Attached files
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EX-3.2 - Magnum dOr Resources Inc | v173153_ex3-2.htm |
EX-3.1 - Magnum dOr Resources Inc | v173153_ex3-1.htm |
EX-21 - Magnum dOr Resources Inc | v173153_ex21.htm |
EX-23.1 - Magnum dOr Resources Inc | v173153_ex23-1.htm |
EX-5.1 - Magnum dOr Resources Inc | v173153_ex5-1.htm |
EX-3.3 - Magnum dOr Resources Inc | v173153_ex3-3.htm |
As
filed with the U.S. Securities and Exchange Commission on February 5,
2010
Registration No.
333-_________
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
S-1
REGISTRATION
STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
MAGNUM
D’OR RESOURCES, INC.
(Exact
Name of Registrant as Specified in its Charter)
Nevada
|
2821
|
80-0137402
|
(State
or other jurisdiction of
incorporation
or organization)
|
(Primary
Standard Industrial
Classification
Code
|
(I.R.S.
Employer Identification No.)
|
1326
S.E. 17th Street, #513
Ft.
Lauderdale, Florida 33316
(305)
420-6563
(Address,
including zip code, and telephone number, including area code, of Registrant’s
principal executive offices)
Joseph
J. Glusic
President
and Chief Executive Officer
Magnum
d’Or Resources, Inc.
1326
S.E. 17th Street, #513
Ft.
Lauderdale, Florida 33316
(305)
420-6563
(Name,
address, including zip code, and telephone number, including area code, of agent
for service)
with
copies to:
James
Muchmore
Patton
Boggs LLP
1801
California Street, Suite 4900
Denver,
CO 80202
(303)
830-1776
Approximate
date of commencement of proposed sale to the public: As soon as
practicable after this registration statement becomes effective.
If any of
the securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box. R
If this
Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. ¨
If this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
Large
accelerated filer
¨
|
Accelerated
filer
¨
|
Non-accelerated
filer
£
|
Smaller
reporting company
R
|
(Do
not check if a
smaller
reporting company)
|
CALCULATION
OF REGISTRATION FEE
Title of Each Class of
Securities to be Registered
|
Amount to be
Registered
|
Proposed
Maximum
Price per Unit
|
Proposed
Maximum
Aggregate
Offering Price
|
Amount of
Registration
Fee
|
||||||||||||
Common
Stock (1)
|
13,464,882 | (1) | $ | 0.71 | (2) | $ | 9,560,066 | (2) | $ | 682 |
(1)
|
Includes
2,892,562 shares of Common Stock issuable upon the conversion of senior
secured promissory notes previously issued by the Company, 7,231,410
shares of Common Stock issuable pursuant to the exercise of warrants, and
additional shares of Common Stock as may from time to time become issuable
by reason of stock splits, stock dividends and certain anti-dilution
provisions set forth in each note and each warrant, which shares of Common
Stock are registered hereunder pursuant to Rule
416.
|
(2)
|
Calculated
in accordance with Rule 457(c) of the Securities Act, based on the average
high and low prices reported on the OTCBB on February 3,
2010.
|
The Registrant hereby amends this
Registration Statement on such date or dates as may be necessary to delay its
effective date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of 1933 or until
this Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may
determine.
The
information in this prospectus is not complete and may be
changed. The Selling Stockholders may not sell any of these
securities or accept an offer to buy any of them until the registration
statement filed with the Securities and Exchange Commission relating to
these securities has been declared “effective” by the Securities and
Exchange Commission. This prospectus is not an offer to sell
these securities and the Selling Stockholders are not soliciting an offer
to buy these securities in any state or other jurisdiction where that
would not be permitted or legal.
|
SUBJECT
TO COMPLETION, DATED FEBRUARY ___, 2010
PROSPECTUS
MAGNUM
D’OR RESOURCES, INC.
13,464,882
SHARES OF COMMON STOCK
This
prospectus relates to the disposition of up to 13,464,882 shares of Magnum d’Or
Resources, Inc., or Magnum, Common Stock, par value $0.001 per share (the “Common Stock”), by
the Selling Stockholders listed in this prospectus or their permitted
transferees. All of the shares offered hereby are being sold by the
Selling Stockholders named in this prospectus, and the Company will not receive
any proceeds from sale of the securities included in this
prospectus.
The
prices at which the Selling Stockholders or their permitted transferees may
dispose of their Magnum shares or interests therein will be determined by the
Selling Stockholders at the time of sale and may be at fixed prices, at the
prevailing market price for the shares, at prices related to such market price,
at varying prices determined at the time of sale, or at negotiated prices.
Information regarding the Selling Stockholders and the times and manner in which
they may offer and sell the shares or interests therein under this prospectus is
provided under the sections titled “Selling Security Holders” and “Plan of
Distribution” in this prospectus. The Selling Stockholders may resell the Common
Stock to or through underwriters, broker-dealers or agents, who may receive
compensation in the form of discounts, concessions or commissions.
Our
common stock is quoted on the OTC Bulletin Board under the symbol “MDOR.” On
February 4, 2010, the closing bid and ask prices for one share of our common
stock were $0.65 and $0.68, respectively, as reported by the OTC Bulletin Board
website. These over-the-counter quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
Pursuant
to a registration rights agreement, we agreed to file this registration
statement to cover the resale of up to 13,464,882 shares of our Common Stock
that are issuable from time to time upon the conversion of Senior Secured
Promissory Notes and the exercise of warrants issued by us pursuant to our
private placement of $3.5 million of Senior Secured Promissory Notes on December
23, 2009.
Investing
in our securities involves a high degree of risk. See “Risk Factors”
beginning on page 4.
Our
principal executive offices are located at 1326 S.E. 17th Street, #513, Ft.
Lauderdale, Florida 33316 and our telephone number is (305)
420-6563. Our Internet address is http://www. magnumresources.net/
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or passed upon the adequacy or
accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
The date
of this prospectus is _______, 2010.
TABLE
OF CONTENTS
Page
|
||
DISCLOSURE
REGARDING FORWARD-LOOKING STATEMENTS AND CAUTIONARY
STATEMENTS
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1
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ABOUT
THIS PROSPECTUS
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2
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PROSPECTUS
SUMMARY
|
3
|
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RISK
FACTORS
|
4
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LEGAL
PROCEEDINGS
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12
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USE
OF PROCEEDS
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12
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DETERMINATION
OF OFFERING PRICE
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12
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DILUTION
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12
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SELLING
SECURITY HOLDERS
|
12
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PLAN
OF DISTRIBUTION
|
15
|
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DESCRIPTION
OF SECURITIES TO BE REGISTERED
|
17
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INTERESTS
OF NAMED EXPERTS AND COUNSEL
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19
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DESCRIPTION
OF BUSINESS AND PROPERTIES
|
19
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MARKET
FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
|
21
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FINANCIAL
STATEMENTS
|
22
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MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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22
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CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
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27
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DIRECTORS
AND EXECUTIVE OFFICERS
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28
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EXECUTIVE
COMPENSATION
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29
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||
SECURITIES
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
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31
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CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
32
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SECURITIES
AND EXCHANGE COMMISSION POSITION ON CERTAIN
INDEMNIFICATION
|
33
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LEGAL
MATTERS
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34
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EXPERTS
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34
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REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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F-2
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PART
II INFORMATION NOT REQUIRED IN THE
PROSPECTUS
|
II-1
|
DISCLOSURE
REGARDING FORWARD-LOOKING STATEMENTS
AND
CAUTIONARY STATEMENTS
This
prospectus and the documents incorporated into this prospectus by reference
include “forward-looking statements” within the meaning of Section 27A of the
Securities Act of 1933, or the Securities Act, and Section 21E of the
Securities Exchange Act of 1934, or the Exchange Act. All statements
other than statements of historical fact included in or incorporated into this
prospectus regarding our financial position, business strategy, plans and
objectives of our management for future operations and capital expenditures are
forward-looking statements. Although we believe that the expectations reflected
in those forward-looking statements are reasonable, we cannot be sure that these
expectations will prove to be correct.
In
addition, Magnum D’OR Resources, Inc. (“Magnum”) and its
management may make other written or oral communications from time to time that
contain forward-looking statements. Forward-looking statements,
including statements about industry trends, management’s future expectations and
other matters that do not relate strictly to historical facts, are based on
assumptions by management, and are often identified by such forward-looking
terminology as “expect,” “look,” “believe,” “anticipate,” “estimate,” “seek,”
“may,” “will,” “trend,” “target,” and “goal” or similar statements or variations
of such terms. Forward-looking statements may include, among other
things, statements about Magnum’s confidence in its strategies and its
expectations about financial performance, market growth, market and regulatory
trends and developments, acquisitions and divestitures, new technologies,
services and opportunities and earnings.
Forward-looking
statements are subject to various risks and uncertainties, which change over
time, are based on management’s expectations and assumptions at the time the
statements are made, and are not guarantees of future
results. Management’s expectations and assumptions, and the continued
validity of the forward-looking statements, are subject to change due to a broad
range of factors affecting the national and global economies, the equity, debt,
currency and other financial markets, as well as factors specific to Magnum and
its subsidiaries.
Actual
outcomes and results may differ materially from what is expressed in our
forward-looking statements and from our historical financial results due to the
factors discussed elsewhere in this prospectus or disclosed in our other SEC
filings. Forward-looking statements should not be relied upon as
representing our expectations or beliefs as of any date subsequent to the time
this prospectus is filed with the SEC. Magnum undertakes no
obligation to revise the forward-looking statements contained in this prospectus
to reflect events after the time it is filed with the SEC. The
factors discussed herein are not intended to be a complete summary of all risks
and uncertainties that may affect our businesses. Although we strive
to monitor and mitigate risk, we cannot anticipate all potential economic,
operational and financial developments that may adversely impact our operations
and our financial results.
Forward-looking
statements should not be viewed as predictions, and should not be the primary
basis upon which investors evaluate Magnum. Any investor in Magnum
should consider all risks and uncertainties disclosed in our SEC filings
described below under the heading “Where You Can Find More Information,” all of
which are accessible on the SEC’s website at http://www.sec.gov.
1
ABOUT
THIS PROSPECTUS
This
prospectus is part of a registration statement that we filed with the Securities
and Exchange Commission, or SEC, Selling Stockholders may sell shares of Common
Stock described in this prospectus in one or more offerings up to a total
estimated maximum offering price of $9,290,769. The exhibits to our
registration statement contain the full text of certain contracts and other
important documents we have summarized in this prospectus. Since these summaries
may not contain all the information that you may find important in deciding
whether to purchase the securities offered by Selling Stockholders, you should
review the full text of these documents. The registration statement
and the exhibits can be obtained from the SEC as indicated under the heading
“Where You Can Find More Information.”
This
prospectus provides you with a general description of the securities offered by
Selling Stockholders. Each time Selling Stockholders offer to sell
securities, we may provide a prospectus supplement that will contain specific
information about the terms of that offering. The prospectus
supplement may also add, update or change information contained in this
prospectus. You should read this prospectus, the applicable prospectus
supplement and the additional information described below under the heading
“Where You Can Find More Information.”
You
should rely only on the information contained or incorporated by reference in
this prospectus and in any prospectus supplement. We have not authorized any
other person to provide you with different information. If anyone provides you
with different or inconsistent information, you should not rely on it. We are
not making offers to sell or solicitations to buy the securities in any
jurisdiction in which an offer or solicitation is not authorized or in which the
person making that offer or solicitation is not qualified to do so or to anyone
to whom it is unlawful to make an offer or solicitation. You should not assume
that the information in this prospectus or any prospectus supplement, as well as
the information we previously filed with the SEC that we incorporate by
reference in this prospectus or any prospectus supplement, is accurate as of any
date other than its respective date. Our business, financial condition, results
of operations and prospects may have changed since those dates.
In this
prospectus, “Magnum,” “we,” “our,” “ours,” and “us” refer to Magnum d’Or
Resources, Inc., which is a Nevada corporation headquartered in Ft. Lauderdale,
Florida, and its subsidiaries on a consolidated basis, unless the context
otherwise requires. Unless otherwise stated, the dollar amounts
contained in this prospectus and any accompanying prospectus supplement are
presented in U.S. dollars.
2
PROSPECTUS
SUMMARY
This
summary highlights some information from this prospectus or incorporated by
reference into this prospectus and it may not contain all of the information
that is important to you. To understand the terms of the common stock
offered by this prospectus, you should read this prospectus as well as the
information to which we refer you and the information incorporated by reference
in this prospectus. You should carefully read the section titled
“Risk Factors” in this prospectus to determine whether an investment in our
common stock is appropriate for you.
Business
Overview
Magnum
d’Or Resources, Inc. (the “Company” or “Magnum”) was
incorporated on September 3, 1999 under the laws of the State of
Nevada. Since its inception, the Company evolved through several
transitions to its present mode. During its evolution, it operated as
an internet information company, a mining exploration company, and a business
acquisition company.
In
December 2006, the Company’s then outstanding preferred stock, and thus voting
control of the Company, was acquired by an individual for the express purpose of
pursuing its current business strategy of producing high quality rubber powder
and thermoplastics.
In May
2008, the Company formed a wholly-owned subsidiary, Magnum Recycling Canada
(“MRC”), into
which the Company subsequently transferred all production equipment for the
purpose of establishing its first North American production
facility. The facility is located in Magog, Quebec, Canada for
strategic geographical and commercial purposes. Equipment
installation and testing was performed throughout the summer and fall of 2008,
and production activities commenced at the Magog, Quebec facility during
November of 2008.
In June
2009, the Company formed a wholly-owned subsidiary, Magnum Recycling USA (“MRUSA”), for the
purpose of establishing its first US operations. In August 2009, a
120-acre tire disposal facility located in Hudson, CO was acquired to meet this
goal and to establish a centralized US production and distribution
facility. This site’s geographic location in Colorado provides it
access to raw materials and delivery sources throughout North
America.
On
October 1, 2009, the Company formed another wholly-owned subsidiary, Magnum
Engineering (“MEI”) for the express
purpose of providing engineering related services to the Company and to
interested third parties.
The
Company is currently engaged in operations to provide modified sources of
recycled rubber products, reconstituted rubber derivatives, and high quality
rubber powders to various distributors and manufacturers.
About
This Offering
On
December 21, 2009, Magnum entered into a definitive purchase agreement with
institutional investors to place Senior Secured Convertible Notes (the “Notes”) due December
2010 totaling $3.5 million in gross proceeds before fees and expenses (the
“Transaction”). The
Transaction closed on December 23, 2009 (the “Closing
Date”). The Notes are convertible into shares of common
stock. In connection with the issuance of the Notes, the Company
issued warrants to purchase shares of the Company's common
stock. This prospectus relates to the resale of up to 13,464,882
shares of our common stock by the holders of the Notes and Warrants upon
conversion
3
The
shares offered by this prospectus may be sold by the selling shareholders from
time to time in the open market, through negotiated transactions or otherwise at
market prices prevailing at the time of sale or at negotiated
prices. We will receive none of the proceeds from the sale of the
shares by the selling shareholders. We will bear all expenses of
registration incurred in connection with this offering, but all selling and
other expenses incurred by the selling shareholders will be borne by
them.
The
shares of common stock being offered by this prospectus covers the resale of
133% of the sum of (i) an aggregate of up to 2,892,562 shares issuable upon
conversion of the principal and accrued amount due on the Notes issued to
selling shareholders in the Transaction, and (ii) an aggregate of up to
7,231,410 shares issuable upon the exercise of Class A, B and C Warrants issued
in the Transaction.
The
number of shares being offered by this prospectus represents approximately 12%
of our outstanding shares of common stock as of February 4, 2010. The Company
will not receive any proceeds from the sale of the common stock by the selling
shareholders.
Summary
Financial Information
Balance Sheet Data
|
Fiscal
Year
Ended
Sept.
30, 2009
|
Fiscal
Year
Ended
Sept.
30, 2008
|
||||||
Cash
|
$ | 57,844 | $ | 510,042 | ||||
Total
Assets
|
11,210,977 | 1,364,941 | ||||||
Liabilities
|
5,821,495 | 1,577,395 | ||||||
Total
Stockholder’s Equity (Deficit)
|
5,389,482 | (212,454 | ) | |||||
Statement of Operations
|
||||||||
Revenue
|
$ | 85,070 | $ | 0 | ||||
Net
Loss for Reporting Period
|
$ | 37,316,062 | $ | 2,607,352 |
RISK
FACTORS
An
investment in our common stock involves certain risks. You should
carefully consider the risks described below, as well as the other information
included or incorporated by reference in this prospectus, before making an
investment decision. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial may also impair our business
operations. If any of these risks actually occurs, our business,
financial condition or results of operations could be materially adversely
affected. In that case, the trading price of our common stock could
decline substantially, and you may lose all or part of your
investment.
Financial
Position of the Company, Working Capital Deficit; Report of Independent
Registered Public Accounting Firm
The
Company commenced production activities in November 2008, shipped its first
billable products in December 2008, and thereafter recognized its first
operating income. The Company has not yet generated sufficient
operating income from operations, nor is there any assurance that the Company
will achieve future revenue levels and operating efficiencies to support
existing operations, generate positive cash flow from operations or recover its
investment in its property, plant and equipment. The Company expects
to show continued losses through the first half of calendar 2010 and there can
be no assurance that such losses will not continue thereafter. The
success of the Company’s operations are largely dependent upon its ability to
establish and improve operating efficiencies and overall production capacity,
generate substantial sales revenues and generate adequate cash flows from
operations. The Company’s operations are subject to numerous risks
associated with the establishment of its business, including lack of adequate
financing sources and competition from numerous large, well-established and
well-capitalized competitors. In addition, the Company has in the
past and may again in the future encounter unanticipated problems, including
manufacturing, distribution and marketing difficulties, some of which may be
beyond the Company’s financial and technical abilities to
resolve. The failure to adequately address such difficulties could
have a materially adverse effect on the Company’s prospects.
4
Our
independent auditors have issued a report questioning our ability to continue as
a going concern. This report may impair our ability to raise
additional financing and adversely affect the price of our common
stock.
The
report of our independent auditors contained in our financial statements for the
years ended September 30, 2009 and 2008 includes a paragraph that explains that
we have incurred substantial losses. This report raises substantial
doubt about our ability to continue as a going concern. Reports of
independent auditors questioning a company’s ability to continue as a going
concern are generally viewed unfavorably by analysts and
investors. This report may make it difficult for us to raise
additional debt or equity financing necessary to continue the development of our
recycled rubber products, reconstituted rubber derivatives, and high quality
rubber powders business.
Our
disclosure controls and procedures are not adequate.
Our
management evaluated, with the participation of our Chief Executive Officer and
Chief Financial Officer, the effectiveness of our disclosure controls and
procedures as of the end of our last fiscal year ended September 30,
2009. Based on this evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act
of 1934 (the “Exchange
Act”)) are not adequate to ensure that information required to be
disclosed by us 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.
The
Company does not have adequate personnel to provide required review of
day-to-day financial transactions and review of financial statement
disclosures. To remediate the control deficiencies, one of several
specific additional steps that the Company believes it must undertake is to
retain a consulting firm to, among other things, design and implement adequate
systems of accounting and financial statement disclosure controls to comply with
the applicable SEC requirements. There is no assurance that the
Company will be able to implement these plans in the future, if at
all.
Availability
and Integration of Future Acquisitions
The
Company’s strategy includes pursuing acquisition candidates that complement its
existing product line and geographic presence, while also leveraging its
purchasing power, brand management and capability and operating
efficiencies. Potential competitors for acquisition opportunities
include larger companies with significantly greater financial
resources. Competition for the acquisition of businesses may result
in acquisitions on terms that prove to be less advantageous to the Company that
have been attainable in the past or may increase acquisition prices to levels
beyond the Company’s financial capability. The Company’s financial
capability to make acquisitions is partially a function of its ability to access
the debt and equity capital markets. There can be no assurance that
the Company will find attractive acquisition candidates in the future or succeed
in reducing the costs and increasing the profitability of any business acquired
in the future.
5
Risks
of Leverage
The
Company anticipates that it may incur substantial borrowings for the purpose of
purchasing inventory and equipment, and for financing the expansion and growth
of the Company, including the possible acquisition of other
companies. Any amounts borrowed will depend, among other things, on
the condition of financial markets. Acquisitions of equipment,
vehicles, or other companies purchased on a leveraged basis generally can be
expected to be profitable only if they generate, at a minimum, sufficient cash
revenues to pay interest on, and to amortize, the related debt, to cover
operating expenses and to recover the equity investment. The use of
leverage, under certain circumstances, may provide a higher return to the
shareholders but will cause the risk of loss to shareholders to be greater than
if the Company did not borrow, because fixed payment obligations must be met on
certain specified dates regardless of the amount of revenues derived by the
Company. If debt service payments are not made when due, the Company
may sustain the loss of its equity investment in the assets securing the debt as
a result of foreclosure by the secured lender. Interest payable on
Company borrowings, if any, may vary with the movement of the interest rates
charged by banks to their prime commercial customers. An increase in
borrowing costs due to a rise in the “prime” or “base” rates may reduce the
amount of Company income and cash availability for dividends.
Licenses
and Other Proprietary Rights
The
Company has acquired license rights for its rubber products, and may acquire or
develop other products that it believes may be patentable. However,
the Company can give no assurance that further patents will be issued; that
present licenses or future patents will be enforceable, will exclude competitors
or provide competitive advantage, and will be valid if challenged; or that
competitors will not be able to design around or develop similar
products. The Company also seeks to maintain the confidentiality of
its proprietary rubber formula and production processes which it believes are
not patentable. However, the Company can give no assurance that its
confidentiality agreements will be enforced or that competitors will not
independently develop similar formulas or processes.
Highly
Competitive Industry
The crumb
rubber industry is highly competitive. The Company faces competition
in all of its markets from large, national companies and smaller, regional
companies, as well as from individuals. Many of the Company’s
competitors are larger and have greater financial resources than the
Company. The Company from time to time will experience price pressure
in certain of its markets as a result of competitors’ promotional pricing
practices. Competition is based on product quality, functionality,
price, brand loyalty, effective promotional activities and the ability to
identify and satisfy emerging preferences.
Rapid
Growth
The
Company may experience rapid growth. The Company may be required to
rapidly add a significant number of employees and may be required to expend
considerable efforts training these new employees. This growth will
place strains on the Company’s management resources and
facilities. The Company’s success will, in part, be dependent upon
the ability of the Company to manage growth effectively.
General
Economic Conditions
The
financial success of the Company’s operations may be sensitive to adverse
changes in general economic conditions, such as inflation, unemployment, and the
cost of borrowing. These changes could cause the cost of the
Company’s products to rise faster than it can raise prices. The
Company has no control over any of these changes.
6
Dividends
There can
be no assurance that the proposed operations of the Company will result in
sufficient revenues to enable the Company to operate at profitable levels or to
generate positive cash flow to enable the Company to pay cash dividends to its
shareholders. The Company does not anticipate paying dividends to
shareholders in the foreseeable future.
