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Author:         Management

Date:           December, 2007

Table of Contents

PURPOSE: 4
A MESSAGE FROM THE CHIEF EXECTUTIVE: 5
CODE OF BUSINESS CONDUCT: 6

• OUR VALUES. 7

1. Customer First 7
2. Respect for the Individual 7
3. Pursuit of Excellence. 7
4. Positive Response to Change. 7
5. Community. 8

• MANTRA VENTURE GROUP LTD.  RESPONSIBILITIES TO EMPLOYEES. 8

1. Management Accessibility. 8
2. Employment Practices. 8
3. Employee Record. 8
4. Training. 9

• YOUR RESPONSIBILITIES. 9

1. Compliance with Laws and Regulations. 9
2. Coverage of the Code of Business Conduct 9
3. Corporate Opportunities. 9
4. Code of Ethics of Senior Officers. 10
5. Waivers of this Code. 10
6. Conflicts of Interest 11
7. Receiving Gifts, Gratuities, Favors. 11
8. Giving Gifts, Gratuities, Favors. 11
9. Bribes, Influence Payments, Kickback. 11
10. Political Contributions. 11
11. Financial Records. 12
12. Inside Information and Trading in Stock. 12
13. Confidential Information. 13
14. Safeguarding Company Assets. 13
15. Alcoholic Beverages and Drugs. 14

• OUR RESPONSIBILITY FOR WORKPLACE SAFETY.. 14

CORPORATE GOVERNANCE, OVERVIEW: 14
Introduction. 15
Board of Directors. 15

1. Introduction. 15
2. Constitution of the Board. 15
3. Frequency of Board Meetings. 17
4. Content of Board Meetings. 18
5. Minuting of Board Meetings. 19
6. Board Role and Responsibilities. 19
7. Chairman's Role and Responsibilities. 21
8. Secretary's Role and Responsibilities. 21
9. Board Compensation and Protection. 21

Committees of the Board of Directors. 22

1. Introduction. 22
2. Constitution of the Committees. 23
3. Audit Committee. 23
4. Corporate Governance Committee. 23
5. Compensation Committee. 24
6. Frequency of Committee Meetings. 24
7. Content of Committee Meetings. 24
8. Committee Roles and Responsibilities. 25
9. Committee Compensation and Protection. 25

The Advisory Committee. 25

1. Introduction. 25
2. Constitution of the Advisory Committee. 25
3. Frequency of Committee Meetings. 26
4. Content of Committee Meetings. 26
5. Committee Roles and Responsibilities. 26
6. Committee Compensation and Protection. 26

Conclusion. 27

1. Golden Rules: 27

CORPORATE DIVIDEND POLICY: 27
FORWARD LOOKING CONSIDERATIONS: 28

1. Anticipated Dividends: 28
2. Share Conversions: 28

DIRECTORS: 29
MANAGEMENT: 29

• TREASURY: 30

1. General 30
2. Investment 30

• REGULATORY AFFAIRS: 30

1. State Licenses: 30
2. Annual Filings: 30
3. 1120 Federal Filings: 30
4. Gambling. 31

• COMPLIANCE: 31

1. Internal Audit 31
2. Audit by Exception. 31
3. External Audit 31
4. Funds Laundering. 31
5. Patriot Act compliance. 32
6. SOX compliance. 32
7. Licensee audit 33
8. Unauthorized site use. 33

• ADMINISTRATION: 33

1. Health Benefits. 33
2. Equity Participation. 33
3. Physical Security. 34
4. Information Security. 34
5. Discrimination. 34
6. Client Agreements. 34
7. License Agreements. 34
8. Supplier Agreements. 34
9. Insurance. 35
10. System back-up. 35
11. Off –site storage and paper trail 35
12. External mailings. 35
13. Client relations. 35
14. Shareholder relations. 35
15. Internal organization. 35

• FINANCE AND ACCOUNTING: 35

1. Corporate disbursements: 35
2. Signing authorities: 36
3. Electronic funds transfer: 36
4. Financial Statements: 36
5. External and Internal reporting: 37
6. Budgets: 37
7. Variance reports: 37
8. Exception reports: 38
9. Accounting standards: 38
10. Income recognition: 38
11. Licensee financial reporting: 38

 PURPOSE:

            The purpose of this document is to codify the policies and actions of Mantra Venture Group Ltd. (the “Company” or “MANTRA”) and ensure compliance with all Federal, State and Parent Corporate policies and direction, providing that such policies and actions do not contradict each other.  In the event of contradiction Federal and State regulations will prevail.  It is the direction of the Company to eventually be a publicly traded company on a US stock exchange; to facilitate these policies and the implementation of the Sarbanes Oxley Act and the USA Patriot Act, which are required to conduct business within the US and to be a publicly traded company, are reflected in this document.

 

A MESSAGE FROM THE CHIEF EXECUTIVE:

Code of Business Conduct

Dear Mantra Team Member

I am pleased to provide you with this “Code of Business Conduct” which addresses our collective values, our Company’s responsibilities to employees, your responsibilities and our responsibilities to safety at our workplace. This handbook is an important tool to communicate the Company’s core beliefs and practices, and to answer questions you might have.

I encourage you to read this document carefully, as it defines the behaviors’ that are essential in order for Mantra to become a successful enterprise.

If you have any questions concerning any of the policies, please feel free to discuss your concerns with your manager.

Sincerely,

Larry Kristof, Chief Executive Officer

 

OUR VALUES

Customer First

We deliver our products and services in a manner that adds value to our products and services for our customers. We will know their preferences and perceptions and market our services accordingly. We will judge our performance against the standards of each customer. Only by satisfying our customers can we provide an attractive return to our shareowners and opportunities for our employees. A promise to a customer by one employee commits all employees to help fulfill it.

Respect for the Individual

We provide our employees full opportunity to contribute to the success of the business through individual participation and challenging responsibilities. We believe our employees are capable, loyal and concerned about the success of the business. We encourage our employees to use their own initiatives to satisfy customers and improve profitability, and we respect their opinions and ideas. We believe ongoing self-development by employees is fundamental to the quality of the contribution each employee makes to the Company.

Pursuit of Excellence

Our goal is to be the leader of our industry, and that calls for excellence in every part of the business by each employee. We must pursue excellence in the quality of each product, service and contact. We debate issues, but once a decision is made, commitment is expected from everyone. Our success depends upon the achievement of excellence through teamwork. Our integrity, as a company and as individuals, must always be without question. Through excellence, we will meet and exceed the expectations of our shareowners.

Positive Response to Change

In today’s world, constant change is inevitable and essential for the survival of our company. Our employees must look to the future and be inspired by change, committed to help mold that change to the Company’s and our customers’ advantage. We will meet the challenge of change with an aggressive and innovative approach to the way we market and service our customers as well as the way we run our business.

Community

The vitality of our business is directly affected by the quality of life and opportunity in the towns, cities, provinces and states where we work. We will work, as a company, for the betterment of our community, knowing that we cannot prosper apart from our environment.

