ITEM 1. DESCRIPTION OF BUSINESS
General Overview
Magnus is a mineral exploration company that specializes in identifying, acquiring and developing precious and base metal properties. The Company has been active in Uganda since 2007 where it has a 100% interest in eight mineral properties: Mubende, Mwerusandu, Lugazi, Mitoma, Rubindi, Kigumba, Kidera and Nyanga. The Company has previously been focused on gold projects in China from 2004 to 2006 with its key mineral project being the Huidong Property. The Huidong project has been sold.
The Company was incorporated under the laws of the State of Nevada, USA on April 4, 2001 and has a July 31st fiscal year end.
The current addresses, telephone and facsimile numbers of the offices of the Company are:
Canadian Office
Uganda Office
280 Nelson Street
Suite 115
Vancouver, BC
Canada
V6B 2E2
Tel: (604) 694-1432
Plot 1A
Mugwanya Road
Entebbe, Uganda
Tel: +256(0) 7734 63095
The price of the Company’s common stock was quoted for trading on the over-the-counter bulletin board (“OTCBB”) since March 25, 2003. On November 14, 2007, the Company received notice of the suspension of the quotation of its shares on the OTCBB for one year for late filing of annual and/or quarterly reports, and on December 6, 2007 the Company’s shares were removed from quotation on the OTCBB. The Company’s shares are now quoted for trading on the Pink Sheets over-the-counter quotation system under the symbol “MGNU”.
Property Agreements
Property Agreements - Africa
In Africa, the Company, through its indirect wholly-owned subsidiaries, African Mineral Fields Limited and AB Mining Ltd. (each of which are wholly-owned by the Company’s wholly-owned subsidiary, African Mineral Fields Inc. (“AMF”)), has a 100% interest in eight mineral properties (comprising 25 mineral exploration licenses) in Uganda: Mubende, Mwerusandu, Lugazi, Mitoma, Buhweju East, Kigumba, Kidera and Nyanga. The Company also had a right, to earn a 60% interest in the Mashonga Property, and a right to earn an 80% interest in the Ibanda Property. The Company withdrew from both of these joint venture agreements at Mashonga and Ibanda in December 2008. Magnus intends to transfer 10 of its mineral exploration licenses to Kamu Kamu Drilling Experts Ltd. (“Kamu Kamu”) as part of an agreement to settle a legal action brought against the Company by Kamu Kamu in December 2008.
Mwerusandu Property
On November 8, 2007, Magnus entered into a license transfer agreement (the “License Transfer Agreement”) with Flemish Investments Limited (“Flemish”) under which Flemish agreed to transfer 100% of the right, title and interest to the licenses comprising the Mwerusandu Property (comprised of three mineral exploration licenses covering a total of 57.7 square kilometers of land in Uganda) and the Mitoma Property (described below) to Magnus. Flemish is a third party property vendor in relation to Magnus. The Ugandan Department of Geological Survey and Mines ratified the transfer of the licenses on December 20, 2007, and accordingly Magnus now holds a 100% interest in the Mwerusandu Property. Flemish is entitled to receive from Magnus a net smelter returns royalty on the Mwerusandu Property on a sliding scale between 0.5% (if the gold price is below $250/oz.) and 2.1% (if the gold price is above $1,200/oz.), depending on the price of gold when the NSR is being paid.
In addition to the licenses transferred to Magnus under the License Transfer Agreement, Magnus received an additional exploration license covering 147.63 sq. km. During fiscal year 2008, three licenses were renewed for a period of two years, each with a 50% reduction in area, so that the Mwerusandu Property comprised of four exploration licenses covering 175.43 sq. km.
Mitoma Property
Under the License Transfer Agreement, Flemish also agreed to transfer 100% of the right, title and interest to the licenses comprising the Mitoma Property (comprised of six mineral exploration licenses for a total of 279.0 square kilometers of land in Uganda) to Magnus. The Ugandan Department of Geological Survey and Mines ratified the transfer of the licenses on December 20, 2007, and accordingly Magnus now holds a 100% interest in the Mitoma
Property. Flemish is entitled to receive from Magnus a net smelter returns royalty on the Mitoma Property on a sliding scale between 0.5% (if the gold price is below $250/oz.) and 2.1% (if the gold price is above $1,200/oz.), depending on the price of gold when the NSR is being paid.
In addition to the licenses transferred to Magnus under the License Transfer Agreement, Magnus received an additional two exploration licenses covering 159.49 sq. km. In fiscal year 2008, four licenses were renewed for a period of two years with a 50% reduction in area and one license was relinquished. The Mitoma Property is comprised of seven exploration licenses covering 359.49 sq. km.
During fiscal year 2008, a limited infill soil survey was completed at the Kabira license on the Mitoma Property. Some 43 soil samples were collected to test previous anomalies delineated in previous exploration. The results do not indicate an extensive zone of anomalous soil values.
Mubende Property
On September 1, 2006, AMF entered into an agreement (the “Mubende Agreement”) with Flemish Investments Limited (“Flemish”) under which AMF purchased a 100% right, title and interest in and to the mineral exploration licenses respecting 780 square kilometers of land in central Uganda (the “Mubende Property”). The purchase price paid by AMF for the Mubende Property was US$25,000 and the issuance of 250,000 common shares of AMF (since exchanged for Magnus shares). In addition, under the Mubende Agreement AMF was required to issue additional AMF common shares, to a maximum of 300,000 additional shares, to Flemish for each economically mineable ounce of gold on the Mubende Property that is proven to be a measured and indicated resource. To date, there is not a measured or indicated resource on the Mubende Property, and accordingly no additional shares have been issued to Flemish.
The Mubende Property comprises three exploration licenses covering 780 sq. km. One exploration licence, EL0121 with an area of 71.2 sq. km expired in fiscal 2009 and was relinquished.
During the fiscal year 2008, a total of 1,001 soil samples and 46 rock grab samples were collected on the Mubende Property along regional lines to test the edges of a large granite batholith. The Company believes that the numerous gold and tungsten occurrences on the Property as well as alluvial mining operations to the west of the Property have a source from the edges of this granite body.
Lugazi Property
AMF acquired a 100% right, title and interest in and to a mineral exploration license covering 261 square kilometers of land in central Uganda (the “Lugazi Property”) on September 1, 2006 under an agreement (the “Lugazi Agreement”) with Flemish. The terms of the Lugazi Agreement are the same as those of the Mubende Agreement, and to date there is not a measured or indicated resource on the Lugazi Property and no additional shares have been issued to Flemish. Since acquiring the Lugazi Property, AMF has received four additional exploration licenses covering 1,359.17 sq. km. During fiscal year 2008, one license was renewed for a period of two years, with a 50% reduction in area, so that the Lugazi Property is now comprised of five exploration licenses covering 1,487.69 sq. km.
A reverse circulation drilling program was completed on the Lugazi Property in 2008 which tested three prominent gold-in-soil geochemical anomalies. The 31 hole, 2,037m program tested these three anomalous zones which were co-incident with magnetic rich horizons along lithological strike. The RC holes were drilled at about 50m intervals along a fence across the soil anomaly, and were designed to investigate the nature of the weathered profile to an average depth of some 65m. As no previous gold mineralisation has been reported from this belt the Company sought to understand the source of the anomalous gold in soils and attempt to identify possible structures that could be followed up during subsequent phases of exploration. This drilling is the culmination of early stage exploration at Lugazi which commenced in May 2006.
The most significant RC drill results include:
§
4m at 0.98 g/t gold from 18m in LUG006 at the Kiyola target (incl. 2m at 1.3g/t)
§
2m at 0.50 g/t gold from 64m in LUG007 at the Kiyola target
§
2m at 1.50 g/t gold from 2m in LUG017 at the Nantula target
§
2m at 1.20 g/t gold from 9m in LUG028 at the Katente target
On a more regional scale, a total of 1,456 soil samples were collected along regional lines, planned to investigate additional gold, as well as base metal rich horizons. The results of these soils have not demonstrated an anomalous gold trend. A zone of low level gold was indicated on a single north-south line, with values between 20 and 30 ppb. Infill sampling did not extend this zone to the west or east. The nickel and chromium values of these samples did not show anomalism related to a buried source for base metals.
Mashonga Property
On August 30, 2007, AMF entered into a joint venture agreement (the “Mashonga Agreement”) with a consortium of Ugandan businessmen respecting two mineral exploration licenses and three location licenses covering 460.87 square km of land partially contiguous to AMF’s Mitoma Property in Uganda (the “Mashonga Property”). Under the Mashonga Agreement, Magnus had the right to earn a 60% interest in the Mashonga Property by making aggregate cash payments of US$650,000 to its joint venture partners, making a minimum US$4 million in property exploration expenditures and completing a pre-feasibility study on the property by August 30, 2012. Magnus’ joint venture partners had the right to accept common shares of Magnus in lieu of the cash payments. As of December 1, 2008, Magnus had paid US$70,000 to its joint venture partners.
At the Mashonga Property a preliminary soil sample program was completed over targets with high-grade trench and rock sample values from previous exploration activities, as well as from regional soil lines, to investigate additional targets. In total, 127 soil samples were collected; results were mixed, showing good anomalous values over one target while having inconsistent values over the other target. The Company also conducted an alteration mapping survey using PIMA analysis of surface rock samples. The alteration pattern indicated an important transition from acidic to alkaline regime along a prominent northwest structure. An RC drill program was conducted at the Mashonga small-scale mine site during the summer 2008. A total of 667m was completed in 7 holes beneath the Mashonga mine.
