UNITED
STATES

SECURITIES
AND EXCHANGE COMMISSION

Washington,
D.C. 20549



FORM
10-Q



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



For
the quarterly period ended August 31, 2017



Or



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



For
the transition period from	            to



Commission File Number 000-53461



MANTRA
VENTURE GROUP LTD.




(Exact
name of registrant as specified in its charter)



|British
    Columbia                                                |  | 26-0592672                            
|------------------------------------------------------------------- |  | --------------------------------------
|(State
    or other jurisdiction of 
incorporation or organization) |  | (IRS
    Employer 
Identification No.)
|                                                                    |  |                                       
|300
    Crown Oak Centre, Longwood, Florida                         |  | 32750                                 
|(Address
    of principal executive offices)                        |  | (Zip
    Code)                        



407-512-9102




(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. ☒ 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). ☒ YES ☐
NO



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



|Large
    accelerated filer | ☐ |                                                   | Accelerated
    filer         | ☐
|--------------------------- | - | ------------------------------------------------- | ----------------------------- | -
|Non-accelerated
    filer   | ☐ | (Do
    not check if a smaller reporting company) | Smaller
    reporting company | ☒
|Emerging
    growth company | ☐ |                                                   |                               |  



If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) 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 ☒ NO



APPLICABLE
ONLY TO ISSUERS INVOLVED INBANKRUPTCY PROCEEDINGS DURING THEPRECEDING 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.



274,998,800common shares issued and outstanding as of October 19, 2017




















Table
of Contents



|PART
    I – FINANCIAL INFORMATION | 1                                                                                        
|---------------------------------- | -----------------------------------------------------------------------------------------
|Item
    1.                        | Financial
    Statements                                                                 
|Item
    2.                        | Management’s
    Discussion and Analysis of Financial Condition and Results of Operations
|Item
    3.                        | Quantitative
    and Qualitative Disclosures About Market Risk                           
|Item
    4.                        | Controls
    and Procedures                                                              
|PART
    II – OTHER INFORMATION    | 31                                                                                       
|Item
    1.                        | Legal
    Proceedings                                                                    
|Item
    1A.                       | Risk
    Factors                                                                         
|Item
    2.                        | Unregistered
    Sales of Equity Securities and Use of Proceeds                          
|Item
    3.                        | Defaults
    Upon Senior Securities                                                      
|Item
    4.                        | Mine
    Safety Disclosures                                                              
|Item
    5.                        | Other
    Information                                                                    
|Item
    6.                        | Exhibits                                                                                 
|SIGNATURES                         | 32                                                                                       













PART
I – FINANCIAL INFORMATION



Item
1. Financial Statements



The
unaudited interim consolidated financial statements of our company have been prepared in accordance with generally accepted accounting
principles in the United States of America and are presented in US dollars, unless otherwise noted.





1







MANTRA
VENTURE GROUP LTD.



|Consolidated
    balance sheets as of August 31, 2017 (unaudited) and May 31, 2017                        | 3
|--------------------------------------------------------------------------------------------------------- | -
|                                                                                                          |  
|Consolidated
    statements of operations for the three months ended August 31, 2017 and 2016 (unaudited) | 4
|                                                                                                          |  
|Consolidated
    statements of cash flows for the three months ended August 31, 2017 and 2016 (unaudited) | 5
|                                                                                                          |  
|Notes
    to  unaudited consolidated financial statements                                                 | 6





2







MANTRA
VENTURE GROUP LTD.

Consolidated
balance sheets

(Expressed
in U.S. dollars)



|                                                                                                                                                         |  | August 31,  |             |   | May 31, | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------- | ----------- | - | ------- | 
|                                                                                                                                                         |  | 2017        |             |   | 2017    | 
|                                                                                                                                                         |  | $           |             |   | $       | 
|                                                                                                                                                         |  | (unaudited) |             |   |         | 
|ASSETS                                                                                                                                                   |  |             |             |   |         | 
|Current assets                                                                                                                                           |  |             |             |   |         | 
|Cash                                                                                                                                                     |  |             | 158,207     |   |         | 
|Accounts receivable, net                                                                                                                                 |  |             | 1,889,416   |   |         | 
|Prepaid expenses and deposits                                                                                                                            |  |             | 12,070      |   |         | 
|Total current assets                                                                                                                                     |  |             | 2,059,693   |   |         | 
|Property and equipment, net                                                                                                                              |  |             | 67,089      |   |         | 
|Goodwill                                                                                                                                                 |  |             | 1,503,633   |   |         | 
|Customer lists, net                                                                                                                                      |  |             | 868,192     |   |         | 
|Tradenames, net                                                                                                                                          |  |             | 553,345     |   |         | 
|Other assets                                                                                                                                             |  |             | 27,930      |   |         | 
|Total assets                                                                                                                                             |  |             | 5,079,882   |   |         | 
|                                                                                                                                                         |  |             |             |   |         | 
|LIABILITIES AND STOCKHOLDERS’ DEFICIT                                                                                                                    |  |             |             |   |         | 
|Current liabilities                                                                                                                                      |  |             |             |   |         | 
|Accounts payable and accrued liabilities                                                                                                                 |  |             | 2,148,441   |   |         | 
|Due to related parties                                                                                                                                   |  |             | 360,524     |   |         | 
|Loans payable (net of discount of $107,290 and $nil, respectively)                                                                                       |  |             | 316,212     |   |         | 
|Convertible debentures (net of discount of $1,060,534 and $1,350,067, respectively)                                                                      |  |             | 2,429,324   |   |         | 
|Derivative liability                                                                                                                                     |  |             | 3,880,431   |   |         | 
|Contingent liability                                                                                                                                     |  |             | 1,409,411   |   |         | 
|Total current liabilities                                                                                                                                |  |             | 10,544,343  |   |         | 
|                                                                                                                                                         |  |             |             |   |         | 
|Stockholders’ deficit                                                                                                                                    |  |             |             |   |         | 
|Mantra Venture Group Ltd. stockholders’ deficit Preferred stock Authorized:
    20,000,000 shares, par value $0.00001 Issued and outstanding: Nil shares |  |             | –           |   |         | 
|Common stock Authorized: 275,000,000 shares, par value
    $0.00001 Issued and outstanding: 274,998,800 (2016 – 274,998,800) shares                      |  |             | 2,754       |   |         | 
|Additional paid-in capital                                                                                                                               |  |             | 15,724,447  |   |         | 
|Common stock subscribed                                                                                                                                  |  |             | 74,742      |   |         | 
|Accumulated deficit                                                                                                                                      |  |             | (21,243,184 | ) |         | 
|Total Mantra Venture Group Ltd. stockholders’ deficit                                                                                                    |  |             | (5,441,241  | ) |         | 
|Non-controlling interest                                                                                                                                 |  |             | (23,220     | ) |         | 
|Total stockholders’ deficit                                                                                                                              |  |             | (5,464,461  | ) |         | 
|Total liabilities and stockholders’ deficit                                                                                                              |  |             | 5,079,882   |   |         | 



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





3







MANTRA
VENTURE GROUP LTD.

Consolidated
statements of operations

(Expressed
in U.S. dollars)

(Unaudited)



|                                                                                                                                                 |  | Three Months Ended  August 31,                                                         |             |   | Three Months Ended  August 31, | 
|------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------------------------------------------------------------------------------- | ----------- | - | ------------------------------ | 
|                                                                                                                                                 |  | 2017
                                                                                $ |             |   | 2016
$                         | 
|                                                                                                                                                 |  |                                                                                        |             |   |                                | 
|Revenue                                                                                                                                          |  |                                                                                        | 3,115,921   |   |                                | 
|                                                                                                                                                 |  |                                                                                        |             |   |                                | 
|Cost of goods sold                                                                                                                               |  |                                                                                        | 2,508,752   |   |                                | 
|Gross profit                                                                                                                                     |  |                                                                                        | 607,169     |   |                                | 
|                                                                                                                                                 |  |                                                                                        |             |   |                                | 
|Operating expenses                                                                                                                               |  |                                                                                        |             |   |                                | 
|Depreciation and amortization                                                                                                                    |  |                                                                                        | 68,131      |   |                                | 
|General and administrative                                                                                                                       |  |                                                                                        | 558,128     |   |                                | 
|Salaries & wages                                                                                                                                 |  |                                                                                        | 259,760     |   |                                | 
|                                                                                                                                                 |  |                                                                                        |             |   |                                | 
|Total operating expenses                                                                                                                         |  |                                                                                        | 886,019     |   |                                | 
|                                                                                                                                                 |  |                                                                                        |             |   |                                | 
|Loss from operations                                                                                                                             |  |                                                                                        | (278,850    | ) |                                | 
|                                                                                                                                                 |  |                                                                                        |             |   |                                | 
|Other income (expense)                                                                                                                           |  |                                                                                        |             |   |                                | 
|Accretion of discounts on convertible debentures                                                                                                 |  |                                                                                        | (460,243    | ) |                                | 
|Gain on change in fair value of derivatives                                                                                                      |  |                                                                                        | 129,835     |   |                                | 
|Interest expense                                                                                                                                 |  |                                                                                        | (77,907     | ) |                                | 
|Total other income expense                                                                                                                       |  |                                                                                        | (408,315    | ) |                                | 
|                                                                                                                                                 |  |                                                                                        |             |   |                                | 
|Net loss for the period                                                                                                                          |  |                                                                                        | (687,165    | ) |                                | 
|                                                                                                                                                 |  |                                                                                        |             |   |                                | 
|Less: net loss attributable to the non-controlling interest                                                                                      |  |                                                                                        | (37,052     | ) |                                | 
|                                                                                                                                                 |  |                                                                                        |             |   |                                | 
|Net loss attributable to Mantra Venture Group Ltd.                                                                                               |  |                                                                                        | (724,217    | ) |                                | 
|                                                                                                                                                 |  |                                                                                        |             |   |                                | 
|Net loss per share attributable to Mantra Venture Group Ltd.
    common shareholders, basic and diluted                                          |  |                                                                                        | (0.00       | ) |                                | 
|                                                                                                                                                 |  |                                                                                        |             |   |                                | 
|Weighted average number
    of shares outstanding used in the calculation of net loss attributable to Mantra Venture Group Ltd. per common share |  |                                                                                        | 274,998,800 |   |                                | 



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





4







MANTRA
VENTURE GROUP LTD.

