UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K /A
Amendment No. 1
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended May 31, 2016
Commission File Number 000-53461
MANTRA VENTURE GROUP LTD.
(Exact name of registrant as specified in its charter)
British Columbia |
| 26-0592672 |
(State or other jurisdiction of incorporation |
| (IRS Employer Identification No.) |
or organization) |
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#562 – 800 15355 24th Avenue |
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Surrey, British Columbia, Canada | V4A 2H9 | (604) 560-1503 |
(Address of principal executive office) | (Zip Code) | (Registrant’s telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act: None
Title of each class | Name of each exchange on which registered |
Common Stock, $0.001 par value | The NASDAQ Stock Market LLC |
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.00001 par value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act.
Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 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 past 90 days.
Yes [X] No [ ]
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Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 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 the 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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] | Accelerated filer [ ] |
Non-accelerated filer [ ] | Smaller reporting company [X] |
(Do not check if a smaller reporting company) |
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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 the voting common equity held by non-affiliates as of November 30, 2015, based on the closing sales price of the Common Stock as quoted on the OTCQB was $2,344,158. For purposes of this computation, all officers, directors, and 5 percent beneficial owners of the registrant are deemed to be affiliates. Such determination should not be deemed an admission that such directors, officers, or 5 percent beneficial owners are, in fact, affiliates of the registrant.
As of September 28, 2016, there were 93,753,802 shares of registrant’s common stock outstanding.
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Explanatory Note
Our company is filing this Amendment No. 1 on Form 10-K/A (the “Amendment”) to our annual report on Form 10-K for the period ended May 31, 2016 (the “Form 10-K”) filed with the Securities and Exchange Commission on September 28, 2016 (the “Original Filing Date”), to furnish Exhibit 101 to the Form 10-K in accordance with Rule 405 of Regulation S-T. Exhibit 101 consists of the following materials from our Form 10-K, formatted in XBRL (eXtensible Business Reporting Language):
101.INS | XBRL Instance Document |
101.SCH | XBRL Taxonomy Schema |
101.CAL | XBRL Taxonomy Calculation Linkbase |
101.DEF | XBRL Taxonomy Definition Linkbase |
101.LAB | XBRL Taxonomy Label Linkbase |
101.PRE | XBRL Taxonomy Presentation Linkbase |
This Amendment speaks as of the Original Filing Date, does not reflect events that may have occurred subsequent to the Original Filing Date, and does not modify or update in any way disclosures made in the Form 10-K. No other changes have been made to the Form 10-K.
Pursuant to Rule 406T of Regulation S-T, the interactive data files attached as Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934 (the “Exchange Act”), as amended, and otherwise are not subject to liability under those sections.
Pursuant to Rule 12b-15 under the Exchange Act, as amended, the certifications required pursuant to the rules promulgated under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, which were included as exhibits to the Original Report, have been amended, restated and re-executed as of the date of this Amendment No. 1 and are included as Exhibits 31.1 and 32.1 hereto.
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TABLE OF CONTENTS
PART I |
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Item 1. Business | 5 |
Item 1A. Risk Factors | 14 |
Item 1B. Unresolved Staff Comments | 14 |
Item 2. Properties | 14 |
Item 3. Legal Proceedings | 15 |
Item 4. Mine Safety Disclosures | 15 |
PART II |
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Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 15 |
Item 6. Selected Financial Data | 19 |
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 19 |
Item 7A. Quantitative and Qualitative Disclosures about Market Risk | 24 |
Item 8. Financial Statements and Supplementary Data | F-1 |
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure | 25 |
Item 9A. Controls and Procedures | 25 |
PART III |
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Item 10. Directors, Executive Officers and Corporate Governance | 26 |
Item 11. Executive Compensation | 31 |
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 33 |
Item 13. Certain Relationships and Related Transactions, and Director Independence | 34 |
Item 14. Principal Accountant Fees and Services | 36 |
PART IV |
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Item 15. Exhibits and Financial Statement Schedules | 39 |
Signatures |
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PART I
ITEM 1 – BUSINESS
This Annual Report on Form 10-K (including the section regarding Management's Discussion and Analysis of Financial Condition and Results of Operations) contains forward-looking statements regarding our business, financial condition, results of operations and prospects. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not deemed to represent an all-inclusive means of identifying forward-looking statements as denoted in this Annual Report on Form 10-K. Additionally, statements concerning future matters are forward-looking statements.
Although forward-looking statements in this Annual Report on Form 10-K reflect the good faith judgment of our Management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically addressed under the heading “Risks Factors” below, as well as those discussed elsewhere in this Annual Report on Form 10-K. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Annual Report on Form 10-K. We file reports with the Securities and Exchange Commission (“SEC”). You can read and copy any materials we file with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549. You can obtain additional information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us.
We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this Annual Report on Form 10-K. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this annual Report, which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.
This Annual Report on Form 10-K includes the accounts of Mantra Venture Group Ltd., a Nevada corporation (“Mantra”), together with its subsidiaries, as follows, collectively referred to as “we”, “us” or the “Company”: Mantra Energy Alternatives Ltd., a British Columbia corporation, Mantra Hong Kong Ltd., a Hong Kong corporation, Mantra NextGen Power Inc., a British Columbia corporation, Mantra Energy Alternatives UK Ltd.., a United Kingdom corporation, and Climate ESCO Ltd., A British Columbia corporation. All the subsidiaries are direct subsidiaries of Mantra and are wholly-owned with the exception of Climate ESCO Ltd., which is 65% owned and Mantra Energy Alternatives Ltd., which is 88% owned.
Business Overview
We were incorporated in Nevada on January 22, 2007. On December 8, 2008 we continued our corporate jurisdiction out of the state of Nevada and into the Province of British Columbia, Canada. Our principal offices are located at #562 – 800 15355 24th Avenue, Surrey, British Columbia, Canada, V4A 2H9. Our telephone number is (604) 560-1503. Our fiscal year end is May 31.
We are building a portfolio of companies and technologies that mitigate negative environmental and health consequences that arise from the production of energy and the consumption of resources.
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Our mission is to develop and commercialize alternative energy technologies and services to enable the sustainable consumption, production and management of resources on residential, commercial and industrial scales. We plan to develop or acquire technologies and services which include electrical power system monitoring technology, wind farm electricity generation, online retail of environmental sustainability solutions through a carbon reduction marketplace, and media solutions to promote awareness of corporate actions that support the environment. To carry out our business strategy we intend to acquire or license from third parties technologies that require further development before they can be brought to market. We also intend to develop such technologies ourselves, and we anticipate that to complete commercialization of some technologies we will enter into joint ventures, partnerships, or other strategic relationships with third parties who have expertise that we may require. We also plan to enter into formal relationships with consultants, contractors, retailers and manufacturers who specialize in the areas of environmental sustainability in order to carry out our online retail strategy.
We have acquired and own a process for the electro-reduction of carbon dioxide (“ERC”) and have the exclusive world license for a mixed-reactant fuel cell (“MRFC”). We are developing these technologies toward commercial applications.
In the past we have contracted out our development work to various laboratories. As of July 1, 2014, we have been carrying out research and development on these technologies in our own internal laboratory with our own staff in Vancouver, BC. These activities include: experimentation to improve the process performance; process and economic modeling to optimize the costs of a commercial system; design and simulation of pilot systems for technology demonstration and validation; business development activities such as the establishment of strategic and technology development partners; and the design and fabrication of laboratory prototypes, among others.
We currently 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 and reduction of greenhouse gas emissions and resource consumption. We also have a number of inactive subsidiaries, which we plan to engage in various businesses in the future.
Since our inception, we have incurred operational losses and we have completed several rounds of financing to fund our operations.
On May 25, 2015, we released a demonstration video of our MRFC technology. This video showcased the fuel cell powering an electric scooter, and was designed to demonstrate the capabilities of the technology to strategic partners and investors.
Recent Business and Corporate Developments
On November 3, 2015, our Board of Directors approved the an amendment to our Notice of Articles to increase the authorized number of our shares of common stock from 100,000,000 shares of common stock, par value $0.00001 to 275,000,000 shares of common stock, par value of $0.00001 per share .
On November 4, 2015, subsequent to the approval by our Board of Directors of the holder of the majority of the outstanding shares of our corporation entitled to vote gave us written consent for the amendment to our Notice of Articles. The increase in our authorized capital subsequently became effective with the filing of the amendment to our Notice of Articles on February 2, 2016.
On March 10, 2016, we entered into a securities purchase agreement pursuant to which we issued to one investor a convertible note in the principal amount of up to $166,666 net of an original issuance discount of 8%. The note bears interest at 10% per annum and is convertible into common shares of our Company at a 65% discount to the lowest trading price during the previous 20 trading days to the date of conversion; or a 65% discount to the lowest trading price during the previous 20 trading days before the date the note was executed. As at the date of this report the note holder has advanced $81,666 in consideration pursuant to the convertible note.
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On March 14, 2016, we entered into a consulting agreement to acquire business planning, and investor and public relations services. Pursuant to the agreement, we will pay the consultant $10,000 per month and issue 550,000 shares per month for a period of three months. As at the date of this report the provision of services under the agreement has not begun and the compensation shares have not been issued.
On February 2, 2016, we altered our authorized share capital to increase the number of authorized common shares from 100,000,000 common shares with a par value of $0.00001, to 275,000,000 common shares with a par value of $0.00001.
Collaboration with Alstom (Switzerland) Ltd.
On June 24, 2013, we 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.
Lafarge Pilot Project and Carbon Dioxide to Alternative Products – Project Status
The agreement with Alstom will remain valid for five 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. This project has, for the past two years, been our only source of revenue. From Phases 1 to3 (lasting from September 2013 to September 2015), we received approximately CDN$611,125. The Phase 3 review occurred in September 2015 and tentatively approved for advancement into Phase 4. The timeline and structure of Phase 4 will depend upon the results, expected in October 2015, of a large-scale funding application submitted to the European Union in June 2015. If successful, this funding will cover Phases 4 and 5 of the current project. The original budget for Phase 4 was CDN$35,375, while Phase 5 was to-be-determined based on the results of the previous phases. Mantra and Alstom continue to pursue additional funding opportunities.
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In November, 2015 Alstom was acquired by General Electric Corporation, resulting in a restructuring of Alstom (Switzerland) Ltd.’s management and operations. As at the date of this report our agreement with Alstom remains effective, and we are awaiting approval from Alstom’s new management to continue with the Lafarge pilot project.
Electro Reduction of Carbon Dioxide (“ERC”)
We previously acquired 100% ownership in and to a certain chemical process for the electro-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 emissions 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.
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 and its salts have been obtained on tin cathodes with current efficiencies above 80%, at industrially relevant conditions. ERC Development to Date
In October of 2008, we completed our first ERC prototype reactor capable of processing 1 kilogram of CO2 per day. 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.
