HIGH WIRE NETWORKS, INC. - Quarter Report: 2010 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, 2010
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 |
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 19, 2010, the registrant had 32,310,647 shares
of common stock outstanding.
Table of Contents
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. [Removed and Reserved]
Item 5. Other Information
Item 6. Exhibits
SIGNATURES
1
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The unaudited interim consolidated financial statements of Mantra Venture Group Ltd. (the “Company”, “Mantra”, “we”, “our”, “us”) follow. All currency references in this report are in US dollars unless otherwise noted.
MANTRA VENTURE GROUP LTD.
(A development stage company)
Consolidated financial statements
(Expressed in U.S. dollars)
February 28, 2010
Index
Consolidated balance sheets F–1
Consolidated statements of operations F–2
Consolidated statements of cash flows F–3
Notes to the consolidated financial statements F–4
2
MANTRA VENTURE GROUP LTD.
(A development stage company)
Consolidated balance sheets
(Expressed in U.S. dollars)
|
February 28,
2010
$
(unaudited) |
May 31,
2009
$
|
|||||||
|
ASSETS |
||||||||
|
Current assets |
||||||||
|
Cash |
1,047 | 3,320 | ||||||
|
Amounts receivable |
22,002 | 19,253 | ||||||
|
Prepaid expenses and deposits |
– | 6,536 | ||||||
|
Total current assets |
23,049 | 29,109 | ||||||
|
Property and equipment |
83,455 | 109,801 | ||||||
|
Total assets |
106,504 | 138,910 | ||||||
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT |
||||||||
|
Current liabilities |
||||||||
|
Accounts payable and accrued liabilities (Note 3) |
603,919 | 224,893 | ||||||
|
Deferred revenue |
12,300 | – | ||||||
|
Due to related parties (Note 3) |
5,515 | 76,015 | ||||||
|
Convertible debentures (Note 4) |
250,000 | 231,618 | ||||||
|
Total current liabilities |
871,734 | 532,526 | ||||||
|
Due to related parties (Note 3) |
111,519 | – | ||||||
|
Total liabilities |
983,253 | 532,526 | ||||||
|
Commitments (Note 5) |
||||||||
|
Subsequent events (Note 9) |
||||||||
|
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: 32,305,561 shares (May 31, 2009 – 23,452,661 shares) |
323 | 301 | ||||||
|
Additional paid-in capital |
3,876,317 | 3,431,286 | ||||||
|
Common stock subscribed |
87,225 | – | ||||||
|
Deficit accumulated during the development stage |
(4,840,614 | ) | (3,825,203 | ) | ||||
|
Total stockholders’ deficit |
(876,749 | ) | (393,616 | ) | ||||
|
Total liabilities and stockholders’ deficit |
106,504 | 138,910 | ||||||
(The accompanying notes are an integral part of these consolidated financial statements)
F-1
MANTRA VENTURE GROUP LTD.
(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 (Date of Inception) to February 28, |
||||||||||||||||||
|
2010
$ |
2009
$ |
2010
$ |
2009
$ |
2010
$ |
||||||||||||||||
|
Revenues |
14,530 | 1,060 | 86,968 | 12,118 | 104,086 | |||||||||||||||
|
Expenses |
||||||||||||||||||||
|
Business development |
(2,556 | ) | 1,973 | 57,334 | 3,422 | 269,557 | ||||||||||||||
|
Consulting and advisory |
3,229 | 8,642 | 26,432 | 43,996 | 431,439 | |||||||||||||||
|
Depreciation and amortization |
8,782 | 8,782 | 26,346 | 27,088 | 84,180 | |||||||||||||||
|
Foreign exchange loss |
4,525 | – | 23,108 | – | 19,851 | |||||||||||||||
|
General and administrative (Note 3) |
17,545 | 58,436 | 47,779 | 136,734 | 358,960 | |||||||||||||||
|
Management fees (Note 3) |
51,701 | 232,446 | 216,510 | 379,979 | 901,092 | |||||||||||||||
|
Professional fees (Note 3) |
53,299 | 65,467 | 210,397 | 231,131 | 671,918 | |||||||||||||||
|
Public listing costs |
2,824 | 21,501 | 13,767 | 29,001 | 203,110 | |||||||||||||||
|
Rent |
10,733 | – | 37,116 | – | 146,706 | |||||||||||||||
|
Research and development |