Consolidated
statements of cash flows

(Expressed
in U.S. dollars)

(Unaudited)



|                                                                            |  | Three Months Ended  August 31,  2017
     $ |          |   | Three Months Ended  August 31,  2016
    $ | 
|--------------------------------------------------------------------------- |  | ------------------------------------------- | -------- | - | ------------------------------------------ | 
|Operating activities                                                        |  |                                             |          |   |                                            | 
|                                                                            |  |                                             |          |   |                                            | 
|Net loss                                                                    |  |                                             | (687,165 | ) |                                            | 
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                                             |          |   |                                            | 
|Gain on change in fair value of derivative liability                        |  |                                             | (212,601 | ) |                                            | 
|Accretion of discounts on convertible debentures                            |  |                                             | 460,243  |   |                                            | 
|Depreciation and amortization                                               |  |                                             | 68,131   |   |                                            | 
|Foreign exchange loss (gain)                                                |  |                                             | 10,060   |   |                                            | 
|Initial derivative expenses                                                 |  |                                             | 82,766   |   |                                            | 
|Interest related to cash redemption premium on convertible notes            |  |                                             | –        |   |                                            | 
|Changes in operating assets and liabilities:                                |  |                                             |          |   |                                            | 
|Amounts receivable                                                          |  |                                             | (266,215 | ) |                                            | 
|Prepaid expenses and deposits                                               |  |                                             | 120,085  |   |                                            | 
|Accounts payable and accrued liabilities                                    |  |                                             | 35,085   |   |                                            | 
|Due to related parties                                                      |  |                                             | 52,516   |   |                                            | 
|Net cash used in operating activities                                       |  |                                             | (337,095 | ) |                                            | 
|Financing activities                                                        |  |                                             |          |   |                                            | 
|Repayment of capital lease obligations                                      |  |                                             | –        |   |                                            | 
|Repayment of loan payable                                                   |  |                                             | (100,000 | ) |                                            | 
|Proceeds from notes payable                                                 |  |                                             | 250,200  |   |                                            | 
|Proceeds from issuance of convertible debentures                            |  |                                             | –        |   |                                            | 
|Checks issued in excess of funds on deposit                                 |  |                                             | –        |   |                                            | 
|Net cash provided by financing activities                                   |  |                                             | 150,200  |   |                                            | 
|Change in cash                                                              |  |                                             | (186,895 | ) |                                            | 
|Cash, beginning of period                                                   |  |                                             | 345,102  |   |                                            | 
|Cash, end of period                                                         |  |                                             | 158,207  |   |                                            | 
|Non-cash investing and financing activities:                                |  |                                             |          |   |                                            | 
|Common stock issued to relieve common stock subscribed                      |  |                                             | –        |   |                                            | 
|Common stock issued for conversion of notes payable                         |  |                                             | –        |   |                                            | 
|Original issue discounts                                                    |  |                                             | 27,800   |   |                                            | 
|Original debt discount against derivative
    liability                     |  |                                             | 250,200  |   |                                            | 
|                                                                            |  |                                             |          |   |                                            | 
|Supplemental disclosures:                                                   |  |                                             |          |   |                                            | 
|Interest paid                                                               |  |                                             | 621      |   |                                            | 
|Income taxes paid                                                           |  |                                             | –        |   |                                            | 



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





5







MANTRA
VENTURE GROUP LTD.

Notes
to the unaudited consolidated financial statements

August
31, 2017

(Expressed
in U.S. dollars)



|1. | Organization
    and Going Concern
|-- | ----------------------------------



Mantra
Venture Group Ltd. (the “Company”) was incorporated in the State of Nevada on January 22, 2007 to acquire and commercially
exploit various new energy related technologies through licenses and purchases. On December 8, 2008, the Company continued its
corporate jurisdiction out of the State of Nevada and into the province of British Columbia, Canada. On April 25, 2017, the Company
entered into and closed on an Asset Purchase Agreement (the “Asset Purchase Agreement”) with InterCloud Systems, Inc.
(“InterCloud”). Pursuant to the terms of the Asset Purchase Agreement, the Company purchased 80.1% of the assets associated
with InterCloud’s “AW Solutions” business. After the acquisition of AW Solutions, the Company provides professional,
multi-service line, telecommunications infrastructure and outsource services to the wireless and wireline industry.



The
accompanying unaudited consolidated interim financial statements of the Company should be read in conjunction with the consolidated
financial statements and accompanying notes filed with the U.S. Securities and Exchange Commission in the Company’s Annual
Report on Form 10-K for the fiscal year ended May 31, 2017. In the opinion of management, the accompanying financial statements
reflect all adjustments of a recurring nature considered necessary to present fairly the Company’s financial position and
the results of its operations and its cash flows for the periods shown.



The
preparation of financial statements in accordance with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported. Actual results could differ materially from those
estimates. The results of operations and cash flows for the periods shown are not necessarily indicative of the results to be
expected for the full year.



These
consolidated financial statements have been prepared on a going concern basis, which implies the Company will continue to realize
its assets and discharge its liabilities in the normal course of business. The Company has yet to acquire commercially exploitable
energy related technology, and is unlikely to generate earnings in the immediate or foreseeable future. The recently acquired
AW Solutions business has also incurred losses and experienced cash outflows from operations during its most recent fiscal years.
The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the
ability of management to raise additional equity capital through private and public offerings of its common stock, and the attainment
of profitable operations. As of August 31, 2017, the Company has an accumulated loss of $21,243,184, and a working capital deficit
of $8,484,650. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. These
consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts
and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.



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



|2. | Significant
    Accounting Policies
|-- | -----------------------------------



| | a. | Basis
    of Presentation/Principles of Consolidation
| | -- | -----------------------------------------------------



These
consolidated financial statements and related notes are presented in accordance with accounting principles generally accepted
in the United States. These consolidated financial statements include the accounts of the Company and its subsidiaries, Carbon
Commodity Corporation, Climate ESCO Ltd., Mantra Energy Alternatives Ltd., Mantra China Inc., Mantra China Limited, Mantra Media
Corp., Mantra NextGen Power Inc., Mantra Wind Inc., AW Solutions, Inc.(from the date of acquisition, April 25, 2017), Tropical
Communications, Inc. (from the date of acquisition, April 25, 2017) and AW Solutions Puerto Rico, LLC.(from the date of acquisition,
April 25, 2017). All the subsidiaries are wholly-owned with the exception of Climate ESCO Ltd., which is 64.55% owned, Mantra
Energy Alternatives Ltd., which is 88.21% owned and AW Solutions, Inc., Tropical Communications, Inc., and AW Solutions Puerto
Rico, LLC which are all 80.1% owned. All inter-company balances and transactions have been eliminated.





6







| | b. | Use
    of Estimates
| | -- | --------------------



The
preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company
regularly evaluates estimates and assumptions related to allowance for doubtful accounts, the estimated useful lives and recoverability
of long-lived assets, equity component of convertible debt, stock-based compensation, and deferred income tax asset valuation
allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors
that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the
carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources.
The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent
there are material differences between the estimates and the actual results, future results of operations will be affected.



| | c. | Cash
    and Cash Equivalents
| | -- | -----------------------------



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



| | d. | Accounts
    Receivable
| | -- | -----------------------



Trade
accounts receivable are recorded at the invoiced amount and do not bear interest. The Company records unbilled receivables for
services performed but not billed. At August 31, 2017, unbilled receivables totaled $180,650, and are included in accounts receivable.
Management reviews a customer’s credit history before extending credit. The Company maintains an allowance for doubtful
accounts for estimated losses. Estimates of uncollectible amounts are reviewed each period, and changes are recorded in the period
in which they become known. Management analyzes the collectability of accounts receivable each period. This review considers the
aging of account balances, historical bad debt experience, changes in customer creditworthiness, current economic trends, customer
payment activity and other relevant factors. Should any of these factors change, the estimate made by management may also change.
The allowance for doubtful accounts was $ 82,678 at August 31, 2017.



| | e. | Property
    and Equipment
| | -- | --------------------------



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



| | Automotive                          |  | 3-5
    years straight-line basis
| | ----------------------------------- |  | ---------------------------------
| | Computer
    equipment and software |  | 3-7
    years straight-line basis
| | Leasehold
    improvements          |  | 5
    years straight-line basis  
| | Office
    equipment and furniture  |  | 5
    years straight-line basis  
| | Research
    equipment              |  | 5
    years straight-line basis  



| | f. | Goodwill
| | -- | --------



Goodwill
was generated through the acquisition of AW Solutions in fiscal 2017 as the total consideration paid exceeded the fair value of
the net assets acquired.



The
Company tests its goodwill for impairment at least annually and whenever events or circumstances change that indicate impairment
may have occurred. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such
indicators may include, among others: a significant decline in the Company’s expected future cash flows; a significant adverse
change in legal factors or in the business climate; unanticipated competition; and slower growth rates. Any adverse change in
these factors could have a significant impact on the recoverability of goodwill and the Company’s consolidated financial
results.





7







The
Company tests goodwill by estimating fair value using a Discounted Cash Flow (“DCF”) model. The key assumptions used
in the DCF model to determine the highest and best use of estimated future cash flows include revenue growth rates and profit
margins based on internal forecasts, terminal value and an estimate of a market participant’s weighted-average cost of capital
used to discount future cash flows to their present value. There were no impairment charges during the three months ended August
31, 2017.



| | g. | Intangible
    Assets
| | -- | ---------------------



At
August 31, 2017 and May 31, 2017, definite-lived intangible assets primarily consist of non-compete agreements, tradenames and
customer relationships which are being amortized over their estimated useful lives ranging from 1-10 years.



The
Company periodically evaluates the reasonableness of the useful lives of these assets. Once these assets are fully amortized,
they are removed from the accounts. These assets are reviewed for impairment or obsolescence when events or changes in circumstances
indicate that the carrying amount may not be recoverable. If impaired, intangible assets are written down to fair value based
on discounted cash flows or other valuation techniques. The Company has no intangibles with indefinite lives.



For
long-lived assets, impairment losses are only recorded if the asset’s carrying amount is not recoverable through its undiscounted,
probability-weighted future cash flows. The Company measures the impairment loss based on the difference between the carrying
amount and the estimated fair value. When an impairment exists, the related assets are written down to fair value.



| | h. | Long-lived
    Assets
| | -- | ---------------------



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



| | i. | Foreign
    Currency Translation
| | -- | --------------------------------



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



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



| | j. | Income
    Taxes
| | -- | ----------------



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



The
Company conducts business, and files federal and state income, franchise or net worth, tax returns in Canada, the United States,
in various states within the United States and the Commonwealth of Puerto Rico. The Company determines its filing obligations
in a jurisdiction in accordance with existing statutory and case law. The Company may be subject to a reassessment of federal
and provincial income taxes by Canadian tax authorities for a period of three years from the date of the original notice of assessment
in respect of any particular taxation year. For Canadian and U.S. income tax returns, the open taxation years range from 2010
to 2017. In certain circumstances, the U.S. federal statute of limitations can reach beyond the standard three year period. U.S.
state statutes of limitations for income tax assessment vary from state to state. Tax authorities of Canada and U.S. have not
audited any of the Company’s, or its subsidiaries’, income tax returns for the open taxation years noted above.





8







Significant
management judgment is required in determining the provision for income taxes, and in particular, any valuation allowance recorded
against the Company’s deferred tax assets. Deferred tax assets are regularly reviewed for recoverability. The Company currently
has significant deferred tax assets resulting from net operating loss carryforwards and deductible temporary differences, which
should reduce taxable income in future periods. The realization of these assets is dependent on generating future taxable income.



The
Company follows the guidance set forth within ASC Topic 740, Income Taxes (“ASC Topic 740”) which prescribes a two-step
process for the financial statement recognition and measurement of income tax positions taken or expected to be taken in an income
tax return. The first step evaluates an income tax position in order to determine whether it is more likely than not that the
position will be sustained upon examination, based on the technical merits of the position. The second step measures the benefit
to be recognized in the financial statements for those income tax positions that meet the more likely than not recognition threshold.
ASC Topic 740 also provides guidance on de-recognition, classification, recognition and classification of interest and penalties,
accounting in interim periods, disclosure and transition. Penalties and interest, if incurred, would be recorded as a component
of current income tax expense.



The
Company received a tax notice from the Puerto Rican government requesting payment of taxes related to 2014 in the amount of $166,084
plus penalties and interest of $87,027 for a total obligation due of $253,111. This tax assessment is included in accrued expenses
at August 31, 2017.



| | k. | Revenue
    Recognition
| | -- | -----------------------



The
Company’s revenues are generated from infrastructure and professional services. The Company recognizes revenue on arrangements
in accordance with ASC Topic 605-10, “Revenue Recognition”. The Company recognizes revenue only when the price is
fixed or determinable, persuasive evidence of an arrangement exists, the service is performed, and collectability of the resulting
receivable is reasonably assured.



The
infrastructure and professional services revenues are derived from contracts to provide technical engineering services along with
contracting services to commercial and governmental customers. The Company’s service contracts generally require specific
tasks or services that the Company must perform under the contract. The Company recognizes revenues associated with these services
upon the completion of the related task or service which is at the time the four revenue recognition criteria have been met. Direct
costs incurred related to performance of the task or service are deferred and recorded as prepaid expense and are expensed when
the related revenue is recognized.



The
Company also generates revenue from service contracts with certain customers. These contracts are accounted for under the proportional
performance method. Under this method, revenue is recognized in proportion to the value provided to the customer for each project
as of each reporting date.



