HIGH WIRE NETWORKS, INC. - Annual Report: 2010 (Form 10-K)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

[ x ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended May 31, 2010

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________to ___________.

Commission file number 000-53461

MANTRA VENTURE GROUP LTD.
(Exact name of registrant as specified in its charter)

#4 2119 152nd Street
Surrey BC V4A 4N7
(Address of principal executive offices) (ZIP Code)

(604) 535 4145
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act: Common Stock, $0.00001 par value

Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes [ ] No [ x ]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes [ ] No [ x ]

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period that the registrant as required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [ x ] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Yes [ ] No [ x ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer [ ]    Accelerated filer [ ]    Non-accelerated filer [ ]    Smaller reporting company [ x ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act)
Yes [ ] No [ x ]

Aggregate market value of the voting stock of the registrant held by non-affiliates of the registrant at November 30, 2009 (Non affiliate holdings of 14,805,455 shares at the price at which the common shares were last sold: $0.19 per share): $2,813,036

Number of common shares outstanding at September 14, 2010: 35,127,185

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Table of Contents

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PART I

Forward-looking Statements

This annual report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may", "will", "should", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential" or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable laws, including the securities laws of the United States, we do not intend to update any of the forward-looking statements so as to conform these statements to actual results.

As used in this annual report, the terms "we", "us", "our", “our Company”, and "Mantra" mean Mantra Venture Group Ltd. and our wholly owned subsidiaries Mantra Energy Alternatives Ltd. and Mantra Media Corp., unless otherwise indicated.

All dollar amounts refer to US dollars unless otherwise indicated.

Description of Business

We were incorporated in Nevada on January 22, 2007. On December 8, 2008 we continued our corporate jurisdiction out of the state of Nevada and into the Province of British Columbia, Canada. Our principal offices are located at #4 2119 152nd Street, Surrey, British Columbia, Canada, V4A 4N7. Our telephone number is (604) 535 4145. Our fiscal year end is May 31.

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. On November 2, 2007, through our wholly owned subsidiary, Mantra Energy Alternatives Ltd., we entered into a technology assignment agreement with 0798465 BC Ltd. whereby we acquired 100% ownership of an invention for the electro-reduction of carbon dioxide. This is currently our flagship technology and is described in greater detail under the heading “Electro Reduction of Carbon Dioxide” below.

Our mission is to develop and commercialize alternative energy technologies and services to enable the sustainable consumption, production and management of resources on residential, commercial and industrial scales. We plan to develop or acquire technologies and services which include electrical power system monitoring technology, wind farm electricity generation, online retail of environmental sustainability solutions through a carbon reduction marketplace, and media solutions to promote awareness of corporate actions that support the environment. To carry out our business strategy we intend to acquire or license from third parties technologies that require further development before they can be brought to market. We also intend to develop such technologies ourselves, and we anticipate that to complete commercialization of some technologies we will enter into joint ventures, partnerships, or other strategic relationships with third parties who have expertise that we may require. We also plan to enter into formal relationships with consultants, contractors, retailers and manufacturers who specialize in the areas of environmental sustainability in order to carry out our online retail strategy.

We are a development stage company that has only recently begun operations. We have generated only nominal revenues from our intended business activities, and we do not expect to generate significant revenues in the next 12 months. Other than our invention for the electro-reduction of carbon dioxide, we have not yet developed or acquired any commercially exploitable technology. Since our inception, we have incurred operational losses and we have completed several rounds of financing to fund our operations.

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We carry on our business through our subsidiaries 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; and

• Mantra Media Corp., through which we offer promotional and marketing services to companies in the sustainability sector or those seeking to adopt sustainable practices;

We also have a number of inactive subsidiaries which we plan to engage in various business activities in the future.

On August 16, 2010, we entered into a technology development cooperation agreement with KC Cottrell Co., Ltd. and Korea Southern Power Co., Ltd. pursuant to which KC will provide our company with the basic framework and support for the successful execution of tasks for our company’s electrochemical reduction of carbon dioxide technology development as planned at Ha-dong Power Plant in the Republic of Korea. KC has also agreed to equally share the cost of the project, which is not to exceed US $1,000,000 with our company. The Technology Agreement will expire by the completion of the demonstration project or by July 30, 2011.

Electro Reduction of Carbon Dioxide (“ERC”)

On November 2, 2007 we entered into a technology assignment agreement with 0798465 BC Ltd. through our wholly owned subsidiary Mantra Energy Alternatives Ltd., whereby we acquired all right and title in and to a certain chemical process for the electro-reduction of carbon dioxide as embodied by and described in the following patent cooperation treaty application:

The reactor at the core of the chemical process, referred to as the electrochemical reduction of carbon dioxide, or ERC, has been proven functional through small scale prototype trials. ERC offers a possible solution to reduce the impact of carbon dioxide (CO2) on Earth’s environment by converting CO2 into chemicals with a broad range of commercial applications, including a fuel for a next generation of fuel cells. Powered by electricity, the ERC process combines captured carbon dioxide with water to produce materials, such as formic acid, formate salts, oxalic acid and methanol, that are conventionally obtained from the thermo-chemical processing of fossil fuels. However, while thermo-chemical reactions must be driven at relatively high temperatures that are normally obtained by burning fossil fuels, ERC operates at near ambient conditions and is driven by electric energy that can be taken from an electric power grid supplied by hydro, wind, solar or nuclear energy.

In fuel cells liquid fuels are indirectly burned with air to form carbon dioxide and water, while generating electricity. This process is known as electrochemical combustion or electrooxidation. The complementary nature of ERC and electrooxidation makes it possible to use ERC in a regenerative fuel cell cycle, where carbon dioxide is converted to a fuel that is consumed in a fuel cell to regenerate carbon dioxide. As shown in the figure, the net energy input required in this cycle could be supplied from a renewable or non-fossil fuel source.

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ERC has been shown to produce a range of compounds, including formic acid, formate salts, oxalic acid, and methanol. The efficiency for generation of each compound depends on the experimental conditions, most importantly the material of the cathode, which catalyses the electrochemical reactions.

Until appropriate cathodes are found some products of CO2 reduction (methanol, for instance) are obtained at efficiencies too low for practical use. Other products can be generated on known cathodes with high current yields that could support valuable practical processes. For example, formic acid has been obtained on tin cathodes with current yields above 80%. Formate salts and sodium bicarbonate are obtained at similarly high yields

ERC Development to Date

We have retained one of the creators of the technology, Professor Colin Oloman, as a member of our Scientific Advisory Board, to further develop the carbon dioxide reduction process to achieve optimal results on a consistent basis. On June 1, 2008, we entered into a Technology Development and Support Agreement with Kemetco Research Inc., an integrated science, technology and innovation company. Pursuant to that agreement, we have established a research and development facility for the ERC in Vancouver, British Columbia, staffed by a dedicated research team provided by Kemetco.

