(The accompanying notes are an integral part of these unaudited consolidated financial statements)
F-3
MANTRA VENTURE GROUP LTD.
Consolidated statements of cash flows
(Expressed in U.S. dollars)
(unaudited)
|
|
|
|
Six Months
Ended
November 30,
2016
$
|
Six Months
Ended
November 30,
2015
$
|
Operating activities
|
|
|
|
|
|
Net loss
|
(2,020,407)
|
(1,065,932)
|
|
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
(Gain) loss on change in fair value of derivative liability
|
1,206,006
|
(268,442)
|
Amortization of finance costs
|
|
15,502
|
Accretion of discounts on convertible debentures
|
318,740
|
318,707
|
Depreciation and amortization
|
15,925
|
11,225
|
Foreign exchange loss (gain)
|
2,912
|
(7,841)
|
Initial derivative expenses
|
171,102
|
359,867
|
Shares issued for services
|
|
30,001
|
Interest related to cash redemption premium on convertible notes
|
9,875
|
-
|
Stock-based compensation on options and warrants
|
|
19,118
|
Loss on settlement of debt
|
19,418
|
24,000
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
Amounts receivable
|
5,674
|
17,586
|
Prepaid expenses and deposits
|
11,655
|
89,453
|
Accounts payable and accrued liabilities
|
47,512
|
153,500
|
Due to related parties
|
51,574
|
(20,674)
|
|
|
|
Net cash used in operating activities
|
(160,014)
|
(323,930)
|
|
|
|
Investing activities
|
|
|
|
|
|
Purchase of property and equipment
|
|
(682)
|
Investment in intangible assets
|
|
(12,161)
|
|
|
|
Net cash used in investing activities
|
|
(12,843)
|
|
|
|
Financing activities
|
|
|
|
|
|
Repayment of capital lease obligations
|
(4,592)
|
(3,309)
|
Repayment of loan payable
|
-
|
(50,000)
|
Proceeds from notes payable
|
20,282
|
50,000
|
Proceeds from issuance of convertible debentures
|
134,500
|
312,000
|
Checks issued in excess of funds on deposit
|
3,705
|
5,636
|
Proceeds from issuance of common stock and subscriptions received
|
5,000
|
15,000
|
|
|
|
Net cash provided by financing activities
|
158,895
|
329,327
|
|
|
|
Change in cash
|
(1,119)
|
(7,446)
|
|
|
|
Cash, beginning of period
|
1,119
|
7,446
|
|
|
|
Cash, end of period
|
-
|
|
|
|
|
F-4
|
|
|
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
|
108,212
|
24,000
|
Common stock issued for conversion of notes payable
|
236,093
|
359,988
|
Original issue discounts
|
24,999
|
26,087
|
Debt issuance costs
|
-
|
13,000
|
Original debt discount against derivative liability
|
134,500
|
334,755
|
|
|
|
Supplemental disclosures:
|
|
|
Interest paid
|
657
|
9,333
|
Income taxes paid
|
|
|
(The accompanying notes are an integral part of these unaudited consolidated financial statements)
F-4
MANTRA VENTURE GROUP LTD.
Notes to the consolidated financial statements
November 30, 2016
(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 Companys 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 Companys 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 November 30, 2016, the Company has an accumulated loss of $15,716,745, and a working capital deficit of $4,483,284. These factors raise substantial doubt regarding the Companys ability to continue as a going concern. These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Management requires additional funds over the next twelve months to fully implement its business plan. Management is currently seeking additional financing through the sale of equity and from borrowings from private lenders to cover its operating expenditures. There can be no certainty that these sources will provide the additional funds required for the next twelve months.
F-5
2.
Significant Accounting Policies
a.
Basis of Presentation/Principles of Consolidation
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.
b.
Loss Per Share
The Company computes loss per share in accordance with ASC 260, "Earnings per Share" which requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing the loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti- dilutive. As at November 30, 2016, the Company had 352,678,654 (November 30, 2015 34,949,950) dilutive potential shares outstanding.
c.
Recent Accounting Pronouncements
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
3.
