If an emerging growth company, indicate
by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
PART
I – FINANCIAL INFORMATION
|
Item
1.
|
Financial
Statements
|
The
unaudited interim consolidated financial statements of our company have been prepared in accordance with generally accepted accounting
principles in the United States of America and are presented in US dollars, unless otherwise noted.
MANTRA
VENTURE GROUP LTD.
Consolidated
balance sheets as of February 28, 2017, and May 31, 2016 (unaudited)
|
|
3
|
|
|
|
Consolidated
statements of operations for the three and nine month period ended February 28, 2017 and February 29, 2016 (unaudited)
|
|
4
|
|
|
|
Consolidated
statements of cash flows for the nine month period ended February 28, 2017 and February 29, 2016 (unaudited)
|
|
5
|
|
|
|
Notes
to consolidated financial statements
|
|
6
–
22
|
MANTRA
VENTURE GROUP LTD.
Consolidated
balance sheets
(Expressed
in U.S. dollars)
|
|
February 28,
|
|
|
May 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
($)
|
|
|
($)
|
|
|
|
(unaudited)
|
|
|
(as revised)
|
|
ASSETS
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
Cash
|
|
|
–
|
|
|
|
1,119
|
|
Accounts receivable
|
|
|
3,417
|
|
|
|
7,358
|
|
Prepaid expenses and deposits
|
|
|
1,056
|
|
|
|
4,789
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
4,473
|
|
|
|
13,266
|
|
Deposit
|
|
|
–
|
|
|
|
8,000
|
|
Restricted cash
|
|
|
–
|
|
|
|
14,519
|
|
Property and equipment, net
|
|
|
51,852
|
|
|
|
72,627
|
|
Intangible assets, net
|
|
|
59,060
|
|
|
|
62,615
|
|
Total assets
|
|
|
115,385
|
|
|
|
171,027
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Checks issued in excess of funds on deposit
|
|
|
7
|
|
|
|
–
|
|
Accounts payable and accrued liabilities
|
|
|
930,290
|
|
|
|
836,982
|
|
Due to related parties
|
|
|
236,579
|
|
|
|
154,560
|
|
Loans payable
|
|
|
221,888
|
|
|
|
199,108
|
|
Obligations under capital lease
|
|
|
5,370
|
|
|
|
8,123
|
|
Convertible debentures (net of discount of $128,347 and $330,123 in 2017 and 2016, respectively)
|
|
|
868,611
|
|
|
|
668,921
|
|
Derivative liability
|
|
|
1,160,791
|
|
|
|
978,245
|
|
Total current liabilities
|
|
|
3,423,536
|
|
|
|
2,845,939
|
|
Obligations under capital lease
|
|
|
–
|
|
|
|
3,308
|
|
Total liabilities
|
|
|
3,423,536
|
|
|
|
2,849,247
|
|
|
|
|
|
|
|
|
|
|
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 $0.00001 Issued and outstanding: 119,332,805 shares as of February 28, 2017 (88,559,024 shares as of May 31, 2016)
|
|
|
1,193
|
|
|
|
886
|
|
Additional paid-in capital
|
|
|
11,611,360
|
|
|
|
11,163,514
|
|
Common stock subscribed
|
|
|
115,367
|
|
|
|
99,742
|
|
Accumulated deficit
|
|
|
(14,785,181
|
)
|
|
|
(13,706,088
|
)
|
Total Mantra Venture Group Ltd. stockholders’ deficit
|
|
|
(3,057,261
|
)
|
|
|
(2,441,946
|
)
|
Non-controlling interest
|
|
|
(250,890
|
)
|
|
|
(236,274
|
)
|
Total stockholders’ deficit
|
|
|
(3,308,151
|
)
|
|
|
(2,678,220
|
)
|
Total liabilities and stockholders’ deficit
|
|
|
115,385
|
|
|
|
171,027
|
|
(The
accompanying notes are an integral part of these unaudited consolidated financial statements)
MANTRA
VENTURE GROUP LTD.
Consolidated
statements of operations
(Expressed
in U.S. dollars)
(unaudited)
|
|
Three Months
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
February 28,
|
|
|
February 29,
|
|
|
February 28,
|
|
|
February 29,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
–
|
|
|
|
30,299
|
|
|
|
–
|
|
|
|
81,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
–
|
|
|
|
30,299
|
|
|
|
–
|
|
|
|
81,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting and advisory
|
|
|
123,578
|
|
|
|
35,751
|
|
|
|
168,578
|
|
|
|
182,344
|
|
Depreciation and amortization
|
|
|
8,404
|
|
|
|
8,237
|
|
|
|
24,329
|
|
|
|
19,462
|
|
Foreign exchange loss (gain)
|
|
|
12,093
|
|
|
|
(3,767
|
)
|
|
|
(6,231
|
)
|
|
|
(4,226
|
)
|
General and administrative
|
|
|
9,258
|
|
|
|
37,775
|
|
|
|
53,056
|
|
|
|
193,875
|
|
Management fees
|
|
|
45,178
|
|
|
|
35,335
|
|
|
|
136,666
|
|
|
|
153,773
|
|
Professional fees
|
|
|
(1,664
|
)
|
|
|
18,304
|
|
|
|
35,007
|
|
|
|
118,378
|
|
Research and development
|
|
|
(1,000
|
)
|
|
|
13,192
|
|
|
|
23,974
|
|
|
|
106,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
195,847
|
|
|
|
144,827
|
|
|
|
435,379
|
|
|
|
769,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(195,847
|
)
|
|
|
(114,528
|
)
|
|
|
(435,379
|
)
|
|
|
(688,633
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on settlement of debt
|
|
|
–
|
|
|
|
–
|
|
|
|
(19,418
|
)
|
|
|
(24,000
|
)
|
Accretion of discounts on convertible debentures
|
|
|
(60,374
|
)
|
|
|
(42,017
|
)
|
|
|
(379,114
|
)
|
|
|
(360,724
|
)
|
Gain (loss) on change in fair value of derivatives
|
|
|
1,231,317
|
|
|
|
(119,190
|
)
|
|
|
(148,280
|
)
|
|
|
(210,615
|
)
|
Interest expense
|
|
|
(48,398
|
)
|
|
|
(18,981
|
)
|
|
|
(111,518
|
)
|
|
|
(76,676
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
1,122,545
|
|
|
|
(180,188
|
)
|
|
|
(658,330
|
)
|
|
|
(672,015
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) for the period
|
|
|
926,698
|
|
|
|
(294,716
|
)
|
|
|
(1,093,709
|
)
|
|
|
(1,360,648
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add: net loss attributable to the non-controlling interest
|
|
|
4,866
|
|
|
|
3,756
|
|
|
|
14,616
|
|
|
|
32,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Mantra Venture Group Ltd.
|
|
|
931,564
|
|
|
|
(290,960
|
)
|
|
|
(1,079,093
|
)
|
|
|
(1,327,746
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share attributable to Mantra Venture Group Ltd. common shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
0.01
|
|
|
|
(0.00
|
)
|
|
|
(0.01
|
)
|
|
|
(0.02
|
)
|
Diluted
|
|
|
0.00
|
|
|
|
(0.00
|
)
|
|
|
(0.01
|
)
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding used in the calculation of net loss attributable to Mantra Venture Group Ltd. per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
116,454,010
|
|
|
|
80,407,995
|
|
|
|
102,822,723
|
|
|
|
75,562,065
|
|
Diluted
|
|
|
606,601,337
|
|
|
|
80,407,995
|
|
|
|
102,822,723
|
|
|
|
75,562,065
|
|
(The
accompanying notes are an integral part of these unaudited consolidated financial statements)
MANTRA
VENTURE GROUP LTD.