In October of 2008, we completed our first ERC prototype reactor capable of processing 1 kilogram of CO2 per day. In order to facilitate the testing and development of this reactor, we entered into an agreement with Kemetco on January 29, 2009. The agreement was intended to govern the development and testing of our prototype reactor for a period of 10 months and contemplated costs of approximately $250,000 including labor and materials purchases. On March 18, 2009 we entered into another agreement with Kemetco which amended and replaced the January 29, 2009 agreement. Under the terms of the latest agreement, we have agreed to proceed with the testing and development of our ERC prototype reactor for a period of 5 months at an estimated cost of approximately $125,000.

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Pictured Above, Design for Bench Scale ERC Reactor

We anticipate that commercialization of ERC will require us to develop reactors capable of processing not less than 100 tons of CO2 per day; however, there is no guarantee that we will successfully produce reactors of that size. Production of commercially viable ERC reactors will depend on continued research and development, successful testing of small scale ERC reactors, and securing of additional financing. At the conclusion of our current agreement and development program with Kemetco, an assessment will be made of the project’s progress and the next phase to be conducted.

Established and Emerging Market for ERC and By-Products:

The technology behind ERC can be applied to any scale commercial venture which outputs CO2 into the atmosphere. We anticipate that, once fully commercialized, we will be able to offer ERC as a CO2 management system to various industry including steel, power generation and lumber.

The existing applications of ERC by-products include use as feedstock preservatives, de-icing solutions, and baking soda, among others. Sodium Formate and Formic Acid, two of the main by-products of ERC, currently have an average market value of $1,200/ton, with more than 600,000 tons of formic acid produced annually (Li, 2006). Their applications are diverse, including feedstock preservatives, de-icing solutions, cleaning solutions and baking soda to name a few. The market for formic acid has experienced continual growth and demand over the past several years, mainly attributed to the following: European and developing country demand for formic acid in silage, rising raw materials, energy and logistics costs; and animal feed preservative and Asian demand for formic acid in leather, rubber, food and pharmaceutical industries. The average market price of formic acid is expected to increase by as much as 20% in 2009. (Dunia Frontier Consultants, 2008).

However, if the ERC process reaches market acceptance as a way to deal with CO2 emissions from industry facilities, it will likely lead to supply of formic acid in excess of current market demand. We have identified several potential future applications for formic acid, which may lead to an expansion in current market demand. The application we have identified and are currently focusing on is steel pickling.

Steel Pickling

Steel Pickling is part of the finishing process in the production of certain steel products in which oxide and scale are removed from the surface of strip steel, steel wire, and other forms of steel, by dissolution in acid. A solution of either Hydrochloric Acid (HCl) or Sulfuric Acid is generally used to treat carbon steel products, while a combination of Hydrofluoric and Nitric Acids is often used for stainless steel. Approximately ¼ of the HCI produced in the U.S. is used for pickling steel (American Chemistry, 2003), consuming an estimated 5Mt/year. As an organic acid, Formic Acid would be a very attractive replacement for Hydrochloric Acid (HCI) in the steel pickling process. Formic Acid has many potential advantages over HCI in this application, including: less iron lost from the steel surface, improvement in final surface quality, and the elimination of corrosion inhibiting and neutralizing rinse processes to prevent rust development. In addition, Formic Acid is both bio-degradable and reusable which would allow water used in the picking process to be recycled more easily.

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Competition

There are several existing alternative methods to ERC which convert CO2 into useful products. Other methods include, for example:

• Thermo-chemical reactions to produce carbon monoxide, formic acid, methane or methanol;
• Bio-chemical reactions to produce methane;
• Photo-chemical reactions to produce carbon monoxide, formaldehyde or formic acid; and
• Photo-electro-chemical reaction to produce carbon monoxide and possibly methane & methanol.

Some thermo-chemical methods are established commercial industrial processes (e.g. production of methanol from CO2) however, like ERC, most of these alternative methods of CO2conversion are still at the level of laboratory research and development projects. These alternative methods typically suffer from the following problems:

• Low reaction rate and low CO2 space velocity make it too costly and time consuming to process industrial quantities of CO2;
• Low selectivity for specified product(s) makes it harder to control product yield;
• High operating temperature and pressure requires large quantities of fossil fuels to power reaction;
• Fast cathode deterioration raises costs and makes the method labour intensive; and
• Highly expensive and cumbersome hydrogen (H₂) is required as a feed reactant.

Based on scholarship and test results to date, we believe that, compared with alternative methods of CO2 conversion, ERC, when converting CO2 to formate or formic acid, has several notable advantages including the following:

• Medium reaction rate allows for commercially viable CO2 processing times;
• Medium CO2 space velocity gives the ability to treat comparatively large volumes of CO2;
• High product selectivity for formate and formic acid;
• Low operating temperature and pressure make it possible to rely on renewable sources of electricity instead of fossil fuels; and
• Hydrogen (H₂) is not required as feed reactant.

However, because ERC has not yet been tested at a commercially viable scale, there is no guarantee that any of the advantages cited by us will translate into actual competitive advantages for ERC over competing methods for CO2 conversion. Also, like other competing methods, ERC suffers from fast cathode deterioration, and we must successfully isolate or develop a better ERC cathode in order to gain a competitive advantage in this regard.

Our competition consists of a number of small companies capable of competing effectively in the alternative energy market as well as several large companies that possess substantially greater financial and other resources than we do. Many of these competitors are substantially larger and better funded than us, and have significantly longer histories of research, operation and development. Our competitors include technology providers or energy producers using biomass combustion, biomass anaerobic digestion, geothermal, solar, wind, new hydro and other renewable energy sources. In addition, we will face well-established competition from electric utilities and other energy companies in the traditional energy industry who have substantially greater financial resources than we do.

Our competitors may be able to offer more competitively priced and more widely available energy products than ours and they also may have greater resources than us to create or develop new technologies and products.

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Therefore, there is no assurance that we will be successful in competing with existing and emerging competitors in the alternative energy industry or traditional energy industry.