 

MANTRA VENTURE GROUP LTD.  RESPONSIBILITIES TO EMPLOYEES

Management Accessibility

Mantra and its subsidiary companies (also referred to as the “Company” in this document) has an open-door policy which allows each employee who has a problem, complaint or grievance or is simply looking for advice to go the level of management where he or she feels the problem can best be solved, up to and including the corporate executive.

Employment Practices

The Company will seek qualified applicants for employment without regard to race, color, ancestry, place of origin, political belief, religion, marital status, family status, military status, sexual orientation, physical or mental disability, gender, or unrelated criminal or summary conviction of that person. This policy is applicable to all terms and conditions of employment including advertising or soliciting employment, recruitment, hiring, rates of pay or other forms of compensation, discipline, selection for training, promotion, transfer, layoff, reduction in force and termination. The company will comply with all applicable laws relating to employment practices.

Employee Record

The Company will safeguard the confidentiality of employee records by advising employees of all personnel files maintained on them, collecting only data related to the purpose for which the files were established and allowing those authorized to use a file to do so only for legitimate Company purposes.

Employees will be allowed to inspect (and challenge where necessary) information in their personnel files, other than confidential letters of recommendation or material relating to other employees, investigative matters and audit material, unless otherwise provided under applicable laws. The Company will comply with all applicable laws relating to employee records and personnel files.

Training

The Company will endeavor to provide training to its employees, as appropriate, to enable them to excel in their areas of responsibility. Such training may take the form of on-the-job coaching, on-site classroom training, or participation in externally offered courses.  Employees should however recognize that self-development is first and foremost a personal responsibility of every individual, and a prerequisite for advancement in the Company.

 

YOUR RESPONSIBILITIES

Compliance with Laws and Regulations

You must comply with both the letter and spirit of all laws and governing regulations applicable in the country, province/state and local jurisdiction where business is conducted.  The Company will compete solely on the merits of our products and services and will not engage in any form of unlawful competition. Unfair treatment of fellow employees as a result of sex, religion, country of origin or any other unlawful basis will not be tolerated. In situations where the proper and ethical course of action is unclear, you should seek counsel from your supervisor.
Coverage of the Code of Business Conduct

This Code covers all Directors, Officers, and Employees of the Company. It also covers members of Corporate and Scientific Advisory Boards.
Corporate Opportunities

You may not appropriate to yourself, or direct to any other person or organization, any opportunity that you learn about through your position with the Company or your use of Company property or information, unless you have received prior written permission to do so from a member of the Company’s executive. If you are a Director or an Executive Officer of the Company you require the permission of the Board of Directors.  It is never permissible for you to compete against the Company, directly or indirectly. All Employees, Officers and Directors owe a duty to the Company to advance its legitimate interests when the opportunity to do so arises. Notwithstanding the foregoing, the responsibilities of Directors of the Company are set out in the Articles of Incorporation.
Code of Ethics of Senior Officers

 In addition to the other requirements of this Code, the Company requires the members of its executive team and their direct reports to conduct themselves in accordance with the following policies and procedures:

Ø  Act with honesty and integrity, avoiding actual or apparent conflicts of interest involving personal and professional relationships;

Ø  Provide full ,fair, accurate and timely disclosure in reports and documents that the Company files with, or submits to, any Securities and Exchange Commission and in other public communications;

Ø  Comply with the laws and regulations of federal, state, provincial and local governments and other appropriate regulatory agencies;

Ø  Act in good faith, responsibly, and with due care, competence and diligence, without misrepresenting material facts or allowing one’s independent judgment to be subordinated;

Ø  Respect the confidentiality of information acquired in the course of one’s work, except when authorized or otherwise required to make any disclosure, and avoid the use of confidential information for private advantage;

Ø  Share knowledge and maintain professional skills to improve the Company’s communications with its shareholders; and

Ø  Work to promote, by personal example, ethical behavior among employees.

Waivers of this Code

Waivers of any provision of this Code for the benefit of any Director or Executive Officer may be approved only by the Board of Directors or one of its Committees composed solely of independent Directors. Any such waiver will be reported to internal and external stakeholders who may be affected by the decision.

Conflicts of Interest

A conflict of interest exists when an employee’s duty to give undivided business loyalty to the Company may be prejudiced by actual or potential personal benefit from another source. You are expected to avoid any association or investment interest which interferes, might interfere, or might appear to interfere, with the independent exercise of your judgment in the Company’s best interests.
Receiving Gifts, Gratuities, Favors

You must select and deal with those who are doing, or seeking to do business with the Company in a completely impartial manner, without any considerations other than the requirements of local, provincial/state, federal law and the best interests of the Company. This means you shall not seek or accept from any such person or firm any gift, entertainment or favor of a type that goes beyond common courtesies consistent with ethical business practices. Acceptance of cash or gift certificates is forbidden. Any appearance or impropriety must be avoided. Prior disclosure to your supervisor, and approval by your manager, who is not participating in the receipt of the gift, entertainment or favor, is required for acceptance beyond common courtesies. There must be an appropriate business purpose for approval to be given.

Giving Gifts, Gratuities, Favors

When providing to any person in any year a gift or gifts aggregating more than nominal value ($50 or less), you must have prior approval of your Division Head. In no case, however, may improper or illegal payments be made, directly or indirectly, to induce action. This policy does not prohibit customer entertainment, such as accompanying a customer to dinner where a discussion is held.
Bribes, Influence Payments, Kickback

No bribe, influence payment, kickback or other similar unlawful payment designed to secure favored or preferential treatment for or from the Company will be given or received.

Political Contributions

You are encouraged to participate in the political process. However, when involved in the political process, your participation must not interfere with your job. Such participation may include political contributions to candidates for various public offices. No employee will be reimbursed in any way by the Company for any political campaign contributions. Any decision by an employee to make political contributions will be made freely, voluntarily, and without any influence that infringes on such a decision.

Financial Records

The Company has established and maintains a high standard of accuracy and completeness in its financial records. These records serve as the basis for managing the Company’s business, for measuring and fulfilling the Company’s obligations to its shareowners, employees, customers, suppliers and others, and for compliance with tax and financial reporting requirements.

In the preparation and maintenance of records, you must:

Ø  Use good business judgments in the processing and recording of all transactions;

Ø  Comply with generally accepted accounting standards and practices, rules, regulations and controls;

Ø  See that accounting entries are promptly and accurately recorded and properly documented. No accounting entry may intentionally distort or disguise the true nature of any transaction.

Ø  Maintain books and records which will fairly and accurately reflect our Company’s business transactions.

Ø  Sign only those documents you believe to be accurate and truthful.

Ø  Devise, implement and maintain sufficient internal controls to assure that record-keeping objectives are met.

Ø  Prohibit the establishment of any undisclosed or unrecorded funds or assets for any purpose.

Inside Information and Trading in Stock

This policy will become effective when the Company becomes a publicly listed entity.

