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

Form 10-Q

(Mark One)

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

For the quarterly period ended November 30, 2012

or

[   ] TRANSITION REPORT UNDER 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)

British Columbia 26-0592672
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)
   
#562 – 800 15355 24th Avenue, Surrey, British Columbia, Canada V4A 2H9
(Address of principal executive offices) (Zip Code)

(604) 560-1503
(Registrant’s telephone number, including area code)

N/A
(Former name, former address and former fiscal year, if changed since last report)

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 such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
[X] YES [   ] NO

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
[X] YES [   ] NO

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [   ] Accelerated filer [   ]
Non-accelerated filer [   ]
(Do not check if a smaller reporting company)
Smaller reporting company [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act
[   ] YES [X] NO

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Check whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. 
[   ] YES [   ] NO

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 50,358,139 common shares issued and outstanding as of January 14, 2013.


Table of Contents

PART I – FINANCIAL INFORMATION 3
   Item 1. Financial Statements 3
   Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 5
   Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
   Item 4. Controls and Procedures 16
PART II – OTHER INFORMATION 16
   Item 1. Legal Proceedings 16
   Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 16
   Item 3. Defaults Upon Senior Securities 17
   Item 4. Mine Safety Disclosures 17
   Item 5. Other Information 17
   Item 6. Exhibits 17
SIGNATURES 20

2


PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

The unaudited interim consolidated financial statements of Mantra Venture Group Ltd. (“we”, “us”, “our” and “our company”) follow. All currency references in this report are in US dollars unless otherwise noted.

3



MANTRA VENTURE GROUP LTD.
(A development stage company)
Consolidated financial statements
November 30, 2012
(Expressed in U.S. dollars)
(unaudited)

  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



MANTRA VENTURE GROUP LTD.
(A development stage company)
Consolidated balance sheets
(Expressed in U.S. dollars)

    November 30,     May 31,  
    2012     2012  
     
    (unaudited)        
ASSETS            
Current assets            
   Cash   198,669     215,600  
   Amounts receivable   57,516     16,120  
   Inventory       2,500  
   Prepaid expenses and deposits   47,762     40,140  
Total current assets   303,947     274,360  
Property and equipment (Note 3)   48,810     22,966  
Total assets   352,757     297,326  
LIABILITIES AND STOCKHOLDERS’ DEFICIT            
Current liabilities            
   Accounts payable and accrued liabilities   618,454     536,888  
   Due to related parties (Note 4)   180,199     244,455  
   Loans payable (Note 5)   285,034     227,347  
   Obligations under capital lease (Note 6)   4,016      
   Convertible debentures (Note 7)   200,000     200,000  
Total current liabilities   1,287,703     1,208,690  
Loans payable (Note 5)   47,804     60,297  
Obligations under capital lease (Note 6)   16,979      
Total liabilities   1,352,486     1,268,987  
Going concern (Note 1)            
Commitments and contingencies (Note 11)            
Stockholders’ deficit            
   Mantra Venture Group Ltd. 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: 50,358,139 (May 31, 2012 – 45,623,806) shares
 

504
   

456
 
       Additional paid-in capital   5,990,785     5,675,442  
       Common stock subscribed (Note 8)   618,915     144,916  
       Common stock subscriptions receivable (Note 8)       (94,708 )
       Deficit accumulated during the development stage   (7,587,163 )   (6,689,470 )
Total Mantra Venture Group Ltd. stockholders’ deficit   (976,959 )   (963,364 )
Non-controlling interest   (22,770 )   (8,297 )
Total stockholders’ deficit   (999,729 )   (971,661 )
Total liabilities and stockholders’ deficit   352,757     297,326  

(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)

                            Accumulated from  
    Three Months Ended     Six Months Ended     January 22, 2007  
    November 30,     November 30,     (date of inception) to  
    2012     2011     2012     2011     November 30,  
  $     $     $     $       2012  
                               
Revenue       9,640     3,027     10,190     38,812  
                               
Cost of goods sold       7,222     2,500     7,712     14,973  
                               
Gross profit       2,418     527     2,478     23,839  
                               
Operating expenses                              
                               
   Business development   3,550         10,215     591     342,721  
   Consulting and advisory   29,424     (300 )   51,535     128,460     908,373  
   Depreciation and amortization   7,502     7,191     13,327     14,386     163,961  
   Foreign exchange loss (gain)   1,922     (21,308 )   18,767     (23,257 )   57,900  
   General and administrative   8,703     4,334     20,981     10,404     448,832  
   License fees   29,442     19,614     29,442     19,614     82,494  
   Management fees (Note 5)   104,310     33,000     182,310     81,000     1,309,580  
   Professional fees   55,299     51,057     93,901     90,187     983,696  
   Public listing costs   9,142     6,064     12,622     8,597     235,122  
   Rent   4,500     9,309     9,000     17,980     230,183  
   Research and development   279,031         368,818         798,620  
   Shareholder communications and awareness       797     34,719     797     676,197  
   Travel and promotion   40,133     4,011     77,152     7,750     503,120  
   Wages and benefits                   739,509  
   Website development/corporate branding                   195,451  
   Write-down of intangible assets                   37,815  
   Write-down of inventory                   12,455  
                               
Total operating expenses   572,958     113,769     922,789     356,509     7,726,029  
                               
Loss before other income (expense)   (572,958 )   (111,351 )   (922,262 )   (354,031 )   (7,702,190 )
                               
Other income (expense)                              
                               
   Accretion of discounts on convertible debentures                   (45,930 )
   Gain (loss) on disposal of equipment               3,250     (14,999 )
   Gain on settlement of debt                   21,835  
   Government grant income                   118,324  
   Interest expense   (12,081 )   (6,190 )   (20,897 )   (12,642 )   (123,364 )
                               
Total other income (expense)   (12,081 )   (6,190 )   (20,897 )   (9,392 )   (44,134 )
                               
Net loss for the period   (585,039 )   (117,541 )   (943,159 )   (363,423 )   (7,746,324 )
                               
Less: net loss attributable to the non-
controlling interest
 
32,102
   
6,441
   
45,466
   
25,001
   
159,161
 
                               
Net loss attributable to Mantra Venture Group Ltd.   (552,937 )   (111,100 )   (897,693 )   (338,422 )   (7,587,163 )
                               