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 are 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 industry facilities, it will likely lead to supply of formic acid in excess of current market demand. We have identified several potential future applications for formic acid, which may lead to an expansion in current market demand. The application we have identified and are currently focusing on is energy storage.
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Mixed-Reactant Fuel Cell (MRFC)
We retain the exclusive worldwide license for the MRFC technology. The MRFC is a novel fuel cell architecture that utilizes a mixture of the fuel and oxidant, and as a result, does not need a membrane. Conventional fuel cells (typically powered by hydrogen or methanol) must keep the fuel and oxidant separate, leading to several complications: a costly, failure-prone ion-selective membrane must be used to separate but ionically connect the cathode and anode chambers; complex reactant distribution and manifolding; and heavy, thick bipolar plates for separating cells. By contract, the MRFC has no membrane, has a simple reactant distribution mechanism, and contains no bipolar plates; as a result, the system is projected to be cheaper, lighter, and more robust than conventional fuel cells.
The MRFC thus offers the potential to provide distributed or grid-connected clean, affordable heat and power. Being very versatile due to its simplicity, the MRFC can address several markets, including emergency backup power, stationary combined heat and power, industrial vehicles such as forklifts, and transportation. The first target market for this technology is distributed emergency backup power for telecommunications.
The MRFC was invented and developed at the University of British Columbia by Professor Emeritus Colin Oloman and his team. In July 2014, we brought the technology into our internal lab for development, which culminated in a video we released in May 2015 showcasing an electric scooter powered exclusively by our MRFC technology. This video was intended to promote the technology to strategic partners and investors. Much of our research budget and activity over the period of January to May 2015 was dedicated to the design and construction of this scooter and the subsequent production of the demonstration video. We are currently exploring possibilities for joint development of the fuel cell with strategic partners.
Energy Storage
Formate salts and formic acid, which can be produced from CO2 via ERC, are excellent energy carriers and effective fuels for the MRFC. Thus, the integration of ERC and MRFC represents an energy storage solution whereby intermittent renewable electricity can be stored as formate/formic acid when it is available, and liberated when it is needed. The availability of energy storage is widely recognized as the next most critical factor for increased renewables penetration.
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Competition
There are several existing alternative methods to ERC which convert CO2 into useful products. Other methods include, for example:
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Thermo-chemical reactions to produce carbon monoxide, formic acid, methane or methanol;
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Bio-chemical reactions to produce methane;
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Photo-chemical reactions to produce carbon monoxide, formaldehyde or formic acid; and
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Photo-electro-chemical reaction to produce carbon monoxide and possibly methane & methanol.
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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 ;
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Low selectivity for specified product(s) makes it harder to control product yield;
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High operating temperature and pressure requires large quantities of fossil fuels to power reaction; and
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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:
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Medium reaction rate allows for commercially viable CO2 processing times;
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Medium CO2 space velocity gives the ability to treat comparatively large volumes of CO2 ;
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High product selectivity for formate and formic acid;
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Low operating temperature and pressure make it possible to rely on renewable sources of electricity instead of fossil fuels; and
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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 CO2from 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.
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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:
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filling our Scientific Advisory Board with skilled and proficient professionals;
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developing and acquiring technologies to establish sustainable fuel supply chains;
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providing a comprehensive range of services; and
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providing marketing and promotion services to generate public awareness and enhance the reputation of sustainability initiatives.
However, since we are still a young 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, upon commercial deployment of our technologies, 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. At this time, our small-scale laboratory operations are in compliance with, but are not significantly impacted by, waste disposal regulations.
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.
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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, 2016, we spent $137,615 on research and development compared to$698,567 spent on research and development during fiscal 2015. We anticipate that we will incur approximately $3,250,000 in expenses on research and development (including wages and commercialization efforts) for ERC and MRFC, as well as other technologies we may acquire over the next 12 months. We believe that we may receive public funding and/or the award of further contract research and development projects during the 2017 fiscal year, which will help meet the financing necessary to carry out these activities.
Employees
As of September 22, 2016, we had four full-time employees, including one in management, one in administrative duties and two in research and development. Additionally, we have retained a number of consultants for legal, accounting and investor relations services. None of our employees are represented by a collective bargaining agreement, and we believe that our relations with our employees are good.
Intellectual Property
We previously acquired the process for the “Continuous Co-Current Electrochemical Reduction of Carbon Dioxide”, or the ERC technology, on November 2, 2007 as embodied by and described in the following Patent Cooperation Treaty application:
Country | Application | 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. The national patent process has been initiated in in Europe, the U.S., Canada, Australia, India, and China.
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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 | May 8, 2013 | “Continuous Co- Current Electrochemical Reduction of Carbon Dioxide” |
Australia | 2012202601 | May 1, 2014 | “Continuous Co- Current Electrochemical Reduction of Carbon Dioxide” |
Canada | CA2625656 C | December 19, 2014 | “Continuous electro-chemical 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.
ITEM 1A - RISK FACTORS
Not required under Regulation S-K for “smaller reporting companies.”
ITEM 1B – UNRESOLVED STAFF COMMENTS
Not required under Regulation S-K for “smaller reporting companies.”
ITEM 2 – PROPERTIES
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 was leased for a term of 24 months beginning June 1, 2014. The lease was renewed for an additional 24 month terms beginning June 1, 2016 at the rate of $1,300 per month, plus approximately $200 per month for utilities and maintenance.
Our research facilities were formerly located in a 1,400 square foot facility at 202-3590 West 41st Avenue, Vancouver, British Columbia, Canada, V6N 3E6. We paid approximately $3,600 per month in rent from July 1, 2014 until June 30, 2016 when the lease expired. On July 15, 2016 we entered into a 12 month sublease agreement (expiring on June 30, 2017)to lease a 160 square foot research and development office located at 3800 Westbrook Mall, Vancouver BC V6S 2L9. The lease rate is $563.50 per month ($6,440 per year).
We believe that our existing facilities are suitable and adequate to meet our current business requirements. We maintain a website at www.mantraenergy.com and the information contained on that website is not deemed to be a part of this annual report.
14
ITEM 3 - LEGAL PROCEEDINGS
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results.
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
Price Range of Common Stock
Our common stock is currently available for quotation on the OTCQB market under the symbol “MVTG.” Previously, our common stock was available for quotation on the Over-the-Counter Bulletin Board under the symbol “MVTG.”
For the periods indicated, the following table sets forth the high and low bid prices per share of common stock. These prices represent inter-dealer quotations without retail markup, markdown, or commission and may not necessarily represent actual transactions.
| Fiscal Year 2016 |
|
| High | Low |
First Quarter | $0.27 | $0.08 |
Second Quarter | $0.10 | $0.02 |
Third Quarter | $0.05 | $0.01 |
Fourth Quarter | $0.03 | $0.01 |
| Fiscal Year 2015 |
|
| High | Low |
First Quarter | $0.645 | $0.45 |
Second Quarter | $0.67 | $0.30 |
Third Quarter | $0.37 | $0.23 |
Fourth Quarter | $0.29 | $0.115 |
15
On September 21, 2016, the closing sale price of our common stock, as reported by OTC Markets, was $0.01per share. On September 21, 2016, there were 421holders of record of our common stock and 93,753,802 common shares outstanding. Because many of our shares of common stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.
Dividend Policy
We have never paid any cash dividends on our capital stock and do not anticipate paying any cash dividends on our common stock in the foreseeable future. We intend to retain future earnings to fund ongoing operations and future capital requirements of our business. Any future determination to pay cash dividends will be at the discretion of the Board and will be dependent upon our financial condition, results of operations, capital requirements and such other factors as the Board deems relevant.
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
On June 4, 2014, we 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 at a price at or above $1.60 per share for seven consecutive trading days. At May 31, 2015, the proceeds of $100,000 were included in common stock subscribed.
On June 4, 2014, we issued 240,000 shares for proceeds of $61,625 upon the exercise of warrants. At May 31, 2015, the proceeds of $32,625 were included in common stock subscribed.
On June 4, 2014, we issued 500,000 shares with a fair value of $270,000 to a consultant for services. As at May 31, 2015, the Company recorded the fair value of the 500,000 shares issuable of $270,000 as $5 of subscriptions receivable and $269,995 as additional paid in capital.
On July 11, 2014, we 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 at or above $1.60 per share for seven consecutive trading days.
On June 30, and July 17, 2014, we issued 40,000 common shares with a fair value of $20,000 pursuant to a consulting agreement.
On July 10, 2014, we issued 60,037 common shares for the conversion of $5,000 of loans payable and $4,019 of accrued interest by a lender. At May 31, 2015, the shares were included in common stock subscribed.
16
On August 22, 2014 we entered into an agreement with one consultant to procure investor relations services. Pursuant to the agreement the Company issued 12,000 shares of common stock to the consultant with a fair value of $5,880.
On August 25, 2014 we 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 aggregate proceeds of $3,000.
On September 9, 2014, we entered into a consulting agreement with a two month term with a consultant. Pursuant to the agreement, the Company issued 12,500 common shares with a fair value of $6,375 on September 15, 2014 and 12,500 common shares with a fair value of $5,000.
On October 15, 2014, we entered into a consulting agreement with a consultant. Pursuant to the agreement, the Company issued 10,000 common shares with a fair value of $4,500.
On November 5, 2014, we issued 150,000 units at $0.40 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 $0.60 per common share for a period of two years or 30 business days after the Company’s common stock trades at least one time per day at a price at or above $0.90 per share for five consecutive trading days.
On February 17, 2015, we issued a convertible note in the principal amount of $125,000. The note has a cash redemption premium of 130% of the principal amount in the first 90 days following the execution date, of 135% for days 90-120 following the execution date, and 140% after the 120th day. After 140 days cash redemption is only available upon approval by the holder. The note bears interest at 12% per annum and is convertible into common shares of the Company at the lower of a 42% discount to the lowest trading price during the previous 20 trading days to the date of conversion; or a 42% discount to the lowest trading price during the previous 20 trading days before the date the note was executed. On December 4, 2015, the holder of the convertible debenture entered into an agreement to sell and assign the remaining outstanding principal to a third party. We approved and are bound by the assignment and sale agreement. During the year ended May 31, 2016, the Company issued 10,195,218 shares of common stock upon the conversion of $125,000 of principal and $7,739 of interest. During the year ended May 31, 2016 the note was fully converted.
On February 24, 2015, we issued 500,000 units at $0.20 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 $0.60 per common share for a period of two years or 30 business days after the Company’s common stock trades at least one time per day at a price at or above $0.90 per share for seven consecutive trading days.
On May 21, 2015, we issued 138,889 common shares at $0.18 per share for proceeds of $25,000.On July 1, 2015, we issued 150,000 common shares with a fair value of $30,000 pursuant to a consulting agreement.