38,398 | 47,789 | 145,367 | 119,911 | 396,820 | |||||||||||||||
|
Shareholder communications and awareness |
16,346 | 80,342 | 107,733 | 249,687 | 600,954 | |||||||||||||||
|
Travel and promotion |
19,148 | 29,823 | 50,395 | 55,197 | 305,673 | |||||||||||||||
|
Wages and benefits |
35,063 | 58,383 | 102,935 | 103,395 | 240,932 | |||||||||||||||
|
Website and corporate identity |
– | – | – | – | 195,451 | |||||||||||||||
|
Write down of intangible assets |
– | – | – | – | 37,815 | |||||||||||||||
|
Total expenses |
259,037 | 613,584 | 1,065,219 | 1,379,541 | 4,864,458 | |||||||||||||||
|
Loss before other expenses |
(244,507 | ) | (612,524 | ) | (978,251 | ) | (1,367,423 | ) | (4,760,372 | ) | ||||||||||
|
Other expenses |
||||||||||||||||||||
|
Accretion of discounts on convertible debentures |
– | (11,580 | ) | (18,382 | ) | (15,408 | ) | (45,930 | ) | |||||||||||
|
Interest |
(6,730 | ) | (4,777 | ) | (18,778 | ) | (10,663 | ) | (34,312 | ) | ||||||||||
|
Total other expenses |
(6,730 | ) | (16,357 | ) | (37,160 | ) | (26,071 | ) | (80,242 | ) | ||||||||||
|
Net loss for the period |
(251,237 | ) | (628,881 | ) | (1,015,411 | ) | (1,393,494 | ) | (4,840,614 | ) | ||||||||||
|
Loss per share, basic and diluted |
(0.01 | ) | (0.02 | ) | (0.03 | ) | (0.05 | ) | ||||||||||||
|
Weighted average number of shares outstanding |
32,305,561 | 27,303,448 | 31,417,671 | 26,141,886 | ||||||||||||||||
(The accompanying notes are an integral part of these consolidated financial statements)
F-2
MANTRA VENTURE GROUP LTD.
(A development stage company)
Consolidated statements of cash flows
(Expressed in U.S. dollars)
(unaudited)
|
Nine
Months Ended
February 28,
2010
$ |
Nine
Months Ended
February 28,
2009
$ |
Accumulated from
January 22, 2007
(Date of Inception)
to February 28,
2010
$ |
||||||||||
|
Operating activities |
||||||||||||
|
Net loss for the period |
(1,015,411 | ) | (1,393,494 | ) | (4,840,614 | ) | ||||||
|
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||||||
|
Accretion of discounts on convertible debentures |
18,382 | 15,408 | 45,930 | |||||||||
|
Depreciation and amortization |
26,346 | 27,088 | 84,180 | |||||||||
|
Stock-based compensation |
161,187 | 422,342 | 1,275,917 | |||||||||
|
Write-down of intangible assets |
– | – | 37,815 | |||||||||
|
Changes in operating assets and liabilities |
||||||||||||
|
Subscriptions receivable |
– | – | – | |||||||||
|
Amounts receivable |
(2,749 | ) | 3,281 | (22,002 | ) | |||||||
|
Accrued interest payable |
– | 9,233 | – | |||||||||
|
Prepaid expenses and deposits |
6,536 | (18,378 | ) | – | ||||||||
|
Other assets |
– | – | (12,000 | ) | ||||||||
|
Accounts payable and accrued liabilities |
444,886 | 197,453 | 827,396 | |||||||||
|
Deferred revenue |
12,300 | – | 12,300 | |||||||||
|
Due to related parties |
41,019 | (48,617 | ) | 117,034 | ||||||||
|
Net cash used in operating activities |
(307,504 | ) | (785,684 | ) | (2,474,044 | ) | ||||||
|
Investing activities |
||||||||||||
|
Purchase of property and equipment |
– | (84,990 | ) | (155,635 | ) | |||||||
|
Net cash used in investing activities |
– | (84,990 | ) | (155,635 | ) | |||||||
|
Financing activities |
||||||||||||
|
Borrowings on related party debt |
– | 83,263 | – | |||||||||
|
Repayments of related party debt |
– | (77,344 | ) | – | ||||||||
|
Proceeds from issuance of convertible debentures |
– | 250,000 | 250,000 | |||||||||
|
Proceeds from issuance of common stock |
305,231 | 595,000 | 2,380,726 | |||||||||
|
Net cash provided by financing activities |
305,231 | 850,919 | 2,630,726 | |||||||||
|
Change in cash |
(2,273 | ) | 19,755 | 1,047 | ||||||||
|
Cash, beginning of period |
3,320 | 26,201 | – | |||||||||
|
Cash, end of period |
1,047 | 6,446 | 1,047 | |||||||||
|
Non-cash investing and financing activities: |
