UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 2009
o TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT
For the transition period from _________ to _________
Commission File Number: 000-53461
Mantra Venture Group Ltd.
(Name of Small Business Issuer in its charter)
British Columbia, Canada | 26-0592672 | |
(state or other jurisdiction of incorporation or organization) | (I.R.S. Employer I.D. No.) |
1205 – 207 West Hastings Street
Vancouver, British Columbia, Canada V6B 1H7
(Address of principal executive offices)
(604) 609 2898
Issuer’s telephone number
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was require to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller reporting company þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
APPLICABLE ONLY TO CORPORATE ISSUERS
As of April 13, 2009, the registrant had 28,693,303 shares of common stock outstanding.
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Index
F-1 | |||
F-1 | |||
F-1 | |||
F-2 | |||
F-3 | |||
F-4 | |||
3 | |||
10 | |||
11 | |||
11 | |||
11 | |||
12 | |||
12 | |||
12 | |||
Item 6. Exhibits | 12 |
2
(A development stage company)
Consolidated balance sheets
(Expressed in U.S. dollars)
February 28, 2009 $ (unaudited) | May 31, 2008 $ | |||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash | 6,446 | 26,201 | ||||||
Amounts receivable | 15,137 | 18,418 | ||||||
Prepaid expenses and deposits | 19,386 | 1,008 | ||||||
Total current assets | 40,969 | 45,627 | ||||||
Intangible assets | 37,815 | 42,815 | ||||||
Property and equipment | 118,584 | 55,682 | ||||||
Total assets | 197,368 | 144,124 | ||||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
Current liabilities | ||||||||
Accounts payable and accrued liabilities | 258,332 | 135,309 | ||||||
Accrued interest payable | 9,233 | – | ||||||
Due to related parties (Note 4) | 60,610 | 103,308 | ||||||
Convertible debentures, net of unamortized discount of $15,408 (Note 5) | 219,478 | – | ||||||
Note payable (Note 6) | 59,430 | – | ||||||
Total liabilities | 607,083 | 238,617 | ||||||
Going concern (Note 2) | ||||||||
Commitment (Note 7) | ||||||||
Stockholders’ deficit | ||||||||
Preferred stock Authorized: 20,000,000 shares, par value $0.00001 Issued and outstanding: Nil shares | – | – | ||||||
Common stock Authorized: 100,000,000 shares, par value $0.00001 Issued and outstanding: 27,341,180 shares (May 31, 2008 – 23,452,661 shares) | 274 | 235 | ||||||
Additional paid-in capital | 3,030,117 | 1,951,884 | ||||||
Deficit accumulated during the development stage | (3,440,106 | ) | (2,046,612 | ) | ||||
Total stockholders’ deficit | (409,715 | ) | (94,493 | ) | ||||
Total liabilities and stockholders’ deficit | 197,368 | 144,124 |
(The accompanying notes are an integral part of these consolidated financial statements)
F-1
(A development stage company)
Consolidated statements of operations
(Expressed in U.S. dollars)
(unaudited)
Three months ended February 28, | Nine months ended February 28, | Accumulated from January 22, 2007 (Inception) to February 28, | ||||||||||||||||||
2009 $ | 2008 $ | 2009 $ | 2008 $ | 2009 $ | ||||||||||||||||
Revenues | 1,060 | – | 12,118 | – | 12,118 | |||||||||||||||
Expenses | ||||||||||||||||||||
Advertising and promotion | 24,450 | – | 34,301 | – | 34,301 | |||||||||||||||
Business development | 1,973 | 23,979 | 3,422 | 39,325 | 204,075 | |||||||||||||||
Consulting and advisory | 8,642 | 220,205 | 43,996 | 279,762 | 387,139 | |||||||||||||||
Depreciation and amortization | 8,782 | 662 | 27,088 | 1,985 | 48,307 | |||||||||||||||
General and administrative | 58,436 | 48,261 | 136,734 | 158,644 | 380,341 | |||||||||||||||
Management fees | 51,000 | 44,188 | 147,000 | 169,102 | 385,700 | |||||||||||||||
Management fees - stock-based compensation | 181,446 | – | 232,979 | 21,265 | 254,246 | |||||||||||||||
Professional fees | 65,467 | 76,299 | 231,131 | 212,510 | 423,386 | |||||||||||||||
Public listing costs | 21,501 | 58,491 | 29,001 | 59,071 | 176,048 | |||||||||||||||
Research and development | 47,789 | 10,038 | 119,911 | 32,994 | 202,339 | |||||||||||||||
Salaries and benefits | 58,383 | – | 103,395 | – | 103,395 | |||||||||||||||
Shareholder communications and investor relations | 80,342 | 54,648 | 249,687 | 87,486 | 433,599 | |||||||||||||||
Travel | 5,373 | 82,769 | 20,896 | 162,789 | 232,009 | |||||||||||||||
Website and corporate identity | – | 103,840 | – | 103,840 | 161,268 | |||||||||||||||
Total expenses | 613,584 | 723,380 | 1,379,541 | 1,328,773 | 3,426,153 | |||||||||||||||
Loss before other expenses | (612,524 | ) | (723,380 | ) | (1,367,423 | ) | (1,328,773 | ) | (3,414,035 | ) | ||||||||||
Other expenses | ||||||||||||||||||||