Consolidated
statements of cash flows
(Expressed
in U.S. dollars)
(unaudited)
|
|
Nine Months
Ended
February 28,
2017
($)
|
|
|
Nine Months
Ended
February 29,
2016
($)
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(1,093,709
|
)
|
|
|
(1,360,648
|
)
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash
used in operating activities:
|
|
|
|
|
|
|
|
|
(Gain) loss on change in fair value of derivative
liability
|
|
|
(31,805
|
)
|
|
|
(199,277
|
)
|
Amortization of finance costs
|
|
|
–
|
|
|
|
16,017
|
|
Accretion of discounts on convertible debentures
|
|
|
379,114
|
|
|
|
360,724
|
|
Depreciation and amortization
|
|
|
24,329
|
|
|
|
19,462
|
|
Foreign exchange loss (gain)
|
|
|
4,366
|
|
|
|
(7,458
|
)
|
Initial derivative expenses
|
|
|
180,096
|
|
|
|
409,892
|
|
Shares issued for services
|
|
|
47,025
|
|
|
|
30,001
|
|
Interest related to cash redemption premium
on convertible notes
|
|
|
32,651
|
|
|
|
–
|
|
Stock-based compensation on options and warrants
|
|
|
–
|
|
|
|
11,042
|
|
Loss on settlement of debt
|
|
|
19,418
|
|
|
|
24,000
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Amounts receivable
|
|
|
3,941
|
|
|
|
18,465
|
|
Prepaid expenses and deposits
|
|
|
11,733
|
|
|
|
121,357
|
|
Accounts payable and accrued liabilities
|
|
|
153,607
|
|
|
|
182,654
|
|
Due to related
parties
|
|
|
82,019
|
|
|
|
3,147
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(187,215
|
)
|
|
|
(370,622
|
)
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
–
|
|
|
|
(4,587
|
)
|
Investment
in intangible assets
|
|
|
–
|
|
|
|
(12,161
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
–
|
|
|
|
(16,748
|
)
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of capital lease obligations
|
|
|
(7,025
|
)
|
|
|
(5,487
|
)
|
Repayment of loan payable
|
|
|
–
|
|
|
|
(50,000
|
)
|
Proceeds from notes payable
|
|
|
38,275
|
|
|
|
55,961
|
|
Proceeds from issuance of convertible debentures
|
|
|
149,839
|
|
|
|
367,000
|
|
Checks issued in excess of funds on deposit
|
|
|
7
|
|
|
|
–
|
|
Proceeds from
issuance of common stock and subscriptions received
|
|
|
5,000
|
|
|
|
15,000
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing
activities
|
|
|
186,096
|
|
|
|
382,474
|
|
|
|
|
|
|
|
|
|
|
Change in cash
|
|
|
(1,119
|
)
|
|
|
(4,896
|
)
|
|
|
|
|
|
|
|
|
|
Cash, beginning of period
|
|
|
1,119
|
|
|
|
7,446
|
|
|
|
|
|
|
|
|
|
|
Cash, end of period
|
|
|
–
|
|
|
|
2,550
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Common stock issued to relieve common stock
subscribed
|
|
|
25,000
|
|
|
|
–
|
|
Common stock issued to settle accounts payable
and debt
|
|
|
39,277
|
|
|
|
24,000
|
|
Common stock issued for conversion of notes
payable
|
|
|
388,572
|
|
|
|
477,939
|
|
Original issue discounts
|
|
|
24,999
|
|
|
|
26,087
|
|
Debt issuance costs
|
|
|
–
|
|
|
|
13,000
|
|
Original debt
discount against derivative liability
|
|
|
149,839
|
|
|
|
389,755
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
|
657
|
|
|
|
9,859
|
|
Income taxes
paid
|
|
|
–
|
|
|
|
–
|
|
(The
accompanying notes are an integral part of these unaudited consolidated financial statements)
MANTRA
VENTURE GROUP LTD.
Notes
to the consolidated financial statements
February
28, 2017
(Expressed
in U.S. dollars)
(unaudited)
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.
The
accompanying unaudited consolidated interim financial statements of the Company should be read in conjunction with the consolidated
financial statements and accompanying notes filed with the U.S. Securities and Exchange Commission in the Company’s Annual
Report on Form 10-K for the fiscal year ended May 31, 2016. In the opinion of management, the accompanying financial statements
reflect all adjustments of a recurring nature considered necessary to present fairly the Company’s financial position and
the results of its operations and its cash flows for the periods shown.
The
preparation of financial statements in accordance with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported. Actual results could differ materially from those
estimates. The results of operations and cash flows for the periods shown are not necessarily indicative of the results to be
expected for the full year.
These
unaudited 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 February 28, 2017, the Company has an accumulated loss of $14,785,181, and a working capital deficit of $3,459,688.
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.
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Significant
Accounting Policies
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a.
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Basis
of Presentation/Principles of Consolidation
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These
unaudited 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.
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 February 28, 2017, the Company had
490,147,327 (November 30, 2015 – 34,949,950) dilutive potential shares outstanding.
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c.
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Recent
Accounting Pronouncements
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The
Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and
does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact
on its financial position or results of operations.
Restricted
cash represents cash pledged as security for the Company’s credit cards. At February 28, 2017, the Company no longer pledged
cash as security as the credit cards have been surrendered.
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4.
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Property
and Equipment
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Cost
($)
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Accumulated depreciation
($)
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February 28,
2017
Net carrying value
($)
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|
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May 31,
2016
Net carrying value
($)
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Furniture and equipment
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2,496
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1,332
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|
|
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1,164
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|
|
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1,539
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Computer
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5,341
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|
|
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5,341
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–
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|
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–
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Research equipment
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143,129
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|
|
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99,874
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|
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43,255
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|
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56,655
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Vehicles under capital lease
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72,690
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65,257
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7,433
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14,433
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|
|
|
|
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|
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223,656
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171,804
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51,852
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72,627
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During
the nine months ended February 28, 2017 and February 29, 2016, the Company recorded $20,774 and $16,524, respectively, of amortization
expense.
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Cost
($)
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Accumulated amortization
($)
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February 28,
2017
Net carrying value
($)
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May 31,
2016
Net carrying value
($)
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Patents
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70,789
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11,729
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59,060
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62,615
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During
the nine months ended February 28, 2017 and February 29, 2016, the Company recorded $3,555 and $2,938, respectively, of amortization
expense.
Estimated
Future Amortization Expense:
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For year ending May 31, 2017
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$
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1,183
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For year ending May 31, 2018
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$
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4,738
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For year ending May 31, 2019
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$
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4,738
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For year ending May 31, 2020
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$
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4,738
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For year ending May 31, 2021
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$
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4,738
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6.
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Related
Party Transactions
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a)
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During
the nine months ended February 28, 2017 and February 29, 2016, the Company incurred management fees of $102,500 and $98,053,
respectively, to the President of the Company.
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b)
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During
the nine months ended February 28, 2017 and February 29, 2016, the Company incurred management fees of $34,166 and $34,735,
respectively, to the spouse of the President of the Company.