||||||||||||
|
Common stock issued to settle accounts payable |
65,862 | 15,000 | 223,479 | |||||||||
|
Common stock issued and stock options granted for acquisition of intangible assets |
– | – | 37,815 | |||||||||
|
Promissory note issued to settle accounts payable |
– | 58,000 | 58,000 | |||||||||
|
Fair value of share purchase warrants issued for convertible debentures |
– | 45,930 | – | |||||||||
|
Supplemental disclosures: |
||||||||||||
|
Interest paid |
– | – | – | |||||||||
|
Income taxes paid |
– | – | – | |||||||||
(The accompanying notes are an integral part of these consolidated financial statements)
F-3
MANTRA VENTURE GROUP LTD.
(A development stage company)
Notes to the consolidated financial statements
(Expressed in U.S. dollars)
February 28, 2010
(unaudited)
|
1. |
Basis of Presentation |
The accompanying consolidated financial statements of Mantra Venture Group Ltd. (the “Company”) should be read in conjunction with the consolidated financial statements and accompanying notes filed with the U.S. Securities and Exchange Commission in the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2009.
In the opinion of management, the accompanying financial statements reflect all adjustments of a recurring nature considered necessary to present fairly the Company’s financial position and the results of its operations and its cash flows for the periods shown.
The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported. Actual results could differ materially from those estimates. The results of operations and cash flows for the periods shown are not necessarily
indicative of the results to be expected for the full year.
|
2. |
Recent Accounting Pronouncements |
In June 2009, the FASB issued guidance now codified as FASB ASC Topic 105, Generally Accepted Accounting Principles as the single source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with U.S. GAAP, aside from those issued by the SEC.
ASC 105 does not change current U.S. GAAP, but is intended to simplify user access to all authoritative U.S. GAAP by providing all authoritative literature related to a particular topic in one place. The adoption of ASC 105 did not have a material impact on the Company’s financial statements, but did eliminate all references to pre-codification standards
In May 2009, FASB issued ASC 855, Subsequent Events, which establishes general standards of for the evaluation, recognition and disclosure of events and transactions that occur after the balance sheet date. Although there is new terminology, the standard is based on the same principles as those that currently exist in the auditing standards. The
standard, which includes a new required disclosure of the date through which an entity has evaluated subsequent events, is effective for interim or annual periods ending after June 15, 2009. The adoption of ASC 855 did not have a material effect on the Company’s financial statements.
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
|
3. |
Related Party Transactions |
|
a) |
During the nine months ended February 28, 2010, the Company incurred management fees of $64,000 (2009 - $58,500) to the President of the Company. |
|
b) |
During the nine months ended February 28, 2010, the Company incurred administration fees of $36,173 (2009 - $27,367) to the spouse of the President of the Company. |
|
c) |
During the nine months ended February 28, 2010, the Company incurred professional fees of $39,000 (2009 - $nil) to a company controlled by the Chief Financial Officer of the Company. |
|
d) |
During the nine months ended February 28, 2010, the Company incurred management fees of $5,000 (2009 - $33,000) to a company controlled by the former Chief Financial Officer of the Company. |
F-4
MANTRA VENTURE GROUP LTD.