Net loss per share attributable to Mantra
Venture Group Ltd. common shareholders,
basic and diluted
 

(0.01
)  

   

(0.02
)  

(0.01
)  

 
                               
Weighted average number of shares
outstanding used in the calculation of net loss
attributable to Mantra Venture Group Ltd. per
common share
 


49,389,851
   


44,003,256
   


48,410,075
   


42,443,420
   


 

(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)

                Accumulated from  
    Six Months     Six Months     January 22, 2007  
    Ended     Ended     (date of inception) to  
    November 30,     November 30,     November 30,  
    2012     2011     2012  
       
                   
Operating activities                  
                   
   Net loss for the period   (943,159 )   (363,423 )   (7,746,324 )
                   
  Adjustments to reconcile net loss to net cash used in operating 
  activities:
 
   
   
 
       Accretion of discounts on convertible debentures           45,930  
       Depreciation and amortization   13,327     14,386     163,961  
       Foreign exchange loss   13,218     5,017     6,791  
       Gain on settlement of debt           (21,835 )
       Loss (gain) on settlement of debt       (3,250 )   14,999  
       Stock-based compensation   24,090     78,500     1,610,415  
       Write-down of intangible assets           37,815  
       Write-down of inventory           12,455  
                   
   Changes in operating assets and liabilities:                  
       Amounts receivable   (41,396 )   (16,889 )   (57,516 )
       Inventory   2,500     1,024     (12,455 )
       Prepaid expenses and deposits   (7,622 )   2,960     (47,762 )
       Other assets           (12,000 )
       Accounts payable and accrued liabilities   81,565     94,266     1,092,161  
       Due to related parties   (73,256 )   45,060     171,199  
                   
Net cash used in operating activities   (930,733 )   (142,349 )   (4,742,166 )
                   
Investing activities                  
                   
   Purchase of property and equipment   (8,406 )       (185,905 )
   Proceeds from sale of property plant and equipment           900  
                   
Net cash used in investing activities   (8,406 )       (185,005 )
                   
Financing activities                  
                   
   Proceeds from loans payable       34,690     201,571  
   Repayment of loan payable   (17,570 )       (17,570 )
   Repayment of capital lease obligation   (1,223 )       (1,223 )
   Proceeds from issuance of convertible debentures           250,000  
   Proceeds from issuance of common stock and subscriptions
    received
 
941,001
   
79,028
   
4,693,062
 
                   
Net cash provided by financing activities   922,208     113,718     5,125,840  
                   
Change in cash   (16,931 )   (28,631 )   198,669  
                   
Cash, beginning of period   215,600     39,101      
                   
Cash, end of period   198,669     10,470     198,669  
                   
Non-cash investing and financing activities:                  
   Property and equipment financed under capital lease   21,765         21,765  
   Shares issued to settle debt       22,750     409,372  
   Shares issued and stock options granted for acquisition of
       intangible assets
 
   
   
37,815
 
                   
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
Six months ended November 30, 2012
(Expressed in U.S. dollars)
(unaudited)

1.

Basis of Presentation

   

The accompanying consolidated interim 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, 2012. 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.

   

These consolidated financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The Company has yet to acquire commercially exploitable energy related technology, has not generated significant revenues since inception, and is unlikely to generate earnings in the immediate or foreseeable future. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of management to raise additional equity capital through private and public offerings of its common stock, and the attainment of profitable operations. As at November 30, 2012, the Company has a working capital deficit of $983,756, has not generated significant revenues, and has accumulated losses of $7,746,324 since inception. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.


2.

Summary of Significant Accounting Policies

     
(a)

Principles of Consolidation

     

These consolidated financial statements are expressed in US dollars. These consolidated financial statements include the accounts of the Company and its subsidiaries, Carbon Commodity Corporation, Climate ESCO Ltd., Mantra Energy Alternatives Ltd., Mantra China Inc., Mantra China Limited, Mantra Media Corp., Mantra NextGen Power Inc., and Mantra Wind Inc. All the subsidiaries are wholly-owned with the exception of Climate ESCO Ltd., which is 64.84% owned and Mantra Energy Alternatives Ltd., which is 91.95% owned. All inter-company balances and transactions have been eliminated.

     
(b)

Recent Accounting Pronouncements

     

The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

     
3.

Property and Equipment


                  November 30,     May 31,  
                  2012     2012  
            Accumulated     Net carrying     Net carrying  
      Cost     depreciation     value     value  
           
                           
  Computer   1,702     379     1,323     1,607  
  Office furniture and equipment   48,847     45,241     3,606     8,000  
  Research equipment   53,793     45,731     8,062     13,359  
  Vehicle under capital lease   39,171     3,352     35,819      
                           
      143,513     94,703     48,810     22,966  

F-4



MANTRA VENTURE GROUP LTD.
(A development stage company)
Notes to the consolidated financial statements
Six months ended November 30, 2012
(Expressed in U.S. dollars)
(unaudited)

4.

Related Party Transactions

     
(a)

During the six months ended November 30, 2012, the Company incurred management fees of $36,000 (2011 - $36,000) to the President of the Company.

     
(b)

During the six months ended November 30, 2012, the Company incurred management fees of $30,000 (2011 - $30,000) to the spouse of the President of the Company.

     
(c)

During the six months ended November 30, 2012, the Company incurred management fees of $35,000 (2011 - $15,000) to a director of the Company.

     
(d)

As at November 30, 2012, the Company owes $24,004 (May 31, 2012 - $42,033) to the spouse of the President of the Company which is non-interest bearing, unsecured, and due on demand.

     
(e)

As at November 30, 2012, the Company owes $28,533 (May 31, 2012 - $22,444) to an officer and a director of the Company, which is non-interest bearing, unsecured, and due on demand.

     
(f)

As at November 30, 2012, the Company owes a total of $127,662 (May 31, 2012 - $179,978) to the President of the Company and a company controlled by the President of the Company which is non-interest bearing, unsecured, and due on demand.


5.

Loans Payable

     
(a)

As at November 30, 2012, the amount of $63,705 (Cdn$63,300) (May 31, 2012 - $61,106, (Cdn$63,300)) is owed to a non-related party which is non-interest bearing, unsecured, and due on demand.