Restricted Cash
Restricted cash represents cash pledged as security for the Companys credit cards. At November 30, 2016, the Company no longer pledged cash as security as the credit cards have been surrendered.
F-6
4.
Property and Equipment
|
|
|
|
|
|
Cost
$
|
Accumulated depreciation
$
|
November 30,
2016
Net carrying value
$
|
May 31,
2016
Net carrying value
$
|
|
|
|
|
|
Furniture and equipment
|
2,496
|
1,206
|
1,290
|
1,539
|
Computer
|
5,341
|
5,341
|
|
|
Research equipment
|
143,129
|
95,407
|
47,722
|
56,655
|
Vehicles under capital lease
|
72,690
|
62,630
|
10,060
|
14,433
|
|
|
|
|
|
|
223,656
|
164,584
|
59,072
|
72,627
|
During the six months ended November 30, 2016, the Company recorded $13,556 (2015 - $9,471) of amortization expense.
5.
Intangible Assets
|
|
|
|
|
|
Cost
$
|
Accumulated amortization
$
|
November 30,
2016
Net carrying value
$
|
May 31,
2016
Net carrying value
$
|
|
|
|
|
|
Patents
|
70,789
|
10,544
|
60,245
|
62,615
|
During the six months ended November 30, 2016, the Company recorded $2,369 (2015 - $1,754) of amortization expense.
|
|
|
|
|
|
Estimated Future Amortization Expense:
|
|
|
For year ending May 31, 2017
|
2,369
|
|
For year ending May 31, 2018
|
4,738
|
|
For year ending May 31, 2019
|
4,738
|
|
For year ending May 31, 2020
|
4,738
|
|
For year ending May 31, 2021
|
4,738
|
|
6.
Related Party Transactions
a)
During the six months ended November 30, 2016, the Company incurred management fees of $68,616 (2015 - $65,485) to the President of the Company.
b)
During the six months ended November 30, 2016, the Company incurred management fees of $22,872 (2015 - $23,820) to the spouse of the President of the Company.
c)
During the six months ended November 30, 2016, the Company incurred research and development fees of $0 (2015 - $28,920) to a director of the Company.
F-7
d)
During the six months ended November 30, 2016, the Company recorded $0 (2015 - $29,133) of management fees for the vesting of options previously granted to officers and directors.
e)
As at November 30, 2016, the Company owes a total of $188,720 (May 31, 2016 - $136,723) to the President of the Company and his spouse, and a company controlled by the President of the Company which is non-interest bearing, unsecured, and due on demand.
f)
As at November 30, 2016, the Company owes $17,414 (May 31, 2016 - $17,837) to an officer and a director of the Company, which is non-interest bearing, unsecured, and due on demand.
7.
Loans Payable
a)
As at November 30, 2016, the amount of $47,140 (Cdn$63,300) (May 31, 2016 - $48,285 (Cdn$63,300)) is owed to a non-related party which is non-interest bearing, unsecured, and due on demand.
b)
As at November 30, 2016, the amount of $17,500 (May 31, 2016 - $17,500) is owed to a non-related party which is non-interest bearing, unsecured, and due on demand.
c)
As at November 30, 2016, the amount of $15,000 (May 31, 2016 - $15,000) 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 to settle the amount owed in exchange for 3,000,000 common shares. The Company has not yet issued the shares. The Company will record the debt settlement upon the issuance of shares.
d)
As at November 30, 2016, the amount of $0 (Cdn$0) (May 31, 2016 -$14,413 (Cdn$18,895)) 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.
e)
As at November 30, 2016, the amounts of $7,500 and $27,554 (Cdn$37,000) (May 31, 2016 - $7,500 and $28,224, (Cdn$37,000)) are owed to a non-related party which are non-interest bearing, unsecured, and due on demand.
f)
As at November 30, 2016, the amount of $4,490 (May 31, 2016 - $4,490) is owed to a non-related party which is non-interest bearing, unsecured, and due on demand.