Potential
Quarterly Fluctuations
The
Company may experience variability in its net sales and net income on a
quarterly basis as a result of many factors, including the volatility of
commodities, industrial stability in general, seasonal shifts in demand, weather
and announcements of new and/or competitive products. The Company’s
planned operating expenditures each quarter are based on sales forecasts for the
quarter. If sales do not meet expectations in any given quarter,
operating results for the quarter may be materially and adversely
affected.
Dependence
on Senior Management
The
Company’s future performance will depend to a significant extent upon the
efforts and abilities of certain key management personnel. The
Company currently does not have key life insurance policies on any of its
executives. The loss of service of one or more of the Company’s key
management personnel could have an adverse effect on the Company’s
business. The Company’s success and plans for future growth will also
depend in part on management’s continuing ability to hire, train and retain
skilled personnel in all areas of its business.
Product
Liability and Warranty Claims
Any
product liability claim against the Company could have an adverse impact on the
Company. Although the Company believes that its product liability
insurance will be adequate to handle product liability claims, and that it may
have certain rights to indemnification from third parties, there can be no
assurance that claims exceeding such coverage will not be made, that the Company
will be able to obtain and maintain adequate insurance coverage, or that the
Company will be successful in obtaining indemnification from any third
parties. The Company from time to time also provides written limited
warranties to its customers. There can be no assurance that
significant warranty claims will not be received in the future.
Business
Interruption
The
Company believes that its success and future results of operations will be
substantially dependent upon its ability to provide prompt and efficient service
to its customers. As a result, any disruption of the Company’s
day-to-day operations could have a material adverse effect upon the Company and
any failure of the Company’s management and manufacturing systems, distribution
arrangements or communication systems could impair its ability to receive and
process customer orders and ship products on a timely basis.
If the
Company’s facilities are significantly damaged by fire or other casualty,
production may be substantially interrupted and such casualty loss and business
interruption would have a material adverse effect on the Company’s operations
and profitability. Although the Company intends to maintain business
interruption insurance, there can be no assurance that such coverage, if
obtained, will be sufficient to cover the Company’s losses or that the Company
will be able to regain its market share or customer base after resuming
operations.
7
Factors
Affecting Operations
The
rubber products industry may be affected by adverse changes in general or local
economic market conditions, weather, changing regulatory requirements, limited
alternative uses for the rubber materials, changing demographics, and other
factors.
Lack
of Diversification
The
success of the Company will initially depend primarily upon the success of its
production of rubber mulch, chips and nuggets. Because Company funds
and assets will be focused on production in this one sector of the industry, the
Company will lack investment diversification.
Dependence
on Key Personnel
The
operation of the company requires managerial and operational
expertise. Any loss of the Company’s key management personnel will
have a material adverse effect on the Company and its business.
Employees
As the
Company grows it will need to hire and employ an adequate number of competent
personnel. There is no assurance that qualified operating personnel
will be available for employment, and any inability to hire and retain qualified
employees could have a material adverse effect on the Company’s
operations.
Uninsured
Losses
The
Company intends to arrange for comprehensive insurance, including general
liability, fire and extended coverage and business interruption insurance, which
is customarily obtained for similar operations. Although the Company
will maintain insurance coverage in amounts believed to be prudent and
sufficient, there is a possibility that losses may exceed such coverage
limitations. Furthermore, there are certain types of losses
(generally of a catastrophic nature, including tornadoes, earthquakes and
floods) that are either uninsurable or not economically
insurable. Should such a disaster occur, the Company could suffer a
loss of the capital invested in, as well as, anticipated profits from any
property destroyed by such a casualty.
Governmental
Regulations
Existing
and subsequent changes in foreign, national, state and local laws, as well as
administrative regulations and enforcement policies over which the Company has
no control could have an adverse effect on the Company’s
business. Worker’s compensation requirements and other regulation of
wages, hours and working conditions could have adverse effects on the Company’s
operations. The Company’s continued operations are dependent upon its
ability to comply with local zoning and land use regulations which govern the
use of buildings and similar matters. The Company believes that it
can obtain the necessary permits to promote the intended business of the Company
at the sites where it intends to do business, but its ability to obtain these
permits is dependent upon the discretion of state and/or local
officers. Moreover, many of these permits may impose restrictive
conditions upon the business operations of the Company and may be reviewed and
revoked at specified intervals. No assurance can be given that a
future law or regulation applicable to the Company’s location will not have an
adverse effect upon its ability to conduct business.
8
The
Company is subject to numerous federal, state and local laws and regulations
that govern the discharge and disposal of wastes, workplace safety and other
aspects of the Company business. The Company’s operations entail the
risk of noncompliance with environmental and other government
regulations. Environmental and other legislation and regulations have
changed in recent years and the Company cannot predict what, if any, impact
future changes may have on the Company’s business. To mitigate any
risk associated with the ultimate closure and safety of the facility, the
Company will post a reclamation bond to ensure proper closure, maintenance, and
monitoring of the site for the statutory period(s).
Further,
environmental legislation has been enacted, and may in the future be enacted,
that creates liability for past actions that were lawful at the time
taken. As in the case with manufacturing companies in general, if
damage to persons or the environment has been caused, or is in the future
caused, by the Company’s use of hazardous solvents or by hazardous substances
located at the Company’s facilities, the Company may be fined or held liable for
the cost of remediation. Imposition of such fines or the incurrence
of such liability may have a material adverse effect on the Company’s business,
financial condition and results of operations.
The
Company expects to be able to incorporate substantially all of the waste
feedstock it receives into its manufacturing and reclamation process without
significant waste disposal problems of its own. However, its supply
source is relatively homogeneous and consistent, and there can be no assurance
that in the future continuing regulations will not adversely affect the
Company’s operations or require the introduction of costly additional
manufacturing or waste disposal processes.
The
Company believes that the demand for its products and technology could be
decreased if there is a lessening of public concern or governmental pressure on
private industries and municipal authorities to deal with used tire disposal
problems. Further, the Company believes that a lessening of
environmental concerns could reduce the rate at which tires are recycled, which
ultimately could have the effect of increasing the Company’s cost of raw
materials for its manufacturing operations.
Although
state legislation currently provides for certain financial incentives and
procurement preferences for recycled materials, such preferences for materials
containing shredded tires are dependent upon the eventual promulgation of
product or performance standard guidelines by state or federal regulatory
agencies. Such guidelines for recycled rubber materials may not be
released or, if released, the product performance standards required by such
guidelines may be incompatible with the Company’s manufacturing
capabilities.
Indemnification
The
Company’s Certificate of Incorporation limits the liability of its directors and
officers to the Company and its shareholders to the fullest extent permitted by
Nevada law, and provides for indemnification of the directors and officers to
such extent. The Company may also obtain liability
insurance. These measures will provide additional protection to the
directors and officers of the Company against liability in connection with
certain actions and omissions.
9
Conflicts
of Interest
There are
anticipated conflicts of interest between the Company and its stockholders, and
there may be potential conflicts of interest involving the Company and its
stockholders, some of which may affect the planed business activities of the
Company. The Board of Directors will attempt to resolve any conflict
of interest situation which may arise and which is brought to the attention of
the Board of Directors on a case-by-case basis.
Our
management and larger stockholders exercise significant control over our Company
and may approve or take actions that may be adverse to your
interests.
As of
February 4, 2010, our named executive officers, directors and major stockholders
beneficially owned the majority of our voting power. For the
foreseeable future, these stockholders will be able to exercise control over
many matters requiring approval by the board of directors or our
stockholders. As a result, they will be able to:
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·
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control
the composition of our board of
directors;
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·
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control
our management and policies;
|
|
·
|
determine
the outcome of significant corporate transactions, including changes in
control that may be beneficial to stockholders;
and
|
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·
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act
in each of their own interests, which may conflict with, or be different
from, the interests of each other or the interests of the other
stockholders.
|
Non-Arm’s
Length Transactions
The
Company may engage in transactions with its officers, directors and
shareholders. Such transactions may be considered as not having
occurred at arm’s length. The Company may do business with such
persons in the future, but intends to contract with them on the same basis and
upon no more favorable terms than could be obtained from persons not affiliated
with the Company.
Our
common stock is classified as penny stock, and it continues to be extremely
illiquid, so investors may not be able to sell as much stock as they want at
prevailing market prices.
Our
common stock is currently generally classified as a penny
stock. Penny stocks generally include equity securities with a price
of less than $4.00 that trade on the over-the-counter market. As a
result, an investor may find it more difficult to dispose of or obtain accurate
quotations as to the price of the securities that are classified as penny
stocks. The “penny stock” rules adopted by the Commission under the
Exchange Act, subject the sale of the shares of penny stock issuers to
regulations that impose sales practice requirements on broker-dealers, causing
many broker-dealers to not trade penny stocks or to only offer the stocks to
sophisticated investors that meet specified net worth or net income criteria
identified by the Commission. These regulations contribute to the
lack of liquidity of penny stocks.
10
Sales
of a substantial number of shares of our common stock into the public market by
the Selling Stockholders, as well as the exercise of our outstanding warrants on
a cash or a cashless basis, may result in significant downward pressure on the
price of our common stock and could affect the ability of our stockholders to
realize the current trading price of our common stock.
At the
time that this registration statement is declared effective by the SEC, a
significant number of shares of our common stock will be eligible to be
immediately sold in the market. Even a perception by the market that
Selling Stockholders may sell in large amounts after the registration statement
is declared effective could place significant downward pressure on our stock
price.
Our
stock price and trading volume may be volatile, which could result in losses for
our stockholders.
The
equity trading markets may experience periods of volatility, which could result
in highly variable and unpredictable pricing of equity
securities. The market of our common stock could change in ways that
may or may not be related to our business, industry, or operating performance
and financial condition. In addition, the trading volume in our
common stock may fluctuate and cause significant price variations to
occur. Some of the factors that could negatively affect our share
price or result in fluctuations in the price or trading volume of our common
stock include:
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·
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Actual
or anticipated quarterly variations in our operating
results;
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·
|
Changes
in expectations as to our future financial performance or changes in
financial estimates, if any;
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·
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Announcements
relating to our business or the business of our
competitors;
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·
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Conditions
generally affecting the crumb rubber
industry;
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·
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The
success of our operating strategy;
and
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·
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The
operating and stock performance of other comparable
companies.
|
Many of
these factors are beyond our control, and we cannot predict their potential
effects on the price of our common stock. If the market price of our
common stock declines significantly, you may be unable to resell your shares of
common stock at or above the price you acquired those shares. We
cannot assure you that the market price of our common stock will not fluctuate
or decline significantly.
There
are risks associated with forward-looking statements made by us and actual
results may differ.
Some of
the information in this prospectus contains forward-looking statements that
involve substantial risks and uncertainties. These statements can be
identified by the use of forward-looking words such as “may,” “will,” “expect,”
“anticipate,” “believe,” “estimate,” and “continue,” or similar
words. Statements that contain these words should be read carefully
because they:
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·
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discuss
our future expectations;
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·
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contain
projections of our future results of operations or of our financial
condition; and
|
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·
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state
other “forward-looking”
information.
|
There may
be events in the future that we are not able to accurately predict and/or over
which we have no control. The risk factors listed in this section,
other risk factors about which we may not be aware, as well as any cautionary
language in this prospectus, provide examples of risks, uncertainties, and
events that may cause our actual results to differ materially from the
expectations we describe in our forward-looking statements. The
occurrence of the events described in these risk factors could have an adverse
affect on our business, results of operations and financial
condition.
11
FINRA
sales practice requirements limit a stockholders' ability to buy and sell our
stock.
The
Financial Industry Regulatory Authority, Inc. (FINRA) has adopted rules which
require that in recommending an investment to a customer, a broker-dealer must
have reasonable grounds for believing that the investment is suitable for that
customer. Prior to recommending speculative low priced securities to
their non-institutional customers, broker-dealers must make reasonable efforts
to obtain information about the customer’s financial status, tax status,
investment objectives, and other information. Under interpretations
of these rules, FINRA believes that there is a high probability that speculative
low priced securities will not be suitable for at least some
customers. FINRA requirements make it more difficult for
broker-dealers to recommend that their customers buy our common stock, which has
the effect of reducing the level of trading activity and liquidity of our common
stock. Further, many brokers charge higher transactional fees for
penny stock transactions. As a result, fewer broker-dealers are
willing to make a market in our common stock, reducing a stockholders' ability
to resell shares of our common stock.
LEGAL
PROCEEDINGS
The
Company is not a party to any material pending legal proceedings, and to the
best of its knowledge, no such proceedings by or against the Company have been
initiated.
USE
OF PROCEEDS
We will
not receive any proceeds from any sale of the shares of our common stock by the
Selling Stockholders.
DETERMINATION
OF OFFERING PRICE
We are
not selling any common stock in this offering. We anticipate that the
Selling Stockholders will offer the Shares for sale at prevailing market prices
on the OTC Bulletin Board on the date of such sale.
DILUTION
We
currently file reports with the SEC, and we are not selling any common stock in
this offering. The Selling Stockholders are the current stockholders
of the Company.
SELLING
SECURITY HOLDERS
The
shares of common stock being offered by the selling stockholders are those
issuable to the selling stockholders upon conversion of the notes and exercise
of the warrants. For additional information regarding the issuance of the notes
and the warrants, see “Warrants and Convertible Notes” below. We are
registering the shares of common stock in order to permit the selling
stockholders to offer the shares for resale from time to time. Except for the
ownership of the notes and the warrants issued pursuant to the December 21,
2009 Securities Purchase Agreement, the selling stockholders have not had
any material relationship with us within the past three years.
12
The table
below lists the selling stockholders and other information regarding the
beneficial ownership (as determined under Section 13(d) of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder) of
the shares of common stock held by each of the selling stockholders. The second
column lists the number of shares of common stock beneficially owned by the
selling stockholders, based on their respective ownership of shares of common
stock, notes and warrants, as of February 4, 2009, assuming conversion of the
notes and exercise of the warrants held by each such selling stockholder on that
date but taking account of any limitations on conversion and exercise set forth
therein.
The third
column lists the shares of common stock being offered by this prospectus by the
selling stockholders and does not take in account any limitations on (i)
conversion of the notes set forth therein or (ii) exercise of the warrants set
forth therein.
In
accordance with the terms of a registration rights agreement with the holders of
the notes and the warrants, this prospectus generally covers the resale of 133%
of the sum of (i) the maximum number of shares of common stock issuable upon
conversion of the notes and (ii) the maximum number of shares of common stock
issuable upon exercise of the warrants, in each case, determined as if the
outstanding notes and warrants were converted or exercised (as the case may be)
in full (without regard to any limitations on conversion or exercise contained
therein) as of the trading day immediately preceding the date this registration
statement was initially filed with the SEC. Because the conversion price of the
notes and the exercise price of the warrants may be adjusted, the number of
shares that will actually be issued may be more or less than the number of
shares being offered by this prospectus. The fourth column assumes the sale of
all of the shares offered by the selling stockholders pursuant to this
prospectus.
Under the
terms of the notes and the warrants, a selling stockholder may not convert the
notes or exercise the warrants to the extent (but only to the extent) such
selling stockholder or any of its affiliates would beneficially own a number of
shares of our common stock which would exceed 4.9% or 9.9% (as applicable). The
number of shares in the second column reflects these limitations. The selling
stockholders may sell all, some or none of their shares in this
offering. See “Plan of Distribution.”
Name
of Selling Shareholder
|
Number
of
Shares
of
Common
Stock
Owned
Prior to
Offering
(A)
|
Maximum
Number of
Shares
of Common
Stock
to be Sold
Pursuant
to this
Prospectus
(B)
|
Number
of Shares of
Common
Stock of
Owned
After
Offering
|
Percentage
of
Shares
of Common
Stock
Owned After
Offering
|
||||||||||||
Alpha
Capital Anstalt (1)
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1,012,396 | 1,346,487 | - | - | ||||||||||||
Brio
Capital, LP (2)
|
578,512 | 769,421 | - | - | ||||||||||||
Cranshire
Capital, L.P. (3)
|
2,892,562 | 3,847,107 | - | - | ||||||||||||
Hudson
Bay Fund LP (4)
|
592,976 | 788,658 | - | - | ||||||||||||
Hudson
Bay Overseas Fund Ltd. (5)
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853,308 | 1,134,899 | - | - | ||||||||||||
Iroquois
Master Fund Ltd. (6)
|
2,169,422 | 2,885,331 | - | - | ||||||||||||
Kingsbrook
Opportunities Master Fund LP (7)
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578,512 | 769,421 | - | - | ||||||||||||
Next
View Capital LP (8)
|
723,142 | 961,779 | - | - | ||||||||||||
Rockmore
Investment Master Fund Ltd.
|
723,142 | 961,779 | - | - |
(A) Includes shares of Common Stock
underlying warrants and/or notes held by the Selling Stockholder that are
covered by this prospectus, including any convertible securities that,
due to contractual restrictions, may not be exercisable if such exercise would
result in beneficial ownership greater than 4.9% and 9.9%, as
applicable.
13
(B) In
accordance with the terms of a registration rights agreement with the holders of
the notes and the warrants, the number of shares of common stock to be sold by
each Selling Stockholder under this prospectus generally covers the resale of
133% of the sum of (i) the maximum number of shares of common stock issuable
upon conversion of the notes and (ii) the maximum number of shares of common
stock issuable upon exercise of the warrants, in each case, determined as if the
outstanding notes and warrants were converted or exercised (as the case may be)
in full (without regard to any limitations on conversion or exercise contained
therein) as of the trading day immediately preceding the date this registration
statement was initially filed with the SEC. See “Description of Securities
to be Registered - Warrants and Convertible Notes.”
(1)
Konrad Ackermann has voting and investment control over the shares held by Alpha
Capital Anstalt.
(2) Shaye
Hirsch has voting and investment control over the shares held by Brio Capital
LP.
(3)
Downsview Capital, Inc. (“Downsview”) is the general partner of Cranshire
Capital, L.P. (“Cranshire”) and consequently has voting control and investment
discretion over securities held by Cranshire. Mitchell P. Kopin (“Mr. Kopin”),
President of Downsview, has voting control over Downsview. As a result, each of
Mr. Kopin, Downsview and Cranshire may be deemed to have beneficial ownership
(as determined under Section 13(d) of the Securities Exchange Act of 1934, as
amended) of the shares owned by Cranshire which are being registered
hereunder.
(4) Sander
Gerber has voting and investment power over these securities. Sander
Gerber, disclaims beneficial ownership over the securities held by Hudson Bay
Fund LP. Hudson Bay Fund LP acquired these securities offered for its
own account in the ordinary course of business, and at the time it acquired the
securities, it had no agreement, plans or understandings, directly or indirectly
to distribute the securities.
(5)
Sander Gerber has voting and investment power over these
securities. Sander Gerber, disclaims beneficial ownership over the
securities held by Hudson Bay Overseas Fund Ltd. Hudson Bay Overseas
Fund Ltd. acquired these securities offered for its own account in the ordinary
course of business, and at the time it acquired the securities, it had no
agreement, plans or understandings, directly or indirectly to distribute the
securities.
(6)
Joshua Silverman has voting and investment control over the shares held by
Iroquois Master Fund Ltd. Mr. Silverman disclaims beneficial
ownership of these shares.
(7)
Kingsbrook Partners LP (“Kingsbrook Partners”) is the investment manager of
Kingsbrook Opportunities Master Fund LP (“Kingsbrook Opportunities”) and
consequently has voting control and investment discretion over securities held
by Kingsbrook Opportunities. Kingsbrook Opportunities GP LLC
(“Opportunities GP”) is the general partner of Kingsbrook Opportunities and may
be considered the beneficial owner of any securities deemed to be beneficially
owned by Kingsbrook Opportunities. KB GP LLC (“GP LLC”) is the
general partner of Kingsbrook Partners and may be considered the beneficial
owner of any securities deemed to be beneficially owned by Kingsbrook
Partners. Ari. J Storch, Adam J. Chill and Scott M. Wallace are the
sole managing members of Opportunities GP and GP LLC and as a result may be
considered the beneficial owner of any securities deemed to be beneficially
owned by Opportunities GP and GP, LLC. Each of Kingsbrook Partners,
Opportunities GP, GP LLC and Messrs. Storch, Chill and Wallace disclaim
beneficial ownership of these securities.
(8)
Stewart Flink has voting and investment control over the shares held by Next
View Capital LP.
(9)
Rockmore Capital, LLC (“Rockmore Capital”) and Rockmore Partners, LLC (“Rockmore
Partners”), each a limited liability company formed under the laws of the State
of Delaware, serve as the investment manager and general partner, respectively,
to Rockmore Investments (US) LP, a Delaware limited partnership, which invests
all of its assets through Rockmore Investment Master Fund Ltd., an exempted
company formed under the laws of Bermuda (“Rockmore Investment
Fund”). By reason of such relationships, Rockmore Capital and
Rockmore Partners may be deemed to share dispositive power over the shares of
our common stock owned by Rockmore Master Fund. Rockmore Capital and
Rockmore Partners disclaim beneficial ownership of such shares of our common
stock. Rockmore Partners has delegated authority to Rockmore Capital
regarding portfolio management decisions with respect to the shares of common
stock owned by Rockmore Master Fund and, as of February 4, 2010, Mr. Bruce T.
Bernstein and Mr. Brian Daly, as officers of Rockmore Capital, are responsible
for the portfolio management decisions of the shares of common stock owned by
Rockmore Master Fund. By reason of such authority, Messers. Bernstein
and Daly may be deemed to share dispositive power over the shares of common
stock of Rockmore Master Fund. Messers. Bernstein and Daly disclaim
beneficial ownership of such shares of our common stock and neither persons has
any legal right to maintain such authority. No other person has sole
or shared voting or dispositive power with respect to the share of common stock
as those terms are used for purposes under Regulation 13D-G of the Securities
Exchange Act of 1934, as amended, or the SEC’s Regulation 13D-G) controls
Rockmore Master Fund.
14
PLAN
OF DISTRIBUTION
We are
registering the shares of common stock issuable upon conversion of the notes and
exercise of the warrants to permit the resale of these shares of common stock by
the holders of the notes and warrants from time to time after the date of this
prospectus. We will not receive any of the proceeds from the sale by the selling
stockholders of the shares of common stock. We will bear all fees and
expenses incident to our obligation to register the shares of common
stock.
The
selling stockholders may sell all or a portion of the shares of common stock
held by them and offered hereby from time to time directly or through one or
more underwriters, broker-dealers or agents. If the shares of common stock are
sold through underwriters or broker-dealers, the selling stockholders will be
responsible for underwriting discounts or commissions or agent’s commissions.
The shares of common stock may be sold in one or more transactions at fixed
prices, at prevailing market prices at the time of the sale, at varying prices
determined at the time of sale or at negotiated prices. These sales may be
effected in transactions, which may involve crosses or block transactions,
pursuant to one or more of the following methods:
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on
any national securities exchange or quotation service on which the
securities may be listed or quoted at the time of
sale;
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in
the over-the-counter market;
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in
transactions otherwise than on these exchanges or systems or in the
over-the-counter market;
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through
the writing or settlement of options, whether such options are listed on
an options exchange or otherwise;
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·
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ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
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·
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block
trades in which the broker-dealer will attempt to sell the shares as agent
but may position and resell a portion of the block as principal to
facilitate the transaction;
|
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·
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purchases
by a broker-dealer as principal and resale by the broker-dealer for its
account;
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·
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an
exchange distribution in accordance with the rules of the applicable
exchange;
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privately
negotiated transactions;
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·
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short
sales made after the date the Registration Statement is declared effective
by the SEC;
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·
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broker-dealers
may agree with the selling security holders to sell a specified
number of such shares at a stipulated price per
share;
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·
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a
combination of any such methods of sale;
and
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·
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any
other method permitted pursuant to applicable
law.