We plan to identify business opportunities with interested parties and potential customers by networking and participating in conferences and exhibitions related to greenhouse gas emissions reduction and alternative energy sources and technologies. The strategic and geographic focus of our business is currently the North American market. We believe that one of our competitive advantages is our online carbon reduction marketplace which brings energy/carbon reduction products and service providers into direct contact with consumers and enables the facilitation of business contacts. The focus of our online carbon reduction marketplace is not on business-to-business carbon trading, as is the case with many of our competitors.

While our competitors may be operating similar business models, we plan to build our competitive position in the industry by:

• filling our Scientific Advisory Board with skilled and proficient professionals;
• developing and acquiring technologies to establish sustainable fuel supply chains;
• providing a comprehensive range of services; and
• providing marketing and promotion services to generate public awareness and enhance the reputation of sustainability initiatives.

However, since we are a newly-established company, we face the same problems as other start-up companies in other industries. Our competitors may develop similar technologies to ours and use the same methods as we do, and they may generally be able to respond more quickly to new or emerging technologies and changes in legislation and industry regulation. Additionally, our competitors may devote greater resources to the development, promotion and sale of their technologies or services than we do. Increased competition could also result in loss of key personnel, reduced margins or loss of market share, any of which could harm our business.

Government Regulations

Some aspects of our intended operations will be subject to a variety of federal, provincial, state and local laws, rules and regulations in North America and worldwide relating to, among other things, worker safety and the use, storage, discharge and disposal of environmentally sensitive materials. For example, we are subject to the Resource Conservation Recovery Act (“RCRA”), the principal federal legislation regulating hazardous waste generation, management and disposal.

Under some of the laws regulating the use, storage, discharge and disposal of environmentally sensitive materials, an owner or lessee of real estate may be liable for the costs of removing or remediating certain hazardous or toxic substances located on or in, or emanating from, such property, as well as related costs of investigation and property damage. Laws of this nature often impose liability without regard to whether the owner or lessee knew of, or was responsible for, the presence of the hazardous or toxic substances. These laws and regulations may require the removal or remediation of pollutants and may impose civil and criminal penalties for violations. Some of the laws and regulations authorize the recovery of natural resource damages by the government, injunctive relief and the imposition of stop, control, remediation and abandonment orders. The costs arising from compliance with environmental and natural resource laws and regulations may increase operating costs for both us and our potential customers. We are also subject to safety policies of jurisdictional-specific Workers Compensation Boards and similar agencies regulating the health and safety of workers.

In addition to the forgoing, in the future our U.S., Canadian and global operations may be affected by regulatory and political developments at the federal, state, provincial and local levels including, but not limited to, restrictions on offset credit trading, the verification of offset projects and related offset credits, price controls, tax increases, the expropriation of property, the modification or cancellation of contract rights, and controls on joint ventures or other strategic alliances.

We are not aware of any material violations of environmental permits, licenses or approvals issued with respect to our operations. We expect to comply with all applicable laws, rules and regulations relating to our intended business. At this time, we do not anticipate any material capital expenditures to comply with environmental or various regulations and requirements.

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While our intended projects or business activities have been designed to produce environmentally friendly green energy or other alternative products for which no specific regulatory barriers exist, any regulatory changes that impose additional restrictions or requirements on us or on our potential customers could adversely affect us by increasing our operating costs and decreasing potential demand for our technologies, products or services, which could have a material adverse effect on our results of operations.

Research and Development Expenditures

During the year ended May 31, 2010 we spent $166,753 on research and development. For the last two fiscal years, we have spent $335,778 on research and development. We anticipate that we will incur $275,000 in expenses on research and development for ERC as well as other technologies we may acquire over the next 12 months.

Employees

As of September 14, 2010, we had 5 employees engaged in administrative duties, website development and marketing. All of these employees were engaged on a full-time basis. Additionally, we have retained a number of consultants for legal, accounting and investor relations services.

Intellectual Property

We acquired the process for the “Continuous Co-Current Electrochemical Reduction of Carbon Dioxide”, or the ERC technology, on November 2, 2007 pursuant to a technology assignment agreement with 0798465 BC Ltd. According to the agreement, we paid 0798465 BC Ltd. 40,000 common shares at a fair market value of $0.25 per share and 250,000 options to purchase our common shares at an exercise price of $0.25 per share until October 31, 2012. The process for the ERC technology was developed by Dr. Colin Oloman and Dr. Hui Li at the University of British Columbia's Clean Energy Research Center in Vancouver. They filed the initial patent application for the invention under the Patent Cooperation Treaty in 2006. We acquired all right and title in and to the ERC technology as embodied by and described in the following patent cooperation treaty application:

The Patent Cooperation Treaty, an international patent law treaty, provides a unified procedure for filing patent applications to protect inventions in each of its contracting states.

The PCT filing was made with a Receiving Office in 2006 and a written opinion was issued by International Searching Authority regarding the patentability of the invention which is the subject of the application. Finally, the examination and grant procedures will be handled by the relevant national or regional authorities. On March 31, 2008 we initiated the national patent process. We plan to begin the national patent process initially in Europe, Japan and China. The national phases for other countries, particularly the U.S. and Canada, will be initiated in the near future.

We have not filed for protection of our trademark. We own the copyright of our logo and all of the contents of our website, www.mantraenergy.com.

Reports to Security Holders

We intend to furnish our shareholders annual reports containing financial statements audited by our independent auditors and to make available quarterly reports containing unaudited financial statements for each of the first three quarters of each year.

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The public may read and copy any materials that we file with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that site is www.sec.gov.

As a “smaller reporting company”, we are not required to provide the information required by this Item.

As a “smaller reporting company”, we are not required to provide the information required by this Item.

Our principal executive offices are located at 4 – 2119 152^nd Street, Surrey British Columbia, CanadaV4A 4N7. Our telephone number is (604) 535 4145. The office is approximately 1,650 square feet in size and is leased for a term of eighteen months. The lease began on August 2010 and will end in February of 2012. Currently we pay approximately $3,000 per month for our office space in Vancouver and $1,000 for office space in Washington State which we use from time to time.

As of September 14, 2010, there are no material pending legal proceedings (other than ordinary routine litigation incidental to our business) to which we are a party or concerning any of our properties. Also, our management is not aware of any legal proceedings contemplated by any governmental authority against us.

PART II

Market Information

Our common stock is not traded on any stock exchange in the United States and Canada and there is no established public trading market for our common stock. Our common stock is quoted on the OTC Bulletin Board, under the trading symbol MVTG.OB. The market for our stock is highly volatile. We cannot assure you that there will be a market in the future for our common stock. OTC Bulletin Board securities are not listed and traded on the floor of an organized national or regional stock exchange. Instead, OTC Bulletin Board securities transactions are conducted through a telephone and computer network connecting dealers in stocks. OTC Bulletin Board stocks are traditionally smaller companies that do not meet the financial and other listing requirements of a regional or national stock exchange.