g)
As at November 30, 2016, the amounts of $13,454 (Cdn$18,066) (May 31, 2016 - $13,696 (Cdn$18,066)) was advanced by a non-related party. The amount owing is non-interest bearing, unsecured, and due on demand.
h)
In March 2012, the Company received $50,000 for the subscription of 10,000,000 shares of the Companys common stock. During the year ended May 31, 2013, the Company and the subscriber agreed that the shares would not be issued and that the subscription would be returned. The subscription has been reclassified as a non-interest bearing demand loan until the funds are refunded to the subscriber.
i)
On August 4, 2015, the Company borrowed $50,000 pursuant to a promissory note. The note was due on September 4, 2015. The note bears interest at 120% per annum prior September 4, 2015, and at 180% per annum after September 4, 2015. The holder of the note was also granted the rights to buy 100,000 shares of the Companys common stock at a price of $0.15 per share until August 4, 2017. During the year ended May 31, 2016, the Company repaid the $50,000 note and $1,200 of accrued interest remains owing.
F-8
j)
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.
k)
As at November 30, 2016, the amounts of $9,000 and $11,282 (Cdn$15,150) (May 31, 2016 - $0) are owed to non-related parties which are non-interest bearing, unsecured, and due on demand.
8.
Obligations Under Capital Lease
On July 31, 2012 and December 21, 2012, the Company entered into two agreements to lease two vehicles for three years each. In August 2015, the July 31, 2012 lease was renewed for an additional two years and on December 28, 2015, the December 21, 2012 lease was also renewed for an additional two years. The vehicle leases are classified as a capital leases. The following is a schedule by years of future minimum lease payments under capital leases together with the present value of the net minimum lease payments as of November 30, 2016:
|
|
|
Year ending May 31:
|
|
$
|
2017
|
|
4,482
|
2018
|
|
3,362
|
|
|
|
Net minimum lease payments
|
|
7,844
|
Less: amount representing interest payments
|
|
(517)
|
|
|
|
Present value of net minimum lease payments
|
|
7,327
|
Less: current portion
|
|
(5,876)
|
|
|
|
Long-term portion
|
|
1,451
|
At the end of the leases, the Company has the option to purchase the two vehicles for $1 each.
9.
Convertible Debentures
(a)
In October 2008, the Company issued three convertible debentures for total proceeds of $250,000 which bear interest at 10% per annum, are unsecured, and due one year from date of issuance. The unpaid amount of principal and accrued interest can be converted at any time at the holders option into 625,000 shares of the Companys common stock at a price of $0.40 per share. The Company also issued 250,000 detachable, non-transferable share purchase warrants. Each share purchase warrant entitles the holder to purchase one additional share of the Companys common stock for a period of two years from the date of issuance at an exercise price of $0.50 per share.
In accordance with ASC 470-20,
Debt with Conversion and Other Options
, the Company determined that the convertible debentures contained no embedded beneficial conversion feature as the convertible debentures were issued with a conversion price higher than the fair market value of the Companys common shares at the time of issuance.
In accordance with ASC 470-20, the Company allocated the proceeds of issuance between the convertible debt and the detachable share purchase warrants based on their relative fair values. Accordingly, the Company recognized the fair value of the share purchase warrants of $45,930 as additional paid-in capital and an equivalent discount against the convertible debentures. The Company had recorded accretion expense of $45,930, increasing the carrying value of the convertible debentures to $250,000.
F-9
On January 19, 2012, the Company entered into a settlement agreement with one of the debenture holders to settle a $50,000 convertible debenture and $122,535 in accounts payable and accrued interest with the debt holder. Pursuant to the agreement, the debt holder agreed to reduce the debt to Cdn$100,000 on the condition that the Company pays the amount of Cdn$2,500 per month for 40 months, beginning March 1, 2012 and continuing on the first day of each month thereafter.