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15
The
selling stockholders may also sell shares of common stock under Rule 144
promulgated under the Securities Act of 1933, as amended, if available, rather
than under this prospectus. In addition, the selling stockholders may transfer
the shares of common stock by other means not described in this prospectus. If
the selling stockholders effect such transactions by selling shares of common
stock to or through underwriters, broker-dealers or agents, such underwriters,
broker-dealers or agents may receive commissions in the form of discounts,
concessions or commissions from the selling stockholders or commissions from
purchasers of the shares of common stock for whom they may act as agent or to
whom they may sell as principal (which discounts, concessions or commissions as
to particular underwriters, broker-dealers or agents may be in excess of those
customary in the types of transactions involved). In connection with sales of
the shares of common stock or otherwise, the selling stockholders may enter into
hedging transactions with broker-dealers, which may in turn engage in short
sales of the shares of common stock in the course of hedging in positions they
assume. The selling stockholders may also sell shares of common stock short and
deliver shares of common stock covered by this prospectus to close out short
positions and to return borrowed shares in connection with such short sales. The
selling stockholders may also loan or pledge shares of common stock to
broker-dealers that in turn may sell such shares.
The
selling stockholders may pledge or grant a security interest in some or all of
the notes, warrants or shares of common stock owned by them and, if they default
in the performance of their secured obligations, the pledgees or secured parties
may offer and sell the shares of common stock from time to time pursuant to this
prospectus or any amendment to this prospectus under Rule 424(b)(3) or other
applicable provision of the Securities Act amending, if necessary, the list of
selling stockholders to include the pledgee, transferee or other successors in
interest as selling stockholders under this prospectus. The selling stockholders
also may transfer and donate the shares of common stock in other circumstances
in which case the transferees, donees, pledgees or other successors in interest
will be the selling beneficial owners for purposes of this
prospectus.
To the
extent required by the Securities Act and the rules and regulations thereunder,
the selling stockholders and any broker-dealer participating in the distribution
of the shares of common stock may be deemed to be “underwriters” within the
meaning of the Securities Act, and any commission paid, or any discounts or
concessions allowed to, any such broker-dealer may be deemed to be underwriting
commissions or discounts under the Securities Act. At the time a particular
offering of the shares of common stock is made, a prospectus supplement, if
required, will be distributed, which will set forth the aggregate amount of
shares of common stock being offered and the terms of the offering, including
the name or names of any broker-dealers or agents, any discounts, commissions
and other terms constituting compensation from the selling stockholders and any
discounts, commissions or concessions allowed or re-allowed or paid to
broker-dealers.
Under the
securities laws of some states, the shares of common stock may be sold in such
states only through registered or licensed brokers or dealers. In addition, in
some states the shares of common stock may not be sold unless such shares have
been registered or qualified for sale in such state or an exemption from
registration or qualification is available and is complied with.
There can
be no assurance that any selling stockholder will sell any or all of the shares
of common stock registered pursuant to the registration statement, of which this
prospectus forms a part.
The
selling stockholders and any other person participating in such distribution
will be subject to applicable provisions of the Securities Exchange Act of 1934,
as amended, and the rules and regulations thereunder, including, without
limitation, to the extent applicable, Regulation M of the Exchange Act, which
may limit the timing of purchases and sales of any of the shares of common stock
by the selling stockholders and any other participating person. To the extent
applicable, Regulation M may also restrict the ability of any person engaged in
the distribution of the shares of common stock to engage in market-making
activities with respect to the shares of common stock. All of the foregoing may
affect the marketability of the shares of common stock and the ability of any
person or entity to engage in market-making activities with respect to the
shares of common stock.
16
We will
pay all expenses of the registration of the shares of common stock pursuant to
the registration rights agreement, estimated to be $16,182 in total, including,
without limitation, Securities and Exchange Commission filing fees and expenses
of compliance with state securities or “blue sky” laws; provided, however, a
selling stockholder will pay all underwriting discounts and selling commissions,
if any. We will indemnify the selling stockholders against liabilities,
including some liabilities under the Securities Act in accordance with the
registration rights agreements or the selling stockholders will be entitled to
contribution. We may be indemnified by the selling stockholders against civil
liabilities, including liabilities under the Securities Act that may arise from
any written information furnished to us by the selling stockholder specifically
for use in this prospectus, in accordance with the related registration rights
agreements or we may be entitled to contribution.
Once sold
under the registration statement, of which this prospectus forms a part, the
shares of common stock will be freely tradable in the hands of persons other
than our affiliates.
DESCRIPTION
OF SECURITIES TO BE REGISTERED
The
following summary of our Capital Stock, Amended and Restated Articles of
Incorporation and the Bylaws is qualified in its entirety by reference to the
provisions of applicable law and to the complete terms of our capital stock
contained in our Amended and Restated Articles of Incorporation.
Common
Stock
We have
150,000,000 shares of Common Stock, $0.001 par value, authorized by our Amended
and Restated Articles of Incorporation. The holders of the Common
Stock are entitled to one vote per share on each matter submitted to a vote at
any meeting of stockholders. Shares of Common Stock do not carry
cumulative voting rights, and therefore, a majority of the shares of outstanding
Common Stock may elect the entire Board of Directors; if they do so, minority
stockholders would not be able to elect any persons to the Board of
Directors. Our Bylaws provide that a majority of our issued and
outstanding shares shall constitute a quorum for stockholders meetings except
with respect to certain matters for which a greater percentage quorum is
required by statute or the bylaws.
Our
stockholders have no preemptive rights to acquire additional shares of Common
Stock or other securities. The Common Stock is not subject to
redemption and carries no subscription or conversion rights. In the
event of liquidation of the Company, the shares of Common Stock are entitled to
share equally in corporate assets after satisfaction of all
liabilities. Holders of Common Stock are entitled to receive such
dividends as the Board of Directors may from time to time declare out of funds
legally available for the payment of dividends. We seek growth and
expansion of our business through the reinvestment of profits, if any, and do
not anticipate that we will pay dividends in the foreseeable
future.
The Board
of Directors has the authority to issue the authorized but unissued shares of
Common Stock without action by the stockholders. The issuance of such
shares would reduce the percentage ownership held by existing stockholders and
may dilute the book value of their shares.
There are
no provisions in our Bylaws or Amended and Restated Articles of Incorporation of
the Company which would delay, defer or prevent a change in control of the
Company.
17
Warrants
and Convertible Notes
On
December 21, 2009, we entered into a Securities Purchase Agreement and related
agreements pursuant to which we agreed to issue 9% Secured Convertible Notes
(the “Notes”),
Series A Warrants to purchase 2,169,424 shares of the Company's common stock,
Series B Warrants to purchase 2,892,562 shares of the Company's common stock,
and Series C Warrants to purchase 2,169,424 shares of the Company's common stock
(the Series A Warrants, Series B Warrants and Series C Warrants are referred to
herein as the “Warrants”) for an
aggregate purchase price of $3,500,000 in a private placement (the “Private
Placement”). This prospectus is being delivered in connection
with the resale of shares of our common ctock issuable upon the conversion of
the Notes, as payment of principal and accrued interest thereon, (the Notes are
initially convertible up to 3,847,107 shares of common stock), and upon the
exercise of the Warrants (initially exercisable up to 9,617,775 shares of common
stock) issued in connection with the Private Placement.
The Notes
were issued December 23, 2009 pursuant to the Securities Purchase Agreement
among our Company and the Selling Stockholders. The principal
purposes of the Private Placement was for general corporate purposes, including
the purchase of equipment to produce recycled fine rubber powders, site work and
working capital. The Private Placement resulted in gross proceeds to
us of $3,500,000 before placement agent fees and other expenses associated with
the transaction.
The Notes
mature December 1, 2010 and bear interest at an annual rate of 9% payable
quarterly in, at the Company's option, cash or, subject to the satisfaction of
certain customary conditions, registered shares of our common
stock. In addition, at the option of the holder of each Note, all or
any part of the principal amount outstanding under each Note is convertible at
any time and from time to time into shares of our common stock at an initial
conversion price of $1.21 per share, subject to certain exercise limitations
based on beneficial ownership levels. However, the conversion price
may be reduced if we issue securities at a price per share less than the
conversion price of the Notes then in effect.
Each Note
lists certain “Events of Default,” which include, without limitation, any
default in the payment of principal of, interest on or other charges in respect
of the Notes as and when they become due and payable, and our failure to observe
or perform any other covenant, agreement or warranty contained in, or otherwise
commit any breach or default of any provision of the Notes, the Securities
Purchase Agreement, the Security Agreement or the Registration Rights
Agreement. Upon the occurrence of an Event of Default, the holder may
require us to redeem all or any portion of a Note by delivering written notice
to us at a default redemption price as calculated pursuant to certain formulas
set forth in the Note. In the event of a partial redemption, the
principal amount redeemed shall be deducted from the installment amounts
relating to the applicable installment date(s) as set forth in the notice of
default and redemption.
The
Warrants issued to the Selling Stockholders in the Private Placement include the
following:
|
·
|
Series
A Warrants, which are exercisable for a period of 5 years into an
aggregate of 75% of the number of shares of our common stock initially
issuable upon conversion of the Notes, with the Series A Warrants being
exercisable into 2,169,424 shares immediately upon
issuance;
|
|
·
|
Series
B Warrants, which are exercisable for a period of 5 years into 100% of the
shares of our common stock initially issuable upon conversion of the
Notes, with the Series B Warrants being exercisable into 2,892,562 shares
immediately upon issuance; and
|
18
|
·
|
Series
C Warrants, which are exercisable for a period of 5 years into a maximum
percentage of 75% of the number of shares of our common stock initially
issuable upon conversion of the Notes, with the Series C Warrants being
exercisable into 2,169,424 shares immediately upon issuance but only to
the extent that the Series B Warrants are exercised and only in the same
percentage that the Series B Warrants are
exercised.
|
The
initial exercise price of each Series A Warrant, Series B Warrant and Series C
Warrant will be the same as the initial conversion price under the Notes ($1.21
per share). Like the conversion price of the Notes, the exercise
price of the Warrants is subject to a full-ratchet adjustment upon the
occurrence of certain events, including our issuance of securities at a price
per share less than the exercise price then in effect. If we issue
shares of common stock or options exercisable for or securities convertible into
common stock at an effective price per share of common stock less than the
exercise price then in effect, the exercise price will be reduced to the
effective price of the new issuance.
In
connection with the Private Placement, we entered into a Registration Rights
Agreement with the Selling Stockholders under which we are required, on or
before February 6, 2010, to file a registration statement with the SEC covering
the resale of the shares of our common stock issuable pursuant to the Notes and
Warrants, including as payment of principal and interest on the Notes, and to
use our best efforts to have the registration statement declared effective at
the earliest date, but in no event later than 90 days after filing if there is
no SEC review of the registration statement, or 120 days if there is an SEC
review. The Registration Rights Agreement provides for certain
monetary penalties if the registration statement is not filed or does not become
effective on a timely basis.
Transfer
Agent and Registrar
The
transfer agent and registrar for our common stock is Holladay Stock Transfer
Inc.
INTERESTS
OF NAMED EXPERTS AND COUNSEL
The
validity of the shares of common stock offered by this prospectus will be passed
upon for us by Patton Boggs LLP. Patton Boggs LLP currently owns
500,000 shares of the Company’s common stock, none of which is being registered
by this prospectus.
DESCRIPTION
OF BUSINESS AND PROPERTIES
Overview
Magnum
d’Or Resources, Inc. (the “Company” or “Magnum”) was
incorporated on September 3, 1999 under the laws of the State of Nevada. Since
its inception, the Company evolved through several transitions to its present
mode. During its evolution, it operated as an internet information company, a
mining exploration company, and a business acquisition company.
In
December 2006, the Company’s then outstanding preferred stock, and thus voting
control of the Company, was acquired by an individual for the express purpose of
pursuing its current business strategy of producing high quality rubber powder
and thermoplastics.
In May
2008, the Company formed a wholly-owned subsidiary, Magnum Recycling Canada
(“MRC”), into
which the Company subsequently transferred all production equipment for the
purpose of establishing its first North American production
facility. The facility is located in Magog, Quebec, Canada for
strategic geographical and commercial purposes. Equipment
installation and testing was performed throughout the summer and fall of 2008,
and production activities commenced at the Magog, Quebec facility during
November of 2008.
19
During
this same period the Company entered into an agreement with Sekhar Research
Innovations of Malaysia (October 2008) to acquire use of technologically
advanced patents, processes and equipment that were thought to be more
compatible with overall Company product development and market strategy. The
Company will use these patented processes to disintegrate scrap tires, remove
fibers and metal wire, produce crumb rubber, slurry, and liquefy recycled raw
materials into various rubber and rubber-like products.
In June
2009, the Company formed another wholly-owned subsidiary, Magnum Recycling USA
(“MRUSA”), for
the purpose of establishing its first US operations. In August 2009,
a tire disposal facility located in Hudson, CO was acquired to meet this goal
and to establish a centralized US production and distribution
facility. This site’s geographic location in Colorado provides it
access to raw materials and delivery sources throughout North
America.
On
October 1, 2009, the Company formed a wholly-owned subsidiary, Magnum
Engineering (“MEI”) for the express
purpose of providing engineering related services to the Company and to
interested third parties.
The
Company intends to acquire additional facilities and resources to allow it to
strategically provide modified sources of recycled rubber products,
reconstituted rubber derivatives, and high quality rubber powders to various
distributors and manufacturers. The Company intends to pursue these
plans through the operation of wholly owned and joint venture facilities that
may be fabricated or acquired as the market allows. The Company hopes
to establish technical facilities, either coincident with or separate from its
production facilities, to conduct research and development
activities. It may also enter into strategic alliances with
educational institutions and/or research firms to advance its market research
and develop innovative products and solutions associated with its core recycling
business.
Governmental
Regulation
It is
impossible to predict all future government regulation, if any, to which the
Company may be subject until it has been in production for a period of time. The
use of assets and/or conduct of business that the Company is pursuing will be
subject to environmental, public health and safety, land use, trade, and other
governmental regulations, as well as state and/or local taxation. In acquiring
and/or developing businesses in the rubber and recycle industry, management will
endeavor to ascertain, to the extent possible due to its current limited
resources, the effects of such government regulation on the prospective business
of the Company. In certain circumstances, however, such as the acquisition of an
interest in a new or start-up business activity, it may not be possible to
predict with any degree of accuracy the impact of all potential government
regulation. The inability to ascertain the complete effect of government
regulation on current or future business activity makes the Company business a
higher risk.
Competition
From time
to time, the Company will be involved in intense competition with other business
entities, many of which will have a competitive edge over the Company by virtue
of their stronger financial resources and prior experience in business. There is
no assurance that the Company will be successful in obtaining suitable
investment, financing or purchase contracts for its products.
Employees
The
Company, including its subsidiaries, presently has twelve full time employees,
but also relies upon the use of vendors, contractors, consultants and contract
labor to fulfill the needs and requirements associated with installation,
start-up, testing and initial production activities.
20
The
Company expects to use contract labor, management consultants, attorneys,
accountants, engineers, and other professionals as necessary to support its
management and administrative requirements. The need for employees
and their availability will be addressed on a continuing basis.
Properties
The
Company maintains its official US address of record at 110 E. Broward Blvd, Ste.
1700, Ft. Lauderdale, FL 33301. Its wholly owned subsidiary, “Magnum
Recycling Canada,” maintains its corporate office and primary production
facility at 2035 Boulevard Industrial, Magog, Quebec, Canada J1X
5G9. The Company maintains a 98,000-square-foot facility at its Magog
facility, where it produces rubber nuggets and buffing.
Magnum
Recycling USA, one of the Company’s US subsidiary, maintains its corporate
office and primary production facility at 12311 Weld County Rd 41, Hudson, CO
80642. The Company’s Hudson, CO facility includes approximately 120
acres of commercially-zoned land with buildings, equipment and tires on site.
The Company’s
other US subsidiary, Magnum Engineering, currently does not maintain independent
offices or facilities.
MARKET
FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The
Company's common stock is traded on the over-the-counter Electronic Bulletin
Board under the symbol MDOR. The table below sets forth the high and low
bid prices per share of our common stock for each quarter of our two most
recently completed fiscal years. These prices represent inter-dealer
quotations without retail markup, markdown, or commission and may not
necessarily represent actual transactions.
Fiscal Quarter Ended
|
High Bid
|
Low Bid
|
||||||
2008
|
||||||||
31-Dec-07
|
$
|
0.280
|
$
|
0.060
|
||||
31-Mar-08
|
$
|
0.810
|
$
|
0.270
|
||||
30-Jun-08
|
$
|
0.450
|
$
|
0.200
|
||||
30-Sep-08
|
$
|
0.600
|
$
|
0.250
|
||||
2009
|
||||||||
31-Dec-08
|
$
|
0.850
|
$
|
0.150
|
||||
31-Mar-09
|
$
|
0.535
|
$
|
0.260
|
||||
30-Jun-09
|
$
|
1.540
|
$
|
0.320
|
||||
30-Sep-09
|
$
|
1.330
|
$
|
0.570
|
At
February 4, 2010, there were approximately 279 holders of record of the
Company's Common Stock. There are currently no stock options outstanding and
7,231,410 warrants outstanding to purchase shares of Common Stock of the
Company.
The
closing price for the Company's Common Stock on February 4, 2010 was $0.65 per
share.
Since its
inception, no dividends have been paid on the Company's common stock. The
Company intends to retain any earnings for use in its business activities, so it
is not expected that any dividends on the common stock will be declared and paid
in the foreseeable future.
21
Equity
Compensation Plan Information
The
following table sets forth information as of February 4, 2010, with respect to
compensation plans (including individual compensation arrangements) under which
equity securities of the Company that are authorized for issuance, aggregated as
follows:
Plan Category
|
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
(a)
|
Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)
|
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
(c)
|
|||||||||
Equity
compensation plans approved by
security holders
|
0
|
$
|
15,000,000
|
(1) | ||||||||
Equity
compensation plans not approved by security holders
|
$
|
|||||||||||
Total
|
$
|
15,000,000
|
(1) The
“Number of Securities Remaining Available for Future Issuance Under Equity
Compensation Plans” represents 5,000,000 shares issuable under the Company’s 2007 Equity
Incentive Plan and 10,000,000 shares of common stock issuable under the
Company’s 2009
Consultant Stock Option SAR and Stock Bonus Plan.
FINANCIAL
STATEMENTS
See the
Consolidated Financial Statements beginning on page F-1, “Index to Financial
Statements.”
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Critical
Accounting Policies and Use of Estimates
The
preparation of consolidated financial statements requires us to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities, the reported amounts and classification of expense, and the
disclosure of contingent assets and liabilities. We evaluate our estimates and
assumptions on an ongoing basis. We base our estimates on historical experience
and various other assumptions that we believe to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions. The following items in our consolidated financial
statements require significant estimates and judgments:
Revenue
recognition
The
Company recognizes revenue from the sales of products in accordance with
Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) No.
104, when persuasive evidence of an order arrangement exists, delivery has
occurred, the sales price is fixed or determinable and collectability is
reasonably assured. Generally, these criteria are met at the time the
product is shipped to customers when title and risk of loss have
transferred.
22
Share-based
payments
The
Company periodically issues options and warrants to purchase shares of the
Company’s common stock to employees and non-employees for services and for
financing costs. Stock-based compensation is measured at the grant
date, based on the fair value of the award, and is recognized as expense over
the requisite service period. Options vest and expire according to terms
established at the grant date.
Inventories
Inventories
are stated at the lower of cost (determined on a first-in, first-out basis) or
market. Raw materials are considered long-term assets as they are not expected
to be processed and sold by the end of the subsequent fiscal year.
Recent
Accounting Pronouncements
In
December 2007, the FASB issued authoritative guidance on business combinations.
The guidance retains the fundamental requirements that the acquisition method of
accounting (previously referred to as the purchase method of accounting) be used
for all business combinations, but requires a number of changes, including
changes in the way assets and liabilities are recognized and measured as a
result of business combinations. It also requires the capitalization of
in-process research and development at fair value and requires the expensing of
acquisition-related costs as incurred. This guidance will be
applicable to business combinations completed after July 1, 2009. The
Company believes adopting the new guidance will significantly impact its
financial statements
In
December 2007, the FASB issued authoritative guidance on non-controlling
interests in consolidated financial statements to establish accounting and
reporting standards for the non-controlling interest in a subsidiary and for the
deconsolidation of a subsidiary. It is intended to eliminate the diversity in
practice regarding the accounting for transactions between equity and
non-controlling interests by requiring that they be treated as equity
transactions. Further, it requires consolidated net income to be reported at
amounts that include the amounts attributable to both the parent and the
non-controlling interest. The new guidance also establishes a single method of
accounting for changes in a parent’s ownership interest in a subsidiary that do
not result in deconsolidation, requires that a parent recognize a gain or loss
in net income when a subsidiary is deconsolidated, requires expanded disclosures
in the consolidated financial statements that clearly identify and distinguish
between the interests of the parent’s owners and the interests of the
non-controlling owners of a subsidiary, among others. The new guidance is
effective for fiscal years beginning on or after December 15, 2008, with early
adoption permitted, and it is to be applied prospectively. The
Company believes adopting the new guidance will not significantly impact its
financial statements.
In June
2009, the FASB issued authoritative guidance on an amendment of accounting for
transfers of financial assets, and seeks to improve the relevance and
comparability of the information that a reporting entity provides in its
financial statements about transfers of financial assets; the effects of the
transfer on its financial position, financial performance, and cash flows; and a
transferor’s continuing involvement, if any, in transferred financial
assets. The authoritative guidance eliminates the concept of a
qualifying special-purpose entity, creates more stringent conditions for
reporting a transfer of a portion of a financial asset as a sale, clarifies
other sale-accounting criteria, and changes the initial measurement of a
transferor’s interest in transferred financial assets. The
authoritative guidance is effective for interim and annual reporting periods
beginning after November 15, 2009. The Company believes adopting
the new guidance will not significantly impact its financial
statements.
23
In June
2009, the FASB issued authoritative guidance on consolidation of variable
interest entities, which requires an enterprise to determine whether its
variable interest or interests give it a controlling financial interest in a
variable interest entity. The primary beneficiary of a variable interest entity
is the enterprise that has both (1) the power to direct the activities of a
variable interest entity that most significantly impact the entity’s economic
performance, and (2) the obligation to absorb losses of the entity that
could potentially be significant to the variable interest entity or the right to
receive benefits from the entity that could potentially be significant to the
variable interest entity. The authoritative guidance requires ongoing
reassessments of whether an enterprise is the primary beneficiary of a variable
interest entity and is effective for interim and annual reporting periods
beginning after November 15, 2009. The Company believes adopting the new
guidance will not significantly impact its financial statements.