On February 18, 2008 our common shares began trading on the Frankfurt Stock Exchange under the symbol EDV 5MV. The Frankfurt Stock Exchange is located in Frankfurt, Germany.

The following table shows the high and low closing prices of our common shares on the OTC Bulletin Board for each quarter since our common stock began to trade on the OTC Bulletin Board on January 9, 2008. The following quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions:

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Holders

As of September 14, 2010, there were 91 holders of record of our common stock.

Dividends

To date, we have not paid any dividends on our common shares and we do not expect to declare or pay any dividends on our common shares in the foreseeable future. Payment of any dividends will depend upon future earnings, if any, our financial condition, and other factors as deemed relevant by our Board of Directors.

Equity Compensation Plans

As of May 31, 2010, we did not have any equity compensation plans.

Recent Sales of Unregistered Securities

There were no previously unreported sales of unregistered securities during the period covered by this report.

Purchase of Equity Securities

Since our inception on January 22, 2007 we have made no purchases of our equity securities.

Not applicable.

The following discussion should be read in conjunction with our consolidated financial statements, including the notes thereto, appearing elsewhere in this Annual Report. The discussions of results, causes and trends should not be construed to imply any conclusion that these results or trends will necessarily continue into the future.

Forward-Looking Statements

This Annual Report contains certain forward-looking statements. All statements other than statements of historical fact are “forward-looking statements” for the purposes of these provisions, including any projections of earnings, revenues or other financial items; any statements of the plans, strategies, and objectives of management for future operation; any statements concerning proposed new products, services or developments; any statements regarding future economic conditions or performance; statements of belief; and any statement of assumptions underlying any of the foregoing. Such forward-looking statements are subject to inherent risks and uncertainties and actual results could differ materially from those anticipated by the forward-looking statements.

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Liquidity and Capital Resources

As of May 31, 2010, we had cash of $4,325 in our bank accounts and a working capital deficit of $1,036,124 compared to a working capital deficit of $503,417 for the year ended May 31, 2009. As of May 31, 2010, we had total assets of $93,820 and total liabilities of $1,055,271.

Our net loss of $5,043,970 from January 22, 2007 (date of inception) to May 31, 2010 was mostly funded by a combination of private placements and loans. Since January 22, 2007 (date of inception) to May 31, 2010, we raised net proceeds of $2,814,862 in cash from financing activities.

We used net cash of $488,362 in operating activities for the year ended May 31, 2010 compared to $1,028,422 for the year ended May 31, 2009. We used net cash of $2,654,902 in operating activities for the period from January 22, 2007 (date of inception) to May 31, 2010.

We did not use any cash in investing activities during the year ended May 31, 2010 compared to net cash of $85,734 used in investing activities for the year ended May 31, 2009. We received net cash of $489,367 from financing activities for the year ended May 31, 2010 compared to $1,091,275 for the year ended May 31, 2009. For the year ended May 31, 2010, $428,289 of cash from financing activities was from the issuance of our common stock and $61,078 from loans payable. During the year ended May 31, 2009, $841,275 of cash from financing activities was from the issuance of our common stock and $250,000 from the issuance of convertible debentures.

During the year ended May 31, 2010 we had an increase in our cash position of a $1,005 compared to a decrease of $22,881 for the year ended May 31, 2009. Our monthly cash requirements for the year ended May 31, 2010 was approximately $40,700. At our current cash position and if this cash requirement continues, we do not have sufficient cash to cover our expenses for one month.

We expect that our total expenses will increase over the next year as we increase our business operations. We have not been able to reach the break-even point since our inception and have had to rely on outside capital resources. We do not anticipate making significant revenues for the next year. Over the next 12 months, we plan to primarily concentrate on commercializing our ERC technology and associated projects.

In order to fully carry out our business plan, we need additional financing of approximately $3,075,000 for the next 12 months. In order to improve our liquidity, we intend to pursue additional equity financing from private placement sales of our equity securities or shareholders’ loans. We do not presently have sufficient financing to undertake our planned business activities. Issuances of additional shares will result in dilution to our existing shareholders.

We currently do not have any arrangements in place for the completion of any further private placement financings and there is no assurance that we will be successful in completing any further private placement financings. If we are unable to achieve the necessary additional financing, then we plan to reduce the amounts that we spend on our business activities and administrative expenses in order to be within the amount of capital resources that are available to us.

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Results of Operations

Our results of operations are summarized below:

Lack of Significant Revenues

We have had limited operational history since our inception on January 22, 2007. Since our inception to May 31, 2010 we have generated $19,898 in revenues. Since our inception to May 31, 2010 we have accumulated a deficit of $5,043,970 during the development stage. We anticipate that we will incur substantial losses over the next year and our ability to generate any revenues in the next 12 months continues to be uncertain.

Expenses

For the year ended May 31, 2010, we had total operating expenses of $1,296,410, including $28,105 in consulting and advisory fees, $195,337 in professional fees, $188,805 in management fees, $86,553 in shareholder communications and awareness, $322,389 in wages and benefits, $50,760 in general and administrative expenses, and $166,753 in research and development.

By comparison, for the year ended May 31, 2009, we had total operating expenses of $1,752,627 including $61,864 in consulting and advisory fees, $269,266 in professional fees, $322,115 in management fees, $309,309 in shareholder communications and awareness, $137,997 in wages and benefits, $87,927 in general and administrative expenses and $169,025 in research and development.

Since our inception on January 22, 2007 to May 31, 2010, we accumulated total expenses of $5,095,649, including $433,112 in consulting and advisory fees, $656,858 in professional fees, $770,887 in management fees, $579,774 in shareholder communications and awareness, $320,550 in travel and promotion, $324,097 in general and administrative expenses and $418,206 in research and development.

Our general and administrative expenses consist of office occupation expenses, communication expenses (cellular, internet, fax and telephone), bank charges, foreign exchange, courier, postage costs and office supplies. Our professional fees include legal, accounting and auditing fees. Business development, consulting and advisory costs include fees paid, shares issued and options granted to contractors and advisory board members

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 our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our stockholders.

Inflation

The effect of inflation on our revenue and operating results has not been significant.