The RC drill holes intersected a sequence of sericite schist in contact with a mafic schist and granite-pegmatite-quartz veining. Sulphide mineralisation in the form of disseminated pyrite was noted within each of the holes.
The drilling conditions at Mashonga proved to be very difficult and as a result none of the 7 holes reached the planned depth. Hole MA-7 was abandoned after 25m, without reaching the targeted mineralised zone. The assay results show that gold mineralization is confined to the extents of the mine workings, but gold values are lower than previous grab samples from the targeted shear zone. As previously reported, gold values up to 874 g/t were reported from a grab sample underground and trench intersections reported 4.6m at 24.7 g/t and 2.4m at 59.6 g/t gold. There is a broad east-west correlation in peak copper values with highs often close to pegmatite mafic boundaries.
There are several other targets that Company management intended to drill at Mashonga but was unable to due to the difficulties experienced by the drilling contractor at the Mashonga mine target area. The Company is also cognizant, that the discontinuous, podiform nature of mineralization associated with shear zones can be difficult to intersect in limited drill programs such as the one just completed.
The most significant RC drill results include:
§
1m at 0.51 g/t gold from 37m in MA-1 beneath the mine workings
§
2m at 0.10 g/t gold from 111m in MA-1 beneath the mine workings
§
3m at 0.12 g/t gold from 54m in MA-2 beneath the mine workings
§
3m at 1.12 g/t gold from 81m in MA-2 beneath the mine workings
§
3m at 3.22 g/t gold from 96m in MA-2 beneath the mine workings
§
3m at 2.55 g/t gold from 114m in MA-2 beneath the mine workings
§
3m at 0.40 g/t gold from 0m in MA-6 west of the mine workings
§
3m at 0.11 g/t gold from 66m in MA-6 west of the mine working
The Company withdrew from the Mashonga joint venture in December 2008.
Ibanda Property
On May 1, 2008, the Company entered into an earn-in agreement (the “Ibanda Agreement”) with Canmin-Gold Limited, a subsidiary of IBI Corporation, respecting a mineral exploration license covering 332.70 square kilometers of land contiguous in southwest Uganda, northeast of the Mashonga Property (the “Ibanda Property”). Under the Ibanda Agreement, Magnus has the right to earn a 5% interest in the Ibanda Property for each $150,000 of expenditures that it makes and may earn up to an 80% interest by making an aggregate of $2 million in expenditures on the property within five years. Upon Magnus earning an 80% interest in the Property, the parties may form a joint venture under which each party will be required to contribute its proportionate share of further expenditures or have its interest be diluted.
Exploration at Ibanda commenced during 2008 with soil samples and rock samples being collected over previous gold-in-soil anomalies defined by a previous explorer in the late 1990’s. The sampling at Ibanda was completed at two locations in the central and western parts of the licence. A total of 685 soil samples at 25m sampling intervals were collected at 500m line spacing. These samples were taken at 30cm depth, dried and sieved to -80 mesh fraction and submitted to SGS labs in Mwanza for low level gold determination by aqua regia.
The results of the soil sampling showed no continuous gold anomalism. The results did show one point low-level anomalies, with values reaching a maximum of 50 ppb gold. Based on the results of this sampling, the results reported by Roraima need to be taken into context. They reported very high soil values (up to 11,170 ppb) but these values were not repeated during the Company’s soil program.
The Company withdrew from the Ibanda joint venture in December 2008.
Other Projects
On May 12, 2008, a mineral exploration license covering 363 square kilometers of land in western Uganda (the “Kigumba Property”) was granted to the Company. A 20km long uranium anomaly on the license was picked up by processing the data from the airborne geophysical survey which is being flown over 80% of Uganda. Since acquiring this licence, three additional licences totalling 1402.55 square kilometers were also acquired.
On May 12, 2008, a mineral exploration license covering 291 square kilometers of land in southwestern Uganda (the “Rubindi Property”) was granted to the Company. Since acquiring this licence, an additional licence covering 429 square kilometers was also acquired.
On June 30, 2008, a mineral exploration license covering 485 square kilometers of land in central Uganda (the “Kidera Property”) was granted to the Company. The Company intends to evaluate this project for tantalum, rare earth metals and diamonds.
On June 30, 2008, a mineral exploration license covering 23.28 square kilometers of land in central Uganada (the “Nyanga Property”) was granted to the Company. The Company intends to evaluate the tantalum potential at this project.
Property Agreements - China
Through its joint venture agreements described below, the Company previously had interests, or contingent interests, in two properties in China: the Huidong Property, comprising 83.29 square kilometers in Sichuan Province; and the Mangshi Property, comprising 113.96 square kilometers in Yunnan Province.
Yunnan Long Teng Mining Ltd. - Huidong Property
On July 6, 2004, the Company signed a formal cooperative joint venture contract (the “Huidong Agreement”) with Geological Brigade Team 209 of the Nuclear Industry of Yunnan Province (“Team 209”) to form a new cooperative joint venture company, Yunnan Long Teng Mining Ltd. (“Long Teng Mining”), a Sino-foreign Chinese corporation, to carry out minerals exploration and development in an 83.29 square kilometer area of Huidong County in Sichuan Province.
On May 12, 2008, the Company entered into an Agreement for Modification of Joint Venture Rights & Interests (the “Modification Agreement”) with Team 209. Under the Modification Agreement, the Company, which held a 90% interest in Long Teng Mining and a 90% interest in Yunnan Western Mining Co., Ltd. (“Western”, which holds the mineral rights to the Mangshi Property, described below), would obtain the remaining 10% interest in Long Teng Mining from Team 209 in exchange for transferring the Company’s 90% interest in Western to Team 209. Magnus was also required to pay 1 million RMB (approximately US$130,000) to Team 209 for previous services provided by Team 209 to Long Teng Mining and Western and payment of all the liabilities of Western within 10 days after all documents submitted to governmental departments receive approval.
On May 28, 2008, Magnus executed an agreement (the “Transfer Agreement”) with Mr. Jinzang Lai (“Lai”) under which Magnus agreed to sell its 90% interest in Yunnan Long Teng Mining Ltd., which owns the exploration license underlying the Huidong gold exploration property in Sichuan Province, China to Lai. Under the Transfer Agreement, Magnus was to receive; (i) 7,000,000 RmB (approximately US $1,000.000) within seven days of the execution of the Transfer Agreement; (ii) a further 7,000,000 RmB within seven days of the successful renewal of the exploration license underlying the Huidong property; (iii) a further 4,900,000 RmB within seven days of the transfer of Magnus’ 90% interest in Yunnan Long Teng Mining Ltd. to Lai; and (iv) a further 2,100,000 RmB within seven days of the transfer of the remaining 10% interest in Yunnan Long Teng Mining Ltd. held by Team 209 to Lai, whether directly from Team 209 or indirectly from Team 209 to Magnus and then to Lai. In addition, Magnus was to retain a 3% net smelter royalty on any minerals produced from the Huidong property under the exploration license in the future, which were to be paid quarterly. In late May 2008, Lai forwarded the first payment of 7,000,000 RmB to Magnus. 100% of the ownership interest in the company that possesses the license, Long Teng Mining Ltd., was transferred to Lai in July 2008. The exploration license underlying the property was successfully renewed by the relevant Chinese authorities in September 2008.
On November 12, 2008 the Company collected a further RMB 1,000,000 (approximately $146,000) of the proceeds of sale of Long Teng from Lai. On November 16, 2008, the Company signed an amending agreement with Lai to amend the due dates of the remaining outstanding proceeds. Under the amendment, RMB 1,000,000 (approximately $146,000) was due for payment by November 30, 2008, RMB 4,000,000 (approximately $584,000) was due for payment by December 31, 2008, RMB 4,000,000 was due for payment by January 31, 2009 and RMB 4,000,000 was due for payment by February 28, 2009. The amendment also made Magnus liable for RMB 300,000 (approximately $44,000) of additional costs incurred by Lai to settle pre-existing liabilities of Long Teng. The additional liability would be paid by reduction of the final payment under the agreement. On November 21, 2008 the Company collected RMB 420,000 (approximately $61,000) of the amount that was due by November 30. The Company did not receive the rest of the payment due by November 30 or the payments that were due on December 31, 2009, January 31, 2009 and February 28, 2009.
As of 17 June 2009, Magnus had received a total of RMB 8.42 million out of the 21 million RMB Long Teng sale price originally agreed to on May 28, 2008. On 17 June 2009, Magnus signed a new amended sale agreement requiring the Lai group to pay Magnus RMB 13.5 million within 10 days of the signing of the agreement. Magnus agreed to waive its right to a previously agreed 3% NSR on mineral production and late payments due according to the November 2008 contract in return for an additional 1.38 million RmB payment that was included in the 13.5 million RmB total payment.According to the new agreement, if the Lai group were not to pay Magnus the 13.5 million RmB then Magnus would have the right to take back its ownership of Long Teng Mining Ltd. without refunding any payments received previously from the Lai group or Magnus may elect to continue to accrue a 10% penalty, RMB 1,228,000, per month until the Company is paid by the Lai group. The Company did not receive the RMB 13.5 million within 10 days of the signing of the agreement.