In
October 2009, the FASB, issued updates to revenue recognition for arrangements
with multiple deliverables and accounting for revenue arrangements that include
software elements. Under the new guidance on arrangements that
include software elements, tangible products that have software components that
are essential to the functionality of the tangible product will no longer be
within the scope of the software revenue recognition guidance, and
software-enabled products will now be subject to other relevant revenue
recognition guidance. The authoritative guidance is effective for
interim or annual periods beginning after June 15, 2010, with early
adoption permitted. The Company believes adopting the new guidance
will not significantly impact its financial statements.
Other
recent accounting pronouncements issued by the FASB (including its Emerging
Issues Task Force), the AICPA, and the SEC did not or are not believed by
management to have a material impact on the Company's present or future
consolidated financial statements.
General
The
following discussion and analysis summarizes the results of operations of Magnum
d'Or Resources, Inc. (the “Company” or “we”) for the fiscal year ended September
30, 2009.
As of
September 30, 2008 the Company was a development stage recycling
company. It held certain licensed technology and proprietary processes
related to the granulation of recycled rubber products and the subsequent
production of materials used to produce various malleable and semi-rigid
elastomeric alloys (EAs). The Company also secured distribution rights to sell
and distribute certain recycling equipment necessary to shred and granulate
tires and other rubber products throughout North America and China. However, on
December 28, 2007, the Company elected not to continue the use of these licenses
and the parties agreed to terminate its relationship and hold each other
harmless.
In
October 2008, the Company acquired new licensing rights to a number of
technological processes that allow rubber to be reconstituted, liquefied,
specially blended into EPDM powders, and EPDM compounds. These agreements
provide the Company with an array of technologies that could provide a positive
impact on the rubber recycling industry. The Company will use its licensed
processes to disintegrate scrap tires, remove fibers and metal wire, and produce
crumb rubber sorted into different mesh sizes to be recycled into various rubber
products.
Production
activities commenced during November of 2008, thus transforming the Company from
a development stage entity to an operational entity.
In June
2009, the Company formed another wholly-owned subsidiary, Magnum Recycling USA
(“MRUSA”), for the purpose of establishing its first US operations. In
August 2009, a tire disposal facility located in Hudson, CO was acquired to meet
this goal and establish a centralized US production and distribution facility.
The site is superbly located geographically in the US to allow access to raw
materials and delivery throughout the USA and North America (see Note
2).
24
Results
of Operations
The
Company incurred continuing losses due to activities associated with purchasing,
installing, and testing equipment for its targeted business
activities. Additional funds were utilized for securing a suitable facility
and making modifications necessary to accommodate its anticipated
operations. Expenses specifically included design activities, equipment
procurement, facility modifications, installation activities, testing,
financing, marketing, and employment expenditures.
Comparison
of the Years Ended September 30, 2009 and 2008
During
its fiscal years ended September 30, 2009 and 2008, the Company had revenues of
$85,070 and $0, respectively.
For the
year ended September 30, 2009 compared to the year ended September 30, 2008, the
Company had a net loss of $37,316,062 versus a loss of $2,607,352, respectively,
equating to a 1331% increase in net loss. The increased loss was due to
higher operating expenses that were mainly attributed to an increase in
consulting services, and to a lesser extent, other professional services and
accrued interest expense. These costs are further delineated as
follows:
Officer
compensation increased to $3,607,730 from $172,233 reported in the year ended
September 30, 2008 primarily due to the issuance of stock incentives that must
be valued as issued. Consulting fees increased from $1,968,700 for the year
ended September 30, 2008 to $29,707,593 reported for the year ending September
30, 2009, primarily due to the same situation discussed above. Legal and other
professional fees increased 70% from $261,753 for the year ended September 30,
2008 to $444,898 incurred for the year ending September 30, 2009, due to the
additional resources required during acquisition activities associated with the
Colorado site. General and Administrative expenses increased 427% from
$71,144 during the year ended September 30, 2008 to $374,974 for
the year ended September 30, 2009 due to additional overhead expenses associated
with Company expansion activities. Interest expense increased 1589%
from $133,300 reported for the year ended September 30, 2008 to
$2,251,060 for the year ended September 30, 2009 due to the increased debt
load of the Company.
During
the fiscal year ended September 30, 2009, the Company had a net loss of $0.79
per share compared to a net loss of $0.17 per share during fiscal
2008.
Liquidity
and Capital Resources
At
September 30, 2009, the Company had total assets of $11,210,977, comprised of
$57,844 in cash, $19,708 in receivables, $6,997,207 in inventory, $66,550 in
liens, $408,311 in prepaid expenses, and $3,242,466 in property, plant and
equipment. In addition, the company has a working capital deficit of
$3,704,149, and a negative cash flow form operations
of $1,740,446.
In
contrast, at September 30, 2008, the Company had total assets of $1,364,941,
comprised of $510,042 in cash, $36,228 in prepaid expenses, $131,042 in deposits
on equipment and $687,629 in equipment. In addition, the company had a
working capital of $157,427, and a negative cash flow from operations of
$120,449.
25
The
increase in assets is due primarily to the acquisition of the Hudson, Colorado
site, inventory, and property, plant and equipment, while the increase in
capital deficit is due to additional debt financing activities.
The
Company must currently rely on corporate officers, directors and outside
investors in order to meet its budget. If the Company is unable to obtain
financing from any of one of these aforementioned sources, the Company would not
be able to complete its financial obligations.
Management
is currently looking for additional capital to fund operations and complete our
corporate objectives. The Company expects to carry out its plan of business. In
addition, we may engage in joint venture activities with other companies. The
Company cannot predict the extent to which its liquidity and capital resources
will be diminished prior to the consummation of a business combination or
whether its capital will be further depleted by its operating losses. The
Company has previously, and is currently, engaged in discussions concerning
potential business acquisitions, joint ventures, and other collaborative
arrangements.
Other
limited commitments to provide additional funds have been made by management and
other shareholders, but this does not provide any assurance that any additional
funds will be made available on acceptable terms or in timely
fashion.
The
Company’s operations are progressing forward; however, the Company had a net
loss of $37,316,062 for the year ended September 30, 2009 and an accumulated
deficit of $45,878,841 at September 30, 2009. Stockholders' equity as of
September 30, 2009 was $5,389,482. Furthermore, the Company had a negative cash
flow from operations of $1,740,446 for the year ended September 30,
2009.
The
future success of the Company is dependent on its ability to attain additional
capital funds to purchase equipment and construct facilities to fulfill its
current contractual commitments, and, ultimately attain future profitable
operations. There can be no assurance that the Company will be successful in
obtaining such financing, or that it will attain positive cash flow from
operations.
On
September 3, 2009 the Company engaged Rodman & Renshaw, LLC. as an exclusive
placement agent to procure equity based financing for the Company for up to
$5,000,000. Subsequently, on December 18, 2009 the Company disengaged
Rodman & Renshaw, LLC and entered into a new agreement with Chardan Capital
Markets, LLC for similar purposes. On December 23, 2009 the Company
completed an agreement with Cranshire Capital, LP to provide $3,500,000 in
working capital in exchange for a 1 year secured convertible promissory
note.
On
December 21, 2009, the Company, entered into a definitive purchase agreement
with institutional investors to place Senior Secured Convertible Notes (the
“Notes”) due December 2010 totaling $3.5 million in gross proceeds before fees
and expenses (the “Transaction”). The Transaction closed on December
23, 2009 (the “Closing Date”). The net proceeds of the financing will
be used for general corporate purposes, including the purchase of machines and
equipment to produce recycled fine rubber powders, site work and working
capital.
The Notes
will bear interest at an annual rate of 9% payable quarterly in, at the
Company's option, cash or, subject to the satisfaction of certain customary
conditions, registered shares of the Company $.001 par value common stock, and
the Notes will be convertible into shares of common stock at a conversion price
of $1.21 at any time. In connection with the issuance of the Notes,
the Company issued Series A Warrants to purchase 2,169,422 shares of the
Company's common stock, Series B Warrants to purchase 2,892,562 shares of the
Company's common stock, and Series C Warrants to purchase 2,169,422 shares of
the Company's common stock (the Series A, Series B and Series C Warrants are
referred to herein as the “Warrants”). The exercise price for the
Warrants is $1.21 per share, and each class of Warrant is exercisable for five
years from the date of issuance. The Notes and each class of the
Warrants contain full-ratchet and other customary anti-dilution
protections.
26
The
Company and its subsidiaries also entered into a Security Agreement to secure
payment and performance of the Company's obligations under the Notes pursuant to
which the Company and its subsidiaries granted the investors a security interest
in all of their respective property. Each subsidiary of the Company
also executed a Guaranty Agreement pursuant to which each subsidiary guaranteed
all of the Company's obligations under the Notes. The Company also
executed a Registration Rights Agreement pursuant to which the Company is
required to file a registration statement within 45 days of the Closing Date,
and the Company will use its reasonable best efforts to cause the registration
statement to be declared effective within 90 days of the Closing Date and 120
days in the event the SEC reviews the registration statement.
Contractual
Obligations
At
September 30, 2009, our significant contractual obligations were as
follows:
|
|
Payments due by Period
|
|
|
||||||||||||||||
|
|
Less than
One Year
|
|
|
One to
Three Years
|
|
|
Three to
Five
Years
|
|
|
More than
Five
Years
|
|
|
Total
|
|
|||||
Long
term debt
|
$
|
2,097,700
|
$
|
837,133
|
$
|
-
|
$
|
-
|
$
|
2,934,833
|
||||||||||
Operating
lease obligations
|
302,535
|
1,397,335
|
-
|
-
|
1,699,870
|
|||||||||||||||
Capital
lease obligations
|
20,988
|
62,964
|
10,951
|
-
|
94,903
|
|||||||||||||||
Total
|
$
|
2,421,223
|
$
|
2,297,432
|
$
|
10,951
|
$
|
0
|
$
|
4,729,606
|
Off-Balance
Sheet Arrangements
We do not
maintain any off-balance sheet arrangements, transactions, obligations or other
relationships with unconsolidated entities that would be expected to have a
material current or future effect upon our financial condition or results of
operations.
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING
AND FINANCIAL DISCLOSURE
As
disclosed in the Company's Form 8-K/A filed with the SEC on February 1, 2010, on
January 19, 2010 the Board of Directors dismissed the Company’s independent
registered public accounting firm Weinberg & Company, P.A. (“Weinberg”). The
audit firm served as the Company’s independent auditors for the fiscal years
ended September 30, 2009 and 2008.
During
the past two fiscal years ended September 30, 2009 and 2008, Weinberg's reports
on the consolidated financial statements of the Company did not contain any
adverse opinion or a disclaimer of opinion, nor were they qualified or modified
as to any uncertainty, audit scope, or accounting principles, but expressed a
concern regarding the ability of the Company to continue as a going
concern.
For the
past two fiscal years ended September 30, 2009 and 2008, and any subsequent
interim period through the date of termination, there were (a) no disagreements
between the Company and Weinberg on any matter of accounting principles or
practice, financial statement disclosure, or auditing scope or procedure, which
disagreement(s), if not resolved to the satisfaction of Weinberg would have
caused Weinberg to make reference to the subject matter of the disagreement(s)
in connection with its reports as required by Item 3.04(a)(1)(iv) of Regulation
S-K; and (b) no reportable events as set forth in Item 304(a)(1)(v)(A) through
(D) of regulation S-K have occurred.
27
The
Company provided Weinberg with a copy of the disclosures in the February 1, 2010
Form 8-K/A that it filed with the SEC prior to its filing with SEC, and Weinberg
provided the Company a letter indicating that it agreed with the disclosures
made to the SEC.
The
Company has appointed Mantyla McReynolds LLC of Salt Lake City, Utah, effective
January 20, 2010, as its new independent certified public accountants for its
current fiscal year ending September 30, 2010. During the Company’s
two most recent fiscal years and subsequent interim period on or prior to
January 20, 2010, the Company has not consulted with the Mantyla McReynolds LLC
regarding the application of accounting principles to a specified transaction,
either completed or propose, or any of the matters or events set forth in Item
304(a)(2) of Regulation S-K.
DIRECTORS
AND EXECUTIVE OFFICERS
Current
Management of the Company
The
following table sets forth each directors name, age, positions and offices with
the Company. Each of their current terms as directors of the Company
expires at the next annual meeting of the Company’s stockholders.
Name
|
Age
|
Position
|
||
Joseph
J. Glusic
|
52
|
President,
Chief Executive Officer, Principal Executive Officer, Chief Financial
Officer, Principal Financial Officer, Director, Secretary, Treasurer, and
Director
|
All
executive officers are elected by the Board of Directors and hold office until
the next annual meeting of stockholders, or until their successors are duly
elected and qualified.
The
following is information on the business experience of each director and
officer.
Joseph J.
Glusic. Chief
Executive Officer and Director. Mr. Glusic joined the Company
in January 2007 as an independent director and was appointed to his current
position of President and Chief Executive Officer effective January 1,
2008. Mr. Glusic spent the majority of his career involved in
activities associated with the production, monitoring, processing and ultimate
disposal of hazardous and/or radioactive wastes. He has been an employee of both
private and public companies and consulted a variety of institutions that
included public, private and governmental agencies. His responsibilities have
included design, operations, management, and principal ownership of companies
engaged in waste processing activities, management consulting and waste systems
design, construction and testing. In addition, Mr. Glusic's experience has
allowed him to evaluate and develop numerous processes and technologies utilized
in the handling and processing of various types of waste streams. He has also
written and developed technical and regulatory documents supporting testing,
operations, and regulatory reporting requirements. Mr. Glusic has also been
involved in the acquisition, financing, marketing, and sale of real estate. He
has a degree in Mechanical Engineering from the University of Illinois and has
attended various academic and professional educational programs throughout his
career to enhance his technical and managerial skills. He has been licensed by
several government agencies, as required to perform tasks and
projects. Prior to his position with the Company, Mr. Glusic acted as
an independent consultant to a variety of institutions that included public,
private and governmental agencies. He also was nominally involved in the
acquisition, financing, marketing, and sale of real estate.
28
Mr.
Glusic does not serve as a director of any other company with a class of
securities registered pursuant to Section 12 of the Exchange Act or subject to
the requirements of Section 15(d) of such Act or any company registered as an
investment company under the Investment Company Act of 1940.
Consultants
The
Company intends to retain consultants to the extent necessary and
appropriate. The Company will not delegate its authority and
responsibility to make management decisions to consultants or any other persons,
nor shall any consultant have any discretionary authority or the authority to
bind the Company in any material respect.
EXECUTIVE
COMPENSATION
We
provide named executive officers and our other employees with a salary to
compensate them for services rendered during the fiscal year. Salary amounts for
the named executive officers are determined for each executive based on his or
her position and responsibility, and on past individual performance. Salary
levels are typically considered annually as part of our performance review
process. Merit based increases to salaries of the named executive officers are
based on our board of directors’ assessment of the individual’s
performance.
The
following table shows for the fiscal years ended September 30, 2009 and 2008,
the compensation awarded (earned) or paid by the Company to its named executive
officers as that term is defined in Item 402(a)(2) of Regulation S-K. For the
fiscal years ended September 30, 2009 and September 30, 2008, Mr. Glusic was our
only named executive officer.
Name and Principal Position
|
Fiscal Year
|
Salary
($) (2)
|
Bonus
|
Option
Awards
|
All Other
Compensation
|
Total ($)
|
||||||||||||||||
Joseph
J. Glusic, President and Chief Executive Officer (1)
|
2009
|
$ | 418,000 | $ | 3,175,000 | (3) | 0 | $ | 14,730 | (4) | $ | 3,607,730 | ||||||||||
2008
|
$ | 90,000 | $ | 20,000 | $ | 48,997 | (5) | $ | 13,236 | (6) | $ | 172,233 |
1 Mr.
Glusic currently serves as the sole
director on the Company’s board of directors. Mr. Glusic does
not receive any compensation for this director role.
2
Salary is total base salary earned, either unpaid and accrued or
paid.
3 This
bonus represents the dollar value of 5,000,000 shares of Series B Preferred
Stock granted as a bonus in August 2009, and 2,500,000 shares of restricted
common stock granted as a bonus in November 2008.
4 Mr.
Glusic’s “All Other Compensation” for 2009 consisted of (i) $7,782 paid as an
automobile allowance; and (ii) $6,948 paid as medical insurance
expense.
5 This
option award represents the dollar value of stock options to purchase 500,000
shares of common stock.
6 Mr.
Glusic’s “All Other Compensation” for fiscal year 2008 consisted of (i) $5,625
paid as an automobile allowance; and (ii) $7,611 paid as medical, life and
disability insurance expense.
29
Employment
Agreements
Mr.
Glusic was appointed as Chief Executive Officer and a Director of the Company on
January 1, 2008. On January 1, 2008, the Company and Mr. Glusic
executed an employment agreement pursuant to which Mr. Glusic is to serve in his
current position through December 31, 2012. Between January 1, 2008
and January 1, 2009, Mr. Glusic was entitled to receive a salary of $10,000 per
month, subject to certain annual cost-of-living adjustments, as well as
adjustments based on the achievement of certain operational
milestones. Mr. Glusic is eligible for an annual bonus as determined
by the Board of Directors, and is entitled to benefits under the Company’s group
life, health, disability major medical and other insurance
coverages. Mr. Glusic is also provided $625 per month for vehicle
expenses.
The
Company currently does not have any other plans, understandings, or arrangements
whereby any of the Company's officers, directors, or principal stockholders, or
any of their affiliates or associates, are entitled to receive funds, stock, or
other assets in connection with the Company's participation in a
business. No advances have been made or contemplated by the Company
to any of its officers, directors, or principal stockholders, or any of their
affiliates or associates.
Benefit
Plans
On August
1, 2007, the Company adopted its 2007 Equity Incentive Plan (the “Plan”). The
Plan is for key employees (including officers and employee directors) and
consultants of the Company and its affiliates. The Plan permits the
grant of stock options, common stock and other stock-based awards to employees
and directors for up to 5,000,000 shares of common stock. Stock
option awards are generally granted with an exercise price equal to the fair
value of the Company’s common stock at the date of grant. The Company
issued 500,000 stock options under the Plan during the year ended September 30,
2008 to its President and Chief Executive Officer. There have been no
other options issued under this Plan.
On June
29, 2009, the Company adopted its 2009 Consultant Stock Option SAR and Stock
Bonus Plan (the “2009
Plan”). The 2009 Plan is for independent consultants of the
Company and its affiliates. The 2009 Plan permits the grant of stock
options, stock option SARs, and common stock bonuses for up to 10,000,000 shares
of common stock. Stock option awards are generally granted with an
exercise price equal to the fair value of the Company’s common stock at the date
of grant. There are currently no stock options, stock option SARs, or
common stock bonuses that have been awarded pursuant to the 2009
Plan.
Option
Grants in Last Fiscal Year
There
were no stock options granted during the fiscal year ended September 30,
2009. During the fiscal year ended September 30, 2008, Mr. Joe Glusic
was awarded stock options to purchase 500,000 shares of common stock at an
exercise price of $0.10. During fiscal year ended September 30, 2009,
Mr. Glusic exercised these options and was granted 500,000 shares of common
stock.
OPTION
EXERCISES AND STOCK VESTED
Name
|
Option Awards
|
|||||||
Joseph J. Glusic, President and
Chief Executive Officer (1)
|
Number of
Shares
Acquired on
Exercise (#)
|
Value
Realized
on
Exercise
($)
|
||||||
500,000 | $ | 80,000 |
30
Aggregated
Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values
During
March 2009, Joseph Glusic exercised options to purchase 500,000 shares of the
Company’s common stock. These stock options were exercised at the
exercise price of $0.10 per share, for an aggregate of $50,000. There
were no other stock option exercises for the fiscal year ended September 30,
2009 or fiscal year ended September 30, 2008.
Outstanding
Equity Awards at Fiscal Year-End
There are
currently no stock options outstanding from the Company’s 2007 Equity Incentive
Plan, 2009 Consultant Stock Option SAR and Stock Bonus Plan, or any other
plan.
Director
Compensation
During
the fiscal year ended September 30, 2009, Joseph Glusic and Michel Boux served
as directors of the Company. The Company does not have a formal plan
for director compensation, and no director received any type of compensation
from the Company for serving as a director for the year ended September 30, 2008
or September 30, 2009. Michel Boux resigned from his position on the
Board on December 29, 2009.
SECURITIES
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The
following table sets forth as of February 4, 2010, the number and percentage of
the outstanding shares of capital stock which, according to the information
supplied to the Company, were beneficially owned by (i) each person who is
currently a director of the Company, (ii) each executive officer, (iii) all
current directors and executive officers of the Company as a group, and (iv)
each person who, to the knowledge of the Company, is the beneficial owner of
more than 5% of the outstanding common stock. Except as otherwise indicated, the
persons named in the table have sole voting and dispositive power with respect
to all shares beneficially owned, subject to community property laws where
applicable.
Name and Address
|
Number of
Shares of
Common
Stock
Beneficially
Owned
(1) (2)
|
Percent of
Common
Stock
Outstanding
(3)
|
Number of
Shares of
Series B
Preferred
Stock
Beneficially
Owned
(1) (2)
|
Percent of Series
B Preferred
Stock
Outstanding
(4)
|
Number of
Shares of
Series A
Preferred
Stock
Beneficially
Owned
(1) (2)
|
Percent of
Series A Preferred
Stock
Outstanding
(5)
|
||||||||||||||||||
Joseph
J. Glusic
9089
S. Pecos Road,
Suite
3400
Henderson,
NV
89074
|
3,805,601 | 12.16 | % | 5,000,000 | 17 | % | ||||||||||||||||||
All
executive officers
and directors
as a
group
|
3,805,601 | 12.16 | % | 5,000,000 | 17 | % |
31
Name and Address
|
Number of
Shares of
Common
Stock
Beneficially
Owned
(1) (2)
|
Percent of
Common
Stock
Outstanding
(3)
|
Number of
Shares of
Series B
Preferred
Stock
Beneficially
Owned
(1) (2)
|
Percent of Series
B Preferred
Stock
Outstanding
(4)
|
Number of
Shares of
Series A
Preferred
Stock
Beneficially
Owned
(1) (2)
|
Percent of
Series A Preferred
Stock
Outstanding
(5)
|
||||||||||||||||||
Chad
A. Curtis
595
Stewart Ave
Garden
City,
NY
11530
|
32,207,792 | 28.9 | % | 25,000,000 | 83 | % | 10,000,000 | 100 | % | |||||||||||||||
CEDE
& Company
P.O.
Box 222
Bowling
Green Station
New
York,
NY 10274
|
21,035,161 | 29.0 | % |
(1)
|
Under
SEC Rule 13d-3, a beneficial owner of a security includes any person
who, directly or indirectly, through any contract, arrangement,
understanding, relationship, or otherwise has or
shares: (i) voting power, which includes the power to
vote, or to direct the voting of shares; and (ii) investment power,
which includes the power to dispose or direct the disposition of shares.