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Critical Accounting Policies

Our financial statements are impacted by the accounting policies used and the estimates and assumptions made by management during their preparation. A complete summary of these policies is included in note 2 of the notes to our financial statements. We have identified below the accounting policies that are of particular importance in the presentation of our financial position, results of operations and cash flows, and which require the application of significant judgment by management.

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 allowance for doubtful accounts, the recoverability of intangible and long-lived assets, valuation of convertible debt, 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.

Long-lived Assets

In accordance with ASC 360, “Property, Plant and Equipment”, we test long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value.

Stock-based Compensation

We record stock-based compensation in accordance with ASC 718, “Compensation - Stock Compensation”, using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.

We use the Black-Scholes option pricing model to calculate the fair value of stock-based awards. 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 as an expense in the consolidated statement of operations over the requisite service period.

15

As a “smaller reporting company”, we are not required to provide the information required by this Item.

16

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Mantra Venture Group Ltd.
(A development stage company)

We have audited the accompanying consolidated balance sheets of Mantra Venture Group Ltd. (a development stage company) as of May 31, 2010, and 2009, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for the years then ended and accumulated from June 1, 2008 to May 31, 2010. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of May 31, 2010, and 2009, and the consolidated results of its operations and its cash flows for the years then ended and accumulated from June 1, 2008 to May 31, 2010, in conformity with accounting principles generally accepted in the United States.

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has not generated significant revenues, has a working capital deficit, and has incurred operating losses since inception. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also discussed in Note 1 to the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ SATURNA GROUP CHARTERED ACCOUNTANTS LLP

Saturna Group Chartered Accountants LLP

Vancouver, Canada

September 13, 2010

F-1

(The accompanying notes are an integral part of these consolidated financial statements)

F-2

(The accompanying notes are an integral part of these consolidated financial statements)

F-3

(The accompanying notes are an integral part of these consolidated financial statements)

F-4

(The accompanying notes are an integral part of these consolidated financial statements)

F-5

(The accompanying notes are an integral part of these consolidated financial statements)

F-6

(The accompanying notes are an integral part of these consolidated financial statements)

F-7

F-8

F-9

Level 1

Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

Level 2

Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

F-10

Level 3

Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

The Company’s financial instruments consist principally of cash, amounts receivables, accounts payable, accrued liabilities, convertible debentures, and amounts due to related parties. Pursuant to ASC 820, the fair value of cash is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.

F-11

F-12

F-13

F-14

F-15

F-16

Stock transactions during the year ended May 31, 2009 (continued):

F-17

As at May 31, 2010, the following share purchase warrants were outstanding:

The following table summarizes the continuity of the Company’s stock options:

F-18

Additional information regarding stock options as of May 31, 2010, is as follows:

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:

The weighted average fair value of the stock options granted during 2010 was $0.10 (2009 - $0.18) per option.

As of May 31, 2010, the Company had no unrecognized compensation expense relating to unvested options.

F-19

The Company is to pay the licensor a royalty calculated as 2% of the gross revenue and 15% of any and all consideration directly or indirectly received by the Company from the grant of any sublicense rights. The Company will pay interest at a rate of 1% per month on any amounts past due. In addition, the Company is responsible for the timely payment of all future costs relating to patent expenses and any new or useful art, process, machine, manufacture or composition of matter arising out of any licensor improvements or joint improvements licensed under this agreement and identified by the licensor as potentially patentable. The Company must also invest a minimum of Cdn$250,000 in research and development directly associated with the technology.

The significant components of deferred income taxes and assets as at May 31, 2009 and 2008 are as follows:

F-20

F-21

None.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"), that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

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 the design and operation of our disclosure controls and procedures as of May 31, 2010. Based on the evaluation of these disclosure controls and procedures, and in light of the weaknesses identified below, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining effective internal control over financial reporting. Under the supervision of our Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of our internal control over financial reporting as of May 31, 2010 using the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. In its assessment of the effectiveness of internal control over financial reporting as of May 31, 2010, the Company determined that there were significant deficiencies that constituted material weaknesses, as described below.

Management is currently evaluating remediation plans for the above control deficiencies.

In light of the existence of these control deficiencies, management concluded that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis by the Company’s internal controls.

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As a result, management has concluded that the Company did not maintain effective internal control over financial reporting as of May 31, 2010 based on criteria established in Internal Control—Integrated Framework issued by COSO.

Saturna Group Chartered Accountants LLP, an independent registered public accounting firm, was not required to and has not issued a report concerning the effectiveness of our internal control over financial reporting as of May 31, 2010.

Changes in Internal Control

During the quarter ended May 31, 2010 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.

None.

PART III

Our bylaws state that the authorized number of directors shall be not less than one and not more than fifteen and shall be set by resolution of the Board of Directors. Our Board of Directors has fixed the number of directors at 5.

Our current directors and officers are as follows:

Our directors serve until our next annual shareholder meeting or until his successor is elected who accepts the position. Officers hold their positions at the pleasure of the Board of Directors. There are no arrangements, agreements or understandings between non-management security holders and management under which non-management security holders may directly or indirectly participate in or influence the management of our affairs.

Larry Kristof, President, Chief Executive Officer, Director

Larry Kristof has been our President, Chief Executive Officer and sole director since our inception on January 22, 2007. Mr. Kristof has over 15 years experience in business development and management. From 2003 until April 2007 he was the President and Chief Executive Officer of Lexington Energy Services Inc., a public company quoted on the OTC Bulletin Board under the symbol LXES.OB.

Mr. Kristof co-founded Lexington Energy in 2003 and successfully built the company from concept through assets of over $7 million. Under Mr. Kristof’s direction, Lexington Energy designed and commercialized innovative mobile drilling rigs and nitrogen generation technologies. From 2003 to 2005, Mr. Kristof co-founded Lexington Communications Ltd., a company in the business of providing investor and corporate communications expertise to public companies. In early 2003, Mr. Kristof worked as the Corporate Communications Manager of Trivello Energy Corp. (TSX-V: TRV.V), a company engaged in oil and gas exploration and production in western Canada. From 1998 to 2001, Mr. Kristof was the founder and President of Westec Venture Group Inc., a business development and venture capital service provider.

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Con Buckley, Chief Financial Officer

Mr. Buckley graduated from the faculty of commerce at the University of British Columbia in 1968 with a major in finance. Admitted as a member of the institute of chartered accountants of British Columbia in 1971, Mr. Buckley is currently the senior partner of the Vancouver accounting firm of Buckley Dodds, where he started in January of 1994. As a member of the Buckley Dodds staff, Mr. Buckley has been involved with several public company IPOs as well as various government programs instituted to help with financing for Canadian companies, and helped structure various debt and equity instruments to meet the needs of his clients.