The
Company records unbilled receivables for revenues earned, but not yet billed.



| | l. | Cost
    of Revenues
| | -- | --------------------



Cost
of revenues includes all direct costs of providing services under our contracts, including costs for direct labor provided by
employees, services by independent subcontractors, operation of capital equipment (excluding depreciation and amortization), direct
materials, insurance claims and other direct costs.



| | m. | Research
    and Development Costs
| | -- | ----------------------------------



Research
and development costs are expensed as incurred.



| | n. | Stock-based
    Compensation
| | -- | ----------------------------



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





9







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



| | o. | Loss
    Per Share
| | -- | ------------------



The
Company computes loss per share in accordance with ASC 260, “Earnings per Share” which requires presentation
of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by
dividing the loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator)
during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury
stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price
for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants.
Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. As of August 31, 2017, the Company had 944,501,087
(2016 – 243,619,532) dilutive potential shares outstanding.



| | p. | Comprehensive
    Loss
| | -- | ----------------------



ASC
220, “Comprehensive Income,” establishes standards for the reporting and display of comprehensive loss and
its components in the financial statements. As of August 31, 2017 and 2016, the Company has no items that represent a comprehensive
loss and, therefore, has not included a schedule of comprehensive loss in the consolidated financial statements.



| | q. | Recent
    Accounting Pronouncements
| | -- | ------------------------------------



On
May 28, 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, Revenue from Contracts with Customers
(“ASU 2014-09”), which is effective for nonpublic entities for annual reporting periods, as amended, beginning after
December 15, 2018. The new revenue recognition standard provides a five-step analysis of transactions to determine when and how
revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods
or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for
those goods or services. The new standard is effective for the Company on June 1, 2019, and early adoption is not permitted. The
standard permits the use of either the retrospective or cumulative effect transition method. The Company continues to evaluate
the standard and has not yet selected a transition method.



In
November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740) – Balance Sheet Classification of Deferred Taxes
(“ASU 2015-17”), which is effective for nonpublic entities for annual reporting periods beginning after December 15,
2016. ASU 2015-17 simplifies the presentation of deferred income taxes by requiring that deferred tax liabilities and assets be
classified as non-current in the statement of financial position. The Company has elected to early adopt the requirements of ASU
2015-17 and the results of such adoption are presented within these consolidated financial statements.



In
February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which is effective for nonpublic
entities for annual reporting periods beginning after December 15, 2019. Under ASU 2016-02, lessees will be required to recognize
the following for all leases (with the exception of short-term leases) at the commencement date: 1) a lease liability, which is
a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and 2) a right-of-use
asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease
term. The Company continues to evaluate the effects of ASU 2016-02 and does not expect that the adoption will have a material
effect on its consolidated financial statements and disclosures.



In
March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations
(“ASU 2016-08”). The amendments are intended to improve the operability and understandability of the implementation
guidance on principal versus agent considerations by amending certain existing illustrative examples and adding additional illustrative
examples to assist in the application of the guidance. The effective date and transition requirements for the amendments are the
same as the effective date and transition requirements in Topic 606: The guidance is effective for the Company beginning June
1, 2019. The Company is currently evaluating the effects of ASU 2016-08 on its consolidated financial statements.





10







In
April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations
and Licensing (“ASU 2016-10”). The amendments in ASU 2016-10 clarify the following two aspects of Topic 606: (a) identifying
performance obligations; and (b) the licensing implementation guidance. The amendments do not change the core principle of the
guidance in Topic 606. The effective date and transition requirements for the amendments are the same as the effective date and
transition requirements in Topic 606: The guidance is effective for the Company beginning June 1, 2019. The Company is currently
evaluating the effects of ASU 2016-10 on its consolidated financial statements.



In
May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical
Expedients (“ASU 2016-12”). The amendments in ASU 2016-12 provide clarifying guidance in certain narrow areas and
add some practical expedients. Specifically, the amendments in this update (1) clarify the objective of the collectability criterion
in step 1, and provides additional clarification for when to recognize revenue for a contract that fails step 1, (2) permit an
entity, as an accounting policy election, to exclude amounts collected from customers for all sales (and other similar) taxes
from the transaction price (3) specify that the measurement date for noncash consideration is contract inception, and clarifies
that the variable consideration guidance applies only to variability resulting from reasons other than the form of the consideration,
(4) provide a practical expedient that permits an entity to reflect the aggregate effect of all modifications that occur before
the beginning of the earliest period presented when identifying the satisfied and unsatisfied performance obligations, determining
the transaction price, and allocating the transaction price to the satisfied and unsatisfied performance obligations, (5) clarifies
that a completed contract for purposes of transition is a contract for which all (or substantially all) of the revenue was recognized
under legacy GAAP before the date of initial application. Further, accounting for elements of a contract that do not affect revenue
under legacy GAAP are irrelevant to the assessment of whether a contract is complete. In addition, the amendments permit an entity
to apply the modified retrospective transition method either to all contracts or only to contracts that are not completed contracts,
and (6) clarifies that an entity that retrospectively applies the guidance in Topic 606 to each prior reporting period is not
required to disclose the effect of the accounting change for the period of adoption. However, an entity is still required to disclose
the effect of the changes on any prior periods retrospectively adjusted. The effective date and transition requirements for the
amendments are the same as the effective date and transition requirements in Topic 606. The guidance is effective for the Company
beginning June 1, 2019. The Company is currently evaluating the effects of ASU 2016-12 on its consolidated financial statements.



In
January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805) Clarifying the Definition of a Business (“ASU
2017-01”). The Amendments in this Update clarify the definition of a business with the objective of adding guidance to assist
entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses.
The definition of a business affects many areas of accounting, including acquisitions, disposals, goodwill, and consolidation.
The guidance is effective for annual periods beginning after December 15, 2018, including interim periods within those periods.
Early adoption of this standard is permitted. The Company is currently evaluating the effects of ASU 2017-01 on its consolidated
financial statements.



In
January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
(“ASU 2017-04”). This standard will simplify the subsequent measurement of goodwill by eliminating Step 2 from the
goodwill impairment test. Current guidance requires that companies compute the implied fair value of goodwill under Step 2 by
performing procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized
assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities
assumed in a business combination. This standard will require companies to perform annual or interim goodwill impairment tests
by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for
the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not
exceed the total amount of goodwill allocated to that reporting unit. This standard will be effective for annual periods beginning
after December 15, 2020, including interim periods within that reporting period, and will be applied prospectively. Early adoption
of this standard is permitted on testing dates after January 1, 2017. The Company is evaluating the effects of ASU 2017-04 on
its consolidated financial statements.



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





11







| | r. | Concentrations
    of Risk
| | -- | --------------------------



Financial
instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivables.
The Company maintains its cash balances with high-credit-quality financial institutions. Deposits held with banks may exceed the
amount of insurance provided on such deposits. These deposits may be withdrawn upon demand and therefore bear minimal risk.



The
Company provides credit to customers on an uncollateralized basis after evaluating client creditworthiness. For the three months
ended August 31, 2017, two customers accounted for 43% and 20%, respectively, of consolidated revenues for the period. In addition,
amounts due from these customers represented 17% and 34%, respectively, of trade accounts receivable as of August 31, 2017.



The
Company’s customers are primarily located within the United States of America and Puerto Rico. Revenues generated within
the United States of America accounted for approximately 73% of consolidated revenues for the three month period ended August
31, 2017. Revenues generated from customers in Puerto Rico accounted for approximately 26% of consolidated revenues for the three
month period ended August 31, 2017.



| | s. | Fair
    Value Measurements
| | -- | ---------------------------



The
Company measures and discloses the estimated fair value of financial assets and liabilities using the fair value hierarchy prescribed
by US generally accepted accounting principles. The fair value hierarchy has three levels, which are based on reliable available
inputs of observable data. The hierarchy requires the use of observable market data when available. The three-level hierarchy
is defined as follows:



Level
1 – quoted prices for identical instruments in active markets.



Level
2 – quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets
that are not active; and model derived valuations in which significant inputs and significant value drivers are observable in
active markets; and.



Level
3 – fair value measurements derived from valuation techniques in which one or more significant inputs or significant value
drivers are unobservable.



Financial
instruments consist principally of cash and cash equivalents, accounts receivable, restricted cash, accounts payable, loans payable
and convertible debentures. Derivative liabilities are determined based on “Level 3” inputs, which are significant
and unobservable and have the lowest priority. There were no transfers into or out of “Level 3” during the three months
ended August 31, 2017 and 2016. The recorded values of all other financial instruments approximate their current fair values because
of their nature and respective relatively short maturity dates or durations.





12







Our
financial assets and liabilities carried at fair value measured on a recurring basis as of August 31, 2017 and May 31, 2017, consisted
of the following:



| |                          |  | Total fair value at  August 31,  2017
     $ |           |  | Quoted prices in active markets  (Level 1)
     $ |  |   | Significant other observable inputs  (Level
    2)  $ |  |  | Significant unobservable inputs  (Level 3)
     $ | 
| | ------------------------ |  | -------------------------------------------- | --------- |  | ------------------------------------------------- |  | - | ----------------------------------------------------- |  |  | ------------------------------------------------- | 
| |                          |  |                                              |           |  |                                                   |  |   |                                                       |  |  |                                                   | 
| | Description:             |  |                                              |           |  |                                                   |  |   |                                                       |  |  |                                                   | 
| | Derivative liability (1) |  |                                              | 3,880,431 |  |                                                   |  | – |                                                       |  |  | –                                                 | 



| |                          |  | Total fair value at  May 31,  2017 
    $ |           |  | Quoted prices in active markets  (Level 1)
     $ |  |   | Significant other observable inputs  (Level
    2)  $ |  |  | Significant unobservable inputs  (Level 3)
     $ | 
| | ------------------------ |  | ----------------------------------------- | --------- |  | ------------------------------------------------- |  | - | ----------------------------------------------------- |  |  | ------------------------------------------------- | 
| |                          |  |                                           |           |  |                                                   |  |   |                                                       |  |  |                                                   | 
| | Description:             |  |                                           |           |  |                                                   |  |   |                                                       |  |  |                                                   | 
| | Derivative liability (1) |  |                                           | 3,760,067 |  |                                                   |  | – |                                                       |  |  | –                                                 | 



| | (1) | The
    Company has estimated the fair value of these derivatives using the Monte-Carlo model and/or a Binomial Model based.
| | --- | ----------------------------------------------------------------------------------------------------------------------------



Fair
value estimates are made at a specific point in time, based on relevant market information and information about the financial
statement. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore
cannot be determined with precision. Changes in assumptions could significantly affect the estimates. See Note 8 for additional
information.



| | t. | Derivative
    Liabilities
| | -- | --------------------------



The
Company accounts for derivative instruments in accordance with ASC Topic 815, “Derivatives and Hedging” and
all derivative instruments are reflected as either assets or liabilities at fair value in the balance sheet. The Company uses
estimates of fair value to value its derivative instruments. Fair value is defined as the price to sell an asset or transfer a
liability in an orderly transaction between willing and able market participants. In general, the Company’s policy in estimating
fair values is to first look at observable market prices for identical assets and liabilities in active markets, where available.
When these are not available, other inputs are used to model fair value such as prices of similar instruments, yield curves, volatilities,
prepayment speeds, default rates and credit spreads, relying first on observable data from active markets. Depending on the availability
of observable inputs and prices, different valuation models could produce materially different fair value estimates. The values
presented may not represent future fair values and may not be realizable. The Company categorizes its fair value estimates in
accordance with ASC 820 based on the hierarchical framework associated with the three levels of price transparency utilized in
measuring financial instruments at fair value as discussed above. As of August 31, 2017 and May 31, 2017, the Company had a $3,880,431
and $3,760,431 derivative liability, respectively.



| | u. | Reclassifications
| | -- | -----------------



Certain
prior period amounts have been reclassified to conform to current presentation.