On June 1, 2015, we issued a convertible note in the principal amount of $100,000 due on demand on or after December 1, 2015. The note has a cash redemption premium of 130% of the principal amount in the first 90 days following the execution date, of 135% for days 90-120 following the execution date, and 140% after the 120th day. After 140 days cash redemption is only available upon approval by the holder. The note bears interest at 12% per annum and is convertible into common shares of the Company at the lower of a 42% discount to the lowest trading price during the previous 20 trading days to the date of conversion; or a 42% discount to the lowest trading price during the previous 20 trading days before the date the note was executed. In no event shall the conversion price be lower than $0.00001. On December 4, 2015, the holder of the convertible debenture entered into an agreement to sell and assign the remaining outstanding principal to a third party. We approved and are bound by the assignment and sale agreement. During the year ended May 31, 2016, we issued 6,303,475 shares of common stock upon the conversion of $45,000 of principal. At May 31, 2016, the note remained outstanding and past due.
On July 20, 2015, we issued 93,750 common shares at $0.16 per share for proceeds of $15,000.
17
On July 22, 2015, we issued 300,000 shares to settle $24,000 owed to a creditor. The shares had a fair value of $48,000 and the Company recorded a loss on settlement of debt of $24,000.
On August 24, 2015, we issued 322,872 shares of common stock upon the conversion of $15,000 of principal of the convertible note issued February 17, 2015 in the principal amount of $125,000.
On September 8, 2015, the Company issued a convertible note in the principal amount of $326,087. During the year ended May 31, 2016, the Company received the initial tranches of $280,000 net of a $26,087 original issue discount. The note bears interest at 10% per annum and is convertible into common shares of the Company at a 65% discount to the lowest trading price during the previous 20 trading days to the date of conversion; or a 65% discount to the lowest trading price during the previous 20 trading days before the date the note was executed.
On September 21, 2015, we issued 676,132 shares of common stock upon the conversion of $20,000 of principal of the convertible note issued February 17, 2015 in the principal amount of $125,000.
On October 22, 2015, we issued 1,581,778 shares of common stock upon the conversion of $20,000 of principal of the convertible note issued February 17, 2015 in the principal amount of $125,000.
On November 9, 2015, we issued 3,497,506 shares of common stock upon the conversion of $44,222 of principal of the convertible note issued February 17, 2015 in the principal amount of $125,000.
On December 22, 2015, we issued 1,000,000 shares of common stock upon the conversion of $10,000 of principal of the convertible note issued February 17, 2015 in the principal amount of $125,000.
On January 1, 2016, we issued 1,000,000 shares of common stock upon the conversion of $10,000 of principal of the convertible note issued February 17, 2015 in the principal amount of $125,000.
On January 27, 2016, we issued 1,538,462 shares of common stock upon the conversion of $5,778 of principal and $4,222 of accrued interest of the convertible note issued February 17, 2015 in the principal amount of $125,000.
On February 12, 2016, we issued 578,468 shares of common stock upon the conversion of $3,523 of accrued interest of the convertible note issued February 17, 2015 in the principal amount of $125,000.
On February 22, 2016, we issued 1,724,138 shares of common stock upon the conversion of $10,000 of principal of the convertible note issued June 1, 2015 in the principal amount of $100,000.
On March 10, 2016, we issued a convertible note in the principal amount of up to $166,666. During the year ended May 31, 2016, we received initial tranches of $65,000 net of a $16,666 original issue discount. The note bears interest at 10% per annum and is convertible into common shares of the Company at a 65% discount to the lowest trading price during the previous 20 trading days to the date of conversion; or a 65% discount to the lowest trading price during the previous 20 trading days before the date the note was executed.
On March 22, 2016, we issued 1,499,251 shares of common stock upon the conversion of $10,000 of principal of the convertible note issued June 1, 2015 in the principal amount of $100,000.
On March 29, 2016, we issued 2,218,017 shares of common stock upon the conversion of $15,000 of principal of the convertible note issued June 1, 2015 in the principal amount of $100,000.
On May 20, 2016, we issued 862,069 shares of common stock upon the conversion of $10,000 of principal of the convertible note issued June 1, 2015 in the principal amount of $100,000.
18
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
We did not purchase any of our registered securities during the period covered by this Annual Report.
ITEM 6 – SELECTED FINANCIAL DATA
Not required under Regulation S-K for “smaller reporting companies.”
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results of Operations includes a number of forward-looking statements that reflect Management's current views with respect to future events and financial performance. You can identify these statements by forward-looking words such as “may” “will,” “expect,” “anticipate,” “believe,” “estimate” and “continue,” or similar words. Those statements include statements regarding the intent, belief or current expectations of us and members of its management team as well as the assumptions on which such statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements.
Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the Securities and Exchange Commission. Important factors known to us could cause actual results to differ materially from those in forward-looking statements. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in the future operating results over time. We believe that its assumptions are based upon reasonable data derived from and known about our business and operations and the business and operations of the Company. No assurances are made that actual results of operations or the results of our future activities will not differ materially from its assumptions. Factors that could cause differences include, but are not limited to, expected market demand for the Company’s services, fluctuations in pricing for materials, and competition.
Business Overview
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 have acquired or licensed technologies from third parties that require further development before they can be brought to market. We are also developing 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 have also entered into formal relationships with consultants, contractors, retailers and manufacturers who specialize in the areas of environmental sustainability in order to carry out our business strategy.
We have acquired and own a process for the electro-reduction of carbon dioxide (“ERC”) and have the exclusive world license for a mixed-reactant fuel cell (“MRFC”). We are developing these technologies toward commercial applications.
19
In the past, we have contracted out our development work to various laboratories. From July 1, 2014 until June 30, 2016, we carried out research and development on our ERC and MRFC technologies in our own internal laboratory with our own staff in Vancouver, BC. These activities include: experimentation to improve the process performance; process and economic modeling to optimize the costs of a commercial system; design and simulation of pilot systems for technology demonstration and validation; business development activities such as the establishment of strategic and technology development partners; and the design and fabrication of laboratory prototypes, among others. Due to the expiration of our laboratory lease in June, 2016,and to our current working capital, we have decided to outsource any required large-scale laboratory work from July, 2016 through June, 2017.
Current trends are positive for the company, as government regulation, public sentiment and industrial players increasingly support technological solutions with reduced environmental impacts. Specifically, regulations on carbon emissions (such as the Canada’s recent decision to adopt a national carbon tax or cap-and-trade regime, or the US EPA’s pending Clean Power Plan) are placing costs or limitations on the amount of CO2 that emitters can release into the atmosphere. The two technologies that currently make up our portfolio both directly address CO2 emissions and contribute to their reduction.
Results of Operations
Fiscal year Ended May 31, 2016Compared to Fiscal year Ended May 31, 2015
The following summary of our results of operations should be read in conjunction with our audited financial statements for the years ended May 31, 2016and 2015.
Our operating results for the years ended May 31, 2016and 2015are summarized as follows:
|
| Year Ended |
| |||
|
| May 31, |
| |||
|
| 2016 |
|
| 2015 |
|
Revenue | $ | 70,298 |
| $ | 198,908 |
|
Operating Expenses | $ | 922,863 |
| $ | (2,110,013) |
|
Other Income (Expense) | $ | (1,092,000) |
| $ | (378,926) |
|
Net Loss | $ | (1,944,565) |
| $ | (2,215,621) |
|
Revenue
Our revenue for the year ended May 31, 2016 was 70,295, compared to our revenue for the year ended May 31, 2015, which was $198,908, representing approximately a 59% decrease. During the year ended May 31, 2016, revenue decreased because the contracted research project that we are conducting for our client Alstom advanced into a new phase (from Phase 2 to Phase 3). Phase 3 of this project has a smaller budget than Phase 2 due to reduced research activities, and as such, our revenue derived from this project has reduced accordingly.
20
Operating Expenses
Our operating expenses for the years ended May 31, 2016 and May 31, 2015are outlined in the table below:
|
| Year Ended |
| |||
|
| May 31, |
| |||
|
| 2016 |
|
| 2015 |
|
Consulting and advisory | $ | 195,456 |
| $ | 442,408 |
|
Depreciation and amortization | $ | 27,908 |
| $ | 40,769 |
|
Foreign exchange loss (gain) | $ | (522) |
| $ | (46,123) |
|
General and administrative | $ | 222,554 |
| $ | 559,606 | ) |
Management fees | $ | 198,023 |
| $ | 280,950 |
|
Professional fees | $ | 141,859 |
| $ | 133,836 |
|
Research and development | $ | 137,615 |
| $ | 698,567 |
|
TOTAL | $ | 922,863 |
| $ | 2,110,013 |
|
The decrease in operating expenses for the year ended May 31, 2016, compared to the same period in fiscal 2015, was mainly due to decreases in research and development, consulting and advisory fees, management fees and general and administrative expenses, all of which resulted from cost-controlling measures implemented by our management to accommodate available working capital. 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, 2016, our total current assets were $13,266 and our total current liabilities were $2,570,644, resulting in a working capital deficit of $2,557,378 compared to working capital deficit of $1,358,296 as at May 31, 2015.
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, |
|
|
| 2016 |
|
| 2015 |
|
Net Cash Used in Operating Activities | $ | (463,370 | ) | $ | (1,192,006 | ) |
Net Cash Used In Investing Activities | $ | (16,748 | ) | $ | (61,773 | ) |
Net Cash Provided by Financing Activities | $ | 473,791 |
| $ | 329,339 |
|
Cash (decrease) increase during the year | $ | (6,327 | ) | $ | (924,440 | ) |
21
The decrease in cash that we experienced during fiscal 2016as compared to the decrease of cash during fiscal 2015 was primarily due to working capital requirements which, in spite of cost saving measures, continued to exceed our available capital resources. This was offset in part by an increase in net cash provided by financing activities during fiscal 2016, during which time we raised $473,791 from financing activities compared to $329,339 in the prior year. We expect that our total expenses will increase over the next year as we increase our business operations, which is subject to raising additional funds, for which we currently have no commitments. 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, subject to raising additional funds, we plan to primarily concentrate on commercializing our ERC technology and associated projects.
Description | Estimated |
Research and Development | 250,000 |
Consulting Fees | 125,000 |
Commercialization of ERC | 3,000,000 |
Shareholder communication and awareness | 200,000 |
Professional Fees | 200,000 |
Wages and Benefits | 200,000 |
Management Fees | 150,000 |
Contingency | 375,000 |
Total | 4,500,000 |
In order to fully carry out our business plan, we need additional financing of approximately $4,500,000for the next 12 months, which amount includes a contingency budget of $375,000. 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.
22
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 64.55% owned and Mantra Energy Alternatives Ltd., which is 88.21% 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.
23
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.
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
We do not expect the adoption of any 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
Not required under Regulation S-K for “smaller reporting companies.”