Securities laws prohibit your use of insider information when engaging, directly or indirectly, in transactions involving Mantra Venture Group Ltd. (MANTRA) stock. Such laws prohibit you from disclosing inside information to any other persons so that they may trade Mantra stock. Inside information may take many forms but includes financial, technical or other information about the Company which is not available to the public and which might influence an investor’s decision to buy, sell or hold stock. Some examples are unpublished financial results, operational plans and research or technical innovations, as well as information related to acquisitions, divestitures, new products or inventions, major contracts, expansion plans, financing transactions, major management changes and other important corporate developments.

If you possess such non-public inside information, you may not trade, directly or indirectly, through others in Mantra stock until such information has been publicly disclosed by the Company and the public has had sufficient time to absorb it (generally, two business days), nor may you disclose any such inside information to other persons.

Confidential Information

During the course of your employment, you may learn about trade secrets or other confidential or unpublished information relating to the Company’s business, operations, research or technology. You shall not use or disclose to any third party any such confidential information, either during or after your employment, without the prior written consent of the Company. Under no circumstances may you use such confidential information or disclose it to others for personal gain.

Safeguarding Company Assets

Everyone has an obligation to safeguard Company assets, including exercising care in using Company equipment and bringing to the attention of management any waste, misuse, destruction or theft of Company property or any improper or illegal activity.

Computer hardware, software and data must be safeguarded from damage, alteration, theft, fraudulent manipulation and unauthorized access to and disclosure of Company information.

Employees are expected to adhere to specific security measures and internal controls for each computer system to which they are authorized access, and should avoid any personal use of Company-owned computer hardware or software.

Each employee using licensed software is responsible for understanding and adhering to the terms of the licensing agreement. The right to use software is limited to authorized employees for Company business. Copies of software and associated materials can be made only as specified in the License Agreement. Employees must not sell, transfer, or otherwise make available to any unauthorized person any software products, documentation or copies thereof.

Alcoholic Beverages and Drugs

Being under the influence of alcoholic beverages, unauthorized drugs or controlled substances during the time you are at work, or on Company premises, is prohibited. Bringing in, possessing, providing, buying, selling or otherwise using such beverages, drugs or substances on Company premises is also prohibited. The only exception is the specifically authorized serving of alcoholic beverages at an approved Company-sponsored event, at which time you are expected to govern yourself in an appropriate manner.  If you choose to consume alcoholic beverages, we expect you to limit your consumption to a reasonable level during non-working hours when entertaining customers and while traveling out of town on Company business.

OUR RESPONSIBILITY FOR WORKPLACE SAFETY

Mantra is committed to following sound operating practices which foster a safe working environment and are in compliance with applicable provincial/state regulations. Safety is the responsibility of each and every employee. Accordingly, all employees are expected to follow safe work practices in the interests of their own safety as well as that of fellow employees, and immediately report to their supervisor any work practices and conditions which affect their and/or others’ safety. Management at all levels is expected to demonstrate “zero-tolerance” for the practice of unsafe work behaviors.

 

CORPORATE GOVERNANCE, OVERVIEW:

The following section is modified from material produced by the law firm of Catalyst Corporate Finance Lawyers, Vancouver, BC Canada.

Introduction

This Memo provides an overview on corporate governance matters.  This includes an outline of the role, responsibility and constitution of the Board, and same for the committees of the Board and for the Advisory Committees (which is not a committee of the Board).  This Memo also contains a proposal of how often these groups should meet, when they should meet and what, in general terms, they should discuss.  Included are recommendations in this regard.

Board of Directors

Introduction

For most start-ups and early stage companies, the Board in place pre-financing consists of a small number of individuals the majority of whom comprise the Company's management team.  This situation is not in the best interests of the Company as the Board is the entity to whom the management team reports and the entity entrusted with assessing and, if necessary, replacing management (Hence DW, the CFO of MANTRA is not a MANTRA Board member).

In undertaking a financing, the financiers (whether angels, venture capitalists, investment bankers or underwriters – collectively referred to as "Financiers" in this Memorandum) will want to see a majority of the Board be members who are independent of management and, in many cases, will either require Board seats or at least make recommendations as to Board members.  In view of this, it is recommended that management put in place an independent, functional, accountable Board as early on in the life of the Company as possible.  It is a good discipline for management to have this kind of Board in place.

Given that the Financiers may wish to make changes to the Board, the individuals appointed to the Board understand that they may be asked to step down as the Company grows and finances.
Constitution of the Board

The constitution of the Board will depend in large measure on the number of seats on it.  It is recommended that the Board have at least three seats on it pre-financing, adding two more at or immediately prior to the round one financing and another two more at or immediately prior to the second round of financing (7 in total).

The number of seats will also depend on what outside expertise is needed to supplement the skills of the management team at any given time.

Beginning with a Board of five, the recommendation as to how those seats should be filled is as follows:

Seat 1 - The President/CEO.  This individual should be on the Board as a representative of management and for the purpose of reporting to the Board on behalf of management.  If these offices are held by two individuals, then both might be on the Board.  For start-ups, it is recommended that one person fill both positions and that they be split as the Company grows and when it is time to add some additional senior management.  In many cases the President is required to be a Board member.

Seat 2 - The CFO, COO or CTO.  This individual will be on the Board as management's second representative, unless the CEO and President are two different individuals in which case these two individuals will be on the Board and this individual will not be.  Whether on the Board or not, if this individual is the CFO, he or she will be responsible for the financial reporting to the Board and, if he or she is a Board member, will be management's representative on the Audit Committee (provided a management representative is permitted on that Committee).  DW fulfils this role.

The remaining three seats should be filled by outside Directors who are not members of the management team.

Seat 3 - The Reputation Director.  The Company should have at least one outside Director (and possibly more) that provides "name" recognition.  This should be someone with industry related experience with a substantial reputation and who can and more importantly is prepared to, source opportunities and open doors for the Company.  While the Company may have individuals like this on the Advisory Committees, it is important to have at least one on the Board to provide Board validation.  Having this individual on the Board provides more validation than having him or her on the Advisory Committee because of the liability associated with serving as a Director.

Seat 4 – The Active Director.  This person should be the outside Board member who will drive the Board to ensure that it is functional and accountable.  A significant problem that happens with many Boards is that there is no one driving them.  This is not the role of management and too often all the outside members of the Board are too busy and not close enough, or motivated enough, to drive the Board.  The result is that the Board looks good on paper and from the outside, but is ineffectual in operation.  Experience shows that two of the biggest problems with Boards is that they are either management dominated (and thus management driven), or they have strong named Directors who are too distracted to drive the Board (and thus ineffectual).  Both problems are solved by having an outside Director who will drive Board processes.  This individual might fill the role of Chairman.

Seat 5 – The Supplemental Director.  The last member of the five-person Board should be an outside person chosen to supplement the holes in the management team's expertise.  It could be a person with financing expertise, marketing expertise, technology expertise, operations expertise, general industry expertise or another person with “name" recognition.  Who is appropriate to add should be determined with reference to what expertise is missing from the existing management team and other members of the Board.  Another problem with Boards is that too often they are filled with redundant nominees – individuals with too much overlap in their expertise.  This is the chance to address that issue.