Shawn Kim, Vice President of International Business Development and Director

Shawn Kim has been our Vice President of International Business Development since June 3, 2009. Mr. Kim has nine years of experience in the financial industry. From July 2000 to October 2002 he worked as a business analyst for Mackenzie Financial Corporation in Toronto, following which he was employed by American International Group, Inc. in Korea from February 2003 to March 2006. While employed at AIG, Mr. Kim successfully implemented a worldwide marketing model and secured new business alliances. Most recently, Mr. Kim served as an international business consultant with the District of North Vancouver, British Columbia. Mr. Kim graduated from the University of Western Ontario in 1996 with a Bachelor of Arts degree in Administrative and Commercial Studies.

John Russell, Director

Mr. Russell has over 30 years experience in the identification, evaluation and marketing of technology; he has authored a chapter on sonic energy applications (Elsevier), several scientific publications, and has given conference presentations on new technologies. He was Vice-President of Technology with ARC Sonics Inc., a specialty engineering firm. John holds a Bachelor of Arts degree from the University of British Columbia. As Vice-President of Technology Evaluation, Chair of the Science Advisory Board and a Director, Mr. Russell draws upon his knowledge and experience to identify, evaluate and select the most promising technologies within those industry sectors targeted by Mantra.

Corporate Advisory Board

Our Corporate Advisory Board provides information and recommendations to our directors and management regarding the economic and regulatory aspects of our various technologies, solutions and services. Our Corporate Advisory Board is composed of specialists in the legal, finance, environmental policy, development, and marketing fields whom we have engaged as consultants on a part-time basis.

Our Corporate Advisory Board provides advice and expertise on regulatory and corporate governance issues, strategic partnership and joint venture opportunities, project management, financing, marketing, sales, software and new technology issues and development opportunities. We also intend to use the diverse network of individuals on the Corporate Advisory Board to promote our business, products and services in the sustainability industry and to attract desirable strategic partners.

Dr. Kevin Wainwright

Dr. Kevin Wainwright was appointed as a member of our Corporate Advisory Board on October 5, 2007. For the past five years, Dr. Wainwright has been the head of the Bachelor of Business Administration program at the British Columbia Institute of Technology (“BCIT”) School of Business, a lecturer for Simon Fraser University’s Masters of Public Policy program, and an instructor in Simon Frasier University’s Department of Economics. He has also served as a director of BCIT’s SITE Centre of Excellence for applied research since March 2007.

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Dr. Wainwright’s fields of specialization are microeconomic theory, industrial organization and the environment and resources. His publications and working papers include Fundamental Methods of Mathematical Economics (4th edition), co-authored with Alpha Chiang (McGraw Hill, 2004); “Environmental Regulation, Asymmetric Information and Moral Hazard” “Dual Organizational Structures in Franchise Industries”’ and “Dogs of War: The Strategic Use of Legal Services in the Tort System”.

Scientific Advisory Board

Our Scientific Advisory Board provides information and recommendations to our directors and management regarding the scientific and technical aspects of our various technologies, solutions and services. Our Scientific Advisory Board is composed of specialists in the scientific, environmental, electrical and systems engineering fields whom we have engaged as consultants on a part-time basis.

Our Scientific Advisory Board provides advice and expertise on technology and software design, sustainability, environmental policy, and technology and service assessment and implementation. The Board also provides input on the technical, ethical and environmental consequences associated with our technologies, projects and operations.

We have entered into consulting agreements with the individuals listed below and appointed them as members of our Scientific Advisory Board. We have also identified other suitable candidates and are currently in negotiations with them regarding the terms of their respective services. However, there is no assurance that we will be able to identify, attract or retain any or a sufficient number of qualified professionals.

Professor Colin Oloman, P.Eng.

Prof. Colin Oloman has been a member of our Scientific Advisory Board since November 2, 2007. Prof. Oloman is a graduate of the Universities of Sydney and British Columbia and has been engaged in the field of chemical engineering for 40 years, both on the academic and industry sides. As a faculty member in the Department of Chemical and Biological Engineering at the University of British Columbia, Prof. Oloman taught a range of undergraduate and graduate courses until his retirement in 2004.

In addition to his status as a professor emeritus at the University of British Columbia, Prof. Oloman is a professional engineer, a member of the Chemical Institute of Canada and the Electrochemical Society, has and the author or coauthor of three books (Ol's Notes on Material and Energy Balances, Electrochemical Processing for the Pulp and Paper Industry and Handbook of Fuel Cell Modeling) as well as numerous proprietary reports and publications in technical journals. He is also the holder or co-holder of some twenty U.S. and international patents. Prof. Oloman’s ongoing research and consulting work focuses on electrochemical systems and in particular the design of electrochemical reactors for electro-synthesis and power generation

Dr. Edward J. (Ben) Anthony

Dr. Edward J. (Ben) Anthony has been a member of our Scientific Advisory Board since January 23, 2008. Dr. Anthony is a Senior Research Scientist for the National Research Council ("NRC") of Canada and enjoyed a lifetime of involvement with energy-related issues. He recently served as the Canadian representative to the International Energy Agency and as the Session Chair responsible for the September 2007 Greenhouse Climate Change Sessions of the Pittsburgh Coal Conference in Johannesburg, South Africa.

On March 4, 2008 Dr. Anthony was appointed the head of Canada's Clean Electric Power Generation ('CEGP') program. The CEPG program is administered by NRC and works in partnership with numerous agencies, universities and research institutes, including the International Energy Agency, Environment Canada and the United States Departments of Energy and Environmental Protection. Dr. Anthony has published over 100 papers in refereed journals and directed several research projects at the NRC on the capture and sequestration of carbon dioxide for greenhouse gas abatement.

20

Norman Chow, P.Eng.

Norman Chow has been a member of our Scientific Advisory Board since July 22, 2008. Mr. Chow earned a B.A.Sc. in Metals and Materials Engineering from the University of British Columbia, graduating top of his class. Continuing his education, he received a Masters of Applied Science Degree and then became a Registered Professional Engineer (P. Eng.) in British Columbia. Mr. Chow has over 10 years of technology development experience and contract research experience. Mr. Chow also co-invented a patented electrochemical metal cleaning process that is used worldwide by multi-national companies. He has a background in technology development, business management, international sales, project management and manufacturing. Mr. Chow has been the winner of several prestigious awards that recognize his skills in engineering and business. In 1996, his patented metal cleaning technology, won the Financial Post Gold Award for being the Top Environmental Technology in Canada, and then in 2004 he was named the winner of the Business in Vancouver Top Forty under 40 Award.