(A development stage company)
Notes to the consolidated financial statements
(Expressed in U.S. dollars)
February 28, 2010
(unaudited)
3. Related Party Transactions (continued)
|
e) |
During the nine months ended February 28, 2010, the Company incurred consulting fees of $67,164 (2008 - $nil) to directors of the Company. |
|
f) |
As at February 28, 2010, the Company owes a total of $109,922 (May 31, 2009 - $72,825) to the President of the Company and a company controlled by the President of the Company. The amounts due are non-interest bearing and unsecured. As at May 31, 2009, the amounts owed were due on demand. On November 29, 2009, the repayment terms were amended and the amounts owed
are now due on November 29, 2012. As at February 28, 2010, included in accounts payable and accrued liabilities is $62,559 owed to the President of the Company. |
|
g) |
As at February 28, 2010, the Company owes a total of $5,515 (May 31, 2009 - $nil) to directors of the Company. The amounts due are non-interest bearing, unsecured and due on demand. |
|
h) |
As at February 28, 2010, included in accounts payable and accrued liabilities is $24,650 (May 31, 2009 - $Nil) owed to a professional firm where the Chief Financial Officer of the Company is a partner. |
|
i) |
As at February 28, 2010, included in accounts payable and accrued liabilities is $26,097 (May 31, 2009 - $Nil) owed to directors of the Company. |
|
4. |
Convertible Debentures |
On October 16, 17 and 28, 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. During the period ended February 28, 2010, the Company has recorded accretion expense of $18,382, increasing the carrying value of the convertible debentures to $250,000.
F-5
MANTRA VENTURE GROUP LTD.
(A development stage company)
Notes to the consolidated financial statements
(Expressed in U.S. dollars)
February 28, 2010
(unaudited)
|
5. |
Commitments |
|
a) |
On October 1, 2009, the Company entered into an agreement with an individual to become the Chief Financial Officer of the Company for $6,000 per month expiring on September 30, 2010. |
|
b) |
On September 2, 2009, the Company entered into an agreement with a company to acquire a worldwide, exclusive license for the Mixed Reactant Flow-By Fuel Cell technology. The term of the agreement is for twenty years or the expiry of the last patent licensed under the agreement, whichever is later. The Company agreed to pay the licensor the following license fees: |
|
· |
an initial license fee of Cdn$10,000 payable in two instalments: Cdn$5,000 upon execution of the agreement (paid) and Cdn$5,000 within thirty days of September 2, 2009 (accrued); |
|
· |
a further license fee of Cdn$15,000 to be paid within ninety days of September 2, 2009; and |
|
· |
an annual license fee, payable annually on the anniversary of the date of the agreement as follows: |
|
September 1, 2010 |
Cdn$10,000 |
|
September 1, 2011 |
Cdn$20,000 |
|
September 1, 2012 |
Cdn$30,000 |
|
September 1, 2013 |
Cdn$40,000 |
|
September 1, 2014 and each successive anniversary |
Cdn$50,000 |
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.
|
6. |
Common Stock |
|
a) |
On June 1, 2009, the Company issued 100,000 shares of common stock with a fair value of $24,000 for services rendered. |
|
b) |
On July 3, 2009, the Company issued 25,000 shares of common stock with a fair value of $6,000 for services rendered. |
|
c) |
On July 16, 2009, the Company issued 466,334 units at $0.15 per unit for proceeds of $69,950. Each unit consisted of one share of common stock and one non-transferable 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 time 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. |
|
d) |
On July 24, 2009, the Company issued 18,000 units at $0.15 per unit for proceeds of $2,700. Each unit consisted of one share of common stock and one non-transferable 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 time 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-6
MANTRA VENTURE GROUP LTD.