On May 9, 2009 the Lai group entered into an agreement with a new buyer, Mr. Peijan He, under which the Lai group would transfer its interest in Yunnan Long Teng Mining Ltd. to Mr. He for RMB 24.8 million. As the Lai group still owed Magnus RMB 13.5 million for acquiring its interest in Long Teng, Mr. He verbally agreed to pay RMB 13,500,000 of the purchase price it owes to the Lai group to Magnus instead. As at July 31, 2009 no formal written agreement had been consummated by Magnus and Mr. He. A formal agreement was signed on September 3, 2009. See subsequent events section.
As at July 31, 2009, Magnus had received a total of RMB 8.42 million (about $1,234,000) in proceeds from the sale of Long Teng and was still owed 13.5 million RMB (about $1,976,000).
Yunnan Western Mining Co., Ltd. - Mangshi Property
Under the Modification Agreement (described above), Magnus agreed to transfer its interest in Western Mining to Team 209 in exchange for Team 209’s interest in Long Teng Mining. The Modification Agreement was consummated and accordingly Magnus has no ownership interest in the Mangshi Property or Western Mining.
On November 25, 2005, Magnus acquired 100% of the issued and outstanding shares of Golden River Resources Corp., a private British Columbia company (“Golden River”), which was owned by First Fortune Investments Inc. Golden River was a party to a co-operative joint venture agreement dated August 29, 2003 (the “Mangshi Agreement”) with Team 209. Under the Mangshi Agreement, Golden River and Team 209 formed Western, a sino-foreign joint venture company which held the rights to the Mangshi Property, a mineral exploration property comprising approximately 113.96 square kilometres in Yunnan Province. Golden River had the right to earn a 90% interest in Western Mining, with Team 209 retaining the other 10%.
Corporate Structure
The Company has one wholly owned subsidiary, African Mineral Fields Inc. (incorporated under the laws of the British Virgin Islands), which in turn has incorporated two subsidiaries, African Mineral Fields Limited and AB Mining Limited (both incorporated under the laws of Uganda).
The following chart describes the Company’s corporate structure and material subsidiaries:
Notes:
Employees
As of November 1, 2009, the Company had no employees (over and above its directors, officers and consultants) employed in Vancouver, British Columbia.
The Company’s operating subsidiary in Uganda, African Mineral Fields Limited, employs three persons: one accountant and two housekeepers.
The Company employs one person in China who continues to assist in dealing with matters relating to Long Teng and further payments due to Magnus for the sale of its equity interest in Long Teng.
The Company uses consultants with specific skills to assist with various aspects of its exploration, project evaluation, due diligence, acquisition initiatives, corporate governance, property management, and with accounting and legal matters.
Other Property Interests and Mining Claims
The Company currently only has interests in the above-noted properties in Uganda.
Government Regulation
Mining operations and exploration activities are subject to various national, state, provincial and local laws and regulations in the United States, Canada, and Uganda as well as other jurisdictions, which govern prospecting, development, mining, production, exports, taxes, labor standards, occupational health, waste disposal, protection of the environment, mine safety, hazardous substances and other matters.
The Company believes that it is and will continue to be in compliance in all material respects with applicable statutes and the regulations passed in the United States, Canada and Uganda. There are no current orders or directions relating to the Company with respect to the foregoing laws and regulations.
Environmental Regulation
The Company's exploration projects are subject to various federal, state and local laws and regulations governing protection of the environment in North America and Uganda. These laws often change and, as a general matter, are becoming more restrictive. The Company's policy is to conduct business in a way that safeguards public health and the environment. The Company believes that its operations are conducted in material compliance with applicable laws and regulations.
Changes to current local, state or federal laws and regulations in the jurisdictions where the Company operates or may operate in the future could require additional capital expenditures and increased operating costs. Although the Company is unable to predict what additional legislation, if any, might be proposed or enacted, additional regulatory requirements could impact the economics of its projects.
In the preceding year, there were no material environmental incidents or non-compliance with any applicable environmental regulations. The Company estimates that it will not incur material capital expenditures for environmental control facilities during the current fiscal year.
Competition
Magnus is a grassroots mineral exploration company. The mineral exploration industry is competitive, with many companies competing for the limited number of precious and base metals acquisition and exploration opportunities that are economic under current or foreseeable metals prices, as well as for available investment funds. With metal prices at their current levels, activity in the industry has increased dramatically, and competition is also high for the recruitment of qualified personnel and equipment.
The Company believes no single company has sufficient market power to affect the price or supply of gold or other minerals in the world market.
Subsequent Events
On May 9, 2009 the Lai group entered into an agreement with a new buyer for Long Teng Minging, Mr. Peijan He, under which the Lai group would transfer its interest in Yunnan Long Teng Mining Ltd. to Mr. He for RMB 24.8 million. As the Lai group still owed Magnus RMB 13.5 million for acquiring its interest in Long Teng, on September 3, 2009, Magnus entered into an agreement with the Lai group and Mr. He under which Mr. He agreed to pay RMB 13,500,000 of the purchase price it owes to the Lai group to Magnus instead. This RMB 13,500,000 is payable to Magnus under the agreement as follows: RMB 5,000,000 is payable upon issuance of a new business license of Long Teng to Mr. He or his designee; RMB 4,865,000 is payable to Magnus and 135,000 is payable to Yunnan Beichuan Law firm on or before September 28, 2009; and RMB 3,500,000 is payable on or before October 28, 2009. Under the agreement, Magnus is required to pay a commission of RMB 135,000 and legal fees to Yunnan Beichuan Law firm which is acting as a trust agent for the funds. As at the 10 November 2009, a new business license has been issued reflecting that ownership of Long Teng has been transferred to Mr. He. Consequently, Magnus has received RMB 10,000,000 (approximately $1.466 million) pursuant to the agreement and has paid RMB 135,000 in commission and 50,000 in legal fees to Yunnan Beichuan Law firm. As at November 12, 2009, the remaining 3.5 million RmB (approximately $510,000) related to the sale of Long Teng Mining in China has not been received by Magnus.
On December 11, 2008, the Company's indirect wholly-owned subsidiary, African Mineral Fields Limited, received notice that a legal action had been instituted against it in Uganda by Kamu Kamu Drilling Experts Limited, a drill contractor used by the Company in Uganda. Kamu Kamu was seeking special damages in the amount of US$306,595, general damages, interest and costs of the action for the alleged breach by African Mineral Fields Limited of a reverse circulation drilling agreement dated April 29, 2008 between Kamu Kamu and African Mineral Fields Limited. On November 11, 2009, African Mineral Fields entered into a settlement agreement with Kamu Kamu under which Kamu Kamu agreed to deliver to African Mineral Fields a full and final release of its claim in exchange for: (1) US$50,000; and (2) the transfer by African Mineral Fields to Kamu Kamu of 10 mineral properties in Uganda representing 1,706 square kilometers. If any of the properties cannot be transferred then African Mineral Fields will pay an additional US$2,000 to Kamu Kamu for each property that cannot be transferred. The mineral properties are in the process of being transferred, and the Company does not foresee any difficulties in transferring all of the properties to Kamu Kamu.
Magnus intends to transfer the following ten licenses to Kamu Kamu as part of the settlement: EL0005, EL0020, EL0022, EL0023, EL0167, EL0187, EL0188, EL0196, EL0199 and EL0200. One of the licenses is part of the Mwerusandu Project (EL0022). Four of the licenses are part of the Mitoma Property (EL0005, EL0023, EL0187 and EL0188). Five of the licenses comprise the Lugazi Property (EL0020, EL0167, EL0196, EL0199 and EL0200).
Between July 31, 2009 and November 12, 2009, 1,091,374 warrants have expired. 2,134,517 warrants remain outstanding and exercisable at November 12, 2009.
Three of the Company’s exploration licenses in Uganda expired in August 2009: EL0116, EL0122 and EL0123. The Company has reapplied for EL0122 and EL0123.
ITEM 1A.
ITEM 1A. Risk Factors
The following risk factors should be considered in connection with an evaluation of the business of the Company:
THE COMPANY'S LIMITED OPERATING HISTORY MAKES IT DIFFICULT FOR YOU TO JUDGE ITS PROSPECTS.
The Company has a limited operating history upon which an evaluation of the Company, its current business and its prospects can be based. You should consider any purchase of the Company's shares in light of the risks, expenses and problems frequently encountered by all companies in the early stages of its corporate development.
LIQUIDITY AND CAPITAL RESOURCES ARE UNCERTAIN.
For the year ended July 31, 2009, the Company had an operating loss of $795,511. At July 31, 2009, the Company had a working capital deficiency of $2,485,548. Magnus needs to raise additional capital by way of an offering of equity securities, an offering of debt securities, or by obtaining financing through a bank or other entity.
The Company has not established a limit as to the amount of debt it may incur nor has it adopted a ratio of its equity to debt allowance. If the Company needs to obtain additional financing, there is no assurance that financing will be available from any source, that it will be available on terms acceptable to us, or that any future offering of securities will be successful. If additional funds are raised through the issuance of equity securities, there may be a significant dilution in the value of the Company’s outstanding common stock. The Company could suffer adverse consequences if it is unable to obtain additional capital which would cast substantial doubt on its ability to continue its operations and growth.
We have a going concern opinion from our auditors, indicating the possibility that we may not be able to continue to operate.