Accretion of discounts on convertible debentures | (11,580 | ) | – | (15,408 | ) | – | (15,408 | ) | ||||||||||||
Interest | (4,777 | ) | – | (10,663 | ) | – | (10,663 | ) | ||||||||||||
Total other expenses | (16,357 | ) | – | (26,071 | ) | – | (26,071 | ) | ||||||||||||
Net loss for the period | (628,881 | ) | (723,380 | ) | (1,393,494 | ) | (1,328,773 | ) | (3,440,106 | ) | ||||||||||
Loss per share, basic and diluted | (0.02 | ) | (0.04 | ) | (0.05 | ) | (0.07 | ) | ||||||||||||
Weighted average number of shares outstanding | 27,303,448 | 20,459,026 | 26,141,886 | 19,140,773 |
(The accompanying notes are an integral part of these consolidated financial statements)
F-2
(A development stage company)
Consolidated statements of cash flows
(Expressed in U.S. dollars)
(unaudited)
Nine Months Ended February 28, 2009 | Nine Months Ended February 29, 2008 | Accumulated from January 22, 2007 (Inception) to February 28, 2009 | ||||||||||
$ | $ | $ | ||||||||||
Operating activities | ||||||||||||
Net loss for the period | (1,393,494 | ) | (1,328,773 | ) | (3,440,106 | ) | ||||||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||
Accretion of discounts on convertible debentures | 15,408 | – | 15,408 | |||||||||
Depreciation and amortization | 27,088 | 10,001 | 48,307 | |||||||||
Stock-based compensation | 422,342 | 381,717 | 1,102,426 | |||||||||
Changes in operating assets and liabilities | ||||||||||||
Amounts receivable | 3,281 | (14,842 | ) | (15,137 | ) | |||||||
Prepaid expenses and deposits | (18,378 | ) | (67 | ) | (19,386 | ) | ||||||
Other assets | – | (12,000 | ) | (12,000 | ) | |||||||
Accounts payable and accrued liabilities | 197,453 | 9,991 | 332,762 | |||||||||
Accrued interest payable | 9,233 | – | 9,233 | |||||||||
Due to related parties | (48,617 | ) | (2,179 | ) | 54,691 | |||||||
Net cash used in operating activities | (785,684 | ) | (530,024 | ) | (1,923,802 | ) | ||||||
Investing activities | ||||||||||||
Purchase of property and equipment | (84,990 | ) | (52,529 | ) | (154,891 | ) | ||||||
Net cash used in investing activities | (84,990 | ) | (52,529 | ) | (154,891 | ) | ||||||
Financing activities | ||||||||||||
Advances from related parties | 83,263 | – | 83,263 | |||||||||
Repayment of related party debt | (77,344 | ) | – | (77,344 | ) | |||||||
Proceeds from exercise of warrants | – | – | 137,500 | |||||||||
Proceeds from issuance of convertible debentures | 250,000 | – | 250,000 | |||||||||
Proceeds from issuance of common stock | 595,000 | 941,420 | 1,691,720 | |||||||||
Net cash provided by financing activities | 850,919 | 941,420 | 2,085,139 | |||||||||
Change in cash | 19,755 | 59,506 | 6,446 | |||||||||
Cash, beginning of period | 26,201 | 13,982 | – | |||||||||
Cash, end of period | 6,446 | 73,488 | 6,446 | |||||||||
Non-cash investing and financing activities: | ||||||||||||
Common stock issued for patent | – | – | 10,000 | |||||||||
Stock options issued for patent | – | – | 27,854 | |||||||||
Common stock issued to settle accounts payable | 15,000 | – | 15,000 | |||||||||
Promissory note issued to settle accounts payable | 58,000 | – | 58,000 | |||||||||
Fair value of share purchase warrants issued for convertible debentures | 45,930 | – | 45,930 | |||||||||
Supplemental disclosures: | ||||||||||||
Interest paid | – | – | – | |||||||||
Income taxes paid | – | – | – |
(The accompanying notes are an integral part of these consolidated financial statements)
F-3
(A development stage company)
Notes to the consolidated financial statements
(Expressed in U.S. dollars)
February 28, 2009
(unaudited)
1. | Basis of Presentation |
The unaudited interim consolidated financial statements of Mantra Venture Group Ltd. (the “Company”) have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and the rules of the Securities and Exchange Commission and should be read in conjunction with those financial statements included in the Company’s Form 10-K for the year ended May 31, 2008. They do not include all information and footnotes required by United States generally accepted accounting principles for complete financial statements. However, except as disclosed herein, there have been no material changes in the information disclosed in the notes to the financial statements for the year ended May 31, 2008 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission. In the opinion of management, all adjustments considered necessary for fair presentation, consisting solely of normal recurring adjustments, have been made. Operating results for the nine months ended February 28, 2009 are not necessarily indicative of the results that may be expected for the year ending May 31, 2009.