24
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MANTRA VENTURE GROUP LTD.
Report of Independent Registered Public Accounting Firm | F-2 |
|
|
Consolidated balance sheets as of May 31, 2016 and 2015 | F-3 |
|
|
Consolidated statements of operations for the years ended May 31, 2016 and 2015 | F-4 |
|
|
Consolidated statements of stockholders’ equity (deficit) for the years ended May 31, 2016 and 2015 | F-5 |
|
|
Consolidated statements of cash flows for the years ended May 31, 2016 and 2015 | F-7 |
|
|
Notes to consolidated financial statements | F-9 – F-27 |
F-1
![[mantra10kmay312016foraudi002.jpg]](mantra10kmay312016foraudi002.jpg)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Mantra Venture Group Ltd.
We have audited the accompanying consolidated balance sheets of Mantra Venture Group Ltd. as of May 31, 2016 and 2015, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for each of the years in the two year period ended May 31, 2016. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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 consolidated 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 audits provide 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 Mantra Venture Group Ltd. as of May 31, 2016 and 2015, and the results of its operations and its cash flows for each of the years in the two year period ended May 31, 2016, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated 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 incurred accumulated losses and a working capital deficit as of May 31, 2016 which raises substantial doubt about its ability to continue as a going concern. Management’s plans concerning these matters are also described in the footnotes to the consolidated financial statements. The consolidated 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 28, 2016
![[mantra10kmay312016foraudi003.jpg]](mantra10kmay312016foraudi003.jpg)
F-2
MANTRA VENTURE GROUP LTD.
Consolidated balance sheets
(Expressed in U.S. dollars)
| May 31 | May 31, |
| 2016 | 2015 |
| $ | $ |
|
|
|
ASSETS |
|
|
Current assets |
|
|
Cash | 1,119 | 7,446 |
Accounts receivable | 7,358 | 25,527 |
Deferred finance costs | - | 7,085 |
Prepaid expenses and deposits | 4,789 | 126,146 |
|
|
|
Total current assets | 13,266 | 166,204 |
Deposit | 8,000 | 8,000 |
Restricted cash | 14,519 | 20,734 |
Property and equipment, net | 72,627 | 90,205 |
Intangible assets, net | 62,615 | 54,577 |
Total assets | 171,027 | 339,720 |
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT |
|
|
Current liabilities |
|
|
Accounts payable and accrued liabilities | 810,575 | 613,875 |
Due to related parties | 154,560 | 112,193 |
Loans payable | 199,108 | 190,106 |
Obligations under capital lease | 8,123 | 17,325 |
Convertible debentures (net of discount of $247,563 and $189,520, respectively) | 620,231 | 237,333 |
Derivative liability | 778,047 | 353,668 |
Total current liabilities | 2,570,644 | 1,524,500 |
Obligations under capital lease | 3,308 | - |
Total liabilities | 2,573,952 | 1,524,500 |
|
|
|
Stockholders' 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: 275,000,000 shares, par value $0.00001 |
|
|
Issued and outstanding: 88,559,024 ( 2015 – 71,516,581) shares | 886 | 715 |
Additional paid-in capital | 11,163,514 | 10,462,265 |
Common stock subscribed | 99,742 | 74,742 |
Accumulated deficit | (13,430,793) | (11,529,916) |
Total Mantra Venture Group Ltd. stockholders’ deficit | (2,256,651) | (992,194) |
Non-controlling interest | (236,274) | (192,586) |
Total stockholders’ equity deficit | (2,402,925) | (1,184,780) |
Total liabilities and stockholders’ deficit | 171,027 | 339,720 |
(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 May 31, | Year Ended May 31, |
|
| 2016 $ | 2015 $ | |
|
|
|
|
|
Revenue |
|
| 70,298 | 198,908 |
|
|
|
|
|
Cost of goods sold |
|
| – | – |
|
|
|
|
|
Gross profit |
|
| 70,298 | 198,908 |
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
Consulting and advisory |
|
| 195,456 | 442,408 |
Depreciation and amortization |
|
| 27,908 | 40,769 |
Foreign exchange loss (gain) |
|
| (552) | (46,123) |
General and administrative |
|
| 222,554 | 559,606 |
Management fees |
|
| 198,023 | 280,950 |
Professional fees |
|
| 141,859 | 133,836 |
Research and development |
|
| 137,615 | 698,567 |
|
|
|
|
|
Total operating expenses |
|
| 922,863 | 2,110,013 |
|
|
|
|
|
Loss before other expense |
|
| (852,565) | (1,911,105) |
|
|
|
|
|
Other income (expense) |
|
|
|
|
|
|
|
|
|
(Loss) gain on settlement of debt |
|
| (24,000) | 1,759 |
Accretion of discounts on convertible debentures |
|
| (439,465) | (110,842) |
Loss on change in fair value of derivatives |
|
| (401,870) | (228,668) |
Interest expense |
|
| (226,665) | (41,175) |
|
|
|
|
|
Total other income expense |
|
| (1,092,000) | (378,926) |
|
|
|
|
|
Net loss for the year |
|
| (1,944,565) | (2,290,031) |
|
|
|
|
|
Less: net loss attributable to the non-controlling interest |
|
| 43,688 | 74,410 |
|
|
|
|
|
Net loss attributable to Mantra Venture Group Ltd. |
|
| (1,900,877) | (2,215,621) |
|
|
|
|
|
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 |
|
| 78,327,306 | 70,847,805 |
(The accompanying notes are an integral part of these consolidated financial statements)
F-4
MANTRA VENTURE GROUP LTD.
Consolidated statements of stockholder’s equity (deficit)
For the Years Ended May 31, 2016and 2015
F-5
Stock Issued for Cash |
|
|
|
|
|
|
|
|
Stock issued at $0.16 per share | 93,750 | 1 | 14,999 | – | – | – | – | 15,000 |
|
|
|
|
|
|
|
|
|
Shares issued for services | 150,000 | 2 | 29,999 | – | – | – | – | 30,001 |
|
|
|
|
|
|
|
|
|
Shares issued for settlement of debt | 300,000 | 3 | 47,997 | – | – | – | – | 48,000 |
|
|
|
|
|
|
|
|
|
Shares issued upon conversion of convertible debt | 16,498,693 | 165 | 591,828 | – | – | – | – | 591,993 |
|
|
|
|
|
|
|
|
|
Subscriptions received | – | – | – | 25,000 | – | – | – | 25,000 |
|
|
|
|
|
|
|
|
|
Fair value of stock options granted | – | – | 16,426 | – | – | – | – | 16,426 |
|
|
|
|
|
|
|
|
|
Net loss for the year | – | – | – | – | – | (1,900,877) | (43,688) | (1,900,877) |
|
|
|
|
|
|
|
|
|
Balance, May 31, 2016 | 88,559,024 | 886 | 11,163,514 | 99,742 | – | (13,430,793) | (236,274) | (2,402,925) |
(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 May 31, 2016 $ | Year Ended May 31, 2015 $ |
Operating activities |
|
|
|
|
|
Net loss | (1,944,565) | (2,290,031) |
|
|
|
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
(Gain) loss on change in fair value of derivative liability | (179,807) | 193,424 |
Amortization of finance costs | 7,085 | 2,415 |
Accretion of discounts on convertible debentures | 439,465 | 110,842 |
Depreciation and amortization | 27,908 | 40,769 |
Foreign exchange loss (gain) | (4,842) | (8,062) |
Initial derivative expenses | 581,677 | 35,244 |
Shares issued for services | 30,001 | 41,754 |
Interest related to cash redemption premium on convertible notes | 123,188 | - |
Stock-based compensation on options and warrants | 16,426 | 322,005 |
Loss (gain) on settlement of debt | 24,000 | (1,759) |
|
|
|
Changes in operating assets and liabilities: |
|
|
Amounts receivable | 18,169 | 138,064 |
Prepaid expenses and deposits | 121,357 | 370,551 |
Accounts payable and accrued liabilities | 234,200 | (99,421) |
Due to related parties | 42,367 | (47,801) |
|
|
|
Net cash used in operating activities | (463,370) | (1,192,006) |
|
|
|
Investing activities |
|
|
|
|
|
Purchase of property and equipment | (4,587) | (28,295) |
Investment in intangible assets | (12,161) | (33,478) |
|
|
|
Net cash used in investing activities | (16,748) | (61,773) |
|
|
|
Financing activities |
|
|
|
|
|
Repayment of capital lease obligations | (6,798) | (10,145) |
Repayment of loan payable | (50,000) | (54,807) |
Proceeds from notes payable | 63,589 | – |
Proceeds from issuance of convertible debentures | 427,000 | 125,000 |
Proceeds from stock subscribed | 25,000 | 23,791 |
Finance costs | – | (9,500) |
Proceeds from the issuance of options and warrants | – | 10,000 |
Proceeds from issuance of common stock and subscriptions received | 15,000 | 245,000 |
|
|
|
Net cash provided by financing activities | 473,791 | 329,339 |
|
|
|
Change in cash | (6,327) | (924,440) |
|
|
|
Cash, beginning of year | 7,446 | 931,886 |
|
|
|
Cash, end of year | 1,119 | 7,446 |
|
|
|
F-7
Non-cash investing and financing activities: |
|
|
Common stock issued to relieve common stock subscribed | – | 100,000 |
Common stock issued to settle accounts payable and debt | – | 9,019 |
Common stock issued for conversion of notes payable | 591,992 | – |
Original issue discounts | 42,753 | – |
Debt issuance cost | 18,000 | – |
Original debt discount against derivative liability | 436,755 | 125,000 |
Common stock issued on exercise of options | – | 3,001 |
Warrants exercised for common stock and subscriptions receivable | – | 51,625 |
Common stock issued for common stock receivable | – | 2,998 |
|
|
|
Supplemental disclosures: |
|
|
Interest paid | 9,141 | 8,668 |
Income taxes paid | – | – |
(The accompanying notes are an integral part of these consolidated financial statements)
F-8
MANTRA VENTURE GROUP LTD.
Notes to the consolidated financial statements
May 31, 2016
(Expressed in U.S. dollars)
1.
Organization and Going Concern
Mantra Venture Group Ltd. (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, 2016, the Company has an accumulated loss of $13,430,793, a working capital deficit of $2,557,378. 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 64.55% owned and Mantra Energy Alternatives Ltd., which is 88.21% 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, 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
F-9
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.
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. The Company had no allowance for doubtful accounts as of May 31, 2016 and 2015.
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.
F-10
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.
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, 2016 and 2015, 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 2016. 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, 2016 and 2015, 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.
Research and Development Costs
Research and development costs are expensed as incurred.
F-11
l.
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.
m.
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, 2016, the Company had 56,260,229 (2015 – 8,838,205) dilutive potential shares outstanding.
n.