On July 18, 2012, the Company entered into a settlement agreement with the $150,000 debenture holder. Pursuant to the settlement agreement, the lender agreed to extend the due date until April 11, 2013 and the Company agreed to pay $43,890 of accrued interest within five days of the agreement (paid), pay the accruing interest on a monthly basis (paid), and pay a $10,000 premium in addition to the $150,000 principal outstanding on April 11, 2013. On April 29, 2013, the Company entered into an amended settlement agreement whereby the lender agreed to extend the due date to September 15, 2013 and the Company agreed to pay $6,836 of interest for the period from April 1 to September 15, 2013 upon execution of the agreement (paid) and granted the lender 100,000 stock options exercisable at $0.12 per share for a period of two years.
On November 15, 2013, the Company entered into a second settlement agreement amendment. Pursuant to the second amendment, on November 15, 2013, the Company agreed to pay interest of $4,438 (paid) and commencing February 1, 2014, the Company would make monthly payments of $10,000 on the outstanding principal and interest. On December 4, 2015, the holder of the convertible debenture entered into an agreement to sell and assign the remaining outstanding principal to a third party. The Company approved and is bound by the assignment and sale agreement.
The Company evaluated the modifications and determined that the creditor did not grant a concession. In addition, as the present value of the amended future cash flows had a difference of less than 10% of the cash flows of the original debt, it was determined that the original and new debt instruments are not substantially different. As a result, the modification was not treated as an extinguishment of the debt and no gain or loss was recognized because the fair value of the old debt and new debt remained the same. The Company recorded the fair value of $12,901 for the stock options as additional paid-in capital and a discount. During the year ended May 31, 2014, the Company repaid $40,000 of the debenture. As at May 31, 2014 the Company had accreted $12,901 of the discount bring the carrying value of the convertible debenture to $114,661. During the year ended May 31, 2015, the Company repaid $54,808 decreasing the carrying value to $59,853. At November 30, 2016, the other remaining debenture of $59,853 remained outstanding and past due.
(b)
On August 19, 2013, the Company issued a convertible debenture for total proceeds of $10,000, which bears interest at 10% per annum, is unsecured, and due two years from date of issuance. The unpaid amount of principal and accrued interest can be converted at the holders option into shares of the Companys common stock at $0.04 per share at any time after the first anniversary of the notes. The Company recognized the intrinsic value of the embedded beneficial conversion feature of $10,000 as additional paid-in capital and reduced the carrying value of the convertible debenture to $nil. The carrying value will be accreted over the term of the convertible debenture up to its face value of $10,000. As at November 30, 2016, the carrying value of the convertible promissory note was $10,000 and the note remained outstanding and in default.
F-10
(c)
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 Companys common stock at $0.04 per share at any time after the first anniversary of the notes. The Company recognized the intrinsic value of the embedded beneficial conversion feature of $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.
(d)
On December 27, 2013, the Company issued three convertible debentures for total proceeds of $15,000, which bear interest at 10% per annum, are unsecured, and due two years from date of issuance. The unpaid amount of principal and accrued interest can be converted at the holders option into shares of the Companys common stock at $0.04 per share at any time after the first anniversary of the notes. The Company recognized the intrinsic value of the embedded beneficial conversion features of $15,000 as additional paid-in capital and reduced the carrying value of the convertible debenture to $nil. The carrying value will be accreted over the term of the convertible debenture up to its face value of $15,000. As at November 30, 2016, the carrying value of the convertible promissory note was $15,000 and the note remained outstanding and in default.
(e)
On February 4, 2014, the Company issued a convertible debenture for total proceeds of $15,000, which bears interest at 10% per annum, is unsecured, and due two years from date of issuance. The unpaid amount of principal and accrued interest can be converted at the holders option into shares of the Companys common stock at $0.04 per share at any time after the first anniversary of the notes. The Company recognized the intrinsic value of the embedded beneficial conversion feature of $15,000 as additional paid-in capital and reduced the carrying value of the convertible debenture to $nil. The carrying value will be accreted over the term of the convertible debenture up to its face value of $15,000. As at November 30, 2016, the carrying value of the convertible promissory note was $15,000 and the note remained outstanding and in default.
(f)
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.
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 November 30, 2016, $45,000 of the note had been assigned to the third party.