We anticipate generating losses for the next 12 months. Therefore, we may be unable to continue operations in the future as a going concern. No adjustment has been made in the accompanying financial statements to the amounts and classification of assets and liabilities which could result should we be unable to continue as a going concern. If we cannot continue as a viable entity, our shareholders may lose some or all of their investment in the Company.
There can be no assurance that we will be capable of raising the additional funding that we need to carry out our development and exploration objectives.
The further development and exploration of our mineral properties depends upon our ability to collect on monies owed to the Company or obtain financing through capital markets, or other means. There is no assurance that we will be successful in obtaining financing as and when needed. Unfavorable market conditions may make it difficult or impossible for us to obtain debt financing or equity financing on acceptable terms or at all. Failure to collect monies owed to the Company or to obtain additional financing on a timely basis may cause us to postpone our development plans, forfeit rights in some or all of our properties or reduce or terminate some or all of our operations.
We do not have experience in placing properties into production.
We have no experience in placing mineral properties into production, and our ability to do so will be dependent upon using the services of appropriately experienced personnel or entering into agreements with other major resource companies that can provide such expertise. There can be no assurance that we will have available to us the necessary expertise to take a mineral deposit into production.
THE VALUE AND TRANSFERABILITY OF THE COMPANY'S SHARES MAY BE ADVERSELY IMPACTED BY THE LIMITED TRADING MARKET FOR ITS SHARES AND THE PENNY STOCK RULES.
There is only a limited trading market for the Company’s shares. The Company’s common stock is quoted for trading on the Pink Sheets quotation market and “bid” and “asked” quotations regularly appear on the Pink Sheets quotation market under the symbol “MGNU”. There can be no assurance that the Company’s common stock will trade at prices at or above its present level, and an inactive or illiquid trading market may have an adverse impact on the market price. In addition, holders of the Company’s common stock may experience substantial difficulty in selling their securities as a result of the “penny stock rules”, which restrict the ability of brokers to sell certain securities of companies whose assets or revenues fall below the thresholds established by those rules.
Our stock is a penny stock. Trading of our shares may be restricted by the SEC’s penny stock regulations and FINRA’s sales practice requirements, which may limit a shareholder’s ability to buy and sell our shares.
The Securities and Exchange Commission has defined “penny stock” under Rule 3a51-1 and as such our stock is penny stock. Our securities are covered by the penny stock rules, Rule 15g-9, which imposes additional sales practice requirements, including disclosure requirements, on broker-dealers who sell to persons other than established customers and “accredited investors”. The disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for stock that is subject to the penny stock rules. The penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in, and limit the marketability of, our common stock.
In addition, the Financial Industry Regulatory Authority has adopted rules that require a broker/dealer, when recommending an investment to a customer, to 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. Interpretations of these rules suggest that there is a high probability that speculative low-priced securities will not be suitable for some customers. The Financial Industry Regulatory Authority requirements make it more difficult for broker/dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock.
Because we do not intend to pay any cash dividends on our shares of common stock, our stockholders will not be able to receive a return on their shares unless they sell them.
We intend to retain any future earnings to finance the development and expansion of our business. We do not anticipate paying any cash dividends on our common stock in the foreseeable future. Unless we pay dividends, our stockholders will not be able to receive a return on their shares unless they sell them.
FUTURE SALES OF SHARES MAY ADVERSELY IMPACT THE VALUE OF THE COMPANY'S STOCK.
If required, the Company may seek to raise additional capital through the sale of common stock. Future sales of shares by the Company or its stockholders could cause the market price of its common stock to decline.
MINERAL EXPLORATION AND DEVELOPMENT ACTIVITIES ARE SPECULATIVE IN NATURE.
Resource exploration and development is a speculative business, characterized by a number of significant risks including, among other things, unprofitable efforts resulting not only from the failure to discover mineral deposits but from finding mineral deposits which, though present, are insufficient in quantity and quality to return a profit from production. The marketability of minerals acquired or discovered by the Company may be affected by numerous factors which are beyond the control of the Company and which cannot be accurately predicted, such as market fluctuations, the proximity and capacity of milling facilities, mineral markets and processing equipment and such other factors as government regulations, including regulations relating to royalties, allowable production, importing and exporting of minerals and environmental protection, the combination of which factors may result in the Company not receiving an adequate return of investment capital.
Substantial expenditures are required to establish ore reserves through drilling, to develop metallurgical processes to extract the metal from the ore and, in the case of new properties, to develop the mining and processing facilities and infrastructure at any site chosen for mining. Although substantial benefits may be derived from the discovery of a major mineralized deposit, no assurance can be given that minerals will be discovered in sufficient quantities and grades to justify commercial operations or that funds required for development can be obtained on a timely basis. Estimates of reserves, mineral deposits and production costs can also be affected by such factors as environmental permitting regulations and requirements, weather, environmental factors, unforeseen technical difficulties, unusual or unexpected geological formations and work interruptions. In addition, the grade of ore ultimately mined may differ from that indicated by drilling results. Short term factors relating to reserves, such as the need for orderly development of ore bodies or the processing of new or different grades, may also have an adverse effect on mining operations and on the results of operations. Material changes in ore reserves, grades, stripping ratios or recovery rates may affect the economic viability of any project.
THE COMPANY WILL BE SUBJECT TO OPERATING HAZARDS AND RISKS WHICH MAY ADVERSELY AFFECT THE COMPANY'S FINANCIAL CONDITION.
Mineral exploration involves many risks, which even a combination of experience, knowledge and careful evaluation may not be able to overcome. The Company's operations will be subject to all the hazards and risks normally incidental to exploration, development and production of metals, such as unusual or unexpected formations, cave-ins or pollution, all of which could result in work stoppages, damage to property and possible environmental damage. The Company does not have general liability insurance covering its operations and does not presently intend to obtain liability insurance as to such hazards and liabilities. Payment of any liabilities as a result could have a materially adverse effect upon the Company's financial condition
THE COMPANY'S ACTIVITIES WILL BE SUBJECT TO ENVIRONMENTAL AND OTHER INDUSTRY REGULATIONS WHICH COULD HAVE AN ADVERSE EFFECT ON THE FINANCIAL CONDITION OF THE COMPANY.
The Company's activities are subject to environmental regulations promulgated by government agencies from time to time. Environmental legislation generally provides for restrictions and prohibitions on spills, releases or emissions of various substances produced in association with certain mining industry operations, such as seepage from tailing disposal areas, which would result in environmental pollution. A breach of such legislation may result in imposition of fines and penalties. In addition, certain types of operations require the submission and approval of environmental impact assessments. Environmental legislation is evolving in a manner which means stricter standards and enforcement, fines and penalties for non-compliance are more stringent. Environmental assessments of proposed projects carry a heightened degree of responsibility for companies and directors, officers and employees. The cost of compliance with changes in governmental regulations could have an adverse effect on the financial condition of the Company.
The operations of the Company including exploration and development activities and commencement of production on its properties, require permits from various federal, state, provincial and local governmental authorities and such operations are and will be governed by laws and regulations governing prospecting, development, mining, production, exports, taxes, labor standards, occupational health, waste disposal, toxic substances, land use, environmental protection, mine safety and other matters. Companies engaged in the development and operation of mines and related facilities generally experience increased costs and delays in production and other schedules as a result of the need to comply with applicable laws, regulations and permits.
Failure to comply with applicable laws, regulations, and permitting requirements may result in enforcement actions thereunder, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment, or remedial actions. Parties engaged in mining operations may be required to compensate those suffering loss or damage by reason of the mining activities and may have civil or criminal fines or penalties imposed for violations of applicable laws or regulations and, in particular, environmental laws.
THE COMPANY’S PROPERTIES ARE LOCATED IN UGANDA, A DEVELOPING COUNTRY WHICH HAS HISTORICALLY EXPERIENCED PERIODS OF CIVIL UNREST AND POLITICAL AND ECONOMIC INSTABILITY.
All of the Company’s African properties are located in Uganda, a developing country which has historically experienced periods of civil unrest and political and economic instability. Although the political and economic climate in Uganda is currently stable, any negative changes in governmental laws, regulations, economic conditions, or political attitudes in Uganda are beyond the control of the Company and may adversely affect its business.
The Company’s operations may be affected in varying degrees by government regulations, policies or directives with respect to restrictions on production or sales, price controls, export controls, repatriation of income, income taxes, carried interests for the state, expropriation of property and environmental legislation. Magnus may also be required to negotiate property agreements with the Ugandan government, which may impose conditions that will affect the viability of the project such as providing the government with free carried interests or providing subsidies for the development of the local infrastructure or other social assistance. There can be no assurance that Magnus will be successful in concluding such agreements on commercially acceptable terms or that these agreements will be successfully enforced in Uganda.
As a result of the limited but improving infrastructure present in Uganda, land titles systems are not developed to the extent found in many developed nations. Although Magnus believes that it has good title to its mineral properties in Uganda, there is little it can do to control this risk. Magnus holds rights to explore its mineral properties in Uganda, but no assurance can be given that the Ugandan government will not revoke or significantly alter the conditions of the applicable licenses and that such licenses will not be challenged or impugned by third parties. There is no certainty that such rights or additional rights applied for will be granted or renewed on terms satisfactory to Magnus. There can be no assurance that claims by third parties against the Company’s properties will not be asserted at a future date.
We may be unable to enforce our legal rights in certain circumstances.