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c)
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During
the nine months ended February 28, 2017 and February 29, 2016, the Company incurred research and development fees of $0 and
$28,920, respectively, to a director of the Company.
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d)
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During
the nine months ended February 28, 2017 and February 29, 2016, the Company recorded $0 and $20,985, respectively, of management
fees for the vesting of options previously granted to officers and directors.
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e)
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As
at February 28, 2017 and May 31, 2016, the Company owes a total of $218,972 and $136,723, respectively, 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.
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f)
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As
at February 28, 2017 and May 31, 2016, the Company owes $17,607 and $17,837, respectively, to an officer and a director
of the Company, which is non-interest bearing, unsecured, and due on demand.
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(a)
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As
at February 28, 2017 and May 31, 2016, the amount of $47,662 (Cdn$63,300) and $48,285 (Cdn$63,300), respectively, is owed
to a non-related party which is non-interest bearing, unsecured, and due on demand.
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(b)
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As
at February 28, 2017 and May 31, 2016, the amount of $17,500 and $17,500, respectively, is owed to a non-related party which
is non-interest bearing, unsecured, and due on demand.
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(c)
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As
at February 28, 2017 and May 31, 2016, the amount of $15,000 and $15,000, respectively, is owed to a non-related party which
is non-interest bearing, unsecured, and due on demand. On November 15, 2016, the Company entered into a debt settlement agreement,
and amended on March 13, 2017, to settle the amount owed in exchange for 6,000,000 common shares. The shares were issued on
March 8, 2017.
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(d)
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As
at February 28, 2017 and May 31, 2016, the amount of $0 (Cdn$0) and $14,413 (Cdn$18,895), respectively, was owed to a non-related
party, which is non-interest bearing, unsecured, and due on demand. On October 3, 2016, the Company issued 4,413,181 shares
of common stock upon the conversion of the note payable of $14,406 (CAD - $18,895) and $735 (CAD - $964) of accrued interest.
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(e)
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As
at February 28, 2017 and May 31, 2016, the amounts of $7,500 and $27,859 (Cdn$37,000) and $7,500 and $28,224 (Cdn$37,000),
respectively, are owed to a non-related party which are non-interest bearing, unsecured, and due on demand.
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(f)
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As
at February 28, 2017 and May 31, 2016, the amount of $4,490 and $4,490, respectively, is owed to a non-related party which
is non-interest bearing, unsecured, and due on demand.
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(g)
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As
at February 28, 2017 and May 31, 2016, the amounts of $13,603 (Cdn$18,066) and $13,696 (Cdn$18,066)), respectively, was advanced
by a non-related party. The amount owing is non-interest bearing, unsecured, and due on demand.
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(h)
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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.
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(i)
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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.
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(j)
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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. As of May 31, 2016,
the Company recorded accretion of $9,755.
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(k)
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As
at February 28, 2017 and May 31, 2016, the amounts of $10,000 and $28,274 (Cdn$37,550) and $0, respectively, are owed to non-related
parties which are non-interest bearing, unsecured, and due on demand.
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8.
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Obligations
Under Capital Lease
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On
July 31, 2012 and December 21, 2012, the Company entered into two agreements to lease two vehicles for three years each. In August
2015, the July 31, 2012 lease was renewed for an additional two years and on December 28, 2015, the December 21, 2012 lease was
also renewed for an additional two years. The vehicle leases are classified as a capital leases. The following is a schedule by
years of future minimum lease payments under capital leases together with the present value of the net minimum lease payments
as of February 28, 2017:
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Year ending May 31:
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($)
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2017
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2,266
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2018
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3,399
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Net minimum lease payments
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5,665
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Less: amount representing interest payments
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(295
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)
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Present value of net minimum lease payments
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5,370
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Less: current portion
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(5,370
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)
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Long-term portion
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–
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At
the end of the leases, the Company has the option to purchase the two vehicles for $1 each.
9.
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Convertible
Debentures
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(a)
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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.
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In
accordance with ASC 470-20, “
Debt with Conversion and Other Options
”, the Company determined that the convertible
debentures contained no embedded beneficial conversion feature as the convertible debentures were issued with a conversion price
higher than the fair market value of the Company’s common shares at the time of issuance.
In
accordance with ASC 470-20, the Company allocated the proceeds of issuance between the convertible debt and the detachable share
purchase warrants based on their relative fair values. Accordingly, the Company recognized the fair value of the share purchase
warrants of $45,930 as additional paid-in capital and an equivalent discount against the convertible debentures. The Company had
recorded accretion expense of $45,930, increasing the carrying value of the convertible debentures to $250,000.
On
January 19, 2012, the Company entered into a settlement agreement with one of the debenture holders to settle a $50,000 convertible
debenture and $122,535 in accounts payable and accrued interest with the debt holder. Pursuant to the agreement, the debt holder
agreed to reduce the debt to Cdn$100,000 on the condition that the Company pays the amount of Cdn$2,500 per month for 40 months,
beginning March 1, 2012 and continuing on the first day of each month thereafter.
9.
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Convertible
Debentures (cont..)
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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 February 28, 2017, the other remaining debenture of $59,853 remained outstanding and past due.
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(b)
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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 February 28, 2017, the carrying
value of the convertible promissory note was $10,000 and the note remained outstanding and in default.
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(c)
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On
September 11, 2013 and October 18, 2013, the Company issued two convertible debentures for total proceeds of $152,000, which
bore interest at 10% per annum, were unsecured, and due two years from date of issuance. The unpaid amount of principal and
accrued interest could be converted at the holders’ 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 $152,000 as additional paid-in capital and reduced the carrying value of the convertible
debenture to $nil. The carrying value was accreted over the term of the convertible debentures up to their face value of $152,000.
On September 30, 2016, the Company issued 4,920,400 shares of common stock upon the conversion of the two convertible notes
of $58,000 and $94,000 and $44,816 of accrued interest.
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9.
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Convertible
Debentures (cont..)
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(d)
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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 February 28, 2017,
the carrying value of the convertible promissory note was $15,000 and the note remained outstanding and in default. On April
1, 2017, the Company issued an aggregate of 295,800 shares of common stock upon the conversion of two of the convertible debentures,
totaling $10,000, and $1,832 of accrued interest.
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(e)
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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 February 28, 2017, the carrying
value of the convertible promissory note was $15,000 and the note remained outstanding and in default.
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(f)
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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.
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On
October 5, 2016, the holder of the convertible debentures 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. At February 28, 2017, $45,000
of the note had been assigned to the third party.
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.
During
the nine months ended February 28, 2017, the Company issued 18,440,200 shares of common stock upon the conversion of $60,075 of
principal. During the nine months ended February 28, 2017, the Company recorded a default fee of $10,276 increasing the carrying
value of the note to $31,451 and the note remained outstanding and past due.
9.
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Convertible
Debentures (cont..)
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(g)
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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.
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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.
During
the nine months ended February 28, 2017, the Company recorded accretion of $185,913 increasing the carrying value of the note
to $382,608.