13







|3. | Property
    and Equipment
|-- | --------------------------



| |                                |  | August 31,  2017  $ |           |   | May 31, 2017  $ | 
| | ------------------------------ |  | ------------------- | --------- | - | --------------- | 
| |                                |  |                     |           |   |                 | 
| | Computers and office equipment |  |                     | 308,649   |   |                 | 
| | Equipment                      |  |                     | 378,505   |   |                 | 
| | Research equipment             |  |                     | 143,129   |   |                 | 
| | Software                       |  |                     | 177,073   |   |                 | 
| | Vehicles                       |  |                     | 94,356    |   |                 | 
| | Vehicles under capital lease   |  |                     | –         |   |                 | 
| |                                |  |                     |           |   |                 | 
| | Total                          |  |                     | 1,101,712 |   |                 | 
| |                                |  |                     |           |   |                 | 
| | Less: impairment               |  |                     | (44,419   | ) |                 | 
| | Less: accumulated depreciation |  |                     | (990,204  | ) |                 | 
| |                                |  |                     |           |   |                 | 
| | Equipment, Net                 |  |                     | 67,089    |   |                 | 



During
the three months ended August 31, 2017, the Company recorded $28,941 (2016 - $6,336) of amortization expense.



|4. | Intangible
    Assets
|-- | ---------------------



| |                                 |  | Cost  $ |           |  | Accumulated amortization  $ |  |        | Impairment  $ |  |  | August 31,  2017  Net carrying value
     $ |  |  | May 31, 2017  Net carrying value  $ |          
| | ------------------------------- |  | ------- | --------- |  | --------------------------- |  | ------ | ------------- |  |  | ------------------------------------------- |  |  | ----------------------------------- | ---------
| |                                 |  |         |           |  |                             |  |        |               |  |  |                                             |  |  |                                     |          
| | Customer relationship and lists |  |         | 901,548   |  |                             |  | 33,356 |               |  |  | –                                           |  |  |                                     | 868,192  
| | Trade names                     |  |         | 574,605   |  |                             |  | 21,260 |               |  |  | –                                           |  |  |                                     | 553,345  
| |                                 |  |         | 1,476,153 |  |                             |  | 54,616 |               |  |  | –                                           |  |  |                                     | 1,421,537



During
the three months ended August 31, 2017, the Company recorded $39,190 (2016 - $1,185) of amortization expense.



Estimated
Future Amortization Expense:



| |                              |  | $ |        
| | ---------------------------- |  | - | -------
| | For year ending May 31, 2018 |  |   | 117,215
| | For year ending May 31, 2019 |  |   | 156,405
| | For year ending May 31, 2020 |  |   | 156,405
| | For year ending May 31, 2021 |  |   | 156,405
| | For year ending May 31, 2022 |  |   | 156,405
| | For year ending May 31, 2023 |  |   | 156,405
| | For year ending May 31, 2024 |  |   | 156,405
| | For year ending May 31, 2025 |  |   | 156,405
| | For year ending May 31, 2026 |  |   | 155,487





14









| | 5. | Related
    Party Transactions
| | -- | ------------------------------





| | a) | During
    the three months ended August 31, 2017, the Company incurred management fees of $8,011 to the former President of the Company.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------



| | b) | During
    the three months ended August 31, 2017, the Company incurred management fees of $0 to the spouse of the former President of
    the Company.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) | As
    of August 31, 2017, the Company owes a total of $301,437 to the former President of the Company and his spouse, and a company
    controlled by the former President of the Company which is non-interest bearing, unsecured, and due on demand.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | d) | As
    of August 31, 2017, the Company owes $17,305 to a former officer and a former director of the Company, which is non-interest
    bearing, unsecured, and due on demand.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | e) | As
    of August 31, 2017, the Company owes $41,782 to InterCloud, which is non-interest bearing, unsecured, and due on demand.
| | -- | -------------------------------------------------------------------------------------------------------------------------------



| | f) | As
    of August 31, 2017, pursuant to the acquisition AW Solutions, the Company owes a contingent liability of $1,409,411 to InterCloud.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------



| | g) | The
                                         Company subleased a portion of one of its offices located in Florida to InterCloud. Rental
                                         income charged to InterCloud was $7,594 for the three months ended August 31, 2017.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6. | Loans
    Payable                                                                                                                                                                                                                                                   
| |    |                                                                                                                                                                                                                                                                     



| | (a) | As
    of August 31, 2017, the amount of $50,501 (Cdn$63,300) is owed to a non-related party which is non-interest bearing, unsecured,
    and due on demand.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | As
    of August 31, 2017, the amount of $17,500 is owed to a non-related party which is non-interest bearing, unsecured, and due
    on demand.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | As
    of August 31, 2017, the amounts of $7,500 and $29,519 (Cdn$37,000) are owed to a non-related party which are non-interest
    bearing, unsecured, and due on demand.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (d) | As
    of August 31, 2017, the amount of $4,490 is owed to a non-related party which is non-interest bearing, unsecured, and due
    on demand.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------



| | (e) | During
    the year ended August 31, 2017, the amounts of $14,413 (Cdn$18,066) was advanced by a non-related party. The amount owing
    is non-interest bearing, unsecured, and due on demand.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (f) | In
    March 2012, the Company received $50,000 for the subscription of 10,000,000 shares of the Company’s common stock. During
    the year ended May 31, 2013, the Company and the subscriber agreed that the shares would not be issued and that the subscription
    would be returned. The subscription has been reclassified as a non-interest bearing demand loan until the funds are refunded
    to the subscriber.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (g) | On
    August 4, 2015, the Company borrowed $50,000 pursuant to a promissory note. The note was due on September 4, 2015. The note
    bears interest at 120% per annum prior September 4, 2015, and at 180% per annum after September 4, 2015. The holder of the
    note was also granted the rights to buy 100,000 shares of the Company’s common stock at a price of $0.15 per share until
    August 4, 2017. During the year ended May 31, 2016, the Company repaid the $50,000 note and $1,200 of accrued interest remains
    owing.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





15







The
rights issued with the note qualified for derivative accounting under ASC 815-15 “Derivatives and Hedging”.
The initial fair value of the warrants of $9,755 resulted in a discount to the note payable of $9,755. During the year ended May
31, 2016, the Company recorded accretion of $9,755.



| | (h) | As
    of August 31, 2017 and May 31, 2017, the amounts of $25,000 and $27,789 (Cdn$37,550) were owed to non-related
    parties. These advances are non-interest bearing, unsecured, and due on demand.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (i) | On
    April 12, 2017, received $12,000 pursuant to a promissory note. The note issued is unsecured, due on demand and bears interest
    at a rate of 10% per annum.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (j) | On
    June 27, 2017, received $250,200 net of a $27,800 Original Issue Discount pursuant to a $278,000 promissory note. The note
    issued is unsecured, due on demand and bears interest at a rate of 12% per annum. The Company also issued a warrant with a
    term of three years to purchase up to 50,000,000 shares of common stock of the Company at an exercise price of $0.005 per
    share. The fair value of the warrants of $332,966 resulted in a discount to the note payable of $250,200 and the recognition
    of a loss on derivatives of $82,766. During the three months ended August 31, 2017, the Company repaid $100,000 of the loan
    and recorded accretion of $170,710, increasing the carrying value of the note to $70,710.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|7. | Convertible
    Debentures
|-- | --------------------------



| | (a) | In
    October 2008, the Company issued three convertible debentures for total proceeds of $250,000 which bear interest at 10% per
    annum, are unsecured, and due one year from date of issuance. The unpaid amount of principal and accrued interest can be converted
    at any time at the holder’s option into 625,000 shares of the Company’s common stock at a price of $0.40 per share.
    The Company also issued 250,000 detachable, non-transferable share purchase warrants. Each share purchase warrant entitles
    the holder to purchase one additional share of the Company’s common stock for a period of two years from the date of
    issuance at an exercise price of $0.50 per share.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



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



On
July 18, 2012, the Company entered into a settlement agreement with the $150,000 debenture holder. Pursuant to the settlement
agreement, the lender agreed to extend the due date until April 11, 2013 and the Company agreed to pay $43,890 of accrued interest
within five days of the agreement (paid), pay the accruing interest on a monthly basis (paid), and pay a $10,000 premium in addition
to the $150,000 principal outstanding on April 11, 2013. On April 29, 2013, the Company entered into an amended settlement agreement
whereby the lender agreed to extend the due date to September 15, 2013 and the Company agreed to pay $6,836 of interest for the
period from April 1 to September 15, 2013 upon execution of the agreement (paid) and granted the lender 100,000 stock options
exercisable at $0.12 per share for a period of two years.



On
November 15, 2013, the Company entered into a second settlement agreement amendment. Pursuant to the second amendment, on November
15, 2013, the Company agreed to pay interest of $4,438 (paid) and commencing February 1, 2014, the Company would make monthly
payments of $10,000 on the outstanding principal and interest. On December 4, 2015, the holder of the convertible debenture entered
into an agreement to sell and assign the remaining outstanding principal to a third party. The Company approved and is bound by
the assignment and sale agreement.





16







The
Company evaluated the modifications and determined that the creditor did not grant a concession. In addition, as the present value
of the amended future cash flows had a difference of less than 10% of the cash flows of the original debt, it was determined that
the original and new debt instruments are not substantially different. As a result, the modification was not treated as an extinguishment
of the debt and no gain or loss was recognized because the fair value of the old debt and new debt remained the same. The Company
recorded the fair value of $12,901 for the stock options as additional paid-in capital and a discount. During the year ended May
31, 2014, the Company repaid $40,000 of the debenture. As of May 31, 2014 the Company had accreted $12,901 of the discount bring
the carrying value of the convertible debenture to $114,661. During the year ended May 31, 2015, the Company repaid $54,808 decreasing
the carrying value to $59,853. During the year ended May 31, 2017, the Company recorded an additional fee of $21,266 increasing
the carrying value to $81,119. At August 31, 2017, the other remaining debenture of $81,119 remained outstanding and past due.



At
August 31, 2017, the other remaining debenture of $50,000 remained outstanding and past due.



| | (b) | On
    August 19, 2013, the Company issued a convertible debenture for total proceeds of $10,000, which bears interest at 10% per
    annum, is unsecured, and due two years from date of issuance. The unpaid amount of principal and accrued interest can be converted
    at the holder’s option into shares of the Company’s common stock at $0.04 per share at any time after the first
    anniversary of the notes. The Company recognized the intrinsic value of the embedded beneficial conversion feature of $10,000
    as additional paid-in capital and reduced the carrying value of the convertible debenture to $nil. The carrying value will
    be accreted over the term of the convertible debenture up to its face value of $10,000. As of August 31, 2017, the carrying
    value of the convertible promissory note was $10,000 and the note remained outstanding and in default.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | On
    December 27, 2013, the Company issued a convertible debenture for total proceeds of $5,000, which bear interest at 10% per
    annum, is unsecured, and due two years from date of issuance. The unpaid amount of principal and accrued interest can be converted
    at the holder’s option into shares of the Company’s common stock at $0.04 per share at any time after the first
    anniversary of the notes. The Company recognized the intrinsic value of the embedded beneficial conversion features of $5,000
    as additional paid-in capital and reduced the carrying value of the convertible debenture to $nil. The carrying value was
    be accreted over the term of the convertible debenture up to its face value of $5,000. As of August 31, 2017, the carrying
    value of the convertible promissory note was $5,000 and the note remained outstanding and in default.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (d) | On
    February 4, 2014, the Company issued a convertible debenture for total proceeds of $15,000, which bears interest at 10% per
    annum, is unsecured, and due two years from date of issuance. The unpaid amount of principal and accrued interest can be converted
    at the holder’s option into shares of the Company’s common stock at $0.04 per share at any time after the first
    anniversary of the notes. The Company recognized the intrinsic value of the embedded beneficial conversion feature of $15,000
    as additional paid-in capital and reduced the carrying value of the convertible debenture to $nil. The carrying value will
    be accreted over the term of the convertible debenture up to its face value of $15,000. As of August 31, 2017, the carrying
    value of the convertible promissory note was $15,000 and the note remained outstanding and in default.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (e) | On
    June 1, 2015, the Company issued a convertible note in the principal amount of $100,000 due on demand on or after December
    1, 2015. The note has a cash redemption premium of 130% of the principal amount in the first 90 days following the execution
    date, of 135% for days 90-120 following the execution date, and 140% after the 120th day. After 140 days cash redemption is
    only available upon approval by the holder. The note bears interest at 12% per annum and is convertible into common shares
    of the Company at the lower of a 42% discount to the lowest trading price during the previous 20 trading days to the date
    of conversion; or a 42% discount to the lowest trading price during the previous 20 trading days before the date the note
    was executed. In no event shall the conversion price be lower than $0.00001. On December 4, 2015, the holder of the convertible
    debenture entered into an agreement to sell and assign the remaining outstanding principal to a third party. The Company approved
    and is bound by the assignment and sale agreement.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



On
October 5, 2016, the holder of the convertible debentures entered into an agreement to sell and assign the remaining outstanding
principal to a third party. The Company approved and is bound by the assignment and sale agreement. At May 31, 2017, $45,000 of
the note had been assigned to the third party.