2. | Going Concern |
The Company’s unaudited interim 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, has generated minimal revenues since inception, has never paid any dividends and is unlikely to pay dividends or generate substantial earnings in the immediate or foreseeable future. The continuation of the Company as a going concern is dependent upon the continued financial support of 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 of February 28, 2009, the Company has a working capital deficiency of $566,114 and accumulated losses of $3,440,106 since inception. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. These 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.
3. | Recent Accounting Pronouncements |
In May 2008, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 163, “Accounting for Financial Guarantee Insurance Contracts – An interpretation of FASB Statement No. 60”. SFAS No. 163 requires that an insurance enterprise recognize a claim liability prior to an event of default when there is evidence that credit deterioration has occurred in an insured financial obligation. It also clarifies how Statement 60 applies to financial guarantee insurance contracts, including the recognition and measurement to be used to account for premium revenue and claim liabilities, and requires expanded disclosures about financial guarantee insurance contracts. It is effective for financial statements issued for fiscal years beginning after December 15, 2008, except for some disclosures about the insurance enterprise’s risk-management activities. SFAS No. 163 requires that disclosures about the risk-management activities of the insurance enterprise be effective for the first period beginning after issuance. Except for those disclosures, earlier application is not permitted. The adoption of this statement did not have a material effect on the Company’s financial statements.
F-4
MANTRA VENTURE GROUP LTD.
(A development stage company)
Consolidated statements of operations
(Expressed in U.S. dollars)
(unaudited)
3. | Recent Accounting Pronouncements (continued) |
In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles”. SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States. It is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles”. The adoption of this statement is not expected to have a material effect on the Company’s financial statements.
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities – an amendment to FASB Statement No. 133”. SFAS No. 161 is intended to improve financial standards for derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity's financial position, financial performance, and cash flows. Entities are required to provide enhanced disclosures about: (a) how and why an entity uses derivative instruments; (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations; and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. It is effective for financial statements issued for fiscal years beginning after November 15, 2008, with early adoption encouraged. The adoption of this statement is not expected to have a material effect on the Company’s financial statements.
In December 2007, FASB issued SFAS No. 141 (revised 2007), “Business Combinations”. This statement replaces SFAS No. 141 and defines the acquirer in a business combination as the entity that obtains control of one or more businesses in a business combination and establishes the acquisition date as the date that the acquirer achieves control. SFAS No. 141 (revised 2007) requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date. SFAS No. 141 (revised 2007) also requires the acquirer to recognize contingent consideration at the acquisition date, measured at its fair value at that date. This statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008 and earlier adoption is prohibited. The adoption of this statement is not expected to have a material effect on the Company's financial statements.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements Liabilities –an Amendment of ARB No. 51”. This statement amends ARB 51 to establish accounting and reporting standards for the Noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. This statement is effective for fiscal years and interim periods within those fiscal years, beginning on or after December 15, 2008 and earlier adoption is prohibited. The adoption of this statement is not expected to have a material effect on the Company's financial statements.
4. | Related Party Transactions |
a) | During the nine months ended February 28, 2009, the Company generated revenue of $8,000 (2008 - $Nil) for providing website design services to the spouse of the President of the Company. |
b) | During the nine months ended February 28, 2009, the Company incurred management fees of $58,500 (2008 - $Nil) and issued 50,000 shares of common stock at a fair value of $20,000 to a company controlled by the Chief Financial Officer of the Company. |
F-5
MANTRA VENTURE GROUP LTD.
