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

Form 10-Q

(Mark One)

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

For the quarterly period ended August 31, 2013 or

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

For the transition period from ____________ to ____________

Commission File Number 000-53461

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

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

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

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

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

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

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

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

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

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 57,097,864 common shares issued and outstanding as of October 18, 2013.

Table of Contents

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PART I – FINANCIAL INFORMATION

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

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

F-1

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

F-2

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

F-3

F-4

F-5

F-6

F-7

Additional information regarding stock options as of August 31, 2013 is as follows:

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

During the three months ended August 31, 2013, the Company recorded stock-based compensation of $38,200 (2012 - $nil) for stock options granted.

The weighted average fair value of the stock options granted during 2013 was $0.13 per option.

F-8

F-9

FORWARD LOOKING STATEMENTS

This quarterly report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may", "should", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential" or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

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

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

As used in this quarterly report, the terms "we", "us", "our" and "our company" mean Mantra Venture Group Ltd. and our wholly owned subsidiaries Carbon Commodity Corporation, Mantra 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. and Mantra Energy Alternatives Ltd., unless otherwise indicated.

Business Overview

We were incorporated in Nevada on January 22, 2007. On December 8, 2008 we continued our corporate jurisdiction out of the state of Nevada and into the Province of British Columbia, Canada. Our principal offices are located at #562 – 800 15355 24^th Avenue, Surrey, British Columbia, Canada, V4A 2H9. Our telephone number is (604) 560-1503. Our fiscal year end is May 31.

We are building a portfolio of companies and technologies that mitigate negative environmental and health consequences that arise from the production of energy and the consumption of resources.

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

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

We carry on our business through our subsidiaries as follows:

• Mantra Energy Alternatives Ltd., through which we identify, acquire, develop and market technologies related to alternative energy production, greenhouse gas emissions reduction and resource consumption reduction;
• Mantra Media Corp., through which we offer promotional and marketing services to companies in the sustainability sector or those seeking to adopt sustainable practices; and
• Climate ESCO Ltd., majority owned, through which we distribute and install LED lighting solutions.

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

On February 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. As of the closing of this financing, our company holds 6,000,000 shares of Mantra Energy out of a total of 9,200,000 issued and outstanding.

Effective June 19, 2012, our company’s subsidiary, Mantra Energy, entered into a service contract with PowerTech Labs Inc., whereby PowerTech would assist Manta Energy in the evaluation and the development of our ERC System under specific terms and conditions until February 19, 2013. As compensation, PowerTech was paid $171,000 plus the cost of materials as further described in the service contract. The contract with PowerTech expired and has not been renewed. PowerTech engaged in two tasks for Mantra Energy: the development of a bench-scale membrane-based carbon dioxide enrichment unit (with the intention of scaling up to a pilot-scale unit), and the experimental operation of Mantra Energy’s ERC reactors. A third task, that being the conceptual design of an ERC pilot plant, was discussed but never pursued. The carbon enrichment unit proved successful at the proof-of-concept scale, and the bench-scale version was then designed and built. This unit, too, proved successful in its goal of enriching a dilute (roughly 20%) stream of carbon dioxide to over 80%. A budget was compiled for a pilot-scale unit, but this has not yet been pursued. The operation of the ERC reactors did not yield any significant breakthroughs in Mantra Energy’s understanding of their operation.

On October 28, 2008, we entered into a convertible debenture with StichtingAdministratiekantoor Carlos 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. On May 6, 2013, we entered into an agreement dated April 29, 2013 with Bijl to amend the settlement agreement, as more particularly described below:
• 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. Our company has made monthly interest payments to March 2013.
• commencing on October 31, 2012 we will pay accrued monthly interest at 10% per annual until April 11, 2013 (Paid);
• we were to pay a $10,000 premium on the $150,000 principal of the convertible debenture when we satisfy it on April 11, 2013. On May 6, 2013, we entered into an agreement dated April 29, 2013 with Bijl to amend the settlement agreement, as more particularly described below.