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(h)
|
On
December 4, 2015, the Company issued a convertible note in the principal amount of $105,000 as an inducement to the holder
of the convertible notes described in Note 9(g), to enter into an agreement to sell and assign the remaining outstanding principal
to a third party. The note included a $10,000 original issue discount. The note bears interest at 10% per annum and is convertible
into common shares of the Company at a 52% discount to the lowest trading price during the previous 30 trading days to the
date of conversion; or a 52% discount to the lowest trading price during the previous 30 trading days before the date the
note was executed. On October 5, 2016, the holder of the convertible debentures 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 $216,108 resulted in a discount to the note payable of $95,000 and the recognition
of a loss on derivatives of $111,108. During the year ended May 31, 2016, the Company recorded accretion of $82,560 and recorded
a default of fee of $26,250 increasing the carrying value of the note to $48,690.
During
the nine months ended February 28, 2017, the recorded accretion of $82,560 increasing the carrying value of the note to $131,250.
|
(i)
|
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 $20,417 increasing the carrying value of the note to $40,432.
9.
|
Convertible
Debentures (cont..)
|
During
the nine months ended February 28, 2017, the Company received additional tranches of $107,339. The initial fair value of the conversion
feature of $208,033 resulted in a discount to the note payable of $107,339 and the recognition of a loss on derivatives of $100,694.
During the nine months ended February 28, 2017, the Company recorded accretion of $96,783, and recorded a default fee of $22,375
increasing the carrying value of the note to $159,590.
|
(j)
|
On
October 11, 2016, the Company issued a convertible note in the principal amount of up to $249,999. The Company received initial
tranches of $42,500 net of a $24,999 original issue discount and $2,500 of financing fees. 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 $121,902 resulted in a discount to the note payable of $45,000 and the recognition
of a loss on derivatives of $76,902. During the nine months ended February 28, 2017, the Company recorded accretion of $13,859,
increasing the carrying value of the note to $13,859.
10.
|
Derivative
Liabilities
|
The
embedded conversion option of the convertible debenture described in Note 9(f) 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(f), 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(f), 9(g), 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.
During
the nine months ended February 28, 2017, the Company reclassified 350,000 options exercisable at $0.03 until March 16, 2017 with
a fair value of $2,350 and 2,000,000 warrants exercisable at $0.03 until August 29, 2018 with a fair value of $13,745 that qualified
for treatment as derivative liabilities.
The
table below sets forth a summary of changes in the fair value of the Company’s Level 3 financial liabilities.
|
|
|
February 28,
2017
|
|
|
May 31,
2016
|
|
|
Balance at the beginning of period
|
|
$
|
978,245
|
|
|
$
|
353,668
|
|
|
Original discount limited to proceeds of notes
|
|
$
|
152,339
|
|
|
$
|
541,755
|
|
|
Fair value of derivative liabilities in excess of notes proceeds received
|
|
$
|
177,596
|
|
|
$
|
692,785
|
|
|
Reclassification of instruments previously classified as equity
|
|
$
|
16,095
|
|
|
$
|
–
|
|
|
Conversion of derivative liability
|
|
$
|
(131,679
|
)
|
|
$
|
(414,246
|
)
|
|
Change in fair value of embedded conversion option
|
|
$
|
(31,805
|
)
|
|
$
|
(195,717
|
)
|
|
Balance at the end of the period
|
|
$
|
1,160,791
|
|
|
$
|
978,245
|
|
10.
|
Derivative
Liabilities (cont..)
|
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
|
|
134-253%
|
|
0.07-1.11%
|
|
|
0
|
%
|
|
0.50-2.00
|
|
At February 28, 2017
|
|
192-289%
|
|
0.40-0.88%
|
|
|
0
|
%
|
|
0.03-1.50
|
|
(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 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.
|
|
(c)
|
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.
|
|
(d)
|
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.
|
Stock
transactions during the nine months ended February 28, 2017:
|
(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(f).
|
|
|
|
|
(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(f).
|
|
|
|
|
(c)
|
On
August 29, 2016, the Company issued 2,000,000 units at $0.015 per unit for proceeds of $30,000. Each unit consisted of one
share of common stock and one share purchase warrant. Each share purchase warrant is exercisable at $0.03 per share of common
stock for a period of two years or thirty 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 $0.03 per share for five consecutive trading days.
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
which was included in common stock subscribed.
|
11.
|
Common
Stock (cont..)
|
|
(d)
|
On
September 19, 2016, the Company issued 4,920,400 shares of common stock upon the conversion of the two convertible notes of
$58,000 and $94,000 described in Note 9(c) and $44,816 of accrued interest.
|
|
|
|
|
(e)
|
On
September 26, 2016, the Company issued 2,780,868 shares of common stock upon the conversion of $10,000 of principal of the
convertible note described in Note 9(f).
|
|
|
|
|
(f)
|
October
3, 2016, the Company issued 4,413,181 shares of common stock upon the conversion of the note payable of $14,406 (CAD - $18,895)
described in Note 7(d) and $735 (CAD - $964) of accrued interest. The Company recorded the common shares at their fair value
of $39,277 which resulted in a loss on settlement of debt of $19,418.
|
|
|
|
|
(g)
|
On
December 5, 2016, the Company issued 5,393,560 shares of common stock upon the conversion of $15,075 of principal of the convertible
note described in Note 9(f).
|
|
|
|
|
(h)
|
On
December 9, 2016, the Company issued 1,000,000 shares pursuant to the settlement agreement described in Note 15(h).
|
|
|
|
|
(i)
|
On
January 13, 2017, the Company issued 5,070,994 shares of common stock upon the conversion of $10,000 of principal of the convertible
note described in Note 9(f).
|
12.
|
Share
Purchase Warrants
|
The
following table summarizes the continuity of share purchase warrants:
|
|
|
Number of
warrants
|
|
|
Weighted average exercise price
($)
|
|
|
|
|
|
|
|
|
|
|
Balance as of May 31, 2015
|
|
|
5,258,333
|
|
|
|
0.44
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
|
|
|
1,766,667
|
|
|
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of May 31, 2016
|
|
|
7,025,000
|
|
|
|
0.34
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
|
|
|
333,334
|
|
|
|
0.03
|
|
|
Expired
|
|
|
(650,000
|
)
|
|
|
0.60
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of February 28, 2017
|
|
|
6,708,334
|
|
|
|
0.30
|
|
As
at February 28, 2017, the following share purchase warrants were outstanding:
|
Number of warrants
|
|
|
Exercise
price
($)
|
|
|
Expiry date
|
|
|
|
|
|
|
|
|
|
|
333,333
|
|
|
|
0.80
|
|
|
June 4, 2017
|
|
|
200,000
|
|
|
|
0.80
|
|
|
July 11, 2017
|
|
|
1,000,000
|
|
|
|
0.03
|
|
|
April 15, 2018
|
|
|
666,667
|
|
|
|
0.03
|
|
|
May 4, 2018
|
|
|
100,000
|
|
|
|
0.15
|
|
|
August 4, 2017
|
|
|
4,075,000
|
|
|
|
0.37
|
|
|
April 10, 2019
|
|
|
333,334
|
|
|
|
0.03
|
|
|
August 29, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
6,708,334
|
|
|
|
|
|
|
|
The
following table summarizes the continuity of the Company’s stock options:
|
|
|
Number
of options
|
|
|
Weighted
average
exercise price
($)
|
|
|
Weighted average remaining contractual life (years)
|
|
|
Aggregate
intrinsic
value
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of May 31, 2015
|
|
|
1,675,000
|
|
|
|
0.17
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
350,000
|
|
|
|
0.03
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(525,000
|
)
|
|
|
0.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of May 31, 2016
|
|
|
1,500,000
|
|
|
|
0.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(750,000
|
)
|
|
|
0.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of February 28, 2017
|
|
|
750,000
|
|
|
|
0.12
|
|
|
|
0.59
|
|
|
|
–
|
|
|
Exercisable as of February 28, 2017
|
|
|
750,000
|
|
|
|
0.12
|
|
|
|
0.59
|
|
|
|
–
|
|
|
Non-vested stock options
|
|
Number of Options
|
|
|
Weighted Average
Grant Date
Fair Value
($)
|
|
|
|
|
|
|
|
|
|
|
Non-vested at May 31, 2015
|
|
|
550,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
Expired
|
|
|
(50,000
|
)
|
|
|
0.30
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested at February 28, 2017
|
|
|
–
|
|
|
|
|
|
Additional
information regarding stock options as of February 28, 2017 is as follows:
|
Number of
options
|
|
|
Exercise
price
($)
|
|
|
Expiry date
|
|
|
400,000
|
|
|
|
0.20
|
|
|
March 16, 2017
|
|
|
350,000
|
|
|
|
0.03
|
|
|
May 17, 2018
|
|
|
750,000
|
|
|
|
|
|
|
|
The
Company did not grant any stock options or record any stock-based compensation for options granted during the nine month period
ended February 28, 2017 or February 29, 2016.