The
embedded conversion option qualifies for derivative accounting and bifurcation under ASC 815-15 “Derivatives and Hedging”.
The initial fair value of the conversion feature of $310,266 resulted in a discount to the note payable of $100,000 and the recognition
of a loss on derivatives of $210,266. During the year ended May 31, 2016, the Company issued 6,303,475 shares of common stock
upon the conversion of $45,000 of principal. During the year ended May 31, 2016, the Company recorded accretion of $100,000 and
recorded the cash redemption premium of $26,250 increasing the carrying value of the note to $81,250.





17







During
the year months ended May 31, 2017, the Company issued 18,440,200 shares of common stock upon the conversion of $90,000 of principal.
During the year ended May 31, 2017, the Company recorded a default fee of $51,820 increasing the carrying value of the note to
$43,070. At August 31, 2017, $43,070 of the note remained outstanding and past due.



| | (f) | On
    September 8, 2015, the Company issued a convertible note in the principal amount of $326,087. During the year ended May 31,
    2016, the Company received the initial tranches of $280,000 net of a $26,087 original issue discount. The note bears interest
    at 10% per annum and is convertible into common shares of the Company at a 65% discount to the lowest trading price during
    the previous 20 trading days to the date of conversion; or a 65% discount to the lowest trading price during the previous
    20 trading days before the date the note was executed.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The
embedded conversion option qualifies for derivative accounting and bifurcation under ASC 815-15 “Derivatives and Hedging”.
The initial fair value of the conversion feature of $479,626 resulted in a discount to the note payable of $280,000 and the recognition
of a loss on derivatives of $204,626. During the year ended May 31, 2016, the Company recorded accretion of $120,175 and recorded
a default fee of $76,522 increasing the carrying value of the note to $190,696.



During
the year ended May 31, 2017, the Company recorded accretion of $185,913 increasing the carrying value of the note to $382,608.
At August 31, 2017, $382,608 of the note remained outstanding.



| | (g) | On
    December 4, 2015, the Company issued a convertible note in the principal amount of $105,000 as an inducement to the holder
    of the convertible notes described in Note 7(g), to enter into an agreement to sell and assign the remaining outstanding principal
    to a third party. The note included a $10,000 original issue discount. The note bears interest at 10% per annum and is convertible
    into common shares of the Company at a 52% discount to the lowest trading price during the previous 30 trading days to the
    date of conversion; or a 52% discount to the lowest trading price during the previous 30 trading days before the date the
    note was executed. On October 5, 2016, the holder of the convertible debentures entered into an agreement to sell and assign
    the remaining outstanding principal to a third party. The Company approved and is bound by the assignment and sale agreement.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The
embedded conversion option qualifies for derivative accounting and bifurcation under ASC 815-15 “Derivatives and Hedging”.
The initial fair value of the conversion feature of $216,108 resulted in a discount to the note payable of $95,000 and the recognition
of a loss on derivatives of $111,108. During the year ended May 31, 2016, the Company recorded accretion of $82,560 and recorded
a default of fee of $26,250 increasing the carrying value of the note to $48,690.



During
the year ended May 31, 2017, the recorded accretion of $82,560 increasing the carrying value of the note to $131,250. At August
31, 2017, $131,250 of the note remained outstanding.



| | (h) | On
    March 10, 2016, the Company issued a convertible note in the principal amount of up to $166,666. During the year ended May
    31, 2016, the Company received initial tranches of $65,000 net of a $16,666 original issue discount. The note bears interest
    at 10% per annum and is convertible into common shares of the Company at a 65% discount to the lowest trading price during
    the previous 20 trading days to the date of conversion; or a 65% discount to the lowest trading price during the previous
    20 trading days before the date the note was executed.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The
embedded conversion option qualifies for derivative accounting and bifurcation under ASC 815-15 “Derivatives and Hedging”.
The initial fair value of the conversion feature of $218,785 resulted in a discount to the note payable of $81,666 and the recognition
of a loss on derivatives of $158,785. During the year ended May 31, 2016, the Company recorded accretion of $20,015, and recorded
a default fee of $20,417 increasing the carrying value of the note to $40,432.



On
April 7, 2017, the Company entered into an amendment to the convertible note which allowed for the additional funding under the
note of $40,000 with an original discount of $4,444. During the year ended May 31, 2017, the Company received additional tranches
of $123,339. The initial fair value of the conversion feature of $245,571 resulted in a discount to the note payable of $127,783
and the recognition of a loss on derivatives of $117,788. During the year ended May 31, 2017, the Company recorded accretion of
$133,721, and recorded a default fee of $31,946 increasing the carrying value of the note to $206,098. During the three month
period ended August 31, 2017, the Company recorded accretion of $31,367 increasing the carrying value of the note to $237,465.



| | (i) | On
    October 11, 2016, the Company issued a convertible note in the principal amount of up to $249,999. The Company received initial
    tranches of $42,500 net of a $24,999 original issue discount and $2,500 of financing fees. The note bears interest at 10%
    per annum and is convertible into common shares of the Company at a 65% discount to the lowest trading price during the previous
    20 trading days to the date of conversion; or a 65% discount to the lowest trading price during the previous 20 trading days
    before the date the note was executed.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





18







The
embedded conversion option qualifies for derivative accounting and bifurcation under ASC 815-15 “Derivatives and Hedging”.
The initial fair value of the conversion feature of $121,902 resulted in a discount to the note payable of $45,000 and the recognition
of a loss on derivatives of $76,902. During the year ended May 31, 2017, the Company recorded accretion of $26,943 and a default
fee of $24,999, increasing the carrying value of the note to $26,953. During the three month period ended August 31, 2017, the
Company recorded accretion of $25,466 increasing the carrying value of the note to $52,419.



| | (j) | On
    April 27, 2017, the Company issued a convertible promissory note in the aggregate principal amount of $2,000,000. The interest
    on the outstanding principal due under the Unsecured Note accrues at a rate of 8% per annum. All principal and accrued interest
    under the Unsecured Note is due one year following the issue date of the Unsecured Note, and is convertible into shares of
    common stock at a conversion price equal to 75% of the lowest volume-weighted average price during the 15 trading days immediately
    preceding the date of conversion.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The
embedded conversion option qualifies for derivative accounting and bifurcation under ASC 815-15 “Derivatives and Hedging”.
The initial fair value of the conversion feature of $1,174,000 resulted in a discount to the note payable of $943,299. During
the year ended May 31, 2017, the Company recorded accretion of $77,465 increasing the carrying value of the note to $1,134,166.
During the three month period ended August 31, 2017, the Company recorded accretion of $189,804 increasing the carrying value
of the note to $1,323,970.



| | (k) | On
    April 28, 2017, the Company entered into and closed on a Securities Purchase Agreement (“Purchase Agreement”)
    with an institutional investor (the “Lender”), pursuant to which the Company issued to the Lender a senior secured
    convertible promissory note in the aggregate principal amount of $440,000 (the “Secured Note”) for an aggregate
    purchase price of $400,000, and a warrant with a term of three years to purchase up to 27,500,000 shares of common stock of
    the Company at an exercise price of $0.0255 per share. The interest on the outstanding principal due under the Secured Note
    accrues at a rate of 8% per annum. All principal and accrued interest under the Secured Note is due on April 27, 2018 and
    is convertible into shares of the Company’s Common Stock at a conversion price equal to 75% of the lowest volume-weighted
    average price during the 15 trading days immediately preceding the conversion, subject to adjustment upon the occurrence of
    certain events.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The
embedded conversion option qualifies for derivative accounting and bifurcation under ASC 815-15 “Derivatives and Hedging”.
The initial fair value of the conversion feature of $1,744,661 and the fair value of the warrants of $425,918 resulted in a discount
to the note payable of $400,000 and the recognition of a loss on derivatives of $1,770,579. During the year ended May 31, 2017,
the Company recorded accretion of $54,526, increasing the carrying value of the note to $54,526. During the three month period
ended August 31, 2017, the Company recorded accretion of $42,896 increasing the carrying value of the note to $97,423.



|8. | Derivative
    Liabilities
|-- | --------------------------



The
embedded conversion option of the convertible debenture described in Note 7(f) contains a conversion feature that qualifies for
embedded derivative classification. The fair value of the liability will be re-measured at the end of every reporting period and
the change in fair value will be reported in the statement of operations as a gain or loss on derivative financial instruments.



Upon
the issuance of the convertible note payable described in Note 7(f), the Company concluded that it only has sufficient shares
to satisfy the conversion of some but not all of the outstanding convertible notes, warrants and options. The Company elected
to reclassify contracts from equity with the earliest inception date first. As a result, none of the Company’s previously
outstanding convertible instruments qualified for derivative reclassification, however, any convertible securities issued after
the election, including the convertible note described in Notes 7(f) to 7(m). The Company reassesses the classification of the
instruments at each balance sheet date. If the classification changes as a result of events during the period, the contract is
reclassified as of the date of the event that caused the reclassification.



During
the year ended May 31, 2017, the Company reclassified 350,000 options exercisable at $0.03 until March 16, 2017 with a fair value
of $2,350, 2,000,000 warrants exercisable at $0.03 until August 29, 2018 with a fair value of $13,745, 533,333 warrants exercisable
at $0.80 with a fair value of $Nil, 4,075,000 warrants exercisable at $0.37 with a fair value of $16,978 and a $59,853 note convertible
at $0.40 with a fair value of $41 that qualified for treatment as derivative liabilities.





19







The
table below sets forth a summary of changes in the fair value of the Company’s Level 3 financial liabilities.



| |                                                                           |  | August 31, 2017 |           |   | May 31, 2017 |  
| | ------------------------------------------------------------------------- |  | --------------- | --------- | - | ------------ | -
| |                                                                           |  |                 |           |   |              |  
| | Balance at the beginning of year                                          |  | $               | 3,760,067 |   |              | $
| | Original discount limited to proceeds of notes                            |  |                 | 250,200   |   |              |  
| | Fair value of derivative liabilities in excess of notes proceeds received |  |                 | 82,766    |   |              |  
| | Reclassification of instruments previously classified as equity           |  |                 | -         |   |              |  
| | Conversion of derivative liability                                        |  |                 | -         |   |              |  
| | Change in fair value of embedded conversion option                        |  |                 | (212,601  | ) |              |  
| | Balance at the end of the year                                            |  | $               | 3,880,431 |   |              | $



The
Company uses Level 3 inputs for its valuation methodology for the embedded conversion option liabilities as their fair values
were determined by using Monte-Carlo model or a Binomial Model based on various assumptions.