     
(b)

As at November 30, 2012, the amount of $10,000 (May 31, 2012 - $10,000) is owed to a non-related party, which bears interest at 10% per annum, is unsecured, and due on demand.

     
(c)

As at November 30, 2012, the amount of $30,395 (Cdn$30,200) (May 31, 2012 – $29,183, (Cdn$30,200)) is owed to a non-related party, which is non-interest bearing, unsecured, and due on demand.

     
(d)

As at November 30, 2012, the amount of $17,500 (May 31, 2012 - $17,500) is owed to a non-related party which is non-interest bearing, unsecured, and due on demand.

     
(e)

As at November 30, 2012, the amount of $15,000 (May 31, 2012 - $15,000) is owed to a non-related party which is non-interest bearing, unsecured, and due on demand.

     
(f)

As at November 30, 2012, the amount of $19,016 (Cdn$18,895) (May 31, 2012 – $18,225 (Cdn$18,895)) is owed to a non-related party, which is non-interest bearing, unsecured, and due on demand.

     
(g)

As at November 30, 2012, the amounts of $7,500 and $37,236 (Cdn$37,000) (May 31, 2012 - $7,500 and $35,820, (Cdn$37,000)) are owed to a non-related party which are non-interest bearing, unsecured, and due on demand.

     
(h)

On January 19, 2012, the Company entered into a settlement agreement to settle a $50,000 convertible debenture and $122,535 in accounts payable and accrued interest with the debt holder. Pursuant to the agreement, the debt holder agreed to reduce the debt to Cdn$100,000 on the condition that the Company pays the amount of Cdn$2,500 per month for 40 months, beginning March 1, 2012 and continuing on the first day of each month thereafter. As at November 30, 2012, $77,996 (May 31, 2012 - $88,820) is owed, of which $30,192 (Cdn$30,000) (May 31, 2012 - $28,523 (Cdn$30,000)) is due over the next twelve months.

     
(i)

As at November 30, 2012, the amount of $4,490 (May 31, 2012 - $4,490) is owed to a non-related party which is non-interest bearing, unsecured, and due on demand.

     
(j)

In March 2012, the Company received $50,000 for the subscription of 10,000,000 shares of the Company’s common stock. During the six months ended November 30, 2012, the Company and the subscribers agreed that the shares would not be issued and that the subscriptions would be returned. The subscriptions have been reclassified as a non-interest bearing demand loan until the subscriptions are refunded to the subscribers.

F-5



MANTRA VENTURE GROUP LTD.
(A development stage company)
Notes to the consolidated financial statements
Six months ended November 30, 2012
(Expressed in U.S. dollars)
(unaudited)

6.

Obligations Under Capital Lease

   

On July 31, 2012, the Company entered into an agreement to lease a vehicle for three years. The vehicle lease is classified as a capital lease. The following is a schedule by years of future minimum lease payments under capital leases together with the present value of the net minimum lease payments as of November 30, 2012:


  Year ending May 31:  
         2013   3,218  
         2014   6,437  
         2015   6,437  
         2016   10,131  
         
  Net minimum lease payments   26,223  
  Less: amount representing interest payments   (5,228 )
         
  Present value of net minimum lease   20,995  
  Less: current portion   (4,016 )
         
  Long-term portion   16,979  

7.

Convertible Debentures

   

In October 2008, the Company issued three convertible debentures for total proceeds of $250,000 which bear interest at 10% per annum, are unsecured, and due one year from date of issuance. The unpaid amount of principal and accrued interest can be converted at any time at the 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 issuance at an exercise price of $0.50 per share.

   

In accordance with ASC 470-20, “Debt with Conversion and Other Options”, the Company determined that the convertible debentures contained no embedded beneficial conversion feature as the convertible debentures were issued with a conversion price higher than the fair market value of the Company’s common shares at the time of issuance.

   

In accordance with ASC 470-20, “Debt with Conversion and Other Options”, the Company allocated the proceeds of issuance between the convertible debt and the detachable share purchase warrants based on their relative fair values. Accordingly, the Company recognized the fair value of the share purchase warrants of $45,930 as additional paid-in capital and an equivalent discount against the convertible debentures. The Company had recorded accretion expense of $45,930, increasing the carrying value of the convertible debentures to $250,000.

   

On January 19, 2012, the Company entered into a settlement agreement with one of the debenture holders to settle a $50,000 convertible debenture and $122,535 in accounts payable and accrued interest with the debt holder. Pursuant to the agreement, the debt holder agreed to reduce the debt to Cdn$100,000 on the condition that the Company pays the amount of Cdn$2,500 per month for 40 months, beginning March 1, 2012 and continuing on the first day of each month thereafter.

   

On July 18, 2012, the Company entered into a settlement agreement with the $150,000 debenture holder. Pursuant to the settlement agreement, the due date of the convertible debenture with a principal amount of $150,000 was extended to April 11, 2013, and the Company paid $43,890 of interest. In addition, commencing on October 31, 2012, the Company will pay accrued monthly interest at 10% per annum until April 11, 2013 when the Company will pay a $10,000 premium and the $150,000 outstanding principal.

   

The Company evaluated the modification and determined that the creditor did not grant a concession. In addition, as the present value of the future cash flows was less than 10% different than the cash flows of the original debt, it was determined that the original and new debt instruments are not substantially different. As a result, the modification was not treated as an extinguishment of the debt and no gain or loss is recognized.

F-6



MANTRA VENTURE GROUP LTD.
(A development stage company)
Notes to the consolidated financial statements
Six months ended November 30, 2012
(Expressed in U.S. dollars)
(unaudited)

8.

Common Stock

     
(a)

As at November 30, 2012, the Company’s subsidiary, Climate ESCO Ltd., had received subscriptions for 210,000 shares of common stock at $0.10 per share for proceeds of $21,000, which is included in common stock subscribed net of the non-controlling interest portion of $7,384.

     
(b)

As at November 30, 2012, the Company had received proceeds of $346,000 (of which $20,000 was received as at May 31, 2012) for subscriptions for 2,883,334 units at $0.12 per unit. Each unit will consist of one share of common stock and one share purchase warrant exercisable at a price of $0.20 per share of common stock for two years from closing or for five business 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 $0.40 per share for seven consecutive trading days.