(A development stage company)
Notes to the consolidated financial statements
(Expressed in U.S. dollars)
February 28, 2010
(unaudited)
6. Common Stock (continued)
|
e) |
On July 24, 2009, the Company issued 100,000 units with a fair value of $15,000 to settle 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 $0.30 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 $0.60 per share for seven consecutive trading days. |
|
f) |
On August 17, 2009, the Company issued 25,000 shares of common stock with a fair value of $7,250 for services rendered. |
|
g) |
On August 24, 2009, the Company issued 594,333 units at $0.15 per unit for proceeds of $89,150. Each unit consisted of one share of common stock and one non-transferable 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 time 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. |
|
h) |
On September 15, 2009, the Company issued 68,000 units at $0.15 per unit for proceeds of $10,200. Each unit consisted of one share of common stock and one non-transferable 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 time 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. |
|
i) |
On November 27, 2009, the Company issued 556,000 units at $0.15 per unit for proceeds of $83,400. Each unit consisted of one share of common stock and one non-transferable 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 time 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 |
|
j) |
On December 5, 2009, the Company issued 33,334 units at $0.15 per unit for proceeds of $5,000. Each unit consisted of one share of common stock and one non-transferable 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 time 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. |
|
k) |
On December 11, 2009, the Company issued 299,192 shares of common stock to settle $50,862 of accounts payable owing to directors and consultants. |
|
7. |
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, May 31, 2009 |
2,800,000 |
0.32 |
||
|
Granted |
708,333 |
0.21 |
||
|
Cancelled |
(1,625,000) |
0.25 |
||
|
Outstanding and exercisable, February 28, 2010 |
1,883,333 |
0.31 |
0.8 |
– |
F-7
MANTRA VENTURE GROUP LTD.
(A development stage company)
Notes to the consolidated financial statements
(Expressed in U.S. dollars)
February 28, 2010
(unaudited)
Additional information regarding stock options as of February 28, 2010, is as follows:
|
Number of
Options |
Exercise
Price
$ |
Expiry Date |
|
200,000 |
0.75 |
March 5, 2010 |
|
75,000 |
0.45 |
April 25, 2010 |
|
100,000 |
0.25 |
July 16, 2010 |
|
375,000 |
0.30 |
January 1, 2011 |
|
75,000 |
0.27 |
February 10, 2011 |
|
100,000 |
0.30 |
October 6, 2010 |
|
250,000 |
0.25 |
November 1, 2012 |
|
75,000 |
0.15 |
June 1, 2011 |
|
233,333 |
0.24 |
September 21, 2010 |
|
400,000 |
0.20 |
October 1, 2010 |
|
1,883,333 |
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,
2010 |
Nine months ended
February 28,
2009 |
|||||||
|
Risk-free Interest rate |
0.39 | % | 0.80 | % | ||||
|
Expected life (in years) |
1.0 | 0.9 | ||||||
|
Expected volatility |
92 | % | 111 | % | ||||
The weighted average fair value of the stock options granted during fiscal 2010 was $0.10 (2009 - $0.17) per option.
As of February 28, 2010, the Company has no unrecognized compensation expense relating to unvested options.
F-8
MANTRA VENTURE GROUP LTD.
(A development stage company)
Notes to the consolidated financial statements
(Expressed in U.S. dollars)
February 28, 2010
(unaudited)
|
8. |
Share Purchase Warrants |
The following table summarizes the continuity of share purchase warrants:
|
Number of Warrants |
Weighted Average Exercise Price
$ |
|||||||
|
Balance, May 31, 2009 |
6,576,358 | 0.36 | ||||||
|
Issued |
1,836,000 | 0.19 | ||||||
|
Expired |
(2,948,750 | ) | 0.26 | |||||
|
Balance, February 28, 2010 |
5,463,608 | 0.34 | ||||||
As at February 28, 2010, the following share purchase warrants were outstanding:
|
Number of Warrants |
Exercise Price
$ |
Expiry Date |
|
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 |
|
199,998 |
0.40 |
March 10, 2011 |
|
859,625 |
0.30 |
April 1, 2011 |
|
71,152 |
0.30 |
April 3, 2011 |
|
292,500 |
0.30 |
April 6, 2011 |
|
860,000 |
0.30 |
April 16, 2011 |
|
88,000 |
0.30 |
May 20, 2011 |
|
321,333 |
0.30 |
May 28, 2011 |
|
466,334 |
0.30 |
July 16, 2011 |
|
118,000 |
0.30 |
July 24, 2011 |
|
594,333 |
0.30 |
August 24, 2011 |
|
68,000 |
0.30 |
October 15, 2011 |
|
556,000 |
0.30 |
November 27, 2011 |
|
33,333 |
0.30 |
December 5, 2011 |
|
5,463,608 |
|
9. |
Subsequent Events |
|
a) |
Subsequent to quarter end the Company settled a claim for investor relations services which in the Company’s view were not satisfactorily rendered to the Company. The Company is to pay $9,000 over a five month period commencing April 1, 2010 and issue 53,333 shares of common stock with a fair value of $8,000 to the investor relations firm. |
|
b) |
The Company entered into a share cancellation agreement and cancelled 400,000 shares of common stock issued to a consultant who was to provide marketing services. |
F-9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward Looking Statements
This quarterly report on Form 10-Q 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.