(A development stage company)
Notes to the consolidated financial statements
(Expressed in U.S. dollars)
(unaudited)
4. | Related Party Transactions (continued) |
c) | Included in accounts payable as at February 28, 2009 is $10,965 owing to the President of the Company for management fees. As at February 28, 2009, the Company owes $58,410 to the President of the Company or entities that he controls. The amounts due are non-interest bearing, unsecured and due on demand. |
d) | Included in accounts payable as at February 28, 2009 is $7,734 (May 31, 2008 - $Nil) owing to a company controlled by the Chief Financial Officer of the Company for management fees. As at February 28, 2009, $2,100 (May 31, 2008 - $Nil) is owed to the Chief Financial Officer of the Company for expenses paid on behalf of the Company. The amounts due are non-interest bearing, unsecured and due on demand. |
5. | Convertible Debentures |
On October 16 and 17, 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 the issue at an exercise price of $0.50 per share.
In accordance with EITF 98-5, “Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios”, 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 EITF 00-27, “Application of issue No. 98-5 to Certain Convertible Instruments”, 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 relative fair value of the share purchase warrants of $45,930 as additional paid-in capital and an equivalent discount against the convertible debentures. As at February 28, 2009, the Company has recorded accretion expense of $15,408, increasing the carrying value of the convertible debentures to $219,478.
6. | Note Payable |
On November 30, 2008, the Company issued a promissory note of $58,000 to settle accounts payable. The promissory note bears interest at 10% per annum, is unsecured, and is due on December 31, 2009.
7. | Commitment |
On January 7, 2009, the Company entered a management services agreement with a company controlled by the Chief Financial Officer of the Company where it is committed to pay $8,500 per month for a period of one year. The agreement may be terminated by either party with seven days written notice.
8. | Common Stock |
a) | On June 15, 2008, the Company issued 37,500 shares of common stock at a fair value of $7,126 for services rendered. |
b) | On July 1, 2008, the Company issued 50,000 shares of common stock at a fair value of $20,000 to the Chief Financial Officer of the Company. |
c) | On July 2, 2008, the Company issued 2,400,000 units at $0.125 per share for proceeds of $300,000. Each unit consisted of one share of common stock and one share purchase warrant exercisable at $0.20 per share expiring on July 2, 2009. |
d) | On July 18, 2008, the Company issued 62,500 shares of common stock at a fair value of $26,250 for services rendered. |
e) | On September 15, 2008, the Company issued 37,500 shares of common stock at a fair value of $15,375 for services rendered. |
f) | On November 30, 2008, the Company issued 1,180,000 units at $0.25 per unit for proceeds of $295,000 and 40,000 units at $0.25 per unit to settle $10,000 of accounts payable. Each unit consisted of one common share and one-half non-transferrable warrant to purchase one additional share of common stock at an exercise price of $0.50 per share expiring on the earlier of two years or five business days after the Company’s common stock trades at least one time per day on the FINRA Over the Counter Bulletin Board at a price at or above $0.80 per share for seven consecutive trading days |
g) | On December 15, 2008, the Company issued 37,500 shares of common stock at a fair value of $13,500 for services rendered. |
h) | On January 28, 2009, the Company issued 25,000 shares of common stock at a fair value of $9,000 for services rendered. |
i) | On February 10, 2009, the Company issued 18,519 shares of common stock at a fair value of $5,000 to settle accounts payable. |
F-6
MANTRA VENTURE GROUP LTD.