Certain shares may be deemed to be beneficially owned by more than one
person (if, for example, persons share the power to vote or the power to
dispose of the shares). In addition, shares are deemed to be beneficially
owned by a person if the person has the right to acquire the shares (for
example, upon exercise of an option) within 60 days of the date as of
which the information is provided. In computing the percentage ownership
of any person, the amount of shares outstanding is deemed to include the
amount of shares beneficially owned by such person (and only such person)
by reason of these acquisition rights. As a result, the percentage of
outstanding shares of any person as shown in this table does not
necessarily reflect the person’s actual ownership or voting power with
respect to the number of shares of common stock actually outstanding on
the date of this Proxy Statement.
|
(2)
|
Except
as indicated in the footnotes below, each person has sole voting and
dispositive power over the shares
indicated.
|
(3)
|
Based
on the 72,436,212 shares of common stock issued and outstanding as of
February 4, 2010.
|
(4)
|
Based
on the 30,000,000 shares of Series B Preferred Stock issued and
outstanding as of February 4, 2010.
|
(5)
|
Based
on the 10,000,000 shares of Series A Preferred Stock issued and
outstanding as of February 4, 2010.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS,
AND
DIRECTOR INDEPENDENCE
During
fiscal year ended September 30, 2009, the Company issued Chad A. Curtis, the
Company’s former Chief Executive Officer and President, an aggregate of
25,000,000 shares of common stock for consulting services. These shares
were valued at $3,750,000. In addition, during the fiscal year ended
September 30, 2009, Mr. Curtis was issued 25,000,000 shares of Series B
Convertible Preferred Stock. These shares of Series B Preferred Stock were
valued at $14,000,000. Mr. Curtis currently exercises voting power over
83% of the Company’s common stock.
In
addition, during the fiscal year ended September 30, 2009, Mr. Curtis was issued
120,968 shares of common stock valued at $150,000 for consulting services
that he provided to the Company during the fiscal year ended September 30, 2008
and September 30, 2009. Mr. Curtis also loaned the Company an aggregate of
$126,362 during fiscal year 2009. These loans accrued interest at the rate
of 10.5%. These loans plus accrued interest were paid back by the
Company through the issuance of 112,605 shares of common stock, valued at
$139,630, in September 2009, and there is currently no principal or accrued
interest outstanding.
Director
Independence
Joseph
Glusic currently serves as the sole member of our Board of
Directors. Our common stock trades on the OTC Bulletin
Board. As such, we are not currently subject to corporate governance
standards of listed companies, which require, among other things, that the
majority of the board of directors be independent.
32
We are
not currently subject to corporate governance standards defining the
independence of our directors, and we have chosen to define an “independent”
director in accordance with the NASDAQ Global Market's requirements for
independent directors (NASDAQ Marketplace Rule 4200). Under this
definition, we have determined that Mr. Glusic currently does not qualify as an
independent director. In addition, Mr. Michel Boux, who served as a
director of the Company until December 29, 2009, did not qualify as an
independent director when he served on the Board of Directors. We do
not list the “independent” director definition we use on our Internet
website.
SECURITIES
AND EXCHANGE COMMISSION
POSITION
ON CERTAIN INDEMNIFICATION
Our
directors and officers are indemnified by our articles of incorporation against
amounts actually and necessarily incurred by them in connection with the defense
of any action, suit, or proceeding in which they are a party by reason of being
or having been directors or officers of Magnum to the fullest extent authorized
by the Nevada General Corporation Law, as may be amended from time to
time. Our articles of incorporation provide that none of our
directors or officers shall be personally liable for monetary damages for breach
of any fiduciary duty as a director or officer, except for liability (i) for any
breach of the officer’s or director’s duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, or (iii) for any
transaction from which the officer or director derived any improper personal
benefit. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to such directors, officers, and controlling
persons pursuant to the foregoing provisions, or otherwise, we have been advised
that in the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
In the
event that a claim for indemnification against such liabilities, other than the
payment by us of expenses incurred or paid by such director, officer, or
controlling person in the successful defense of any action, suit, or proceeding,
is asserted by such director, officer, or controlling person in connection with
the securities being registered, we will, unless in the opinion of counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
WHERE
YOU CAN FIND MORE INFORMATION
This
prospectus constitutes a part of a registration statement on Form S-1 we filed
with the SEC under the Securities Act. This prospectus does not
contain all the information set forth in the registration statement and exhibits
thereto, and statements included in this prospectus as to the content of any
contract or other document referred to are not necessarily
complete. For further information, please review the registration
statement and the exhibits and schedules filed with the registration
statement.
We are
subject to the informational requirements of the Exchange Act, and we file
reports, proxy statements and other information with the SEC in accordance with
the Exchange Act. These reports, proxy statements and other
information can be inspected and copied at the SEC’s Public Reference Room at
100 F Street, N.E., Washington, D.C. 20549. In addition, these
materials filed electronically by the Company with the SEC are available at the
SEC’s World Wide Web site at http://www.sec.gov. The SEC’s World Wide
Web site contains reports, proxy, and information statements, and other
information regarding issuers that file electronically with the
SEC. Information about the operation of the SEC’s Public Reference
Room may be obtained by calling the SEC at 1-800-SEC-0330.
33
LEGAL
MATTERS
The
validity of the shares of common stock offered by this prospectus will be passed
upon for us by Patton Boggs LLP. Patton Boggs LLP currently owns
500,000 shares of the Company’s common stock, none of which is being registered
by this prospectus.
EXPERTS
The
consolidated financial statements for the years ended September 30, 2009 and
2008, included in this prospectus, which is part of this registration statement
have been audited by Weinberg & Company, P.A., an independent registered
public accounting firm, as stated in its report appearing herein and are
included in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing.
34
Index to Consolidated
Financial Statements
—INDEX—
Page(s)
|
|
Report
of Registered Independent Public Accounting Firm
|
F-2
|
Consolidated
Financial Statements:
|
|
Balance
Sheets
|
|
September
30, 2009 and 2008
|
F-3
– F-4
|
Statements
of Operations and Comprehensive Income
|
|
Years
ended September 30, 2009 and 2008
|
F-5
|
Statements
of Changes in Stockholders’ Equity (Deficit)
|
|
Years
ended September 30, 2009 and 2008
|
F-6
|
Statements
of Cash Flows
|
|
Years
ended September 30, 2009 and 2008
|
F-7
– F-8
|
Notes
to Consolidated Financial Statements
|
F-9 – F-22
|
F-1
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders:
Magnum
d’Or Resources, Inc.
We have
audited the accompanying consolidated balance sheet of Magnum d’Or Resources,
Inc. and subsidiaries as of September 30, 2009 and 2008, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We
conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Magnum d’Or
Resources, Inc. and subsidiaries as of September 30, 2009 and 2008, and the
results of their operations and their cash flows for the years then ended, in
conformity with accounting principles generally accepted in the United States of
America.
The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has recurring losses from
operations, negative cash flows from operations and a working capital deficit,
which raises substantial doubt about its ability to continue as going concern.
The consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Weinberg
& Company, P.A.
Boca
Raton, Florida
January
5, 2010
F-2
AND
SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
September 30,
|
September 30,
|
|||||||
2009
|
2008
|
|||||||
ASSETS
|
||||||||
Current
Assets:
|
||||||||
Cash
|
$
|
57,844
|
$
|
510,042
|
||||
Accounts
receivable
|
19,708
|
-
|
||||||
Inventory
|
25,509
|
-
|
||||||
Lien
asset receivable, net of deferred revenue of $66,547
|
66,550
|
-
|
||||||
Prepaid
expenses
|
408,311
|
36,228
|
||||||
Total
Current Assets
|
577,922
|
546,270
|
||||||
Property,
plant and equipment, net
|
3,242,466
|
687,629
|
||||||
Long
Term Assets:
|
||||||||
Tire
inventory
|
6,971,698
|
-
|
||||||
Utility
deposits
|
28,333
|
-
|
||||||
Deposits
on equipment
|
390,558
|
131,042
|
||||||
Total
Long Term Assets
|
7,390,589
|
131,042
|
||||||
TOTAL
ASSETS
|
$
|
11,210,977
|
$
|
1,364,941
|
||||
LIABILITIES
AND STOCKHOLDERS' EQUITY( DEFICIT)
|
||||||||
Current
Liabilities:
|
||||||||
Accounts
payable and accrued expenses
|
$
|
598,836
|
$
|
295,012
|
||||
Accrued
interest
|
138,778
|
43,831
|
||||||
Advances
from stockholders
|
1,051,000
|
-
|
||||||
Deferred
rent
|
189,084
|
-
|
||||||
Current
obligations under capital leases
|
15,667
|
-
|
||||||
Notes
payable, net of discounts of $18,451 and $0, respectively
|
2,288,706
|
50,000
|
||||||
Total
Current Liabilities
|
4,282,071
|
388,843
|
||||||
Long
Term Liabilities:
|
||||||||
Loans
from stockholder
|
-
|
163,342
|
||||||
Non-current
obligations under capital leases
|
79,236
|
-
|
||||||
Non-current
notes payable, net of discounts of $0 and $ 356,790,
respectively
|
1,460,188
|
1,025,210
|
||||||
Total
Long Term Liabilities
|
1,539,424
|
1,188,552
|
||||||
TOTAL
LIABILITIES
|
5,821,495
|
1,577,395
|
||||||
COMMITMENTS
AND CONTINGENCIES
|
||||||||
Stockholders'
Equity (Deficit):
|
||||||||
Preferred
stock, $.001 par value; 10,000,000 shares authorized, 10,000,000 issued
and outstanding
|
10,000
|
10,000
|
||||||
Preferred
stock B, $.001 par value; 40,000,000 and 0 shares authorized, 30,000,000
and 0 issued and outstanding, respectively
|
30,000
|
-
|
F-3
September 30,
|
September 30,
|
|||||||
2009
|
2008
|
|||||||
Common
stock, $.001 par value; 150,000,000 and 190,000,000 shares
authorized, 68,613,792 and 16,117,137 issued and outstanding,
respectively
|
68,614
|
16,117
|
||||||
Additional
paid-in capital
|
51,204,486
|
8,351,065
|
||||||
Accumulated
deficit
|
(45,878,841
|
)
|
(8,562,779
|
)
|
||||
Accumulated
other comprehensive loss
|
(44,777
|
)
|
(26,857
|
)
|
||||
Total
Stockholders' Equity (Deficit)
|
5,389,482
|
(212,454
|
)
|
|||||
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY ( DEFICIT)
|
$
|
11,210,977
|
$
|
1,364,941
|
See
accompanying notes to the consolidated financial statements
F-4
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
Year Ended
|
||||||||
September 30,
|
||||||||
2009
|
2008
|
|||||||
Sales
|
$
|
85,070
|
$
|
-
|
||||
Cost
of Sales
|
525,108
|
-
|
||||||
Gross
Loss
|
(440,038
|
)
|
-
|
|||||
Operating
Expenses
|
||||||||
Officer
compensation, non-cash
|
3,607,730
|
172,233
|
||||||
Consulting
fees, non-cash
|
29,707,593
|
1,968,700
|
||||||
Legal
and professional fees
|
245,108
|
261,753
|
||||||
Legal
and professional fees, non-cash
|
199,790
|
-
|
||||||
General
and administrative expenses
|
374,974
|
71,144
|
||||||
Rent
|
421,446
|
-
|
||||||
Royalties
|
72,712
|
-
|
||||||
Depreciation
and amortization
|
5,969
|
222
|
||||||
Total
Operating Expenses
|
34,635,322
|
2,474,052
|
||||||
Loss
from Operations
|
(35,075,360
|
)
|
(2,474,052
|
)
|
||||
Other
Income (Expense)
|
||||||||
Miscellaneous
income
|
19,048
|
-
|
||||||
Loss
on sale of assets
|
(8,690
|
)
|
-
|
|||||
Interest
expense
|
(2,251,060
|
)
|
(133,300
|
)
|
||||
Net
other expense
|
(2,240,702
|
)
|
(133,300
|
)
|
||||
Net
Loss
|
(37,316,062
|
)
|
(2,607,352
|
)
|
||||
Other
Comprehensive Income (Loss)
|
||||||||
Loss
from foreign currency translation
|
(17,920
|
)
|
(26,857
|
)
|
||||
Comprehensive
Loss
|
$
|
(37,333,982
|
)
|
$
|
(2,634,209
|
)
|
||
Net
Loss Per Share - Basic and Diluted
|
$
|
(0.79
|
)
|
$
|
(0.17
|
)
|
||
Per
Share Information:
|
||||||||
Weighted Average
Number of Shares
|
||||||||
Outstanding
- Basic and Diluted
|
47,174,498
|
15,037,405
|
See
accompanying notes to the consolidated financial statements
F-5
MAGNUM
D'OR RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
|
Total
|
|||||||||||||||||||||||||||||||||||||||
|
Additional
|
Other
|
Stockholder's
|
|||||||||||||||||||||||||||||||||||||
|
Common
|
Stock
|
Preferred
|
Stock
|
Preferred
|
Stock
|
Paid-in
|
Accumulated
|
Comprehensive
|
Equity
|
||||||||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Shares B
|
Amount
|
Capital
|
(Deficit)
|
Loss
|
(Deficit)
|
|||||||||||||||||||||||||||||||
Balance
- September 30, 2007
|
5,785,090
|
$
|
5,785
|
10,000,000
|
$
|
10,000
|
-
|
$
|
-
|
$ |
5,267,949
|
$
|
(5,955,427
|
)
|
$
|
-
|
$
|
(671,693
|
)
|
|||||||||||||||||||||
Issuance
of stock for consulting services
|
9,129,011
|
9,129
|
1,903,038
|
1,912,167
|
||||||||||||||||||||||||||||||||||||
Issuance
of stock for compensation
|
877,323
|
877
|
423,999
|
424,876
|
||||||||||||||||||||||||||||||||||||
Issuance
of stock for accrued legal services
|
150,000
|
150
|
68,350
|
68,500
|
||||||||||||||||||||||||||||||||||||
Issuance
of stock for conversion of note payable
|
175,713
|
176
|
247,684
|
247,860
|
||||||||||||||||||||||||||||||||||||
Issuance
of stock options
|
48,997
|
48,997
|
||||||||||||||||||||||||||||||||||||||
Valuation
of warrants issued with notes payable
|
391,048
|
391,048
|
||||||||||||||||||||||||||||||||||||||
Net
loss for year
|
(2,607,352
|
)
|
(2,607,352
|
)
|
||||||||||||||||||||||||||||||||||||
Other
comprehensive loss
|
(26,857
|
)
|
(26,857
|
)
|
||||||||||||||||||||||||||||||||||||
Balance
- September 30, 2008
|
16,117,137
|
16,117
|
10,000,000
|
10,000
|
-
|
-
|
8,351,065
|
(8,562,779
|
)
|
(26,857
|
)
|
(212,454
|
)
|
|||||||||||||||||||||||||||
Issuance
of stock for consulting services
|
40,849,500
|
40,850
|
25,000,000
|
25,000
|
29,269,776
|
29,335,626
|
||||||||||||||||||||||||||||||||||
Issuance
of stock for compensation
|
2,500,000
|
2,500
|
5,000,000
|
5,000
|
3,167,500
|
3,175,000
|
||||||||||||||||||||||||||||||||||
Issuance
of stock for legal services
|
620,000
|
620
|
708,030
|
708,650
|
||||||||||||||||||||||||||||||||||||
Issuance
of stock for exercise of stock option
|
500,000
|
500
|
49,500
|
50,000
|
||||||||||||||||||||||||||||||||||||
Issuance
of stock for conversion of note payable
|
7,006,185
|
7,006
|
6,982,667
|
6,989,673
|
||||||||||||||||||||||||||||||||||||
Issuance
of stock in connection with the purchase of assets
|
500,000
|
500
|
549,500
|
550,000
|
||||||||||||||||||||||||||||||||||||
Issuance
of stock for accrued expenses
|
150,000
|
150
|
152,850
|
153,000
|
||||||||||||||||||||||||||||||||||||
Issuance
of stock for accrued compensation
|
370,970
|
371
|
459,629
|
460,000
|
||||||||||||||||||||||||||||||||||||
Valuation
of warrants issued with notes payable
|
1,513,969
|
1,513,969
|
||||||||||||||||||||||||||||||||||||||
Net
loss for year
|
(37,316,062
|
)
|
(37,316,062
|
)
|
||||||||||||||||||||||||||||||||||||
Other
comprehensive loss
|
(17,920
|
)
|
(17,920
|
)
|
||||||||||||||||||||||||||||||||||||
Balance
- September 30, 2009
|
68,613,792
|
$
|
68,614
|
10,000,000
|
$
|
10,000
|
30,000,000
|
$
|
30,000
|
$ |
51,204,486
|
$
|
(45,878,841
|
)
|
$
|
(44,777
|
)
|
$
|
5,389,482
|
See
accompanying notes to the consolidated financial statements
F-6
MAGNUM
D'OR RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
Year Ended
|
||||||||
September 30,
|
||||||||
2009
|
2008
|
|||||||
Cash
Flows from Operating Activities:
|
||||||||
Net
Loss
|
$
|
(37,316,062
|
)
|
$
|
(2,607,352
|
)
|
||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||
Loss
on sale of assets
|
8,690
|
-
|
||||||
Stock
issued for services and expenses
|
29,335,625
|
2,337,044
|
||||||
Stock
issued for compensation expense
|
3,635,000
|
48,997
|
||||||
Depreciation
and amortization
|
128,497
|
222
|
||||||
Amortization
of debt discount
|
1,852,308
|
75,608
|
||||||
Changes
in operating assets and liabilities:
|
||||||||
Accounts
receivable
|
(19,427
|
)
|
-
|
|||||
Inventory
|
(23,562
|
)
|
-
|
|||||
Lien
asset purchased
|
(66,550
|
)
|
-
|
|||||
Prepaid
expenses
|
(87,846
|
)
|
(167,270
|
)
|
||||
Utility
deposits
|
(25,428
|
)
|
-
|
|||||
Accounts
payable and accrued expenses
|
555,229
|
194,851
|
||||||
Accrued
interest
|
283,080
|
30,446
|
||||||
Advances
from company officers
|
-
|
(32,995
|
)
|
|||||
Net
cash flows used in operating activities
|
(1,740,446
|
)
|
(120,449
|
)
|
||||
Cash
Flows from Investing Activities:
|
||||||||
Payments
for equipment - Canada subsidiary
|
(1,139,215
|
)
|
(687,851
|
)
|
||||
Payments
for scrap tires, property, plant and equipment - US
subsidiary
|
(6,712,885
|
)
|
-
|
|||||
Proceeds
from sale of assets
|
12,000
|
-
|
||||||
Increase
in equipment deposits
|
(256,224
|
)
|
-
|
|||||
Cash
flows used in investing activities
|
(8,096,324
|
)
|
(687,851
|
)
|
||||
Cash
Flows from Financing Activities:
|
||||||||
Cash
overdraft
|
-
|
(143
|
)
|
|||||
Payments
on capital leases
|
(10,804
|
)
|
-
|
|||||
Repayment
on notes payable
|
(534,208
|
)
|
(200,000
|
)
|
||||
Proceeds
from issuance of notes payable
|
9,121,092
|
1,382,000
|
||||||
Proceeds
from loans and advances from stockholders
|
887,658
|
163,342
|
||||||
Cash
flows provided by financing activities
|
9,463,738
|
1,345,199
|
||||||
Net
(decrease) increase in cash
|
(373,032
|
)
|
536,899
|
|||||
Effect
of exchange rates on cash
|
(79,166
|
)
|
(26,857
|
)
|
||||
Cash
- Beginning of year
|
510,042
|
-
|
||||||
Cash
- End of year
|
$
|
57,844
|
$
|
510,042
|
||||
Supplementary
Information
|
||||||||
Interest
Paid
|
$
|
3,921
|
$
|
9,883
|
||||
Taxes
Paid
|
$
|
-
|
$
|
-
|
F-7
Year Ended
|
||||||||
September 30,
|
||||||||
2009
|
2008
|
|||||||
Non-Cash
Transactions
|
||||||||
Converted
debt, accounts payable and interest due to a shareholder to additional
paid-in capital
|
$
|
-
|
$
|
1,763,467
|
||||
Conversion
of notes payable and accrued interest to common stock
|
$
|
6,989,673
|
$
|
508,323
|
||||
Notes
payable issued in conjunction with asset purchase
|
$
|
550,000
|
$
|
-
|
||||
Stock
issued in conjunction with asset purchase
|
$
|
550,000
|
$
|
-
|
||||
Professional
fees related to asset purchase in prepaid expenses
|
$
|
337,255
|
$
|
-
|
||||
Common
stock issued for accrued expenses
|
$
|
861,650
|
$
|
-
|
||||
Exercise
of stock option through reduction of accrued compensation
|
$
|
50,000
|
$
|
-
|
||||
Lien
assets purchased
|
$
|
66,547
|
$
|
-
|
||||
Equipment
financed through capital lease obligations
|
$
|
98,462
|
$
|
-
|
||||
Equipment
financed through accounts payable
|
$
|
195,901
|
$
|
-
|
See
accompanying notes to the consolidated financial statements
F-8
Magnum
d’Or Resources Inc.
Notes
to the Consolidated Financial Statements
September
30, 2009
Note
1 - Basis of Presentation and Summary of Significant Accounting
Policies
Business
Description
Magnum
d’Or Resources, Inc. (the “Company”) was incorporated on September 3, 1999,
under the laws of the State of Nevada. The Company is engaged in the
business of providing modified sources of recycled rubber products,
reconstituted rubber derivatives, and rubber powders to various distributors and
manufacturers. It currently has one production facility located in
Magog, Canada
Going
Concern
Since its
inception, the Company has generated insignificant revenues and has incurred
accumulated losses of $45,878,841 through September 30, 2009.
The
future success of the Company is dependent on its ability to attain additional
capital funds to purchase equipment and construct facilities to fulfill its
current contractual commitments, and, ultimately attain future profitable
operations. There can be no assurance that the Company will be successful in
obtaining such financing, or that it will attain positive cash flow from
operations.
Business
History
Since its
inception in 1999, the Company evolved through several transitions to its
present mode. During its evolution, it operated as an internet information
company, a mining exploration company, and a business acquisition
company.
In
December 2006, the Company’s then outstanding preferred stock, and thus voting
control of the Company, was acquired by an individual for the express purpose of
pursuing the Company’s current business strategy of producing high quality
rubber powder and thermoplastics.
In
December 2007, the Company acquired licensing rights to a number of patents and
processes that allowed rubber to be reconstituted, added to raw virgin rubber in
various quantities, specially blended into various other polymers, and mixed
into EPDM compounds. These license agreements were terminated on
September 28, 2008 and replaced by new and more advanced technologies agreements
developed by Sekhar Research Innovations of Malaysia (see below and Notes 9 and
11).
In May
2008, the Company formed a wholly-owned subsidiary, Magnum Recycling Canada
(“MRC”), into which the Company subsequently transferred all production
equipment for the purpose of establishing its first North American production
facility. The facility is located in Magog, Quebec, Canada for
strategic geographical and commercial purposes. Equipment
installation and testing was performed throughout the summer and fall of
2008. Production activities commenced during November of 2008, thus
transforming the Company from a development stage entity to an operational
entity.
