(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 Companys 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 Companys 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 Companys 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 Companys, 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 Companys stock price as well as assumptions regarding a number of subjective variables. These subjective variables include, but are not limited to the Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 holders option into 625,000 shares of the Companys 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 Companys 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 Companys 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 holders option into shares of the Companys 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 holders option into shares of the Companys 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 holders option into shares of the Companys 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 holders option into shares of the Companys 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 holders option into shares of the Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys stock options:
|
|
|
|
|
|
Number
of options
|
Weighted
average
exercise price
$
|
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 Companys 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 Companys 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 Companys 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.
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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 managements 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:
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a)
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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;
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b)
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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
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c)
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We do not have any formally adopted internal controls surrounding its cash and financial reporting procedures.
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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.
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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.
Managements 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 ControlIntegrated 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:
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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. Kristofs 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 BoughenDirector
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 bachelors 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 companys 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 Masters theses by synthesizing a series of green succinate-based plasticizers and testing their performance. This work resulted in his being named in two publications.
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Upon the completion of his degree at McGill University, in 2010, Mr. Dodd immediately began working toward a Masters 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 Icelands Carbon Recycling International, and thus became involved with the concept of carbon utilization. This project led to Mr. Dodds involvement with our company, and to complete his degree Patrick completed the early stages of design for our companys 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 Mantras 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 Canadas 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-Luber
TM
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.
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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 UNMs 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 Atanassovs 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 UNMs 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 institutions 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. Serovs 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:
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been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offences);
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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;
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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;
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4.
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been found by a court of competent jurisdiction in a civil action or by the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;
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been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
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been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
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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 24
th
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.
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