F-11
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 six months ended November 30, 2016, the Company issued 7,975,646 shares of common stock upon the conversion of $35,000 of principal. At November 30, 2016, the carrying value of the note was $46,250 and the note remained outstanding and past due.
(g)
On September 8, 2015, the Company issued a convertible note in the principal amount of $326,087. During the year ended May 31, 2016, the Company received the initial tranches of $280,000 net of a $26,087 original issue discount. The note bears interest at 10% per annum and is convertible into common shares of the Company at a 65% discount to the lowest trading price during the previous 20 trading days to the date of conversion; or a 65% discount to the lowest trading price during the previous 20 trading days before the date the note was executed.
The embedded conversion option qualifies for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the conversion feature of $479,626 resulted in a discount to the note payable of $280,000 and the recognition of a loss on derivatives of $204,626. During the year ended May 31, 2016, the Company recorded accretion of $120,175 and recorded a default fee of $76,522 increasing the carrying value of the note to $190,696.
During the six months ended November 30, 2016, the Company recorded accretion of $177,343 increasing the carrying value of the note to $374,039.
(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 six months ended November 30, 2016, the recorded accretion of $80,823 increasing the carrying value of the note to $129,513.
(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.
F-12
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.
During the six months ended November 30, 2016, the Company received additional tranches of $89,500. The initial fair value of the conversion feature of $183,700 resulted in a discount to the note payable of $89,500 and the recognition of a loss on derivatives of $94,200. During the six months ended November 30, 2016, the Company recorded accretion of $53,345, and recorded a default fee of $9,875 increasing the carrying value of the note to $103,652.
(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 six months ended November 30, 2016, the Company recorded accretion of $7,229, increasing the carrying value of the note to $7,229.
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 Companys previously outstanding convertible instruments qualified for derivative reclassification, however, any convertible securities issued after the election, including the convertible note described in Notes 9(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 six months ended November 30, 2016, 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.
F-13
The table below sets forth a summary of changes in the fair value of the Companys Level 3 financial liabilities:
|
|
|
|
|
|
|
November 30, 2016
|
|
May 31,
2016
|
|
|
|
|
|
Balance at the beginning of period
|
$
|
978,245
|
$
|
353,668
|
|
|
|
|
|
Original discount limited to proceeds of notes
|
|
134,500
|
|
541,755
|
Fair value of derivative liabilities in excess of notes proceeds received
|
|
171,102
|
|
692,785
|
Reclassification of instruments previously classified as equity
|
|
16,095
|
|
|
Conversion of derivative liability
|
|
(73,201)
|
|
(414,246)
|
Change in fair value of embedded conversion option
|
|
1,205,995
|
|
(195,717)
|
|
|
|
|
|
Balance at the end of the period
|
$
|
2,432,736
|
$
|
978,245
|
The Company uses Level 3 inputs for its valuation methodology for the embedded conversion option liabilities as their fair values were determined by using the Black-Scholes option pricing model based on various assumptions. The model incorporates the price of a share of the Companys common stock (as quoted on the Over the Counter Markets), volatility, risk free rate, dividend rate and estimated life. Significant changes in any of these inputs in isolation would result in a significant change in the fair value measurement. As required, these are classified based on the lowest level of input that is significant to the fair value measurement. The following table shows the assumptions used in the calculations:
|
|
|
|
|
|
Expected Volatility
|
Risk-free Interest Rate
|
Expected Dividend Yield
|
Expected Life (in years)
|
|
|
|
|
|
|
|
|
|
|
At issuance
|
134-243%
|
0.07-1.11%
|
0%
|
0.50-2.00
|
At November 30, 2016
|
45-386%
|
0.08-1.11%
|
0%
|
0.01-1.75
|
11.
Common Stock
(a)
As at May 31, 2016 and 2015, the Company had received proceeds of $2,080 at $0.08 per unit for subscriptions for 26,000 units. Each unit consisted of one share of common stock and one-half of one share purchase warrant. Each whole share purchase warrant is exercisable at $0.20 per common share for a period of two years or five business days after the Companys common stock trades at least one time per day on the FINRA Over-the-Counter Bulletin Board at a price at or above $0.40 per share for seven consecutive trading days.