When outside Financiers finance a company, they will typically ask for at least one and most probably two places on the Board.  If the Board is not constituted as above, they will also want a hand in ensuring that something similar to the structure referred to above is put in place.  They also might ask to make changes to your current Board.  This should not be considered a negative reflection on the Board that is in place as change at the Board level is often frequent for a start-up or early stage company.

It is recommend that the Company put in place a five-person Board early on in the Company’s development and begins the discipline of holding regular and formal Board meetings.

Frequency of Board Meetings

The frequency of Board meetings is entirely up to the Board in question.  The Board should and will meet on an ad hoc basis as issues arise that require Board input or approval.  Notwithstanding this, it is recommended that the Board schedule regular meetings (planned one year in advance, if possible) - no more frequently than monthly and no less frequently than quarterly.  If monthly is too frequent, it is recommended at least six meetings per year, scheduled in advance approximately every two months.  Four of these meetings should track fiscal quarter ends with the other two serving as meetings at which non-financial related matters can be discussed more fully.

The meetings tracking the fiscal quarter ends should be held immediately before the financial results for that quarter are to be released and should serve as the meeting at which the Board signs off on those financial results.  In each case, these Board meetings should be preceded by Audit Committee meetings at which those financial results are reviewed, approved and recommended to the Board for approval.
Content of Board Meetings

An agenda, prepared by the Corporate Secretary with input from all Directors and principally from the management representatives and the Chairman, should be forwarded in hard copy at least one week prior to each meeting together with a Briefing Binder briefing the Directors on each agenda item.  One of the biggest operational mistakes made by Boards is not providing the agenda and briefing materials either at all or sufficiently in advance of the meetings.  The Chairman should not rely on management to drive this process and should take some responsibility to see that this is done.

There should be a standard agenda of matters that should be discussed at each meeting, to be supplemented by additional matters that come up between meetings that require either Board input or approval.  It is suggested agenda of these standard matters to be considered includes some or all of the following (as appropriate considering the stage of development of the Company – those marked "always" should be included by all companies):

Ø  approval of the minutes of the previous meeting (always);

Ø  general status report by the President (the big picture) (always);

Ø  financial report by the CFO (always), business development/marketing report, if applicable;

Ø  status of development of the technology, if applicable;

Ø  Human Resources report, if applicable;

Ø  Information Systems report, if applicable;

Ø  General business (always).

At meetings at which the financial statements are being approved by the Board, the financial report will include a walk through of those statements.  In other situations, the CFO should provide a summary which might include, among other things, the following:

Ø  revenue and profit;

Ø  cash position;

Ø  appropriate financial ratios (such as Current Ratio, Quick Ratio, Debt/Equity Ratio, Interest Coverage, Net Profit Margin, EBIT, EBITDA, EPS, PE, as applicable and as appropriate);

Ø  burn rate; and

Ø  any unusual financial events that occurred during the period being reported on.

Once a year (usually as part of the year end report), the CFO should provide a report on those statutory remittances (such as tax remittances) and liabilities (such as environmental ones) that attract personal liability for Directors.  The purpose of the report is to confirm to the Board that there are no outstanding remittances to be made or potential claims that might result in personal liability to Board members.

At meetings at which extraordinary matters are being put forward for Board approval, the briefing materials should include a summary (with back-up) of the matter to be considered, including a "Decision Summary", being the decision management would ideally like the Board to make.

Minuting of Board Meetings

The Corporate Secretary should be responsible to prepare the minutes of each Board meeting.  Ideally, a draft outline will be prepared in advance and the Corporate Secretary can type directly into the draft as the meeting proceeds. Too often the minutes are not produced in a timely fashion.

The minutes should be formal and detailed and the need to consider whether or not the Board would like them to identify who said what (Boards go both ways on this issue).  The value in having formal minutes is that the Board members will pay more attention if they know that detailed minutes are being taken.  If the minutes identify who spoke, it may be that your Board members are likely to be more constructive if they know that they are being personally identified in the minutes.  This also helps eliminate Board members advancing personal agendas (which happens far more often than one would expect).

Immediately after the meeting (within 48 hours), the Corporate Secretary should circulate a draft of the minutes to the Chairman for the Chairman's review and comment.  Once the changes have been made, they should be signed and circulated to all of the Board members.  They should then appear in the Briefing Binder at the next meeting as the first matter on the agenda to be approved.  At that time, the remaining members of the Board can provide their comments.

Board Role and Responsibilities

It is not the role of the Board to manage the operations of the Company.  The Board is responsible to provide direction to the Company, principally by providing direction to senior management, who, in turn, are responsible for the day-to-day operations of the Company.

It is appropriate that certain matters be approved by the Board.  In some cases, these matters are mandated by a Shareholders' Agreement or other form of Investment Agreement.  Financiers will often mandate certain matters be approved by the Board (and a certain quorum of the Board) as a condition of their investment.

In the absence of this and for start-ups and early stage companies (as a Company grows the matters put before the Board for approval become less transaction specific and more high-level and strategic in scope), it is appropriate (and in some cases mandatory) that Board approval be sought for:

Ø  all acquisitions, dispositions, mergers etc.;

Ø  all financings;

Ø  significant capital expenditures;

Ø  significant hiring decisions;

Ø  all issuances of securities;

Ø  changes in strategic direction; and

Ø  determining matters to be put to the shareholders.

With respect to the responsibilities of the Board, it depends upon the jurisdiction of incorporation of the Company.  Generally speaking, most jurisdictions mandate, by statute and common law that Board members act honestly, in good faith and in the best interests of the Company.  This requires Board members to put their individual interests aside and consider the interests of the Company in priority to their own.  Generally speaking, the law also requires Directors to ensure that they inform themselves of the affairs of the Company and does not excuse Directors from their responsibilities by being absent or by resigning from the Board.

A more detailed written briefing on the roles and responsibilities of Directors can be secured from publishing houses such as CCH, this is recommended.

Chairman's Role and Responsibilities

Ideally (this may not always be possible), the Chairman should be the outside Director that takes the most active interest and role on the Board.  The principal role of the Chairman is to:

Ø  chair all of the meetings,

Ø  ensure that the appropriate committees are set up and that they are functioning and reporting to the Board,

Ø  act as the conduit between management and the remaining members of the Board,

Ø  ensure that management is reporting properly to the Board, and

Ø  ensure that the other outside Directors are contributing.

Generally speaking, the more the Chairman is prepared to drive the Board the more functional it will be.

Secretary's Role and Responsibilities

The role of the Secretary is to:

Ø  minute the meetings,

Ø  prepare the Briefing Binders and Agenda and circulate them,

Ø  organize the meetings (including the basic administrative items like setting aside a room, organizing conference calls, tracking Directors that are traveling etc.), and

Ø  liaise with legal counsel.