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, 2016 and 2015, 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.
o.
Recent Accounting Pronouncements
In April 2015, the FASB issued ASU 2015-03-Simplifying the Presentation of Debt Issuance Costs. This standard amends existing guidance to require the presentation of debt issuance costs in the balance sheet as a deduction from the carrying amount of the related debt liability instead of a deferred charge. It is effective for annual reporting periods beginning after December 15, 2015, but early adoption is permitted. The Company has early adopted this standard. The impact of the early adoption of this standard on the consolidated financial statements for the year ended May 31, 2016, has been a reduction of deferred financing costs, current assets and total assets of $6,352 (2015 - $7,085), and a corresponding reduction of convertible debentures, current liabilities and total liabilities of $6,352 (2015 - $7,085).
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or result of operations.
F-12
p.
Fair Value Measurements
The Company measures and discloses the estimated fair value of financial assets and liabilities using the fair value hierarchy prescribed by US generally accepted accounting principles. The fair value hierarchy has three levels, which are based on reliable available inputs of observable data. The hierarchy requires the use of observable market data when available. The three-level hierarchy is defined as follows:
Level 1 – quoted prices for identical instruments in active markets.
Level 2 – quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model derived valuations in which significant inputs and significant value drivers are observable in active markets; and.
Level 3 – fair value measurements derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
Financial instruments consist principally of cash and cash equivalents, accounts receivable, restricted cash, accounts payable, loans payable and convertible debentures. Derivative liabilities are determined based on “Level 3” inputs, which are significant and unobservable and have the lowest priority. There were no transfers into or out of “Level 3” during the years ended May 31, 2016 and 2015. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective relatively short maturity dates or durations.
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial statement. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. See Note 10 for additional information.
q.
Derivative Liabilities
The Company accounts for derivative instruments in accordance with ASC Topic 815, “Derivatives and Hedging” and all derivative instruments are reflected as either assets or liabilities at fair value in the balance sheet. The Company uses estimates of fair value to value its derivative instruments. Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between willing and able market participants. In general, the Company’s policy in estimating fair values is to first look at observable market prices for identical assets and liabilities in active markets, where available. When these are not available, other inputs are used to model fair value such as prices of similar instruments, yield curves, volatilities, prepayment speeds, default rates and credit spreads, relying first on observable data from active markets. Depending on the availability of observable inputs and prices, different valuation models could produce materially different fair value estimates. The values presented may not represent future fair values and may not be realizable. The Company categorizes its fair value estimates in accordance with ASC 820 based on the hierarchical framework associated with the three levels of price transparency utilized in measuring financial instruments at fair value as discussed above. As at May 31, 2016 and 2015, the Company had a $778,047 and $353,668 derivative liability, respectively.
F-13
3.
Restricted Cash
Restricted cash represents cash pledged as security for the Company’s credit cards.
4.
Property and Equipment
| Cost $ | Accumulated depreciation $ | May 31, 2016 Net carrying value $ | May 31, 2015 Net carrying value $ |
|
|
|
|
|
Furniture and equipment | 2,496 | 957 | 1,539 | 2,039 |
Computer | 5,341 | 5,341 | – | 829 |
Research equipment | 143,129 | 86,474 | 56,655 | 69,739 |
Vehicles under capital lease | 72,690 | 58,257 | 14,433 | 17,598 |
|
|
|
|
|
| 223,656 | 151,029 | 72,627 | 90,205 |
During the year ended May 31, 2016, the Company recorded $25,109 (2015 - $37,504) of amortization expense.
5.
Intangible Assets
| Cost $ | Accumulated amortization $ | May 31, 2016 Net carrying value $ | May 31, 2015 Net carrying value $ |
|
|
|
|
|
Patents | 70,789 | 8,174 | 62,615 | 54,577 |
During the year ended May 31, 2016, the Company recorded $4,123 (2015 - $3,265) of amortization expense.
Estimated Future Amortization Expense:
|
|
|
For year ending May 31, 2017 | 4,738 |
|
For year ending May 31, 2018 | 4,738 |
|
For year ending May 31, 2019 | 4,738 |
|
For year ending May 31, 2020 | 4,738 |
|
For year ending May 31, 2021 | 4,738 |
|
6.
Related Party Transacations
a)
During the year ended May 31, 2016, the Company incurred management fees of $129,799 (2015 - $162,449) to the President of the Company.
b)
During the year ended May 31, 2016, the Company incurred management fees of $46,616 (2015 - $54,760) to the spouse of the President of the Company.
c)
During the year ended May 31, 2016, the Company incurred research and development fees of $28,920 (2015 - $76,065) to a director of the Company.
d)
The Company recorded $21,609 of management fees for the vesting of options previously granted to officers and directors.
F-14
e)
As at May 31, 2016, the Company owes a total of $136,722 (2015 - $93,418) to the President of the Company and his spouse, and a company controlled by the President of the Company which is non-interest bearing, unsecured, and due on demand.
f)
As at May 31, 2016, the Company owes $17,837 (2015 - $18,775) 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, 2016, the amount of $48,285 (Cdn$63,300) (2015 - $50,738 (Cdn$63,300)) is owed to a non-related party which is non-interest bearing, unsecured, and due on demand.
(b)
As at May 31, 2016, the amount of $17,500 (2015 - $17,500) is owed to a non-related party which is non-interest bearing, unsecured, and due on demand.
(c)
As at May 31, 2016, the amount of $15,000 (2015 - $15,000) is owed to a non-related party which is non-interest bearing, unsecured, and due on demand.
(d)
As at May 31, 2016, the amount of $14,413 (Cdn$18,895) (2015 -$15,171 (Cdn$18,895)) is owed to a non-related party, which is non-interest bearing, unsecured, and due on demand.
(e)
As at May 31, 2016, the amounts of $7,500 and $28,224 (Cdn$37,000) (2015 - $7,500 and $29,707, (Cdn$37,000)) are owed to a non-related party which are non-interest bearing, unsecured, and due on demand.
(f)
As at May 31, 2016, the amount of $4,490 (2015- $4,490) is owed to a non-related party which is non-interest bearing, unsecured, and due on demand.
(g)
During the year ended May 31, 2016, the amounts of $13,696 (Cdn$18,066) (2015 - $Nil) was advanced by a non-related party. The amount owing is non-interest bearing, unsecured, and due on demand.
(h)
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.
(i)
On August 4, 2015, the Company borrowed $50,000 pursuant to a promissory note. The note was due on September 4, 2015. The note bears interest at 120% per annum prior September 4, 2015, and at 180% per annum after September 4, 2015. The holder of the note was also granted the rights to buy 100,000 shares of the Company’s common stock at a price of $0.15 per share until August 4, 2017. During the year ended May 31, 2016, the Company repaid the $50,000 note and $1,200 of accrued interest remains owing.
The rights issued with the note qualified for derivative accounting under ASC 815-15 “Derivatives and Hedging”. The initial fair value of the warrants of $9,755 resulted in a discount to the note payable of $9,755. During the year ended May 31, 2016, the Company recorded accretion of $9,755.
F-15
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. In August 2015, the July 31, 2012 lease was renewed for an additional two years and on December 28, 2015, the December 21, 2012 lease was also renewed for an additional two years. 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, 2016:
Year ending May 31: |
| $ |
2017 |
| 9,182 |
2018 |
| 3,444 |
|
|
|
Net minimum lease payments |
| 12,626 |
Less: amount representing interest payments |
| (1,195) |
|
|
|
Present value of net minimum lease payments |
| 11,431 |
Less: current portion |
| (8,123) |
|
|
|
Long-term portion |
| 3,308 |
At the end of the leases, the Company has the option to purchase the two vehicles for $1 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.
F-16
On January 19, 2012, the Company entered into a settlement agreement with one of the debenture holders to settle a $50,000 convertible debenture and $122,535 in accounts payable and accrued interest with the debt holder. Pursuant to the agreement, the debt holder agreed to reduce the debt to Cdn$100,000 on the condition that the Company pays the amount of Cdn$2,500 per month for 40 months, beginning March 1, 2012 and continuing on the first day of each month thereafter.
On July 18, 2012, the Company entered into a settlement agreement with the $150,000 debenture holder. Pursuant to the settlement agreement, the lender 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. On December 4, 2015, the holder of the convertible debenture entered into an agreement to sell and assign the remaining outstanding principal to a third party. The Company approved and is bound by the assignment and sale agreement.
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 because the fair value of the old debt and new debt remained the same. 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. During the year ended May 31, 2015, the Company repaid $54,808 decreasing the carrying value to $59,853. At May 31, 2016, the other remaining debenture of $59,853 remained outstanding and past due.
(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, 2016, the carrying value of the convertible promissory note was $10,000 and the note remained outstanding and in default.
F-17
(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, 2016, the carrying value of the convertible promissory note was $58,000 and the note remained outstanding and in default.
(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, 2016, the carrying value of the convertible promissory note was $94,000 and the note remained outstanding and in default.
(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, 2016, the carrying value of the convertible promissory note was $15,000 and the note remained outstanding and in default.
(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, 2016, the carrying value of the convertible promissory note was $15,000 and the note remained outstanding and in default.
(g)
On February 17, 2015, the Company issued a convertible note in the principal amount of $125,000. The note has a cash redemption premium of 130% of the principal amount in the first 90 days following the execution date, of 135% for days 90-120 following the execution date, and 140% after the 120th day. After 140 days cash redemption is only available upon approval by the holder. The note bears interest at 12% per annum and is convertible into common shares of the Company at the lower of a 42% discount to the lowest trading price during the previous 20 trading days to the date of conversion; or a 42% discount to the lowest trading price during the previous 20 trading days before the date the note was executed. On December 4, 2015, the holder of the convertible debenture entered into an agreement to sell and assign the remaining outstanding principal to a third party. The Company approved and is bound by the assignment and sale agreement.
F-18
The embedded conversion option qualifies for derivative accounting and bifurcation under ASC 815-15 “Derivatives and Hedging”. The initial fair value of the conversion feature of $310,266 resulted in a discount to the note payable of $100,000 and the recognition of a loss on derivatives of $210,266. During the year ended May 31, 2016, the Company issued 6,303,475 shares of common stock upon the conversion of $45,000 of principal. During the year ended May 31, 2016, the Company recorded accretion of $100,000 and recorded the cash redemption premium of $26,250 increasing the carrying value of the note to $81,250. At May 31, 2016, the note remained outstanding and past due.