(b)
As at May 31, 2016 and 2015 the Companys subsidiary, Mantra Energy Alternatives Ltd., had received subscriptions for 67,000 shares of common stock at Cdn$1.00 per share for proceeds of $66,277 (Cdn$67,000), which is included in common stock subscribed, net of the non-controlling interest portion of $7,231.
F-14
(c)
As at May 31, 2016 and 2015, the Companys subsidiary, Climate ESCO Ltd., had received subscriptions for 210,000 shares of common stock at $0.10 per share for proceeds of $21,000, which is included in common stock subscribed, net of the non-controlling interest portion of $7,384.
(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 six months ended November 30, 2016:
(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 Companys common stock trades at least one time per day on the FINRA Over-the-Counter Bulletin Board at a price at or above $0.03 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.
(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.
12.
Share Purchase Warrants
The following table summarizes the continuity of share purchase warrants:
|
|
|
|
Number of
warrants
|
Weighted average exercise price
$
|
|
|
|
Balance, May 31, 2015
|
5,258,333
|
0.44
|
|
|
|
Issued
|
1,766,667
|
0.04
|
|
|
|
Balance, May 31, 2016
|
7,025,000
|
0.34
|
|
|
|
Issued
|
333,334
|
0.03
|
Expired
|
(150,000)
|
0.60
|
|
|
|
Balance, November 30, 2016
|
7,208,334
|
0.32
|
F-15
As at November 30, 2016, the following share purchase warrants were outstanding:
|
|
|
Number of warrants
|
Exercise
price
$
|
Expiry date
|
|
|
|
500,000
|
0.60
|
February 27, 2017
|
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
|
|
|
|
7,208,334
|
|
|
13.
Stock Options
The following table summarizes the continuity of the Companys stock options:
|
|
|
|
|
|
Number
of options
|
Weighted
average
exercise price
$
|
Weighted average remaining contractual life (years)
|
Aggregate
intrinsic
value
$
|
|
|
|
|
|
Outstanding, May 31, 2015
|
1,675,000
|
0.17
|
|
|
|
|
|
|
|
Granted
|
350,000
|
0.03
|
|
|
Expired
|
(525,000)
|
0.20
|
|
|
|
|
|
|
|
Outstanding, May 31, 2016
|
1,500,000
|
0.16
|
|
|
|
|
|
|
|
Expired
|
(750,000)
|
0.20
|
|
|
|
|
|
|
|
Outstanding, November 30, 2016
|
750,000
|
0.12
|
0.84
|
|
Exercisable, November 30, 2016
|
750,000
|
0.12
|
0.84
|
|
F-16
|
|
|
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 November 30, 2016
|
|
|
Additional information regarding stock options as of May 31, 2016 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 six month period ended November 30, 2016 or 2015.
14.
Commitments and Contingencies
(a)
On September 2, 2009, the Company entered into an agreement with a company to acquire a worldwide, exclusive license for the Mixed Reactant Flow-By Fuel Cell technology. The term of the agreement is for twenty years or the expiry of the last patent licensed under the agreement, whichever is later. The Company agreed to pay the licensor the following license fees:
·
an initial license fee of Cdn$10,000 payable in two installments: Cdn$5,000 upon execution of the agreement (paid) and Cdn$5,000 within thirty days of September 2, 2009 (paid);
·
a further license fee of Cdn$15,000 (paid) to be paid within ninety days of September 2, 2009; and
·
an annual license fee, payable annually on the anniversary of the date of the agreement as follows:
|
|
eptember 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)
|
F-17
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 Companys 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.
(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.
F-18
(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. At November 30, 2016, the Company had recorded the fair value of the 1,000,000 shares of $8,900 as an accrued liability.
15.
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 SECs 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 as follows:
F-19
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. stockholders deficit
|
(2,166,651)
|
(275,295)
|
(2,441,946)
|
Total stockholders deficit
|
(2,402,925)
|
(275,295)
|
(2,678,220)
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
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
|
F-20
16.