The Secretary should fill all of the administrative gaps.

Board Compensation and Protection

In start-ups and early stage companies, it is unusual to pay any kind of cash compensation to Directors for serving.  Instead, they are more typically compensated by way of stock options.  Generally speaking, they are granted, depending upon the capitalization of the Company, between 25,000 and 75,000 stock options per Director.

Options to Directors do not usually have vesting provisions for two reasons: firstly, there is significant liability associated with being a Director which survives their resignation; and secondly, it is the only compensation they typically receive (as compared to employees that also receive salaries).  Often (but typically only after the Company is public), a fresh set of options are granted annually to the Directors.

For Directors attending from outside of town, their reasonable expenses are usually covered by the Company.

Directors can be protected in two ways: firstly, by Directors' liability insurance; and secondly by way of indemnity.  For start-ups and early stage companies, Directors' liability insurance is often prohibitively expensive and, in some cases, not available at any price.  If such insurance is not secured, then it is recommended that, provided that the laws of the Company's jurisdiction of incorporation permit it, the Company agree to indemnify the Directors from liability.  This is done by way of a written Indemnity Agreement.

Committees of the Board of Directors

Introduction

The constating documents typically provide that the Directors can appoint whatever Committees they see fit to appoint, provided that in doing so they are not relinquishing their ultimate responsibility as Directors of the Company.  The Chairman is the Director who should drive the process of setting up the Board Committees and ensure that these Committees function and report to the Board.

From time to time, specialized Committees (such as an acquisition or divestiture Committee or a "Special (or Independent) Committee" for related party transactions) may be set up because of specific issues facing the Company.  Leaving aside these situations, it is recommended that the Board put in place the following three basic Committees (the latter of which is required by law if the Company is public):

Compensation Committee,

Corporate Governance Committee, and

Audit Committee.

If the company is listed on a stock exchange, make sure to check the requirements of the exchange as to what committees are required, who can and cannot serve on them and what they are required to do.

If the Company is private and has yet to bring in outside investment, these Committees can be added over time as the Company finances.

Constitution of the Committees

The constitution of the Committees will depend in large measure on the number of seats on it.  For Board's under seven Directors, the Committees typically consist of three Directors.  These are Committees of the Board and as such they should not include members that are not Board members.

Audit Committee

If the Company has its CFO on its Board or an outside Director that is a CPA, these individuals should be considered for this Committee.  Public it is recommended that this Committee should be put in place in any event.

If the company is listed on NASDAQ, the Committee must be independent of management.

The role of this Committee is to review, approve and recommend to the Board for approval, each set of interim and annual financial statements published by the Company.  They are also to liaise with the auditors.  Guidelines for Audit Committees are available from major accounting firms.

Corporate Governance Committee

The Chairman should be on this Committee.  This Committee might include a representative of management.  This Committee is required if the Company is listed on a public exchange.  Regardless, the NASDAQ guidelines on the role and responsibility of this Committee are useful and should be reviewed.

Among other things, this Committee should oversee:

Ø  the adoption of a strategic planning process,

Ø  the identification of the principal risks of the corporation's business and ensuring the implementation of appropriate systems to manage these risks,

Ø  succession planning, including appointing, training and monitoring senior management,

Ø  the adoption of a communications (investor relations) policy for the corporation,

Ø  the integrity of the corporation's internal control and management information systems.

Compensation Committee

The Chairman should be on this Committee.  This Committee should be independent of management.  Among other things, this Committee should:

Ø  determine and set compensation for the senior officers,

Ø  determine and set the Stock Option Plan (but usually on the basis of a recommendation from the senior officers),

Ø  ensure that the senior officers have put in place appropriate bonus plans for employees,

Ø  review and assess senior management.

This is a Committee that requires an active Board as management should not have to drive the process of ensuring that appropriate senior officer compensation guidelines are in place.  The failure of the Board to do this can result in serious distractions and anxiety for the senior officers which can be disastrous for the company.

Frequency of Committee Meetings

The frequency of meetings is somewhat up to the Committee in question save and except for the following:

the Audit Committee should meet at least four times a year (and typically more than once around year end) tracking the fiscal quarter end periods to sign off on the financial statements for each of those periods,

the Corporate Governance Committee should meet at least two to three times a year and once prior to determining who is to be nominated for election as Directors at the AGM for that year,

the Compensation Committee should meet at least two to three times a year and once at year end to determine management bonuses, if any, and the parameters of the new Stock Option Plan to be put to shareholders at the next AGM.

Content of Committee Meetings

An agenda, prepared by the Chairman of the Committee in question, should be forwarded in hard copy to the other Committee members prior to each meeting of the Committee.  Committee meetings may be minuted and the Chair of the Committee should provide a report to the Board, in written form if possible.  This minuting is necessary as the committee is a committee of the Board of Directors; for an Advisory committee, minutes may prove to be a deterrent to free expression, especially as their recommendations may not be accepted by the full Board.

Committee Roles and Responsibilities

The roles and responsibilities of Committee members are the same as their general roles and responsibilities as Directors.  A Committee should be seen as a subset of the Board.  While Committees will approve certain matters, it is for the purpose of submitting the matter to the Board for Board approval.  Matters should not be left at the Committee level for final sign-off.
Committee Compensation and Protection

It is not typical to provide additional compensation to Committee members for serving as such.

The Advisory Committee

Introduction

The Advisory Committee is different than the other Committees as it is not made up of Board members and has no legal status.  The purpose of this Committee is to formalize the relationship with additional individuals whose reputations will reflect well on the Company, as well as formalize the relationship with additional individuals who can and are prepared to make introductions and open doors for the Company.

Constitution of the Advisory Committee

The constitution of the Advisory Committee will depend in large measure on the number of seats on it.  It is recommend the Committee consist of nine seats (with at least 5 filled) and that the persons appointed to it be those that would provide name recognition and industry expertise.

The principal objective from the Company's perspective in setting up an Advisory Committee is to further validate the business by adding individuals with name recognition, and by adding individuals that can open doors for the Company.  Direct and regular input, and operational input, is less of an issue as the Committee will not typically meet regularly or be familiar enough with the general operations of the Company to assist in this regard.

This Committee can be a powerful tool for the Company as (to date) there is no liability associated with sitting on it.  As such, it is often easier to add name recognition individuals to an Advisory Committee than to a Board.

Frequency of Committee Meetings

The frequency of the Advisory Committee meetings is entirely up to the Committee itself.  Generally speaking, these Committees meet on an ad hoc basis at the request of either management or the Board.

Also, these Committees are often set up so that management can solicit these individuals one on one.  As such, it is not uncommon for an Advisory Committee to have few formal meetings.

Content of Committee Meetings

When held, these meetings are informal and typically run more as a briefing on an issue by management or the Board with input then provided by the Advisors.  They are not typically minuted.

Committee Roles and Responsibilities

With respect to the role of the Advisory Committee, the Advisory Committee does not manage the Company nor does it mimic the Board.  In fact, it is important that it not mimic the Board as many jurisdictions provide that if individuals act like Board members, then they assume the liability and responsibility of a Board member.