In the event of a dispute arising at or in respect of our foreign operations, we may be subject to the exclusive jurisdiction of foreign courts or may not be successful in subjecting foreign persons to the jurisdiction of courts in the United States, Canada or other jurisdictions. We may also be hindered or prevented from enforcing our rights with respect to a governmental entity or instrumentality because of the doctrine of sovereign immunity.
COMPETITION MAY HAVE AN IMPACT ON THE COMPANY'S ABILITY TO ACQUIRE ATTRACTIVE MINERAL PROPERTIES, WHICH MAY HAVE AN ADVERSE IMPACT ON THE COMPANY'S OPERATIONS.
Significant and increasing competition exists for the limited number of mineral acquisition opportunities available. As a result of this competition, some of which is with large established mining companies with substantial capabilities and greater financial and technical resources than the Company, the Company may be unable to acquire attractive mineral properties on terms it considers acceptable. Accordingly, there can be no assurance that any exploration program intended by the Company on properties it intends to acquire will yield any reserves or result in any commercial mining operation.
DOWNWARD FLUCTUATIONS IN METAL PRICES MAY SEVERELY REDUCE THE VALUE OF THE COMPANY.
The Company has no control over the fluctuations in the prices of the metals for which it is exploring. A significant decline in such prices would severely reduce the value of the Company.
THE COMPANY CURRENTLY RELIES ON CERTAIN KEY INDIVIDUALS AND THE LOSS OF ONE OF THESE CERTAIN KEY INDIVIDUALS COULD HAVE AN ADVERSE EFFECT ON THE COMPANY.
The Company’s success depends to a certain degree upon certain key members of the management. These individuals are a significant factor in the Company's growth and success. The loss of the service of members of the management and certain key employees could have a material adverse effect on the Company. In particular, the success of the Company is highly dependant upon the efforts of the President, Treasurer, Secretary, CEO and director of the Company, Graham Taylor, the loss of whose services would have a material adverse effect on the success and development of the Company.
THE COMPANY DOES NOT MAINTAIN KEY MAN INSURANCE TO COMPENSATE THE COMPANY FOR THE LOSS OF CERTAIN KEY INDIVIDUALS.
The Company does not anticipate having key man insurance in place in respect of any of its senior officers or personnel, although the Board has discussed and investigated the prospect of obtaining key man insurance for Graham Taylor.
THE COMPANY’S PRESIDENT AND CHIEF EXECUTIVE OFFICER, GRAHAM TAYLOR, ALSO SERVES AS PRESIDENT, CHIEF EXECUTIVE OFFICER AND/OR DIRECTOR FOR SOME OTHER ACTIVE COMPANIES.
Mr. Taylor also serves as president, chief executive officer and/or director for Arcview Entertainment Inc. (a motion picture distribution company). This list may also expand in the future.
Mr. Taylor currently devotes 90% of his time to Magnus and 10% to Arcview Entertainment. As Mr. Taylor focuses part of his time on other companies, this may have a material adverse effect on the success and development of the Company.
WE ARE AN EXPLORATION STAGE COMPANY, AND THERE IS NO ASSURANCE THAT A COMMERCIALLY VIABLE DEPOSIT OR "RESERVE" EXISTS ON ANY PROPERTIES FOR WHICH THE COMPANY HAS, OR MIGHT OBTAIN, AN INTEREST.
The Company is an exploration stage company and cannot give assurance that a commercially viable deposit, or “reserve,” exists on any properties for which the Company currently has (through a joint venture agreement) or may have (through potential future joint venture agreements or acquisitions) an interest. Therefore, determination of the existence of a reserve depends on appropriate and sufficient exploration work and the evaluation of legal, economic, and environmental factors. If the Company fails to find a commercially viable deposit on any of its properties, its financial condition and results of operations will be materially adversely affected.
WE REQUIRE SUBSTANTIAL FUNDS MERELY TO DETERMINE WHETHER COMMERCIAL MINERAL DEPOSITS EXIST ON OUR PROPERTIES.
Any potential development and production of the Company’s exploration properties depends upon the results of exploration programs and/or feasibility studies and the recommendations of duly qualified engineers and geologists. Such programs require substantial additional funds. Any decision to further expand the Company’s operations on these exploration properties is anticipated to involve consideration and evaluation of several significant factors including, but not limited to:
▪
Costs of bringing each property into production, including exploration work, preparation of production feasibility studies, and construction of production facilities;
▪
Availability and costs of financing;
▪
Ongoing costs of production;
▪
Market prices for the minerals to be produced;
▪
Environmental compliance regulations and restraints; and
▪
Political climate and/or governmental regulation and control.
GENERAL MINING RISKS
Factors beyond the control of Magnus may affect the marketability of any substances discovered from any resource properties the Company may acquire. Metal prices, in particular gold and copper prices, have fluctuated widely in recent years. Government regulations relating to price, royalties, allowable production and importing and exporting of minerals can adversely affect the Company. There can be no certainty that the Company will be able to obtain all necessary licenses and permits that may be required to carry out exploration, development and operations on any projects it may acquire and environmental concerns about mining in general continue to be a significant challenge for all mining companies.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
ITEM 2. DESCRIPTION OF PROPERTIES.
Summary
Magnus is a mineral exploration company that specializes in identifying, acquiring and developing precious and base metal properties. Magnus’ objective is to develop a balanced portfolio of early-to-advanced stage projects and is currently focused on gold, uranium and rare earth mineral projects in Uganda. The Company has a 100% interest in eight mineral properties in Uganda at Mubende, Lugazi, Mitoma, Mwerusandu, Rubindi, Kigumba, Kidera and Nyanga. In December 2008, the Company relinquished both its right to earn a 60% interest in a ninth property, Mashonga, and its right to earn an 80% interest in a tenth property, Ibanda.
Properties in Uganda
Geological Map of Uganda Identifying the Company’s Properties
The following disclosure with respect to the Lugazi, Mubende, Mitoma and Mwerusandu Properties is based on a technical report dated May 15, 2007 (the “Uganda Technical Report 1”) prepared by Martin Taylor, an independent consulting geologist hired to complete Canadian NI-43101 compliant reports on behalf of Magnus . The following disclosure with respect to Mashonga is based on the report dated October 10, 2007 (the “Uganda Technical Report 2”) prepared by Martin Taylor. The report is filed at www.sedar.com.
Property Description and Location
The Lugazi, Mubende, Mitoma, Mwerusandu, Rubindi, Kigumba, Kidera and Nyanga Properties comprising approximately 5,796.44 sq. km. are located in central, southern and southwestern Uganda in East Africa. The properties are covered by valid exploration licenses, 26 in total.
Lugazi Property
The Lugazi Property is located some 50 km east of the capital Kampala in the Mukono district of southern Uganda, and is approximately centred at Latitude 0° 18’N and Longitude 32° 52’E. The Property consists of five exploration licenses covering an area of approximately 1,487.69 sq. km.
Mubende Property
The Mubende Property is located some 100 km west-northwest of the capital Kampala in the Mubende and Kiboga administrative districts of south-central Uganda. The Property is approximately centred at Latitude 0° 34’N and Longitude 31° 46’E, and consists of two exploration licenses covering approximately 780 sq. km.
Mitoma Property
The Mitoma Property is located some 320 km southwest of the capital Kampala in the Bushenyi district of south-western Uganda. The Property is approximately centred at Latitude 0° 35’S and Longitude 30° 05’E. The property consists of seven exploration licenses covering an area of 359.49 sq. km.
Mwerusandu Property
The Mwerusandu Property is located some 380 km southwest of the capital Kampala in the Ntungamo district of south-western Uganda. The Property is approximately centred at Latitude 1° 00’S and Longitude 30° 10’E. The property consists of four exploration licenses covering an area of 175.43 sq. km.
Mashonga Property
The Mashonga Property is located some 400 km southwest of the capital Kampala in the Bushenyi district of south-western Uganda. The Property is approximately centred at Latitude 0° 23’S and Longitude 30° 09’E. The property consists of two exploration licenses and three location licences covering an area of 460.87 sq. km.
Ibanda Property
The Ibanda Property is located some 300 km southwest of the capital Kampala in the Bushenyi district of south-western Uganda. The Property is approximately centred at Latitude 0° 08’S and Longitude 30° 32’E. The property consists of one exploration license covering an area of 332.70 sq. km.
Rubindi Property
The Rubindi Property is located some 300 km southwest of the capital Kampala in the Bushenyi and Mbarara districts of south-western Uganda. The Property is approximately centred at Latitude 0° 20’S and Longitude 30° 32’E. The property consists of two exploration licenses covering an area of 720.00 sq. km.
Kigumba Property
The Kigumba Property is located some 200 km north-northwest of the capital Kampala in the Masindi district of western Uganda. The Property is approximately centred at Latitude 1° 53’N and Longitude 31° 50’E. The property consists of four exploration licenses covering an area of 1,765.55 sq. km.
Kidera Property
The Kidera Property is located some 120 km north of the capital Kampala in the Kamuli and Kayunga districts of central Uganda. The Property is approximately centred at Latitude 1° 20’N and Longitude 32° 53’E. The property consists of one exploration license covering an area of 485.00 sq. km.
Nyanga Property
The Nyanga Property is located some 380 km southwest of the capital Kampala in the Ntungamo district of south-western Uganda. The Property is approximately centred at Latitude 0° 57’S and Longitude 30° 11’E. The property consists of one exploration license covering an area of 23.28 sq. km.