(h)
On June 1, 2015, the Company issued a convertible note in the principal amount of $100,000 due on demand on or after December 1, 2015. The note has a cash redemption premium of 130% of the principal amount in the first 90 days following the execution date, of 135% for days 90-120 following the execution date, and 140% after the 120th day. After 140 days cash redemption is only available upon approval by the holder. The note bears interest at 12% per annum and is convertible into common shares of the Company at the lower of a 42% discount to the lowest trading price during the previous 20 trading days to the date of conversion; or a 42% discount to the lowest trading price during the previous 20 trading days before the date the note was executed. In no event shall the conversion price be lower than $0.00001. On December 4, 2015, the holder of the convertible debenture entered into an agreement to sell and assign the remaining outstanding principal to a third party. The Company approved and is bound by the assignment and sale agreement.
The embedded conversion option qualifies for derivative accounting and bifurcation under ASC 815-15 “Derivatives and Hedging”. The initial fair value of the conversion feature of $310,266 resulted in a discount to the note payable of $100,000 and the recognition of a loss on derivatives of $210,266. During the year ended May 31, 2016, the Company issued 6,303,475 shares of common stock upon the conversion of $45,000 of principal. During the year ended May 31, 2016, the Company recorded accretion of $100,000, increasing the carrying value of the note to $55,000.At May 31, 2016, the note remained outstanding and past due.
(i)
On September 8, 2015, the Company issued a convertible note in the principal amount of $326,087. During the year ended May 31, 2016, the Company received the initial tranches of $280,000 net of a $26,087 original issue discount. The note bears interest at 10% per annum and is convertible into common shares of the Company at a 65% discount to the lowest trading price during the previous 20 trading days to the date of conversion; or a 65% discount to the lowest trading price during the previous 20 trading days before the date the note was executed.
The embedded conversion option qualifies for derivative accounting and bifurcation under ASC 815-15 “Derivatives and Hedging”. The initial fair value of the conversion feature of $479,626 resulted in a discount to the note payable of $280,000 and the recognition of a loss on derivatives of $204,626. During the year ended May 31, 2016, the Company recorded accretion of $120,175 and recorded a default fee of $76,522 increasing the carrying value of the note to $190,696.
F-19
(j)
On March 10, 2016, the Company issued a convertible note in the principal amount of up to $166,666. During the year ended May 31, 2016, the Company received initial tranches of $65,000 net of a $16,666 original issue discount. The note bears interest at 10% per annum and is convertible into common shares of the Company at a 65% discount to the lowest trading price during the previous 20 trading days to the date of conversion; or a 65% discount to the lowest trading price during the previous 20 trading days before the date the note was executed.
The embedded conversion option qualifies for derivative accounting and bifurcation under ASC 815-15 “Derivatives and Hedging”. The initial fair value of the conversion feature of $218,785 resulted in a discount to the note payable of $81,666 and the recognition of a loss on derivatives of $158,785. During the year ended May 31, 2016, the Company recorded accretion of $20,015, and recorded a default fee of $20,417increasing the carrying value of the note to $40,432.
10.
Derivative Liabilities
The embedded conversion option of the convertible debenture described in Note 9(g) contains a conversion feature that qualifies for embedded derivative classification. The fair value of the liability will be re-measured at the end of every reporting period and the change in fair value will be reported in the statement of operations as a gain or loss on derivative financial instruments.
Upon the issuance of the convertible note payable described in Note 9(g), the Company concluded that it only has sufficient shares to satisfy the conversion of some but not all of the outstanding convertible notes, warrants and options. The Company elected to reclassify contracts from equity with the earliest inception date first. As a result, none of the Company’s previously outstanding convertible instruments qualified for derivative reclassification, however, any convertible securities issued after the election, including the convertible note described in Notes 9(h), 9(i) and 9(j), and the rights described in Note 7(i) would qualify for treatment as derivative liabilities. The Company reassesses the classification of the instruments at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification.
The table below sets forth a summary of changes in the fair value of the Company’s Level 3 financial liabilities:
|
| May 31, 2016 |
| May 31, 2015 |
|
|
| ||
Balance at the beginning of year | $ | 353,668 | $ | – |
|
|
|
|
|
Original discount limited to proceeds of notes |
| 436,755 |
| 125,000 |
Fair value of derivative liabilities in excess of notes proceeds received |
| 581,677 |
| 35,244 |
Conversion of derivative liability |
| (414,246) |
| – |
Change in fair value of embedded conversion option |
| (179,807) |
| 193,424 |
|
|
|
| |
Balance at the end of the year | $ | 778,047 | $ | 353,668 |
F-20
The Company uses Level 3 inputs for its valuation methodology for the embedded conversion option liabilities as their fair values were determined by using the Black-Scholes option pricing model based on various assumptions. The model incorporates the price of a share of the Company’s common stock (as quoted on the Over the Counter Markets), volatility, risk free rate, dividend rate and estimated life. Significant changes in any of these inputs in isolation would result in a significant change in the fair value measurement. As required, these are classified based on the lowest level of input that is significant to the fair value measurement. The following table shows the assumptions used in the calculations:
| Expected Volatility | Risk-free Interest Rate | Expected Dividend Yield | Expected Life (in years) |
|
|
|
|
|
|
|
|
|
|
At issuance | 134-213% | 0.07-0.74% | 0% | 0.50-2.00 |
At May 31, 2016 | 180-225% | 0.34-0.69% | 0% | 0.27-1.18 |
11.
Common Stock
(a)
As at May 31, 2016 and 2015, 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.
(b)
As at May 31, 2016, the Company had received proceeds of $25,000 at $0.015 per unit for subscriptions for 1,666,666 units. Each unit consisted of one share of common stock and one share purchase warrant. Each whole share purchase warrant is exercisable at $0.03 per common share for a period of two years or 30 calendar 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 $0.15 per share for five consecutive trading days.
(c)
As at May 31, 2016 and 2015 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.
(d)
As at May 31, 2016 and 2015, 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.
(e)
On February 2, 2016, the Company revised its authorized share capital to increase the number of authorized common shares from 100,000,000 common shares with a par value of $0.00001, to 275,000,000 common shares with a par value of $0.00001.
F-21
Stock transactions during the year ended May 31, 2016:
(a)
On July 1, 2015, the Company issued 150,000 common shares with a fair value of $30,000 pursuant to a consulting agreement.
(b)
On July 20, 2015, the Company issued 93,750 common shares at $0.16 per share for proceeds of $15,000.
(c)
On July 22, 2015, the Company issued 300,000 shares to settle $24,000 owed to a creditor. The shares had a fair value of $48,000 and the Company recorded a loss on settlement of debt of $24,000.
(d)
On August 24, 2015, the Company issued 322,872 shares of common stock upon the conversion of $15,000 of principal of the convertible note described in Note 9(g).
(e)
On September 21, 2015, the Company issued 676,132 shares of common stock upon the conversion of $20,000 of principal of the convertible note described in Note 9(g).
(f)
On October 22, 2015, the Company issued 1,581,778 shares of common stock upon the conversion of $20,000 of principal of the convertible note described in Note 9(g).
(g)
On November 9, 2015, the Company issued 3,497,506 shares of common stock upon the conversion of $44,222 of principal of the convertible note described in Note 9(g)
(h)
On December 22, 2015, the Company issued 1,000,000 shares of common stock upon the conversion of $10,000 of principal of the convertible note described in Note 9(g)
(i)
On January 1, 2016, the Company issued 1,000,000 shares of common stock upon the conversion of $10,000 of principal of the convertible note described in Note 9(g).
(j)
On January 27, 2016, the Company issued 1,538,462 shares of common stock upon the conversion of $5,778 of principal and $4,222 of accrued interest of the convertible note described in Note 9(g).
(k)
On February 12, 2016, the Company issued 578,468 shares of common stock upon the conversion of $3,523 of accrued interest of the convertible note described in Note 9(g).
(l)
On February 22, 2016, the Company issued 1,724,138 shares of common stock upon the conversion of $10,000 of principal of the convertible note described in Note 9(h).
(m)
On March 22, 2016, the Company issued 1,499,251 shares of common stock upon the conversion of $10,000 of principal of the convertible note described in Note 9(h).
(n)
On March 29, 2016, the Company issued 2,218,017 shares of common stock upon the conversion of $15,000 of principal of the convertible note described in Note 9(h).
(o)
On May 20, 2016, the Company issued 862,069 shares of common stock upon the conversion of $10,000 of principal of the convertible note described in Note 9(h).
F-22
12.
Share Purchase Warrants
The following table summarizes the continuity of share purchase warrants:
| Number of warrants | Weighted average exercise price $ |
| ||
Balance, May 31, 2014 | 9,818,402 | 0.29 |
|
|
|
Issued | 1,183,333 | 0.69 |
Exercised | (240,000) | 0.26 |
Expired | (5,503,402) | 0.23 |
|
|
|
Balance, May 31, 2015 | 5,258,333 | 0.44 |
|
|
|
Issued | 1,766,667 | 0.04 |
|
|
|
Balance, May 31, 2016 | 7,025,000 | 0.34 |
As at May 31, 2016, the following share purchase warrants were outstanding:
Number of warrants | Exercise price $ | Expiry date |
|
|
|
150,000 | 0.60 | November 18, 2016 |
500,000 | 0.60 | February 27, 2017 |
333,333 | 0.80 | June 4, 2017 |
200,000 | 0.80 | July 11, 2017 |
1,000,000 | .03 | April 15, 2018 |
666,667 | .03 | May 4, 2018 |
100,000 | 0.15 | August 4, 2017 |
4,075,000 | 0.37 | April 10, 2019 |
|
|
|
7,025,000 |
|
|
13.
Stock Options
The following table summarizes the continuity of the Company’s stock options:
| Number | Weighted | Weighted average remaining contractual life (years) | Aggregate intrinsic value $ |
|
|
|
|
|
Outstanding, May 31, 2014 | 675,000 | 0.17 |
|
|
|
|
|
|
|
Granted | 1,350,000 | 0.18 |
|
|
Expired | (200,000) | 0.10 |
|
|
Exercised | (150,000) | 0.20 |
|
|
|
|
|
|
|
Outstanding, May 31, 2015 | 1,675,000 | 0.17 |
|
|
|
|
|
|
|
Granted | 350,000 | 0.03 |
|
|
Expired | (525,000) | 0.20 |
|
|
|
|
|
|
|
Outstanding, May 31, 2016 | 1,500,000 | 0.16 | 0.82 | – |
Exercisable, May 31, 2016 | 1,450,000 | 0.16 | 0.84 | – |
F-23
A summary of the changes of the Company’s non-vested stock options is presented below:
Non-vested stock options | Number of Options | Weighted Average Grant Date Fair Value |
|
| $ |
Non-vested at May 31, 2014 | – |
|
|
| |
Granted | 1,350,000 | 0.30 |
Vested | (800,000) | 0.35 |
|
| |
Non-vested at May 31, 2015 | 550,000 | 0.23 |
Granted | 350,000 | 0.03 |
Expired | (50,000) | 0.20 |
Vested | (800,000) | 0.14 |
|
|
|
Non-vested at May 31, 2016 | 50,000 | 0.30 |
During the year ended May 31, 2016, the Company recorded $16,426 related to the vesting of previously granted stock options. As at May 31, 2016, there was $nil of unrecognized compensation cost related to non-vested stock option agreements. This cost is expected to be recognized over a weighted average period of 0.13 years.