Joey Jung, P.Eng.

Joey Jung has been a member of our Scientific Advisory Board since July 22, 2008. Mr. Jung earned his Masters of Applied Science Degree from the University of British Columbia in Chemical Engineering and subsequently became a Registered Professional Engineer (P. Eng.) in British Columbia. Mr. Jung has had a successful career in electrochemical engineering and battery research, formerly serving as Vice President and Chief Technology Officer of a publicly traded battery development company.

John Russell

John Russell has been the Chair of our Scientific Advisory Board since October 5, 2007. His biographical information is provided above.

Significant Employees

Other than as described above, we do not expect any other individuals to make a significant contribution to our business.

Family Relationships

There are no family relationships among our officers, directors or persons nominated for such positions.

Legal Proceedings

None of our directors, executive officers, promoters or control persons has been involved in any of the following events during the past five years:

• any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
• any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offences);
• being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or
• being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.

Audit Committee

The functions of the Audit Committee are currently carried out by our Board of Directors. Our Board of Directors has determined that we do not have an audit committee financial expert on our Board of Directors carrying out the duties of the Audit Committee. The Board of Directors has determined that the cost of hiring a financial expert to act as our director and a member of the Audit Committee or otherwise perform Audit Committee functions outweighs the benefits of having a financial expert on our Board of Directors.

21

Code of Ethics

Effective February 11, 2008 we adopted a code of ethics and business conduct that applies to our officers, directors and employees and we have filed copies of our code of ethics as an exhibit to the registration statement of which this Prospectus is a part. We intend to disclose any amendments to or waivers of certain provisions of our code of ethics in a current report on Form 8-K.

Audit Committee and Audit Committee Financial Expert

Our audit committee consists of Larry Kristof, Shawn Kim and John Russell.

Our board of directors has determined that it does not have a member of its audit committee that qualifies as an "audit committee financial expert" as defined in Item 407(d)(5)(ii) of Regulation S-K.

Our audit committee is governed by an Audit Committee Charter adopted by our board of directors.

We believe that the members of our audit committee are collectively capable of analyzing and evaluating our financial statements and understanding internal controls and procedures for financial reporting. We believe that retaining an independent director who would qualify as an "audit committee financial expert" would be overly costly and burdensome and is not warranted in our circumstances given the early stages of our development and the fact that we have not generated any material revenues to date. In addition, we currently do not have nominating, compensation or committees performing similar functions nor do we have a written nominating, compensation. Our board of directors does not believe that it is necessary to have such committees because it believes the functions of such committees can be adequately performed by our board of directors.

Director Nominees

We do not have a nominating committee. Our sole director, in his capacity as a director, selects individuals to stand for election as members of the Board. Since the Board of Directors does not include any independent directors, the decision of the Board as to director nominees is made by persons who have an interest in the outcome of the determination. The Board will consider candidates for directors proposed by security holders, although no formal procedures for submitting candidates have been adopted. Unless otherwise determined, not less than 90 days prior to the next annual Board of Directors' meeting at which the slate of Board nominees is adopted, the Board will accept written submissions of proposed nominees that include the name, address and telephone number of the proposed nominee; a brief statement of the nominee’s qualifications to serve as a director; and a statement as to why the shareholder submitting the proposed nominee believes that the nomination would be in the best interests of shareholders. If the proposed nominee is not the same person as the shareholder submitting the name of the nominee, a letter from the nominee agreeing to the submission of his or her name for consideration should be provided at the time of submission. The letter should be accompanied by a résumé supporting the nominee's qualifications to serve on the Board of Directors, as well as a list of references.

The Board identifies director nominees through a combination of referrals from different people, including management, existing Board members and security holders. Once a candidate has been identified, the Board reviews the individual's experience and background and may discuss the proposed nominee with the source of the recommendation. If the Board believes it to be appropriate, Board members may meet with the proposed nominee before making a final determination whether to include the proposed nominee as a member of management's slate of director nominees submitted to shareholders for election to the Board.

Among the factors that the Board considers when evaluating proposed nominees are their knowledge of, and experience in business matters, finance, capital markets and mergers and acquisitions. The Board may request additional information from the candidate prior to reaching a determination. The Board is under no obligation to formally respond to all recommendations, although as a matter of practice, it will endeavor to do so.

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Section 16(a) Beneficial Ownership Compliance Reporting

Section 16(a) of the Securities Exchange Act of 1934 requires a company’s directors and officers, and persons who own more than ten-percent (10%) of the company’s common stock, to file with the Securities and Exchange Commission reports of ownership on Form 3 and reports of change in ownership on Forms 4 and 5. Such officers, directors and ten-percent stockholders are also required to furnish the company with copies of all Section 16(a) reports they file. Based solely on our review of the copies of such forms received by us and on written representations from certain reporting persons, we believe that all Section 16(a) reports applicable to our officers, directors and ten-percent stockholders with respect to the fiscal year ended May 31, 2010 were filed. However, some were filed late.

The particulars of the compensation paid to the following persons:

• our principal executive officer;

• each of our two most highly compensated executive officers who were serving as executive officers at the end of the years ended April 30, 2010 and 2009; and

• up to two additional individuals for whom disclosure would have been provided under (b) but for the fact that the individual was not serving as our executive officer at the end of the years ended April 30, 2010 and 2009,

who we will collectively refer to as the named executive officers of our company, are set out in the following summary compensation table, except that no disclosure is provided for any named executive officer, other than our principal executive officers, whose total compensation did not exceed $100,000 for the respective fiscal year:

23

Option Grants in the Last Fiscal Year

The following table outlines unexercised options, stock that has not vested and equity incentive plan awards for each named executive officer outstanding as of the end of our last completed fiscal year:

As of September 14, 2010 we did not have any equity compensation plans.

Management Compensation Narrative

On January 1, 2009 we entered into a consulting agreement with Larry Kristof whereby we engaged Mr. Kristof’s services as our President and Chief Executive Officer. In exchange for these services, we agreed to pay Mr. Kristof a monthly salary of $8,500. The agreement may be terminated by us at any time without notice.

On June 1, 2009 we entered into a consulting agreement with Shawn Kim whereby we agreed to compensate Mr. Kim for provision of services as our Vice President of International Business Development with a monthly payment of approximately $5,300 (CAD $6,000) as well as the issuance of 100,000 shares of our common stock and options to purchase an additional 75,000 shares of our common stock at a price of $0.15 per shares exercisable within two years after the date such option is granted or upon the termination of this Agreement, whichever occurs earlier.