Committee Compensation and Protection

In start-ups, it is unusual to pay Advisors cash compensation for serving.  Instead, they are typically compensated by way of stock options.  Generally speaking, they are granted, depending upon the capitalization of the Company, between 25,000 and 50,000 stock options per Advisor.

Options to Advisors do not usually have vesting provisions for one reason: the number is typically so small that vesting would make them irrelevant to the Advisor.  Often (but typically only after the Company is public), a fresh set of options is granted annually to the Advisors.  In many jurisdictions in order to grant stock options to an Advisor the Advisor has to be retained as a consultant of the Company under a written consulting agreement.  Counsel can provide a very short and non-formal form of agreement for this purpose.

For Advisors attending from outside of town, their reasonable expenses are usually covered by the Company.

There is no statutory liability for serving on an Advisory Committee.  It may be that in time this will come and that liability will start being imposed by the Courts at common law as well.

Conclusion

A Board can be both a valuable contributor to the growth of your Company, as well as an expense and a drain on resources.  Like every other aspect of business, it is important to ensure that the Company maximizes this opportunity.

 

Golden Rules:

The business of the Company and the services it provides are based upon its employees, agents and associates having implicit trust in the Company’s integrity and honesty; accordingly any breach of that integrity or trust does immediate and permanent damage to the Company, its reputation, management, agents and representatives.  The following actions are grounds for immediate termination, as outlined above, and the Company to take full and immediate recourse to mitigate damage and recover costs and other damages.

Ø  Theft of funds

Ø  Release of corporate information to any 3rd party

Ø  Unauthorized modification of the Company’s software

Ø  Misrepresentation of the Company, its objectives or mission

Ø  Deliberate engagement of clients in contravention of any Federal or State Act or regulation

 

CORPORATE DIVIDEND POLICY:

The Company anticipates that it will have significant cash flow and profits in the future and it is the Company’s intention to generate a return to its investors by way of cash dividends from this profitability.  In order to facilitate this process the following considerations will be considered:

Ø  Compliance with all laws enacted within the jurisdiction of the Company

Ø  Compliance with the Articles of Incorporation of the Company

Ø  The dividend will be declared from its Retained Earnings only.  In practice this means that:

• Any Accumulated Deficit has been erased by earnings
• All taxes on any profits have been paid
• The profits have been transferred to Retained Earnings
• There is sufficient Retained Earnings to pay the dividend without recourse to any other fund or reserve

Ø  Dividends are declared solely at the discretion of the Directors

Ø  The Directors will consider the current and future cash requirements of the Company before the declaration of any dividends

Ø  No dividend will be declared from the proceeds of any capital issue

Ø  In considering any dividend the Directors will have available to them the latest audited financial statements of the Company

Ø  Any dividend will be made within 6 months of the audited year end of the Company, unless the Company adopts an interim dividend policy

Ø  The Directors will have available to them for consideration the latest interim financial statements of the Company, unaudited

 

FORWARD LOOKING CONSIDERATIONS:

 

Anticipated Dividends:

                It is the Company’s policy to disburse its excess cash needs, as represented by its Retained Earnings, to its members on a timely basis.  Initially this will be on an annual basis until such time as the predictability of profitability enables a more frequent disbursement to be made.  All dividends are subject to the discretion of the Directors and reference to the Corporate Dividend Policy, above, should be made.
Share Conversions:

                The Company has developed a strategy that will enable it, at a future date, to disburse significant dividends to its members.  Although this is a policy satisfies the current situation it does not necessarily meet all the needs of the members.  Accordingly several other exit strategies for the Company’s members have been formulated; but as one size does not fit all any such strategy is bound to have its drawbacks.  To mitigate this future problem the Company has devised a methodology of supplying its members with 3 alternatives that essentially cover all possibilities.  This plan will be put to members for approval at a future time, but essentially consists of:

Ø  Allowing members to retain their common voting equity, if so desired

Ø  Monetizing their equity by conversion into a non-voting accumulative preference share

Ø  Conversion of their equity into common equity of the Company’s currently wholly subsidiaries

Ø  A combination of the above, with other features as deemed appropriate

DIRECTORS:

                All directors are required to familiarize themselves with the section “Corporate Governance, Overview” as a general outline of the duties of the Company’s directors.  The following section addresses some of the issues specific to MANTRA.

Ø  Compliance with the USA Patriots Act (“Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism” hereafter called the “Patriot Act”)

Ø  Compliance with Sarbanes Oxley Act (hereafter called “SOX”)

Ø  Oversight of Internal controls within the Company

Ø  Compliance, via the audit committee, of accounting standards appropriate to the United States

Ø  Timely remittances of all Federal and State fees, taxes, levies or duties

Ø  Share issuance and corporate dilution

Some of the duties and responsibilities of directors carry significant personal penalties, including substantial fines and incarceration.

Directors are encouraged to refer to external references that outline the duties and responsibilities of corporate directors.  Such references are available from publication houses such as CCH, or contact the Group Vice President, Regulatory Affairs who will provide the same.
 

MANAGEMENT:

            The duty of management is to implement and carry out the policies of the Company and report the results of their efforts to the Board of Directors via their immediate superior or directly to the board, if so requested.  It is not the role of management to develop or implement change unless they are so charged by the board.

The principal duties of management are:

Ø  Manages organization operations by directing and coordinating activities consistent with established goals, objectives and policies.

Ø  Follows direction set by the President and Board of Directors.

Ø  Implements programs to ensure the attainment of the business plan goals for growth and profit.

Ø  Provides direction and structure for operating units.

Ø  At the request of the President and Board of Directors participates in developing policy and strategic plans.
 

TREASURY:

General

Treasury will be the responsibility of the CFO.  Other than the CEO and the Directors no staff member will have access to any Treasury function.

Investment

Treasury investments will be made by the CFO in US or Canadian Treasury bonds, bank certificates of deposit or other similar “gilt edged” liquid investments.  At no time will any other investment be contemplated without express Board of Director approval.

REGULATORY AFFAIRS:

State Licenses:

Nevada State does not impose any Income Taxes and a corporate tax return need not be filed for NV State.  An annual License fee is required.
Please contact the CFO in regard to any questions on this matter.

Annual Filings:

• Required by the Department of Commerce an initial and annual filing of BE-13, or its exemption BE-13C.  Basically if a non resident makes an investment of more than $3M into a US entity or acquires more than 200 acres of real estate.
• Required by the US Treasury form TD F 90-22.1 Report of Foreign Bank and Financial Accounts.
• Required by the Canada Revenue Agency T2 Corporation Income Tax Return together with appropriate schedules and GIFI form.