Significant
changes in any of these inputs in isolation would result in a significant change in the fair value measurement. As required, these
are classified based on the lowest level of input that is significant to the fair value measurement. The following table shows
the assumptions used in the calculations:



| |                    |  | Expected Volatility |          |  | Risk-free Interest Rate |  |            | Expected Dividend Yield |  |  | Expected Life (in years) |  
| | ------------------ |  | ------------------- | -------- |  | ----------------------- |  | ---------- | ----------------------- |  |  | ------------------------ | -
| |                    |  |                     |          |  |                         |  |            |                         |  |  |                          |  
| | At issuance        |  |                     | 134-213% |  |                         |  | 0.07-0.74% |                         |  |  | 0                        | %
| | At May 31, 2017    |  |                     | 215-346% |  |                         |  | 0.84-1.44% |                         |  |  | 0                        | %
| | At August 31, 2017 |  |                     | 184-298% |  |                         |  | 0.95-1.44% |                         |  |  | 0                        | %



|9. | Common
    Stock
|-- | ----------------



| | (a) | As
    of August 31, 2017 and May 31, 2016, the Company’s subsidiary, Mantra Energy Alternatives Ltd., had received subscriptions
    for 67,000 shares of common stock at Cdn$1.00 per share for proceeds of $66,277 (Cdn$67,000), which is included in common
    stock subscribed, net of the non-controlling interest portion of $7,231.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | As
    of August 31, 2017 and May 31, 2016, the Company’s subsidiary, Climate ESCO Ltd., had received subscriptions for 210,000
    shares of common stock at $0.10 per share for proceeds of $21,000, which is included in common stock subscribed, net of the
    non-controlling interest portion of $7,384.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|10. | Share
    Purchase Warrants
|--- | ---------------------------



The
following table summarizes the continuity of share purchase warrants:



| |                          |  | Number of  warrants |            |   | Weighted average exercise price  $ | 
| | ------------------------ |  | ------------------- | ---------- | - | ---------------------------------- | 
| |                          |  |                     |            |   |                                    | 
| | Balance, May 31, 2016    |  |                     | 7,025,000  |   |                                    | 
| | Issued                   |  |                     | 27,833,333 |   |                                    | 
| | Expired                  |  |                     | (650,000   | ) |                                    | 
| | Balance, May 31, 2017    |  |                     | 34,208,333 |   |                                    | 
| | Issued                   |  |                     | 50,000,000 |   |                                    | 
| | Expired                  |  |                     | (633,333   | ) |                                    | 
| | Balance, August 31, 2017 |  |                     | 83,575,000 |   |                                    | 





20







As
of August 31, 2017, the following share purchase warrants were outstanding:



| | Number of warrants |            |  | Exercise  price  $ |  |       | Expiry date
| | ------------------ | ---------- |  | ------------------ |  | ----- | -----------
| |                    |            |  |                    |  |       |            
| |                    | 1,000,000  |  |                    |  | 0.03  |            
| |                    | 666,667    |  |                    |  | 0.03  |            
| |                    | 4,075,000  |  |                    |  | 0.37  |            
| |                    | 333,334    |  |                    |  | 0.03  |            
| |                    | 27,500,000 |  |                    |  | 0.03  |            
| |                    | 50,000,000 |  |                    |  | 0.005 |            
| |                    |            |  |                    |  |       |            
| |                    | 83,575,000 |  |                    |  |       |            



|11. | Stock
    Options
|--- | -----------------



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



| |                                               |  | Number of options |            |   | Weighted average exercise price $ |  |      | Weighted average remaining contractual life (years) |  |  | Aggregate  intrinsic  value  $ | 
| | --------------------------------------------- |  | ----------------- | ---------- | - | --------------------------------- |  | ---- | --------------------------------------------------- |  |  | ------------------------------ | 
| |                                               |  |                   |            |   |                                   |  |      |                                                     |  |  |                                | 
| | Outstanding, May 31, 2016                     |  |                   | 1,500,000  |   |                                   |  | 0.16 |                                                     |  |  |                                | 
| | Expired                                       |  |                   | (1,150,000 | ) |                                   |  | 0.20 |                                                     |  |  |                                | 
| | Outstanding, May 31, 2017 and August 31, 2017 |  |                   | 350,000    |   |                                   |  | 0.03 |                                                     |  |  | 0.71                           | 
| | Exercisable, May 31, 2017 and August 31, 2017 |  |                   | 350,000    |   |                                   |  | 0.03 |                                                     |  |  | 0.71                           | 



Additional
information regarding stock options as of May 31, 2017 is as follows:



| | Number of options |         |  | Exercise price $ |  |      | Expiry date
| | ----------------- | ------- |  | ---------------- |  | ---- | -----------
| |                   |         |  |                  |  |      |            
| |                   | 350,000 |  |                  |  | 0.03 |            
| |                   | 350,000 |  |                  |  |      |            



|12. | Commitments
    and Contingencies
|--- | ---------------------------------



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





21







| | (b) | On
    November 15, 2013, the Company entered into a second settlement agreement with the $150,000 debenture holder described in
    Note 10(a). Pursuant to the second amendment, on November 15, 2013, the Company agreed to make monthly payments of $10,000
    on the outstanding principal and interest. Payments were made until December 2014, but have not been made after. The plaintiff
    was seeking relief of amounts owed along with 10% interest per annum, from the date of judgments. All amounts are recorded
    in these financial statements. On December 4, 2015, the holder of the convertible debenture entered into an agreement to sell
    and assign the remaining outstanding principal to a third party. The Company approved and is bound by the assignment and sale
    agreement.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | On
    September 3, 2015, a former prospective employee of the Company delivered a Notice of Claim seeking judgment against the Company
    for approximately $11,400. During the year ended May 31, 2017 the prospective employee received a judgement which is recorded
    in these financial statements.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (d) | On
    March 14, 2016, the Company entered into a consulting agreement. Pursuant to the agreement, the Company will pay the consultant
    $10,000 per month ($20,000 paid) and issue 550,000 shares per month for a period of three months. At August 31, 2017, the
    Company had not issued the shares to the consultant due to non-performance.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (e) | On
    September 10, 2016, the Company entered into a debt settlement agreement to settle $7,500 of amounts owed for services in
    exchange for 2,000,000 common shares. The Company has not yet issued the shares. The Company will record the debt settlement
    upon the issuance of shares.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (f) | On
    August 22, 2016, the Company entered into a consulting agreement for the provision of consulting services until November 22,
    2016. Pursuant to the agreement the Company will pay the consultant $5,000 per month and issue 2,000,000 shares of common
    stock to the consultant. On December 7, 2016, the Company entered into a settlement agreement. Pursuant to the agreement,
    the Company agreed to issue the consultant 1,000,000 common shares in exchange for fully releasing and discharging the Company
    of any and all further obligations.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (g) | The
    Company leases certain of its properties under leases that expire on various dates through 2019. Some of these agreements
    include escalation clauses and provide for renewal options ranging from one to five years.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (h) | Rent
    expense incurred under the Company’s operating leases amounted to $69,666 during the three months ended August 31, 2017.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------



| | (i) | The
    future minimum obligation during each year through 2019 under the leases with non-cancelable terms in excess of one year is
    as follows:
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------



| |                      |  | Future   |        
| | -------------------- |  | -------- | -------
| |                      |  | Minimum  |        
| |                      |  | Lease    |        
| | Years Ending May 31, |  | Payments |        
| | 2018                 |  | $        | 103,580
| | 2019                 |  |          | 29,841 
| | 2020                 |  |          | 6,854  
| | Total                |  | $        | 140,275



|13. | Segment
    Disclosures
|--- | -----------------------



During
the three months ended August 31, 2016, the Company operated in one operating segment in one geographical area.



During
the three months ended August 31, 2017, the Company had two operating segments including:



| | ● | AW
    Solutions which is in the business of the provision of professional, multi-service line, telecommunications infrastructure
    and outsource services to the wireless and wireline industry and,
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | Mantra
    Energy Alternatives (MEA) which consists of the rest of the Company’s operations.
| | - | --------------------------------------------------------------------------------------------





22







Factors
used to identify the Company’s reportable segments include the organizational structure of the Company and the financial
information available for evaluation by the chief operating decision-maker in making decisions about how to allocate resources
and assess performance. The Company’s operating segments have been broken out based on similar economic and other qualitative
criteria. The Company operates the Mantra Energy Alternatives (MEA) reporting segment in one geographical area, Canada and the
AW Solutions operating segment in two geographical areas, the United States and Puerto Rico.



Financial
statement information by operating segment for three months ended August 31, 2017 is presented below:



| |                                    |  | Mantra Ventures  $ |          |   | AW Solutions  $ |  |           | Total  $ | 
| | ---------------------------------- |  | ------------------ | -------- | - | --------------- |  | --------- | -------- | 
| |                                    |  |                    |          |   |                 |  |           |          | 
| | Net Sales                          |  |                    | –        |   |                 |  | 3,115,921 |          | 
| | Operating (loss) income            |  |                    | (476,707 | ) |                 |  | 197,857   |          | 
| | Interest expense                   |  |                    | 77,286   |   |                 |  | 621       |          | 
| | Depreciation and amortization      |  |                    | -        |   |                 |  | 68,131    |          | 
| | Total Assets as of August 31, 2017 |  |                    | 5,543    |   |                 |  | 5,074,339 |          | 



Geographic
information for the three months ended and as of August 31, 2017 is presented below:



| |                    |  | Revenues  $ |           |  | Long-Lived  Assets  $ | 
| | ------------------ |  | ----------- | --------- |  | --------------------- | 
| |                    |  |             |           |  |                       | 
| | Puerto Rico        |  |             | 820,991   |  |                       | 
| | United States      |  |             | 2,294,930 |  |                       | 
| | Consolidated Total |  |             | 3,115,921 |  |                       | 



|14. | Subsequent
    Events
|--- | ---------------------



None.





23







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



FORWARD-LOOKING
STATEMENTS



This
quarterly report contains forward-looking statements. These statements relate to future events or our future financial performance.
In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”,
“plan”, “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 ($) 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
“$” refer to United States dollars and all references to "common stock" refer to the common shares in our
capital stock.



Unless
specifically set forth to the contrary, when used in this report the terms “we”, “our”, the “Company”
and similar terms refer to Mantra Venture Group, Ltd., a British Columbia, Canada corporation, and its consolidated subsidiaries.



The
information that appears on our website at www.MantraVentureGroup.comis not part of this report.



Description
of Business



We
were incorporated in Nevada on January 22, 2007. On December 8, 2008 we continued our corporate jurisdiction out of the state
of Nevada and into the Province of British Columbia, Canada. Our principal offices have been relocated after the close of AW Solutions,
Inc., to 300 Crown Oak Centre, Longwood, Florida 32750. Our telephone number is (407) 560-1503. Our fiscal year end is May 31.



We
are a leading provider of services and solutions in the telecommunications sector and research developer of alternative energy
alternatives in the energy sector. The telecommunications sector provides services and solutions throughout the United States,
Guam, Canada and the Caribbean. Our energy sector services are related to research and development of alternative energy technologies.



Through
our new subsidiary in the telecommunications division, AW Solutions, Inc., AW Solutions Puerto Rico, LLC, Tropical Communications,
Inc. collectively known as “AW Solutions” we provide a broad range of professional services and solutions to the top
Tier Communication Carriers and Fortune 1000 enterprise customers. The telecommunication division offers carriers, service providers
and enterprise customers professional contracting services, to include: infrastructure audits; site acquisition; architectural,
structural and civil design and analysis; construction management; construction; installation; warehousing and logistics; maintenance
services, that support the build-out and upgrade and operation of some of the most advanced networks, small cell, Wi-Fi, fiber
and distributed antenna system (DAS) networks. We believe the expansion and migration of these next-generation networks, our long-term
relationships supported by multiyear Master Service Agreements (MSA) and multi-year service contracts with major wireless, commercial
wireline and wireless operators, DAS operators, tower companies, original equipment manufacturers (OEM’s) and prime contractor/project
management organization provides us a significant opportunity as a long term leading and well respected industry leader in this
marketplace.



