ | 30,459 | ||
| Management fees | $ | 184,463 | $ | 312,586 | ||
| Professional fees | $ | 168,354 | $ | 159,705 | ||
| Public listing costs | $ | 24,405 | $ | 15,400 | ||
| Rent | $ | 57,853 | $ | 22,623 | ||
| Research and development | $ | 396,278 | $ | 428,674 | ||
| Shareholder communications and awareness | $ | 7,382 | $ | 40,035 | ||
| Travel and promotion | $ | 199,327 | $ | 119,906 | ||
| Wages and benefits | $ | 37,736 | $ | 40,235 | ||
The increase in operating expenses for the year ended May 31, 2014, compared to the same period in fiscal 2013, was mainly due to increases in business development, consulting and advisory fees, general and administrative expenses, license fees, professional fees, public listing costs, rent, and travel and promotion expenses offset by a significant decrease in management fees and increase in foreign exchange gain. The increase in our expenses was the result of an overall increase in business activity which corresponded with increase revenues and investment in our Company. The increase in activity in part related to our establishment of a new research and development facility in Vancouver, British Columbia, and to expenses incurred in connection with our collaboration with NORAM Engineering and BC Research Inc. for the ERC Pilot Plant Project, The increase in foreign exchange gain was largely the result of the relative increase in the value during fiscal 2014 of the U.S. Dollar against the Canadian Dollar: our revenues are largely in U.S. Dollars and a substantial amount of our expenses are paid in Canadian Dollars.
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, 2014, our total current assets were $1,600,174 and our total current liabilities were $1,252,130 and we had working capital of $348,044 compared to a working capital deficit of $1,126,556 as at May 31, 2013.
18
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 historically raised additional capital through equity offerings and loan transactions.
Cash Flows
| Year Ended | Year Ended | |||||
| May 31, | May 31, | |||||
| 2014 | 2013 | |||||
| Net Cash Used in Operating Activities | $ | (1,302,235 | ) | $ | (1,353,630 | ) |
| Net Cash Used In Investing Activities | $ | (78,808 | ) | $ | (64,884 | ) |
| Net Cash Provided by Financing Activities | $ | 2,287,542 | $ | 1,228,301 | ||
| Cash increase during the year | $ | 906,499 | $ | (190,213 | ) |
The increase in cash that we experienced during fiscal 2014 as compared to fiscal 2013 was due primarily to the increase during fiscal 2014 of cash received from the sale of our common stock. 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.
| Description |
Estimated expenses ($) |
| Research and Development | 500,000 |
| Consulting Fees | 250,000 |
| Commercialization of ERC | 3,000,000 |
| Shareholder communication and awareness | 200,000 |
| Professional Fees | 300,000 |
| Wages and Benefits | 200,000 |
| Management Fees | 150,000 |
| Total | 5,100,000 |
In order to fully carry out our business plan, we need additional financing of approximately $5,100,000 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.
19
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.
Basis of Presentation/Principles of Consolidation
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 our company and our 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.
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, equity component of convertible debt, stock-based compensation, and deferred income tax asset valuation allowances. Our company bases our estimates and assumptions on current facts, historical experience and various other factors that we believe 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.
Accounts Receivable
Our 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 historical bad debt expense, the age of receivable and the specific identification of receivables our company considers at risk.
Intangible Assets
Intangible assets consist of patents and are stated at cost and have a definite life. Intangible assets are amortized over their estimated useful lives. Our company periodically evaluates the reasonableness of the useful lives of these assets. Once these assets are fully amortized, they are removed from the accounts. These assets are reviewed for impairment or obsolescence when events or changes in circumstances indicate that the carrying amount may not be recoverable. If impaired, intangible assets are written down to fair value based on discounted cash flows or other valuation techniques. Our company has no intangibles with indefinite lives.
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.
20
Technology Development Revenue Recognition
Our company performs research and development services. Our company recognizes revenue under research contracts when a contract has been executed, the contract price is fixed and determinable, delivery of services or products has occurred, and collectability of the contract price is considered reasonably assured and can be reasonably estimated. Revenue is based on direct labor hours expended at contract billing rates plus other billable direct costs.
Research and Development Costs
Research and development costs are expensed as incurred.
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.
Recent Accounting Pronouncements
Our company has limited operations and is considered to be in the development stage. In the year ended May 31, 2014, our company has elected to early adopt Accounting Standards Update No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements. The adoption of this ASU allows our company to remove the inception to date information and all references to development stage.
We do not expect the adoption of any other recently issued accounting pronouncements to have a significant impact on our results of operations, financial position or cash flow.
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. Financial Statements and Supplementary Data
21
MANTRA VENTURE GROUP LTD.
Consolidated financial
statements
May 31, 2014
(Expressed in U.S. dollars)
0
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Mantra
Venture Group Ltd.
We have audited the accompanying consolidated balance sheet of Mantra Venture Group Ltd. (“the Company”) as of May 31, 2014 and the related consolidated statements of operations, stockholders’ equity (deficit) and cash flows for the year then ended. 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 audit.
We conducted our audit 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 consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included 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 the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion the financial statements referred to above present fairly, in all material respects, the financial position of Mantra Venture Group Ltd. as of May 31, 2014, and the results of their operations and cash flows for the year then ended in conformity with U.S. generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has not generated significant revenue and has an accumulated deficit of $9,314,295 as of May 31, 2014 which raises substantial doubt about its ability to continue as a going concern. Management’s plans concerning these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Sadler, Gibb & Associates, LLC
Salt Lake City, UT
September 15, 2014
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Mantra
Venture Group Ltd.
We have audited the accompanying consolidated balance sheet of Mantra Venture Group Ltd. (the “Company”) as of May 31, 2013, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for the year then ended. 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 audit.
We conducted our audit 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 consolidated 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of May 31, 2013, and the results of its operations and its cash flows for the year then ended, 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
F-2
MANTRA VENTURE GROUP LTD.
Consolidated balance sheets
(Expressed in U.S. dollars)
| May 31, | May 31, | |||||
| 2014 | 2013 | |||||
| $ | $ | |||||
| ASSETS | ||||||
| Current assets | ||||||
| Cash | 931,886 | 25,387 | ||||
| Amounts receivable | 163,591 | 19,915 | ||||
| Prepaid expenses and deposits | 504,697 | 34,521 | ||||
| Total current assets | 1,600,174 | 79,823 | ||||
| Restricted cash | 27,374 | 28,750 | ||||
| Property and equipment | 94,231 | 70,771 | ||||
| Intangible assets | 29,547 | |||||
| Total assets | 1,751,326 | 179,344 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||
| Current liabilities | ||||||
| Accounts payable and accrued liabilities | 715,053 | 571,805 | ||||
| Due to related parties | 159,994 | 173,424 | ||||
| Loans payable | 204,176 | 253,227 | ||||
| Obligations under capital lease | 8,246 | 7,826 | ||||
| Convertible debentures | 164,660 | 200,097 | ||||
| Total current liabilities | 1,252,129 | 1,206,379 | ||||
| Loans payable | – | 31,346 | ||||
| Obligations under capital lease | 19,856 | 29,177 | ||||
| Convertible debentures (net of discount of $175,360) | 16,640 | – | ||||
| Total liabilities | 1,288,625 | 1,266,902 | ||||
| Stockholders’ equity (deficit) | ||||||
| Mantra Venture Group Ltd. stockholders’ deficit | ||||||
| Preferred
stock Authorized: 20,000,000 shares, par value $0.00001 Issued and outstanding: Nil shares |
– | – | ||||
| Common
stock Authorized: 100,000,000 shares, par value $0.00001 Issued and outstanding: 69,157,322 (May 31, 2013 – 55,226,276) shares |
692 | 552 | ||||
| Additional paid-in capital | 9,679,880 | 6,875,939 | ||||
| Subscriptions receivable | (1,791 | ) | – | |||
| Common stock subscribed | 216,391 | 115,662 | ||||
| Accumulated deficit | (9,314,295 | ) | (8,023,639 | ) | ||
| Total Mantra Venture Group Ltd. stockholders’ equity (deficit) | 580,877 | (1,031,486 | ) | |||
| Non-controlling interest | (118,176 | ) | (56,072 | ) | ||
| Total stockholders’ deficit | 462,701 | (1,087,558 | ) | |||
| Total liabilities and stockholders’ equity (deficit) | 1,751,326 | 179,344 |
(The accompanying notes are an integral part of these consolidated financial statements)
F-3
MANTRA VENTURE GROUP LTD.