     
(c)

During the six months ended November 30, 2012, the Company’s subsidiary, Mantra Energy Alternatives Ltd., received the proceeds of $103,000 which was receivable as at May 31, 2012. In addition, the subsidiary received subscriptions for 282,000 shares of common stock at $1.00 per share for proceeds of Cdn$282,000 which is included in common stock subscribed net of the non-controlling interest portion of $22,701.

     
(d)

On June 29, 2012, the Company issued 1,333,333 shares of common stock at $0.015 per share for proceeds of $20,000, which was included in common stock subscribed as at May 31, 2012.

     
(e)

On July 9, 2012, the Company issued 826,000 shares of common stock at $0.05 per share for total proceeds of $41,300, which was included in common stock subscribed as at May 31, 2012.

     
(f)

On September 11, 2012, the Company issued 2,025,000 units at $0.10 per unit for proceeds of $202,500. Each unit consisted of one share of common stock and one share purchase warrant exercisable at $0.15 per common share for a period of two years from the date of closing 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 $0.30 per share for seven consecutive trading days.

     
(g)

On September 23, 2012, the Company issued 100,000 units at $0.10 per unit for proceeds of $10,000. Each unit consisted of one share of common stock and one share purchase warrant exercisable at $0.15 per common share for a period of two years from the date of closing 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 $0.30 per share for seven consecutive trading days.

     
(h)

On November 7, 2012, the Company issued 250,000 shares of common stock at $0.03 per share for proceeds of $7,500 upon the exercise of stock options.

     
(i)

On November 16, 2012, the Company issued 200,000 shares of common stock at $0.05 per share for proceeds of $10,000 upon the exercise of stock options.


9.

Share Purchase Warrants

   

The following table summarizes the continuity of share purchase warrants:


            Weighted  
            average  
            exercise  
      Number of     price  
      warrants    
               
  Balance, May 31, 2012   7,745,992     0.20  
               
     Issued   2,125,000     0.15  
     Expired   (2,654,817 )   0.20  
               
  Balance, November 30, 2012   7,216,175     0.19  

F-7



MANTRA VENTURE GROUP LTD.
(A development stage company)
Notes to the consolidated financial statements
Six months ended November 30, 2012
(Expressed in U.S. dollars)
(unaudited)

9.

Share Purchase Warrants (continued)

   

As at November 30, 2012, the following share purchase warrants were outstanding:


      Exercise  
  Number of   price  
  warrants   $ Expiry date
  275,000   0.20 December 10, 2012
  400,000   0.20 December 25, 2012
  1,048,125   0.20 January 27, 2013
  185,000   0.20 March 28, 2013
  25,000   0.20 August 11, 2013
  2,037,500   0.20 August 31, 2013
  1,120,550   0.20 March 9, 2014
  2,025,000   0.15 September 11, 2014
  100,000   0.15 September 23, 2014
         
  7,216,175      

10.

Stock Options

   

On September 15, 2012, the Company granted 200,000 stock options exercisable at $0.10 per share of common stock for two years to an officer of the Company. The fair value of $24,090 for the stock options granted was estimated using the Black-Scholes option pricing model assuming no expected dividends, a risk-free rate of 0.27, an expected life of 2 years, and an expected volatility of 179%.

   

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


            Weighted     Weighted        
            average     average     Aggregate  
            exercise     remaining     intrinsic  
      Number     price     contractual life     value  
      of options       (years)    
                           
  Outstanding, May 31, 2012   1,300,000     0.10              
                           
     Granted   200,000     0.20              
     Exercised   (450,000 )   0.04              
     Expired   (250,000 )   0.25              
                           
  Outstanding and exercisable, November 30, 2012   800,000     0.10     0.8     36,000  

Additional information regarding stock options as of November 30, 2012 is as follows:

      Exercise  
  Number of   price  
   options   $ Expiry date
         
  500,000   0.10 March 31, 2013
  100,000   0.06 May 1, 2014
  200,000   0.10 September 15, 2014
         
  800,000      

F-8



MANTRA VENTURE GROUP LTD.
(A development stage company)
Notes to the consolidated financial statements
Six months ended November 30, 2012
(Expressed in U.S. dollars)
(unaudited)

11.

Commitments and Contingencies

       
(a)

On September 2, 2009, the Company entered into an agreement with a company to acquire a worldwide, exclusive license for the Mixed Reactant Flow-By Fuel Cell technology. The term of the agreement is for twenty years or the expiry of the last patent licensed under the agreement, whichever is later. The Company agreed to pay the licensor the following license fees:

       
  • an initial license fee of Cdn$10,000 payable in two installments: Cdn$5,000 upon execution of the agreement (paid) and Cdn$5,000 within thirty days of September 2, 2009 (accrued);

  • a further license fee of Cdn$15,000 (accrued) 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 (accrued)
    September 1, 2011 Cdn$20,000 (accrued)
    September 1, 2012 Cdn$30,000 (accrued)
    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.

         
      (b)

    On April 3, 2012, the Company entered into a consulting agreement with a company controlled by a director of the Company. Pursuant to the agreement, the Company issued 250,000 stock options and will pay $5,000 per month until April 3, 2013.

         
      (c)

    On April 11, 2012, the Company entered into a consulting agreement. Pursuant to the agreement, the Company issued the consultant 200,000 stock options and will pay the consultant $3,000 per month for a period of one year.

         
      (d)

    On May 23, 2012, a former employee of the Company delivered a Notice of Application seeking judgment against the Company for approximately $55,000. The hearing of that Application took place on July 31, 2012, at which time the former employee obtained judgment in the approximate amount of $55,000. The Company did not defend the amount of the judgment and the amount is included in accounts payable, but claims a complete set-off on the basis that the former employee retains 1,000,000 shares of common stock of the Company as security for payment of the outstanding consulting fees owed to him. On August 31, 2012, the Company commenced a separate action against the former employee seeking a return of the 1,000,000 shares of common stock and a stay of execution of the judgment. That application is pending and has not yet been heard or determined by the court. The payment of the judgment claim of approximately $55,000 is dependent upon whether the former employee will first return the 1,000,000 shares of common stock noted above. The probable outcome of the Company’s claim for the return of the shares cannot yet be determined.

         
      (e)

    On June 19, 2012, the Company entered into a service contract with a consultant to provide consulting services until February 19, 2013 for consideration of $171,000 plus the cost of materials.

         
      (f)

    On September 15, 2012, the Company entered into a consulting agreement with the a company pursuant to which the Company will pay $9,500 per month for a period of six months and grant 200,000 stock options exercisable at $0.10 per share expiring on the earlier of September 15, 2014 or on the termination of the agreement (granted).

    F-9


    Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

    FORWARD LOOKING STATEMENTS

    This quarterly report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may", "should", "expects", "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 law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

    Our unaudited financial statements are stated in United States Dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles. The following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this quarterly report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this quarterly report.

    In this quarterly report, unless otherwise specified, all dollar amounts are expressed in United States dollars. All references to "US$" refer to United States dollars and all references to "common stock" refer to the common shares in our capital stock.

    As used in this quarterly report, the terms "we", "us", "our" and "our company" mean Mantra Venture Group Ltd. and our wholly owned subsidiaries Carbon Commodity Corporation, Mantra Energy Alternatives Ltd., Mantra China Inc., Mantra China Limited, Mantra Media Corp., Mantra NextGen Power Inc., and Mantra Wind Inc., as well as our majority owned subsidiary Climate ESCO Ltd., unless otherwise indicated.

    Business Overview

    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 #562 – 800 15355 24th Avenue, Surrey, British Columbia, Canada, V4A 2H9. Our telephone number is (604) 560-1503. 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.

    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.

    5


    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.

    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;
    • Mantra Media Corp., through which we offer promotional and marketing services to companies in the sustainability sector or those seeking to adopt sustainable practices; and
    • Climate ESCO Ltd., majority owned, through which we distribute and install LED lighting solutions.

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

    On February 20, 2012, we entered into a director agreement with Tommy David Unger. As compensation, under the director agreement, we granted stock options to Mr. Unger to purchase up to 500,000 shares of our common stock at a price of $0.01 per share. These options are non-transferrable, vest immediately and expire the earlier of 24 months, or upon the termination of the consulting agreement.

    On February 29, 2012, our wholly owned subsidiary, Mantra Energy Alternatives Ltd., entered into subscription agreements with a number of non-US investors for the sale of 3,200,000 shares of Mantra Energy at a price of CAD $1.00 per share, for total proceeds of CAD $3,200,000. Upon the closing of this financing, our company will hold 6,000,000 shares of Mantra Energy out of a total of 9,200,000 issued and outstanding.

    On April 3, 2012, we entered into a consulting agreement with BC0848571 Ltd., a company controlled by Tommy David Unger, a director of our company, whereby Mr. Unger has agreed to provide consulting services as our company’s vice president of corporate finance for a period of 12 months. In consideration for agreeing to provide such consulting services by Mr. Unger, we have agreed to pay a salary of $5,000 per month and to grant 250,000 options to acquire 250,000 shares of our common stock at a purchase price of $0.03 per share. These options are non-transferrable, vest immediately and expire the earlier of 24 months, or upon the termination of the consulting agreement.

    Effective June 19, 2012, our company’s subsidiary, Mantra Energy, entered into a service contract with PowerTech Labs Inc., whereby PowerTech will assist Manta Energy in the evaluation and the development of our ERC System under specific terms and conditions for a period ending February 19, 2013. As compensation, PowerTech will be paid $171,000 plus the cost of materials as further described in the service contract.

    On October 28, 2008, we entered into a convertible debenture with StichtingAdministratiekantoor Carlos Bijl (“Bijl”) for a principal amount of $150,000 and an annual interest rate of 10%. Bijl started an action in the Supreme Court of British Columbia for non-payment of the convertible debenture.

    On July 18, 2012, we entered into a settlement agreement with Bijl dated July 16, 2012, pursuant to which:

    • the due date of the convertible debenture would be extended to April 11, 2013;
    • within 5 business days we pay $43,890.41 representing net interest to and including September 30, 2012, less $15,000 we forwarded to Bijl on February 16, 2012;
    • commencing on October 31, 2012 we will pay accrued monthly interest at 10% per annual until April 11, 2013;

    6


    • we will pay a $10,000 premium on the $150,000 principal of the convertible debenture when we satisfy it on April 11, 2013.

    On July 31, 2012, our subsidiary, Mantra Energy, entered into a master services agreement with Tekion (Canada), Inc. Mantra Energy’s ERC technology converts carbon dioxide (CO2) in stack gases to a formate salt which can then be further processed into formic acid or used to operate a fuel cell to generate power. Mantra Energy has engaged Powertech Labs to do further engineering on the system. In order to get this technology to commercialization, Tekion has proposed a program that will run in parallel to the Powertech program to help Mantra with some of the critical issues regarding this process.

    Pursuant to the terms of the master services agreement, Tekion will provide services to Mantra Energy as follows:

    1.

    Mantra Energy will authorize provision of services from time to time by the execution of a statement of work (“SOW”).

       
    2.

    Tekion shall provide Mantra Energy with the deliverables, and on the terms, as specified in the SOW.

       
    3.

    Mantra Energy shall not be liable for any deliverable to be provided by Tekion unless and until the same is decided by Mantra Energy as being in compliance with the functions, features, capabilities, components, aspects, qualities and capacities described in any specification agreed to by the parties relating to deliverables. Mantra Energy shall not unreasonably withhold its acceptance of any such deliverable.

       
    4.

    Mantra Energy agrees to pay Tekion in the manner specified in each SOW. In addition, Mantra Energy will be responsible for and shall reimburse Tekion for any reasonable travel or other business consulting related expenses incurred by Tekion which directly relate to fulfilling a SOW, including, without limitation, air and other travel (including car rental) and lodging expenses, internet access while travelling, copying and reproduction and related expenses and cellular phone charges, including long distance, roaming and other related cellular phone charges.