Though
our subsidiary in the Energy division, Mantra Energy Alternatives (MEA) we have developed cutting edge “green’ technologies
that can be deployed to mitigate and reduce carbon footprint of generators and consumers of fossil fuels, MEA mission and strategy
of development and research efforts to acquire and commercially exploit various new energy related technologies through licenses
and purchases. The company is in the business of developing and providing energy alternative. These energy technologies and services
are to enable the sustainable consumption, production and management of resources on a residential, commercial and industrial
scales on a national and international level. The company also provides marketing and graphic design services to help companies
optimize their environmental awareness presence through the eyes of government, industry and the general public.





24







Acquisition
of AW Solutions



On
April 25, 2017, Mantra Venture Group Ltd. we closed on an Asset Purchase Agreement (the “APA”) with InterCloud Systems,
Inc. (“InterCloud”), a Delaware corporation. Pursuant to the terms the Asset Purchase Agreement, InterCloud agreed
to sell, and the Company agreed to purchase (the “Asset Sale”), 80.1% of the assets associated with InterCloud’s
“AW Solutions” business including, but not limited to, fixed assets, real property, intellectual property, and accounts
receivables (collectively, the “Assets”). The Business provides professional, multi-service line, telecommunications
infrastructure and outsource services to the wireless and wireline industry.



Overview



Due
to the acquisition of AW Solutions and our inability to obtain further funding to develop mixed-reactant fuel cell (“MRFC”)
technology, we intend to revisit our pursuit of this line of business and may consider the sale, restructuring or disposition
of the energy business unit to focus on pursuing the telecommunication line of business. We have not made any decision on the
future of our other businesses at this time.



Our
partially owned subsidiary Mantra Energy Alternatives Ltd. (“MEA”) has itself undertaken financing activities to raise
money for research and development by issuing common shares. MEA and the Company have sought funding to develop a prototype unit
for the MRFC technology but to date has been unsuccessful. We also have a number of inactive subsidiaries, which we may engage
in various businesses in the future but have no current plans to do so at this time. Since the inception as an energy technology
research and development company in 2007, we have incurred operational losses and we have completed several rounds of financing
to fund our operations.



Energy
Services and Solutions



Mantra
Energy Alternatives, Ltd. – Mantra Energy Alternatives, Ltd., is a British Columbia, Canada corporation (known as, “MEA”),
which was incorporated in Nevada on January 22, 2007. On December 8, 2008 we made a jurisdiction change from the State of Nevada
into the Province of British Columbia, Canada. We focus our business strategy in the energy sector in the ongoing research and
development to commercialize alternative energy technologies and services to the residential, commercial and industrial marketplace.
Continued focus and desire is to refine the technologies and exploratory efforts into strategic relationships, joint ventures,
partnerships with third parties to assist in commercialization. MEA has successfully acquired and owns a process for the electro-reduction
of carbon dioxide (“ERC”) and has secured world licenses for a mixed-reaction fuel cell (“MRFC”) which
supports commercial applications.



We
do not have any sales for energy services and solutions at this time and our activities have been primarily research and development.
In the past, we have either contracted out our development work to various laboratories or carried out research and development
on these technologies in our own laboratory in Vancouver, BC. These activities have included: experimentation to improve the process
performance; process and economic modeling to optimize the costs of a commercial system; design and simulation of pilot systems
for technology demonstration and validation; business development activities such as the establishment of strategic and technology
development partners; and the design and fabrication of laboratory prototypes, among others.



We
have engaged in the research and development of alternative energy technologies and services primarily in electro-reduction of
carbon dioxide (“ERC”) and mixed-reactant fuel cells (“MRFC”) through our subsidiary, Mantra Energy Alternatives
Ltd. (“MEA”). We have paused development in moving these technologies toward commercial applications until further
funding is received.



Telecommunications
Services and Solutions



Through
a recent acquisition of AW Solutions, we have expanded our business into the telecommunications industry, creating new a customer
base and geographic reach. Our company is comprised of the following:





25







AW
Solutions. - AW Solutions, Inc., a Florida corporation (April 17, 2006), AW Solutions Puerto Rico, LLC, Puerto Rico corporation
(March 14, 2011) and Tropical Communications, Inc., a Florida corporation (May 9, 1984), (Collectively known as, “AW Solutions”).
We are professional, multi-service line, telecommunications infrastructure companies that provide outsourced services to the wireless
and wireline industry.



We
are a leading provider of professional services and infrastructure solutions to both the telecommunications industry, utility
entities and enterprises sectors. Our engineering, design, construction, installation, maintenance service offerings supported
by our professional teams to support the build-out, maintenance, upgrade and operation of some of the most advanced fiber optic,
Ethernet, copper, wireless, wireline, utility and enterprise networks. Our breadth of comprehensive services enables our customers
to selectively augment existing services or to outsource entire projects or operational functions. We divide our service offering
into Infrastructure and Professional Services.



We
offer a full array of operations, construction, project and program management professional required to facilitate the full turn-key
completion of networks from the design and planning phase, engineer evaluation and sign off, regulatory, installation, commissioning
and maintain various types of Wi- Fi and wide-area networks, DAS networks, and small cell distribution networks for incumbent
local exchange carriers (ILECs), telecommunications original equipment manufacturers (OEMs), cable broadband multiple system operators
(MSOs) and enterprise customers. Our services and teams support the deployment of new networks and technologies, as well as expand
and maintain existing networks. We also design, install and maintain hardware solutions for the leading OEMs that support voice,
data and optical networks. Our consulting and professional solutions to the service-provider and enterprise market in support
of all facets of telecommunications and next-generation networks, including project management, network implementation, network
installation, network upgrades, rebuilds, maintenance and consulting services. Our global certified professional services organization
offers consulting, design, engineering, integration, implementation and ongoing support of all solutions offered by our company.
We believe our ability to respond rapidly is a differentiating factor for national and international-based customers needing a
broad range of our services and solutions.



Emerging
Markets Trends



The
outlook indicator and anticipated growth in the telecommunications sector is at a faster rate over the next five (5) years to
2021 than experienced in the previous five (5) year period. Industry revenue is forecasted for the next five (5) years is to grow
at an annual rate between 5%-7%. As a result, major carriers and enterprises are increasingly requiring rapidly deployment of
broadband solutions and network infrastructure upgrades and augments to support a wide array of communication technologies to
cope with the mounting demand for higher mobile traffic capacity and coverage.



Advances
in technology architectures and the outlook in the telecommunication industry is reflecting remarkable strength in both the top
tier carriers and enterprise customers. Strong investments into new technology, broadband utilization and supporting capacity
requiring the fundamental need for infrastructure expansion will be a key driver and differentiator for providers ensuring continue
growth and competitiveness.



Wireless
infrastructure which has been in place since the 1980’s includes towers, buildings, telephone poles and other facilities
to place critical antennas and associated electronics to support expanded WiMax, LTE and soon 5G technologies, along with the
transition from copper to fiber to support the ever increasing data demands are significant long term factors that drive our business
model and continued success. According to iSuppli, 4G Long Term Evolution (LTE) is the largest share of wireless infrastructure
capital spending through 2018 with 5G enhanced mobile technologies trials commencing in the United States in 2017 which will drive
the migration to the next generation standard which allows for greater capacity required to support new applications. The roll-out
of enhanced mobile broadband, small cell architectures, the launch of 5G technology and billions of Internet of Things (IoT) connective
devices the need to modernize networks to accommodate connectivity is a significant long-term opportunity of companies like ours.
The transition from trial based deployments of 5G to a full nationwide implementation expected to start in 2018 and continuing
beyond 2023. The continued investment of supporting infrastructure that includes fiber optic investment Deloitte Consulting LLP
analysis estimates the in the United States alone requires investment of $130-$150 Billion over the next 5-7 years to adequately
support the consumer demand for broadband and wireless densification projects. It is mission-critical for these providers to deliver
broadband capacity, reliably, security and cost-effectively in a solution that support this massive data consumption of applications
to its customers: reality/virtual reality, video delivery, mobile advertising, self-driving cars, healthcare and much more. The
enhanced mobility with devices requires, small cell deployments to handle the increased usage on both the wireline and wireless
delivery networks.





26







Competitive
Strengths



On
the telecommunication sector we believe our market advantage is the long-term relationships, MSA’s, industry leading provider
of wireless and wireline solutions and a reputations and track record of our ability to perform with agility, quality on a seamless
and flawless manner for our clients is key in our success to date. AW Solutions ability to provide a wide range of services in
a turn-key integrated solution is critical to our clients. Our highly experienced and professional team provide such services
as: RF, civil, electrical, architectural engineering and design, value engineering, network engineering services, network planning,
site acquisition, land use planning, feasibility/environmental studies, lease/contract negotiations, Build-To-Suit (BTS) services,
audits functions, program planning, product development, technical services, warehouse and logistics.



We
believe our additional strengths described below will enable us to continue to compete effectively and to take advantage of anticipated
growth in the telecommunications industry segment:



| | ● | Service
                                         Provider Relationships: We have established relationships with leading wireless and wireline
                                         telecommunications providers, cable broadband MSOs, OEMs and others.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | Long-Term
                                         Master Service Agreements (MSA) and Contracts: We have over 100 MSA’s and agreements
                                         with service providers, OEMs and other clients. Our relationships with our customers
                                         and existing master service agreements position us to continue to capture existing and
                                         emerging opportunities, both domestically and internationally. We believe the barriers
                                         are extremely high for new entrants to obtain master service agreements with service
                                         providers and OEMs unless there are established relationships, proven ability to execute,
                                         national coverage and licensing, spotless safety records and broad and deep insurance
                                         coverage.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | Global
                                         Professional Engineering Talents: Our extensive geographical reach and licensing that
                                         covers all US states and territories, majority of Canadian Provinces and select areas
                                         in the Caribbean coupled with our vast engineering experience and expertise supported
                                         by talented staff enables our customers to take advantage of our end-to-end solutions
                                         and one-stop full turn-key solution.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | Proven
                                         Ability to Recruit, Manage and Retain High-Quality Personnel. Our ability to recruit,
                                         manage and retain skilled labor is a critical advantage in an industry where a shortage
                                         of highly skilled and experience personal is limited. This is often a key factor in our
                                         customers selecting AW Solutions over our competitors. We believe that our highly skilled
                                         professionals with professional licenses consisting of Professional Engineer (PE), Electrical
                                         Engineer (EE) and our General Contracting licenses (GC) in the United States, Canada
                                         and Caribbean gives us a competitive edge over our competitors as we continue to expand
                                         and meet our national and international clients needs across their entire service footprints.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | Strong
                                         Senior Management Team with Proven Ability to Execute. Our highly-experienced management
                                         team has deep industry knowledge and brings an average of over 150 years of combined
                                         experience across a broad range of disciplines. We believe our senior management team
                                         is a key driver of our success and is well-positioned to execute our strategy.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Growth
Strategy