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On May 6, 2013, we entered into an agreement dated April 29, 2013 with Bijl to amend the settlement agreement, pursuant to which:

• the due date of the convertible debenture would be extended from April 11, 2013 to September 15, 2013;
• upon execution of the amendment to the settlement agreement, we paid USD$6,836 in full satisfaction of future interest payable on the convertible debenture from April 1, 2013 to September 15, 2015; and
• we granted to Bijl options to purchase up to 100,000 common shares of our company, exercisable for a period of 24 months from the time of grant and at the exercise price of USD$0.12 per common share.

As at the date of this report, we have not repaid the principal amount owing Bijl pursuant to the convertible debenture and amended settlement agreement and are seeking to re-negotiate the terms of repayment.

On July 31, 2012, our subsidiary, Mantra Energy, entered into a master services agreement with Tekion (Canada),

^{Inc. Mantra Energy’s ERC technology converts carbon dioxide (CO}2^{) 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 engaged Powertech Labs to do further engineering on the system. In order to get this technology to commercialization, Tekion proposed a program that ran parallel to the Powertech program to help Mantra with some of the critical issues regarding this process. The program has now been completed.

Also on July 31, 2012, Mantra Energy entered into a statement of work with Tekion setting out the work summary, deliverables, budgets and timelines in several stages, which have now all been completed:

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

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

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

On March 13, 2013, we entered into a letter of engagement with BC Research Inc. pursuant to which we engaged BC Research to design and engineer a proposed demonstration unit of our company’s ERC (electro-reduction of carbon dioxide) technology. The scope of work will include determining power requirements for the planned ERC unit, and producing an equipment list, a functional description of equipment and specification, electrical drawings, a drawing package for potential suppliers, and a simplified 3D model of the system. The objective of the engagement is to determine the fabrication and operating costs of the demonstration unit to within a 25% variance. It is estimated that completion of the planned work will be achieved within 15 weeks from the date of our company’s purchase order and payment of a CDN$30,000 retainer. Our company will compensate BC Research based on its customary hourly rates. The total estimated cost of the work plan is CDN$137,000 (approximately USD$134,000). Our company will retain all intellectual property resulting from the services and may elect to terminate the work at its discretion.

Concurrently with the engagement of B.C. Research, our company, through our subsidiary Mantra Energy Alternatives Ltd., has entered into a sublease agreement with B.C. Research, dated as at February 25, 2013, for the sublease of a workshop and office space of approximately 600 square feet located in Burnaby, British Columbia. The term of the sublease will continue until March 1, 2014 at a cost of CDN$18,720 (approximately USD$18,322) payable in monthly installments of CDN$1,560.

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On May 7, 2013, we entered into a director agreement with Patrick Dodd. As compensation, under the director agreement, our company granted stock options to Mr. Dodd to purchase up to 200,000 shares of our common stock at a price of $0.10 per share. The stock options shall terminate for exercise the earlier of May 7, 2015 or 180 calendar days after resignation of Mr. Dodd as director, in which case, 100,000 stock options shall remain available to Mr. Dodd at an exercise price of US$0.10 until November 7, 2015.

On July 1, 2013, we entered into a consulting agreement with BC0798465 Ltd., whereby BC0798465 Ltd. agreed to provide Mr. Colin Oloman to provide consulting services to our scientific advisory board for an indefinite term. In consideration for such consulting services, we have agreed to compensate BC0798465 Ltd. for its services at CAD$150 per hour and 300,000 options to acquire 300,000 common shares of our capital stock, previously registered on a Form S-8 registration statement, filed with the United States Securities and Exchange Commission on November 24, 2009, at a purchase price of $0.20 per share for a period of two years.

Collaboration with Alstom (Switzerland) Ltd.