Regional Geology
The Archaean Ugandan Craton is part of the African Plate, a large area of continental crust consisting of the accretion of small cratons (e.g. Uganda, Tanzania) welded together by Proterozoic mobile belts. Much of northern and central Uganda is underlain by Archaean basement gneisses. The southwest part of the country, including the exploration licenses of Magnus, is largely underlain by Proterozoic sediments, minor volcanics and intrusive granites. Major rift faulting commenced in the Tertiary and continued to the present. Tertiary volcanism of mafic to intermediate composition and minor carbonatites also occurred. This includes the formation of large shield volcanoes, the most prominent in Uganda being Mt. Elgon on the Kenyan border. Great thicknesses of Tertiary to Recent sediments fill the fault valleys, especially along the Western, or Albertine, Rift in western Uganda.
Precambrian rocks underlie two-thirds of Uganda. Archaean rocks are exposed in the southeast where they are part of the extensive granite-greenstone terrane of the Tanzanian Craton. Three major Proterozoic belts underlie central and west Uganda: the Paleoproterozoic Buganda-Toro metasediments, the Mesoproterozoic Karagwe-Ankolean (Kibaran) Belt in the southwest of the country and Neoproterozoic Pan-African rocks. The Neoproterozoic includes the Bunyoro Series with tillites and argillites, and the undeformed shallow water sediments of the Bukoban Supergroup. Tertiary to Recent sediments have filled parts of the down-faulted Western Rift. Tertiary carbonatites and Cenozoic volcanics are related to rift activities and occur along the eastern and western borders of the country.
The Mashonga region is largely underlain by Igara Group quartz-muscovite schists, quartzites and phyllites of the PalaeoProterozoic Buganda-Toro System. Younger granitic intrusions occur and there is evidence of mafic-ultramafic igneous intrusive bodies (gabbroic or diorite). North of the Mashonga Mine the Igara rocks are covered unconformably by Buhweju Group quartzites and conglomerates of the MesoProterozoic Karagwe-Ankolean System. North-south trending fold axes from isoclinal folded sequences are reported as well as N-S and E-W trending structures. The drainages in the mine area trend southeast, suggesting there is a regional structure parallel to this.
The Buganda-Toro and Karagwe-Ankolean systems have been extensively folded into tight synclines and anticlines, with upright axial planes and, in the southern and central Mashonga area, the former has been intruded by synorogenic porphyritic gneissic adamellites to post-orogenic biotite-bearing alkaline granites and leucocratic, sub-alkaline, per-aluminous granites (“tin granites”). Historical economic Sn, tungsten (“W”), beryllium (“Be”), niobium (“Nb”)/tantalum (“Ta”) deposits occur in similar rocks to the south of the Mashonga Property, hosted within the metasediments on the periphery of the granites. The presence of abundant quartz veining, several gold occurrences and the Sn-W-Be-Ta mineralization in this environment support the typical hydrothermal and epithermal activity of the Intrusive-Related Gold model driving the exploration.
Informal gold production from the Mashonga Mine is reported to come from an east-west trending sheared quartz-vein zone. The mineralized shear appears to be hosted by quartz-muscovite schist, at the contact between the schist and granitic rock. The wallrock of the mine pit, much of which is now filled by slumped material, is comprised of schist and kaolinitized granite with pegmatitic veins and quartz stockwork veining.
Mineralization
Lugazi Property
The style of gold mineralization at the Lugazi area is associated with a belt of sedimentary rocks comprising the Paleoproterozoic Buganda-Toro system, and surrounding granite gneisses. A thermal aureole granite (“TAG”) model is being used in an attempt to understand the mineralization where an Intrusion Related Gold system is expected along with skarn and pegmatite host rocks.
Mubende Property
The style of gold mineralization at the Mubende area is interpreted by the Company as being associated with the roof zones of large batholiths such as the Singo Granite. Greisen alteration has been identified by reconnaissance exploration and an Intrusion Related Gold (“IRG”) system is being modeled, with gold mineralization in disseminated and quartz stockwork styles in the upper roof zones of granites, or in large scale fault zones along the flanks of the intrusions. Tungsten and gold occurrences have been identified on the Singo granites and in surrounding meta-sediments.
Mitoma Property
The Mitoma area is characterized by the presence of historically economic tin, tungsten, beryllium and niobium-tantalum deposits hosted within the Mesoproterozoic metasediments located on the periphery of Proterozoic circular porphyritic granite intrusives. A TAG model is being used by the Company as a guide to the mineralization where an Intrusion Related Gold system is expected along with skarn and pegmatite host rocks. Disseminated sulphides have been observed in some quartzite and schistose lithologies on the property, supported by the numerous gold, tin, tantalum workings with alluvial gold panning has taken place on the license in the past.
Mwerusandu Property
The style of gold mineralization at the Mwerusandu area is associated with sedimentary rocks located in antiforms within the Karagwe-Ankolean system and in conjugate fracture sets in quartzites close to the contact with large granite batholiths termed arena granites. Disseminated sulphides have been observed in some quartzite and schistose lithologies on the property, supported by numerous past gold, tin, tantalum and tungsten alluvial workings within the property. A light green, arsenic rich alteration phase identified as scorodite is also associated with gold mineralization at the Nyamulindira license. A TAG model is being used in an attempt to understand the mineralization where an Intrusion Related Gold system is expected along with skarn and pegmatite host rocks.
Mashonga Property
The style of gold mineralization at the Mashonga area is associated with shear zones hosted by early-Proterozoic schists which are adjacent to late tin-bearing granite intrusions. An unconformity related gold system is used to model the style of mineralisation, with the younger, mid-Proterozoic Karagwe-Ankolean system forming an unconformable relationaship with the older Buganda Toro system. In the basement schists and granites, a TAG model was being used in an attempt to understand the mineralization where an Intrusion Related Gold system is expected along with skarn and pegmatite host rocks.
Artisanal gold production from the Mashonga Mine is reported to come from an east-west trending sheared-quartz vein zone, tentatively interpreted by Magnus to be a splay off a northwest-trending regional structure. The mineralized shear appears to be hosted by quartz-muscovite schist, or at the contact between the schist and granitic rock. Parts of the open cast wallrock are kaolinitized granite with pegmatitic veins and a quartz stockwork.
The presence of anomalous platinum group elements (“PGE”) values in rock samples from the mine area and possibly anomalous Terra Leach soils from further east suggest the gold mineralization in the Buganda-Toro sediments may have a significant PGE association.
In the Mashonga area the Company believes there is an IRG style of mineralization. This model takes into account both large veins which occur on the margins of granite bodies as well as granite hosted sheeted, stockwork or pegmatitic veins. In the larger veins such as mined at Mashonga, high gold grades can be expected. Any potential economic deposit, however, is more likely to be a lower grade, granite hosted system which calls for alternative exploration techniques (multi-element geochemistry, IP to detect zones of silicification, magnetic halo anomalies, recognition of metal/element assemblages and unique features such as unidirectional solidification textures, greisens and pegmatites).
Ibanda Property
The style of gold mineralization at the Ibanda area is similar to Mashonga, and is also associated with shear zones hosted by early-Proterozoic schists which are adjacent to late tin-bearing granite intrusions. An unconformity related gold system is used to model the style of mineralisation, with the younger, mid-Proterozoic karagwe Ankolean system forming an unconformable relationaship with the older Buganda Toro system. In the basement schists and granites, a TAG model is being used in an attempt to understand the mineralization where an Intrusion Related Gold system is expected along with skarn and pegmatite host rocks.
Rubindi Property
The style of gold mineralization at the Rubindi area is similar to Mashonga, and is also associated with shear zones hosted by early-Proterozoic schists which are adjacent to late tin-bearing granite intrusions. An unconformity related gold system is used to model the style of mineralisation, with the younger, mid-Proterozoic karagwe Ankolean system forming an unconformable relationaship with the older Buganda Toro system. In the basement schists and granites, a TAG model is being used in an attempt to understand the mineralization where an Intrusion Related Gold system is expected along with skarn and pegmatite host rocks.
Kigumba Property
The style of mineralization at the Kigumba area is expected to be related to a large 22km long by up to 4km wide radiometrics anomaly, which was identified from the airborne geophysical survey covering 80% of the country. The uranium response is particularly strong, so the area will be tested initially for uranium potential associated with the sheared limb of a folded sequence.
Kidera Property
The style of mineralization at the Kidera area is expected to be related to a large 7km by 5km circular radiometrics anomaly, which was identified from the airborne geophysical survey covering 80% of the country. This radiometrics anomaly has a similarity in size to the carbonatite complexes such as Tororo and Sukulu Hills, located in the southeastern part of Uganda. The large anomaly will be examined for vermiculite, phosphate and rare earth metals, commonly associated with carbonatite rocks. In addition, a field of distinct magnetic bullseyes, will be tested for diamond potential, as they resemble kimberlite pipes.
Nyanga Property
The style of mineralization at the Nyanga area is tantalum which is associated with large pegmatite bodies that are hosted by metasedimentary rocks of Karagwe-Ankolean age. Mining operations at three locations at Nyanga occurred during the 1930 - 1960’s producing a total of 130,000t tantalum. These operations were suspended in 1960. The Nyanga deposit is hosted by a pegmatite body measuring 370m and with a width of approximately 54m.