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.
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. 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.
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.
Results of Operations for the Period From January 22, 2007 (Date of Inception) to February 28, 2010 and for the Three Months Ended February 28, 2010.
We have had limited operational history since our inception on January 22, 2007. From our inception on January 22, 2007 to February 28, 2010 we have generated $104,086 in revenues. For the three months ended February 28, 2010 we generated revenues of $14,530 compared to $1,060 during the same period in 2009. Since our inception
on January 22, 2007 to February 28, 2010, we have an accumulated deficit of $4,840,614. 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.
3
Expenses
We accumulated total expenses of $4,864,458 from the date of our inception to February 28, 2010, including $396,820 in research and development costs, $901,092 in management fees, $671,918 in professional fees, $600,954 in shareholder communications and awareness, $431,439 in consulting and advisory expenses.
For the three months ended February 28, 2010, we incurred total expenses of $259,037 including $38,398 in research and development costs, $51,701 in management fees, $53,299 in professional fees, $16,346 in shareholder communications and awareness, and $35,063 in wages and benefits.
By comparison, our total operating expenses for the three months ended February 28, 2009 were $613,584 including $47,789 in research and development costs, $232,446 in management fees, $65,467 in professional fees, $80,342 in shareholder communications and awareness, and $58,383 in wages and benefits.
Net Loss
Since our inception on January 22, 2007 to February 28, 2010, we have incurred a net loss of $4,840,614. For the three months ended February 28, 2010, we incurred a net loss of $251,237 compared to our net loss of $628,881 for the same period in 2009. Our net loss per share for the three months ended February 28, 2010 was $0.01 and for the
same period in 2009 was $0.02.
Results of Operations for the Nine Months Ended February 28, 2010 compared to February 28, 2009.
Revenues
For the nine months ended February 28, 2010 we generated revenues of $86,968 compared to $12,118 during the same period in 2009.
Expenses
For the nine months ended February 28, 2010, we incurred total expenses of $1,065,219 including $145,367 in research and development costs, $216,510 in management fees, $210,397 in professional fees, $107,733 in shareholder communications and awareness, and $26,432 in consulting and advisory expenses.
By comparison, our total operating expenses for the nine months ended February 28, 2009 were $1,379,541 including $119,911 in research and development costs, $379,979 in management fees, $231,131 in professional fees, $249,687 in shareholder communications and awareness, and $43,996 in consulting and advisory expenses.
Net Loss
For the nine months ended February 28, 2010, we incurred a net loss of $1,015,411 compared to our net loss of $1,393,494 for the same period in 2009. Our net loss per share for the period ended February 28, 2010 was $0.03 and for the same period in 2009 was $0.05.
4
Liquidity and Capital Resources
As of February 28, 2010, we had $1,047 cash in our bank accounts and a working capital deficit of $848,685. As of February 28, 2010, we had total assets of $106,504 and total liabilities of $983,253.
From January 22, 2007 (date of inception) to February 28, 2010, we raised net proceeds of $2,380,726 in cash from the issuance of common stock and $250,000 for a total of $2,630,726 of cash provided by financing activities for the period.
We received net cash of $305,231 from financing activities for the nine months ended February 28, 2010 compared to $595,000 for the same period in 2009. During the period in 2010 we raised cash from the sale of our common stock only, whereas during the period in 2009, we raised $595,000 through the sale of our common stock, $250,000 through
the issuance of convertible debentures and $83,263 through borrowings on related party debt, of which 77,344 was repaid during the period ended February 28, 2009.
