15-Apr-2009

Quarterly Report

Forward Looking Statements

This quarterly report on Form 10-Q of Mantra Venture Group Ltd., (the "Company", "Mantra", "we", "our", "us") contains forward-looking statements that involve risks and uncertainties. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology including "could", "may", "will", "should", "expect", "plan", "anticipate", "believe", "estimate", "predict", "potential" and the negative of these terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially. All currency references in this report are in US dollars unless otherwise noted.

While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested in this report.

This management's discussion and analysis or plan of operation should be read in conjunction with the consolidated financial statements and notes thereto of the Company for the three and nine months ended February 28, 2009. The reported results may not necessarily reflect the future.

Business Overview

We are building a portfolio of companies and technologies that mitigate negative environmental and health consequences that arise from the production of energy and the consumption of resources. We carry on our business through our six wholly owned subsidiaries and one majority owned subsidiary 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;

� Carbon Commodity Corp., through which we intend to license or develop carbon footprint assessment software and develop an online carbon reduction marketplace;

� Climate ESCO Ltd., through which we plan obtain the distribution or licensing rights to commercialized technologies and broker them to residential and industrial consumers seeking sustainability solutions;

� Mantra Next Gen Power Inc., through which we anticipate developing technologies in the alternative energy sector; and

� Mantra China Limited, through which we, together with our joint venture partners, plan to develop our business in Hong Kong and mainland China.

Results of Operations

Lack of Revenues

We have had limited operational history since our inception on January 22, 2007. From our inception on January 22, 2007 to May 31, 2008 we did not generate any revenues; however for the nine months ended February 28, 2009 we generated $12,118 in website development revenue. Since our inception to February 28, 2009, we have an accumulated deficit of $3,440,106. 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

We accumulated total expenses of $3,452,224 from the date of our inception to
February 28, 2009, $1,117,834 of which were paid by way of our common shares,
stock options or share purchase warrants.

                                                                        Stock
Description                                            Expense       based/other         Total
Amortization and accretion                           $    48,307     $     15,408     $    83,715
Business development                                      36,671          167,404         204,075
Consulting and advisory                                    8,642          378,496         387,139
Management fees                                          385,700          254,246         639,946
Research and development                                 191,064           11,275         202,339
Shareholder communication, awareness and financing
costs                                                    313,209          120,390         433,599
Professional fees                                        381,886           41,500         423,386
Public listing and related                               136,048           40,000         176,048
Website and corporate identity                           134,293           26,975         161,268
General, Administrative and salaries                     687,906           62,138         750,046
Interest expense                                          10,663                -          10,663
Total                                                $ 2,334,390     $  1,117,834     $ 3,452,224

For the nine months ended February 28, 2009, we incurred total expenses of $1,405,612, $437,750 of which were paid by way of our common shares, stock

options or share purchase warrants.

Description                                           Expense       Stock based         Total
Amortization                                         $  27,088     $      15,408     $    42,406
Business development                                     3,422                 -           3,442
Consulting and advisory                                  8,642            35,354          43,996
Management fees                                        147,000           232,979         379,979
Research and development                               119,911                 -         119,911
Shareholder communication, awareness and financing
costs                                                  150,091            99,596         249,687
Professional fees                                      231,131                 -         231,131
Public listing and related                              29,001                 -          29,001
General, Administrative and salaries                   240,913            54,413         295,326
Interest expense                                        10,663                 -          10,663
Total                                                $ 967,862     $     437,750     $ 1,405,612

Overall expenses for the nine months ended February 28, 2009 were $76,893 higher than the same period in 2008 due primarily to an increase in management fees paid in stock-based compensation, increased research and development costs and increased shareholder communication, investor awareness and financing costs. Financing costs relate mainly to legal and SEC filing expenses incurred for private placements. The increases were due to continued development of the ERC technology, the efforts to create awareness of the company and the search for development and commercial partners. These increases were offset by a $235,766 decrease in consulting and advisory expenses, a $141,893 decrease in travel, meals and entertainment, a decrease of $30,070 in public listing expenses and a $21,910 decrease in general and administrative expenses as management continues its cost reduction efforts.

For the three months ended February 28, 2009, we incurred total expenses of $629,941, $291,602 of which were paid by way of common shares or stock options

or share purchase warrants.

Description                                           Expense       Stock based        Total
Amortization                                         $   8,782     $      11,580     $  20,362
Business development                                     1,973                 -         1,973
Consulting and advisory                                  8,642                 -         8,642
Management fees                                         51,000           181,446       232,446
Research and development                                47,789                 -        47,789
Shareholder communication, awareness and financing
costs                                                   36,179            44,163        80,342
Professional fees                                       65,467                 -        65,467
Public listing and related                              21,501                 -        21,501
General, Administrative and salaries                    92,229            54,413       146,642
Interest expense                                         4,777                 -         4,777
Total                                                $ 338,339     $     291,602     $ 629,941

Overall expenses for the three months ended February 28, 2009 were lower by $93,439 compared to same period in 2008 due to cost management initiatives and a reduction in website and corporate identity development expenses. We incurred $103,840 in such expenses for the period ended February 29, 2008 compared to nil for the period ended February 28, 2009, as the bulk of the development was completed last year. An increase of $188,258 in management fees, $181,446 of which was stock based, was offset by a $233,569 decrease in business development, consulting and advisory fees. Certain expenses included in shareholder communication and awareness relate to efforts to search, identify and communicate with development and commercial partners.