In
October 2008, the Company entered into an agreement with Sekhar Research
Innovations of Malaysia to acquire use of technologically advanced processes and
equipment that were thought to be more compatible with overall Company product
development and market strategy. The Company will use these processes to
disintegrate scrap tires, remove fibers and metal wire, produce crumb rubber,
slurry, and liquefy recycled raw materials into various rubber and rubber-like
products.
In June
2009, the Company formed another wholly-owned subsidiary, Magnum Recycling USA
(“MRUSA”), for the purpose of establishing its first US
operations. In August 2009, a tire disposal facility located in
Hudson, CO was acquired to meet this goal and establish a centralized US
production and distribution facility (see Note 2). The site’s central location
allows access to raw materials and delivery throughout the USA and North
America.
F-9
Basis of presentation and
consolidation
The
accompanying consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of
America.
The
consolidated financial statements include the accounts of Magnum d’Or Resources,
Inc. and its subsidiaries, Recyclage Magnum Canada, Inc. and Magnum Recycling
USA, Inc. Intercompany accounts and transactions have been
eliminated.
Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
Revenue
recognition
The
Company recognizes revenue from the sales of products in accordance with
Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) No.
104, when persuasive evidence of an order arrangement exists, delivery has
occurred, the sales price is fixed or determinable and collectability is
reasonably assured. Generally, these criteria are met at the time the
product is shipped to customers when title and risk of loss have
transferred.
Cash and cash
equivalents
For
financial reporting purpose, the Company considers all highly liquid investments
purchased with original maturity of three months or less to be cash
equivalents.
Accounts
receivable
Accounts
receivable are recognized and carried at the original invoice amount less
allowance for any uncollectible amounts. The Company uses the
allowance method to account for uncollectible trade receivable
balances. An estimate for doubtful accounts is made when collection
of the full amount is no longer probable. At September 30, 2009, the
allowance for doubtful accounts was zero. At September 30, 2008, the
Company had no accounts receivables.
Inventories
Inventories
are stated at the lower of cost (determined on a first-in, first-out basis) or
market. No inventory was held at September 30, 2008.
Inventory
as of September 30, 2009 consists of the following:
Raw
materials
|
$
|
6,971,698
|
||
Work
in process
|
12,958
|
|||
Finished
goods
|
12,551
|
|||
Total
|
$
|
6,997,207
|
Raw
materials are considered long-term assets as they are not expected to be
processed and sold by the end of the subsequent fiscal year. Finished goods and
work in process are considered current assets as they are expected to be sold
before the end of the subsequent fiscal year.
F-10
Property, plant and
equipment
Property,
plant and equipment are stated at cost. Depreciation has been computed using the
straight-line method based upon estimated useful lives of ten years for
production equipment and three to five years for software and computer
equipment. Leasehold improvements are depreciated over the lesser of the
remaining term of the lease, or the economic useful life.
Long-lived
assets
The
Company reviews and evaluated its long-lived assets for impairment when events
or changes in circumstances indicate that the related carrying amounts may not
be recoverable. Impairment is considered to exist if the total estimated future
cash flows on an undiscounted basis are less than the carrying amount of the
assets, including goodwill, if any. An impairment loss is measured and recorded
based on discounted estimated future cash flows. In estimating future cash
flows, assets are grouped at the lowest level for which there is identifiable
cash flows that are largely independent of future cash flows from other asset
groups. Based upon management’s assessment, there were no indicators
of impairment of the Company’s long lived assets as of September 30, 2009 or
2008.
Income
Taxes
The
Company accounts for income tax using the liability approach and allows for
recognition of deferred tax benefits in future years. Under the liability
approach, deferred taxes are provided for the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. A valuation
allowance is provided for deferred tax assets if it is more likely than not
these items will expire before either the Company is able to realize their
benefits, or that future realization is uncertain.
There has
been no provision for U.S. federal, state, or foreign income taxes for any
period because the Company has incurred losses in all periods and for all
jurisdictions since inception.
Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Significant components of deferred tax
assets are as follows:
Deferred tax
assets
2009
|
2008
|
|||||||
Net
operating loss carryforwards
|
$
|
15,612,060
|
$
|
2,890,982
|
||||
Valuation
allowance for deferred tax assets
|
(15,612,060
|
)
|
(2,890,982
|
)
|
||||
Net deferred tax assets
|
$
|
-
|
$
|
-
|
Realization
of deferred tax assets is dependent upon future earnings, if any, the timing and
amount of which are uncertain. Accordingly, the net deferred tax assets have
been fully offset by a valuation allowance. As of September 30, 2009 and 2008,
the Company had net operating loss carryforwards of $20,344,309 and $8,502,887,
respectively for federal and state income tax purposes. These carryforwards, if
not utilized to offset taxable income, begin to expire in 2019. Utilization of
the net operating loss may be subject to substantial annual limitation due to
the ownership change limitations provided by the Internal Revenue Code and
similar state provisions. The annual limitation could result in the expiration
of the net operating loss before utilization. The Company has available as of
September 30, 2009 unused operating loss carryforwards totaling $20,344,309
which expire through 2029.
The
Company adopted authoritative guidance of FASB for accounting for uncertainty in
income taxes on October 1, 2007. The authoritative guidance
prescribes a recognition threshold that a tax position is required to meet
before being recognized in the financial statements and provides guidance on
recognition, measurement, classification, interest and penalties, accounting in
interim periods, disclosure and transition issues. The adoption of the
authoritative guidance had no impact on the Company's balance sheets or
statements of operations.
F-11
Share-based
payments
The
Company periodically issues and options and warrants to purchase shares of the
Company’s common stock to employees and non-employees for services and for
financing costs. Stock-based compensation is measured at the grant
date, based on the fair value of the award, and is recognized as expense over
the requisite service period. Options vest and expire according to
terms established at the grant date.
Loss per
Share
Basic
loss per share is calculated by dividing net loss by the weighted average number
of common shares outstanding during the period. The diluted earnings
per share calculation give effect to all potentially dilutive common shares
outstanding during the period using the treasury stock method for warrants and
options and the if-converted method for convertible debentures.
As of
September 30, 2009 and 2008, common stock equivalents were composed of warrants
convertible into 300,000 and 1,432,000 shares of the Company's common stock, and
options convertible into 0 and 500,000 shares of the Company’s common stock,
respectively. For the years ended September 30, 2009 and 2008, the
conversion of the options and warrants has been excluded from the calculation of
dilutive earnings per share, as the effects of such conversion would be
anti-dilutive.
Financial Assets and
Liabilities Measured at Fair Value
Effective
October 1, 2008, fair value measurements are determined by the Company's
adoption of authoritative guidance issued by the FASB, with the exception of the
application of the statement to non-recurring, non-financial assets and
liabilities as permitted. The adoption of the authoritative guidance did not
have a material impact on the Company's fair value measurements. Fair value is
defined in the authoritative guidance as the price that would be received to
sell an asset or paid to transfer a liability in the principal or most
advantageous market for the asset or liability in an orderly transaction between
market participants at the measurement date. A fair value hierarchy was
established, which prioritizes the inputs used in measuring fair value into
three broad levels as follows:
Level 1—Quoted
prices in active markets for identical assets or liabilities.
Level 2—Inputs,
other than the quoted prices in active markets, are observable either directly
or indirectly.
Level 3—Unobservable
inputs based on the Company's assumptions.
The
Company is required to use of observable market data if such data is available
without undue cost and effort.
At
September 30, 2009 and 2008, the carrying amounts of financial instruments,
including cash, accounts and other receivables, accounts payable and accrued
liabilities, and notes payable approximate fair value because of their short
maturity.
F-12
Foreign Currency
Adjustments
The
accompanying consolidated financial statements are presented in United States
dollars (USD). The functional currency of the Company’s subsidiary Magnum
Recycling Canada (“MRC”) is the Canadian dollar (CND). Capital
accounts of MRC are translated into United States dollars from CND at their
historical exchange rates when the capital transactions
occurred. Assets and liabilities are translated at the exchange rates
as of balance sheet date. Income and expenditures are translated at the average
exchange rate of the period.
As of and for
the year
ended
September
30, 2009
|
As of and for
the year
ended
September
30, 2008
|
|||||||
Period
end CND : US$ exchange rate
|
$
|
0.9211
|
$
|
0.9397
|
||||
Average
period CND : US$ exchange rate
|
$
|
0.8508
|
$
|
0.9606
|
Concentration of Credit
Risk
The
Company identifies financial instruments of cash and accounts receivable that
potentially subject the Company to concentration of credit risk.
The
Company maintains its cash at several financial institutions located within the
United States (US) and Canada. At times, the balance(s) may exceed the US
Federal Deposit Insurance Corporation insured limit of $250,000 per account
and/or the Canadian Deposit Insurance Corporation (CDIC) $100,000 insurance
limit for each account. As of September 30, 2009 the Company had no
balances in excess of the insured limits compared to a $410,042 excess of the
insured limits on September 30, 2008.
Reclassification
In
presenting the Company’s consolidated balance sheet at September 30, 2008, the
Company presented $131,042 deposits for equipment purchases as prepaid
expenses. In presenting the Company’s consolidated balance sheet at
September 30, 2009, the Company has reclassified the balance of $131,042 to
deposit for equipment purchase.
Recent accounting
pronouncements
In
December 2007, the FASB issued authoritative guidance on business combinations.
The guidance retains the fundamental requirements that the acquisition method of
accounting (previously referred to as the purchase method of accounting) be used
for all business combinations, but requires a number of changes, including
changes in the way assets and liabilities are recognized and measured as a
result of business combinations. It also requires the capitalization of
in-process research and development at fair value and requires the expensing of
acquisition-related costs as incurred. This guidance will be
applicable to business combinations completed after July 1, 2009. The
Company believes adopting the new guidance will significantly impact its
financial statements.
In
December 2007, the FASB issued authoritative guidance on non-controlling
interests in consolidated financial statements to establish accounting and
reporting standards for the non-controlling interest in a subsidiary and for the
deconsolidation of a subsidiary. It is intended to eliminate the diversity in
practice regarding the accounting for transactions between equity and
non-controlling interests by requiring that they be treated as equity
transactions. Further, it requires consolidated net income to be reported at
amounts that include the amounts attributable to both the parent and the
non-controlling interest. The new guidance also establishes a single method of
accounting for changes in a parent’s ownership interest in a subsidiary that do
not result in deconsolidation, requires that a parent recognize a gain or loss
in net income when a subsidiary is deconsolidated, requires expanded disclosures
in the consolidated financial statements that clearly identify and distinguish
between the interests of the parent’s owners and the interests of the
non-controlling owners of a subsidiary, among others. The new guidance is
effective for fiscal years beginning on or after December 15, 2008, with early
adoption permitted, and it is to be applied prospectively. The
Company believes adopting the new guidance will not significantly impact its
financial statements.
F-13
In June
2009, the FASB issued authoritative guidance on an amendment of accounting for
transfers of financial assets, and seeks to improve the relevance and
comparability of the information that a reporting entity provides in its
financial statements about transfers of financial assets; the effects of the
transfer on its financial position, financial performance, and cash flows; and a
transferor’s continuing involvement, if any, in transferred financial
assets. The authoritative guidance eliminates the concept of a
qualifying special-purpose entity, creates more stringent conditions for
reporting a transfer of a portion of a financial asset as a sale, clarifies
other sale-accounting criteria, and changes the initial measurement of a
transferor’s interest in transferred financial assets. The
authoritative guidance is effective for interim and annual reporting periods
beginning after November 15, 2009. The Company believes adopting
the new guidance will not significantly impact its financial
statements.
In June
2009, the FASB issued authoritative guidance on consolidation of variable
interest entities, which requires an enterprise to determine whether its
variable interest or interests give it a controlling financial interest in a
variable interest entity. The primary beneficiary of a variable interest entity
is the enterprise that has both (1) the power to direct the activities of a
variable interest entity that most significantly impact the entity’s economic
performance, and (2) the obligation to absorb losses of the entity that
could potentially be significant to the variable interest entity or the right to
receive benefits from the entity that could potentially be significant to the
variable interest entity. The authoritative guidance requires ongoing
reassessments of whether an enterprise is the primary beneficiary of a variable
interest entity and is effective for interim and annual reporting periods
beginning after November 15, 2009. The Company believes adopting the new
guidance will not significantly impact its financial statements.
In
October 2009, the FASB, issued updates to revenue recognition for arrangements
with multiple deliverables and accounting for revenue arrangements that include
software elements. Under the new guidance on arrangements that
include software elements, tangible products that have software components that
are essential to the functionality of the tangible product will no longer be
within the scope of the software revenue recognition guidance, and
software-enabled products will now be subject to other relevant revenue
recognition guidance. The authoritative guidance is effective for
interim or annual periods beginning after June 15, 2010, with early
adoption permitted. The Company believes adopting the new guidance
will not significantly impact its financial statements.
Other
recent accounting pronouncements issued by the FASB (including its Emerging
Issues Task Force), the AICPA, and the SEC did not or are not believed by
management to have a material impact on the Company's present or future
consolidated financial statements.
Note
2 – Asset acquisition
On
January 31, 2009, the Company signed a letter of intent (“LOI”) with Tire
Recycling, Inc. of Hudson, Colorado (“TRI”) to acquire all of its holdings and
assets (the “Hudson assets”). TRI owned and operated a facility consisting of
buildings, equipment, and scrap tire inventory computed to be in excess of
310,000 tons of scrap tires. The facility is located on a parcel of 120 acres of
commercially zoned land located in rural Weld County, Colorado. On
April 1, 2009, the Company learned that TRI was in Chapter 11 bankruptcy
reorganization. The Company continued to negotiate a purchase
agreement under the rules associated with Chapter 11 Bankruptcy
law.
In June
2009, all TRI assets were subsequently assigned to a court appointed Trustee to
administer the sale of the TRI assets. This event prompted Magnum to acquire
several secured and unsecured liens of TRI in a move to solidify its standing
with the Trustee and the bankruptcy court. Magnum was able to acquire
all secured liens currently held against the property and its
assets.
During
this period Magnum negotiated a successful purchase from the Trustee of the
Hudson assets for the amount of $6,500,000. The Federal Bankruptcy
Court subsequently approved the offer after statutory notice, bid procedure
period, and final hearings were completed and satisfied.
On August
4, 2009 the Federal Bankruptcy Court in Colorado approved the TRI asset sale to
Magnum and subsequently issued a motion for the sale of Hudson assets to Magnum.
Closing and transfer of the purchased assets took place on August 25,
2009. The components of the purchase price and the allocation of the
purchase price are as follows:
F-14
Purchase price
|
||||
Cash
paid for acquisition of assets
|
$
|
6,502,323
|
||
Cash
paid for acquisition costs
|
26,108
|
|||
Cash
paid for purchase of stock interests
|
100,000
|
|||
Notes
payable issued for secured liens
|
44,454
|
|||
Note
payable issued for purchase of stock interests
|
550,000
|
|||
Fair
value of 304,238 shares of common stock issued for
legal services related to acquisition
|
377,255
|
|||
Fair
value of 500,000 shares of common stock issued for
purchase additional unsecured liens
|
550,000
|
|||
Total
|
$
|
8,150,140
|
Purchase price allocation
|
||||
Land
|
$
|
427,770
|
||
Buildings
|
549,346
|
|||
Trucks
|
19,812
|
|||
Equipment
|
115,273
|
|||
Truck
scale
|
58,537
|
|||
Tire
inventory
|
6,979,402
|
|||
Total
purchase price
|
$
|
8,150,140
|
Allocation
of the purchase price was determined by management who utilized a valuation
prepared by independent valuation experts as part of their
assessment. Due to the quantity of scrap tires and the expected
period to process them, they are classified as long term in the balance
sheet.
Note
3 – Property, Plant and Equipment
Property,
plant and equipment placed into service by the Company during 2009 totaled
$2,693,656 In addition, the Company previously entered into a contract with a
Malaysian company that specializes in developing rubber compounds, processing
techniques, and specialized equipment for production of scrap rubber (see Note
11). Costs associated with this contract include certain amounts allocated to
the development and purchase of equipment. The Company made payments aggregating
$390,558 through September 30, 2009 that have been included in the accompanying
consolidated balance sheet as Long Term - Deposits for Equipment. These payments
made will be credited to the total price.
September 30, 2009
|
September 30, 2008
|
|||||||
Assets:
|
||||||||
Land
|
$
|
419,566
|
$
|
-
|
||||
Building
|
614,944
|
-
|
||||||
Production
equipment
|
2,289,292
|
675,719
|
||||||
Office
equipment and furniture
|
6,410
|
1,325
|
||||||
Leasehold
improvements
|
51,290
|
10,807
|
||||||
Total
equipment
|
3,381,502
|
687,851
|
||||||
Less:
accumulated depreciation
|
(139,036
|
)
|
(222
|
)
|
||||
Property,
plant and equipment, net:
|
$
|
3,242,466
|
$
|
687,629
|
Depreciation
and amortization expense totaled $128,497 and $222 for the years ended September
30, 2009 and 2008, respectively.
F-15
Note
4 – Accounts Payable and Accrued Expenses
As of
September 30, 2009 and 2008, the Company had accounts payable and accrued
expenses consisting of the following:
|
September 30,
|
September 30,
|
||||||
2009
|
2008
|
|||||||
Accounts
Payable
|
$
|
287,663
|
$
|
173,862
|
||||
Legal
Fees
|
11,171
|
39,670
|
||||||
Advertising
|
22,920
|
2,870
|
||||||
Accounting
Fees
|
77,050
|
14,998
|
||||||
Employee
Compensation
|
20,422
|
33,612
|
||||||
Consultant
|
7,873
|
30,000
|
||||||
Taxes
|
53,736
|
-
|
||||||
Security
|
4,173
|
-
|
||||||
SEC
filings & stock transfer agent
|
2,677
|
-
|
||||||
Royalties
|
111,151
|
-
|
||||||
TOTAL
|
$
|
598,836
|
$
|
295,012
|
Note
5 – Notes Payable, Accrued Interest and Stockholder Loans and
Advances
8 % Convertible Note
Payable
On
January 12, 2007, the Company issued a $50,000 convertible promissory note to an
individual with interest payable semi-annually at the rate of
8%. This note matured on January 31, 2008. The Company
received an extension from the note holder on May 19, 2008, to extend the
maturity of this note until November 19, 2008, with the same terms as the
original note. The Company received a further extension from the note holder on
February 5, 2009, to extend the maturity of this note until April 19, 2009, with
the same terms as the original note. On February 20, 2009,
the Company received a request to convert the note to common stock in accordance
with the provisions outlined in the issued promissory note, which determined the
conversion price to be $0.2525. Based on this conversion rate, 198,050 shares of
common stock were issued. Accrued interest payable on this note as of the
conversion date totaled $8,559, and was also converted to
stock. Based on a conversion rate of $0.505, 16,950 shares of common
stock were issued (also see Note 6).
12% Notes
Payable
During
2008, the Company issued an aggregate of $1,382,000 of 12% promissory notes with
warrants to unrelated individuals, interest at the rate of 12% per annum, due
October thru November 2009.
During
2009, $1,082,000 warrants were exercised at the face amount of $1.00 per share
by debt holders of several 12% promissory notes. An equal amount of debt
associated with these notes was retired when the note holders exercised their
warrant options to purchase common stock. The accrued interest associated with
the promissory notes were also paid in common stock at the market value on the
respective conversion dates.
During
2009, the Company issued $300,000 of 12% promissory notes with warrants to
unrelated individuals. These notes mature October thru December 2010 and are
recorded as current debt in the accompanying consolidated balance
sheet.
During
2009, $41,150 of 12% promissory notes were issued with unrelated individuals.
These notes mature April through May 2011 and are recorded as long term debt in
the accompanying consolidated balance sheet.
All of
the 12% Notes issued to date are general unsecured obligations of the Company.
They have a total accrued interest of $133,464 payable as of September 30, 2009
which is recorded in accrued interest in the accompanying consolidated balance
sheet.
F-16
The
aggregate value of the warrants issued in connection with the 12% Notes were
valued at $1,952,218 using the Black Scholes pricing model using the following
assumptions; risk-free interest rates ranging from 2.88% to 3.98%; dividend
yield of 0%; volatility factors of expected market price of common stock ranging
from 150% to 329%; and expected lives of 1-2 years. The values of the warrants
are considered as debt discount and are being amortized over the term of the
Notes. During 2009, $1,851,628 of the debt discount has been amortized to
interest expense and included in the accompanying consolidated statements of
operations and comprehensive income.
9.75% Notes
Payable
During
2009, the Company issued, in lieu of cash, an aggregate of $4,300,000 of
promissory notes to unrelated individuals all with interest payable at the rate
of 9.75% per annum. During 2009, these notes were all converted to
common stock at the option of the note holders.
6% Notes
Payable
During
2009, the Company issued a 5 year $550,000 promissory note to an unrelated
individual with interest payable at the rate of 6.00% per annum. This
note was issued as part of a $650,000 purchase of equity from owners of the
parent entity which owned the landfill that Magnum acquired through bankruptcy
proceedings (see Note 2).
During
2009, the Company issued a promissory note for $1,000,000 to an unrelated
financial institution in connection with the acquisition of liens related to an
asset acquisition. Interest payable at the rate of 6% with scheduled monthly
payments of interest and principal totaling $100,000. This note is a secured
obligation of the Company, as evidenced by a Pledge Agreement that provide as
collateral for the repayment of this note, a deed of trust for all real property
associated with the asset acquisition (see Note 2). Any unpaid balance of
principal or interest will be due in full in May 2010. As of September 30, 2009
the outstanding principal balance totaled $714,853 and accrued interest of
$1,786 which are recorded in the accompanying consolidated balance
sheet.
4% Notes
Payable
During
2009, the Company issued promissory notes aggregating $2,408,103 to unrelated
financial institutions in connection with the acquisition of liens related to an
asset acquisition. Interest payable at the rate of 4% with scheduled monthly
payments of interest and principal totaling $104,642. These notes are secured
obligations of the Company, as evidenced by Pledge Agreements that provide as
collateral for the repayment of these notes, deeds of trust for all real
property associated with the asset acquisition (see Note 2). Any unpaid balance
of principal or interest will be due in full in June 2011. As of September 30,
2009 the outstanding principal balances totaled $2,161,342 and accrued interest
of $3,528 which are recorded in the accompanying consolidated balance
sheet.
Advances from
Stockholders
The
Company was advanced a total of $1,051,000 from current stockholders during
2009. The advances were made as interest free loans to be paid back shortly
after the closing of the Hudson asset purchase (see Note 2 and Note 12). This
amount is recorded as a current liability in the accompanying consolidated
balance sheet. These loans are general unsecured obligations by the
Company. On October 20, 2009 the Company issued in lieu of cash,
930,088 shares of common stock valued at $1,051,000 to repay the cash advances
to the Company. This fulfilled complete repayment of the outstanding advance
balances.
Note
6– Common Stock
On August
20, 2009 the Company amended its articles of incorporation to decrease the
number of shares of common stock authorized from 190,000,000 shares to
150,000,000 shares; and increased the number of shares of preferred stock
authorized from 10,000,000 shares to 50,000,000 shares. The Company further
created a new series of preferred stock that was designated as “Series B
Preferred Stock”; and that 40,000,000 shares of preferred stock be authorized
for issuance for said Series B Preferred Stock, which will have all the rights,
limitations, exceptions and qualifications as set forth in the Certificate of
designation (see Note 7).