Subsequent Events
(a)
Subsequent to November 30, 2016, the Company issued 3,000,000 shares of common stock upon the conversion of the $15,000 loan described in Note 7(c).
(b)
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.
(c)
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.
(d)
On December 9, 2016, the Company issued 1,000,000 shares pursuant to the settlement agreement described in Note 14(h).
(e)
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).
On January 13, 2017, the Company issued 5,070,994 shares of common stock upon the conversion of $10,000 of principal of the convertible note described in Note 9(f).
F-21
Item 2.
Managements Discussion and Analysis of Financial Condition and Results of Operations
FORWARD LOOKING STATEMENTS
This quarterly report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as may, should, expects, plan", anticipates, believes, estimates, predicts, potential or continue or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
Our unaudited consolidated financial statements are stated in United States Dollars (US$) 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 "US$" refer to United States dollars and all references to "common stock" refer to the common shares in our capital stock.
As used in this 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 Climate ESCO Ltd. 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.
Our business is to develop technologies that we hope to lead to commercially feasible products and services which are intended to mitigate negative environmental and health consequences that arise from the production of energy and the consumption of resources.
We plan to develop or acquire technologies and services that provide a carbon reduction in the environment. To carry out our business strategy we intend to acquire or license from third parties technologies that require further development before they can be brought to market. We also intend to develop such technologies ourselves, and we anticipate that to complete commercialization of some technologies we will enter into joint ventures, partnerships, or other strategic relationships with third parties who have expertise that we may require. We may spin out or divest of technologies from time to time as they mature to improve cash flow, or when they are mature enough to become a self sustaining business.
6
Through a partially owned subsidiary, have acquired and own a process for the electro-reduction of carbon dioxide (ERC) and have the exclusive world license for a mixed-reactant fuel cell (MRFC). We are developing these technologies toward commercial applications.
In the past we have contracted out our development work to various laboratories. 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 our subsidiary, Mantra Energy Alternatives Ltd. (MEA), through which we develop and research technologies related to alternative energy and chemical production to reduce greenhouse gas emissions and resource consumption.
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.
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. has itself undertaken financing activities to raise money for research and development by issuing common shares. Presently, MEA and the Company is seeking funding to develop a prototype unit for the MRFC technology.
Collaboration with Alstom (Switzerland) Ltd.
On June 24, 2013, we entered into an agreement with Alstom (Switzerland) Ltd. concerning the joint research and development projects relating to (1) a pilot plant for the conversion of carbon dioxide to formate at a Lafarge cement plant (the Lafarge pilot project); and (2) the development of processes for the conversion of carbon dioxide to other valuable chemicals.
Pursuant to the agreement with Alstom, MEA and Alstom co-operated in one or more research and development projects related to MEAs ERC technology. Through this cooperation, the development of technologies and processes for the conversion of CO
2
to chemical products and the investigation of the feasibility of scale-up and commercialization of these processes occurred.
Each party will have exclusive right and discretion to prosecute all patents and patent applications resulting from its work on any project. The parties will jointly prosecute any intellectual property in jointly-owned results. Alstom will have the option under the agreement to acquire a license to use intellectual property created by MEA under the agreement, and to a license to MEAs ERC technology, as may be reasonably required to exploit intellectual property assumed by Alstom. The agreement does not affect ownership of any underlying intellectual property of either party.
The agreement with Alstom will remain valid for five years or the completion of the last active project, whichever last occurs, and may be extended at any time by the written agreement of both parties.
7
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 Earths 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.
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Energy Storage
Formate salts and formic acid, which can be produced from CO
2
via ERC, are excellent energy carriers and effective fuels for the MRFC. Thus, the integration of ERC and MRFC represents an energy storage solution whereby intermittent renewable electricity can be stored as formate/formic acid when it is available, and liberated when it is needed. The availability of energy storage is widely recognized as the next most critical factor for increased renewables penetration.
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Results of Operations for the Three and Six Month Periods Ended November 30, 2016 and November 30, 2015
Revenues
Our operating results for the three and six month periods ended November 30, 2016 and November 30, 2015 are summarized as follows: