HWN, INC. - FORM 10-K - September 13, 2012

Attached files

file	filename
EXCEL - IDEA: XBRL DOCUMENT - HWN, INC.	Financial_Report.xls
EX-32.1 - EXHIBIT 32.1 - HWN, INC.	exhibit32-1.htm
EX-31.1 - EXHIBIT 31.1 - HWN, INC.	exhibit31-1.htm

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

FORM 10-K

(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended May 31, 2012

[ ] 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	(I.R.S. Employer Identification No.)
organization)

#562 – 800 15355 24^thAvenue, Surrey, British Columbia, Canada	V4A 2H9
(Address of principal executive offices)	(Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange On Which Registered
N/A	N/A

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.00001 par value
(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 the Securities Act.

Yes [ ] No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act

Yes [ ] No [X]

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the last 90 days.

Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-K (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

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.

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [ ] No [X]

The aggregate market value of Common Stock held by non-affiliates of the Registrant on November 30, 2011 was $1,320,098 based on a $0.03 average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of the latest practicable date.
47,783,139 common shares as of September 12, 2012.

DOCUMENTS INCORPORATED BY REFERENCE

None.

Table of Contents

PART I		4
Item 1.	Business	4
Item 1A.	Risk Factors	13
Item 1B.	Unresolved Staff Comments	13
Item 2.	Description of Property	13
Item 3.	Legal Proceedings	14
Item 4.	Mine Safety Disclosures	14
PART II		14
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	14
Item 6.	Selected Financial Data	15
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	16
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	19
Item 8.	Financial Statements and Supplementary Data	20
Item 9.	Changes In and Disagreements with Accountants on Accounting and Financial Disclosure	21
Item 9A.	Controls and Procedures	21
Item 9B.	Other Information	22
PART III		22
Item 10.	Directors, Executive Officers and Corporate Governance	22
Item 11.	Executive Compensation	27
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	31
Item 13.	Certain Relationships and Related Transactions, and Director Independence	32
Item 14.	Principal Accountant Fees and Services	33
PART IV		34
Item 15.	Exhibits, Financial Statement Schedules	34

PART I

Item 1.

Business

FORWARD-LOOKING STATEMENTS

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

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

As used in this annual report, the terms "we", "us", "our", “our company”, and "Mantra" mean Mantra Venture Group Ltd. and our subsidiary Mantra Energy Alternatives Ltd. and our our wholly owned subsidiaries Carbon Commodity Corporation, 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.

All dollar amounts refer to US dollars unless otherwise indicated.

Description of Business

We were incorporated in Nevada on January 22, 2007. On December 8, 2008 we continued our corporate jurisdiction out of the state of Nevada and into the Province of British Columbia, Canada. Our principal offices are located at 1205 – 207 West Hastings Street, Vancouver, British Columbia, Canada, V6B 1H7. Our telephone number is (604) 609 2898. 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.

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, through which we distribute and installe LED lighting solutions.

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

On May 17, 2011, we entered into a director agreement with EldenSchorn. As compensation, under the agreement, we granted stock options to Mr. Schorn to purchase up to 500,000 shares of our common stock at a price of $0.10 per share. Mr. Schorn resigned as director of our company on February 20, 2012. Pursuant to the terms of the Option Agreement, his options expired on August 18, 2012.

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

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 twelve (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;
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, Mantra Energy Alternatives Ltd. (“Mantra Energy”), a subsidiary of Mantra Venture Group Ltd., entered into a Master Services Agreement with Tekion (Canada), Inc. Mantra Energy’s ERC technology converts 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.

Electro Reduction of Carbon Dioxide (“ERC”)

On November 2, 2007, through our subsidiary, Mantra Energy Alternatives Ltd., 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 carbon dioxide (CO2) on Earth’s environment by converting CO2 into chemicals with a broad range of commercial applications, including a fuel for a next generation of fuel cells. Powered by electricity, the ERC process combines captured carbon dioxide with water to produce materials, such as formic acid, formate salts, oxalic acid and methanol, that are conventionally obtained from the thermo-chemical processing of fossil fuels. However, while thermo-chemical reactions must be driven at relatively high temperatures that are normally obtained by burning fossil fuels, ERC operates at near ambient conditions and is driven by electric energy that can be taken from an electric power grid supplied by hydro, wind, solar or nuclear energy.

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

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

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

ERC Development to Date

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

In October of 2008, we completed our first ERC prototype reactor capable of processing 1 kilogram of CO2 per day. In order to facilitate the testing and development of this reactor, we entered into an agreement with Kemetco on January 29, 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.

Steel Pickling

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

Competition

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Government Regulations

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

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

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

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

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

Research and Development Expenditures

During the year ended May 31, 2012 we spent $11,596 on research and development. For the last two fiscal years, we have spent $11,596on research and development. We anticipate that we will incur $3,500,000 in expenses on research and development for ERC as well as other technologies we may acquire over the next 12 months.

Employees

As of September 10, 2012, we had 2 employees engaged in administrative duties, website development and marketing. All of these employees were engaged on a full-time basis. Additionally, we have retained a number of consultants for legal, accounting and investor relations services.

Intellectual Property

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

Country	Application Number	File Date	Status
Patent Cooperation Treaty (PCT)	W02207	10/13/2006	PCT (1)

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

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

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

Reports to Security Holders

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

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

Item 1A.

Risk Factors

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

Item 1B.

Unresolved Staff Comments

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

Item 2.

Description of Property

Our principal executive offices are located at #562 – 800 15355 24^thAvenue, Surrey, British Columbia, Canada, V4A 2H9. Our telephone number is (604) 560-1503. The office is approximately1,650 square feet in size and is leased for a term of twelve months. The lease began on January 2012 and will end in January 2013. Currently we pay approximately $1,200 per month for our office space in Surrey.

Item 3.

Legal Proceedings

On May 23, 2012, a former employee of our company delivered a Notice of Application seeking 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 4.

Mine Safety Disclosures

Not applicable.

PART II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases ofEquity Securities

Market Information

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

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

The following table reflects the high and low bid information for our common stock obtained from Stockwatchon the OTC Bulletin Board and reflects inter-dealer prices, without retail mark-up, markdown or commission, and may not necessarily represent actual transactions.

Quarter Ended	High ($)	Low ($)
May 31, 2012	0.1199	0.032
February 29, 2012	0.035	0.0101
November 30, 2011	0.095	0.025
August 31, 2011	0.1	0.04
May 31, 2011	0.134	0.061
February 28, 2011	0.14	0.063
November 30, 2010	0.19	0.075
August 31, 2010	0.155	0.06
May 31, 2010	0.17	0.02

Holders

As of September10, 2012, there were approximately 123 holders of record of our common stock.

Dividends

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

Equity Compensation Plans

As of May 31, 2012, we did not have any equity compensation plans.

Recent Sales of Unregistered Securities

On March 15, 2012, we issued 500,000 shares for proceeds of $5,000 pursuant to the exercise of stock options. These shares were issued to one (1) non-U.S. person (as that term is defined in Regulation S of the Securities Act of 1933), in an offshore transaction relying on Regulation S of the Securities Act of 1933.

On March 9, 2012, we issued 1,120,550 units at $0.05 per unit for proceeds of $56,028. Each unit consists of one share of common stock and one share purchase warrant to purchase one additional share of common stock at an exercise price of $0.20 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 $0.40 per share for seven consecutive trading days. These securities were issued to four (4) non-U.S. person (as that term is defined in Regulation S of the Securities Act of 1933), in an offshore transaction relying on Regulation S of the Securities Act of 1933.

On April 3, 2012 we issued 250,000 stock options to acquire 250,000 shares of our common stock at a purchase price of $0.03 per share pursuant to a consulting agreement with BC0848571 Ltd. These securities were issued to one (1) non-US person (as that term is defined in Regulation S of the Securities Act of 1933) in an offshore transaction relying on Regulation S of the Securities Act of 1933.

Purchase of Equity Securities

We did not purchase any of our shares of common stock or other securities during our fiscal year ended May 31, 2012.

Item 6.

Selected Financial Data

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

Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations

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

Forward-Looking Statements

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

Results of Operations

Results of Operations for the Years Ended May 31, 2012 and 2011

The following summary of our results of operations should be read in conjunction with our audited financial statements for the years ended May 31, 2012 and 2011.

Our operating results for the years ended May 31, 2012 and 2011 are summarized as follows:

		Year Ended
		May 31
		2012			2011

Revenue	$	13,281		$	2,606
Operating Expenses	$	(706,316	)	$	(1,001,275	)
Other Income (Expense)	$	33,931		$	(88,949	)
Net Loss	$	(669,342	)	$	(1,089,853	)

Revenues

Our revenues for the year ended May 31, 2012 were $13,281, compared to our revenue for the year ended May 31, 2011, which were $2,602, representing approximately an 80.38% increase.

Operating Expenses

Our operating expenses for the year ended May 31, 2012 and May 31, 2011 are outlined in the table below:

		Year Ended
		May 31
		2012			2011

Business development	$	18,552		$	62,861
Consulting and advisory	$	178,016		$	245,710
Depreciation and amortization	$	26,493		$	31,179
Foreign exchange loss (gain)	$	(21,139	)	$	34,601
General and administrative	$	55,504		$	48,250
License fees	$	19,614		$	5,000
Management fees	$	168,811		$	187,572
Professional fees	$	153,833		$	79,104
Public listing costs	$	11,588		$	7,081
Rent	$	33,118		$	31,891
Research and development	$	11,596		$	Nil
Shareholder communications and awareness	$	2,793		$	58,911
Travel and promotion	$	35,082		$	70,336
Wages and benefits	$	Nil		$	138,779
Write-down of inventory	$	12,455		$	Nil

The decrease in operating expenses for the year ended May 31, 2012, compared to the same period in fiscal 2011, was mainly due to decreases in business development costs, consulting and advisory fees, depreciation and amortization, management fees, shareholder communications and awareness, travel and promotion and wages and benefits.

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

Liquidity and Financial Condition

As of May 31, 2012, our total current assets were $274,360and our total current liabilities were $1,208,690and we had a working capital deficit of $934,121. Our financial statements report a net loss of $669,342for the year ended May 31, 2012 and a net loss of $6,803,165for the period from January 22, 2007 (date of inception) to May 31, 2012.

We have suffered recurring losses from operations. The continuation of our company is dependent upon our company attaining and maintaining profitable operations and raising additional capital as needed. In this regard we have raised additional capital through equity offerings and loan transactions.

Cash Flows
		Year Ended			Year Ended
		May 31, 2012			May 31, 2011

Net Cash Used in Operating Activities	$	(553,161	)	$	(603,370	)
Net Cash Used In Investing Activities	$	(802	)	$	(20,162	)
Net Cash Provided by Financing Activities	$	730,462		$	658,308
Cash increase during the year	$	176,499		$	34,776

We had cash in the amount of $215,600 as of May 31, 2012 as compared to $39,101as of May 31, 2011. We had a working capital deficit of $934,121 as of May 31, 2012 compared to working capital deficit of $1,143,295as of May 31, 2011.

Our principal sources of funds have been from sales of our common stock.

Liquidity and Capital Resources

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.

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

Inflation

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

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.

Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

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

Item 8.

Financial Statements and Supplementary Data

MANTRA VENTURE GROUP LTD.
(A development stage company)
Consolidated financial statements
May 31, 2012
(Expressed in U.S. dollars)

	Index
Report of Independent Registered Public Accounting Firm	F–1
Consolidated balance sheets	F–2
Consolidated statements of operations	F–3
Consolidated statements of stockholders’ equity (deficit)	F–4
Consolidated statements of cash flows	F–9
Notes to the consolidated financial statements	F–10

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have audited the accompanying consolidated balance sheets of Mantra Venture Group Ltd. (a development stage company) as of May 31, 2012 and 2011, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for the years then ended and accumulated from January 22, 2007 (date of inception) to May 31, 2012. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. The consolidated financial statements of Mantra Venture Group Ltd. accumulated from January 22, 2007 (date of inception) to May 31, 2008 were audited by other auditors whose reports dated September 15, 2008 and September 20, 2007 included an explanatory paragraph regarding the Company’s ability to continue as a going concern. The consolidated financial statements for the period from January 22, 2007 (date of inception) to May 31, 2008 reflect a net loss of $2,046,612 of the related cumulative totals. The auditors’ reports have been furnished to us, and our opinion, insofar as it related to amounts included for such periods, is based solely on the reports of such auditors.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of May 31, 2012 and 2011, and the consolidated results of its operations and its cash flows for the years then ended and accumulated from January 22, 2007 (date of inception) to May 31, 2012, in conformity with accounting principles generally accepted in the United States.

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

/s/ SATURNA GROUP CHARTERED ACCOUNTANTS LLP

Saturna Group Chartered Accountants LLP

Vancouver, Canada

September 11, 2012

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

	May 31,		May 31,
	2012		2011
	$		$

ASSETS
Current assets
Cash	215,600		39,101
Amounts receivable	16,120		25,549
Inventory	2,500		15,979
Prepaid expenses and deposits	40,140		21,349
Total current assets	274,360		101,978
Property and equipment (Note 3)	22,966		63,656
Total assets	297,326		165,634

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities
Accounts payable and accrued liabilities	536,888		676,675
Due to related parties (Note 4)	244,455		205,695
Loans payable (Note 5)	227,347		112,903
Convertible debentures (Note 6)	200,000		250,000
Total current liabilities	1,208,690		1,245,273
Loans payable (Note 5)	60,297		–
Total liabilities	1,268,987		1,245,273
Nature of operations and continuance of business (Note 1)
Commitments (Note 10)
Subsequent events (Note 12)
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: 45,623,806 (2011 – 40,540,756) shares	456		405
Additional paid-in capital	5,675,442		4,827,439
Common stock subscribed (Note 7)	144,916		163,000
Common stock subscriptions receivable (Note 7)	(94,708	)	–
Deficit accumulated during the development stage	(6,689,470	)	(6,080,808	)
Total Mantra Venture Group Ltd. stockholders’ deficit	(963,364	)	(1,089,964	)
Non-controlling interest	(8,297	)	10,325
Total stockholders’ deficit	(971,661	)	(1,079,639	)
Total liabilities and stockholders’ deficit	297,326		165,634

(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 operations
(Expressed in U.S. dollars)

					Accumulated from
					January 22, 2007
	Year Ended		Year Ended		(date of inception
	May 31,		May 31,		to May 31,
	2012		2011		2012
	$		$		$

Revenue	13,281		2,606		35,785

Cost of goods sold	10,238		2,235		12,473

Gross profit	3,043		371		23,312

Operating expenses
Business development	18,552		62,861		332,506
Consulting and advisory	178,016		245,710		856,838
Depreciation and amortization	26,493		31,179		150,634
Foreign exchange loss (gain)	(21,139	)	34,601		39,133
General and administrative	55,504		48,250		427,851
License fees	19,614		5,000		53,052
Management fees (Note 4)	168,811		187,572		1,127,270
Professional fees	153,833		79,104		889,795
Public listing costs	11,588		7,081		222,500
Rent	33,118		31,891		221,183
Research and development	11,596		–		429,802
Shareholder communications and awareness	2,793		58,911		641,478
Travel and promotion	35,082		70,336		425,968
Wages and benefits	–		138,779		739,509
Website development/corporate branding	–		–		195,451
Write-down of intangible assets	–		–		37,815
Write-down of inventory	12,455		–		12,455

Total operating expenses	706,316		1,001,275		6,803,240

Loss before other income (expense)	(703,273	)	(1,000,904	)	(6,779,928	)

Other income (expense)
Accretion of discounts on convertible debentures	–		–		(45,930	)
Gain (loss) on settlement of debt	81,463		(59,628	)	21,835
Government grant income	–		–		118,324
Interest expense	(32,533	)	(29,321	)	(102,467	)
Loss on disposal of property and equipment	(14,999	)	–		(14,999	)

Total other income (expense)	33,931		(88,949	)	(23,237	)

Net loss for the period	(669,342	)	(1,089,853	)	(6,803,165	)

Less: net loss attributable to the non-controlling interests	60,680		53,015		113,695

Net loss attributable to Mantra Venture Group Ltd.	(608,662	)	(1,036,838	)	(6,689,470	)

Net loss per share attributable to Mantra Venture Group Ltd. common shareholders, basic and diluted	(0.01	)	(0.03	)

Weighted average number of shares outstanding used in the calculation of net loss attributable to Mantra Venture Group Ltd. per common share	43,582,643		37,546,457

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

F-3

MANTRA VENTURE GROUP LTD.
(A development stage company)
Consolidated statements of stockholder’s equity (deficit)
Period from January 22, 2007 (date of inception) to May 31, 2012
(Expressed in U.S. dollars)

				Deficit
				accumulated
				during the		Total
	Common stock		Additional	development		stockholders’
		Amount	paid-in capital	stage		equity (deficit)
	Number	$	$	$		$

Balance, January 22, 2007 (date of inception)	–	–	–	–		–

Stock issued for cash at $0.00001 per share	15,000,000	150	150	–		300
Stock issued for cash at $0.02 per share	1,750,000	18	34,982	–		35,000
Stock issued for services at $0.02 per share	10,000	–	200	–		200
Net loss for the period	–	–	–	(30,594	)	(30,594	)

Balance, May 31, 2007	16,760,000	168	35,332	(30,594	)	4,906

Stock Issued for Cash
Stock issued at $0.10 per share	1,221,500	12	122,138	–		122,150
Units issued at $0.125 per share	1,600,000	16	199,984	–		200,000
Stock issued at $0.25 per share	1,399,078	14	349,756	–		349,770
Stock issued at $0.30 per share	100,000	1	29,999	–		30,000
Units issued at $0.40 per share	898,750	9	359,491	–		359,500

Stock Issued for Services
Stock issued at $0.25 per share	100,000	1	24,999	–		25,000
Stock issued at $0.30 per share	133,333	2	39,998	–		40,000
Stock issued at $0.40 per share	125,000	1	49,999	–		50,000
Units issued at $0.40 per share	600,000	6	239,994			240,000
Stock issued at $0.83 per share	200,000	2	165,998	–		166,000

Issued for Intangible Assets
Stock issued at $0.25 per share	40,000	–	10,000	–		10,000
Stock options granted	–	–	27,815			27,815

Stock issued upon exercise of warrants	275,000	3	137,497	–		137,500

Fair value of stock options granted	–	–	158,884	–		158,884

Net loss for the year	–	–	–	(2,016,018	)	(2,016,018	)

Balance, May 31, 2008	23,452,661	235	1,951,884	(2,046,612	)	(94,493	)

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

F-4

						Deficit
				Common		accumulated
				stock		during the		Total
	Common Stock		Additional	subscriptions		development		stockholders’
		Amount	paid-in capital	receivable		stage		equity (deficit)
	Number	$	$	$		$		$

Balance, May 31, 2008	23,452,661	235	1,951,884	–		(2,046,612	)	(94,493	)

Stock Issued for Cash
Units issued at $0.125 per share	2,400,000	24	299,976	–		–		300,000
Units issued at $0.15 per share	1,741,831	18	261,256	(15,000	)	–		246,274
Units issued at $0.25 per share	1,180,000	12	294,988	–		–		295,000

Stock Issued for Services
Stock issued at $0.15 per share	25,000	–	3,750	–		–		3,750
Stock issued at $0.20 per share	37,500	–	7,500	–		–		7,500
Stock issued at $0.36 per share	37,500	–	13,500	–		–		13,500
Stock issued at $0.36 per share	25,000	–	9,000	–		–		9,000
Stock issued at $0.40 per share	50,000	1	19,999	–		–		20,000
Stock issued at $0.41 per share	37,500	–	15,375	–		–		15,375
Stock issued at $0.45 per share	62,500	1	28,124	–		–		28,125

Stock Issued for Debt
Units issued at $0.15 per share	950,777	10	142,607	–		–		142,617
Stock issued at $0.25 per share	40,000	–	10,000	–		–		10,000
Units issued at $0.27 per share	18,519	–	5,000	–		–		5,000

Discount on convertible debentures	–	–	45,930	–		–		45,930

Fair value of stock options granted	–	–	337,397	–		–		337,397

Net loss for the year	–	–	–	–		(1,778,591	)	(1,778,591	)

Balance, May 31, 2009	30,058,788	301	3,446,286	(15,000	)	(3,825,203	)	(393,616	)

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

F-5

MANTRA VENTURE GROUP LTD.
(A development stage company)
Consolidated statements of stockholder’s equity (deficit)
Period from January 22, 2007 (date of inception) to May 31, 2012

							Deficit
					Common		accumulated
			Additional	Common	stock		during the		Total
	Common Stock		paid-in	stock	subscriptions		development		stockholders’
		Amount	capital	subscribed	receivable		stage		equity (deficit)
	Number	$	$	$	$		$		$

Balance, May 31, 2009	30,058,788	301	3,446,286	–	(15,000	)	(3,825,203	)	(393,616	)

Stock Issued for Cash
Units issued at $0.08 per share	1,337,556	14	106,990	–	–		–		107,004
Units issued at $0.15 per share	1,735,999	17	260,383	–	15,000		–		275,400

Stock Issued for Services
Stock issued at $0.24 per share	125,000	1	29,999	–	–		–		30,000
Stock issued at $0.29 per share	25,000	–	7,250	–	–		–		7,250

Stock Issued for Debt
Stock issued at $0.15 per share	300,000	3	44,997	–	–		–		45,000
Stock issued at $0.17 per share	299,192	3	50,860	–	–		–		50,863
Units issued at $0.15 per share	153,333	1	22,999	–	–		–		23,000

Share subscriptions received	–	–	–	45,885	–		–		45,885

Fair value of stock options granted	–	–	66,530	–	–		–		66,530

Net loss for the year	–	–	–	–	–		(1,218,767	)	(1,218,767	)

Balance, May 31, 2010	34,034,868	340	4,036,294	45,885	–		(5,043,970	)	(961,451	)

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

F-6

MANTRA VENTURE GROUP LTD.
(A development stage company)
Consolidated statements of stockholder’s equity (deficit)
Period from January 22, 2007 (date of inception) to May 31, 2012

						Deficit
						accumulated
			Additional	Common		during the				Total
	Common Stock		paid-in	stock		development		Non-controlling		stockholders’
		Amount	capital	subscribed		stage		interest		equity (deficit)
	Number	$	$	$		$		$		$

Balance, May 31, 2010	34,034,868	340	4,036,294	45,885		(5,043,970	)	–		(961,451	)

Stock Issued for Cash
Units issued at $0.05 per share	1,900,000	19	94,981	–		–		–		95,000
Units issued at $0.08 per share	2,387,942	24	191,011	(45,885	)	–		–		145,150
Units issued at $0.10 per share	275,000	3	27,497	–		–		–		27,500

Stock Issued by Subsidiary
Stock issued for $0.0033 per share	–	–	32,305	–		–		17,495		49,800
Stock issued at $0.10 per share	–	–	84,655	–		–		45,845		130,500

Stock Issued for Debt
Stock issued at $0.11 per share	175,000	2	19,248	–		–		–		19,250
Stock issued at $0.15 per share	125,946	1	18,891	–		–		–		18,892
Stock issued at $0.18 per share	400,000	4	71,996	–		–		–		72,000

Stock Issued for Services
Stock issued at $0.12 per share	500,000	5	59,995	–		–		–		60,000
Stock issued at $0.13 per share	342,000	3	44,457	–		–		–		44,460
Stock issued at $0.15 per share	400,000	4	59,996	–		–		–		60,000

Share subscriptions received	–	–	–	163,000		–		–		163,000

Fair value of stock options granted	–	–	86,113	–		–		–		86,113

Net loss for the year	–	–	–	–		(1,036,838	)	(53,015	)	(1,089,853	)

Balance, May 31, 2011	40,540,756	405	4,827,439	163,000		(6,080,808	)	10,325		(1,079,639	)

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

F-7

MANTRA VENTURE GROUP LTD.
(A development stage company)
Consolidated statements of stockholder’s equity (deficit)
Period from January 22, 2007 (date of inception) to May 31, 2012

								Deficit
								accumulated
			Additional	Common		Common stock		during the				Total
	Common Stock		paid-in	stock		subscriptions		development		Non-controlling		stockholders’
		Amount	capital	subscribed		receivable		stage		interest		equity (deficit)
	Number	$	$	$		$		$		$		$

Balance, May 31, 2011	40,540,756	405	4,827,439	163,000		–		(6,080,808	)	10,325		(1,079,639	)

Stock Issued for Cash
Stock issued at $0.01 per share pursuant to the exercise of stock options	500,000	5	4,995	–		–		–		–		5,000
Units issued at $0.05 per share	1,120,550	11	56,017	–		–		–		–		56,028
Units issued at $0.08 per share	2,037,500	20	162,980	(163,000	)	–		–		–		–

Stock Issued by Subsidiaries
Stock issued at Cdn$1.00 per share	–	–	482,737	–		(94,708	)	–		33,971		422,000
Stock issued at $0.10 per share	–	–	1,297	–		–		–		703		2,000

Stock Issued for Services
Stock issued at $0.07 per share	950,000	10	66,490	–		–		–		–		66,500
Stock issued at $0.08 per share	150,000	2	11,998	–		–		–		–		12,000

Units issued to settle debt	325,000	3	22,747	–		–		–		–		22,750

Share subscriptions received	–	–	–	131,300		–		–		–		131,300

Share subscriptions received by subsidiary	–	–	–	13,616		–		–		7,384		21,000

Fair value of stock options granted	–	–	38,742	–		–		–		–		38,742

Net loss for the year	–	–	–	–		–		(608,663	)	(60,680	)	(669,342	)

Balance, May 31, 2012	45,623,806	456	5,675,442	144,916		(94,708	)	(6,689,471	)	(8,297	)	(971,661	)

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

F-8

MANTRA VENTURE GROUP LTD.
(A development stage company)
Consolidated statements of cash flows
(Expressed in U.S. dollars)

					Accumulated from
					January 22, 2007
	Year Ended		Year Ended		(date of inception)
	May 31,		May 31,		to May 31,
	2012		2011		2012
	$		$		$

Operating activities
Net loss for the period	(669,342	)	(1,089,853	)	(6,803,165	)
Adjustments to reconcile net loss to net cash used in operating activities:
Accretion of discounts on convertible debentures	–		–		45,930
Depreciation and amortization	26,493		31,179		150,634
Foreign exchange loss (gain)	(10,894	)	4,467		(6,427	)
Loss (gain) on settlement of debt	(81,463	)	59,628		(21,835	)
Loss on disposal of property and equipment	14,999		–		14,999
Stock-based compensation	117,242		250,573		1,586,325
Write-down of intangible assets	–		–		37,815
Write-down of inventory	12,455		–		12,455
Changes in operating assets and liabilities:
Amounts receivable	9,429		(11,805	)	(16,120	)
Inventory	1,024		(15,979	)	(14,955	)
Prepaid expenses and deposits	(18,791	)	(20,271	)	(40,140	)
Other assets	–		–		(12,000	)
Accounts payable and accrued liabilities	6,927		277,708		1,010,596
Due to related parties	38,760		(89,017	)	244,455

Net cash used in operating activities	(553,161	)	(603,370	)	(3,811,433	)

Investing activities
Purchase of property and equipment	(1,702	)	(20,162	)	(177,499	)
Proceeds from sale of property and equipment	900		–		900

Net cash used in investing activities	(802	)	(20,162	)	(176,599	)

Financing activities
Proceeds from loans payable	93,135		47,358		201,571
Proceeds from issuance of convertible debentures	–		–		250,000
Proceeds from issuance of common stock and subscriptions received	637,327		610,950		3,752,061

Net cash provided by financing activities	730,462		658,308		4,203,632

Change in cash	176,499		34,776		215,600

Cash, beginning of period	39,101		4,325		–

Cash, end of period	215,600		39,101		215,600

Non-cash investing and financing activities:
Shares issued to settle debt	22,750		110,142		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-9

MANTRA VENTURE GROUP LTD.
(A development stage company)
Notes to the consolidated financial statements
Year ended May 31, 2012
(Expressed in U.S. dollars)

1.	Nature of Operations and Continuance of Business

	The Company was incorporated in the State of Nevada on January 22, 2007 to acquire and commercially exploit various new energy related technologies through licenses and purchases. On December 8, 2008, the Company continued its corporate jurisdiction out of the State of Nevada and into the province of British Columbia, Canada. The Company is a development stage company, as defined by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 915, “Development Stage Entities,” in the business of developing and providing energy alternatives. The Company also provides marketing and graphic design services to help companies optimize their environmental awareness presence through the eyes of government, industry and the general public.

	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 May 31, 2012, the Company has a working capital deficit of $934,121, has not generated significant revenues, and has accumulated losses of $6,689,470 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.

	Management requires additional funds over the next twelve months to fully implement its business plan. Management is currently seeking additional financing through the sale of equity and from borrowings from private lenders to cover its operating expenditures. There can be no certainty that these sources will provide the additional funds required for the next twelve months.

2.	Summary of Significant Accounting Policies

	(a)	Basis of Presentation

		These consolidated financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States. 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)	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. The 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. The 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 the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

F-10

MANTRA VENTURE GROUP LTD.
(A development stage company)
Notes to the consolidated financial statements
Year ended May 31, 2012
(Expressed in U.S. dollars)

2.	Summary of Significant Accounting Policies (continued)

	(c)	Cash and Cash Equivalents

		The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents.

	(d)	Accounts Receivable

		The Company recognizes allowances for doubtful accounts to ensure accounts receivable are not overstated due to the inability or unwillingness of its customers to make required payments. The allowance is based on the age of receivable and the specific identification of receivables the Company considers at risk.

	(e)	Inventory

		Inventory consists of LED lighting which is carried at the lower of cost or net realizable value on a first-in, first-out basis. The Company establishes inventory reserves for estimated obsolete or unmarketable inventory equal to the difference between the acquisition cost of inventory and net realizable value based upon market conditions.

	(f)	Property and Equipment

		Property and equipment are stated at cost. The Company depreciates the cost of property and equipment over their estimated useful lives at the following annual rates:

Automotive	5 years straight-line basis
Computer equipment	3 years straight-line basis
Leasehold improvements	5 years straight-line basis
Office equipment and furniture	5 years straight-line basis
Research equipment	5 years straight-line basis

	(g)	Long-lived Assets

		In accordance with ASC 360, “Property, Plant and Equipment”, the 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.

	(h)	Foreign Currency Translation

		Transactions in foreign currencies are translated into the currency of measurement at the exchange rates in effect on the transaction date. Monetary balance sheet items expressed in foreign currencies are translated into U.S. dollars at the exchange rates in effect at the balance sheet date. The resulting exchange gains and losses are recognized in income.

F-11

MANTRA VENTURE GROUP LTD.
(A development stage company)
Notes to the consolidated financial statements
Year ended May 31, 2012
(Expressed in U.S. dollars)

2.	Summary of Significant Accounting Policies (continued)

	(h)	Foreign Currency Translation (continued)

		The Company’s integrated foreign subsidiaries are financially or operationally dependent on the Company. The Company uses the temporal method to translate the accounts of its integrated operations into U.S. dollars. Monetary assets and liabilities are translated at the exchange rates in effect at the balance sheet date. Non-monetary assets and liabilities are translated at historical rates. Revenues and expenses are translated at average rates for the period, except for amortization, which is translated on the same basis as the related asset. The resulting exchange gains or losses are recognized in income.

	(i)	Income Taxes

		The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, “Accounting for Income Taxes”. The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.

		As of May 31, 2012 and 2011, the Company did not have any amounts recorded pertaining to uncertain tax positions.

		The Company files federal and provincial income tax returns in Canada and federal, state and local income tax returns in the U.S., as applicable. The Company may be subject to a reassessment of federal and provincial income taxes by Canadian tax authorities for a period of three years from the date of the original notice of assessment in respect of any particular taxation year. For Canadian and U.S. income tax returns, the open taxation years range from 2007 to 2011. In certain circumstances, the U.S. federal statute of limitations can reach beyond the standard three year period. U.S. state statutes of limitations for income tax assessment vary from state to state. Tax authorities of Canada and U.S. have not audited any of the Company’s, or its subsidiaries’, income tax returns for the open taxation years noted above.

		The Company recognizes interest and penalties related to uncertain tax positions in tax expense. During the years ended May 31, 2012 and 2011, there were no charges for interest or penalties.

	(j)	Revenue Recognition

		The Company earns revenue from the sale of LED lighting and the provision of media design services. The Company recognizes revenue in accordance with ASC 605, “Revenue Recognition”. Revenue is recognized when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed or goods have been shipped, and collectability is reasonably assured.

F-12

MANTRA VENTURE GROUP LTD.
(A development stage company)
Notes to the consolidated financial statements
Year ended May 31, 2012
(Expressed in U.S. dollars)

2.	Summary of Significant Accounting Policies (continued)

	(k)	Financial Instruments and Fair Value Measures

		ASC 820, “Fair Value Measurements and Disclosures” requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:

Level 1

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

Level 2

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

Level 3

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

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

	(l)	Research and Development Costs

		Research and development costs are expensed as incurred.

	(m)	Stock-based Compensation

		The 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.

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

F-13

MANTRA VENTURE GROUP LTD.
(A development stage company)
Notes to the consolidated financial statements
Year ended May 31, 2012
(Expressed in U.S. dollars)

2.	Summary of Significant Accounting Policies (continued)

	(n)	Loss Per Share

		The Company computes loss per share in accordance with ASC 260, "Earnings per Share" which requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing the loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti dilutive. As at May 31, 2012, the Company had 9,545,992 (2011 – 9,873,997) dilutive potential shares outstanding.

	(o)	Comprehensive Loss

		ASC 220, “Comprehensive Income,” establishes standards for the reporting and display of comprehensive loss and its components in the financial statements. As at May 31, 2012 and 2011, the Company has no items that represent a comprehensive loss and, therefore, has not included a schedule of comprehensive loss in the consolidated financial statements.

	(p)	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

			2012	2011
		Accumulated	Net carrying	Net carrying
	Cost	depreciation	value	value
	$	$	$	$
Automobile	11,938	11,938	–	1,684
Computer	1,702	95	1,607	–
Leasehold improvements	–	–	–	19,340
Office furniture and equipment	48,847	40,847	8,000	18,673
Research equipment	53,793	40,434	13,359	23,959
	116,280	93,314	22,966	63,656

4.	Related Party Transactions

	(a)	During the year ended May 31, 2012, the Company incurred management fees of $30,000 (2011 - $28,000) to directors of the Company.

	(b)	During the year ended May 31, 2012, the Company incurred management fees of $nil (2011 - $18,000) to an accounting firm where the former Chief Financial Officer of the Company is a partner.

	(c)	During the year ended May 31, 2012, the Company incurred management fees of $nil (2011 - $42,982) to the former Vice President of the Company.

	(d)	During the year ended May 31, 2012, the Company incurred management fees of $nil (2011 - $39,000) to a firm where the former Chief Financial Officer of the Company is a partner.

F-14

MANTRA VENTURE GROUP LTD.
(A development stage company)
Notes to the consolidated financial statements
Year ended May 31, 2012
(Expressed in U.S. dollars)

4.	Related Party Transactions (continued)

	(e)	As at May 31, 2012, the Company owes $42,033 (2011 - $25,184) to the spouse of the President of the Company which is non-interest bearing, unsecured, and due on demand.

	(f)	As at May 31, 2012, the Company owes $22,444 (2011 - $13,207) to a director of the Company, which is non-interest bearing, unsecured, and due on demand.

	(g)	As at May 31, 2012, the Company owes a total of $179,978 (2011 - $167,304) 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 May 31, 2012, the amount of $61,106 (Cdn$63,300) (2011 - $65,297 (Cdn$63,300)) is owed to a non-related party which is non-interest bearing, unsecured, and due on demand.

	(b)	As at May 31, 2012, the amount of $10,000 (2011 - $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 May 31, 2012, the amount of $29,183 (Cdn$30,200) (2011 – $nil) is owed to a non-related party, which is non-interest bearing, unsecured, and due on demand.

	(d)	As at May 31, 2012, the amount of $17,500 (2011 - $17,500) is owed to a non-related party which is non-interest bearing, unsecured, and due on demand.

	(e)	As at May 31, 2012, the amount of $15,000 (2011 - $15,000) is owed to a non-related party which is non-interest bearing, unsecured, and due on demand.

	(f)	As at May 31, 2012, the amount of $18,225 (Cdn$18,895) (2011 – $5,106 (Cdn$4,950)) is owed to a non-related party, which is non-interest bearing, unsecured, and due on demand.

	(g)	As at May 31, 2012, the amounts of $7,500 and $35,820 (Cdn$37,000) (2011 - $nil) is owed to a non-related party which is 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 May 31, 2012, the amount of $88,820 (Cdn$92,500) (2011 - $nil) is owed, of which $28,523 (Cdn$30,000) is due over the next twelve months.

	(i)	As at May 31, 2012, the amount of $4,490 (2011 - $nil) is owed to a non-related party which is non-interest bearing, unsecured, and due on demand.

6.	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.

F-15

MANTRA VENTURE GROUP LTD.
(A development stage company)
Notes to the consolidated financial statements
Year ended May 31, 2012
(Expressed in U.S. dollars)

6.	Convertible Debentures (continued)

	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 has 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. Refer to Note 5(h). On July 18, 2012, the Company entered into a settlement agreement with the $150,000 debenture holder. Refer to Note 12(e).

7.	Common Stock

	Stock transactions during the year ended May 31, 2012:

	(a)	As at May 31, 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 May 31, 2012, the Company had received subscriptions for 12,359,333 shares of common stock for proceeds of $131,300 which is included in common stock subscribed. Refer to Notes 12(c) and (d).

	(c)	On March 15, 2012, the Company issued 500,000 shares for proceeds of $5,000 pursuant to the exercise of stock options.

	(d)	On March 9, 2012, the Company issued 1,120,550 units at $0.05 per unit for proceeds of $56,028. Each unit consists of one share of common stock and one share purchase warrant to purchase one additional share of common stock at an exercise price of $0.20 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 $0.40 per share for seven consecutive trading days.

	(e)	On February 29, 2012, the Company’s subsidiary, Mantra Energy Alternatives Ltd., issued 525,000 shares of common stock at Cdn$1.00 per share for proceeds of $525,000, of which $94,708 ($103,000 less the non-controlling interest portion of $8,292) was receivable as at May 31, 2012. Refer to Note 12(f).

	(f)	On August 31, 2011, the Company issued 2,037,500 units at $0.08 per unit for proceeds $163,000, which was recorded as common stock subscribed as at May 31, 2011. Each unit consisted of one share of common stock and one-half non-transferrable share purchase warrant to purchase one additional share of common stock at an exercise price of $0.20 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 $0.40 per share for seven consecutive trading days.

F-16

MANTRA VENTURE GROUP LTD.
(A development stage company)
Notes to the consolidated financial statements
Year ended May 31, 2012
(Expressed in U.S. dollars)

7.	Common Stock (continued)

	Stock transactions during the year ended May 31, 2012 (continued):

	(g)	On August 10, 2011, the Company issued 300,000 shares of common stock and 25,000 units with an aggregate fair value of $22,750 to the former Vice President of corporate development for the settlement of $26,000 owing. The Company recorded a gain on settlement of debt of $3,250. 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 $0.20 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 $0.40 per share for seven consecutive trading days.

	(h)	On August 8, 2011, the Company issued 700,000 shares of common stock with a fair value of $49,000 to a consultant for services.

	(i)	On July 27, 2011, the Company issued 250,000 shares of common stock with a fair value of $17,500 pursuant to an investor relations agreement.

	(j)	On July 27, 2011, the Company issued 150,000 shares of common stock with a fair value of $12,000 to a consultant for financial public relations services.

	(k)	On June 23, 2011, the Company’s subsidiary, Climate ESCO Ltd., issued 20,000 shares of common stock at $0.10 per share for proceeds of $2,000.

	Stock transactions during the year ended May 31, 2011:

	(a)	On June 3, 2010, the Company issued 573,567 units at $0.08 per unit for proceeds of $45,885 which was recorded as common stock subscribed as at May 31, 2010. Each unit consisted of one share of common stock and one non-transferable share purchase warrant exercisable at $0.20 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 $0.40 per share for seven consecutive trading days.

	(b)	On June 3, 2010, the Company issued 518,750 units at $0.08 per unit for proceeds of $41,500. Each unit consisted of one share of common stock and one share purchase warrant exercisable at $0.20 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 $0.40 per share for seven consecutive trading days.

	(c)	On September 23, 2010, the Company issued 400,000 shares of common stock with a fair value of $60,000 for consulting services rendered.

	(d)	On September 25, 2010, the Company issued 400,000 shares of common stock with a fair value of $72,000 to settle accounts payable.

	(e)	On October 3, 2010, the Company’s subsidiary, Climate ESCO Ltd., issued 14,940,000 shares of common stock at $0.00333 per share for proceeds of $49,800.

	(f)	On October 22, 2010, the Company issued 1,500,000 units at $0.05 per unit for proceeds of $75,000. Each unit consisted of one share of common stock and one share purchase warrant exercisable at $0.20 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 $0.40 per share for seven consecutive trading days.

F-17

MANTRA VENTURE GROUP LTD.
(A development stage company)
Notes to the consolidated financial statements
Year ended May 31, 2012
(Expressed in U.S. dollars)

7.	Common Stock (continued)

	Stock transactions during the year ended May 31, 2011 (continued):

	(g)	On October 22, 2010, the Company issued 62,500 units at $0.08 per unit for proceeds of $5,000. Each unit consisted of one share of common stock and one share purchase warrant exercisable for a period of 24 months from the date of closing at a price of $0.20 per share 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 $0.40 per share for seven consecutive trading days.

	(h)	On November 5, 2010, the Company issued 125,946 shares of common stock with a fair value of $18,892 to settle accounts payable.

	(i)	On December 10, 2010, the Company issued 275,000 units at $0.10 per unit for proceeds of $27,500. Each unit consisted of one share of common stock and one share purchase warrant exercisable at $0.20 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 $0.40 per share for seven consecutive trading days.

	(j)	On December 25, 2010, the Company issued 400,000 units at $0.05 per unit for proceeds of $20,000. Each unit consisted of one share of common stock and one share purchase warrant exercisable at $0.20 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 $0.40 per share for seven consecutive trading days.

	(k)	On January 13, 2011, the Company issued 500,000 shares of common stock with a fair value of $60,000 for consulting services.

	(l)	On January 27, 2011, the Company issued 1,048,125 units at $0.08 per unit for proceeds of $83,850. Each unit consisted of one common share and one share purchase warrant exercisable for a period of 24 months from the date of closing at a price of $0.20 per share 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 $0.40 per share for seven consecutive trading days.

	(m)	On March 28, 2011, the Company issued 185,000 units at $0.08 per unit for proceeds of $14,800. Each unit consisted of one common share and one share purchase warrant exercisable for a period of 24 months from the date of closing at a price of $0.20 per share 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 $0.40 per share for seven consecutive trading days.

	(n)	On March 9, 2011, the Company issued 342,000 shares of common stock with a fair value of $44,460 for consulting services.

	(o)	On May 10, 2011, the Company’s subsidiary, Climate ESCO Ltd., issued 1,305,000 shares of common stock at $0.10 per share for proceeds of $130,500.

	(p)	On May 17, 2011, the Company issued 175,000 shares of common stock with a fair value of $19,250 to settle accounts payable.

	(q)	As at May 31, 2011, the Company had received share subscriptions of $163,000 for 2,037,500 units to be issued. Refer to Note 7(f).

F-18

MANTRA VENTURE GROUP LTD.
(A development stage company)
Notes to the consolidated financial statements
Year ended May 31, 2012
(Expressed in U.S. dollars)

8.	Share Purchase Warrants

	The following table summarizes the continuity of share purchase warrants:

			Weighted
			average
			exercise
	Number of		price
	warrants		$

Balance, May 31, 2010	6,726,163		0.31

Issued	4,562,942		0.20
Expired	(3,552,608	)	0.35

Balance, May 31, 2011	7,736,497		0.22

Issued	3,183,050		0.20
Expired	(3,173,555	)	0.26

Balance, May 31, 2012	7,745,992		0.20

As at May 31, 2012, the following share purchase warrants were outstanding:

	Exercise
Number of	price
warrants	$	Expiry date
573,567	0.20	June 3, 2012
518,750	0.20	August 9, 2012
1,562,500	0.20	October 22, 2012
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
7,745,992

9.	Stock Options

	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, 2010	1,608,333		0.25

Granted	1,250,000		0.11
Expired	(1,283,333	)	0.25

Outstanding and exercisable, May 31, 2011	1,575,000		0.17

Granted	1,050,000		0.04
Exercised	(500,000	)	0.01
Expired	(825,000	)	0.12

Outstanding and exercisable, May 31, 2012	1,300,000		0.10	1.0	52,500

F-19

MANTRA VENTURE GROUP LTD.
(A development stage company)
Notes to the consolidated financial statements
Year ended May 31, 2012
(Expressed in U.S. dollars)

9.	Stock Options (continued)

	Additional information regarding stock options as of May 31, 2012, is as follows:

	Exercise
Number of	price
options	$	Expiry date
250,000	0.25	November 1, 2012
500,000	0.10	March 31, 2013
250,000	0.03	April 3, 2014
200,000	0.05	April 11, 2013
100,000	0.06	May 1, 2014
1,300,000

The fair values for stock options granted have been estimated using the Black-Scholes option pricing model assuming no expected dividends and the following weighted average assumptions:

	2012	2011
Risk-free Interest rate	0.31%	0.74%
Expected life (in years)	2.0	2.2
Expected volatility	177%	132%

	During the year ended May 31, 2012, the Company recorded stock-based compensation of $38,742 (2011 - $86,113) for stock options granted.

	The weighted average fair value of the stock options granted during 2012 was $0.04 (2011 - $0.07) per option.

	As of May 31, 2012, the Company had no unrecognized compensation expense relating to unvested options.

10.	Commitments

	(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
September 1, 2013	Cdn$40,000
September 1, 2014 and each successive anniversary	Cdn$50,000

F-20

MANTRA VENTURE GROUP LTD.
(A development stage company)
Notes to the consolidated financial statements
Year ended May 31, 2012
(Expressed in U.S. dollars)

10.	Commitments (continued)

		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 4, 2012, the Company entered into a consulting agreement. Pursuant to the agreement, the Company will pay the consultant $4,500 for three months of consulting services commencing April 4, 2012 and $2,500 per month for consulting services after the initial three month term.

	(d)	On May 1, 2012, the Company entered into a consulting agreement. Pursuant to the agreement, the Company issued the consultant 100,000 stock options and will pay the consultant $5,000 per month for a period of three months.

	(e)	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.

11.	Income Taxes

	The Company has net operating losses carried forward of $5,970,378 available to offset taxable income in future years which expires in beginning in fiscal 2027.

	The Company is subject to United States federal and state income taxes at an approximate rate of 34%. The reconciliation of the provision for income taxes at the United States federal statutory rate compared to the Company’s income tax expense as reported is as follows:

	2012		2011
	$		$
Income tax recovery at statutory rate	(227,576	)	(370,550	)
Permanent differences and other	17,166		49,552
Valuation allowance change	210,410		320,998
Provision for income taxes	–		–

The significant components of deferred income tax assets and liabilities as at May 31, 2012 and 2011 are as follows:

	2012		2011
	$		$
Net operating losses carried forward	2,029,929		1,819,519
Valuation allowance	(2,029,929	)	(1,819,519	)
Net deferred income tax asset	–		–

As at May 31, 2012, the Company is in arrears on filing its statutory corporate income tax returns and the amounts presented above are based on estimates. The actual losses available could differ from these estimates.

F-21

MANTRA VENTURE GROUP LTD.
(A development stage company)
Notes to the consolidated financial statements
Year ended May 31, 2012
(Expressed in U.S. dollars)

12.	Subsequent Events

	(a)	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.

	(b)	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.

	(c)	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.

	(d)	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.

	(e)	On July 18, 2012, the Company entered into a settlement agreement with one of the debenture holder’s described in Note 6. 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 within 5 business days of the agreement. 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.

	(f)	Subsequent to May 31, 2012, the Company’s subsidiary, Mantra Energy Alternatives Ltd., received the proceeds of $103,000 which was receivable as at May 31, 2012 for the private placement described in Note 7(e). In addition, the subsidiary received proceeds of Cdn$149,000 for 149,000 shares of common stock to be issued.

	(g)	Subsequent to May 31, 2012, the Company has received proceeds of $207,500 for 2,075,000 units at $0.10 per unit to be issued. Each unit will consist of one share of common stock and one share purchase warrant to purchase one additional share of common stock at an exercise price of $0.15 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 $0.30 per share for seven consecutive trading days.

F-22

Item 9.

Changes In and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A.

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 (our Principal Executive Officer, Principal Financial Officer and Principal Accounting 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 (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 as of May 31, 2012. Based on the evaluation of these disclosure controls and procedures, and in light of the weaknesses identified below, the Chief Executive Officer and Chief Financial Officer (our Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer) concluded that our disclosure controls and procedures were not effective.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining effective internal control over financial reporting. Under the supervision of our Chief Executive Officer and Chief Financial Officer (our Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer), our company conducted an evaluation of the effectiveness of our internal control over financial reporting as of May 31, 2012 using the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our company’s annual or interim financial statements will not be prevented or detected on a timely basis. In its assessment of the effectiveness of internal control over financial reporting as of May 31, 2012, our company determined that there were significant deficiencies that constituted material weaknesses, as described below.

	1.	Certain entity level controls establishing a “tone at the top” were considered material weaknesses. Our company does not have any independent directors and thus no independent directors sit on the audit committee.

	2.	Our company has not formally adopted internal controls surrounding its cash and financial reporting procedures including the absence of sufficient management review controls and separation of duties.

	3.	There is no segregation of duties in the area of accounts receivable as one person receives, deposits and records all checks received.

	4.	The lack of independent directors exercising an oversight role increases the risk of management override.

	5.	Inadequate controls over equity transactions.

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

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

As a result, management has concluded that our company did not maintain effective internal control over financial reporting as of May 31, 2012 based on criteria established in Internal Control—Integrated Framework issued by COSO.

Saturna Group Chartered Accountants LLP, an independent registered public accounting firm, was not required to and has not issued a report concerning the effectiveness of our internal control over financial reporting as of May 31, 2012.

Changes in Internal Control

During the quarter ended May 31, 2012 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.

Item 9B.

Other Information

None.

PART III

Item 10.

Directors, Executive Officers and Corporate Governance

Our bylaws state that the authorized number of directors shall be not less than one and not more than fifteen and shall be set by resolution of the Board of Directors. Our Board of Directors has fixed the number of directors at 3(three).

Our current directors and officers are as follows:

Name	Position	Age	Date First Elected or Appointed
Larry Kristof	President, Chief Executive Officer, Chief Financial Officer, Secretary, Treasurer and Director	40	January 22, 2007
Jonathan Michael Boughen	Director	51	February 28, 2011
Tommy David Unger	Vice President Corporate Finance and Director	42	February 20, 2012

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

Larry Kristof - President, Chief Executive Officer, Chief Financial Officer, Secretary, Treasurer and Director

Larry Kristof has been our President, Chief Executive Officer, Secretary, Treasurer and a director since our inception on January 22, 2007 and was appointed as our Chief Financial Officer on January 18, 2011. Mr. Kristof has over 15 years of experience in business development and management. From 2003 until April 2007 he was the President and Chief Executive Officer of Lexington Energy Services Inc., a public company quoted on the OTC Bulletin Board under the symbol LXES.OB.

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

Jonathan Michael Boughen–Director

Johnathan Michael Boughen has been a director of our company since February 28, 2011.

From May of 2000 to January of 2006, Mr. Boughen was a sales manager at Ropak Corporation, a company that specializes in plastic packaging, container and film technologies worldwide. His responsibilities and duties included managing the sales team and key distributors and sharing the profit and loss responsibility with the Regional Plant Manager.

Since June of 2006, Mr. Boughen has been a general manager at Scientek Technology Corporation, a company that specializes in building hospital and laboratory products such as washers and dryers for the processing of surgical instruments and utensils, O. R. carts, and laboratory glassware. His responsibilities and duties includes leading the company with full profit and loss responsibility and managing the sales and growth profit through major changes in technology and currency value in a highly competitive market.

Tommy David Unger– Vice President Corporate Finance and Director

Tommy David Unger has been a director of our company since February 20, 2012 and was appointed Vice President of Corporate Finance on April 3, 2012 under a consulting agreement between our company and BC0848571 Ltd., a company controlled by Mr. Unger, for a period of 12 months.

In April 2001, Mr. Unger started his first business franchise called Your Dollar Store With More, a dollar store merchandise supplier, located in Prince George, British Columbia, Canada. He franchised a second store within a couple years thereafter. As the owner, his primary duties and responsibilities included overseeing the day to day operations of the two franchises. From April 2001 to June 2006, he was a cell operator at Rio Tinto Alcan Inc., an international mining company (previously known as Alcan Inc.) in Kitimat, British Columbia, Canada. As a cell operator his duties and responsibilities included working with a team to ensure the process from alumina to molten aluminum occurred smoothly in the day to day operations.

From August 2009 to October 2011, Mr. Unger was an investment representative at Fast Track Group, a finance investment company located in St. Albert, Alberta, Canada. As an investment representative his duties and responsibilities included raising capital for the company.

Since November 2011, Mr. Unger has been working in the business development sector with Vision Investment Properties, a property investment company located in Vancouver, British Columbia, Canada. His primary duties and responsibilities include raising capital and offering investment properties to potential buyers.

Corporate Advisory Board

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

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

Scientific Advisory Board

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

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

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

Professor Colin Oloman, P.Eng.

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

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

Norman Chow, P.Eng.

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

Joey Jung, P.Eng.

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

Significant Employees

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

Family Relationships

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

Involvement in Certain Legal Proceedings

To the best of our knowledge, none of our directors or executive officers has, during the past ten years:

1.	been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offences);

2.	had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two years prior to that time;

3.	been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity;

4.	been found by a court of competent jurisdiction in a civil action or by the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;

5.	been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or

6.	been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

Audit Committee

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

Code of Ethics

Effective February 11, 2008 we adopted a code of ethics and business conduct that applies to our officers, directors and employees and we have filed copies of our code of ethics as an exhibit to our registration statement on Form S-1 filed on February 26, 2008.

Audit Committee and Audit Committee Financial Expert

Our audit committee consists of our entire board of directors.

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

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

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

Director Nominees

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

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

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

Section 16(a) Beneficial Ownership Compliance Reporting

Section 16(a) of the Securities Exchange Act of 1934 requires a company’s directors and officers, and persons who own more than ten-percent (10%) of our company’s common stock, to file with the Securities and Exchange Commission reports of ownership on Form 3 and reports of change in ownership on Forms 4 and 5. Such officers, directors and ten-percent stockholders are also required to furnish our company with copies of all Section 16(a) reports they file. Based solely on our review of the copies of such forms received by us and on written representations from certain reporting persons, we believe that all Section 16(a) reports applicable to our officers, directors and ten-percent stockholders with respect to the fiscal year ended May 31, 2012 were filed. However, some were filed late.

Item 11.

Executive Compensation

The particulars of the compensation paid to the following persons:

our principal executive officer;
each of our two most highly compensated executive officers who were serving as executive officers at the end of the years ended May 31, 2012 and 2011; and
up to two additional individuals for whom disclosure would have been provided under (b) but for the fact that the individual was not serving as our executive officer at the end of the years ended May 31, 2012 and 2011,

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

SUMMARY COMPENSATION TABLE
Name and Principal Position	Year	Salary ($)	Bonus ($)	Stock Awards ($)	Option Awards ($)	Non-Equity Incentive Plan Compensation ($)	Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)	All Other Compensation ($)	Total ($)
Larry Kristof⁽¹⁾	2012	72,000	Nil	Nil	Nil	Nil	Nil	Nil	72,000
President. Chief Executive Officer, Chief Financial Officer, Secretary and Treasurer	2011	75,000	Nil	Nil	Nil	Nil	Nil	Nil	75,000
Con Buckley⁽²⁾	2012	Nil	Nil	Nil	Nil	Nil	Nil	Nil	Nil
Former Chief Financial Officer	2011	18,000	Nil	Nil	Nil	Nil	Nil	Nil	18,000
Tommy David Unger⁽³⁾	2012	Nil	Nil	Nil	26,802⁽⁴⁾	Nil	Nil	15,000	41,802
VP Corporate Finance	2011	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A

	(1)	Larry Kristof was appointed President, Chief Executive Officer, Secretary and Treasurer on January 22, 2007 and was appointed Chief Financial Officer on January 18, 2011.
	(2)	Con Buckley was appointed Chief Financial Officer on October 1, 2009 and resigned on January 18, 2011.
	(3)	Tommy David Unger was appointed as Vice President Corporate Finance on April 3, 2012.
	(4)	Includes fair value of 250,000 options held indirectly by Tommy David Unger through his company BC0848571 Ltd.

Option Grants in the Last Fiscal Year

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

Option Grants in the Last Fiscal Year

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END (1)
Name	Number of Securities Underlying Unexercised Options	Option Exercise Price ($)	Option Expiry Date
Larry Kristof	Nil	N/A	N/A
Johathan Michael Boughen	Nil	N/A	N/A
Con Buckley	Nil	N/A	N/A
BC0848571 Ltd.	250,000⁽²⁾	$0.03	April 3, 2014

	(1)	We have omitted certain columns in the outstanding equity awards table pursuant to Item 402(a)(5) of Regulation S-K as no equity awards were awarded to, earned by, or paid to any of the executive officers or directors required to be reported in that table or column in any fiscal year covered by that table.
	(2)	These options are held indirectly by Tommy David Unger through his company BC0848571 Ltd.

As of September 10, 2012 we did not have any equity compensation plans.

Management Compensation Narrative

On January 1, 2010 we entered into a consulting agreement with Larry Kristof whereby we engaged Mr. Kristof’s services as our president and chief executive officer. In exchange for these services, we agreed to pay Mr. Kristof a monthly salary of $8,500. The salary was amended to $7,000 per month for the first 3 months of fiscal 2011 and Cdn$6,000 per month thereafter. The agreement may be terminated by us at any time without notice.

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 twelve (12) months. In consideration for agreeing to provide such consulting services by Mr. Unger, we have agreed to salary of Cdn$5,000 per month and to grant 250,000 options to acquire 250,000 shares of our common stock at a purchase price of Cdn$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.

Compensation of Directors

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

The following table sets forth a summary of the compensation paid to our non-employee directors in our fiscal year ended May 31, 2012:

DIRECTOR COMPENSATION
Name	Fees Earned or Paid in Cash ($)	Stock Awards ($)	Option Awards ($)	Non-Equity Incentive Plan Compensation ($)	Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)	All Other Compensation ($)	Total ($)
Tommy David Unger	15,000	Nil	26,802⁽¹⁾	Nil	Nil	Nil	41,802

(1)

Includes 250,000 options held indirectly by Tommy David Unger through his company BC0848571 Ltd.

On May 17, 2011, we entered into a director agreement with Elden Schorn. As compensation, under the agreement, we granted stock options to Mr. Schorn to purchase up to 500,000 shares of our common stock at a price of $0.10 per share. Pursuant to the terms of the Option Agreement, his options expire 180 calendar days from the date of his resignation (August 18, 2012).Mr. Schorn resigned as a director of our company on February 20, 2012.