    Also on July 31, 2012, Mantra Energy entered into a SOW with Tekion setting out the work summary, deliverables, budgets and timelines in several stages as follows:

    Stage 1 – Baseline electrode/membrane materials selection.
         Budgeted Cost: $ 49,900 + materials
         Timeline: 8 weeks

    Stage 2a – Reactor scale-up
         Budgeted Cost: $ 74,850 + materials
         Timeline: 12 weeks (parallel with Stages 1, 2b)

    Stage 2b – Improving catalyst functionality (if required)
         Budgeted Cost: $ 62,375 + materials
         Timeline: 10 weeks (parallel with Stage 2a)

    Stage 3 – Single cell characterization
         Budgeted Cost: $ 49,900 + materials
         Timeline: 4 weeks

    Stage 4 – Conceptual 100 kg/day pilot plant design
         Budgeted Cost:$ 24,950 + materials
         Timeline: 4 weeks

    Mantra Energy provided an upfront payment to Tekion of $50,000 on the signing of the SOW.

    7


    On January 8, 2013, our company entered into an employment agreement with our officer and sole director, Larry Kristof, whereby Larry Kristof has agreed to provide services as chief executive officer of our company for a period of two years. As compensation, pursuant to the terms of the employment agreement, Larry Kristof will receive an annual salary of $60,000, payable in equal monthly installments. The employment agreement may be terminated by Larry Kristof, for any reason, by providing at least three month’s advance written notice to our company.

    Also on January 8, 2013, our company’s subsidiary, Mantra Energy Alternatives Ltd., entered into an employment agreement with Larry Kristof, whereby Larry Kristof has agreed to provide services as chief executive officer of Mantra Energy for a period of two years. As compensation, pursuant to the terms of the employment agreement, Larry Kristof will receive an annual salary of $60,000, payable in equal monthly installments. The employment agreement may be terminated by Larry Kristof, for any reason, by providing at least three month’s advance written notice to our company.

    Electro Reduction of Carbon Dioxide (“ERC”)

    On November 2, 2007, through our subsidiary, Mantra Energy, we entered into a technology assignment agreement with 0798465 BC Ltd. whereby we acquired 100% ownership 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:

    Country
    Application
    Number
    File Date
    Status
    Patent Cooperation
    Treaty (PCT)
    W02207
    10/13/2006
    PCT

    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 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.

    8


    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 CO2per day. In order to facilitate the testing and development of this reactor, we entered into an agreement with Kemetco on January 29, 2010. 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, 2010 we entered into another agreement with Kemetco which amended and replaced the January 29, 2010 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.

    9


    In October of 2008, we completed our first ERC prototype reactor capable of processing 1 kilogram of CO2per day. In order to facilitate the testing and development of this reactor, we entered into an agreement with Kemetco on January 29, 2010. 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, 2010 we entered into another agreement with Kemetco which amended and replaced the January 29, 2010 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.

    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 2012. (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.

    10


    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 HCl 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 HCl in the steel pickling process. Formic Acid has many potential advantages over HClin 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.

    Results of Operations for the Three Month Periods Ended November, 2012 and November 30, 2011.

    Revenues

    The following summary of our results of operations should be read in conjunction with our financial statements for the quarter ended November 30, 2012 which are included herein.

    Our operating results for three month periods ended November 30, 2012 and November 30, 2011 are summarized as follows:

                    Difference Between  
                    Three Month Period  
                    Ended  
        Three Months     Three Months     November 30, 2012  
        Ended     Ended     and  
        November 30, 2012     November 30, 2011     November 30, 2011  
        ($)     ($)     ($)  
    Revenue   Nil     9,640     (9,640 )
    Cost of goods sold   Nil     7,222     (7,222 )
    Operating expenses   572,958     113,769     459,189  
    Other expense   12,081     6,190     5,891  
    Net Loss   (585,039 )   (117,541 )   467,498  

    We have had limited operational history since our inception on January 22, 2007. From our inception on January 22, 2007 to November 30, 2012 we have generated $38,812 in revenues. For the three months ended November 30, 2012 we generated $Nil in revenues compared to revenues of $9,640 generated during the same period in 2011. From January 22, 2007 (inception) to November 30, 2012, we have an accumulated deficit of $7,746,324. We anticipate that we will incur substantial losses over the next year and our ability to generate additional revenues in the next 12 months remains uncertain.

    Expenses

    Our operating expenses for the three month periods ended August 31, 2012 and August 31, 2011 are summarized as follows:

    11



        Three Months Ended  
        November 30,     November 30,  
        2012     2011  
        ($)     ($)  
    Business development   3,550     Nil  
    Consulting and advisory   29,424     (300 )
    Depreciation and amortization   7,502     7,191  
    Foreign exchange loss (gain)   1,922     (21,308 )
    General and administrative   8,703     4,334  
    License fees   29,442     19,614  
    Management fees   104,310     33,000  
    Professional fees   55,299     51,057  
    Public listing costs   9,142     6,064  
    Rent   4,500     9,309  
    Research and development   279,031     Nil  
    Shareholder communications and awareness   Nil     797  
    Travel and promotion   40,133     4,011  

    For the three months ended November, 2012, we incurred total operating expenses of $572,958 compared to total operating expenses for the three months ended November 30, 2011 of $113,769. The $459,189 increase is primarily due to increases in consulting and advisory fees, license fees, management fees, research and development, and travel and promotion expenses.

    Net Loss

    Since our inception on January 22, 2007 to November 30, 2012, we have incurred a net loss of $7,746,324. For the three months ended November 30, 2012 we have incurred a net loss of $585,039 compared to a net loss of $117,541 for the same period in 2011. Our net loss per share for the three months ended November 30, 2012 was $0.01, compared to $Nil for the same period in 2011.

    Results of Operations for the Six Month Periods Ended November, 2012 and November 30, 2011.

    Revenues

    Our operating results for three month periods ended November 30, 2012 and November 30, 2011 are summarized as follows:

                    Difference Between  
                    Six Month Period  
                    Ended  
        Six Months     Six Months     November 30, 2012  
        Ended     Ended     and  
        November 30, 2012     November 30, 2011     November 30, 2011  
        ($)     ($)     ($)  
    Revenue   3,027     10,190     (7,163 )
    Cost of goods sold   2,500     7,712     (5,212 )
    Operating expenses   922,789     356,509     566,280  
    Other expense   20,879     9,392     11,487  
    Net Loss   (943,159 )   (363,423 )   579,736  

    For the six months ended November 30, 2012 we generated $3,027 in revenues compared to revenues of $10,190 generated during the same period in 2011.