On June 24, 2013, through our majority owned subsidiary Mantra Energy Alternatives Inc., our company entered into an agreement with Alstom (Switzerland) Ltd. concerning the joint research and development projects relating to (1) a pilot plant for the conversion of carbon dioxide to formate at a Lafarge cement plant (the “Lafarge pilot project”) and (2) the development of processes for the conversion of carbon dioxide to other valuable chemicals.

Pursuant to the agreement with Alstom (Switzerland) Ltd., Mantra Energy and Alstom will co-operate in one or more research and development projects related to Mantra’s ERC technology. Prospective projects will be associated with the development of technologies and processes for the conversion of CO² to chemical products and the investigation of the feasibility of scale-up and commercialization of these processes. Prior to undertaking any research and development project under the agreement, Mantra Energy and Alstom will mutually agree to special terms and conditions governing the purpose, aims and objectives of any such project, including technical descriptions, the designation of work phases and project managers, and the allocation of responsibilities and costs between the parties. The commencement of any work phase for any project will be at the sole discretion of Alstom.

Intellectual Property Management

Mantra Energy and Alstom also will establish an intellectual property committee to oversee and manage all intellectual property issues and activities resulting from the Agreement, including the protection of any new intellectual property. Each party will have exclusive right and discretion to prosecute all patents and patent applications resulting from its work on any project. The parties will jointly prosecute any intellectual property in jointly-owned results. Alstom will have the additional option under the agreement to acquire an exclusive license to intellectual property created by Mantra Energy under the agreement, and to a license to Mantra Energy’s ERC technology as may be reasonably required to exploit intellectual property assumed by Alstom. The agreement does not affect ownership of any underlying intellectual property of either party.

Lafarge Pilot Project and Carbon Dioxide to Alternative Products

The agreement with Alstom will remain valid for 5 years or the completion of the last active project, whichever last occurs, and may be extended at any time by the written agreement of both parties. The first joint research and development project under the agreement is the Lafarge pilot project, which plans for the design, construction, and installation of a pilot plant for the conversion of 100 kg/day carbon dioxide to formate, followed by a commercialization scale-up study. The Alstom contribution to the Lafarge pilot plant project will be approximately $250,000 CAD in in-kind services. A second integrated research and development project will study carbon dioxide conversion to alternative chemical products by electrochemical reduction, with a focus on catalyst materials and lifetime. The Alstom contribution to the alternative products project will be approximately $190,375 CAD for phase 1. For Phases 2 through 4 Alstom’s planed but not committed contribution is estimated at $456.125 CAD and the final amount of phase 5 will be determined. Mantra and Alstom are actively seeking external funding to support the execution of the projects.

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Electro Reduction of Carbon Dioxide (“ERC”)

On November 2, 2007, through our subsidiary, Mantra Energy, we entered into a technology assignment agreement with 0798465 BC Ltd. whereby we acquired 100% ownership in and to a certain chemical process for the electro-reduction of carbon dioxide as embodied by and described in the following patent cooperation treaty application:

As of the date of this quarterly report, we have been awarded the following patents:

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

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

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

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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.

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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 (HC_l) 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 one quarter of the HC_l produced inthe 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 HC_l in the steel pickling process. Formic acid has many potential advantages over HClin this application, including: less iron lost from the steel surface, improvement in final surface quality, and the elimination of corrosion inhibiting and neutralizing rinse processes to prevent rust development. In addition, formic acid is both bio-degradable and reusable which would allow water used in the picking process to be recycled more easily.

Results of Operations for the Three Month Periods Ended August 31, 2013 and August 31, 2012.

Revenues

The following summary of our results of operations should be read in conjunction with our consolidated financial statements for the quarter ended August 31, 2013 which are included herein.

Our operating results for three month periods ended August 31, 2013 and August 31, 2012 are summarized as follows:

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We have had limited operational history since our inception on January 22, 2007. From our inception on January 22, 2007 to August 31, 2013 we have generated $38,812 in revenues. For the three months ended August 31, 2013 we generated $nil in revenues compared to revenues of 3,027 generated during the same period in 2012. From January 22, 2007 (inception) to August 31, 2013, we have an accumulated deficit of $8,271,402. We anticipate that we will incur substantial losses over the next year and our ability to generate additional revenues in the next 12 months remains uncertain.