Additional information regarding stock options as of May 31, 2016 is as follows:
Number of options | Exercise price $ | Expiry date |
|
|
|
200,000 | 0.30 | July 17, 2016* |
200,000 | 0.10 | August 1, 2016* |
200,000 | 0.20 | November 1, 2016 |
150,000 | 0.20 | December 9, 2016 |
400,000 | 0.20 | March 16, 2017 |
350,000 | 0.03 | May 17, 2018 |
|
|
|
1,500,000 |
|
|
* Expired subsequently
F-24
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, 2016 |
| May 31, 2015 |
|
|
|
|
Risk-free interest rate | 0.72% |
| 0.57% |
Expected life (in years) | 2.00 |
| 1.98 |
Expected volatility | 146% |
| 113% |
During the year period ended May 31, 2016, the Company recorded stock-based compensation of $16,426 (2015 - $322,005) for stock options granted.
The weighted average fair value of the stock options granted for the year period ended May 31, 2016 was $0.20 (2015 - $0.30) per option.
14.
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 (accrued) |
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-25
(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 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, 2016:
Fiscal year ending May 31: |
| $ |
2017 |
| 2,047 |
|
| 2,047 |
(d)
On November 15, 2013, the Company entered into a second settlement agreement with the $150,000 debenture holder described in Note 9(a). Pursuant to the second amendment, on November 15, 2013, the Company agreed to make monthly payments of $10,000 on the outstanding principal and interest. Payments were made until December 2014, but have not been made after. The plaintiff is seeking relief of amounts owed along with 10% interest per annum, from the date of judgments. All amounts are recorded in these financial statements.
(e)
On September 3, 2015, a former prospective employee of the Company delivered a Notice of Claim seeking judgment against the Company for approximately $11,400. The Company believes the claim is without merit and intends to defend itself.
(f)
On March 14, 2016, the Company entered into a consulting agreement. Pursuant to the agreement, the Company will pay the consultant $10,000 per month ($20,000 paid) and issue 550,000 shares per month for a period of three months. At May 31, 2016, the Company had not issued the shares to the consultant due to non-performance.
F-26
15.
Income Taxes
The Company has net operating losses carried forward of $11,093,927 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:
| 2016 $ | 2015 $ |
|
|
|
Income tax recovery at statutory rate | (646,298) | (778,611) |
|
|
|
Permanent differences and other | 309,999 | 239,113 |
Valuation allowance change | 336,299 | 539,498 |
|
|
|
Provision for income taxes | – | – |
The significant components of deferred income tax assets and liabilities as at May 31, 2016 and 2015 are as follows:
| 2016 $ | 2015 $ |
|
|
|
Net operating losses carried forward | 3,771,935 | 3,435,636 |
|
|
|
Valuation allowance | (3,771,935) | (3,435,636) |
|
|
|
Net deferred income tax asset | – | – |
16.
Subsequent Events
(a)
On July 1, 2016, the Company issued 2,368,322 shares of common stock upon the conversion of $15,000 of principal of the convertible note described in Note 9(h).
(b)
On August 15, 2016, the Company issued 2,826,456 shares of common stock upon the conversion of $10,000 of principal of the convertible note described in Note 9(h).
(c)
Subsequent to May 31, 2016, a total of 400,000 stock options with exercise prices ranging from $0.10 per share to $0.30 per share expired unexercised.
F-27
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
There were no disagreements related to accounting principles or practices, financial statement disclosure, internal controls or auditing scope or procedure during the two fiscal years and interim periods.
ITEM 9A – CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures.
Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Based on management’s evaluation, our chief executive officer and chief financial officer concluded that, as a result of the material weaknesses described below, as of May 31, 2016, our disclosure controls and procedures are not designed at a reasonable assurance level and are not effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. The material weaknesses, which relate to internal control over financial reporting, that were identified are:
| a) | Due to our small size, we do not have a proper segregation of duties in certain areas of our financial reporting process. The areas where we have a lack of segregation of duties include cash receipts and disbursements, approval of purchases and approval of accounts payable invoices for payment. This control deficiency, which is pervasive in nature, results in a reasonable possibility that material misstatements of the consolidated financial statements will not be prevented or detected on a timely basis; |
|
|
|
| b) | We do not have a functioning audit committee. As a result, there is ineffective independent oversight in the establishment and monitoring of required internal controls and procedures; and |
|
|
|
| c) | We do not have any formally adopted internal controls surrounding its cash and financial reporting procedures. |
We are committed to improving our financial organization. In addition, we will look to increase our personnel resources and technical accounting expertise within the accounting function to resolve non-routine or complex accounting matters. In addition, when funds are available, we will take the following action to enhance our internal controls: Hiring additional knowledgeable personnel with technical accounting expertise to further support our current accounting personnel, which management estimates will cost approximately $100,000 per annum. As our operations are relatively small and we continue to have net cash losses each quarter, we do not anticipate being able to hire additional internal personnel until such time as our operations are profitable on a cash basis or until our operations are large enough to justify the hiring of additional accounting personnel. We currently engage an outside accounting firm to assist us in the preparation of our consolidated financial statements and anticipate doing so until we have a sufficient number of internal accounting personnel to achieve compliance. As necessary, we will engage consultants in the future in order to ensure proper accounting for our consolidated financial statements.
25
Due to the fact that our internal accounting staff consists solely of a Chief Executive Officer, who functions as our Principal Accounting Officer, additional personnel will also ensure the proper segregation of duties and provide more checks and balances within the department. Additional personnel will also provide the cross training needed to support us if personnel turn over issues within the department occur. We believe this will greatly decrease any control and procedure issues we may encounter in the future.
Management’s report on internal control over financial reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f). Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was not effective as of May 31, 2016for the reasons discussed above.
This annual report does not include an attestation report by Sadler, Gibb & Associates, L.L.C., our independent registered public accounting firm regarding internal control over financial reporting. As a smaller reporting company, our management's report was not subject to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management's report in this annual report.
Changes in internal control over financial reporting.
There were no changes in our internal control over financial reporting that occurred during the quarter ended May 31, 2016that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B – OTHER INFORMATION
None.
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 |
Larry Kristof | President, Chief Executive Officer, Chief Financial Officer, Secretary, Treasurer and Director | 44 | January 22, 2007 |
Jonathan Michael Boughen | Director | 55 | February 28, 2011 |
Patrick Dodd | VP of Business Development and Director | 28 | May 7, 2013 |
26
Our directors serve until our next annual shareholder meeting or until his successor is elected who accepts the position. Officers hold their positions at the pleasure of the board of directors. There are no arrangements, agreements or understandings between non-management security holders and management under which non-management security holders may directly or indirectly participate in or influence the management of our affairs.
Larry Kristof - President, Chief Executive Officer, Chief Financial Officer, Secretary, Treasurer and Director
Larry Kristof has been our president, chief executive officer, secretary, treasurer and a director since our inception on January 22, 2007 and was appointed as our chief financial officer on January 18, 2011. Mr. Kristof has over 15 years of experience in business development and management. From 2003 until April 2007 he was the president and chief executive officer of Lexington Energy Services Inc., a public company quoted on the OTC Bulletin Board under the symbol LXES.OB.
Mr. Kristof co-founded Lexington Energy in 2003 and successfully built the company from concept through assets of over $7 million. Under Mr. Kristof’s direction, Lexington Energy designed and commercialized innovative mobile drilling rigs and nitrogen generation technologies. From 2003 to 2005, Mr. Kristof co-founded Lexington Communications Ltd., a company in the business of providing investor and corporate communications expertise to public companies. In early 2003, Mr. Kristof worked as the corporate communications manager of Trivello Energy Corp. (TSX-V: TRV.V), a company engaged in oil and gas exploration and production in western Canada. From 1998 to 2001, Mr. Kristof was the founder and president of Westec Venture Group Inc., a business development and venture capital service provider.
Jonathan Michael Boughen–Director
Jonathan Michael Boughen has been a director of our company since February 28, 2011.
From May of 2000 to January of 2006, Mr. Boughen was a sales manager at Ropak Corporation, a company that specializes in plastic packaging, container and film technologies worldwide. His responsibilities and duties included managing the sales team and key distributors and sharing the profit and loss responsibility with the regional plant manager.
Since June of 2006, Mr. Boughen has been a general manager at Scientek Technology Corporation, a company that specializes in building hospital and laboratory products such as washers and dryers for the processing of surgical instruments and utensils, operating room carts, and laboratory glassware. His responsibilities and duties includes leading the company with full profit and loss responsibility and managing the sales and growth profit through major changes in technology and currency value in a highly competitive market.
Patrick Dodd –VP of Business Development and Director
Patrick Dodd has been acting our VP of business development since March 1, 2014 and as director since May 7, 2013. Between January 8, 2013 and his appointment as our VP of business development, Mr. Dodd served as our chief technology officer.
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.
27
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.
Family Relationships
None.
Board Independence and Committees
We are not required to have any independent members of the Board of Directors. The board of directors has determined that (i) each of Larry Kristof and Patrick Dodd, has a relationship which, in the opinion of the board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and is not an “independent director” as defined in the Marketplace Rules of The NASDAQ Stock Market and (ii) Jonathan Michael Boughen and W. Glenn Parker are each an independent director as defined in the Marketplace Rules of The NASDAQ Stock Market. As we do not have any board committees, the board as a whole carries out the functions of audit, nominating and compensation committees, and such “independent director” determination has been made pursuant to the committee independence standards.
Scientific Advisory Board
Our Scientific Advisory Board provides information and recommendations to our directors and management regarding the scientific and technical aspects of our various technologies, solutions and services. Our Scientific Advisory Board is composed of specialists in the scientific, environmental, electrical and systems engineering fields whom we have engaged as consultants on a part-time basis.
Our Scientific Advisory Board provides advice and expertise on technology and software design, sustainability, environmental policy, and technology and service assessment and implementation. The board also provides input on the technical, ethical and environmental consequences associated with our technologies, projects and operations.
We have entered into consulting agreements with the individuals listed below and appointed them as members of our Scientific Advisory Board.
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.
28
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 PlamenAtanassov 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.
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.
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; |
29
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.
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, 2016, 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.