Net Loss

Since our inception on January 22, 2007 to February 28, 2009, we have incurred net loss of $3,440,106. For the nine months ended February 28, 2009 we incurred net loss of $1,393,494 compared to our net loss of $1,328,773 for the same period in 2008. The loss for the three months ended February 28, 2009 was $94,499 lower than the same period in 2008.

Liquidity and Capital Resources

As at February 28, 2009, we had total current assets of $40,969 and total current liabilities of $607,083 for a working capital deficit of $566,114. This compares to our working capital deficit of $192,990 as at May 31, 2008. To date we have been solely dependent on the funds raised through our equity or debt financings. Going forward we will remain dependent on raising funds through our equity and debt financings but we also expect to receive additional funding from government grant and incentive programs as well as ERC licensing arrangements and commercial partnerships.

During the nine months ended February 28, 2009, we raised gross proceeds/satisfied debt/paid for services totaling $951,625 through the issuance of our securities as described in the following table:

Date of                                       Number of    Price per      Value
issuance  Type of security issued             securities    security       ($)
                                                issued        ($)
June 2008 Common Shares issued for services     37,500        0.20        7,500
July 2008 Units (common shares and warrants)  2,400,000      0.125       300,000
          for cash
July 2008 Common Shares for services            50,000        0.40        20,000
July 2008 Common Shares for services            62,500        0.45        26,250
Sep 2008  Common Shares for services            37,500        0.41        15,375
Oct 2008  Convertible Debentures                 N/A          N/A        250,000
          Units (common shares and warrants)
Nov 2008  for cash - $10,000 applied to       1,220,000       0.25       305,000
          accounts payable
Dec 2008  Common Shares for services            37,500        0.36        13,500
Jan 2009  Common Shares for services            25,000        0.36        9,000
Feb 2009  Common Shares to settle a payable     18,519        0.27        5,000

During the nine months ended February 28, 2009, we used net cash of $84,990 in investing activities and net cash of $ 785,684 in operating activities. This compares to our net cash used in investing activities of $52,529 and net cash used in operating activities of $530,024 for the same period in 2008. During the nine months ended February 28, 2009 we received net cash of $850,919 from financing activities compared to $941,420 for the same period in 2008.

We expect to require approximately $1,346,360 in a combination of financing and grants to for further development of our ERC reactor and for our other planned operational expenses for the next twelve months (beginning April 1, 2009) are summarized as follows:

                                                      Target      Estimated expenses
Description                                      completion date          ($)
                                                    or period
Development of the ERC reactor to demonstration   March 31, 2010       547,360
pre-commercial scale
Anticipated Canadian public listing costs          May 31, 2009        153,000
including legal fees and financing costs
Management and consulting fees (including           12 months          200,000
expenses of our Scientific Advisory Board)
Corporate communication, investor awareness and     12 months          126,000
financing costs
Professional fees, legal and audit                  12 months          120,000
Genera, administrative and salary expenses          12 months          150,000
Travel, advertising and promotional expenses        12 months           50,000
Total                                                                 1,346,360

At present, our cash requirements for the next twelve months outweigh the funds available to maintain or develop our operations. We expect that the bulk of the $1,346,360 that we need for the next 12 months will be covered by the funds raised in connection with our anticipated Canadian public listing. In addition we intend to pursue additional equity financing from private investors and will continue to negotiate with contractors and vendors to pay for the services with stock and stock options instead of cash.

We also continue to implement cost reduction measures which may include reducing our reliance on outside contractors, and tailoring our investor awareness programs and initiatives to a scale that is appropriate to our level of activity and the nature of our business. Finally, we have begun to seek out alternative sources of funding, such as research and development grants to offset the cost of our technology development

There can be no assurance we will be successful in our efforts to secure additional equity financing. If we are unable to raise equity or obtain alternative financing, we may not be able to continue operations with respect to the continued development and marketing of our company and our subsidiaries and we may not be able to continue our operations and our business plan may fail. You may lose your entire investment.

If operations and cash flow improve through these efforts, management believes that we can continue to operate. However, no assurance can be given that management's actions will result in profitable operations or an improvement in our liquidity situation. The threat of our ability to continue as a going concern will be removed only when revenues have reached a level that sustains our business operations.

Off-Balance Sheet Arrangements

We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.

Inflation

The amounts presented in the financial statements do not provide for the effect of inflation on our operations or financial position. The net operating losses shown would be greater than reported if the effects of inflation were reflected either by charging operations with amounts that represent replacement costs or by using other inflation adjustments.

Critical Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with US generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We regularly evaluate estimates and assumptions related to stock-based compensation and deferred income tax asset valuation allowances. We base our estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by us may differ materially and adversely from our estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

Stock-based Compensation

We record stock based compensation in accordance with SFAS 123(R), "Share-Based Payments," which requires the measurement and recognition of compensation expense, based on estimated fair values, for all share-based awards, made to employees and directors, including stock options.

SFAS 123(R) requires companies to estimate the fair value of share-based awards on the date of grant using an option-pricing model. We use the Black-Scholes option-pricing model as its method of determining fair value. This model is affected by our stock price as well as assumptions regarding a number of subjective variables. These subjective variables include, but are not limited to our expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. The value of the portion of the award that is ultimately expected to vest is recognized in our financial statements as an expense in the Consolidated Statement of Operations over the requisite service period.

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 in accordance with the provisions of EITF 96-18.