On April 3, 2012 we issued 250,000 stock options to acquire 250,000 shares of our common stock at a purchase price of Cdn$0.03 per share pursuant to a consulting agreement with BC0848571 Ltd., a company operated by our director Tommy David Unger. These options are non-transferrable, vest immediately and expire the earlier of 24 months, or upon the termination of the consulting agreement.

Pension, Retirement or Similar Benefit Plans

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

Compensation Committee

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

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related StockholderMatters

The following table lists, as of September 10, 2012, the number of shares of our common stock beneficially owned by (i) each person or entity known to us to be the beneficial owner of more than 5% of our outstanding common stock; (ii) each of our officers and directors; and (iii) all of our officers and directors as a group. Information relating to the beneficial ownership of common stock by our principal shareholders and management is based upon information furnished by each person using "beneficial ownership" concepts under the rules of the Securities and Exchange Commission. Under these rules, a person is deemed to be the beneficial owner of a security if that person has or shares voting power or investment power, which includes the power to vote or direct the voting of the security. The person is also deemed to be a beneficial owner of any security of which that person has a right to acquire beneficial ownership within 60 days. Under the rules of the Securities and Exchange Commission, more than one person may be deemed to be a beneficial owner of the same security, and a person may be deemed to be a beneficial owner of securities as to which he or she may not have any pecuniary beneficial interest.

The percentages below are calculated based on 47,783,139 issued and outstanding shares of our common stock as of September 12, 2012.

Title of Class	Name and Address of Beneficial Owner	Amount and Nature of Beneficial Ownership	Percent of Class
Common Shares	Larry Kristof⁽¹⁾ #4 2119 152nd Street Surrey BC V4A 4N7	13,425,000 ⁽²⁾	28.1%
Common Shares	Jonathan Michael Boughen⁽³⁾ 1765 Amble Greene Drive Surrey BC V4A7J1	62,500	*
Common Shares	Tommy David Unger⁽⁴⁾ 1162 McGowan Drive Prince George BC V2M 6R1	750,000⁽⁵⁾	1.6%
	All Officers and Directors asa Group	14,237,500	29.7%

*represents an amount less than 1%

1)	Larry Kristof is our President, Chief Executive Officer, Chief Financial Officer, Secretary, Treasurer and a director of our company.
2)	Includes:
	a)	175,000 common shares held by 0770987 BC Ltd. and Larry Kristof’s spouse, Kelly Kristof, in street name; and
	b)	13,250,000 common shares held by 0770987 BC Ltd.
	c)	Mr. Kristof has sole voting and investment control over 0770987 BC Ltd.
3)	Jonathan Michael Boughen is a Director of our company.
4)	Tommy David Unger, Vice President Corporate Finance and a Director of our company.
5)	Includes:
		250,000 options to purchase 250,000 common shares at an exercise price of $0.03 per share, held by
	a)	BC0848571 Ltd.
	b)	Mr. Unger has sole voting and investment control over BC0848571 Ltd.

Changes in Control

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

Item 13.

Certain Relationships and Related Transactions, and Director Independence

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

	(a)	During the year ended May 31, 2012, our company incurred management fees of $30,000 (2011 - $28,000) to directors of our company.

	(b)	During the year ended May 31, 2012, our company incurred management fees of $nil (2011 - $18,000) to an accounting firm where the former Chief Financial Officer of our company is a partner.

	(c)	During the year ended May 31, 2012, our company incurred management fees of $nil (2011 - $42,982) to the former Vice President of our company.

	(d)	During the year ended May 31, 2012, our Company incurred management fees of $nil (2011 - $39,000) to a firm where the former Chief Financial Officer of the Company is a partner.

	(e)	As at May 31, 2012, our company owes $42,033 (2011 - $25,184) to the spouse of the President of our company which is non-interest bearing, unsecured, and due on demand.

	(f)	As at May 31, 2012, our company owes $22,444 (2011 - $13,207) to a director of our company, which is non-interest bearing, unsecured, and due on demand.

	(g)	As at May 31, 2012, our company owes a total of $179,978 (2011 - $167,304) to the President of our company and a company controlled by the President of our company which is non-interest bearing, unsecured, and due on demand.

Director Independence

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

However, we currently use NASDAQ’s general definition for determining director independence, which states that “independent director” means a person other than an officer or employee of the company or its subsidiaries or any other individual having a relationship, that, in the opinion of the company’s board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of the director. Currently, we act with one independent director, Jonathan Michael Boughen.

Our audit committee consists of our entire board of directors.

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

Item 14.

Principal Accountant Fees and Services

The aggregate fees billed for the most recently completed fiscal year ended May 31, 2012 and for fiscal year ended May 31, 2011 for professional services rendered by the principal accountant for the audit of our annual financial statements and review of the financial statements included in our quarterly reports on Form 10-Q and services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for these fiscal periods were as follows:

	Year Ended May 31
	2012 ($)	2011 ($)
Audit Fees	Cdn$35,250	Cdn$35,500
Audit Related Fees	–	–
Tax Fees	–	–
All Other Fees	–	–
Total	Cdn$35,250	Cdn$35,500

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

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

PART IV

Item 15.

Exhibits, Financial Statement Schedules

(a)	Financial Statements

	(1)	Financial statements for our company are listed in the index under Item 8 of this document.

	(2)	All financial statement schedules are omitted because they are not applicable, not material or the required information is shown in the financial statements or notes thereto.

(b)	Exhibits

Exhibit	Exhibit
Number	Description
(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 with the SEC on January 14, 2009)
10.2	Sponsorship and Proposed Equity Capital Raise Agreement with M Partners Inc. dated December 4, 2008. (incorporated by reference to our Current Report on Form 8-K filed with the SEC on December 11, 2008)
10.3	Contractor Proposal Agreement with Kemetco Research Inc. on January 29, 2009. (incorporated by reference to our Current Report on Form 8-K filed with the SEC on February 4, 2009)
10.4	Option Agreement entered into with Synergy BioMetals Recovery Systems Inc. on February 27, 2009. (incorporated by reference to our Current Report on Form 8-K filed with the SEC on March 2, 2009)
10.5	Extension of Option Agreement with Synergy BioMetals Recovery Systems Inc. on May 1, 2009. (incorporated by reference to our Annual Report on Form 18-K filed with the SEC on September 15, 2009)
10.6	Contractor Proposal Agreement with Kemetco Research Inc. on March 18, 2009. (incorporated by reference to our Current Report on Form 8-K filed with the SEC on March 26, 2009)
10.7	Development Agreement with 3M dated October 28, 2009. (incorporated by reference to our Current Report on Form 8-K filed with the SEC on November 6, 2009)
10.8	Technology Development Cooperation Agreement with Korean Southern Power Co., Ltd. and KC Cottrell Co., Ltd. on August 16, 2010 (incorporated by reference to our Current Report on Form 8-K filed with the SEC on August 17, 2010)
10.9	Director Agreement with Tommy David Unger dated February 20, 2012 (incorporated by reference to our Current Report on Form 8-K filed with the SEC on February 28, 2012)
10.10	Subscription Agreement with Mantra Energy Alternatives Ltd. dated February 29, 2012 (incorporated by reference to our Current Report on Form 8-K filed with the SEC on March 9, 2012)

Exhibit	Exhibit
Number	Description
10.11	Consulting Agreement with BC0848571 Ltd. dated April 3, 2012 (incorporated by reference to our Current Report on Form 8-K filed with the SEC on April 11, 2012)
10.12	Service Contract with Powertech Labs Inc. dated June 19, 2012 (incorporated by reference to our Current Report on Form 8-K filed with the SEC on June 25, 2012)
10.13	Settlement Agreement with StichtingAdministratiekantoor Carlos Bijl dated July 16, 2012 (incorporated by reference to our Current Report on Form 8-K filed with the SEC on July 23, 2012)
10.14	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 with the SEC on August 30, 2012)
10.15	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 with the SEC on August 30, 2012)
(14)	Code of Ethics
14.1	Code of Ethics and Business Conduct (incorporated by reference to our Registration Statement on Form S-1 filed with the SEC 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 Rule 13a-14 or 15d-14 of the Exchange Act pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(32)	Section 1350 Certifications
32.1*	Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(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 File (Form 10-K for the Year Ended May 31, 2012)
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.

SIGNATURES

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

	MANTRA VENTURE GROUP LTD.

Date: September 13, 2012	By:	/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)

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

Date: September 13, 2012	/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)


Date: September 13, 2012	/s/ Jonathan Michael Boughen
	Jonathan Michael Boughen
	Director


Date: September 13, 2012	/s/ Tommy David Unger
	Tommy David Unger
	Vice President Corporate Finance and Director

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