    12


    Expenses

    Our operating expenses for the six month periods ended August 31, 2012 and August 31, 2011 are summarized as follows:

        Six Months Ended  
        November 30,     November 30,  
        2012     2011  
        ($)     ($)  
    Business development   10,215     591  
    Consulting and advisory   51,535     108,148  
    Depreciation and amortization   13,327     14,386  
    Foreign exchange loss (gain)   18,767     (23,257 )
    General and administrative   20,981     10,404  
    License fees   29,442     19,614  
    Management fees   182,310     81,000  
    Professional fees   93,901     90,187  
    Public listing costs   12,622     8,597  
    Rent   9,000     17,980  
    Research and development   368,818     Nil  
    Shareholder communications and awareness   34,719     797  
    Travel and promotion   77,152     7,750  

    For the six months ended November, 2012, we incurred total operating expenses of $922,789 compared to total operating expenses for the six months ended November 30, 2011 of $356,509. The $566,280 increase is primarily due to increases in business development costs, foreign exchange loss, general and administrative expenses, license fees, management fees, research and development, shareholder communications and awareness expenses, and travel and promotion expenses.

    Net Loss

    For the six months ended November 30, 2012 we have incurred a net loss of $943,159 compared to a net loss of $363,423 for the same period in 2011. Our net loss per share for the six months ended November 30, 2012 was $0.02, compared to $0.01 for the same period in 2011.

    Liquidity and Capital Resources

    Working Capital            
        At        
        November 30,     May 31,  
        2012     2012  
    Current Assets $  303,947   $  274,360  
    Current Liabilities $  1,287,703   $  1,208,690  
    Working Capital Deficit $  (983,756 ) $  (934,330 )

    Cash Flows               January 22,  
        Six Months     Six Months     2007  
        Ended     Ended     (Inception) to  
        November 30,     November 30,     November 30,  
        2012     2011     2012  
    Net Cash Used in Operating Activities $  (930,733 ) $  (142,349 ) $  (4,742,166 )
    Net Cash Used In Investing Activities $  (8,406 ) $  Nil   $  185,005  
    Net Cash Provided by Financing Activities $  922,208   $  113,718   $  5,125,840  
    Change In Cash $  (16,931 ) $  (28,631 ) $  198,669  

    13


    As of November 30, 2012, we had $198,669 cash in our bank accounts and a working capital deficit of $983,756. As of November 30, 2012 we had total assets of $352,757 and total liabilities of $1,352,486.

    From January 22, 2007 (date of inception) to November 30, 2012, we raised net proceeds of $4,693,062 in cash from the issuance of common stock and share subscriptions received, $201,571 from loans payable and $250,000 from proceeds from the issuance of convertible debentures offset by repayment of loans payable of $17,570 and repayment of capital lease obligations of $1,223 for a total of $5,125,840 of cash provided by financing activities for the period.

    We received net cash of $922,208 from financing activities for the six months ended November 30, 2012 compared to $113,718 for the same period in 2011. During the period in 2012 we raised cash from the issuance of our common stock and share subscriptions received. In the comparable period, we also raised cash in the same manner.

    We used net cash of $930,733 in operating activities for the six months ended November 30, 2012 compared to $142,349 for the same period in 2011. We used net cash of $4,742,166 in operating activities for the period from January 22, 2007 (date of inception) to November 30, 2012.

    We used cash of $8,406 in investing activities for the six months ended November, 2012 compared to $Nil for the same period in 2011.

    During the six months ended November 30, 2012 we had a net decrease of $16,931 in our cash position compared to a net decrease of $28,631 for the same period in 2011. Our monthly cash requirements for the six month period ended November 30, 2012 was approximately $155,122 compared to $23,725 for the same period in 2011. 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.

    Description

    Estimated
    expenses
    ($)
    Research and Development 2,200,000
    Consulting Fees 250,000
    Commercialization of ERC 1,300,000
    Shareholder communication and awareness 200,000
    Professional Fees 300,000
    Wages and Benefits 200,000
    Management Fees 150,000
    Total 4,600,000

    In order to fully carry out our business plan, we need additional financing of approximately $4,600,000 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.

    14


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

    Critical Accounting Policies

    Our consolidated 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 U.S. 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. Our company regularly evaluates estimates and assumptions related to allowance for doubtful accounts, the estimated useful lives and recoverability of long-lived assets, valuation of inventory, stock-based compensation, and deferred income tax asset valuation allowances. Our company bases its 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 our company may differ materially and adversely from our company’s 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”, our company tests 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

    Our company records 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.

    Our company uses the Black-Scholes option pricing model to calculate the fair value of stock-based awards. This model is affected by our company’s stock price as well as assumptions regarding a number of subjective variables. These subjective variables include, but are not limited to our company’s 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.

    Recent Accounting Pronouncements

    Our 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.

    Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

    15


    Item 4. Controls and Procedures

    Evaluation of Disclosure Controls and Procedures

    We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, 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 (our principal executive officer, principal financial officer and principal accounting officer) to allow for timely decisions regarding required disclosure.

    As of the end of our quarter covered by this report, we carried out an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer (our principal executive officer, principal financial officer and principal accounting officer), of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our chief executive officer and chief financial officer (our principal executive officer, principal financial officer and principal accounting officer) concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this quarterly report.

    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.

    PART II – OTHER INFORMATION

    Item 1. Legal Proceedings

    On May 23, 2012, a former employee of our company delivered a Notice of Application seeking judgment against our company for approximately $55,000. The hearing of that Application took place on July 31, 2012, at which time the former employee obtained judgment in the approximate amount of $55,000. Our company did not defend the amount of the judgment and the amount is included in accounts payable, but claims a complete set-off on the basis that the former employee retains 1,000,000 shares of common stock of our company as security for payment of the outstanding consulting fees owed to him.

    On August 31, 2012, our company commenced a separate action against the former employee seeking a return of the 1,000,000 shares of common stock and a stay of execution of the judgment. That application is pending and has not yet been heard or determined by the court. The payment of the judgment claim of approximately $55,000 is dependent upon whether the former employee will first return the 1,000,000 shares of common stock noted above. The probable outcome of our company’s claim for the return of the shares cannot yet be determined.

    Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

    On September 11, 2012, we issued 2,025,000 units at $0.10 per unit for proceeds of $202,500. Each unit consisted of one share of common stock and one share purchase warrant exercisable at $0.15 per common share for a period of two years from the date of closing or five business days after our 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 $0.30 per share for seven consecutive trading days. We have issued all of these securities to eight non-US persons relying on Regulation S of the Securities Act of 1933.

    16


    On September 23, 2012, we issued 100,000 units at $0.10 per unit for proceeds of $10,000. Each unit consisted of one share of common stock and one share purchase warrant exercisable at $0.15 per common share for a period of two years from the date of closing or five business days after our 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 $0.30 per share for seven consecutive trading days. We have issued all of these securities to one non-US person relying on Regulation S of the Securities Act of 1933.

    On November 7, 2012, we issued 250,000 shares of common stock at $0.03 per share for proceeds of $7,500 upon the exercise of stock options. We have issued all of these securities to one non-US persons relying on Regulation S of the Securities Act of 1933.

    On November 16, 2012, we issued 200,000 shares of common stock at $0.05 per share for proceeds of $10,000 upon the exercise of stock options. We have issued all of these securities to one non-US persons relying on Regulation S of the Securities Act of 1933.

    Item 3. Defaults Upon Senior Securities

    None.

    Item 4. Mine Safety Disclosures

    Not applicable.

    Item 5. Other Information

    None.

    Item 6. Exhibits

    Exhibit Exhibit Description
    Number  
    (2) Plan of acquisition, reorganization, arrangement, liquidation or succession
    2.1

    Plan of Conversion of Mantra Venture Group Ltd. from a Nevada Corporation into a British Columbia Corporation dated October 29, 2008. (incorporated by reference to our Current Report on Form 8-K filed with the SEC on November 4, 2008)

    (3)

    Articles of Incorporation, Bylaws

    3.1

    Articles of Conversion of Mantra Venture Group Ltd. dated October 28, 2008 (incorporated by reference to our Current Report on Form 8-K filed with the SEC on November 4, 2008)

    3.2

    British Columbia Table 1 Articles adopted on December 4, 2008 (incorporated by reference to our Current Report on Form 8-K filed with the SEC on December 12, 2008)

    3.3

    British Columbia Notice of Articles (incorporated by reference to our Current Report on Form 8-K filed with the SEC on December 12, 2008)

    (10)

    Material Contracts

    10.1

    Revolving Line of Credit Agreement with Larry Kristof dated October 15, 2008 (incorporated by reference to our Quarterly Report on Form 10-Q filed on January 14, 2009)

    17



    Exhibit Exhibit Description
    Number  
    10.2

    Director Agreement with Tommy David Unger dated February 20, 2012 (incorporated by reference to our Current Report on Form 8-K filed on February 28, 2012)

    10.3

    Subscription Agreement with Mantra Energy Alternatives Ltd. dated February 29, 2012 (incorporated by reference to our Current Report on Form 8-K filed on March 9, 2012)

    10.4

    Consulting Agreement with BC0848571 Ltd. dated April 3, 2012 (incorporated by reference to our Current Report on Form 8-K filed on April 11, 2012)

    10.5

    Service Contract with Powertech Labs Inc. dated June 19, 2012 (incorporated by reference to our Current Report on Form 8-K filed on June 25, 2012)

    10.6

    Settlement Agreement with StichtingAdministratiekantoor Carlos Bijl dated July 16, 2012 (incorporated by reference to our Current Report on Form 8-K filed on July 23, 2012)

    10.7

    Master Services Agreement between our subsidiary, Mantra Energy Alternatives Ltd., and Tekion (Canada), Inc. dated July 31, 2012 (incorporated by reference to our Current Report on Form 8-K filed on August 30, 2012)

    10.8

    Statement of Work between our subsidiary, Mantra Energy Alternatives Ltd. and Tekion (Canada), Inc. dated July 31, 2012 (incorporated by reference to our Current Report on Form 8-K filed on August 30, 2012)

    10.9

    Employment Agreement between our company and Larry Kristof dated January 8, 2013 (incorporated by reference to our Current Report on Form 8-K filed on January 14, 2013)

    10.10

    Employment Agreement between our subsidiary, Mantra Energy Alternatives Ltd. and Larry Kristof dated January 8, 2013 (incorporated by reference to our Current Report on Form 8-K filed on January 14, 2013)

    (14)

    Code of Ethics

    14.1

    Code of Ethics and Business Conduct (incorporated by reference to our Registration Statement on Form S-1 filed on February 26, 2008)

    (21)

    List of Subsidiaries

    21.1






    Carbon Commodity Corporation
    Climate ESCO Ltd.
    Mantra Energy Alternatives Ltd.
    Mantra China Inc.
    Mantra China Limited
    Mantra Media Corp.
    Mantra NextGen Power Inc.
    Mantra Wind Inc.

    (31)

    (i) Rule 13a-14(a)/ 15d-14(a) Certifications (ii) Rule 13a-14(d)/ 15d-14(d) Certifications

    31.1*

    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of the Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer

    (32)

    Section 1350 Certifications

    32.1*

    Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of the Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer

    18



    Exhibit Exhibit Description
    Number  
    (99) Additional Exhibits
    99.1 Audit Committee Charter adopted April 20, 2010 (incorporated by reference to our Annual Report on Form 10-K filed with the SEC on September 14, 2010)
    (101)** Interactive Data Files
    101.INS XBRL Instance Document
    101.SCH XBRL Taxonomy Extension Schema Document.
    101.CAL XBRL Taxonomy Extension Calculation Linkbase Document.
    101.DEF XBRL Taxonomy Extension Definition Linkbase Document.
    101.LAB XBRL Taxonomy Extension Label Linkbase Document.
    101.PRE XBRL Taxonomy Extension Presentation Linkbase Document.

    *

    Filed herewith.

       
    **

    Furnished herewith. Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of any registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, and otherwise are not subject to liability under those sections.

    19


    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)
       
     Date: January 14, 2013 /s/ Larry Kristof
      Larry Kristof
      President, Chief Executive Officer, Chief Financial
      Officer, Secretary, Treasurer and Director
      (Principal Executive Officer, Principal Financial Officer
      and Principal Accounting Officer)

    20