Expenses

Our operating expenses for the three month periods ended August 31, 2013 and August 31, 2012 are summarized as follows:

For the three months ended August 31, 2013, we incurred total operating expenses of $238,294 compared to total operating expenses for the three months ended August 31, 2012 of $349,831. The $111,537 /decrease in operating expense during 2013 is primarily due to a gain on foreign exchange, coupled with an overall reduction in our non-essential operating expenses including shareholder communications and awareness, travel and promotion, and management fees.

Net Loss

Since our inception on January 22, 2007 to August 31, 2013, we have incurred a net loss of $8,484,112. For the three months ended August 31, 2013 we have incurred a net loss of $260,816 compared to a net loss of $358,120 for the same period in 2012.

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Liquidity and Capital Resources

As of August 31, 2013, we had $30,070 cash in our bank accounts and a working capital deficit of $1,225,441. As of August 31, 2013 we had total assets of $231,325 and total liabilities of $1,417,772.

From January 22, 2007 (date of inception) to August 31, 2013, we raised net proceeds of $5,167,130 in cash from the issuance of common stock and share subscriptions received, $219,571 from loans payable and $250,000 from proceeds from the issuance of convertible debentures offset by repayment of loans payable of $59,933 and repayment of capital lease obligations of $9,714for a total of $5,567,054 of cash provided by financing activities for the period.

We received net cash of $128,957 from financing activities for the three months ended August 31, 2013 compared to $472,089 for the same period in 2012. During the period in 2013 we raised $123,727 in cash from the issuance of our common stock and share subscriptions received, and $18,000 in cash proceeds from loans payable. In the comparable period during 2012, we also raised cash of $480,000 exclusively from the issuance of our common stock and share subscriptions received.

We used net cash of $128,957 in operating activities for the three months ended August 31, 2013 compared to $440,654 for the same period in 2012. We used net cash of $5,294,020 in operating activities for the period from January 22, 2007 (date of inception) to August 31, 2013.

We used cash of $1,481 in investing activities for the three months ended February 28, 2013 compared to $8,406 cash used by investing activities for the same period in 2012.

During the three months ended August 31, 2013 we had a net increaseof $4,683 in our cash position compared to a net increase of $23,029 for the same period in 2012. Our monthly cash requirements for the three month period ended August 31, 2013 was approximately $42,985 compared to $146,885 for the same period in 2012. At our current cash position and if this cash requirement continues, we do not have sufficient cash to cover our expenses for one month.

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

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

Inflation

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

Critical Accounting Policies

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

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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, stock-based compensation, and deferred income tax asset valuation allowances. Our company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by our company may differ materially and adversely from our company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

Long-lived Assets

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

Stock-based Compensation

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

Our company uses the Black-Scholes option pricing model to calculate the fair value of stock-based awards. This model is affected by our company’s stock price as well as assumptions regarding a number of subjective variables. These subjective variables include, but are not limited to our company’s expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. The value of the portion of the award that is ultimately expected to vest is recognized as an expense in the consolidated statement of operations over the requisite service period.

Recent Accounting Pronouncements

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

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

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Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer (our principal executive officer, principal financial officer and principal accounting officer) to allow for timely decisions regarding required disclosure.

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

Changes in Internal Controls

During the period covered by this report there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

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.

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On July 15, 2013, the Company issued 1,871,588 units at $0.08 per unit for proceeds of $149,727, of which $26,000 was included in common stock subscribed as at May 31, 2013. Each unit consisted of one share of common stock and one-half of one share purchase warrant. Each whole share purchase warrant is exercisable at $0.20 per common share for a period 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 14 non-US persons (as that term is defined in Regulation S of the Securities Act of 1933 (“Regulation S”), in offshore transactions relying on Regulation S..

None.

Not applicable.

None.

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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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