F-17
2009
transactions
The
Company issued, in lieu of cash, an aggregate of 40,849,500 shares of common
stock for consulting services valued at $15,335,625. The common stock
was issued in place of cash payments, and was valued based on the closing market
prices on the date the Board of Directors authorized these
issuances.
The
Company issued, in lieu of cash, an aggregate of 2,500,000 shares of common
stock as compensation valued at $375,000. The common stock was issued
in place of cash payments, and was valued based on the closing market prices on
the date the Board of Directors authorized these issuances.
The
Company issued, in lieu of cash, an aggregate of 620,000 shares of common stock
for legal services valued at $708,650. The common stock was issued in
place of cash payments, and was valued based on the closing market prices on the
date the Board of Directors authorized these issuances.
During
March 2009, the Company issued 500,000 shares of common stock to its current
Chief Executive Officer in accordance with his request to exercise stock options
previously granted to him under terms of his employment
agreement. The stock option exercise price was equal to $0.10 per
share. The grant price was based on the Company’s common stock closing price on
the day of the grant. The entire number of stock options vested immediately upon
their granting date of December 28, 2007. The cost to exercise the entire number
of options totaled $50,000 and was paid for by a deduction from the executive’s
accrued salary in the amount of $50,000.
The
Company issued, in lieu of cash, an aggregate of 7,006,280 shares of common
stock in accordance with the purchase privileges of 7,006,280 previously issued
warrants. These warrants were exercised at their face value of $1.00
per share (see Note 10). $7,006,280 of principal debt was retired
concurrently with the exercise of these warrants and applied against the
purchase of the $7,006,280 shares of common stock issued.
The
Company issued, in lieu of cash, an aggregate of 500,000 shares of common stock,
valued at $550,000 based on the closing market price on the date the board of
directors authorized the issuance, in connection with the asset
acquisition. The common stock was issued in place of cash payments,
and was valued based on the closing market prices on the date the Board of
Directors authorized these issuances.
The
Company issued, in lieu of cash, an aggregate of 150,000 shares of common stock
for accrued expenses valued at $153,000. The common stock was issued
in place of cash payments, and was valued based on the closing market prices on
the date the Board of Directors authorized these issuances.
The
Company issued, in lieu of cash, an aggregate of 370,970 shares of common stock
for consulting services valued at $490,001. The common stock was
issued in place of cash payments, and was valued based on the closing market
prices on the date the Board of Directors authorized these
issuances.
2008
transactions
On
December 28, 2007 the Board of Directors approved the issuance of the 200,000
common shares to a German company valued at $20,000 in conjunction with the
execution of a licensing and royalty agreement (see Note 8). The Board of
Directors approved and issued 9,600,000 common shares valued at $960,000 to
various individuals for assistance during the negotiations for this licensing
agreement. The value of these 9,600,000 shares was charged to consulting
expense. All shares were valued at the market price of $0.10 per share, the
closing bid price on December 28, 2007. Subsequently, these licensing and
royalty agreements were cancelled, effective September 28, 2008. All stock
issued as part of these agreements were subsequently cancelled. Therefore, all
costs recorded for these obligations have been reversed.
During
fiscal year 2008 the Company issued, in lieu of cash, an aggregate of 10,156,334
shares of common stock as compensation for services provided by consultants,
employees, and other professionals valued at $2,405,543. In addition, the
Company issued 175,713 shares of common stock for settlement of debt valued at
$247,860. The common stock was issued in place of cash payments, and was valued
at prices ranging from $0.209 to $1.411 per share, based on the closing market
prices on dates the Board of Directors authorized the issuances.
F-18
Note
7 – Preferred Stock
The
Company has designated a new Series B Preferred Stock and authorized up to
40,000,000 million shares, to be issued. The Series B Preferred Stock has the
following rights and privileges: par value $0.001; rank equal to
common stock with respect to dividend rights, rights on liquidation, dissolution
and winding-up of the affairs of the Company; conversion rights beginning one
year following the date of issuance, each share of Series B Preferred stock
shall, upon approval of the Company and a majority of the holders of the Series
B Preferred stock, be convertible into one fully paid and non-assessable share
of Common stock, provided that the Company shall not convert any
shares of the Series B Preferred stock until it has set aside sufficient shares
of its Common stock to permit conversion of all the shares of Series B Preferred
stock; redemption rights at the option of the Company, the Company shall have
the right to redeem that number of Series B Preferred stock equal to the closing
trading price of one share of common stock of the Company on the date of the
notice of Redemption, plus any declared but unpaid dividends; voting rights of
holders of Series B Preferred stock shall have the right to one vote for each
share of Common stock into which such Series B Preferred stock could then be
converted.
During
August 2009, the Company issued, in lieu of cash, an aggregate of 30,000,000
shares of Series B preferred stock to the Chief Executive Officer and a
consultant valued at $16,800,000 or $0.56 per share. The valuation
was based on an analysis report performed by an independent expert who utilized
a market approach to value the securities. The stock was issued in lieu of cash
bonuses and performance payments.
Note
8 - Stock Options
Effective
August 1, 2007 the Company implemented the “2007 Equity Incentive Program” (the
“Plan”). This Plan is for key Employees (including officers and
employee directors) and can also include Consultants of the Company and its
affiliates. The plan permits the grant of stock options, restricted
stock and other stock-based awards for up to 5,000,000 shares of common
stock. This Plan is intended to advance the
best interests of the Company, its affiliates, and its stockholders by providing
those persons who have substantial responsibility for the management and growth
of the Company and its affiliates with additional incentives and an opportunity
to obtain or increase their proprietary interest in the Company, thereby
encouraging them to continue in the employ of the Company or any of its
Affiliates. Stock option awards are generally granted with an
exercise price equal to the fair value of the Company’s stock at the date of
grant.
The
Company issued 500,000 common stock options to its current President and CEO on
December 28, 2007 (see Note 6). These options were subsequently executed on
March 2, 2009 in accordance with the option agreement. The stock option exercise
price was equal to $0.10 per share. The grant price was based on the Company’s
common stock closing price on the day of the grant. The entire number of stock
options vested immediately upon their granting date of December 28, 2007. The
cost to exercise the entire number of options totaled $50,000 and was paid for
by a deduction from the executive’s accrued salary in the amount of
$50,000.
On June
29, 2009, the Company implemented its 2009 Consultant Stock Option SAR and Stock
Bonus Plan (the “2009
Plan”). The 2009 Plan is for independent consultants of the
Company and its affiliates. The 2009 Plan permits the grant of stock
options, stock option SARs, and common stock bonuses for up to 10,000,000 shares
of common stock. Stock option awards are generally granted with an
exercise price equal to the fair value of the Company’s common stock at the date
of grant. There are currently no stock options, stock option SARs, or
common stock bonuses that have been awarded pursuant to the 2009
Plan.
Note
9 – Consulting Agreements
Other Consulting
Agreements
During
December 2008, the Company commenced with the consulting portion of an agreement
entered into in October 2008. The agreement calls for a monthly
advisory fee of $7,000 to a consultant (see Note 11)
F-19
The
continuation of other agreements with independent financial and business
advisors continued through the reporting period. These consultants provide
strategic relationships with several business development resources, and such
other business matters as deemed necessary by Company management. The
terms of these agreements range from six months to several years. Under the
terms of several of these agreements the company shall from time to time, pay to
the consultant such compensation as shall be mutually agreed to between the
parties. Under the terms of others, these agreements specify consultants be paid
a fixed obligation by the Company, either in cash, company stock or a
combination of both, at the discretion of the Company.
Note
10 – Warrants
The
following table summarizes certain information about the Company’s stock
purchase warrants (including the warrants discussed in Notes 5 &
6).
Number of
|
Weighted Avg.
|
Weighted Avg.
|
||||||||||
Warrants
|
Exercise Price
|
Term in Years
|
||||||||||
Warrants
outstanding, September 30, 2008
|
1,432,000
|
$
|
1.00
|
1.8
|
||||||||
Warrants
granted
|
4,120,900
|
$
|
1.00
|
2.2
|
||||||||
Warrants
exercised
|
(5,202,900
|
)
|
$
|
1.00
|
1.3
|
|||||||
Warrants
expired/cancelled
|
-
|
-
|
-
|
|||||||||
Warrants
outstanding, September 30, 2009
|
350,000
|
$
|
1.00
|
0.5
|
At
September 30, 2009 the warrants had an intrinsic value of
$88,500. All warrants outstanding at September 30, 2009 are
in-the-money and exercisable.
Note
11– Commitments and Contingencies
License and royalty
agreement
In
October 2008, the Company entered into an agreement with a Malaysian company
that specializes in developing rubber compounds, processing techniques, and
specialized equipment for processing scrap rubber and producing specialty
compounds. License, research and development, equipment, minimum royalty and
administrative expenses associated with this contract include payments and
payables aggregating approximately $190,000 through September 30, 2009 and have
been included in the accompanying consolidated statements of operations and
comprehensive loss as operating expenses. In addition, the Company pays $7,000
per month as an advisory fee to a principal of the Malaysian company, and has
advanced $205,558 as deposits on equipment to be delivered during fiscal year
2010.
Operating and Capital
Leases
The
Company entered into a building lease agreement on September 1, 2008 to lease
98,535 square feet of a commercial building in Magog, Quebec, Canada for the
purpose of processing scrap rubber and tires. The term of this lease is five
years, with annual rent equal to $2.07 per square foot (approximately $204,000,
or $17,000 per month) for the first year, with annual base rent escalations of
$.92 per square foot, resulting in annual rent in the fifth year of $5.75 per
square foot (approximately $567,000, or $47,250 per month). The Company is also
responsible for real estate taxes, utilities and other general maintenance of
the premises.
On
October 9, 2008 the Company entered into an equipment lease agreement for a
forklift to transfer materials within its facility in Magog, Quebec, Canada. The
lease calls for 60 equal payments of $535, which includes a financing fee of
7.25%, and a buyout provision of $1 at the lease completion. This lease is
accounted for as a capitalized lease and recorded as obligations under capital
leases in the accompanying consolidated balance sheet.
On
December 9, 2008 the Company entered into an equipment lease agreement for a
loader truck to transfer materials within and external to its facility in Magog,
Quebec, Canada. The lease calls for 60 equal payments of $1,214, which includes
a financing fee of 7.25%, and a residual buyout provision of 25%
(approximately $20,000) at the lease completion. This lease is accounted for as
a capitalized lease and recorded as obligations under capital leases in the
accompanying consolidated balance sheet.
F-20
Minimum
future lease payments as of September 30, 2009 are payable as
follows:
Year Ending
|
Building
Rent
|
Forklift and
Loader
|
||||||
-September
30, 2010
|
302,535
|
20,988
|
||||||
-September
30, 2011
|
393,296
|
20,988
|
|
|||||
-September
30, 2012
|
484,056
|
20,988
|
||||||
-September
30, 2013
|
519,983
|
20,988
|
||||||
-September
30, 2014
|
-
|
10,951
|
||||||
$
|
1,699,870
|
$
|
94,903
|
Rent
expense for the years ending September 30, 2009 and 2008 were $363,648 and $ 0,
respectively.
Note 12 - Subsequent
Events
On
September 3, 2009 the Company engaged Rodman & Renshaw, LLC as an exclusive
placement agent to procure equity based financing for the Company for up to
$5,000,000. Subsequently, on December 18, 2009 the Company disengaged
Rodman & Renshaw, LLC and entered into a new agreement with Chardan Capital
Markets, LLC for similar purposes. On December 23, 2009 the Company
completed an agreement with Cranshire Capital, LP and received $3,500,000 in
working capital in exchange for a 1 year 9% convertible promissory note with
attached warrants. The note and warrants have ratchet and anti-dilution rights
that will be accounted for as derivative liabilities. The Notes will bear
interest at an annual rate of 9% payable quarterly in, at the Company's option,
cash or, subject to the satisfaction of certain customary conditions, registered
shares of the Company $.001 par value common stock (the “Common Stock”), and the
Notes will be convertible into shares of Common Stock at a conversion price of
$1.21 at any time. In connection with the issuance of the Notes, the
Company issued Series A Warrants to purchase 2,169,422 shares of the Company's
Common Stock, Series B Warrants to purchase 2,892,562 shares of the Company's
Common Stock, and Series C Warrants to purchase 2,169,422 shares of the
Company's Common Stock (the Series A, Series B and Series C Warrants are
referred to herein as the “Warrants”). The exercise price for the
Warrants is $1.21 per share, and each class of Warrant is exercisable for five
years from the date of issuance. The Notes and each class of the
Warrants contain full-ratchet and other customary anti-dilution protections.
These provisions may give rise to the warrants and the conversion feature being
accounted for as derivatives the Company is currently reviewing the accounting
effect of the transactions.
The
Company and its subsidiaries also entered into a Security Agreement to secure
payment and performance of the Company's obligations under the Notes pursuant to
which the Company and its subsidiaries granted the investors a security interest
in all of their respective property. Each subsidiary of the Company
also executed a Guaranty Agreement pursuant to which each subsidiary guaranteed
all of the Company's obligations under the Notes. The Company also
executed a Registration Rights Agreement pursuant to which the Company is
required to file a registration statement within 45 days of the Closing Date,
and the Company will use its reasonable best efforts to cause the registration
statement to be declared effective within 90 days of the Closing Date and 120
days in the event the SEC reviews the registration statement.
On
October 1, 2009, the Company formed a wholly-owned subsidiary, Magnum
Engineering (“MEI”) for the express purpose of providing engineering related
services to the Company and to interested third parties
During
October 2009, the Company issued, in lieu of cash, an aggregate of 3,100,000
shares of common stock for consulting services valued at $3,513,000. The common
stock was issued in place of cash payments, and was valued between $1.13 and
$1.23 per share, based on the closing market prices on the date the board of
directors authorized the issuances.
In
addition, on October 15, 2009 the Company issued, in lieu of cash, 100,000
shares of common stock for professional services valued at $123,000. The common
stock was issued in place of cash payments, and was valued at $1.23 per share,
based on the closing market price on the date the board of directors authorized
the issuance.
F-21
On
October 20, 2009, the Company issued, in lieu of cash, 350,000 shares of common
stock, valued at $350,000, in accordance with the purchase privileges of 350,000
previously issued warrants. These warrants were exercised at their
face value of $1.00 per share (see Note 10). $350,000 of 12%
principal debt was retired concurrently with the exercise of these warrants and
applied against the purchase of the 350,000 shares of common stock issued. In
addition, 77,332 shares of common stock, valued at $76,085.16 were issued to pay
the accrued interest on these notes.
Also on
October 20, 2009 the Company issued in lieu of cash, 930,088 shares of common
stock valued at $1,051,000 to repay prior cash advances to the Company from
stockholder(s). This fulfilled complete repayment of the outstanding advance
balance as of the issue date
During
November 2009, the Company issued, in lieu of cash, an aggregate of 1,475,000
shares of common stock for consulting services and bonuses valued at $1,772,500.
The common stock was issued in lieu of cash payments, and was valued between
$1.18 and $1.34 per share, based on the closing market prices on the date the
Board of Directors authorized the issuances.
Also
during November 2009, the Company issued, in lieu of cash, 200,000 shares of
common stock, valued at $241,000 for satisfaction of certain accounts payable
for previous services rendered by consultants of the Company for professional
and contract services.
On
November 20, 2009, the Company rescinded 500,000 shares of common stock issued
to a previous employee and Director, valued at $75,000, in accordance with its
revocability clauses in response to the early termination of his employment
contract. The remaining terms of the agreement are currently in
effect with no additional liability for payments or penalties. The common stock
issued was valued at $0.15 per share, based the closing market prices on the
date the board of directors authorized the issuance.
During
December 2009, the Company rescinded 400,000 shares of common stock previously
issued in connection with the asset acquisition (see note 6) due to breach of
the agreement entered into.
Additionally,
the Company rescinded 2,000,000 shares of common stock previously issued for
consulting services that were not yet fully consummated with the parties
involved.
In
preparing these financial statements, the Company has evaluated events and
transactions for potential recognition or disclosure through January 11, 2010,
the date the financial statements were available to be issued.
F-22
PART
II
INFORMATION
NOT REQUIRED IN THE PROSPECTUS
Item
13. Other Expenses of Issuance and Distribution
The
following is an itemization of all expenses (subject to future contingencies)
incurred or to be incurred by the Registrant in connection with the registration
of the securities being offered. The selling stockholders will not
pay any of the following expenses. We have estimated all amounts
except the SEC registration fee.
SEC
Registration fee
|
$ | 682 | ||
Legal
fees and expenses
|
$ | 8,000 | ||
Accounting
fees and expenses
|
$ | 7,500 | ||
Other
|
$ | 0 | ||
Total
Expenses
|
$ | 16,182.00 |
Item
14. Indemnification of Directors and Officers.
Our
Amended and Restated Articles of Incorporation provide for the indemnification
of our directors, officers, employees and agents to the fullest extent permitted
by the laws of the State of Nevada. Section 78.7502 of the
Nevada General Corporation Law permits a corporation to indemnify any of its
directors, officers, employees or agents against expenses actually and
reasonably incurred by such person in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (except for an action by or in right of the corporation) by reason
of the fact that such person is or was a director, officer, employee or agent of
the corporation, provided that it is determined that such person acted in good
faith and in a manner which he reasonably believed to be in, or not opposed to,
the best interests of the corporation and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was
unlawful.
Section
78.751 of the Nevada General Corporation Law requires that the determination
that indemnification is proper in a specific case must be made by (a) the
stockholders, (b) the board of directors by majority vote of a quorum consisting
of directors who were not parties to the action, suit or proceeding or (c)
independent legal counsel in a written opinion (i) if a majority vote of a
quorum consisting of disinterested directors is not possible or (ii) if such an
opinion is requested by a quorum consisting of disinterested
directors.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933, as
amended (the “Securities Act”) may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
Item
15. Recent Sales of Unregistered Securities.
There
have been no sales of unregistered securities within the last three years, which
would be required to be disclosed pursuant to Item 701 of Regulation S-K, except
for the following:
II-1
8% Convertible Note
Payable
On
January 12, 2007, the Company issued a $50,000 convertible promissory note to an
individual with interest payable semi-annually at the rate of 8%. This note
matured on January 31, 2008. The Company received an extension from the
note holder on May 19, 2008, to extend the maturity of this note until November
19, 2008, with the same terms as the original note. The Company received a
further extension from the note holder on February 5, 2009, to extend the
maturity of this note until April 19, 2009, with the same terms as the original
note. On February 20, 2009,
the Company received a request to convert the note to common stock in accordance
with the provisions outlined in the issued promissory note, which determined the
conversion price to be $0.2525. Based on this conversion rate, 198,050 shares of
common stock were issued. Accrued interest payable on this note as of the
conversion date totaled $8,559, and was also converted to
stock. Based on a conversion rate of $0.505, 16,950 shares of common
stock were issued.
On
January 29, 2007, the Company signed a $100,000 convertible promissory note with
a company named “A Perfect Time For A Change, Inc.” with interest payable
semi-annually at the rate of 8% per annum. This note matures on January 31,
2008. Upon the election of the holder, the principal amount of the Note, or any
portion thereof that is an integral multiple of $10,000, can be converted into
fully paid and non-assessable whole shares of common stock at a conversion price
per share that is equal to the average closing bid price of the common stock
during the five consecutive trading days immediately preceding the date the
holder completes the conversion requirements, discounted by 50%. This note is
subject to redemption at the option of the Company, in whole or in part, in any
integral multiple of $10,000, upon notice. If redeemed prior to due date, the
outstanding principal balance and any accrued interest are subject to early
redemption penalties.
On
February 17, 2007, the Company signed a $100,000 convertible promissory note
with a company named “A Perfect Time For A Change, Inc.” with interest
payable semi-annually at the rate of 8% per annum. This note matures on January
31, 2008. Upon the election of the holder, the principal amount of the Note, or
any portion thereof that is an integral multiple of $10,000, can be converted
into fully paid and non-assessable whole shares of common stock at a conversion
price per share that is equal to the average closing bid price of the common
stock during the five consecutive trading days immediately preceding the date
the holder completes the conversion requirements, discounted by 50%. This note
is subject to redemption at the option of the Company, in whole or in part, in
any integral multiple of $10,000, upon notice. If redeemed prior to due date,
the outstanding principal balance and any accrued interest are subject to early
redemption penalties.
12% Notes
Payable
During
2008, the Company issued an aggregate of $1,382,000 of 12% promissory notes with
warrants to unrelated individuals, interest at the rate of 12% per annum, due
October thru November 2009.
During
2009, the Company issued $300,000 of 12% promissory notes with warrants to
unrelated individuals. These notes mature October thru December
2010.
During
2009, $43,450 of 12% promissory notes were issued with unrelated individuals.
These notes mature April through May 2011.
All of
the 12% Notes issued to date are general unsecured obligations of the Company.
They have a total accrued interest of $133,464 payable as of September 30,
2009.
9.75% Notes
Payable
During
2009, the Company issued, in lieu of cash, an aggregate of $3,100,000 of
promissory notes to unrelated individuals all with interest payable at the rate
of 9.75% per annum. During 2009, these notes were all converted to
common stock at the option of the note holders.
II-2
6.00% Note
Payable
During
2009, the Company issued a 5 year $550,000 promissory note to an unrelated
individual with interest payable at the rate of 6.00% per annum. This
note was issued as part of a $650,000 purchase of equity from owners of the
parent entity which owned the landfill that Magnum acquired through bankruptcy
proceedings.
During
2009, the Company issued a promissory note for $1,000,000 to an unrelated
financial institution in connection with the acquisition of liens related to an
asset acquisition. Interest payable at the rate of 6% with scheduled monthly
payments of interest and principal totaling $100,000. This note is a secured
obligation of the Company, as evidenced by a Pledge Agreement that provide as
collateral for the repayment of this note, a deed of trust for all real property
associated with the asset acquisition (see Note 2). Any unpaid balance of
principal or interest will be due in full in May 2010.
9.00% Convertible Secured
Note Payable
On
December 23, 2009 the Company completed an agreement with Cranshire Capital, LP
and received $3,500,000 in working capital in exchange for a 1 year 9%
convertible promissory note with attached warrants. The note and warrants have
ratchet and anti-dilution rights that will be accounted for as derivative
liabilities. The Notes will bear interest at an annual rate of 9% payable
quarterly in, at the Company's option, cash or, subject to the satisfaction of
certain customary conditions, registered shares of the Company $.001 par value
common stock (the “Common Stock”), and the Notes will be convertible into shares
of Common Stock at a conversion price of $1.21 at any time. In
connection with the issuance of the Notes, the Company issued Series A Warrants
to purchase 2,169,422 shares of the Company's Common Stock, Series B Warrants to
purchase 2,892,562 shares of the Company's Common Stock, and Series C Warrants
to purchase 2,169,422 shares of the Company's Common Stock (the Series A, Series
B and Series C Warrants are referred to herein as the
“Warrants”). The exercise price for the Warrants is $1.21 per share,
and each class of Warrant is exercisable for five years from the date of
issuance. The Notes and each class of the Warrants contain
full-ratchet and other customary anti-dilution protections. These provisions may
give rise to the warrants and the conversion feature being accounted for as
derivatives the Company is currently reviewing the accounting effect of the
transactions.