On October 1, 2009, we entered into a management agreement with Con Buckley. The agreement is for a period of one year. Pursuant to the terms of the management agreement, Mr. Buckley will be paid US$6,000 per month and will be granted options to acquire 400,000 shares of our common stock at $0.20 per share. The options are valid until October 1, 2010. Management agreement may be terminated by our company with 7 days notice and will automatically renew on September 30 of each year unless otherwise terminated.

Compensation of Directors

Other than as set out below, we have no formal plan for compensating our directors for their service in their capacity as directors, although such directors are expected in the future to receive stock options to purchase common shares as awarded by our board of directors or (as to future stock options) a compensation committee which may be established. Directors are entitled to reimbursement for reasonable travel and other out-of-pocket expenses incurred in connection with attendance at meetings of our board of directors. Our board of directors may award special remuneration to any director undertaking any special services on our behalf other than services ordinarily required of a director. No director received and/or accrued any compensation for their services as a director, including committee participation and/or special assignments.

One June 8, 2009, we entered into a director agreement with Shawn Kim, to the effective upon Mr. Kim’s official appointment to our company’s board of directors. Pursuant to the terms of this agreement Mr. Kim received options to purchase 200,000 shares of our company’s common stock at a price of $0.24 per share in consideration for fulfilling his duties as one of our company’s directors for a period of 12 months. The options expire the earlier of September 21, 2010, 5 days after Mr. Kim resigns from our company’s board of directors or after our company’s common shares end trading at a price of $0.50 per share for a period of 5 trading days.

24

On June 8, 2009, we entered into a director agreement with John Russell, to the effective upon Mr. Russell’s official appointment to our company’s board of directors. Pursuant to the terms of this agreement Mr. Russell received options to purchase 33,333 shares of our company’s common stock at a price of $0.24 per share in consideration for fulfilling his duties as one of our company’s directors for a period of 60 days. The options expire the earlier of September 21, 2010, 5 days after Mr. Russell resigns from our company’s board of directors or after our company’s common shares end trading at a price of $0.50 per share for a period of 5 trading days.

Pension, Retirement or Similar Benefit Plans

There are no arrangements or plans in which we provide pension, retirement or similar benefits to our directors or executive officers. We have no material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to our directors or executive officers, except that stock options may be granted at the discretion of the Board of Directors or a committee thereof.

Compensation Committee

We do not currently have a compensation committee of the Board of Directors. The Board of Directors as a whole determines executive compensation.

The following table lists, as of September 14, 2010, the number of shares of our common stock beneficially owned by (i) each person or entity known to us to be the beneficial owner of more than 5% of our outstanding common stock; (ii) each of our officers and directors; and (iii) all of our officers and directors as a group. Information relating to the beneficial ownership of common stock by our principal shareholders and management is based upon information furnished by each person using "beneficial ownership" concepts under the rules of the Securities and Exchange Commission. Under these rules, a person is deemed to be the beneficial owner of a security if that person has or shares voting power or investment power, which includes the power to vote or direct the voting of the security. The person is also deemed to be a beneficial owner of any security of which that person has a right to acquire beneficial ownership within 60 days. Under the rules of the Securities and Exchange Commission, more than one person may be deemed to be a beneficial owner of the same security, and a person may be deemed to be a beneficial owner of securities as to which he or she may not have any pecuniary beneficial interest.

The percentages below are calculated based on 35,127,185 issued and outstanding shares of our common stock as of September 14, 2010.

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Changes in Control

There are currently no arrangements or agreements which would result in a change in control of our company.

Except as set forth below, we have not entered into any transactions with our officers, directors, persons nominated for these positions, beneficial owners of 5% or more of our common stock, or family members of these persons wherein the amount involved in the transaction or a series of similar transactions exceeded the lesser of $120,000 or 1% of the average of our total assets for the last three fiscal years:

• During the year ended May 31, 2010, we incurred management fees of $57,000 (2009 - $0) to an accounting firm where our Chief Financial Officer is a partner.
• During the year ended May 31, 2010, we incurred management fees of $10,124 (2009 - $73,500) to a company controlled by our former Chief Financial Officer.
• During the year ended May 31, 2010, we incurred management fees of $41,948 (2009 - $nil) to our Vice President.
• As at May 31, 2010, we owe $34,592 (2009 - $nil) to our Vice President which is non-interest bearing, unsecured, and due on demand.
• As at May 31, 2010, we owe $17,608 (2009 - $nil) to our Vice President of the Company which is non- interest bearing, unsecured, and due on demand
• As at May 31, 2010, we owe $21,045 (2009 - $nil) to the spouse of our President which is non-interest bearing, unsecured, and due on demand.
• As at May 31, 2010, we owe a total of $38,550 (2009 - $nil) to an accounting firm where our Chief Financial Officer is a partner which is non-interest bearing, unsecured, and due on demand.

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• As at May 31, 2010, we owe a total of $9,179 (2009 - $3,190) to our Chief Financial Officer and a company controlled by our former Chief Financial Officer.
• As at May 31, 2010, we owe a total of $173,738 (2009 - $72,825) to our President and a company controlled by our President which is non-interest bearing, unsecured, and due on demand.

Director Independence

Our securities are quoted on the OTC Bulletin Board which does not have any director independence requirements.

However, we currently use NASDAQ’s general definition for determining director independence, which states that “independent director” means a person other than an officer or employee of the company or its subsidiaries or any other individual having a relationship, that, in the opinion of the company’s board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of the director. Currently, none of our directors meet this definition of independence.

Our audit committee consists of Larry Kristof, Shawn Kim and John Russell

We do not have a standing compensation or nominating committee, but our entire board of directors acts in such capacities.

The aggregate fees billed for the most recently completed fiscal year ended May 31, 2010 and for fiscal year ended May 31, 2009 for professional services rendered by the principal accountant for the audit of our annual financial statements and review of the financial statements included in our quarterly reports on Form 10-Q and services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for these fiscal periods were as follows:

Our board of directors pre-approves all services provided by our independent auditors. All of the above services and fees were reviewed and approved by the board of directors either before or after the respective services were rendered.

Our board of directors has considered the nature and amount of fees billed by our independent auditors and believes that the provision of services for activities unrelated to the audit is compatible with maintaining our independent auditors’ independence.

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PART IV

Exhibits

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*filed herewith

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

Pursuant to the requirements of the Exchange Act this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

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