Exploration
Lugazi Property
A detailed soil sampling program comprising over 1500 soil samples delineated a strong 300 - 700m wide gold-in-soil anomaly over a length of 3.5 km. The anomaly is offset to the east, and there are indications that the anomaly is open ended in this direction. A fixed wing, high resolution airborne magnetic and radiometric survey was flown on the Lugazi licence and covered 574.5 sq km at 200m line spacing. The results from the survey show a close correlation between the gold-in-soil anomaly and magnetic rich stratigraphic horizons as well as elevated potassic levels.
A Reverse Circulation (RC) drill program comprising a total of 31 holes for 2,037m was completed in February 2008, along three lines at the Kiyola, Nantula and Katente targets. The RC holes were drilled at about 50m intervals along a fence across the soil anomaly, and were designed to investigate the nature of the weathered profile to an average depth of some 65m. As no previous gold mineralisation has been reported from this belt the Company thought it
would be important to understand the source of the anomalous gold in soils and attempt to identify possible structures that could be followed up during subsequent phases of exploration. This drilling is the culmination of early stage exploration at Lugazi which commenced in May 2006.
The most significant RC drill results include:
§
4m at 0.98 g/t gold from 18m in LUG006 at the Kiyola target (incl. 2m at 1.3g/t)
§
2m at 0.50 g/t gold from 64m in LUG007 at the Kiyola target
§
2m at 1.50 g/t gold from 2m in LUG017 at the Nantula target
§
2m at 1.20 g/t gold from 9m in LUG028 at the Katente target
On a more regional scale, a total of 1,456 soil samples were collected along regional lines, planned to investigate additional gold, as well as base metal rich horizons. The results of these soils have not demonstrated an anomalous gold trend. A zone of low level gold was indicated on a single north-south line, with values between 20 and 30 ppb. Infill sampling did not extend this zone to the west or east. The nickel and chromium values of these samples did not show anomalism related to a buried source for base metals.
Mubende Property
A regional alteration and structural interpretation over Mubende has been completed. This information together with the historical airborne geophysical data indicates that the eastern end of the Singo batholith could be prospective for granite related gold systems. A follow-up soil geochemical program was completed, which targeted the northern and southern boundaries of the granite batholith. In total 1,001 soil samples were collected along lines on elevated topography to avoid the wide swampy drainages in this region. The samples were sieved to -80 mesh fraction and analyzed for gold by means of aqua regia and AAS finish. Prior to these soil samples, a program of low level terra leach soil sampling was completed over the southwestern portions of the licence. A total of 554 terra leach samples were collected. The results of the soil sampling have not delineated any clear targets to follow up.
Mitoma Property
2,546 soil samples have been collected over different areas of the property in seven phases. The samples were analyzed with the Terra Leach partial digest method and have delineated gold-in-soil anomalies at the Kahungye (EL 0023), Rugoma (EL 0025) and Rutaka (EL 0024) exploration licenses. The assay results were received from soil samples analysed by Agua Regia together with Pits at Kayhunge. The results from agua regia confirm anomalous gold within the surface profile with levels between 20-30 ppb gold with one value of 50 ppb. The results of pitting confirm low level gold (0.14 g/t) in the uppermost 30 cm in Pit 2. The gold tenors in the bedrock schist vary between 0.02 g/t and 0.05 g/t. The surface soil values in the 20-30 ppb range therefore appear to be reflecting values in schist of 0.02-0.05 g/t Au. i.e. the magnitude of the soil anomaly corresponds with values occurring in bedrock.
Exploration at the southern licences, called Kabira (EL 0005, 0117, 0187, 0188), has included the collection of 957 soil samples, which were analysed for low level gold by means of terra leach method. The results show very low levels of gold associated with the metasediments of the Karagwe-Ankolean system. The main anomalous area is located in the south-eastern portion of EL0005 where gold shows a clear correlation with copper. During fiscal year 2008, a limited infill soil survey was completed at the Kabira license on the Mitoma Property. Some 43 soil samples were collected to test previous anomalies delineated in previous exploration. The results do not indicate an extensive zone of anomalous soil values.
Mwerusandu Property
Exploration activity at the Mwerusandu Property has included: soil sampling over the Nyamulindira and Kiana Mine licences and preparation was made for a planned 500m RC drill program which has not been executed. A total of 1,016 terra leach soil samples have been collected, mostly in the northern part of the area, which has defined a clear gold in soil anomaly hosted by quartzites and schist’s of the mid-Proterozoic Karagwe-Ankolean system, parallel to the contact with a granitoid body, referred to as ‘arena’ granites. The northern part of the soil anomaly is 200m in length and covers a silica-scorodite altered rock outcrop, while further to the south a 1km long anomaly is situated in
a similar stratigraphic setting close to the granite contact. The main target at Nyamulindira remains a scorodite rich quartzite with 4-6 g/t of gold in rock grab samples and a trench intersection of 20.4 g/t of gold over 3.5m. The eastern Mwerusandu licenses are located in a tin - beryllium rich belt and close to the historical Mwerusandu tin mine which was mined up to the 1950’s.
Mashonga Property
The Mashonga Project is located in the Buhweju region of south-western Uganda. The majority of gold produced in Uganda has been from alluvial deposits around the Buhweju plateau, recovered by artisanal miners. Gold was first reported in this area in 1933 and since then an estimated 200,000 oz have been produced from alluvial sources. Gold from primary ‘lode’ sources has been produced locally from small open-cut slot and shallow underground operations such as the Mashonga mine.
Towards the end of 2007, Magnus uncovered historical exploration reports from Mashonga during the late 1990’s by Uganda Gold Mines Ltd. The reports include high grade sample results from underground sampling of a shear zone at the Mashonga mine, with 25.5 oz per short ton gold (874 g/t) and 309 g/t silver from a grab sample of a lens a few feet wide. Another grab sample of the footwall to the shear zone returned 276 g/t gold and 9.7 g/t silver.
Uganda Gold also sampled a series of trenches located 1.5km east of the Mashonga mine area. These trenches covered a strike length of 350m and report gold intersections which include 4.6m at 24.7 g/t and 2.4m at 59.6 g/t. In addition, a rock grab sample from one trench reported 228 g/t gold. A further target was identified by Uganda Gold, located about 1km southeast of the mine. A single rock grab sample returned 183 g/t gold and 200 g/t silver.
As part of Magnus’ due diligence evaluation of the property in 2006 and 2007, rock grab samples were collected from the mine dump at the open-cut slot mine. Of the eight mafic schist samples collected from the surface mine dump, four returned very high grade gold and PGE assay results, which include 58.8g/t gold, 4.15g/t platinum and 3.68g/t palladium.
At the Mashonga Property a preliminary soil sample program was completed over targets with high-grade trench and rock sample values from previous exploration activities, as well as from regional soil lines, to investigate additional targets. In total 127 soil samples were collected; results were mixed, showing good anomalous values over one target while having inconsistent values over the other target. The Company also conducted an alteration mapping survey using PIMA analysis of surface rock samples. The alteration pattern indicated an important transition from acidic to alkaline regime along a prominent northwest structure. An RC drill program was conducted at the Mashonga mine site during the summer 2008. A total of 667m was completed in 7 holes beneath the Mashonga mine.
The RC drill holes intersected a sequence of sericite schist in contact with a mafic schist and granite-pegmatite-quartz veining. Sulphide mineralisation in the form of disseminated pyrite was noted within each of the holes.
The drilling conditions at Mashonga proved to be very difficult and as a result none of the 7 holes reached the planned depth. Hole MA-7 was abandoned after 25m, without reaching the targeted mineralised zone. The assay results show that gold mineralization is confined to the extents of the mine workings, but gold values are lower than previous grab samples from the targeted shear zone. As previously reported, gold values up to 874 g/t were reported from a grab sample underground and trench intersections reported 4.6m at 24.7 g/t and 2.4m at 59.6 g/t gold. There is a broad east-west correlation in peak copper values with highs often close to pegmatite mafic boundaries.
There are several other targets that Company management intended to drill at Mashonga but was unable to due to the difficulties experienced by the drilling contractor at the Mashonga mine target area. The Company is also cognizant, that the discontinuous, podiform nature of mineralization associated with shear zones can be difficult to intersect in limited drill programs such as the one just completed.
The most significant RC drill results include:
§
1m at 0.51 g/t gold from 37m in MA-1 beneath the mine workings
§
2m at 0.10 g/t gold from 111m in MA-1 beneath the mine workings
§
3m at 0.12 g/t gold from 54m in MA-2 beneath the mine workings
§
3m at 1.12 g/t gold from 81m in MA-2 beneath the mine workings
§
3m at 3.22 g/t gold from 96m in MA-2 beneath the mine workings
§
3m at 2.55 g/t gold from 114m in MA-2 beneath the mine workings
§
3m at 0.40 g/t gold from 0m in MA-6 west of the mine workings
§
3m at 0.11 g/t gold from 66m in MA-6 west of the mine working
The Company withdrew from the Mashonga joint venture in December 2008.
Ibanda Property
The Ibanda Property is located in the eastern part of the Buhweju region of south-western Uganda. Exploration at Ibanda commenced during 2008 with soil samples and rock samples being collected over previous gold-in-soil anomalies defined by a previous explorer in the late 1990’s. The sampling at Ibanda was completed at two locations in the central and western parts of the licence. A total of 685 soil samples at 25m sampling intervals were collected at 500m line spacing. These samples were taken at 30cm depth, dried and sieved to -80 mesh fraction and submitted to SGS labs in Mwanza for low level gold determination by aqua regia.