9.75% Notes
Payable
During
2009, the Company issued, in lieu of cash, an aggregate of $4,300,000 of
promissory notes to unrelated individuals all with interest payable at the rate
of 9.75% per annum. During 2009, these notes were all converted to common
stock at the option of the note holders.
4% Notes
Payable
During 2009, the Company issued
promissory notes aggregating $2,408,103 to unrelated financial institutions in
connection with the acquisition of liens related to an asset acquisition.
Interest payable at the rate of 4% with scheduled monthly payments of interest
and principal totaling $104,642. These notes are secured obligations of the
Company, as evidenced by Pledge Agreements that provide as collateral for the
repayment of these notes, deeds of trust for all real property associated with
the asset acquisition (see Note 2). Any unpaid balance of principal or interest
will be due in full in June 2011.
The
Company has also made the following issuances of Common Stock and Preferred
Stock during the previous three years:
Common Stock and Preferred
Stock Issuances:
Date
|
Title
|
Person
or Class
|
Amount
|
Consideration
|
||||
December
2007
|
Common
Stock
|
Consultants
|
14,000,000
(3)
|
Consulting
Services
|
||||
December
2007
|
Common
Stock
|
Joseph
J. Glusic
|
200,000
|
Employment
Agreement
|
||||
February
2008
|
Common
Stock
|
Consultants
|
1,006,324
|
Consulting
Services
|
||||
February
2008
|
Common
Stock
|
Stephen
A. Zrenda
|
50,000
|
Legal
Services
|
||||
March
2008
|
Common
Stock
|
Consultant
|
20,000
|
Consulting
Services
|
||||
April
2008
|
Common
Stock
|
Consultant
|
21,000
|
Consulting
Services
|
||||
May
2008
|
Common
Stock
|
Consultants
|
840,511
(4)
|
Consulting
Services
|
||||
May
2008
|
Common
Stock
|
Stephen
A. Zrenda
|
100,000
|
Legal
Services
|
||||
May
2008
|
Common
Stock
|
Joseph
J. Glusic
|
266,212
|
Employment
Agreement
|
||||
July
2008
|
Common
Stock
|
Consultants
|
935,000
|
Consulting
Services
|
||||
August
2008
|
Common
Stock
|
Consultant
|
30,000
|
Consulting
Services
|
||||
September
2008
|
Common
Stock
|
Consultants
|
1,018,000
(5)
|
Consulting
Services
|
||||
October
2008
|
Common
Stock
|
Consultant
|
42,500
|
Consulting
Services
|
||||
October
2008
|
Common
Stock
|
Stephen
A. Zrenda
|
10,000
|
Legal
Services
|
||||
November
2008
|
Common
Stock
|
Consultants
|
1,500,000
|
Consulting
Services
|
||||
November
2008
|
Common
Stock
|
Joseph
J. Glusic
|
500,000
(1)
|
Bonus
|
||||
November
2008
|
Common
Stock
|
Chad
A. Curtis
|
5,000,000
(1)
|
Bonus
|
II-3
November
2008
|
Common
Stock
|
Michel
Boux
|
250,000
(1)
|
Bonus
|
||||
November
2008
|
Common
Stock
|
Stephen
A. Zrenda
|
10,000
|
Legal
Services
|
||||
November
2008
|
Common
Stock
|
Joseph
J. Glusic
|
2,500,000
|
Bonus
|
||||
November
2008
|
Common
Stock
|
Chad
A. Curtis
|
25,000,000
|
Bonus
|
||||
November
2008
|
Common
Stock
|
Michel
Boux
|
1,000,000
(9)
|
Bonus
|
||||
December
2008
|
Common
Stock
|
Stephen
A. Zrenda
|
10,000
|
Legal
Services
|
||||
January
2009
|
Common
Stock
|
Stephen
A. Zrenda
|
10,000
|
Legal
Services
|
||||
January
2009
|
Common
Stock
|
Consultant
|
335,000
(6)
|
Consulting
Services
|
||||
February
2009
|
Common
Stock
|
Stephen
A. Zrenda
|
10,000
|
Legal
Services
|
||||
February
2009
|
Common
Stock
|
Ed
Rucinski
|
215,000
|
Conversion
of $50,000 note
|
||||
March
2009
|
Common
Stock
|
Joseph
J. Glusic
|
500,000
|
Exercise
of Options
|
||||
March
2009
|
Common
Stock
|
Stephen
A. Zrenda
|
10,000
|
Legal
Services
|
||||
April
2009
|
Common
Stock
|
Consultant
|
2,000,000
|
Consulting
Services
|
||||
April
2009
|
Common
Stock
|
Stephen
A. Zrenda
|
10,000
|
Legal
Services
|
||||
April
2009
|
Common
Stock
|
Archie
C. Blackburn
|
927,000
|
Warrant
exercise
|
||||
May
2009
|
Common
Stock
|
Stephen
A. Zrenda
|
10,000
|
Legal
Services
|
||||
May
2009
|
Common
Stock
|
Consultants
|
4,000,000
|
Consulting
Services
|
||||
June
2009
|
Common
Stock
|
Consultant
|
10,000
|
Consulting
Services
|
||||
June
2009
|
Common
Stock
|
Stephen
A. Zrenda
|
10,000
|
Legal
Services
|
||||
June
2009
|
Common
Stock
|
Dwain
Immel
|
400,000
(8)
|
Lien
Release
|
||||
June
2009
|
Common
Stock
|
Dwain
Immel
|
100,000
|
Lien
Release
|
||||
June
2009
|
Common
Stock
|
David
D. Scuccia
|
50,000
|
Warrant
exercise
|
||||
June
2009
|
Common
Stock
|
Spartan
Equity Consultant
|
275,000
|
Warrant
exercise
|
||||
June
2009
|
Common
Stock
|
Kyle
Roberts
|
130,000
|
Warrant
exercise
|
||||
June
2009
|
Common
Stock
|
Shannon
Allen
|
168,600
|
Warrant
exercise
|
||||
June
2009
|
Common
Stock
|
Consultants
|
6,000,000
(7)
|
Consulting
Services
|
||||
July
2009
|
Common
Stock
|
Consultant
|
2,000,000
|
Consulting
Services
|
||||
August
2009
|
Common
Stock
|
Stephen
A. Zrenda
|
10,000
|
Legal
Services
|
||||
August
2009
|
Series
B Preferred
|
Chad
A. Curtis
|
25,000,000
|
Bonus
|
||||
August
2009
|
Series
B Preferred
|
Joseph
J. Glusic
|
5,000,000
|
Bonus
|
||||
September
2009
|
Common
Stock
|
Consultants
|
975,000
|
Consulting
Services
|
||||
September
2009
|
Common
Stock
|
Catalano,
Caboor & Company
|
100,000
|
Accounting
Services
|
||||
September
2009
|
Common
Stock
|
Donald
Brinkmann
|
50,000
|
Professional
Services
|
||||
September
2009
|
Common
Stock
|
Patton
Boggs LLP
|
350,000
(2)
|
Legal
Services
|
||||
September
2009
|
Common
Stock
|
Stephen
A. Zrenda
|
20,000
|
Legal
Services
|
||||
September
2009
|
Common
Stock
|
Patton
Boggs LLP
|
500,000
|
Legal
Services
|
||||
September
2009
|
Common
Stock
|
Jason
D. Oliviera
|
350,000
|
Warrant
exercise
|
||||
September
2009
|
Common
Stock
|
Jason
D. Oliviera
|
5,011
|
Payment
of interest
|
||||
September
2009
|
Common
Stock
|
Equity
Alliance Capital
|
850,000
|
Warrant
exercise
|
||||
September
2009
|
Common
Stock
|
Equity
Alliance Capital
|
9,155
|
Payment
of
interest
|
II-4
September
2009
|
Common
Stock
|
USA
Master Web Advisors
|
1,200,000
|
Warrant
exercise
|
||||
September
2009
|
Common
Stock
|
USA
Master Web Advisors
|
28,953
|
Payment
of interest
|
||||
September
2009
|
Common
Stock
|
Green
Spirits Managerial Consultants
|
1,900,000
|
Warrant
exercise
|
||||
September
2009
|
Common
Stock
|
Green
Spirits Managerial Consultants
|
37,246
|
Payment
of interest
|
||||
September
2009
|
Common
Stock
|
Kyle
Roberts
|
8,289
|
Payment
of interest
|
||||
September
2009
|
Common
Stock
|
David
Dellasciucca
|
552,300
|
Warrant
exercise
|
||||
September
2009
|
Common
Stock
|
David
Dellasciucca
|
16,705
|
Payment
of interest
|
||||
September
2009
|
Common
Stock
|
Shannon
Allen
|
258,193
|
Conversion
of note & payment of interest
|
||||
September
2009
|
Common
Stock
|
Joseph
J. Glusic
|
250,000
|
Accrued
compensation
|
||||
September
2009
|
Common
Stock
|
Chad
A. Curtis
|
233,573
|
Accrued
compensation and repayment of loan
|
||||
September
2009
|
Common
Stock
|
Spartan
Equity Consultant
|
24,735
|
Shareholder
note & interest
|
||||
October
2009
|
Common
Stock
|
Catalano,
Caboor & Company
|
100,000
|
Professional
fees
|
||||
October
2009
|
Common
Stock
|
Consultants
|
3,100,000
(10)
|
Consulting
Services
|
||||
October
2009
|
Common
Stock
|
USA
Master Web Advisors
|
753,097
|
Shareholder
advances
|
||||
October
2009
|
Common
Stock
|
Maritza
Mesa
|
250,000
|
Warrant
exercise
|
||||
October
2009
|
Common
Stock
|
Maritza
Mesa
|
39,005
|
Payment
of interest
|
||||
October
2009
|
Common
Stock
|
Green
Spirits Managerial Consultants
|
176,991
|
Payment
of loan
|
||||
October
2009
|
Common
Stock
|
Archie
Blackburn
|
70,497
|
Payment
of interest
|
||||
October
2009
|
Common
Stock
|
Henry
Carlson
|
50,000
|
Warrant
exercise
|
||||
October
2009
|
Common
Stock
|
Henry
Carlson
|
7,830
|
Payment
of interest
|
||||
November
2009
|
Common
Stock
|
Consultants
|
1,650,000
(11)
|
Consulting
Services
|
||||
November
2009
|
Common
Stock
|
Marc
Boulerice
|
25,000
|
Bonus
|
||||
December
2009
|
Common
Stock
|
Bryan
Brammer
|
500,000
|
Bonus
|
(1)
Subsequently cancelled on 11/13/08.
(2)
Subsequently cancelled on 9/29/09.
(3)
Subsequently cancelled 4,400,000 shares on 2/5/08 and 3,600,000 shares on
9/30/08.
(4)
Subsequently cancelled 150,000 shares on 5/9/08.
(5)
Subsequently cancelled 5,000 shares on 10/3/08 and 18,000 on
11/24/08.
(6)
Subsequently cancelled 335,000 shares on 6/29/09.
(7)
Subsequently cancelled 1,100,000 shares on 7/28/09.
(8)
Subsequently cancelled 400,000 shares on 12/18/09.
(9)
Subsequently cancelled 500,000 shares on 11/20/09.
(10)
Subsequently cancelled 1,000,000 shares on 12/22/09.
(11)
Subsequently cancelled 1,000,000 shares on
12/22/09.
Advances from
Stockholders
The
Company was advanced a total of $1,051,000 from current stockholders during
2009. The advances were made as interest free loans to be paid back shortly
after the closing of the Hudson asset purchase. These loans are general
unsecured obligations by the Company. On October 20, 2009, the
Company issued in lieu of cash, 930,088 shares of common stock valued at
$1,051,000 to repay the cash advances to the Company. This fulfilled complete
repayment of the outstanding advance balances.
II-5
The
issuances set forth in this Item 15 were granted based on exemptions from
registration under the Securities Act of 1933, as amended (the “Securities
Act”), pursuant to Section 4(2) of the Securities Act and Rule 506 of Regulation
D and applicable state laws. These issuances qualified for this
exemption from registration because (i) the Company did not engage in any
general solicitation or advertising to market the securities; (ii) the
securities were issued to a person with knowledge and experience in financial
and business matters so that he/she is capable of evaluating the merits and
risks of an investment in the Company; (iii) the persons who acquired these
shares acquired them for their own accounts; and (iv) the certificates
representing these shares will bear a restricted legend providing that they
cannot be sold except pursuant to an effective registration statement or an
exemption from registration.
Item
16. Exhibits
Exhibit
No. |
Description
|
|
3.1
|
Articles
of Incorporation, as amended. *
|
|
3.2
|
Certificate
of Designation of the Company filed October 21, 2005 with the State of
Nevada.*
|
|
3.3
|
Certificate
of Designation of the Company filed January 5, 2010 with the State of
Nevada.*
|
|
3.10
|
ByLaws
(1)
|
|
4.1
|
Securities
Purchase Agreement dated December 21, 2009. (2)
|
|
4.2
|
Form
of Senior Secured Convertible Note (2)
|
|
4.3
|
Form
of Security Agreement (2)
|
|
4.4
|
Form
of Registration Rights Agreement (2)
|
|
4.5
|
Form
of Guaranty Agreement (2)
|
|
4.6
|
Form
of Series A Warrant (2)
|
|
4.7
|
Form
of Series B Warrant (2)
|
|
4.8
|
Form
of Series C Warrant (2)
|
|
4.7
|
Promissory
Note issued March 16, 2009 to Simco Group (3)
|
|
5.1
|
Opinion
of Patton Boggs LLP*
|
|
10.1
|
Consulting
Agreement between Magnum and Chad A. Curtis dated January 1, 2008.
(4)
|
|
10.2
|
Employment
Agreement between Magnum and Joseph Glusic dated January 1, 2008.
(4)
|
|
10.3
|
2007
Consultant Stock Option, SAR and Stock Bonus Plan (5)
|
|
10.4
|
2009
Consultant Stock Option, SAR and Stock Bonus Plan (6)
|
|
10.7
|
Service
Agreement between Magnum and National Sale and Supply (NSS, LLC) dated
January 28, 2008 (7)
|
II-6
Exhibit
No. |
Description
|
|
10.8
|
Service
Agreement between Magnum and National Sale and Supply (NSS, LLC) dated
February 4, 2008 (8)
|
|
10.9
|
Service
Agreement between Magnum and National Sale and Supply (NSS, LLC) dated
June 2, 2008. (9)
|
|
10.10
|
Consulting
Agreement between Magnum and Michel Boux dated March 1, 2008.
(10)
|
|
10.11
|
Agreement
between Magnum and Gopinath B. Sekhar, Regal Carriage Sdn Bhd, Sekhar
Research Innovations Sdn Bhd dated October 10, 2008.
(11)
|
|
10.12
|
Lease
Agreement of Magog recycling plant in Ontario, Canada
(12)
|
|
10.13
|
Agreement
to purchase equipment for Magog recycling plant (12)
|
|
16
|
Accountant's
letter from Weinberg & Company, P.A. dated January 25,
2010 regarding its termination as the registered pubic accounting
firm of Magnum D’Or Resources, Inc. (13)
|
|
21
|
List
of Subsidiaries*
|
|
23.1
|
Consent
of Weinberg & Company, P.A.*
|
|
23.2
|
Consent
of Patton Boggs LLP (included in Exhibit
5.1)
|
*Filed
herein.
(1)
Previously filed with the registration statement on Form S-1 filed with the
Securities and Exchange Commission on December 31, 1999.
(2)
Previously filed with the Current Report on Form 8-K filed with the Securities
and Exchange Commission on December 23, 2009.
(3)
Previously filed with the Current Report on Form 8-K filed with the Securities
and Exchange Commission on March 18, 2009.
(4)
Previously filed with the Current Report on Form 8-K filed with the Securities
and Exchange Commission on January 3, 2008.
(5)
Previously filed with the registration statement on Form S-8 filed with the
Securities and Exchange Commission on December 28, 2007.
(6)
Previously filed with the registration statement on Form S-8 filed with the
Securities and Exchange Commission on June 29, 2009.
(7)
Previously filed with the Current Report on Form 8-K filed with the Securities
and Exchange Commission on January 23, 2008.
(8)
Previously filed with the Current Report on Form 8-K filed with the Securities
and Exchange Commission on February 8, 2008.
(9)
Previously filed with the Current Report on Form 8-K filed with the Securities
and Exchange Commission on July 8, 2008.
(10)
Previously filed with the Current Report on Form 8-K filed with the Securities
and Exchange Commission on October 15, 2008.
(11)
Previously filed with the Current Report on Form 8-K filed with the Securities
and Exchange Commission on October 17, 2008.
(12)
Previously filed with the Quarterly Report on Form 10QSB filed with the
Securities and Exchange Commission on August 19, 2008.
(13)
Previously filed with the Current Report on Form 8-K filed with the Securities
and Exchange Commission on January 25, 2010.
II-7
Item
17. Undertakings.
The
undersigned registrant hereby undertakes:
(1)
|
To
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration
statement:
|
(i)
|
To
include any prospectus required in Section 10(a)(3) of the Securities Act
of 1933;
|
(ii)
|
To
reflect in the prospectus any facts or events arising after the effective
date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20% change in the maximum aggregate offering
price set forth in the “Calculation of Registration Fee” table in the
effective registration statement;
and
|
(iii)
|
To
include any material information with respect to the “Plan of
Distribution” not previously disclosed in the registration statement or
any material change to such information in the registration
statement;
|
(2)
|
That,
for the purpose of determining any liability under the Securities Act of
1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof;
|
(3)
|
To
remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering; and
|
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 (the
“Securities Act”) may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
In the
event that a claim for indemnification against such liabilities (other than the
payment by the Company of expenses incurred or paid by a director, officer or
controlling person of the Company in the successful defense of any action, suit
or proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issues.
II-8
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Denver, State of Colorado,
on February 5, 2010.
MAGNUM
D’OR RESOURCES, INC.
|
||
By:
|
/s/ Joseph Glusic
|
|
Joseph
Glusic
|
||
President,
Chief Executive Officer, Principal
Executive Officer, Chief Financial Officer, Principal Financial Officer, Director, Secretary, and Treasurer |
Pursuant
to the requirements of the Securities Act of 1933, as amended, this Registration
Statement has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on February 5, 2010.
Signature
|
Title
|
|
/s/ Joseph Glusic
Joseph Glusic
|
President,
Chief Executive Officer, Principal
Executive Officer, Chief Financial Officer, Principal Financial Officer, Director, Secretary, and Treasurer |
II-9
EXHIBIT
INDEX
Exhibit
No. |
Description
|
|
3.1
|
Articles
of Incorporation, as amended. *
|
|
3.2
|
Certificate
of Designation of the Company filed October 21, 2005 with the State of
Nevada.*
|
|
3.3
|
Certificate
of Designation of the Company filed January 5, 2010 with the State of
Nevada.*
|
|
3.10
|
ByLaws
(1)
|
|
4.1
|
Securities
Purchase Agreement dated December 21, 2009. (2)
|
|
4.2
|
Form
of Senior Secured Convertible Note (2)
|
|
4.3
|
Form
of Security Agreement (2)
|
|
4.4
|
Form
of Registration Rights Agreement (2)
|
|
4.5
|
Form
of Guaranty Agreement (2)
|
|
4.6
|
Form
of Series A Warrant (2)
|
|
4.7
|
Form
of Series B Warrant (2)
|
|
4.8
|
Form
of Series C Warrant (2)
|
|
4.7
|
Promissory
Note issued March 16, 2009 to Simco Group (3)
|
|
5.1
|
Opinion
of Patton Boggs LLP*
|
|
10.1
|
Consulting
Agreement between Magnum and Chad A. Curtis dated January 1, 2008.
(4)
|
|
10.2
|
Employment
Agreement between Magnum and Joseph Glusic dated January 1, 2008.
(4)
|
|
10.3
|
2007
Consultant Stock Option, SAR and Stock Bonus Plan (5)
|
|
10.4
|
2009
Consultant Stock Option, SAR and Stock Bonus Plan (6)
|
|
10.7
|
Service
Agreement between Magnum and National Sale and Supply (NSS, LLC) dated
January 28, 2008 (7)
|
|
10.8
|
Service
Agreement between Magnum and National Sale and Supply (NSS, LLC) dated
February 4, 2008 (8)
|
|
10.9
|
Service
Agreement between Magnum and National Sale and Supply (NSS, LLC) dated
June 2, 2008. (9)
|
|
10.10
|
Consulting
Agreement between Magnum and Michel Boux dated March 1, 2008.
(10)
|
|
10.11
|
Agreement
between Magnum and Gopinath B. Sekhar, Regal Carriage Sdn Bhd, Sekhar
Research Innovations Sdn Bhd dated October 10, 2008.
(11)
|
Exhibit
No. |
Description
|
|
10.12
|
Lease
Agreement of Magog recycling plant in Ontario, Canada
(12)
|
|
10.13
|
Agreement
to purchase equipment for Magog recycling plant (12)
|
|
16
|
Accountant's
letter from Weinberg & Company, P.A. dated January 25,
2010 regarding its termination as the registered pubic accounting
firm of Magnum D’Or Resources, Inc. (13)
|
|
21
|
List
of Subsidiaries*
|
|
23.1
|
Consent
of Weinberg & Company, P.A.*
|
|
23.2
|
Consent
of Patton Boggs LLP (included in Exhibit
5.1)
|
*Filed
herein.
(1)
Previously filed with the registration statement on Form S-1 filed with the
Securities and Exchange Commission on December 31, 1999.
(2)
Previously filed with the Current Report on Form 8-K filed with the Securities
and Exchange Commission on December 23, 2009.
(3)
Previously filed with the Current Report on Form 8-K filed with the Securities
and Exchange Commission on March 18, 2009.
(4)
Previously filed with the Current Report on Form 8-K filed with the Securities
and Exchange Commission on January 3, 2008.
(5)
Previously filed with the registration statement on Form S-8 filed with the
Securities and Exchange Commission on December 28, 2007.
(6)
Previously filed with the registration statement on Form S-8 filed with the
Securities and Exchange Commission on June 29, 2009.
(7)
Previously filed with the Current Report on Form 8-K filed with the Securities
and Exchange Commission on January 23, 2008.
(8)
Previously filed with the Current Report on Form 8-K filed with the Securities
and Exchange Commission on February 8, 2008.
(9)
Previously filed with the Current Report on Form 8-K filed with the Securities
and Exchange Commission on July 8, 2008.
(10)
Previously filed with the Current Report on Form 8-K filed with the Securities
and Exchange Commission on October 15, 2008.
(11)
Previously filed with the Current Report on Form 8-K filed with the Securities
and Exchange Commission on October 17, 2008.
(12)
Previously filed with the Quarterly Report on Form 10QSB filed with the
Securities and Exchange Commission on August 19, 2008.
(13)
Previously filed with the Current Report on Form 8-K filed with the Securities
and Exchange Commission on January 25, 2010.