(A development stage company)
Notes to the consolidated financial statements
(Expressed in U.S. dollars)
(unaudited)
9. | Stock Options |
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 and exercisable, May 31, 2008 | 1,450,000 | 0.33 | ||||||||||||
Granted | 1,900,000 | 0.29 | ||||||||||||
Cancelled | (550,000 | ) | 0.25 | |||||||||||
Outstanding and exercisable, February 28, 2009 | 2,800,000 | 0.33 | 1.7 | – |
Additional information regarding stock options as of February 28, 2009, is as follows:
Number of Options | Exercise Price $ | Expiry Date |
100,000 | 0.20 | June 9, 2009 |
75,000 | 0.25 | September 1, 2009 |
100,000 | 0.25 | October 5, 2009 |
100,000 | 0.30 | October 6, 2009 |
50,000 | 0.25 | October 31, 2009 |
100,000 | 0.25 | January 1, 2010 |
50,000 | 0.40 | December 13, 2009 |
200,000 | 0.75 | March 5, 2010 |
75,000 | 0.45 | April 25, 2010 |
150,000 | 0.25 | June 30, 2010 |
100,000 | 0.25 | July 16, 2010 |
1,375,000 | 0.30 | January 7, 2011 |
75,000 | 0.27 | February 10, 2011 |
250,000 | 0.25 | November 1, 2012 |
2,800,000 |
The fair values for stock options granted have been estimated using the Black-Scholes option pricing model assuming no expected dividends and the following weighted average assumptions:
Nine months ended February 28, 2009 | Nine months ended February 29, 2008 | |
Risk-free Interest rate | 0.80% | 3.78% |
Expected life (in years) | 0.9 | 0.9 |
Expected volatility | 111% | 73% |
The weighted average fair value of the stock options granted during 2009 was $0.17 per option. |
As of February 28, 2009, the Company had no unrecognized compensation expense relating to unvested options.
F-7
MANTRA VENTURE GROUP LTD.
(A development stage company)
Notes to the consolidated financial statements
(Expressed in U.S. dollars)
(unaudited)
10. | Share Purchase Warrants |
The following table summarizes the continuity of share purchase warrants:
Number of Warrants | Weighted Average Exercise Price $ | |
Balance, May 31, 2008 | 2,823,750 | 0.31 |
Issued | 3,260,000 | 0.28 |
Expired | (600,000) | 0.40 |
Balance, February 28, 2009 | 5,483,750 | 0.28 |
As at February 28, 2009, the following share purchase warrants were outstanding:
Number of Warrants | Exercise Price $ | Expiry Date |
1,600,000 | 0.20 | May 28, 2009 |
2,400,000 | 0.20 | July 2, 2009 |
103,750 | 0.50 | November 19, 2009 |
6,250 | 0.50 | November 20, 2009 |
45,000 | 0.50 | December 1, 2009 |
35,000 | 0.50 | December 5, 2009 |
221,250 | 0.50 | December 10, 2009 |
37,500 | 0.50 | December 18, 2009 |
100,000 | 0.50 | February 28, 2010 |
75,000 | 0.50 | May 1, 2010 |
200,000 | 0.50 | October 16, 2010 |
50,000 | 0.50 | October 17, 2010 |
610,000 | 0.50 | November 30, 2010 |
5,483,750 |
11. | Subsequent Event |
Subsequent to February 28, 2009, the Company received share subscriptions of $188,125. The Company is to issue units at $0.15 per unit with each unit to consist of one share of common stock and one non-transferrable share purchase warrant to purchase one additional share of common stock at an exercise price of $0.30 per share expiring on the earlier of two years or five business days after the Company’s common stock trades at least one timer per day on the FINRA Over the Counter Bulletin Board at a price at or above $0.60 per share for seven consecutive trading days.
F-8
Forward Looking Statements
This quarterly report on Form 10-Q of Mantra Venture Group Ltd., (the “Company”, “Mantra”, “we”, “our”, “us”) contains forward-looking statements that involve risks and uncertainties. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology including "could", "may", "will", "should", "expect", "plan", "anticipate", "believe", "estimate", "predict", "potential" and the negative of these terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially. All currency references in this report are in US dollars unless otherwise noted.
While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested in this report.
This management's discussion and analysis or plan of operation should be read in conjunction with the consolidated financial statements and notes thereto of the Company for the three and nine months ended February 28, 2009. The reported results may not necessarily reflect the future.
Business Overview
We are building a portfolio of companies and technologies that mitigate negative environmental and health consequences that arise from the production of energy and the consumption of resources. We carry on our business through our six wholly owned subsidiaries and one majority owned subsidiary as follows:
· | Mantra Energy Alternatives Ltd., through which we identify, acquire, develop and market technologies related to alternative energy production, greenhouse gas emissions reduction and resource consumption reduction; |
· | Mantra Media Corp., through which we offer promotional and marketing services to companies in the sustainability sector or those seeking to adopt sustainable practices; |
· | Carbon Commodity Corp., through which we intend to license or develop carbon footprint assessment software and develop an online carbon reduction marketplace; |
· | Climate ESCO Ltd., through which we plan obtain the distribution or licensing rights to commercialized technologies and broker them to residential and industrial consumers seeking sustainability solutions; |
· | Mantra Next Gen Power Inc., through which we anticipate developing technologies in the alternative energy sector; and |
· | Mantra China Limited, through which we, together with our joint venture partners, plan to develop our business in Hong Kong and mainland China. |
3
Results of Operations
Lack of Revenues
We have had limited operational history since our inception on January 22, 2007. From our inception on January 22, 2007 to May 31, 2008 we did not generate any revenues; however for the nine months ended February 28, 2009 we generated $12,118 in website development revenue. Since our inception to February 28, 2009, we have an accumulated deficit of $3,440,106. We anticipate that we will incur substantial losses over the next year and our ability to generate additional revenues in the next 12 months remains uncertain.