Under
the leadership of our senior management team, we intend to continue to build our operational groups invest in our sales/account
management resources and continue to market our capabilities to support our rapid growth focusing on optimizing our operating
margins. While organic growth will be a continued main focus in our telecommunications division to drive our business forward,
acquisitions will play a strategic role in augmenting existing product and service lines, expanding geographic reach, diversifying
customers and cross-selling opportunities. We are pursuing several strategies, including:



| | ● | Expand
                                         Engineering and Telecom Offerings. We are building a company that can manage the existing
                                         network infrastructures of the largest domestic and international service providers,
                                         utilities, aggregators, Original Equipment Manufacturers (OEM’s) and Project Management
                                         Organizations (PMO’s) while delivering a broad range of professional services to
                                         meet accelerated demand for these services. We believe the ability to provide such solutions
                                         and services is a critical differentiator as we already have relationships for these
                                         professional services in place today. Each of our three operating units within AW Solutions
                                         intends to continue to expand into additional service offerings.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | Grow
                                         Revenues and Market Share through Selective Acquisitions. We plan to continue to acquire
                                         private companies that enhance our earnings and offer complementary services plus expand
                                         our geographic reach and client base. We believe such acquisitions will help us to accelerate
                                         our revenue growth, leverage our existing strengths, and capture and retain more work
                                         “in-house” from our clients, thereby contributing to our profitability. We
                                         also believe that increased scale will enable us to bid and take on larger project and
                                         contracts. We believe there are potential acquisition candidates in the somewhat fragmented
                                         professional services market and infrastructure arena which would be likely candidates
                                         for consolidation opportunities.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | Aggressively
                                         Expand Our Organic Growth Initiatives. Our customers include leading wireless and wireline
                                         telecommunications providers, cable broadband MSOs, OEMs, Utility Entities and enterprise
                                         customers. As we have expanded the breadth of our service offerings through both organic
                                         growth and selective acquisitions, we believe we have opportunities to expand revenues
                                         with our existing clients.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





27







| | ● | Expand
                                         Our Relationships with New Service Providers. We plan to capture and expand new relationships
                                         with cable broadband providers, competitive local exchange carriers (CLECs), Fortune
                                         1000 enterprise clients, institutional clients, competitive access providers (CAPs),
                                         etc. We believe that the business model for the expansion of these relationships, leveraging
                                         our core strengths, experience and broad array of service solutions, will support our
                                         business model for organic growth.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | Increase
                                         Operating Margins by Leveraging Operating Efficiencies. We believe that by centralizing
                                         administrative functions, consolidating insurance coverage and eliminating redundancies
                                         across our newly-acquired businesses, we will be positioned to offer more integrated
                                         end-to- end solutions and increase operating margins.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | Cross
                                         Selling and Marketing. We believe that through our acquisitions we will be able to effectively
                                         cross sell between business units and enhanced services offerings and gain even greater
                                         traction through coordinated and branded marketing indicatives.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Results
of Operations for the Three Month Periods Ended August 31, 2017 and August 31, 2016



Revenues



Our
operating results for the three month periods ended August 31, 2017 and August 31, 2016 are summarized as follows:



|                       |  | Three Months Ended August 31, 2017 |           |   | Three Months Ended August 31, 2016 |   |          | Difference | 
|---------------------- |  | ---------------------------------- | --------- | - | ---------------------------------- | - | -------- | ---------- | 
|Revenue                |  | $                                  | 3,115,921 |   |                                    | $ | -        |            | 
|Operating expenses     |  | $                                  | 886,019   |   |                                    | $ | 88,994   |            | 
|Other income (expense) |  | $                                  | (408,315  | ) |                                    | $ | (75,014  | )          | 
|Net income (loss)      |  | $                                  | (687,165  | ) |                                    | $ | (164,008 | )          | 



We
generated revenue increase for the three months ended August 31, 2017 of $3,115,921 compared to (Nil) revenues during the same
period ended August 31, 2016. During this period ended August 31, 2017, all of our revenues and a significant portion of our expenses
were generated by our acquired telecommunications division (AW Solutions, Inc.; AW Solutions Puerto Rico, LLC; Tropical Communications,
Inc.) on April 25, 2017. Our net loss for the three month period ended August 31, 2017 of $687,165 is attributed to the increased
operating expenses of $797,025, plus higher other expenses of $333,301.



Expenses



During
the three months ended August 31, 2017, our operating expenses were $886,019 compared to operating expenses of $88,994 for the
three month period ended August 31, 2016. The increase on operating expense is a result of the acquisition of the telecommunication
division on April 25, 2017 which consisting of AW Solutions, Inc., AW Solutions Puerto Rico LLC, and Tropical Communications,
Inc. These expenses include general and administrative costs, all of our corporate costs, as well as costs from our subsidiaries
management personnel and administrative overhead. These costs primarily consist of employee compensation and related expenses,
including legal, consulting and professional fees, information technology, provisions for recoveries of bad debt and other costs
not directly related to performance of our services under customer contracts. We expect these expenses to continue to generally
increase as we expand our operations, but expect that such expenses as a percentage of revenue will decrease if we succeed in
increasing revenues.



General
and administrative costs were $558,128 for the three months ended August 31, 2017 compared to $35,729 for the three months ended
August 31, 2016. Salaries and wages were $259,760 for the three months ended August 31, 2017 compared to $45,744 for the three
months ended August 31, 2016. Depreciation and amortization costs were $68,131 for the three months ended August 31, 2017 compared
to $7,521 for the three months ended August 31, 2016.



Other
Income (Expense)



For
the three months ended August 31, 2017, we incurred other expenses of $408,315, which was an increase of $333,301 compared to
the same period in 2016. The increase was primarily due to higher accretion discounts related to convertible debentures of $293,060.



Net
Loss



For
the three months ended August 31, 2017, we incurred a net loss of $687,165, compared to a net loss of $164,008 for the same period
in 2016.





28







Liquidity
and Capital Resources



As
of August 31, 2017, our total current assets were $2,059,693 and our total current liabilities were $10,544,343, resulting in
a working capital deficit of $8,484,650 compared to a working capital deficit of $7,865,616 as of May 31, 2017.



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



|Cash Flow                                 |  | Three Months Ended August 31, 2017 |          |   | Three Months Ended August 31, 2016 |  
|----------------------------------------- |  | ---------------------------------- | -------- | - | ---------------------------------- | -
|Net Cash Used In Operating Activities     |  | $                                  | (337,095 | ) |                                    | $
|Net Cash Used In Investing Activities     |  | $                                  | -        |   |                                    | $
|Net Cash Provided by Financing Activities |  | $                                  | 150,200  |   |                                    | $
|Change In Cash                            |  | $                                  | (186,895 | ) |                                    | $



The
decrease in cash that we experienced in the period ended August 31, 2017 compared to the decrease during the period ended August
31, 2016 is primarily due to the acquisition of AW Solutions and its subsidiaries and increased funding requirements for ongoing
operating activities. During the period ended August 31, 2017, the repayment of loans payable of $100,000 was made on a note payable
of $250,200 which created the cash balance as noted above. We expect that our cash position will increase, due to operating profits
in the telecommunication division. Over the coming months and year, subject to raising additional funds, we plan to primarily
concentrate on our telecommunications business and associated projects.



In
order to improve our liquidity, we intend to pursue additional equity financing from private placement sales of our equity securities
or shareholders loans. There is no assurance that we will be successful in completing any further private placement financing.
If we are unable to achieve the necessary additional financing, then we plan to reduce the amounts we spend on our business activities
and administrative expenses in order to be within the amount of capital resources that are available to us.



As
of the three months ended August 31, 2017, we had cash of $158,207 compared to $4,126 for the three months ended August 31, 2016.
Our cash balance at the beginning of this year was $345,102.



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 are material to stockholders.



Inflation



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



29







Item 3. Quantitative and Qualitative Disclosures About Market Risk



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



Item
4. Controls and Procedures.



Evaluation
of disclosure controls and procedures



Our
management, with the participation of our chief executive officer, evaluated the effectiveness of our disclosure controls and
procedures pursuant to Rule 13a-15 under the Exchange Act. In designing and evaluating the disclosure controls and procedures,
management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable
assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect
the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits
of possible controls and procedures relative to their costs.



Based
on management’s evaluation, our chief executive officer concluded that, as a result of the material weaknesses described
below, as of August 31, 2017 , our disclosure controls and procedures are not designed at a reasonable assurance level and are
not effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under
the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and
that such information is accumulated and communicated to our management, including our chief executive officer, as appropriate,
to allow timely decisions regarding required disclosure. The material weaknesses, which relate to internal control over financial
reporting, that were identified are:



| | a) | Due
                                         to our small size, we do not have a proper segregation of duties in certain areas of
                                         our financial reporting process. The areas where we have a lack of segregation of duties
                                         include cash receipts and disbursements, approval of purchases and approval of accounts
                                         payable invoices for payment. This control deficiency, which is pervasive in nature,
                                         results in a reasonable possibility that material misstatements of the consolidated financial
                                         statements will not be prevented or detected on a timely basis;
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) | We
                                         do not have a functioning audit committee. As a result, there is ineffective independent
                                         oversight in the establishment and monitoring of required internal controls and procedures;
                                         and
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) | We
                                         do not have any formally adopted internal controls surrounding its cash and financial
                                         reporting procedures.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We
are committed to improving our financial organization. In addition, we will look to increase our personnel resources and technical
accounting expertise within the accounting function to resolve non-routine or complex accounting matters. In addition, as funds
are available, we will take the following action to enhance our internal controls: Hiring additional knowledgeable personnel with
technical accounting expertise to further support our current accounting personnel, which management estimates will cost approximately
$200,000 per annum. Our operations are relatively small, but with the acquisition of AW Solutions (April 2017) we expect that
both our technical and accounting expertise will be improved, however our overall financial requirements will only increase. We
continue to have net cash losses each quarter, we do not anticipate being able to hire additional internal personnel until such
time as our operations are profitable on a cash basis or until our operations are large enough to justify the hiring of additional
accounting personnel. We currently engage an outside accounting firm to assist us in the preparation of our consolidated financial
statements this past year and will plan to evaluate our internal capabilities as we integrate the business segments with AW Solutions
to address the sufficient number of internal accounting personnel to achieve compliance. As necessary, we will engage consultants
in the future in order to ensure proper accounting for our consolidated financial statements.



Due
to the fact that our internal accounting staff consists solely of a Chief Executive Officer, who functions as our Principal Accounting
Officer, additional personnel will also ensure the proper segregation of duties and provide more checks and balances within the
department. Additional personnel will also provide the cross training needed to support us if personnel turn over issues within
the department occur. We believe this will greatly decrease any control and procedure issues we may encounter in the future.



Changes
in internal control over financial reporting.



There
were no changes in our internal control over financial reporting that occurred during the quarter ended August 31, 2017 that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



30







PART
II – OTHER INFORMATION



Item
1. Legal Proceedings



From
time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business.
However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time
to time that may harm our business. There been no material developments with respect to the information previously reported under
Part I, Item 3 of the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2017.



Item
1A. Risk Factors



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



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



Since
the beginning of the three month period ended August 31, 2017, we have not sold any equity securities that were not registered
under the Securities Act of 1933 that were not previously reported in an annual report on Form 10-K, in a quarterly report on
Form 10-Q or in a current report on Form 8-K.



Item
3. Defaults Upon Senior Securities



None.



Item
4. Mine Safety Disclosures



Not
applicable.



Item
5. Other Information



None.



Item
6. Exhibits



|Exhibit # |  | Exhibit Description                                                                                                                                                                                                                         
|--------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|          |  |                                                                                                                                                                                                                                             
|31.1      |  | Certification of the Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|          |  |                                                                                                                                                                                                                                             
|32.1      |  | Certifications of the Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                   
|          |  |                                                                                                                                                                                                                                             
|101 SCH   |  | XBRL Taxonomy Extension Schema Document                                                                                                                                                                                                     
|          |  |                                                                                                                                                                                                                                             
|101 CAL   |  | XBRL Taxonomy Calculation Linkbase Document                                                                                                                                                                                                 
|          |  |                                                                                                                                                                                                                                             
|101 LAB   |  | XBRL Taxonomy Labels Linkbase Document                                                                                                                                                                                                      
|          |  |                                                                                                                                                                                                                                             
|101 PRE   |  | XBRL Taxonomy Presentation Linkbase Document                                                                                                                                                                                                
|          |  |                                                                                                                                                                                                                                             
|101 DEF   |  | XBRL Taxonomy Extension Definition Linkbase Document                                                                                                                                                                                        



31







SIGNATURES



Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.



|                           | MANTRA
    VENTURE GROUP LTD.
|-------------------------- | -----------------------------
|                           |                              
|Date:
    October 19, 2017 | By:                          
|                           |                              
|                           |                              





32