30
|
| Number of |
|
Larry Kristof(1) | 1 | 1 | 1 |
Jonathan Michael Boughen | 0 | 0 | 0 |
Patrick Dodd | 1 | 1 | 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 following table provides certain summary information concerning compensation awarded to, earned by or paid to our Chief Executive Officer, the two highest paid executive officers and up to two other highest paid individuals whose total annual salary and bonus exceeded $100,000 for fiscal years 2016and 2015.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Change in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Pension Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Non-Equity |
|
| and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Incentive |
|
| Non-Qualified |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Stock |
|
| Option |
|
| Plan |
|
| Deferred |
|
| All Other |
|
|
|
|
Name & Principal |
|
|
|
| Salary |
|
| Bonus |
|
| Awards |
|
| Awards |
|
| Compensation |
|
| Compensation |
|
| Compensation |
|
|
|
|
Position |
| Year |
|
| ($) |
|
| ($) |
|
| ($) |
|
| ($) |
|
| ($) |
|
| Earnings ($) |
|
| ($) |
|
| Total ($) |
|
Larry Kristof |
| 2016 |
|
| 129,799 |
|
|
|
|
|
|
|
| Nil |
|
|
|
|
|
|
|
|
|
|
| 129,795 |
|
President, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief Executive Officer, Chief |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Officer, Secretary and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasurer |
| 2015 |
|
| 162,449 |
|
| - |
|
| - |
|
| 6,736 |
|
| - |
|
| - |
|
| - |
|
| 169,185 |
|
Option/SAR Grants in Fiscal Year Ended May 31, 2016
|
|
|
|
| All Other Option Awards: |
|
|
|
|
| Grant Date Fair Value of |
|
|
|
|
|
| Number of Securities |
|
| Exercise or Base Price of |
|
| Stock and Option Awards |
|
Name |
| Grant Date |
|
| Underlying Options (#) |
|
| Option Awards ($/Share) |
|
| ($) |
|
Larry Kristof |
| n/a |
|
| Nil |
|
| Nil |
|
| Nil |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patrick Dodd |
| n/a |
|
| Nil |
|
| Nil |
|
| Nil |
|
31
Outstanding Equity Awards at Fiscal Year-End Table
The following table sets forth information for the named executive officers regarding the number of shares subject to both exercisable and unexercisable stock options, as well as the exercise prices and expiration dates thereof, as of May 31, 2016.
|
| Number of |
|
| Number of |
|
|
|
|
|
|
|
|
| Securities |
|
| Securities |
|
|
|
|
|
|
|
|
| underlying |
|
| underlying |
|
|
|
|
|
|
|
|
| Unexercised |
|
| Unexercised |
|
| Option |
|
|
|
|
|
| Options (#) |
|
| Options (#) |
|
| Exercise |
|
|
|
|
Name |
| Exercisable |
|
| Unexercisable |
|
| Price ($/Sh) |
|
| Option Expiration Date |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Larry Kristof |
| 25,000 |
|
| 75,000 |
| $ | 0.20 |
|
| March 16, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patrick Dodd |
| 25,000 |
|
| 75,000 |
| $ | 0.20 |
|
| March 16, 2017 |
|
Equity Compensation Plan Information
|
| Number of |
|
|
|
|
|
|
|
Equity compensation plans approved by security holders |
| 1,500,000 |
| $ | 0.16 |
|
| 1,000,808 |
|
Equity compensation plans not approved by security holders |
| - |
|
| - |
|
| - |
|
Total |
| 1,500,000 |
| $ | 0.16 |
|
| 1,000,808 |
|
Employment Contracts and Termination of Employment and Change-In-Control Arrangements
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. The agreement had an initial term of two years, and automatically renews for continues one year periods unless either party gives notice of its intention to terminate at least 30 days prior to a renewal date. In addition, 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. As compensation, pursuant to the terms of the employment agreement, Larry Kristof will receive an annual salary of $60,000, payable in equal monthly installments.
Also on January 8, 2013, our company’s subsidiary, Mantra Energy Alternatives Ltd., entered into an employment agreement with Larry Kristof on the same terms and conditions as the employment agreement with our company.
32
Director Compensation
The following table sets forth summary information concerning the total compensation paid to our non-employee directors in fiscal 2016for services to our company.
|
|
| Fees Earned |
|
|
|
|
|
|
|
|
|
| or Paid in |
|
| Option |
|
|
|
|
Name |
|
| Cash ($) |
|
| Awards ($) |
|
| Total ($) |
|
Jonathan Boughen |
| $ | 0 |
| $ | 13,472 |
| $ | 13,472 |
|
W. Glenn Parker |
| $ | 0 |
| $ | 36,797(1) |
| $ | 36,797 |
|
Total: |
| $ | 0 |
| $ | 50,269 |
| $ | 50,269 |
|
(1)
On December 15, 2015 these options were forfeited concurrently with Mr. Parker’s resignation as a director of our board of directors.
ITEM 12- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth certain information regarding beneficial ownership of our common stock as of September 16, 2015:
·
by each person who is known by us to beneficially own more than 5% of our common stock;
·
by each of our officers and directors; and
·
by all of our officers and directors as a group.
Unless otherwise indicated in the footnotes to the following table, each person named in the table has sole voting and investment power and that person’s address is c/o Mantra Venture Group Ltd., 1562 128th Street, Surrey, British Columbia, Canada V4A 3T7.
|
| TITLE OF |
| NUMBER OF |
| PERCENTAGE OF |
Larry Kristof |
| Common Stock |
| 13,300,000 | (3) | 18.36 % |
Jonathan Michael Boughen |
| Common Stock |
| 162,500 | (4) | * |
Patrick Dodd |
| Common Stock |
| 200,000 | (5) | * |
W. Glenn Parker (8) |
| Common Stock |
| 150,000 | (6) | * |
Officers and Directors as a Group (4 persons) |
| Common Stock |
| 13,812,500 | (7) | 18.99 % |
|
|
|
|
|
|
|
0770987 BC Ltd. |
| Common Stock |
| 13,250,000 |
| 18.31 % |
___________________________________________
* Denotes less than 1%
(1) Beneficial Ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Shares of common stock subject to options or warrants currently exercisable or convertible, or exercisable or convertible within 60 days of September 28, 2016are deemed outstanding for computing the percentage of the person holding such option or warrant but are not deemed outstanding for computing the percentage of any other person.
33
(2) Percentage based upon 87,696,955 shares of common stock issued and outstanding as of September 28, 2016.
(3) Includes 50,000 shares of common stock underlying options which are currently exercisable or become exercisable within 60 days and 13,250,000 shares of common stock owned by 0770987 BC Ltd. Larry Kristof, as the President of 0770987 BC Ltd. has investment and voting control over the shares held by this entity.
(4) Includes 100,000 shares of common stock underlying options which are currently exercisable or become exercisable within 60 days.
(5) Includes 50,000 shares of common stock underlying options which are currently exercisable or become exercisable within 60 days.
(6) Represents shares of common stock underlying options which are currently exercisable or become exercisable within 60 days.
(7) Includes 350,000 shares of common stock underlying options which are currently exercisable or become exercisable within 60 days.
(8) Mr. Parker resigned as a director of our Company on December 15, 2016.
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 two fiscal years:
During the year ended May 31, 2016, the Company incurred management fees of $129,799 (2015 - $162,449) to the President of the Company. |
During the year ended May 31, 2016, the Company incurred management fees of $46,616 (2015 - $54,760) to the spouse of the President of the Company. |
During the year ended May 31, 2016, the Company incurred research and development fees of $28,920 (2015 - $76,065) to a director of the Company. |
The Company recorded $21,609 of management fees for the vesting of options previously granted to officers and directors. |
As at May 31, 2016, the Company owes a total of $136,722 (2015 - $93,418) to the President of the Company and his spouse, and a company controlled by the President of the Company which is non-interest bearing, unsecured, and due on demand. |
As at May 31, 2016, the Company owes $17,837 (2015 - $18,775) to an officer and a director of the Company, which is non-interest bearing, unsecured, and due on demand. |
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During the year ended May 31, 2015, the Company incurred management fees of $162,449 (2014 - $128,917) and rent of $Nil (2014 - $13,500) to the President of the Company. |
During the year ended May 31, 2015, the Company incurred management fees of $54,760 (2014 - $55,546) to the spouse of the President of the Company. |
During the year ended May 31, 2015, the Company incurred research and development fees of $76,065 (2014 - $65,121) to a director of the Company. |
On December 9, 2014, the Company granted 200,000 stock options exercisable at $0.20 per share for a period of two years to a director. The Company recorded the fair value of the vested portion of the options of $36,797 as management fees. |
On March 17, 2015, the Company granted 200,000 stock options exercisable at $0.20 per share for a period of two years to a director. The Company recorded the fair value of the vested portion of the options of $13,472 as management fees. |
On March 17, 2015, the Company granted 100,000 stock options exercisable at $0.20 per share for a period of two years to a director. The Company recorded the fair value of the vested portion of the options of $6,736 as management fees. |
On March 17, 2015, the Company granted 100,000 stock options exercisable at $0.20 per share for a period of two years to the President of the Company. The Company recorded the fair value of the vested portion of the options of $6,736 as management fees. |
As at May 31, 2015, the Company owes a total of $93,418 (May 31, 2014 - $136,320) to the President of the Company and his spouse, and a company controlled by the President of the Company which is non-interest bearing, unsecured, and due on demand. |
As at May 31, 2015, the Company owes $18,775 (May 31, 2014- $23,383) to an officer and a director of the Company, which is non-interest bearing, unsecured, and due on demand. |
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ITEM 14 – PRINCIPAL ACCOUNTING FEES AND SERVICES
The aggregate fees billed for the most recently completed fiscal year ended May 31, 2016 and for fiscal year ended May 31, 2015 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:
| Year Ended | |
| Sadler, Gibb | Sadler, Gibb |
Audit Fees | $37,000 | $35,400 |
Audit Related Fees | Nil | Nil |
Tax Fees | Nil | Nil |
All Other Fees | Nil | Nil |
Total | $37,000 | $35,400 |
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
Exhibit # | Exhibit Description |
|
|
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) |
|
|
3.1 | 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) |
|
|
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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) |
|
|
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 Sona Kazemi dated October 17, 2013 (incorporated by reference to our Current Report on Form 8-K filed on October 28, 2013) |
|
|
37
38
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
MANTRA VENTURE GROUP LTD.
Date: September 30, 2016 | By: | /s/ LARRY KRISTOF |
|
| Larry Kristof |
|
| President, Chief Executive Officer and Chief Financial |
|
| Officer (Principal Executive Officer, Principal Financial |
|
| Officer and Principal Accounting Officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Name |
| Position |
| Date |
|
|
|
|
|
/s/ LARRY KRISTOF |
| Director |
| September 30, 2016 |
Larry Kristof |
|
|
|
|
|
|
|
|
|
/s/ JONATHAN BOUGHEN |
| Director |
| September 30, 2016 |
Jonathan Boughen |
|
|
|
|
|
|
|
|
|
/s/ PATRICK DODD |
| Director |
| September 30, 2016 |
Patrick Dodd |
|
|
|
|
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