Expenses
We accumulated total expenses of $3,452,224 from the date of our inception to February 28, 2009, $1,117,834 of which were paid by way of our common shares, stock options or share purchase warrants.
Description | Expense | Stock based/other | Total | |||||||||
Amortization and accretion | $ | 48,307 | $ | 15,408 | $ | 83,715 | ||||||
Business development | 36,671 | 167,404 | 204,075 | |||||||||
Consulting and advisory | 8,642 | 378,496 | 387,139 | |||||||||
Management fees | 385,700 | 254,246 | 639,946 | |||||||||
Research and development | 191,064 | 11,275 | 202,339 | |||||||||
Shareholder communication, awareness and financing costs | 313,209 | 120,390 | 433,599 | |||||||||
Professional fees | 381,886 | 41,500 | 423,386 | |||||||||
Public listing and related | 136,048 | 40,000 | 176,048 | |||||||||
Website and corporate identity | 134,293 | 26,975 | 161,268 | |||||||||
General, Administrative and salaries | 687,906 | 62,138 | 750,046 | |||||||||
Interest expense | 10,663 | - | 10,663 | |||||||||
Total | $ | 2,334,390 | $ | 1,117,834 | $ | 3,452,224 |
4
For the nine months ended February 28, 2009, we incurred total expenses of $1,405,612, $437,750 of which were paid by way of our common shares, stock options or share purchase warrants.
Description | Expense | Stock based | Total | |||||||||
Amortization | $ | 27,088 | $ | 15,408 | $ | 42,406 | ||||||
Business development | 3,422 | - | 3,442 | |||||||||
Consulting and advisory | 8,642 | 35,354 | 43,996 | |||||||||
Management fees | 147,000 | 232,979 | 379,979 | |||||||||
Research and development | 119,911 | - | 119,911 | |||||||||
Shareholder communication, awareness and financing costs | 150,091 | 99,596 | 249,687 | |||||||||
Professional fees | 231,131 | - | 231,131 | |||||||||
Public listing and related | 29,001 | - | 29,001 | |||||||||
General, Administrative and salaries | 240,913 | 54,413 | 295,326 | |||||||||
Interest expense | 10,663 | - | 10,663 | |||||||||
Total | $ | 967,862 | $ | 437,750 | $ | 1,405,612 |
Overall expenses for the nine months ended February 28, 2009 were $76,893 higher than the same period in 2008 due primarily to an increase in management fees paid in stock-based compensation, increased research and development costs and increased shareholder communication, investor awareness and financing costs. Financing costs relate mainly to legal and SEC filing expenses incurred for private placements. The increases were due to continued development of the ERC technology, the efforts to create awareness of the company and the search for development and commercial partners. These increases were offset by a $235,766 decrease in consulting and advisory expenses, a $141,893 decrease in travel, meals and entertainment, a decrease of $30,070 in public listing expenses and a $21,910 decrease in general and administrative expenses as management continues its cost reduction efforts.
5
For the three months ended February 28, 2009, we incurred total expenses of $629,941, $291,602 of which were paid by way of common shares or stock options or share purchase warrants.
Description | Expense | Stock based | Total | |||||||||
Amortization | $ | 8,782 | $ | 11,580 | $ | 20,362 | ||||||
Business development | 1,973 | - | 1,973 | |||||||||
Consulting and advisory | 8,642 | - | 8,642 | |||||||||
Management fees | 51,000 | 181,446 | 232,446 | |||||||||
Research and development | 47,789 | - | 47,789 | |||||||||
Shareholder communication, awareness and financing costs | 36,179 | 44,163 | 80,342 | |||||||||
Professional fees | 65,467 | - | 65,467 | |||||||||
Public listing and related | 21,501 | - | 21,501 | |||||||||
General, Administrative and salaries | 92,229 | 54,413 | 146,642 | |||||||||
Interest expense | 4,777 | - | 4,777 | |||||||||
Total | $ | 338,339 | $ | 291,602 | $ | 629,941 |
Overall expenses for the three months ended February 28, 2009 were lower by $93,439 compared to same period in 2008 due to cost management initiatives and a reduction in website and corporate identity development expenses. We incurred $103,840 in such expenses for the period ended February 29, 2008 compared to nil for the period ended February 28, 2009, as the bulk of the development was completed last year. An increase of $188,258 in management fees, $181,446 of which was stock based, was offset by a $233,569 decrease in business development, consulting and advisory fees. Certain expenses included in shareholder communication and awareness relate to efforts to search, identify and communicate with development and commercial partners.