We used net cash of $307,504 in operating activities for the nine months ended February 28, 2010 compared to $785,684 for the same period in 2009. We used net cash of $2,474,044 in operating activities for the period from January 22, 2007 (date of inception) to February 28, 2010.
We did not use any cash in investing activities for the nine months February 28, 2010 compared to net cash of $84,990 in investing activities for the same period in 2009 which was used for the purchase of property and equipment.
During the nine months ended February 28, 2010 we had a decrease of $2,273 in our cash position compared to an increase of $19,755 for the same period in 2009. Our monthly cash requirements for nine month period ended February 28, 2010 was approximately $34,167 compared to $87,298
for the same period in 2009. At our current cash position and if this cash requirement continues, we do not have sufficient cash to cover our expenses for one month.
On October 16, 17 and 28, 2008, we 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 our common stock at a price
of $0.40 per share. We also issued 250,000 detachable, non-transferable share purchase warrants. Each share purchase warrant entitles the holder to purchase one additional share of our common stock for a period of two years from the date of the issue at an exercise price of $0.50 per share. During the period ended February 28, 2010, we recorded accretion expense of $18,382, increasing the carrying value of the convertible debentures to $250,000.
We expect that our total expenses will increase over the next year as we increase our business operations. We have not been able to reach the break-even point since our inception and have had to rely on outside capital resources. We do not anticipate making significant revenues for the next year. Over the next 12 months, we plan to primarily concentrate
on commercializing our ERC technology and associated projects. Below is a summary of our anticipated expenditures over the next 12 months:
|
Description |
Estimated expenses
($) |
|
Research and Development |
275,000 |
|
Consulting Fees |
100,000 |
|
Acquisition of new technologies |
500,000 |
|
Commercialization of ERC |
1,200,000 |
|
Shareholder communication and awareness |
250,000 |
|
Professional Fees |
200,000 |
|
Wages and Benefits |
150,000 |
|
Management Fees |
400,000 |
|
Total |
3,075,000 |
5
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.
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
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 consolidated financial statements for the year ended May 31, 2009 filed in an Annual Report on Form 10-K. 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.
6
Long-lived Assets
In accordance with ASC 360, “Impairment or Disposal of Long-Lived Assets”, 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 4. Controls and Procedures.
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 February 28, 2010. Based on the evaluation of these disclosure controls and procedures,
and in light of the weaknesses identified in our internal controls over financial reporting which were enumerated in our Annual Report on Form 10-K for the period ended May 31, 2009, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective.
Changes in Internal Controls
During the period covered by this report 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.
7
PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
We are not aware of any material legal proceedings which involve Mantra or any of its properties or subsidiaries.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
From December 1, 2009 to February 28, 2010, we made the following previously unreported sales of unregistered securities:
On December 5, 2009, the Company issued 33,334 units at $0.15 per unit for proceeds of $5,000. Each unit consisted of one share of common stock and one non-transferable 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 time 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.
On December 11, 2009, the Company issued 299,192 shares of common stock to settle $50,862 of accounts payable owing to directors and consultants.
We completed the offerings of the common stock 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.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. [Removed and Reserved]
Item 5. Other Information.
None
Item 6. Exhibits
|
Exhibit No. |
Description |
|
10.1 |
Development Agreement with 3M dated October 28, 2009 (1) |
|
10.2 |
Management Agreement with Con Buckley October 1, 2009 (2) |
|
31.1 |
Certification of the Chief Executive Officer Pursuant to Rule 13a-14 or 15d-14 of the Exchange Act pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
31.2 |
Certification of the Chief Financial Officer Pursuant to Rule 13a-14 or 15d-14 of the Exchange Act pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
32.1 |
Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
32.2 |
Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
(1) |
Attached as an exhibit to our current report on Form 8-K filed on November 6, 2009. |
|
(2) |
Attached as an exhibit to our current report on Form 8-K filed on October 7, 2009 |
8
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 19, 2010 |
Larry Kristof |
|
President, Chief Executive Officer, Director | |
|
/s/ Con Buckley | |
|
Date: April 19, 2010 |
Con Buckley |
|
Chief Financial Officer, Principal Accounting Officer |
10