14.
|
Net
Income (Loss) Per Share
|
|
|
|
Three Months
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
Nine Months
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
February 28,
|
|
|
February 29,
|
|
|
February 28,
|
|
|
February 29,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
931,564
|
|
|
|
(290,960
|
)
|
|
|
(1,079,093
|
)
|
|
|
(1,327,746
|
)
|
|
Convertible note interest
|
|
|
25,393
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Adjusted diluted net income
|
|
|
956,957
|
|
|
|
(290,960
|
)
|
|
|
(1,079,093
|
)
|
|
|
(1,327,746
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding used in computing net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
116,454,010
|
|
|
|
80,407,995
|
|
|
|
102,822,723
|
|
|
|
75,562,065
|
|
|
Effect of dilutive stock options and convertible notes payable
|
|
|
490,147,327
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
Diluted
|
|
|
606,601,337
|
|
|
|
80,407,995
|
|
|
|
102,822,723
|
|
|
|
75,562,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share applicable to common stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
0.01
|
|
|
|
(0.00
|
)
|
|
|
(0.01
|
)
|
|
|
(0.02
|
)
|
|
Diluted
|
|
|
0.00
|
|
|
|
(0.00
|
)
|
|
|
(0.01
|
)
|
|
|
(0.02
|
)
|
15.
|
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)
|
15.
|
Commitments
and Contingencies (cont..)
|
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.
|
(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
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.
|
|
|
|
|
(d)
|
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.
|
|
|
|
|
(e)
|
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)
|
On
July 15, 2016, the Company entered into an agreement to lease office space for $430 ($564CAD) per month until June 30, 2017.
|
15.
|
Commitments
and Contingencies (cont..)
|
|
(g)
|
On
September 10, 2016, the Company entered into a debt settlement agreement to settle $7,500 of amounts owed for services in
exchange for 2,000,000 common shares. The Company has not yet issued the shares. The Company will record the debt settlement
upon the issuance of shares.
|
|
|
|
|
(h)
|
On
August 22, 2016, the Company entered into a consulting agreement for the provision of consulting services until November 22,
2016. Pursuant to the agreement the Company will pay the consultant $5,000 per month and issue 2,000,000 shares of common
stock to the consultant. On December 7, 2016, the Company entered into a settlement agreement. Pursuant to the agreement,
the Company agreed to issue the consultant 1,000,000 common shares in exchange for fully releasing and discharging the Company
of any and all further obligations.
|
|
|
|
|
(i)
|
On
January 7, 2017, the Company entered into a consulting agreement for the provision of consulting services until July 7, 2017.
Pursuant to the agreement the Company will pay the consultant $35,000 per month and upon the conclusion of the first 30-day
period of the agreement, the Company shall issue 6,250,000 shares of common stock to the consultant. As of February 28, 2017,
the shares have not been issued.
|
16.
|
Revision
of Prior Year Financial Statements
|
The
Company identified an error relating to the non-recognition of the convertible note described in Note 9(i) during the year ended
May 31, 2016. The effect of the error is to increase net loss by $275,295 for the year ended May 31, 2016.
In
accordance with the guidance provided by the SEC’s Staff Accounting Bulletin 99,
Materiality
and Staff Accounting
Bulletin No. 108,
Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial
Statements
the Company has determined that the impact of adjustments relating to the correction of this accounting error are
not material to previously issued annual audited consolidated financial statements. Accordingly, these changes are disclosed herein
and will be disclosed prospectively.
As
a result of the aforementioned correction of accounting errors, the relevant annual financial statements have been restated. Effects
on financials for the Year Ended May 31, 2016:
|
|
|
May 31, 2016
|
|
|
Consolidated Balance Sheet
|
|
As Previously Reported
|
|
|
Adjustment
|
|
|
As Restated
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
810,575
|
|
|
$
|
26,407
|
|
|
$
|
836,982
|
|
|
Convertible debentures
|
|
|
620,231
|
|
|
|
48,690
|
|
|
|
668,921
|
|
|
Derivative liability
|
|
|
778,047
|
|
|
|
200,198
|
|
|
|
978,245
|
|
|
Accumulated deficit
|
|
|
(13,430,793
|
)
|
|
|
(275,295
|
)
|
|
|
(13,706,088
|
)
|
|
Total Mantra Venture Group Ltd. stockholder’s deficit
|
|
|
(2,166,651
|
)
|
|
|
(275,295
|
)
|
|
|
(2,441,946
|
)
|
|
Total stockholders’ deficit
|
|
|
(2,402,925
|
)
|
|
|
(275,295
|
)
|
|
|
(2,678,220
|
)
|
16.
|
Revision
of Prior Year Financial Statements (cont..)
|
|
|
|
For the Year Ended May 31, 2016
|
|
|
Consolidated Statement of Operations
|
|
As Previously Reported
|
|
|
Adjustment
|
|
|
As Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on change in fair value of derivatives
|
|
$
|
(401,870
|
)
|
|
$
|
(95,209
|
)
|
|
$
|
(497,079
|
)
|
|
Interest expense
|
|
|
(226,665
|
)
|
|
|
(157,647
|
)
|
|
|
(384,312
|
)
|
|
Accretion of debt discount
|
|
|
(439,465
|
)
|
|
|
(22,440
|
)
|
|
|
(461,905
|
)
|
|
Net loss for the period
|
|
|
(1,944,565
|
)
|
|
|
(275,295
|
)
|
|
|
(2,219,860
|
)
|
|
Net loss attributable to Mantra Venture Group Ltd.
|
|
|
(1,900,877
|
)
|
|
|
(275,295
|
)
|
|
|
(2,176,172
|
)
|
|
Net loss per share attributable to Mantra Venture Group Ltd. common shareholders, basic and diluted
|
|
|
(0.02
|
)
|
|
|
(0.01
|
)
|
|
|
(0.03
|
)
|
|
|
|
For the Year Ended May 31, 2016
|
|
|
Consolidated Statement of Cash Flows
|
|
As Previously Reported
|
|
|
Adjustment
|
|
|
As Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,944,565
|
)
|
|
$
|
(275,295
|
)
|
|
$
|
(2,219,860
|
)
|
|
Gain on change in fair value of derivative liability
|
|
|
(179,807
|
)
|
|
|
(15,899
|
)
|
|
|
(195,706
|
)
|
|
Initial derivative expenses
|
|
|
581,677
|
|
|
|
111,108
|
|
|
|
692,785
|
|
|
Interest related to cash redemption premium on convertible notes
|
|
|
123,188
|
|
|
|
153,690
|
|
|
|
276,878
|
|
|
Accounts payable and accrued liabilities
|
|
|
234,200
|
|
|
|
26,396
|
|
|
|
260,596
|
|
|
Accretion of discounts on convertible debentures
|
|
|
439,465
|
|
|
|
22,440
|
|
|
|
461,905
|
|
|
(a)
|
On
December 1, 2016, the Company entered into a debt settlement agreement to settle $7,500 of amounts owed for services in exchange
for 2,000,000 common shares. The Company has not yet issued the shares. The Company will record the debt settlement upon the
issuance of shares.
|
|
|
|
|
(b)
|
On
March 2, 2017, the Company issued 5,954,208 shares of common stock upon the conversion of $10,837 of principal and unpaid
interest of the convertible note described in Note 9(f).
|
|
|
|
|
(c)
|
On
March 7, 2017, the Company issued 5,954,208 shares of common stock upon the conversion of $10,063 of principal and unpaid
interest of the convertible note described in Note 9(f).
|
|
|
|
|
(d)
|
On
March 13, 2017, the Company amended a debt settlement agreement, dated November 15, 2016, to settle a $15,000 loan described
in Note 7 (c) in exchange for 6,000,000 common shares. The shares were issued effective March 8, 2017.
|
|
|
|
|
(e)
|
On
March 15, 2017, the Company issued 6,548,937 shares of common stock upon the conversion of $11,068 of principal and unpaid
interest of the convertible note described in Note 9(f).
|
|
|
|
|
(f)
|
On
April 1, 2017, the Company issued an aggregate 295,800 shares of common stock upon the conversion of $11,832 of principal
and unpaid interest of two convertible notes described in Note 9(d).
|
17.
|
Subsequent
Events (cont..)
|
|
(g)
|
On
April 7, 2017, the Company issued 2,170,314 shares of common stock upon the conversion of $3,527 of principal and unpaid interest
of the convertible note described in Note 9 (f).
|
|
|
|
|
(h)
|
On
April 25, 2017, the Company entered into and closed on an Asset Purchase Agreement (the “Asset Purchase Agreement”)
with InterCloud Systems, Inc. (“InterCloud”). Pursuant to the terms of the Asset Purchase Agreement, the Company
purchased 80.1% of the assets associated with InterCloud’s “AW Solutions” business including, but not limited
to, fixed assets, real property, intellectual property, and accounts receivables. The purchase price paid by the Company for
the assets includes the assumption of certain liabilities and contracts associated with the business, the issuance to InterCloud
of a convertible promissory note in the aggregate principal amount of $2,000,000 (the “Unsecured Note”), and a
potential earn-out after six months in an amount equal to the lesser of (i) three times EBITDA (as defined in the Asset Purchase
Agreement) of the Business for the six-month period immediately following the closing and (ii) $1,500,000. In addition, the
Asset Purchase Agreement contains a working capital adjustment. The interest on the outstanding principal due under the Unsecured
Note accrues at a rate of 8% per annum. All principal and accrued interest under the Unsecured Note is due one year following
the issue date of the Unsecured Note, and is convertible into shares of common stock at a conversion price equal to 75% of
the lowest volume-weighted average price during the 15 trading days immediately preceding the date of conversion.
|
|
|
|
|
(i)
|
On
April 28, 2017, the Company entered into and closed on a Securities Purchase Agreement (“Purchase Agreement”)
with an institutional investor (the “Lender”), pursuant to which the Company issued to the Lender a senior secured
convertible promissory note in the aggregate principal amount of $440,000 (the “Secured Note”) for an aggregate
purchase price of $400,000, and a warrant with a term of three years to purchase up to 27,500,000 shares of common stock of
the Company at an exercise price of $0.0255 per share. The interest on the outstanding principal due under the Secured Note
accrues at a rate of 8% per annum. All principal and accrued interest under the Secured Note is due on April 27, 2018 and
is convertible into shares of the Company’s Common Stock at a conversion price equal to 75% of the lowest volume-weighted
average price during the 15 trading days immediately preceding the conversion, subject to adjustment upon the occurrence of
certain events.
|
|
|
|
|
(j)
|
On
May 18, 2017, the Company issued 62,125,755 shares of common stock with a fair value of $1,491,018 to a new director of the
Company in exchange for services for the Company.
|
|
|
|
|
(k)
|
On
May 19, 2017, the Company issued 62,125,755 shares of common stock with a fair value of $1,801,647 to a new director of
the Company in exchange for services for the Company.
|
|
|
|
|
(l)
|
On
April 10, 2017, the Company issued 4,491,018 shares of common stock upon the conversion of $15,000 in accounts payable
debt, further to an agreement dated January 17, 2017.
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
|
FORWARD
LOOKING STATEMENTS
This
quarterly report contains forward-looking statements. These statements relate to future events or our future financial performance.
In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”,
“plan”", “anticipates”, “believes”, “estimates”, “predicts”,
“potential” or “continue” or the negative of these terms or other comparable terminology. These statements
are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry's
actual results, levels of activity, performance or achievements to be materially different from any future results, levels of
activity, performance or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations
reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance
or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to
update any of the forward-looking statements to conform these statements to actual results.
Our
unaudited consolidated financial statements are stated in United States dollars ($) and are prepared in accordance with United
States generally accepted accounting principles. The following discussion should be read in conjunction with our financial statements
and the related notes that appear elsewhere in this quarterly report. The following discussion contains forward-looking statements
that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward
looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed
below and elsewhere in this quarterly report.
In
this quarterly report, unless otherwise specified, all dollar amounts are expressed in United States dollars. All references to
"$" refer to United States dollars and all references to "common stock" refer to the common shares in our
capital stock.
As
used in this quarterly report, the terms “we”, “us”, “our” and “our company” mean
Mantra Venture Group Ltd. and our wholly owned subsidiaries Carbon Commodity Corporation, Mantra China Inc., Mantra China Limited,
Mantra Media Corp., Mantra NextGen Power Inc., and Mantra Wind Inc., as well as our majority owned subsidiary and Mantra Energy
Alternatives Ltd., unless otherwise indicated.
Business
Overview
Description
of Business
We
were incorporated in Nevada on January 22, 2007. On December 8, 2008 we continued our corporate jurisdiction out of the state
of Nevada and into the Province of British Columbia, Canada. Our principal offices are located at 1562 128th Street, Surrey, British
Columbia, Canada, V4A 3T7. Our telephone number is (604) 560-1503. Our fiscal year end is May 31.
We
are a technology incubator that takes innovative emerging technologies and moves them towards commercialization. Our subsidiary
Mantra Energy Alternatives is developing electrochemical technologies designed to make reducing greenhouse gas emissions profitable.
Through our acquisition of AW Solutions (as described below), we provide comprehensive turnkey outsourced wireless and wireline
infrastructure services with licensing across the United States, Canada and the Caribbean.
Acquisition
of AW Solutions
On
April 25, 2017, we entered into and closed on an Asset Purchase Agreement (the “Asset Purchase Agreement”) with InterCloud
Systems, Inc. (“InterCloud”), a Delaware corporation. Pursuant to the terms the Asset Purchase Agreement, InterCloud
agreed to sell, and the Company agreed to purchase, 80.1% of the assets associated with InterCloud’s “AW Solutions”
business (the “AW Solutions”) including, but not limited to, fixed assets, real property, intellectual property, and
accounts receivables (collectively, the “Assets”). AW Solutions provides professional, multi-service line, telecommunications
infrastructure and outsource services to the wireless and wireline industry.
The
purchase price paid by the Company for the Assets includes the assumption of certain liabilities and contracts associated with
the Business, the issuance to AW Solutions of a convertible promissory note in the aggregate principal amount of $2,000,000
,
and a potential earn-out after six months in an amount equal to the lesser of (i) three times EBITDA (as defined in the Asset
Purchase Agreement) of the Business for the six-month period immediately following the closing and (ii) $1,500,000. In addition,
the Asset Purchase Agreement contains a working capital adjustment.
Pursuant
to the Asset Purchase Agreement, Patrick Dodd, Jonathan Boughen and Larry Kristof resigned as members of the Company’s board
of directors and Keith Hayter and Roger Ponder were appointed to the Company’s Board, effective as of the consummation of
the Asset Sale. Each of the members of the Board will serve until the Company’s 2017 annual meeting of shareholders or until
his earlier death, resignation or removal.
We
intend to actively build and develop the AW Solutions business in the future, which we anticipate will generate revenues during
the year.
Other
businesses
Overview
Due
to the acquisition of AW Solutions and our inability to obtain further funding to develop mixed-reactant fuel cell (“MRFC”)
technology, we intend to revisit our pursuit of this line of business during the next quarter and may consider the sale, disposition
or restructuring of this business unit to focus on pursuing the AW Solutions business. We have not made any decision on the future
of our other businesses at this time.
Since
our inception, we have incurred operational losses and we have completed several rounds of financing to fund our operations.
Our
partially owned subsidiary Mantra Energy Alternatives Ltd. (“MEA”) has itself undertaken financing activities to raise
money for research and development by issuing common shares. During the year, MEA and the Company have sought funding to develop
a prototype unit for the MRFC technology, which is described below.
We
also have a number of inactive subsidiaries, which we may engage in various businesses in the future but have no current plans
to do so at this time.
An
overview of our technologies is as follows:
MRFC
Technology
We
develop technologies and services that provide a carbon reduction in the environment. Through a partially owned subsidiary, have
acquired and own a process for the electro-reduction of carbon dioxide and have the exclusive world license for a MRFC. We are
developing these technologies toward commercial applications.
In
the past we have contracted out our development work to various laboratories. During the year, we conducted research and development
related work from time to time on these technologies at our offices and with own staff in Vancouver, B.C. Our 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 out the majority of our business through MEA through which we develop and research technologies related to alternative
energy and chemical production to reduce greenhouse gas emissions and resource consumption.
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. These include a fuel for a next generation of fuel cells, and synthetic gas (“syngas”), which is a cornerstone
intermediate in the chemical industry, and can be further upgraded to products such as diesel or jet fuel. Powered by electricity,
the ERC process combines captured carbon dioxide with water to produce materials such as formate salts, syngas, 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.
Whereas
ERC has been shown to produce a range of compounds, the efficiency for generation of each compound depends on the experimental
conditions, and most importantly on 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, formate salts have been obtained on tin cathodes with current efficiencies above 80%, at industrially
relevant conditions. Current efficiencies exceeding 80% have also been obtained on proprietary silver cathodes for carbon monoxide,
the key constituent of syngas.
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.
On
the other hand, the ERC process to syngas suffers from very few market limitations. The market for synthetic gas is currently
estimated at around $36 billion, and growing. Due to the large number of products which can be produced from syngas, including
gasoline, diesel, jet fuel or methanol, we anticipate the demand for an environmentally-conscious pathway to these chemicals will
grow rapidly into the future.
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.
Results
of Operations for the Three and Nine Month Periods Ended February 28, 2017 and February 29, 2016
Revenues
Our
operating results for the three and six month periods ended February 28, 2017 and February 29, 2016 are summarized as follows:
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
February 28, 2017 and February 29, 2016
|
|
|
February 28, 2017 and
February 29, 2016
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
30,299
|
|
|
$
|
-
|
|
|
$
|
81,067
|
|
Operating expenses
|
|
$
|
195,847
|
|
|
$
|
144,827
|
|
|
$
|
435,379
|
|
|
$
|
769,700
|
|
Other income (expense)
|
|
$
|
1,122,545
|
|
|
$
|
(180,188
|
)
|
|
$
|
(658,330
|
)
|
|
$
|
(672,015
|
)
|
Net income (loss)
|
|
$
|
926,698
|
|
|
$
|
(294,716
|
)
|
|
$
|
(1,093,709
|
)
|
|
$
|
(1,360,648
|
)
|
Our
net income for the three months ended February 28, 2017 was $926,698 of which a loss of $4,866 was attributable to the minority
interest. Our net loss for nine months ended February 28, 2017 was $ 1,093,709 of which $14,616 was attributable to the minority
interest.
Revenue
generated during the three months ended February 28, 2017 was nil compared to revenue of $30,299 during the same period in 2016.
Revenue generated during the nine months ended February 28, 2017 was nil compared to revenue of $81,067 during the same period
in 2016. The decrease in revenues is due to the expiry of our contract with Alstom, which was not renewed.
Expenses
Our
operating expenses for the three and nine month periods ended February 28, 2017 and February 29, 2016 are summarized as follows:
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
February 28, 2017
February 29, 2016
|
|
|
February 28, 2017,
February 29, 2016
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Consulting and advisory
|
|
$
|
123,578
|
|
|
$
|
35,751
|
|
|
$
|
168,578
|
|
|
$
|
182,344
|
|
Depreciation and amortization
|
|
$
|
8,404
|
|
|
$
|
8,237
|
|
|
$
|
24,329
|
|
|
$
|
19,462
|
|
Foreign exchange gain
|
|
$
|
12,093
|
|
|
$
|
(3,767
|
)
|
|
$
|
(6,231
|
)
|
|
$
|
(4,226
|
)
|
General and administrative
|
|
$
|
9,258
|
|
|
$
|
37,775
|
|
|
$
|
53,056
|
|
|
$
|
193,875
|
|
Management fees
|
|
$
|
45,178
|
|
|
$
|
35,335
|
|
|
$
|
136,666
|
|
|
$
|
153,773
|
|
Professional fees
|
|
$
|
(1,664
|
)
|
|
$
|
18,304
|
|
|
$
|
35,007
|
|
|
$
|
118,378
|
|
Research and Development
|
|
$
|
(1,000
|
)
|
|
$
|
13,192
|
|
|
$
|
23,974
|
|
|
$
|
106,094
|
|
During
the three months ended February 28, 2017 our operating expenses were $195,847 compared to operating expenses of 144,827 for the
three month period ended February 29, 2016. The increase of operating expenses of $51,020 during this period primarily consisted
of an increase in consulting and advisory fees and management fees, partially offset by a decrease in general and administrative,
professional fees and research and development. Consultancy and advisory fees increased because we hired consultants to assist
us with business change and the proposed acquisition of AW Solutions and other corporate changes. General and administrate expense
decreased due to a staffing reduction. Research and development expenses decreased as we did not conduct any research or development
during the quarter.