Net Loss
Since our inception on January 22, 2007 to February 28, 2009, we have incurred net loss of $3,440,106. For the nine months ended February 28, 2009 we incurred net loss of $1,393,494 compared to our net loss of $1,328,773 for the same period in 2008. The loss for the three months ended February 28, 2009 was $94,499 lower than the same period in 2008.
Liquidity and Capital Resources
As at February 28, 2009, we had total current assets of $40,969 and total current liabilities of $607,083 for a working capital deficit of $566,114. This compares to our working capital deficit of $192,990 as at May 31, 2008. To date we have been solely dependent on the funds raised through our equity or debt financings. Going forward we will remain dependent on raising funds through our equity and debt financings but we also expect to receive additional funding from government grant and incentive programs as well as ERC licensing arrangements and commercial partnerships.
6
During the nine months ended February 28, 2009, we raised gross proceeds/satisfied debt/paid for services totaling $951,625 through the issuance of our securities as described in the following table:
Date of issuance | Type of security issued | Number of securities issued | Price per security ($) | Value ($) |
June 2008 | Common Shares issued for services | 37,500 | 0.20 | 7,500 |
July 2008 | Units (common shares and warrants) for cash | 2,400,000 | 0.125 | 300,000 |
July 2008 | Common Shares for services | 50,000 | 0.40 | 20,000 |
July 2008 | Common Shares for services | 62,500 | 0.45 | 26,250 |
Sep 2008 | Common Shares for services | 37,500 | 0.41 | 15,375 |
Oct 2008 | Convertible Debentures | N/A | N/A | 250,000 |
Nov 2008 | Units (common shares and warrants) for cash - $10,000 applied to accounts payable | 1,220,000 | 0.25 | 305,000 |
Dec 2008 | Common Shares for services | 37,500 | 0.36 | 13,500 |
Jan 2009 | Common Shares for services | 25,000 | 0.36 | 9,000 |
Feb 2009 | Common Shares to settle a payable | 18,519 | 0.27 | 5,000 |
During the nine months ended February 28, 2009, we used net cash of $84,990 in investing activities and net cash of $ 785,684 in operating activities. This compares to our net cash used in investing activities of $52,529 and net cash used in operating activities of $530,024 for the same period in 2008. During the nine months ended February 28, 2009 we received net cash of $850,919 from financing activities compared to $941,420 for the same period in 2008.
7
We expect to require approximately $1,346,360 in a combination of financing and grants to for further development of our ERC reactor and for our other planned operational expenses for the next twelve months (beginning April 1, 2009) are summarized as follows:
Description | Target completion date or period | Estimated expenses ($) |
Development of the ERC reactor to demonstration pre-commercial scale | March 31, 2010 | 547,360 |
Anticipated Canadian public listing costs including legal fees and financing costs | May 31, 2009 | 153,000 |
Management and consulting fees (including expenses of our Scientific Advisory Board) | 12 months | 200,000 |
Corporate communication, investor awareness and financing costs | 12 months | 126,000 |
Professional fees, legal and audit | 12 months | 120,000 |
Genera, administrative and salary expenses | 12 months | 150,000 |
Travel, advertising and promotional expenses | 12 months | 50,000 |
Total | 1,346,360 |
At present, our cash requirements for the next twelve months outweigh the funds available to maintain or develop our operations. We expect that the bulk of the $1,346,360 that we need for the next 12 months will be covered by the funds raised in connection with our anticipated Canadian public listing. In addition we intend to pursue additional equity financing from private investors and will continue to negotiate with contractors and vendors to pay for the services with stock and stock options instead of cash.