1120 Federal Filings:

The Company is incorporated under the laws of the State of Nevada with the following characteristics:

Ø  Corporate Address for legal purposes: CSC Services of Nervada, Inc. 502 East John Street, Carson City NV, 89706

Ø  Corporate Counsel: Bacchus Corporate Law Group, 18th Floor Cathedral Place, 925 West Georgia Street, Vancouver BC V6C 3L2

Ø  Banking: Bank of Montreal, Mall level, First Bank Tower, 595 Burrard Street, PO Box 49500, Vancouver BC, V7X 1L7

Ø  Federal EIN # 26-0592672, because the Company is owned by a non US resident all tax filings must be to: IRS, Department of Treasury, Internal Revenue Service, Philadelphia, PA, 19255-0023, Phone (800) 829-4933.
 

Gambling

Under no circumstances will any gambling be tolerated by staff on Company premises or during normal working hours.  Gambling is an all inclusive “catch phase” that includes: racetrack, lotto, card games, bingo, online, offline, telephone, sports book or any other form of wager.

COMPLIANCE:

 

Internal Audit

At the present time the Company has no internal audit and all functions of this nature are conducted by the CFO.  Reference to all staff is made to the earlier comments regarding SOX, the PATRIOT Act, and the responsibilities of Directors and the appropriate committees.

Audit by Exception

In the event that exceptional events take place of a fiscal or non fiscal nature the Company may instigate an audit of the event as a “stand alone” audit.  This type of audit will be mandated by the CEO only and its terms of reference will be structured by the CEO.  Any such audit will be reported to the Board of Directors by the CEO prior to its inception and progress reports and the final findings will be reported to the Board of Directors in full on a timely basis and without exception.  The Board of Directors will make any decisions as to public release of information any subsequent actions to be taken.

External Audit

The Company is a reporting Company under the SEC and as such is required to have a full audit on an annual basis together with quarterly reviews by the external auditor.  The CFO will instigate and be responsible for all aspects of the annual audit and quarterly reviews and will report directly to the CEO and the audit committee of the Board of Directors on these matters.  All staff will co-operate and undertake to facilitate these undertakings.

Funds Laundering

Funds laundering through any Company bank account, domestic or foreign are strictly prohibited; the laundering of funds through personal accounts or nominee accounts before receipt by the Company is similarly forbidden.  If any such activity is encountered or suspected the staff member is required to report the activity to the CEO or CFO who will be under a strict obligation to investigate the matter, report to the Board of Directors and if deemed necessary an Audit by Exception will be instigated.

Patriot Act compliance

                 “Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism” USA PATRIOT Act.  Although this Act is primarily directed at Financial Institutions the Company is well served by knowing its intent and content; and implementing its provisions in both law and spirit.


The USA PATRIOT Act Section 326 imposes new requirements on how organizations screen existing customers and process new customer information.  By October 01, 2003 all financial services organizations must have in place procedures for:

   1. Customer Screening: On a regular basis, customers and transactions must be matched against government supplied lists of suspected terrorists, drug traffickers, money launderers and other criminals
   2. Customer Information Program (CIP): On all new customers, basic identification information must be obtained to verify customers identity.

Failure to comply can result in penalties of up to $1 Million, and/or imprisonment.

It can be interpreted, although it is not the Company’s mandate that the Company’s activities would fall under the heading of a financial services organization.

There are many sources of information available to be informed as to the full implications of the Act; alternatively contact the Group Vice President, Regulatory Affairs who will be able to supply the necessary information.

SOX compliance

                Sarbanes Oxley Act of 2002 (“SOX”) was introduced in the wake of financial scandals among publicly listed companies that that resulted in the loss of huge sums of money.  Although the Act only applies to publicly listed companies, as it is the intention of the Company to be a public entity; putting in place the controls and requirements at an early time gives a greater degree of assurance that compliance will be met in the future.

Essentially the senior officers sign the Company’s financial statements and in doing so make themselves personally liable for the disclosures and any misrepresentations.  Disclosure failure and/or misrepresentation can lead to actions by stakeholders for compensation, as well as fines and penalties including imprisonment.  With this background it is important that the Audit Committee, President, CFO and all senior management put in place a system of internal controls, checks and balances and reporting procedures that will give the Company, its Officers and Directors the assurance that the reporting and financial statements not only properly reflect the Company’s position but that problems are identified, corrected and reported in a timely manner.

As before, there are many sources of information available to be informed as to the full implications of the Act; alternatively contact the Group Vice President, Regulatory Affairs who will be able to supply the necessary information.

Licensee audit

The Company may enter into both domestic and overseas license arrangements for technology and joint venture arrangements.  In every case it will be critical to have the right to audit the Licensee or joint venture partner(s) to determine the accuracy and validity of the reports received; these audits may be conducted by Mantra staff or external consultants and will apply equally to fiscal and non-fiscal activities.  There will no waiver of this provision without written consent from the CEO who will be required to disclose such exceptions to the Board of Directors for ratification.

Unauthorized site use

The Company’s web site is a vital portal that represents the Company to the world, especially in these days of electronic communication.  Much effort from all staff has gone into making the site a model that is setting a new standard; accordingly the only changes that will be allowed must be activated by the system administrator only, ad hoc changes by any other staff or other persons is strictly forbidden.  It is appreciated that the site is organic and as such is constantly changing and growing; further it is the Company’s policy to “refresh” the site periodically and add new features that will raw old and new patrons to the site; accordingly the VP Systems Development will initiate a “Change Site” request form that will need a VP or higher approval before any change is made.  Because the site will also host the Company’s news releases it is critical that such information is disseminated to the public in an orderly and timely fashion; news releases will be authorized and their release date fixed by the CEO only.
 

ADMINISTRATION:

 

Health Benefits

The Company will be instigating a health Plan for all staff; the CFO will nominate a plan after investigation (probably late January 2008).  The plan will be administered by the Executive Assistant, please direct all enquiries to the EA.

Equity Participation

The Company, at the present time, has rewarded all current staff and Advisory Board members with either options or equity, or a mixture of both, in the Company.  Eventually all such options and equity will be registered by the Company and staff will be free to dispose of such an asset as they see fit; however there are consequences to the disposition of such assets if the disposition is made with insider knowledge and dispositions under such circumstances can result in serious consequences for both the Company and the person doing the disposition.  Accordingly the Company will hold a group session to ensure that all staff are aware of the rights and responsibilities of disposition; the seminar will be held in early 2008, new staff after that date will receive a private session for notification, if any staff member has any questions please confer with the CEO or CFO.

Physical Security

A current inventory listing of all the Company’s assets is held by the Executive Assistant, this listing is updated quarterly by each staff member noting what additions/deletions have happened in their personal work area and reporting the same to the EA.  The reports must be detailed and included: description, price (if known or an estimate), serial number, date of purchase, etc.  Common areas will be inventoried by the EA.

Information Security

This section must be read in conjunction with “Unauthorized Site Use” above.  It is the responsibility of each staff member to safeguard and keep confidential all Company information, be it recorded on paper, electronically or as personal memory.  All information should be on the Company premises at all times unless authorized for off-site use by management at the VP or higher level.  Sign out policies for memory sticks are in place already; please see your appropriate VP for more information.

