HIGH WIRE NETWORKS, INC. - Quarter Report: 2009 February (Form 10-Q)
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.
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
|
12
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
|