During
the nine months ended February 28, 2017 our operating expenses were $ 435,379 compared to operating expenses of $769,700 for the
nine month period ended February 29, 2016. The decrease of operating expenses of $ 334,321 during this period primarily consisted
of a decrease in general and administrative, professional fees and research and development. General and administrative fees decreased
because we employed cost cutting resulting in less staff and overhead. Research and development decreased because of working capital
constraints and our inability to raise funding for same. Professional fees decreased primarily due to reduced legal fees, less
activity in the company and by using management to perform some of the same activities.
The
basic weighted average number of shares outstanding were 116,654,010 and 80,407,995 for the three months ended February 28, 2017
and February 29, 2016, respectively.
Liquidity
and Capital Resources
Working
Capital
|
|
At
|
|
|
At
|
|
|
|
February 28
|
|
|
May 31,
|
|
|
|
2017
|
|
|
2016
|
|
Current Assets
|
|
$
|
4,473
|
|
|
$
|
13,266
|
|
Current Liabilities
|
|
$
|
3,423,536
|
|
|
$
|
2,845,939
|
|
Working Capital
|
|
$
|
(3,419,063
|
)
|
|
$
|
(2,832,673
|
)
|
Cash
Flows
|
|
Nine Months
Ended
February 28,
2017
|
|
|
Nine Months
Ended
February 29,
2016
|
|
Net Cash Used In Operating Activities
|
|
$
|
(187,215
|
)
|
|
$
|
(370,622
|
)
|
Net Cash Used In Investing Activities
|
|
$
|
-
|
|
|
$
|
(16,748
|
)
|
Net Cash Provided by Financing Activities
|
|
$
|
186,096
|
|
|
$
|
382,474
|
|
Change In Cash
|
|
$
|
(1,119
|
)
|
|
$
|
(4,896
|
)
|
As
of February 28, 2017, we had no cash in our bank accounts and a working capital deficit of $(3,419,063). As of May 31, 2016 we
had cash of $1,119 and a working capital deficit of $(2,832,673).
Cash
Flows from Operating Activities
We
have not generated positive cash flows from operating activities. For the nine months ended February 28, 2017, net cash flows
used in operating activities was $187,215 compared to $370,622 for the nine months ended February 29, 2016. The decrease in net
cash used in operating activities was primarily a result of a decrease in cash used to fund operating losses during the nine months
ended February 28, 2017 compared to the nine months ended February 29, 2016.
Cash
Flows from Investing Activities
For
the nine months ended February 28, 2017 cash flows used in investing activities were nil compared to $16,748 for the nine months
ended February 29, 2016. The decrease in cash used in investing activities was a result of a decrease in cash available to invest
in assets during the nine months ended February 28, 2017 compared to the nine months ended February 29, 2016.
Cash
Flows from Financing Activities
For
the nine months ended February 28, 2017 cash flows from financing activities were $186,096 compared to $382,474 for the nine months
ended February 29, 2016. The decrease in cash provided by financing activities is as a result of the diminished receipts from
financing related to the issuance of notes payable and convertible debentures during the nine months ended February 28, 2017.
We
have suffered recurring losses from operations. The continuation of our company is dependent upon our company attaining and maintaining
profitable operations and raising additional capital as needed. In this regards we have historically raised additional capital
through equity offerings and loan transactions.
We
expect that our total expenses will increase over the next year as we increase our business operations and commence operations
of AW Solutions.
We
have not been able to reach the break-even point since our inception and have had to rely on outside capital resources. We anticipate
making significant revenues during the next year through AW Solutions operations. Over the next 12 months, we plan to primarily
concentrate on developing the AW Solutions business and determining whether commercializing our ERC technology and associated
projects is feasible, which will be dependent upon the availability for financing these projects.
Description
|
|
Estimated
expenses
($)
|
|
|
|
|
|
Research and Development
|
|
|
500,000
|
|
Consulting Fees
|
|
|
250,000
|
|
Commercialization of ERC
|
|
|
3,000,000
|
|
Shareholder communication and awareness
|
|
|
200,000
|
|
Professional Fees
|
|
|
300,000
|
|
Wages and Benefits
|
|
|
200,000
|
|
Management Fees
|
|
|
150,000
|
|
Total
|
|
|
4,600,000
|
|
In
order to fully carry out our business plan, we need additional financing of approximately $4,600,000 for the next 12 months. In
order to improve our liquidity, we intend to issue convertible securities and 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 financial condition, revenues or expenses, results of operations, liquidity, capital expenditures
or capital resources that is material to stockholders.
Inflation
The
effect of inflation on our revenue and operating results has not been significant.
Critical
Accounting Policies
Our
consolidated financial statements are impacted by the accounting policies used and the estimates and assumptions made by management
during their preparation. A summary of some of these policies is included in note 2 of the notes to our financial statements,
however, not all of our accounting policies are stated in our interim 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
Our
consolidated financial statements and related notes are presented in accordance with accounting principles generally accepted
in the United States. Our 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.
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, stock-based compensation, and deferred income tax asset valuation allowances. Our company bases its estimates
and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and
the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by our company
may differ materially and adversely from our company’s estimates. To the extent there are material differences between the
estimates and the actual results, future results of operations will be affected.
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. Our company had no allowance for doubtful accounts as of
February 28, 2017 and May 31, 2016.
Intangible
Assets
Intangible
assets consist of patents and are stated at cost and have a definite life. Intangible assets are amortized over their estimated
useful lives. Our company periodically evaluates the reasonableness of the useful lives of these assets. Once these assets are
fully amortized, they are removed from the accounts. These assets are reviewed for impairment or obsolescence when events or changes
in circumstances indicate that the carrying amount may not be recoverable. If impaired, intangible assets are written down to
fair value based on discounted cash flows or other valuation techniques. Our company has no intangibles with indefinite lives.
Long-lived
Assets
In
accordance with ASC 360, “
Property, Plant and Equipment
”, our company tests long-lived assets or asset groups
for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances
which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant
adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally
expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history
of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will
more likely than not be sold or disposed significantly before the end of its estimated useful life. Recoverability is assessed
based on the carrying amount of the asset and its fair value, which is generally determined based on the sum of the undiscounted
cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances.
An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value
Revenue
Our
company has recently acquired the AW Solutions business from Intercloud, and intends to generate significant revenues from the
acquisition. Other than our AW Solutions business, we primarily perform 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.
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.
Loss
Per Share
Our
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.
Recent
Accounting Pronouncements
Our
company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and
does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact
on its financial position or results of operations.
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
As
a “smaller reporting company”, we are not required to provide the information required by this Item.
|
Item
4.
|
Controls
and Procedures
|
a)
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 Securities Exchange Act of 1934 as of the end of the
period covered by this Quarterly Report on Form 10-Q. 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 our evaluation, our chief executive officer and chief financial officer concluded that, as a result of the material weaknesses
described below, as of February 28, 2017, 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 our 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.
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.
(b)
Changes in internal control over financial reporting.
There
were no changes in our internal control over financial reporting that occurred during the quarter ended February 28, 2017 that
have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.