We also continue to implement cost reduction measures which may include reducing our reliance on outside contractors, and tailoring our investor awareness programs and initiatives to a scale that is appropriate to our level of activity and the nature of our business. Finally, we have begun to seek out alternative sources of funding, such as research and development grants to offset the cost of our technology development
There can be no assurance we will be successful in our efforts to secure additional equity financing. If we are unable to raise equity or obtain alternative financing, we may not be able to continue operations with respect to the continued development and marketing of our company and our subsidiaries and we may not be able to continue our operations and our business plan may fail. You may lose your entire investment.
If operations and cash flow improve through these efforts, management believes that we can continue to operate. However, no assurance can be given that management's actions will result in profitable operations or an improvement in our liquidity situation. The threat of our ability to continue as a going concern will be removed only when revenues have reached a level that sustains our business operations.
8
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 amounts presented in the financial statements do not provide for the effect of inflation on our operations or financial position. The net operating losses shown would be greater than reported if the effects of inflation were reflected either by charging operations with amounts that represent replacement costs or by using other inflation adjustments.
Critical Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with US 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. We regularly evaluate estimates and assumptions related to stock-based compensation and deferred income tax asset valuation allowances. We base our 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 us may differ materially and adversely from our estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
Stock-based Compensation
We record stock based compensation in accordance with SFAS 123(R), “Share-Based Payments,” which requires the measurement and recognition of compensation expense, based on estimated fair values, for all share-based awards, made to employees and directors, including stock options.
SFAS 123(R) requires companies to estimate the fair value of share-based awards on the date of grant using an option-pricing model. We use the Black-Scholes option-pricing model as its method of determining fair value. This model is affected by our stock price as well as assumptions regarding a number of subjective variables. These subjective variables include, but are not limited to our 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 in our financial statements as an expense in the Consolidated Statement of Operations over the requisite service period.
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 in accordance with the provisions of EITF 96-18.
9
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and are not required to provide information under this item.
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered in this report, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended (the "Exchange Act") is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Controls
During the quarter ended February 28, 2009 there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
10
We are not aware of any material legal proceedings not in the ordinary course of business and incidental to our operations which involve us or any of our properties or subsidiaries.
From December 1, 2008 to February 28, 2009, we made the following previously unreported sales of unregistered securities:
· | On December 15, 2008, we issued 37,500 of our common shares to ECON Corporate Services, Inc. (“ECON”) pursuant to a consulting agreement whereby we agreed to issue 150,000 common shares to ECON as compensation for investor services, which shares are to be issued in four quarterly installments during the term of the agreement. The shares were issued at a price of $0.36 per share. These securities were issued without a prospectus pursuant to Regulation S of the Securities Act. |
· | On January 29, 2009 we issued 25,000 shares of our common stock to an employee as a bonus. The shares were issued at a price of $0.36 per share. These securities were issued without a prospectus pursuant to Regulation S of the Securities Act. |
· | On February 10, 2009, we converted a debt of $5,000 owed to one of our employees into our common shares at a rate of $0.27 per share for an aggregate amount of 18,519 shares. These securities were issued without a prospectus pursuant to Regulation S of the Securities Act. |
· | On January 1, 2009, we granted a total of 4 employees options to purchase an aggregate of 375,000 shares of our common stock at an exercise price of $0.30 per share pursuant to employment agreements. The options expire on January 7, 2011 or upon termination of the employment agreements, whichever occurs earlier. These securities were issued without a prospectus pursuant to Regulation S of the Securities Act. |
· | On February 10, 2009, we granted a consultant options to purchase 75,000 shares of our common stock at an exercise price of $0.27 per share pursuant to a consulting agreement. The options expire on February 10, 2011 or upon termination of the consulting agreement, whichever occurs earlier. These securities were issued without a prospectus pursuant to Regulation S of the Securities Act. |
We completed these offerings of our securities pursuant to Rule 903 of Regulation S of the Securities Act on the basis that the sale of the common stock was completed in an "offshore transaction", as defined in Rule 902(h) of Regulation S. We did not engage in any directed selling efforts, as defined in Regulation S, in the United States in connection with the sale of the units. Each investor was not a US person, as defined in Regulation S, and was not acquiring the shares for the account or benefit of a US person.
11
None.
None.
None
Exhibit No. | Description |
31.1 | |
31.2 | |
32.1 | |
32.2 |
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Mantra Venture Group Ltd. | |
(Registrant) | |
/s/ Larry Kristof | |
Date: April 14, 2009 | Larry Kristof |
President, Chief Executive Officer, Director | |
/s/ Dennis Petke | |
Date: April 14, 2009 | Dennis Petke |
Chief Financial Officer, Principal Accounting Officer |