Consolidated statements of operations
(Expressed in U.S.
dollars)
| Year ended | Year ended | |||||
| May 31, | May 31, | |||||
| 2014 | 2013 | |||||
| $ | $ | |||||
| Revenue | 274,584 | 3,027 | ||||
| Cost of goods sold | – | 2,500 | ||||
| Gross profit | 274,584 | 527 | ||||
| Operating expenses | ||||||
| Business development | 40,300 | 18,907 | ||||
| Consulting and advisory | 342,307 | 120,787 | ||||
| Depreciation and amortization | 25,772 | 30,872 | ||||
| Foreign exchange loss (gain) | (88,728 | ) | (13,942 | ) | ||
| General and administrative | 132,673 | 48,452 | ||||
| License fees | 40,000 | 30,459 | ||||
| Management fees | 184,463 | 312,586 | ||||
| Professional fees | 168,354 | 159,705 | ||||
| Public listing costs | 24,405 | 15,400 | ||||
| Rent | 57,853 | 22,623 | ||||
| Research and development | 396,278 | 428,674 | ||||
| Shareholder communications and awareness | 7,382 | 40,035 | ||||
| Travel and promotion | 199,327 | 119,906 | ||||
| Wages and benefits | 37,736 | 40,235 | ||||
| Total operating expenses | 1,568,122 | 1,374,699 | ||||
| Loss before other income (expense) | (1,293,538 | ) | (1,374,172 | ) | ||
| Other income (expense) | ||||||
| Accretion of discounts on convertible debentures | (26,557 | ) | (2,998 | ) | ||
| Gain on settlement of debt | 11,503 | 497 | ||||
| Interest expense | (44,168 | ) | (43,458 | ) | ||
| Total other income (expense) | (59,222 | ) | (45,959 | ) | ||
| Net loss for the period | (1,352,760 | ) | (1,420,131 | ) | ||
| Less: net loss attributable to the non-controlling interest | 62,104 | 85,962 | ||||
| Net loss attributable to Mantra Venture Group Ltd. | (1,290,656 | ) | (1,334,169 | ) | ||
| Net loss per share attributable to Mantra Venture Group Ltd. common shareholders, basic and diluted | (0.02 | ) | (0.03 | ) | ||
| Weighted average number of shares outstanding used in the calculation of net loss attributable to Mantra Venture Group Ltd. per common share | 59,096,396 | 51,052,620 |
(The accompanying notes are an integral part of these consolidated financial statements)
F-4
MANTRAVENTUREGROUPLTD.
Consolidated statements of stockholder’s equity (deficit)
For the
years ended May 31, 2014 and 2013
| Common Stock | Additional | Common | Common stock | Total | ||||||||||||||||||||
| paid-in | stock | subscriptions | Accumulated | Non-controlling | stockholders’ | |||||||||||||||||||
| Amount | capital | subscribed | receivable | deficit | interest | equity (deficit) | ||||||||||||||||||
| Number | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||
| Balance, May 31, 2012 | 45,623,806 | 456 | 5,675,442 | 144,916 | (94,708 | ) | (6,689,470 | ) | (8,297 | ) | (971,661 | ) | ||||||||||||
| Stock Issued for Cash | ||||||||||||||||||||||||
| Stock issued at $0.03 per share pursuant to the exercise of stock options | 250,000 | 3 | 7,497 | – | – | – | – | 7,500 | ||||||||||||||||
| Stock issued at $0.05 per share pursuant to the exercise of stock options | 200,000 | 2 | 9,998 | – | – | – | – | 10,000 | ||||||||||||||||
| Units issued at $0.015 per share | 1,333,333 | 13 | 19,987 | (20,000 | ) | – | – | – | – | |||||||||||||||
| Units issued at $0.05 per share | 826,000 | 8 | 41,292 | (41,300 | ) | – | – | – | – | |||||||||||||||
| Units issued at $0.10 per share | 2,125,000 | 21 | 212,479 | (20,000 | ) | – | – | – | 192,500 | |||||||||||||||
| Units issued at $0.12 per share | 3,325,001 | 33 | 398,967 | – | – | – | – | 399,000 | ||||||||||||||||
| Units issued at $0.17 per share | 1,543,136 | 16 | 262,318 | – | – | – | – | 262,334 | ||||||||||||||||
| Stock Issued by Subsidiary | ||||||||||||||||||||||||
| Stock issued at Cdn$1.00 per share | – | – | 185,067 | – | – | – | 22,664 | 207,731 | ||||||||||||||||
| Share subscriptions for previously issued shares received by subsidiary | – | – | – | – | 94,708 | – | 8,292 | 103,000 | ||||||||||||||||
| Share subscriptions received by subsidiary | – | – | – | 59,046 | – | – | 7,231 | 66,277 | ||||||||||||||||
| Subscriptions received | – | – | – | 43,000 | – | – | – | 43,000 | ||||||||||||||||
| Share subscriptions transferred to loans payable | – | – | – | (50,000 | ) | – | – | – | (50,000 | ) | ||||||||||||||
| Fair value of stock options granted | – | – | 62,892 | – | – | – | – | 62,892 | ||||||||||||||||
| Net loss for the year | – | – | – | – | – | (1,334,169 | ) | (85,962 | ) | (1,420,131 | ) | |||||||||||||
| Balance, May 31, 2013 | 55,226,276 | 552 | 6,875,939 | 115,662 | – | (8,023,639 | ) | (56,072 | ) | (1,087,558 | ) | |||||||||||||
(The accompanying notes are an integral part of these consolidated financial statements)
F-5
MANTRA VENTURE GROUP LTD.
Consolidated statements of stockholder’s equity
(deficit)
For the years ended May 31, 2014 and 2013
| Additional | Common | Common stock | Total | |||||||||||||||||||||
| Common Stock | paid-in | stock | subscriptions | Accumulated | Non-controlling | stockholders’ | ||||||||||||||||||
| Amount | capital | subscribed | receivable | deficit | interest | equity (deficit) | ||||||||||||||||||
| Number | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||
| Balance, May 31, 2013 | 55,226,276 | 552 | 6,875,939 | 115,662 | – | (8,023,639 | ) | (56,072 | ) | (1,087,558 | ) | |||||||||||||
| Stock Issued for Cash | ||||||||||||||||||||||||
| Stock issued at $0.15 per share pursuant to the exercise of warrants | 1,093,000 | 11 | 163,939 | – | – | – | – | 163,950 | ||||||||||||||||
| Stock issued at $0.20 per share pursuant to the exercise of warrants | 3,094,958 | 31 | 618,961 | – | – | – | – | 618,992 | ||||||||||||||||
| Stock issued at $0.12 per share pursuant to the exercise of stock options | 100,000 | 1 | 11,999 | – | – | – | – | 12,000 | ||||||||||||||||
| Units issued at $0.08 per share | 3,678,088 | 37 | 294,207 | (43,000 | ) | (1,791 | ) | – | – | 249,453 | ||||||||||||||
| Units issued at $0.10 per share | 400,000 | 4 | 39,996 | – | – | – | 40,000 | |||||||||||||||||
| Units issued at $0.12 per share | 140,000 | 1 | 16,799 | – | – | – | – | 16,800 | ||||||||||||||||
| Units issued at $0.17 per share | 100,000 | 1 | 16,999 | – | – | – | – | 17,000 | ||||||||||||||||
| Units issued at $0.20 per share | 4,760,000 | 48 | 951,952 | – | – | – | – | 952,000 | ||||||||||||||||
| Shares issued for services | 565,000 | 6 | 394,089 | 5 | – | – | – | 394,100 | ||||||||||||||||
| Subscriptions received | – | – | – | 134,705 | – | – | – | 134,705 | ||||||||||||||||
| Shares issuable for conversion of debt | – | – | – | 9,019 | – | – | – | 9,019 | ||||||||||||||||
| Beneficial conversion features | 192,000 | 192,000 | ||||||||||||||||||||||
| Fair value of stock options granted | – | – | 103,000 | – | – | – | – | 103,000 | ||||||||||||||||
| Net loss for the year | – | – | – | – | – | (1,290,656 | ) | (62,104 | ) | (1,352,760 | ) | |||||||||||||
| Balance, May 31, 2014 | 69,157,322 | 692 | 9,679,880 | 216,391 | (1,791 | ) | (9,314,295 | ) | (118,176 | ) | 462,701 | |||||||||||||
(The accompanying notes are an integral part of these consolidated financial statements)
F-6
MANTRA VENTURE GROUP LTD.
Consolidated statements of cash flows
(Expressed in U.S.
dollars)
| Year ended | Year ended | |||||
| May 31, | May 31, | |||||
| 2014 | 2013 | |||||
| $ | $ | |||||
| Operating activities | ||||||
| Net loss | (1,352,760 | ) | (1,420,131 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||
| Accretion of discounts on convertible debentures | 26,557 | 2,998 | ||||
| Depreciation and amortization | 25,772 | 30,872 | ||||
| Foreign exchange loss (gain) | (7,424 | ) | 4,430 | |||
| Gain on settlement of debt | (11,503 | ) | (497 | ) | ||
| Non-cash interest expense | – | 10,000 | ||||
| Stock-based compensation | 197,703 | 49,991 | ||||
| Changes in operating assets and liabilities: | ||||||
| Amounts receivable | (143,676 | ) | (3,795 | ) | ||
| Inventory | – | 2,500 | ||||
| Prepaid expenses and deposits | (170,772 | ) | 5,619 | |||
| Accounts payable and accrued liabilities | 147,298 | 35,414 | ||||
| Due to related parties | (13,430 | ) | (71,031 | ) | ||
| Net cash used in operating activities | (1,302,235 | ) | (1,353,630 | ) | ||
| Investing activities | ||||||
| Purchase of property and equipment | (48,475 | ) | (36,134 | ) | ||
| Investment in intangible assets | (30,333 | ) | – | |||
| Restricted cash | – | (28,750 | ) | |||
| Net cash used in investing activities | (78,808 | ) | (64,884 | ) | ||
| Financing activities | ||||||
| Repayment of capital lease obligations | (7,542 | ) | (7,921 | ) | ||
| Repayment of loan payable | (101,809 | ) | (55,120 | ) | ||
| Proceeds from issuance of convertible debentures | 192,000 | – | ||||
| Proceeds from issuance of common stock and subscriptions received | 2,204,893 | 1,291,342 | ||||
| Net cash provided by financing activities | 2,287,542 | 1,228,301 | ||||
| Change in cash | 906,499 | (190,213 | ) | |||
| Cash, beginning of period | 25,387 | 215,600 | ||||
| Cash, end of period | 931,886 | 25,387 | ||||
| Non-cash investing and financing activities: | ||||||
| Property and equipment financed under capital lease | – | 42,543 | ||||
| Common stock issued to relieve common stock subscribed | 43,000 | – | ||||
| Loan payable settled through shares issuable | 9,019 | – | ||||
| Common stock issued for pre-paid asset | 360,000 | – | ||||
| Debt discount on beneficial conversion feature | 192,000 | – | ||||
| Common stock subscriptions transferred to loans payable | – | 50,000 | ||||
| Supplemental disclosures: | ||||||
| Interest paid | 9,098 | 56,979 | ||||
| Income taxes paid | – | – |
(The accompanying notes are an integral part of these consolidated financial statements)
F-7
MANTRA VENTURE GROUP LTD.
Notes
to the consolidated financial statements
May 31, 2014
(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 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, 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, 2014, the Company has accumulated losses of $9,314,295 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. |
Significant Accounting Policies | |
| (a) |
Basis of Presentation/Principles of Consolidation | |
|
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 and intangible assets, 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. | ||
F-8
MANTRA VENTURE GROUP LTD.
Notes
to the consolidated financial statements
May 31, 2014
(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 historical bad debt expense, the age of receivable and the specific identification of receivables the Company considers at risk. | ||
| (e) |
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: | ||
| Automotive | 3 years straight-line basis | |
| Computer equipment | 3 years straight-line basis | |
| Leasehold improvements | 5 years straight-line basis | |
| Office equipment and furniture | 5 years straight-line basis | |
| Research equipment | 5 years straight-line basis |
| (f) |
Intangible Assets | |
|
Intangible assets consist of patents and are stated at cost and have a definite life. Intangible assets are amortized over their estimated useful lives. The Company periodically evaluates the reasonableness of the useful lives of these assets. Once these assets are fully amortized, they are removed from the accounts. These assets are reviewed for impairment or obsolescence when events or changes in circumstances indicate that the carrying amount may not be recoverable. If impaired, intangible assets are written down to fair value based on discounted cash flows or other valuation techniques. The Company has no intangibles with indefinite lives. | ||
| (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. |
F-9
MANTRA VENTURE GROUP LTD.
Notes
to the consolidated financial statements
May 31, 2014
(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, 2014 and 2013, 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 2014. 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, 2014 and 2013, there were no charges for interest or penalties. | ||
| (j) |
Technology Development Revenue Recognition | |
|
The Company performs research and development services. The Company recognizes revenue under research contracts when a contract has been executed, the contract price is fixed and determinable, delivery of services or products has occurred, and collectability of the contract price is considered reasonably assured and can be reasonably estimated. Revenue is based on direct labor hours expended at contract billing rates plus other billable direct costs. | ||
| (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.
F-10
MANTRA VENTURE GROUP LTD.
Notes
to the consolidated financial statements
May 31, 2014
(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, 2014, the Company had 10,904,755 (2013 – 10,329,619) 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, 2014 and 2013, 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 limited operations and is considered to be in the development stage. In the year ended May 31, 2014, the Company has elected to early adopt Accounting Standards Update No. 2014-10, | ||
|
Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements. The adoption of this ASU allows the Company to remove the inception to date information and all references to development stage. | ||
|
We do not expect the adoption of any other recently issued accounting pronouncements to have a significant impact on our results of operations, financial position or cash flow. | ||
| 3. |
Restricted Cash |
|
Restricted cash represents cash pledged as security for the Company’s credit cards. | |
| 4. |
Property and Equipment |
| May 31, | May 31, | ||||||||||||
| 2014 | 2013 | ||||||||||||
| Accumulated | Net carrying | Net carrying | |||||||||||
| Cost | depreciation | value | value | ||||||||||
| $ | $ | $ | $ | ||||||||||
| Computer | 5,341 | 2,520 | 2,821 | 3,080 | |||||||||
| Research equipment | 108,964 | 57,934 | 51,030 | 10,533 | |||||||||
| Vehicles under capital lease | 68,340 | 30,482 | 37,858 | 57,158 | |||||||||
| 182,645 | 88,416 | 94,231 | 70,771 |
F-11
MANTRA VENTURE GROUP LTD.
Notes
to the consolidated financial statements
May 31, 2014
(Expressed in U.S.
dollars)
| 5. |
Intangible Assets |
| May 31, | May 31, | ||||||||||||
| 2014 | 2013 | ||||||||||||
| Accumulated | Net carrying | Net carrying | |||||||||||
| Cost | depreciation | value | value | ||||||||||
| $ | $ | $ | $ | ||||||||||
| Patents | 30,033 | 786 | 29,547 | - |
Estimated amortization expense for the next 5 years:
| $ | |
| For year ended May 31, 2015 | 2,078 |
| For year ended May 31, 2016 | 2,078 |
| For year ended May 31, 2017 | 2,078 |
| For year ended May 31, 2018 | 2,078 |
| For year ended May 31, 2019 | 2,078 |
| 6. |
Related Party Transactions | |
| (a) |
During the year ended May 31, 2014, the Company incurred management fees of $128,917 (2013 - $95,098) and rent of $13,500 (2012 - $Nil) to the President of the Company. | |
| (b) |
During the year ended May 31, 2014, the Company incurred management fees of $55,546 (2013 - $58,988) to the spouse of the President of the Company. | |
| (c) |
During the year ended May 31, 2014, the Company incurred research and development fees of $65,121 (2013 - $50,000 management fees) to a director of the Company. | |
| (d) |
As at May 31, 2014, the Company owes a total of $124,857 (May 31, 2013 - $138,526) to the President of the Company and a company controlled by the President of the Company which is non-interest bearing, unsecured, and due on demand. | |
| (e) |
As at May 31, 2014, the Company owes $13,619 (May 31, 2013 - $11,515) to the spouse of the President of the Company which is non-interest bearing, unsecured, and due on demand. | |
| (f) |
As at May 31, 2014, the Company owes $21,518 (May 31, 2013 - $23,383) to an officer and a director of the Company, which is non-interest bearing, unsecured, and due on demand. | |
| 7. |
Loans Payable | |
| (a) |
As at May 31, 2014, the amount of $58,251 (Cdn$63,300) (May 31, 2013 - $61,053 (Cdn$63,300)) is owed to a non-related party which is non-interest bearing, unsecured, and due on demand. | |
| (b) |
During the year ended May 31, 2014, the $5,000 of loans payable and $4,019 of accrued interest was converted by a lender. At May 31, 2014, $9,019 is included in common stock subscribed. As at May 31, 2013, $5,000 was owed to a non-related party and $3,723 which was included in accounts payable and accrued liabilities. | |
| (c) |
As at May 31, 2014, the amount of $Nil (Cdn$Nil) (May 31, 2013 – $9,838 (Cdn$10,200)) was owed to a non-related party, which is non-interest bearing, unsecured, and due on demand. The entire amount was repaid during the year ended May 31, 2014. | |
| (d) |
As at May 31, 2014, the amount of $17,500 (May 31, 2013 - $17,500) is owed to a non-related party which is non-interest bearing, unsecured, and due on demand. | |
| (e) |
As at May 31, 2014, the amount of $15,000 (May 31, 2013 - $15,000) is owed to a non-related party which is non-interest bearing, unsecured, and due on demand. | |
| (f) |
As at May 31, 2014, the amount of $17,387 (Cdn$18,895) (May 31, 2013 – $18,884 (Cdn$18,895)) is owed to a non-related party, which is non-interest bearing, unsecured, and due on demand. | |
| (g) |
As at May 31, 2014, the amounts of $7,500 and $34,048 (Cdn$37,000) (May 31, 2013 - $7,500 and $35,027, (Cdn$37,000)) are owed to a non-related party which are non-interest bearing, unsecured, and due on demand. | |
F-12
MANTRA VENTURE GROUP LTD.
Notes
to the consolidated financial statements
May 31, 2014
(Expressed in U.S.
dollars)
| 7. |
Loans Payable (continued) | |
| (h) |
On January 19, 2012, the Company entered into a settlement agreement 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. As at May 31, 2013, $60,281 (Cdn$62,500) was owed, of which $31,346 (Cdn$30,000)) was due over the next twelve months. On April 3, 2014, the Company settled the remaining debt outstanding by paying the debt holder a lump sum of $30,000. The Company recorded a gain on settlement of debt of $11,503. | |
| (i) |
As at May 31, 2014, the amount of $4,490 (May 31, 2013 - $4,490) is owed to a non-related party which is non-interest bearing, unsecured, and due on demand. | |
| (j) |
In March 2012, the Company received $50,000 for the subscription of 10,000,000 shares of the Company’s common stock. During the year ended May 31, 2013, the Company and the subscriber agreed that the shares would not be issued and that the subscription would be returned. The subscription has been reclassified as a non-interest bearing demand loan until the funds are refunded to the subscriber. | |
| 8. |
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, 2014: |
| Year ending May 31: | $ | |||
| 2015 | 11,608 | |||
| 2016 | 20,885 | |||
| Net minimum lease payments | 32,493 | |||
| Less: amount representing interest payments | (4,391 | ) | ||
| Present value of net minimum lease payments | 28,102 | |||
| Less: current portion | (8,246 | ) | ||
| Long-term portion | 19,856 |
|
At the end of both leases, the Company has the option to purchase the vehicles for $9,000 each. | ||
| 9. |
Convertible Debentures | |
| (a) |
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, 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. | ||
F-13
MANTRA VENTURE GROUP LTD.
Notes
to the consolidated financial statements
May 31, 2014
(Expressed in U.S.
dollars)
| 9. |
Convertible Debentures (continued) |
|
On July 18, 2012, the Company entered into a settlement agreement with the $150,000 debenture holder. Pursuant to the settlement agreement, the lender agreed to extend the due date until April 11, 2013 and the Company agreed to pay $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 agreed to extend the due date to September 15, 2013 and the Company 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. | ||
|
On November 15, 2013, the Company entered into a second settlement agreement amendment. Pursuant to the second amendment, on November 15, 2013, the Company agreed to pay interest of $4,438 (paid) and commencing February 1, 2014, the Company would make monthly payments of $10,000 on the outstanding principal and interest. | ||
|
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. During the year ended May 31, 2014, the Company repaid $40,000 of the debenture. As at May 31, 2014 the Company had accreted $12,901 of the discount bring the carrying value of the convertible debenture to $114,661. | ||
| (b) |
On August 19, 2013, the Company issued a convertible debenture for total proceeds of $10,000, which bears interest at 10% per annum, is unsecured, and due two years from date of issuance. The unpaid amount of principal and accrued interest can be converted at the holder’s option into shares of the Company’s common stock at $0.04 per share at any time after the first anniversary of the notes. The Company recognized the intrinsic value of the embedded beneficial conversion feature of $10,000 as additional paid-in capital and reduced the carrying value of the convertible debenture to $nil. The carrying value will be accreted over the term of the convertible debenture up to its face value of $10,000. As at May 31, 2014, the carrying value of the convertible promissory note was $2,465. | |
| (c) |
On September 11, 2013, the Company issued a convertible debenture for total proceeds of $58,000, which bears interest at 10% per annum, is unsecured, and due two years from date of issuance. The unpaid amount of principal and accrued interest can be converted at the holder’s option into shares of the Company’s common stock at $0.04 per share at any time after the first anniversary of the notes. The Company recognized the intrinsic value of the embedded beneficial conversion feature of $58,000 as additional paid-in capital and reduced the carrying value of the convertible debenture to $nil. The carrying value will be accreted over the term of the convertible debenture up to its face value of $58,000. As at May 31, 2014, the carrying value of the convertible promissory note was $4,318. | |
| (d) |
On October 18, 2013, the Company issued a convertible debenture for total proceeds of $94,000, which bears interest at 10% per annum, is unsecured, and due two years from date of issuance. The unpaid amount of principal and accrued interest can be converted at the holder’s option into shares of the Company’s common stock at $0.04 per share at any time after the first anniversary of the notes. The Company recognized the intrinsic value of the embedded beneficial conversion feature of $94,000 as additional paid-in capital and reduced the carrying value of the convertible debenture to $nil. The carrying value will be accreted over the term of the convertible debenture up to its face value of $94,000. As at May 31, 2014, the carrying value of the convertible promissory note was $4,082. | |
| (e) |
On December 27, 2013, the Company issued three convertible debentures for total proceeds of $15,000, which bear interest at 10% per annum, are unsecured, and due two years from date of issuance. The unpaid amount of principal and accrued interest can be converted at the holder’s option into shares of the Company’s common stock at $0.04 per share at any time after the first anniversary of the notes. The Company recognized the intrinsic value of the embedded beneficial conversion features of $15,000 as additional paid-in capital and reduced the carrying value of the convertible debenture to $nil. The carrying value will be accreted over the term of the convertible debenture up to its face value of $15,000. As at May 31, 2014, the carrying value of the convertible promissory note was $4,230. |
F-14
MANTRA VENTURE GROUP LTD.
Notes
to the consolidated financial statements
May 31, 2014
(Expressed in U.S.
dollars)
| 9. |
Convertible Debentures (continued) | |
| (f) |
On February 4, 2014, the Company issued a convertible debenture for total proceeds of $15,000, which bears interest at 10% per annum, is unsecured, and due two years from date of issuance. The unpaid amount of principal and accrued interest can be converted at the holder’s option into shares of the Company’s common stock at $0.04 per share at any time after the first anniversary of the notes. The Company recognized the intrinsic value of the embedded beneficial conversion feature of $15,000 as additional paid-in capital and reduced the carrying value of the convertible debenture to $nil. The carrying value will be accreted over the term of the convertible debenture up to its face value of $15,000. As at May 31, 2014, the carrying value of the convertible promissory note was $1,543. | |
| 10. |
Common Stock | |
| (a) |
As at May 31, 2014, the Company had received proceeds of $100,000 at $0.30 per unit for subscriptions for 333,333 units. Each unit will consist of one share of common stock and one share purchase warrant. Each share purchase warrant is exercisable at $0.80 per common share for a period of three 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 $1.60 per share for seven consecutive trading days. The units were issued on July 11, 2014. | |
| (b) |
At May 31, 2014, the Company had received proceeds of $2,080 at $0.08 per unit for subscriptions for 26,000 units. Each unit consisted of one share of common stock and one-half of one share purchase warrant. Each whole share purchase warrant is 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. | |
| (c) |
At May 31, 2014, the Company had received proceeds of $32,625 for subscriptions for 140,500 shares of common stock upon the exercise of warrants. | |
| (d) |
As at May 31, 2014 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 (Cdn$67,000), which is included in common stock subscribed, net of the non-controlling interest portion of $7,231. | |
| (e) |
As at May 31, 2014, 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. | |
| (f) |
As at May 31, 2014, the Company recorded the fair value of 500,000 shares issuable of $270,000 as $5 of subscriptions receivable and $269,995 as additional paid in capital. As at May 31, 2014, the Company had recorded $38,096 of consulting fees and $231,904 as prepaid expenses. | |
| (g) |
At May 31, 2014, the conversion of $5,000 of loans payable and $4,019 of accrued interest by a lender was included in common stock subscribed. | |
Stock transactions during the year ended May 31, 2014:
| (h) |
On July 15, 2013, the Company issued 1,871,588 units at $0.08 per unit for proceeds of $149,727, of which $26,000 was included in common stock subscribed as at May 31, 2013. Each unit consisted of one share of common stock and one-half of one share purchase warrant. Each whole share purchase warrant is 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. | |
| (i) |
On February 11, 2014, the Company issued 40,000 units at $0.12 per unit for proceeds of $4,800. Each unit consisted of one share of common stock and one-half of one share purchase warrant. Each whole share purchase warrant is 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. | |
| (j) |
On February 11, 2014, the Company issued 575,000 units at $0.08 per unit for proceeds of $46,000. Each unit consisted of one share of common stock and one-half of one share purchase warrant. Each whole share purchase warrant is 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-15
MANTRA VENTURE GROUP LTD.
Notes
to the consolidated financial statements
May 31, 2014
(Expressed in U.S.
dollars)
| 10. |
Common Stock (continued) | |
| (k) |
On February 11, 2014, the Company issued 100,000 units at $0.17 per unit for proceeds of $17,000 of which $17,000 was included in common stock subscribed as at May 31, 2013. Each unit consisted of one share of common stock and one-half of one share purchase warrant. Each whole share purchase warrant is 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. | |
| (l) |
On February 18, 2014, the Company issued 1,205,500 units at $0.08 per unit for proceeds of $96,440. On April 3, 2014, the Company issued an additional 26,000 units for proceeds of $2,080 for shares that were omitted from the original issuance in error. Each unit consisted of one share of common stock and one share purchase warrant. Each share purchase warrant is 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 $0.40 per share for seven consecutive trading days. | |
| (m) |
On February 18, 2014, the Company issued 400,000 units at $0.10 per unit for proceeds of $40,000. Each unit consisted of one share of common stock and one share purchase warrant. Each share purchase warrant is 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. | |
| (n) |
On March 1, 2014, the Company issued 500,000 common shares with a fair value of $0.18 per share to a consultant for consulting services. The Company recognized the fair value of the shares of $90,000 as $22,500 of consulting expenses and $67,500 of prepaid expenses. | |
| (o) |
On March 3, 2014, the Company issued 25,000 common shares with a fair value of $0.50 per share to a consultant for consulting services. The Company issued an additional 20,000 shares with a fair value of $0.38 and 20,000 shares with a fair value of $0.70 per share to the same consultant on May 9, 2014 and May 16, 2014, respectively The Company recognized the total fair value of the shares issued to the consultant of $34,100 as consulting expenses. | |
| (p) |
On March 18, 2014, the Company issued 100,000 units at $0.12 per unit for proceeds of $12,000. Each unit consisted of one share of common stock and one share purchase warrant. Each share purchase warrant is exercisable at $0.20 per share of common stock 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. | |
| (q) |
On March 18, 2014, the Company issued 685,000 units at $0.20 per unit for proceeds of $137,000. Each unit consisted of one share of common stock and one share purchase warrant. Each share purchase warrant is exercisable at $0.40 per share of common stock 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 $0.80 per share for seven consecutive trading days. At May 31, 2014, $1,791 of proceeds was receivable. | |
| (r) |
On April 3, 2014, the Company issued 3,777,958 shares of common stock upon the exercise of warrants for proceeds of $711,442. | |
| (s) |
On April 10, 2014, the Company issued 4,075,000 units at $0.20 per unit for proceeds of $815,000. Each unit consisted of one share of common stock and one share purchase warrant. Each share purchase warrant is exercisable at $0.37 per share of common stock 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 $2.50 per share for seven consecutive trading days. | |
| (t) |
On April 18, 2014, the Company issued 410,000 shares of common stock upon the exercise of warrants for proceeds of $71,500. | |
| (u) |
On April 30, 2014, the Company issued 100,000 shares of common stock upon the exercise of stock options at $0.12 per share for proceeds of $12,000. | |
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). |
F-16
MANTRA VENTURE GROUP LTD.
Notes
to the consolidated financial statements
May 31, 2014
(Expressed in U.S.
dollars)
| 10. |
Common Stock (continued) | |
| (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. | |
| (l) |
On September 11, 2012, the Company issued 2,025,000 units at $0.10 per unit for proceeds of $202,500, of which $20,000 was included in common stock subscribed as at May 31, 2012. 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. | |
| (m) |
On July 9, 2012, the Company issued 826,000 shares of common stock at $0.05 per share for total proceeds of $41,300, which was included in common stock subscribed as at May 31, 2012. | |
| (n) |
On June 29, 2012, the Company issued 1,333,333 shares of common stock at $0.015 per share for proceeds of $20,000, which was included in common stock subscribed as at May 31, 2012. | |
F-17
MANTRA VENTURE GROUP LTD.
Notes
to the consolidated financial statements
May 31, 2014
(Expressed in U.S.
dollars)
| 11. |
Share Purchase Warrants |
|
The following table summarizes the continuity of share purchase warrants: |
| Weighted | |||||||
| average | |||||||
| exercise | |||||||
| Number of | price | ||||||
| warrants | $ | ||||||
| Balance, May 31, 2012 | 7,745,992 | 0.20 | |||||
| Issued | 6,221,569 | 0.21 | |||||
| Expired | (4,562,942 | ) | 0.20 | ||||
| Balance, May 31, 2013 | 9,404,619 | 0.21 | |||||
| Issued | 7,784,791 | 0.30 | |||||
| Exercised | (4,187,958 | ) | 0.19 | ||||
| Expired | (3,183,050 | ) | 0.20 | ||||
| Balance, May 31, 2014 | 9,818,402 | 0.29 |
As at May 31, 2014, the following share purchase warrants were outstanding:
| Exercise | ||
| Number of | price | |
| warrants | $ | Expiry date |
| 1,550,000 | 0.15 | September 11, 2014 |
| 100,000 | 0.15 | September 23, 2014 |
| 1,909,334 | 0.20 | December 11, 2014 |
| 740,568 | 0.40 | March 18, 2015 |
| 31,000 | 0.40 | May 30, 2015 |
| 64,000 | 0.20 | February 11, 2016 |
| 50,000 | 0.40 | February 11, 2016 |
| 613,500 | 0.15 | February 18, 2016 |
| 685,000 | 0.40 | March 18, 2016 |
| 4,075,000 | 0.37 | April 10, 2019 |
| 9,818,402 |
| 12. |
Stock Options |
|
On July 1, 2013, the Company granted 300,000 stock options exercisable at $0.20 per share for a period of two years. The Company recorded the fair value of the options of $38,200 as consulting fees. | |
|
On April 28, 2016, the Company granted 175,000 stock options exercisable at $0.20 per share for a period of two years. The Company recorded the fair value of the options of $64,800 as consulting fees. | |
|
The following table summarizes the continuity of the Company’s stock options: |
| Weighted | Weighted average | Aggregate | |||||||||||
| average | remaining | intrinsic | |||||||||||
| Number | exercise price | contractual life | value | ||||||||||
| of options | $ | (years) | $ | ||||||||||
| Outstanding, May 31, 2012 | 1,300,000 | 0.10 | |||||||||||
| Granted | 500,000 | 0.10 | |||||||||||
| Exercised | (450,000 | ) | 0.04 | ||||||||||
| Expired | (750,000 | ) | 0.25 | ||||||||||
| Forfeited | (200,000 | ) | 0.10 | ||||||||||
| Outstanding, May 31, 2013 | 400,000 | 0.10 | |||||||||||
| Granted | 475,000 | 0.20 | |||||||||||
| Exercised | (100,000 | ) | 0.12 | ||||||||||
| Expired | (100,000 | ) | 0.06 | ||||||||||
| Outstanding and exercisable, May 31, 2014 | 675,000 | 0.17 | 1.25 | 323,750 |
F-18
MANTRA VENTURE GROUP LTD.
Notes
to the consolidated financial statements
May 31, 2014
(Expressed in U.S.
dollars)
| 12. |
Stock Options (continued) |
|
Additional information regarding stock options as of May 31, 2014 is as follows: |
| Exercise | ||
| Number of | price | |
| options | $ | Expiry date |
| 200,000 | 0.10 | May 7, 2015 |
| 300,000 | 0.20 | July 1, 2015 |
| 175,000 | 0.20 | April 28, 2015 |
| 675,000 |
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:
| May 31, 2014 | May 31, 2013 | |
| Risk-free Interest rate | 0.33% | 0.27% |
| Expected life (in years) | 2.0 | 2.0 |
| Expected volatility | 194% | 179% |
|
During the year ended May 31, 2014, the Company recorded stock-based compensation of $103,000 (2013 - $62,892) for stock options granted. | ||
|
The weighted average fair value of the stock options granted for the year ended May 31, 2014, was $0.22 (2013 - $0.15) per option. | ||
| 13. |
Commitments and Contingencies | |
| (a) |
On September 2, 2009, the Company entered into an agreement with a company to acquire a worldwide, exclusive license for the Mixed Reactant Flow-By Fuel Cell technology. The term of the agreement is for twenty years or the expiry of the last patent licensed under the agreement, whichever is later. The Company agreed to pay the licensor the following license fees: | |
| • |
an initial license fee of Cdn$10,000 payable in two installments: Cdn$5,000 upon execution of the agreement (paid) and Cdn$5,000 within thirty days of September 2, 2009 (paid); | |
| • |
a further license fee of Cdn$15,000 (paid) to be paid within ninety days of September 2, 2009; and | |
| • |
an annual license fee, payable annually on the anniversary of the date of the agreement as follows: |
| September 1, 2010 | Cdn$10,000 (paid) |
| September 1, 2011 | Cdn$20,000 (accrued) |
| September 1, 2012 | Cdn$30,000 (accrued) |
| September 1, 2013 | Cdn$40,000 (accrued) |
| September 1, 2014 and each successive anniversary | Cdn$50,000 |
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.
F-19
MANTRA VENTURE GROUP LTD.
Notes
to the consolidated financial statements
May 31, 2014
(Expressed in U.S.
dollars)
| 13. |
Commitments and Contingencies (continued) | |
| (b) |
On May 23, 2012, a former employee of the Company delivered a Notice of Application seeking judgment against the 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. The 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 the Company as security for payment of the outstanding consulting fees owed to him. On August 31, 2012, the 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 the Company’s claim for the return of the shares cannot yet be determined. | |
| (c) |
On March 13, 2013, the Company entered into an agreement with a consultant who will complete a specified project for approximately $137,000 over a period of approximately 15 weeks. On February 25, 2013, the Company also entered into a premises sublease agreement for Cdn$18,720 for a period of one year until March 1, 2014. | |
| (d) |
On October 10 and October 17, 2013, the Company’s subsidiary entered into two employment agreements. Pursuant to the agreements, the two employees will perform services for a term of one year for base remuneration of $65,000 per annum with an increase to $70,000 per annum. The agreements are subject to receipt of an Industrial Research & Development Fellowship from the Natural Sciences and Engineering Research Council of Canada (“NSERC”) grant. In addition, the Company will grant to each employee 100,000 stock options exercisable at a price of $0.10 per share. These options will be non-transferrable, vest immediately, and expire upon the earlier of 24 months, or upon termination of the employment agreements. The agreements will be immediately terminated if the subsidiary does not receive the NSERC grant. | |
| (e) |
On March 1, 2014, the Company entered into an agreement with a consultant who will perform services for $7,250 a month for a period of one year. In addition the Company issued 25,000 shares of the Company’s common stock upon the execution of the agreement and an additional 20,000 shares of the Company’s common stock per month for the following 11 months. Refer to Note 14(d). | |
| (f) |
On March 1, 2014, the Company entered into an agreement with a consultant who will perform public relations services for €$3,500 a month for a period of one year. In addition, the Company issued 500,000 shares of common stock upon execution of the agreement. | |
| (g) |
On March 25, 2014, the Company entered into an agreement with a research and development firm who will design, engineer, and build an ERC Energy Demonstration unit for an estimated Cdn$360,000 over a period of approximately 24 weeks. The Company paid the initial deposit of Cdn$190,000, which will be applied to the last two invoices of the project. | |
| (h) |
On May 7, 2014, the Company entered into a two year office space lease commencing July 1, 2014. Pursuant to the lease, the Company is required to pay Cdn$2,683 plus taxes per month. In addition, on June 1, 2014, the Company entered into a two year office space lease commencing June 1, 2014. Pursuant to the lease, the Company is required to pay Cdn$1,240 plus taxes per month. The following is a schedule by years of future minimum lease payments under capital leases together with the present value of the minimum lease payments as of May 31, 2014: | |
| Year ending May 31: | $ | |||
| 2015 | 40,850 | |||
| 2016 | 43,319 | |||
| 2017 | 2,469 | |||
| 86,638 |
F-20
MANTRA VENTURE GROUP LTD.
Notes
to the consolidated financial statements
May 31, 2014
(Expressed in U.S.
dollars)
| 14. |
Income Taxes |
|
The Company has net operating losses carried forward of $8,461,305 available to offset taxable income in future years which expires in beginning in fiscal 2027. | |
|
The Company is subject to Canadian and 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: |
| 2014 | 2013 | ||||||
| $ | $ | ||||||
| Income tax recovery at statutory rate | (459,938 | ) | (482,845 | ) | |||
| Permanent differences and other | 58,557 | 18,017 | |||||
| Valuation allowance change | 401,381 | 464,828 | |||||
| Provision for income taxes | – | – |
The significant components of deferred income tax assets and liabilities as at May 31, 2014 and 2013 are as follows:
| 2014 | 2013 | ||||||
| $ | $ | ||||||
| Net operating losses carried forward | 2,896,138 | 2,494,757 | |||||
| Valuation allowance | (2,896,138 | ) | (2,494,757 | ) | |||
| Net deferred income tax asset | – | – |
| 15. |
Subsequent Events | |
| (a) |
On June 4, 2014, the Company issued 333,333 units at $0.30 per unit for proceeds of $100,000. Each unit consists of one share of common stock and one share purchase warrant. Each share purchase warrant is exercisable at $0.80 per common share for a period of three 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 $1.60 per share for seven consecutive trading days. Refer to Note 9(a). | |
| (b) |
On June 4, 2014, the Company issued 240,000 shares for proceeds of $61,625 upon the exercise of warrants. | |
| (c) |
On July 11, 2014, the Company issued 200,000 units at $0.30 per unit for proceeds of $60,000. Each unit consists of one share of common stock and one share purchase warrant. Each share purchase warrant is exercisable at $0.80 per common share for a period of three 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 $1.60 per share for seven consecutive trading days. | |
| (d) |
On July 21, 2014, the Company issued 40,000 common shares pursuant to the consulting agreement described in Note 12(f). | |
| (e) |
On July 17, 2014, the Company entered into consulting agreements with two consultants. Pursuant to the agreements, the Company will grant to each of the consultants, 100,000 stock options to acquire 100,000 shares of the Company at $0.30 per share for two years in consideration for two years of consulting services. The options vest 25% every six months period following the date of the agreements. | |
| (f) | On August 22, 2014 the Company entered into an agreement with one consultant to procure investor relations services. Pursuant to the agreement the Company paid cash of $3,500 and issued 12,000 shares of common stock to the consultant at $0.35 per share for an aggregate subscription value of $3,000. |
|
| (g) | On August 25. 2014 the Company issued 150,000 common shares to a director of the Company in exercise of options at an exercise price of $0.02 per share for an aggregate proceeds of $3,000. |
|
| (h) |
On September 9, 2014, the Company entered into a consulting agreement with a two month term with a consultant. Pursuant to the agreement the Company will pay $5,000 cash and issue 12,500 of the Company’s common shares each month. | |
F-21
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
On July 30, 2014, Saturna Group Chartered Accountants LLP (“Saturna Group”) provided notice that they were resigning their services as our company’s independent registered public accounting firm due to mandatory partner rotation requirements.
The reports of Saturna Group on our company’s financial statements as of and for the fiscal year ended May 31, 2013 contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principle except to indicate that there was substantial doubt about our company’s ability to continue as a going concern.
Our company’s Board of Directors participated in and approved the decision to change independent registered public accounting firms.
Through the interim periods (subsequent to our year ended May 31, 2013) to July 30, 2014 (the date of change in accountants), there have been no disagreements with Saturna Group on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Saturna Group, would have caused them to make reference to the subject matter of the disagreements in connection with their report on the financial statements for such years.
On July 30, 2014, our company engaged Sadler, Gibb & Associates, L.L.C., Certified Public Accountants as our new independent registered public accounting firm. During the two most recent fiscal years and through July 30, 2014, our company had not consulted with Sadler, Gibb & Associates, L.L.C. regarding any of the following: (i) the application of accounting principles to a specific transaction, either completed or proposed; (ii) the type of audit opinion that might be rendered on our company’s financial statements, and none of the following was provided to our company: (a) a written report, or (b) oral advice was provided that Sadler, Gibb & Associates, L.L.C. concluded was an important factor considered by our company in reaching a decision as to accounting, auditing or financial reporting issue; or (iii) any matter that was subject of a disagreement, as that term is defined in Item 304(a)(1)(iv) of Regulation S-K.
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, 2014. 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.
45
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, 2014 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, 2014, 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, 2014 based on criteria established in Internal Control—Integrated Framework issued by COSO.
Sadler, Gibb & Associates L.L.C., 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, 2014.
Changes in Internal Control
During the quarter ended May 31, 2014 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. Other Information
None.
46
PART III
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:
| Name |
Position |
Age |
Date First Elected or
Appointed |
| Larry Kristof | President, Chief Executive Officer, Chief Financial Officer, Secretary, Treasurer and Director | 42 | January 22, 2007 |
| Jonathan Michael Boughen | Director | 53 | February 28, 2011 |
| Patrick Dodd | Chief Technology Officer and Director | 26 | May 7, 2013 |
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.
47
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.
48
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 Emeritus Colin Oloman, P. Eng.
Professor Emeritus Colin Oloman has been a member of our Scientific Advisory Board since November 2, 2007.
As the inventor of Mantra’s ERC and MRFC technologies, Professor Emeritus Colin Oloman and his work make up the heart of Mantra Energy. Integral as the leader of the Scientific Advisory Board, Professor Oloman has held similar positions as a consultant in the research and development of a variety of electrochemical processes. His notable accomplishments include developing Canada’s first pilot plant for the scrubbing of hydrogen sulfide from pulp mill recovery furnace flue gas from 1965 to 1967, co-inventing and developing the Electro-LuberTM system to start-up in 1982, and designing, engineering, installing and operating a 20 kW, 10-cell perforated bipolar electrochemical reactor for the production of alkaline peroxide in 1984.
Professor Oloman has published three books and over 45 reports in various industry journals, and is the inventor or co-inventor of over 20 US and international patents. He is a member of the Chemical Engineering Society of Canada and The Electrochemical Society.
Professor Plamen Atanassov, Distinguished Professor (UNM)
Professor Plamen Atanassov is the Founding Director of UNM’s Center for Emerging Energy Technologies and a Distinguished Professor at the Department of Chemical and Biological Engineering. He obtained his Ph.D. from the Bulgarian Academy of Sciences in Physical Chemistry and Electrochemistry in 1995 and since then has been heavily involved in applied electrochemistry and the development of fuel cell electrocatalysts. This work has primarily taken place at UNM, where Professor Atanassov has been successful in partnering with such companies as Daihatsu, Ballard, and CFD Research Corp., but also includes being a project leader in electrocatalyst development at Superior MicroPowders LLC (now Cabot Corp.).
Professor Atanassov’s current research is focused, among other things, on the development of non-platinum and platinum group metal catalysts. Funding from the US Department of Defense (DOD) and Department of Energy (DOE) supports his work. Professor Atanassov has ongoing research collaborations with many universities in several countries, including a number of US National Laboratories, and has published some 220 peer-reviewed journal articles. He holds more than 30 US and international patents.
Alexey Serov, Ph.D., Research Assistant Professor (UNM)
Dr. Alexey Serov (Ph.D.) is a Research Assistant Professor at UNM’s Center for Emerging Energy Technologies. After graduating with an Honor Diploma and Gold Medal from the Chemistry Department of Moscow State University, he worked for five years as a researcher in that institution’s Division of Inorganic Chemistry. He then worked as a Senior Researcher at the Samsung SDI R&D Center in the Republic of Korea, for which he was awarded “Best Foreign Researcher”, before obtaining his Ph.D. from the Paul Scherrer Institute and University of Bern with a focus on the chemical properties of Super Heavy Elements and their homologues.
49
Dr. Serov’s current research at UNM is directly related to that of Professor Atanassov, and is focused on the synthesis of multicomponent inorganic materials and catalysts by conventional and advanced solution, solid state and ultra-sonic techniques, and the synthesis and characterization of nano-crystalline catalysts for energy storage and conversion applications. He has published nearly 30 peer-reviewed journal papers on electrocatalysis, and is named on dozens of issued US and international patents.
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.
50
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.
51
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, 2014, 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 except as noted below.
Name |
Number of Late Reports |
Number of Transactions Not Reported on a Timely Basis |
Failure to File Requested Forms |
| Larry Kristof(1) | 1 | 1 | 1 |
| Jonathan Michael Boughen | 0 | 0 | 0 |
| Patrick Dodd | 0 | 0 | 0 |
| (1) |
Mr. Kristof has not filed a requisite Form 4 – Statement of Changes of Beneficial Ownership of Securities. The failure to file the form is the result of administrative delays. The transaction for which the Form 4 must be filed represents less than 1% of our issued and outstanding securities and does not materially impact the number of shares beneficially owned by Mr. Kristof. |
Item 11. Executive Compensation
The particulars of the compensation paid to the following persons:
| (a) |
our principal executive officer; | |
| (b) |
each of our two most highly compensated executive officers who were serving as executive officers at the end of the years ended May 31, 2014 and 2013; and | |
| (c) |
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, 2014 and 2013, |
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 $100,000 for the respective fiscal year:
52
| SUMMARY COMPENSATION TABLE | |||||||||
Name and Principal Position |
Year |
Salary ($) |
Bonus ($) |
Stock Awards ($) |
Option Awards ($) |
Non-Equity Incentive Plan Compensation ($) |
Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) |
All Other Compensation ($) |
Total($) |
| Larry Kristof(1)
President. Chief Executive Officer, Chief Financial Officer, Secretary and Treasurer |
2014 2013 |
128,917 95,098 |
Nil Nil |
Nil Nil |
Nil Nil |
Nil Nil |
Nil Nil |
Nil Nil |
Nil 95,098 |
| Tommy David Unger(2) Former VP Corporate Finance and Director |
2014 2013 |
N/A 50,000 |
N/A Nil |
N/A Nil |
N/A Nil |
N/A Nil |
N/A Nil |
N/A Nil |
N/A 50,000 |
| (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. |
Stock Option Plan
On November 24, 2009, we registered a 2009 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
We did not grant any options or stock appreciation rights to our named executive officers or directors during the fiscal year ended May 31, 2014.
Management Compensation Narrative
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 $60,000, payable in equal monthly installments. The employment agreement may be terminated by Larry Kristof, for any reason, by providing at least three month’s advance written notice to our company.
53
Compensation of Directors
Other than as set out below, we have no formal plan for compensating our directors for their service in their capacity as directors, although such directors are expected in the future to receive stock options to purchase common shares as awarded by our board of directors or (as to future stock options) a compensation committee which may be established. Directors are entitled to reimbursement for reasonable travel and other out-of-pocket expenses incurred in connection with attendance at meetings of our board of directors. Our board of directors may award special remuneration to any director undertaking any special services on our behalf other than services ordinarily required of a director. No director received and/or accrued any compensation for their services as a director, including committee participation and/or special assignments.
The following table sets forth a summary of the compensation paid to our non-employee directors in our fiscal year ended May 31, 2014:
| DIRECTOR COMPENSATION | |||||||
Name |
Fees Earned or Paid in Cash ($) |
Stock Awards ($) |
Option Awards ($) |
Non-Equity Incentive Plan Compensation ($) |
Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) |
All Other Compensation ($) |
Total ($) |
| Larry Kristof | Nil | Nil | Nil | Nil | Nil | Nil | Nil |
| Jonathan Michael Boughen | Nil | Nil | Nil | Nil | Nil | Nil | Nil |
| Patrick Dodd | Nil | Nil | Nil | Nil | Nil | Nil | Nil |
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 March 1, 2014, we amended this agreement which granted Mr. Dodd options to purchase 150,000 common shares of our company at $0.02 per common share. On August 25, 2014, Mr. Dodd notified us and provided payment for the exercise of the options.
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.
54
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table lists, as of September 12, 2014 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 70,692,692 issued and outstanding shares of our common stock as of September 12, 2014.
| Name and Address of
Beneficial Owner |
Title of Class |
Amount and Nature of Beneficial Ownership(1) |
Percent of Class |
| Larry Kristof(2) #4 2119 152nd Street Surrey BC V4A 4N7 |
Common Shares |
13,250,000 (3) |
18.74% |
| Jonathan Michael Boughen(4)
1765 Amble Greene Drive Surrey BC V4A7J1 |
Common Shares |
62,500 |
* |
| Patrick Dodd(5) #312 – 1617 Gravely Street Vancouver BC V5L 3A8 |
Common Shares |
150,000 |
* |
| All Officers and Directors as a Group | 13,462,500 | 19.04% |
*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 September 12, 2014. As of September 12, 2014, there were 70,692,692 shares 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) |
13,250,000 common shares held by 0770987 BC Ltd.; and | |
| b) |
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. |
55
Changes in Control
There are currently no arrangements or agreements which would result in a change in control of our company.
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, 2014, our company incurred management fees of $128,917 (2013 - $95,098) and rent of $13,500 (2012 - $Nil) to the President of the Company. |
| (b) |
During the year ended May 31, 2014, our company incurred management fees of $55,546 (2013 - $58,988) to the spouse of the President of the Company. |
| (c) |
During the year ended May 31, 2014, our company incurred research and development fees of $65,121 (2013 - $50,000 management fees) to a director of the Company. |
| (d) |
As at May 31, 2014, our company owes a total of $124,857 (May 31, 2013 - $138,526) 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. |
| (e) |
As at May 31, 2014, our company owes $13,619 (May 31, 2013 - $11,515) to the spouse of the president of our ompanyompany which is non-interest bearing, unsecured, and due on demand. |
| (f) |
As at May 31, 2014, our company owes $21,518 (May 31, 2013 - $23,383) to an officer and a director of ourompany, 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. Principal Accountant Fees and Services
The aggregate fees billed for the most recently completed fiscal year ended May 31, 2014 and for fiscal year ended May 31, 2013 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:
56
| Year Ended May 31 |
|||
| Sadler, Gibb 2014 |
Saturna Group 2014 |
Saturna Group 2013 | |
| Audit Fees | $23,000 | CDN$15,200 | CDN$35,500 |
| Audit Related Fees | Nil | Nil | Nil |
| Tax Fees | Nil | Nil | Nil |
| All Other Fees | Nil | Nil | Nil |
| Total | $23,000 | CDN$15,200 | CAN$35,500 |
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. 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 | |
| Exhibit | |
| Number | Exhibit Description |
| (2) |
Plan of acquisition, reorganization, arrangement, liquidation or succession |
| 2.1 |
Plan of Conversion of Mantra Venture Group Ltd. from a Nevada Corporation into a British Columbia Corporation dated October 29, 2008. (incorporated by reference to our Current Report on Form 8-K filed with the SEC on November 4, 2008) |
| (3) |
Articles of Incorporation, Bylaws |
| 3.1 |
Articles of Conversion of Mantra Venture Group Ltd. dated October 28, 2008 (incorporated by reference to our Current Report on Form 8-K filed with the SEC on November 4, 2008) |
| 3.2 |
British Columbia Table 1 Articles adopted on December 4, 2008 (incorporated by reference to our Current Report on Form 8-K filed with the SEC on December 12, 2008) |
| 3.3 |
British Columbia Notice of Articles (incorporated by reference to our Current Report on Form 8-K filed with the SEC on December 12, 2008) |
| (10) |
Material Contracts |
| 10.1 |
Revolving Line of Credit Agreement with Larry Kristof dated October 15, 2008 (incorporated by reference to our Quarterly Report on Form 10-Q filed on January 14, 2009) |
| 10.2 |
2009 Stock Compensation Plan and 2009 Stock Option Plan (incorporated by reference to our Registration Statement on Form S-8 filed on November 24, 2009) |
| 10.3 |
Subscription Agreement with Mantra Energy Alternatives Ltd. dated February 29, 2012 (incorporated by reference to our Current Report on Form 8-K filed on March 9, 2012) |
| 10.4 |
Service Contract with PowerTech Labs Inc. dated June 19, 2012 (incorporated by reference to our Current Report on Form 8-K filed on June 25, 2012) |
57
| Exhibit | |
| Number | Exhibit Description |
| 10.5 |
Settlement Agreement with StichtingAdministratiekantoor Carlos Bijl dated July 16, 2012 (incorporated by reference to our Current Report on Form 8-K filed on July 23, 2012) |
|
| |
| 10.6 |
Master Services Agreement between our subsidiary, Mantra Energy Alternatives Ltd., and Tekion (Canada), Inc. dated July 31, 2012 (incorporated by reference to our Current Report on Form 8-K filed on August 30, 2012) |
|
| |
| 10.7 |
Statement of Work between our subsidiary, Mantra Energy Alternatives Ltd. and Tekion (Canada), Inc. dated July 31, 2012 (incorporated by reference to our Current Report on Form 8-K filed on August 30, 2012) |
|
| |
| 10.8 |
Employment Agreement with and Larry Kristof dated January 8, 2013 (incorporated by reference to our Current Report on Form 8-K filed on January 14, 2013) |
|
| |
| 10.9 |
Employment Agreement between our subsidiary, Mantra Energy Alternatives Ltd., and Larry Kristof dated January 8, 2013 (incorporated by reference to our Current Report on Form 8-K filed on January 14, 2013) |
|
| |
| 10.10 |
Sublease Agreement with BC Research Inc. dated February 25, 2013 (incorporated by reference to our Current Report on Form 8-K filed on March18, 2013) |
|
| |
| 10.11 |
Letter of Engagement with BC Research Inc. dated March 13, 2013 (incorporated by reference to our Current Report on Form 8-K filed on March18, 2013) |
|
| |
| 10.12 |
Amendment to Settlement Agreement with StichtingAdministratiekantoor Carlos Bijl dated April 29, 2013 (incorporated by reference to our Current Report on Form 8-K filed on May 22, 2013) |
|
| |
| 10.13 |
Director Agreement with Patrick Dodd dated May 7, 2013 (incorporated by reference to our Current Report on Form 8-K filed on May 10, 2013) |
|
| |
| 10.14 |
Consulting Agreement with BC0798465 BC Ltd. dated July 1, 2013 (incorporated by reference to our Current Report on Form 8-K filed on September 12, 2013) |
|
| |
| 10.15 |
Employment Agreement between our subsidiary, Mantra Energy Alternatives Ltd., and Amin Aziznia dated October 17, 2013 (incorporated by reference to our Current Report on Form 8-K filed on October 28, 2013) |
|
| |
| 10.16 |
Employment Agreement between our subsidiary, Mantra Energy Alternatives Ltd., and Sona Kazemi dated October 17, 2013 (incorporated by reference to our Current Report on Form 8-K filed on October 28, 2013) |
|
| |
| 10.17 |
Framework Agreement between our subsidiary, Mantra Energy Alternatives Ltd., and Alstom (Switzerland) Ltd. (incorporated by reference to our Current Report on Form 8-K filed on November 19, 2013) |
|
| |
| 10.18 |
Consulting Agreement with DCC Consulting dated March 13, 2014 (incorporated by reference to our Current Report on Form 8-K filed on March 24, 2014) |
|
| |
| 10.19 |
Letter of Engagement with BC Research Inc. dated March 25, 2014 (incorporated by reference to our Current Report on Form 8-K filed on April 1, 2014) |
|
| |
| 10.20 |
Form of Subscription Agreement (incorporated by reference to our Current Report on Form 8-K filed on April 30, 2014) |
|
| |
| 10.21 |
Australian Patent Notice of Acceptance (incorporated by reference to our Current Report on Form 8-K filed on May 1, 2013) |
|
| |
| 10.22 |
Agreement between our company and Green Baron Ventures Inc. (incorporated by reference to our Current Report on Form 8-K filed on August 28, 2014) |
|
| |
| (14) |
Code of Ethics |
|
| |
| 14.1 |
Code of Ethics and Business Conduct (incorporated by reference to our Registration Statement on Form S- 1 filed on February 26, 2008) |
58
| Exhibit | |
| Number | Exhibit Description |
| (21) |
List of Subsidiaries |
|
| |
| 21.1 |
Carbon Commodity Corporation (wholly owned) |
|
| |
|
Mantra China Inc. (wholly owned) | |
|
| |
|
Mantra China Limited (wholly owned) | |
|
| |
|
Mantra Media Corp. (wholly owned) | |
|
| |
|
Mantra NextGen Power Inc. (wholly owned) | |
|
| |
|
Mantra Wind Inc. (wholly owned) | |
|
| |
|
Climate ESCO Ltd. (majority owned) | |
|
| |
|
Mantra Energy Alternatives Ltd. (majority owned) | |
|
| |
| (31) |
(i) Rule 13a-14(a)/ 15d-14(a) Certifications (ii) Rule 13a-14(d)/ 15d-14(d) Certifications |
|
| |
| 31.1* | |
|
| |
| (32) |
Section 1350 Certifications |
|
| |
| 32.1* | |
|
| |
| (99) |
Additional Exhibits |
|
| |
| 99.1 |
Audit Committee Charter adopted April 20, 2010 (incorporated by reference to our Annual Report on Form 10-K filed with the SEC on September 14, 2010) |
|
| |
| (101)** |
Interactive Data Files |
|
| |
| 101.INS | |
|
| |
| 101.SCH | |
|
| |
| 101.CAL | |
|
| |
| 101.DEF | |
|
| |
| 101.LAB | |
|
| |
| 101.PRE |
| * |
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. |
59
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 15, 2014 | 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 15, 2014 | 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 15, 2014 | By: | /s/ Jonathan Boughen |
| Jonathan Boughen | ||
| Director | ||
| Date: September 15, 2014 | By: | /s/ Patrick Dodd |
| Patrick Dodd | ||
| Director |
60