Discrimination

The Company has a no tolerance policy in regards to discrimination.

Client Agreements

All agreements must be authorized by a VP or higher management person.  It is preferable that all agreements are in writing and signed and include an estimate of costs and revenues.  The Company will make no disbursements for work performed prior to approval as noted earlier.

License Agreements

Please see Client Arrangements, above, the same policy applies.

Supplier Agreements

Please see Client Arrangements, above, the same policy applies.

Insurance

All insurance needs are maintained by the Executive Assistant and will be reviewed by senior management on an annual basis prior to the commencement of the new fiscal year.  Directors and Officers Liability Insurance will be instigated by the CFO at the appropriate time and then be maintained by the EA.

System back-up

A system back up policy will be develop by the VP Systems Development and implemented in early 2008, please direct all queries to the VP Systems Development.

Off –site storage and paper trail

Please refer to system back-up, above; a similar policy will be developed by the VP.

External mailings

Please see “Shareholder Relation”, below.

Client relations

Client relations will be maintained by the appropriate VP who will update staff and management on any developments.

Shareholder relations

This is a vital area for the Company as external perceptions are critically important.  Although many staff may have input into this area all external communications to shareholders and the public will be instigated, approved and directed by the CEO only, without exception.

Internal organization

The Company is organized with an emphasis on functionality, not hierarchy, each VP will oversee their own area and have flexibility to perform their duties and supervise their staff in the best way possible to achieve the greatest effort and accountability.  The overall organizational structure of the Company will be determined by senior management and periodically reviewed for effectiveness in reaching the stated aims.

 

FINANCE AND ACCOUNTING:

Corporate disbursements:

Disbursements under this category are for corporate expenditures only; accordingly all such disbursements are made from the Company’s corporate account Corporate disbursements are to be made by check only with appropriate signing authorities, outlined in a later section.  The disbursement by check, although cumbersome, gives direct responsibility to the check signers and places them under an onus to insure that the disbursements are in accordance with Company policy and that all internal control procedures have been followed.  In this regard please refer to the SOX section earlier.
Signing authorities:

This section pertains solely to the disbursement of funds and does not include the binding or obligation of the Company in any other area of business. The following rules apply:

Ø     For disbursements up to, but not exceeding $10,000.  The Controller plus any one of:

• Any Director
• The President
• The CFO

Ø     For disbursements above $10,000, but not exceeding $100,000 or more, the CFO plus any one of:

• Any Director
• The President

Ø     For disbursements in excess of $100,000, any 2 directors

Electronic funds transfer:

                A number of administrative disbursements can be handled by electronic funds transfer; the following conditions apply:

Ø     The controller can authorize these disbursements

Ø     No disbursement can exceed $1,000

Ø     No disbursement to the same party can be made more than once in any calendar month

Ø     No employee, contractor, family member or relative of the same can receive an electronic disbursement

Ø     No automatic or re-occurring electronic disbursements will be allowed

Ø     All electronic disbursements must be approved, in arrears, by the CFO on a monthly basis within 5 days of month end

Financial Statements:

                The Company will produce quarterly Financial Statements, prepared in accordance with US GAAP, that show the current quarters activities, the accumulated activities to date, the budgeted activities for the quarter and to date, and a Management Discussion and Analysis inclusion to explain the results to date and variances from budget.  The Financial Statements will include, as minimum:

Ø  Balance Sheet

Ø  Income Statement

Ø  Use of Funds

Ø  Statement of Accounts Payable and Accrued

Ø  Management Discussion and Analysis

Ø  Statement of any future material event

Ø  Notes to Financial Statements, if deemed appropriate or requested by management or Directors

External and Internal reporting:

Although covered elsewhere the following reports will be generated:

External:

Ø  An annual independent external audit by a qualified firm of CPA’s

Ø  A quarterly report that complies with NASDAQ listing requirements and can be sent to shareholders, i.e. 10Q’s

Internal:

Ø  Quarterly financial statements

Ø  Annual financial statements

Ø  Management Discussion and Analysis, quarterly and annually

Ø  Annual budget, by quarter

Ø  Variance reports

Ø  Exception reports

Ø  Flash reports, weekly, for:

o   Cash

o   Payables

o   Receivables

o   Projected Income

Budgets:

Budgets will be prepared annually, in advance, with projections by quarter and accumulatively.  The budget will be reviewed by management prior to the Company’s fiscal year end and submitted to the directors for consideration within 30 days of year end.  Approved budgets will be adhered to unless a Director minute is received authorizing a change in the budget.

Variance reports:

Variance reports (deviations from budget and their explanation) will be prepared for internal use within the Finance and Accounting Department.  Their circulation will be restricted to F & A, but will be the basis of, and summarized in, the Management Discussion and Analysis report.  See Financial Statements, above.

Exception reports:

Exception reports are where ongoing activities vary from the norm; this could be an indication of unlawful activity that needs immediate investigation.  The F & A Department will immediately inform the Compliance Officer who will undertake whatever action is needed.  It is not the responsibility or duty of F & A to deal with these matters; it is a matter for Compliance.  The exception reports will be refined as the Company matures and generated automatically from IT.

Accounting standards:

All financial reporting will be conducted in US currency and adhere to US GAAP (Generally Accepted Accounting Principles).  If conversion to other currencies is required for other entities reporting purposes it will be the duty and responsibility of the other entities to conduct such translations.  See also Patriot Act and SOX.

Income recognition:

Income recognition is always a concern as the earlier income is recognized the more profit can be “booked”.  This is generally of a one time advantage only as early recognition in one quarter or fiscal year robs the next quarter or fiscal year of that revenue; further the independent auditors may well decline to concur with such recognition resulting in what can be a difficult restatement of results or a qualified audit opinion.  Accordingly it is Company policy that no income will be recognized until the following criteria has been met:

Ø  The transaction is complete in all material aspects

Ø  There is “Virtual Certainty” of completion

Ø  The client account has been reconciled and approved by management

Ø  Provision has been made for any anticipated losses

Licensee financial reporting:

The Company may have a number of Licensees that will have specific geographic areas or exclusivity within a particular domain.  Although these Licensees will be independent of the Company their revenues will have to consolidated into the overall corporate reporting of the Company using the appropriate method of accounting.  Accordingly the Company will exercise the following rules in dealing with Licensees:

Ø  The Licensee will adopt a fiscal year that coincides with the Company’s fiscal year; if this is not possible then the Licensees fiscal year end must coincide with the quarterly reporting requirements of the Company

Ø  The Licensee, at their expense, will supply an audited financial statement within 3 months of their fiscal year end

Ø  The Licensee will supply a quarterly financial statement similar in nature to the requirements of the Company within 20 days of the end of any quarter

Ø  The Licensee will be subject to audit, at the Company’s expense, at any time the Company deems it necessary

Ø  The Licensee will make available to the Company all relevant books and records of the Licensee, as it pertains to the License, on demand from the Company

Ø  The Licensee will adopt the same or substantially  similar policies and reporting as the Company