The results of the soil sampling showed no continuous gold anomalism. The results did show one point low-level anomalies, with values reaching a maximum of 50 ppb gold. Based on the results of this sampling the results reported by Roraima should be taken into context. They reported very high soil values (up to 11,170 ppb) but these values were not repeated during the Company’s soil program.
The Company withdrew from the Ibanda joint venture in December 2008.
Rubindi, Kiguma, Kidera and Nyanga Properties
These licenses were only acquired in early 2008, and to date little exploration activity has been completed. Some reconnaissance visits were conducted in August and September of 2008 to assess the most optimum methods of exploration.
Future Plans
The largest expected source of capital for the year 2009-10 is the collection of monies owed to Magnus from the sale of Long Teng Mining in China. Magnus received 10 million RmB (approximately $1.466 million) in October 2009. 3.5 million RmB (approximately $510,000) remains to be collected.
Magnus was sent RMB 7 million as the first payment for the sale of Long Teng Mining in late May 2008. RMB 4.5 million of these monies were sent from the purchaser’s bank account to the bank account of an intermediary. Of these monies, the Company has so far received US $476,000 and is owed approximately US $182,000 which is fully reserved - the balance of the RMB 7 million. The Company intends to collect the remaining balance in fiscal year 2010.
On its core properties in Uganda, Magnus intends to undertake low cost exploration and add significant value by evaluating new targets generated by the high resolution geophysical survey that has been completed over 80% of the country. The Company is targeting strategic minerals, in particular uranium, lithium, tantalum, Rare Earths and vermiculite, while at the same time investigating kimberlite potential (for diamonds) and expanding the existing knowledge base for gold mineralization.
Over the course of fiscal year 2010, the Company intends to evaluate its Ugandan exploration portfolio and determine which projects it can reasonably maintain where it can conduct cost-effective further exploration and which projects will require significant capital that necessitates teaming up with joint venture partners.
Leased Office Space
The Company currently leases an administrative office in Entebbe, Uganda. These leased properties are described in the table below:
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
On December 11, 2008, the Company's indirect wholly-owned subsidiary, African Mineral Fields Limited, received notice that a legal action had been instituted against it in Uganda by Kamu Kamu Drilling Experts Limited, a drill contractor used by the Company in Uganda. Kamu Kamu was seeking special damages in the amount of US$306,595, general damages, interest and costs of the action for the alleged breach by African Mineral Fields Limited of a reverse circulation drilling agreement dated April 29, 2008 between Kamu Kamu and African Mineral Fields Limited. On November 11, 2009, African Mineral Fields entered into a settlement agreement with Kamu Kamu under which Kamu Kamu agreed to deliver to African Mineral Fields a full and final release of its claim in exchange for: (1) US$50,000; and (2) the transfer by African Mineral Fields to Kamu Kamu of 10 mineral properties in Uganda representing 1,706 square kilometers. If any of the properties cannot be transferred then African Mineral Fields will pay an additional US$2,000 to Kamu Kamu for each property that cannot be transferred. The mineral properties are in the process of being transferred, and the Company does not foresee any difficulties in transferring all of the properties to Kamu Kamu.
Other than as described above, management is not aware of any legal proceedings contemplated by any governmental authority or any other party involving the Company or its properties. None of the Company’s directors, officer or affiliates is (i) a party adverse to the Company in any legal proceedings, or (ii) has an adverse interest to the Company in any legal proceedings. Management is not aware of any other legal proceedings pending or that have been threatened against the Company or its properties.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
N/A
PART II
ITEM 5.
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
The common shares of Magnus are listed and posted for trading trading on the Pink Sheets over-the-counter quotation system under the symbol “MGNU”. The market for Magnus’ common stock is limited, volatile and sporadic. The following table sets forth the high and low sale prices relating to Magnus’ common stock since it was listed and posted for trading on the OTCBB. These quotations reflect inter-dealer prices without retail mark-up, mark-down, or commissions, and may not reflect actual transactions.
Holders
As of October 14, 2009, Magnus had at least 226 shareholders of record.
Dividends
The Company has never paid dividends. While any future dividends will be determined by the directors of the Company after consideration of the earnings, financial condition and other relevant factors, it is currently expected that available cash resources will be utilized in connection with the ongoing acquisition, exploration and development programs of the Company.
Section 15(g) of the Securities Exchange Act of 1934
The Company’s shares are covered by Section 15(g) of the Securities Exchange Act of 1934, as amended, which imposes additional sales practice requirements on broker/dealers who sell such securities to persons other than established customers and accredited investors (generally institutions with assets in excess of $5,000,000 or individuals with net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouses). For transactions covered by this Section 15(g), the broker/dealer must make a special suitability determination for the purchase and must have received the purchaser's written agreement to the transaction prior to the sale. Consequently, Section 15(g) may affect the ability of broker/dealers to sell the Company’s securities and also may affect your ability to sell your shares in the secondary market.
Section 15(g) also imposes additional sales practice requirements on broker/dealers who sell penny securities. These rules require a one page summary of certain essential items. The items include the risk of investing in penny stocks in both public offerings and the secondary market; terms important to an understanding of the function of the penny stock market, such as "bid" and "offer" quotes, a dealers "spread" and broker/dealer compensation; the broker/dealer compensation, the broker/dealers duties to its customers, including the disclosures required by any other penny stock disclosure rules; the customer’s rights and remedies in causes of fraud in penny stock transactions; and, the NASD's toll free telephone number and the central number of the North American Administrators Association, for information on the disciplinary history of broker/dealers and their associated persons.
Sales of Unregistered Securities
On August 14, 2008, the Company issued an aggregate of 400,000 units (each a “Unit”) for an aggregate of CAD $100,000 or (at a price of CAD$0.25 per Unit). Each Unit consists of one share of common stock of the Company and one-half of one share purchase warrant, with each whole warrant entitling the holder to purchase one additional share of common stock of the Company at CAD$0.50 per warrant share until two years from the date of issuance of the warrants. The Company paid $10,000 in cash to a consultant as a finder’s fee in connection with the issuance of Units.
The funds received from the investors mentioned above were used for corporate purposes including but not limited to property exploration expenses, salaries, consultant fees, consultant expenses, general and administrative expenses, working capital and property payments.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
See notes 1 and 4 to the financial statements included herein for details of business combinations and components held for sale which affect the comparability of this data.
See Item 1A herein for explanation of risk factors which may cause this data not to be indicative of future financial condition or results of operations.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the consolidated financial statements of the Company for the period ended July 31, 2009, and the related notes thereto.
Overview
Magnus is currently in the development stage and is engaged in the acquisition, exploration and development of precious and base metals. To this end, the Company has entered, and plans to enter, into various property agreements (see “Description of Business” above). Some of these agreements require the Company to contribute capital toward the exploration and development of various properties while requiring the joint venture partner to obtain or contribute mineral rights for desirable mineral properties, and obtain all required permits and licenses to commence exploration and mining activities. In other cases, the Company obtains these licenses and permits itself.
Outlook
At July 31, 2009, the price of gold was $954.50 per ounce (source: www.kitco.com) compared to $911.20 at July 31, 2008, representing an increase of approximately 4.8 %. Similarly, the value of copper and the value of silver both increased during the same period. Gold and other commodities prices have mostly increased since 31 July 2008 but future prices are uncertain. On November 4, 2009, the price of gold was $1,091.90 per ounce.
The Company does not currently generate operating cash flows. Subject to sustained mineral prices and successful financing, management expects to generate revenues and cash flows in the future.
The Company had a working capital deficiency of $2,485,548 at July 31, 2009.
The Company has 100% ownership of its Uganda projects and no longer has any joint venture projects that require it to make expenditures to earn its interest. Magnus withdrew from its Mashonga and Ibanda joint ventures in December 2008.
While the Company has been successful in raising money by private placements in the past, there are no guarantees that the Company will be successful in the future. Management believes, however, that absent sufficient funding through a private placement or some other financing the Company will not generate sufficient revenue to cover any shortfall in the next year.
Results from Operations
Summary
The Company's consolidated net loss for the current fiscal year was $795,511 or $0.01 per share compared to the previous year’s consolidated net loss of $1,618,023 or $0.03 per share. The net loss in the year ended July 31, 2007 was $4,502,428, or $0.11 per share. The largest expense in 2009 was related to the cost of exploration of the properties in Uganda (see “Property Agreements”). The second largest expense in 2009 was related.to stock-based compensation.
Mineral production and revenue
As the Company is still an exploration stage company and in the exploration stage of development on the Company’s properties, it has not, as of yet, produced any revenues nor produced any minerals.
Exploration, property evaluation and holding costs
Exploration expenses totaled $212,572 in 2009, including geological expenses and exploration licenses. Exploration expenses decreased from a total of $997,543 in 2008 and $1,645,479 in 2007. The decrease in 2009 is mostly due to the
suspension of any major exploration activity in Uganda by Magnus after October 2008 because of lack of available capital. In 2007 and 2008 the decrease in exploration expenditure was due to the decrease in exploration activity at the properties in China, partly offset by exploration expenses incurred on the African projects since the acquisition of African Mineral Fields.
Corporate administration and investor relations
Corporate administrative and investor relations costs were $194,274 in the current fiscal year compared to $381,687 in 2008 and $246,772 in 2007. The decrease over 2008 is due to the elimination of the Vancouver office and all of its full-time employees, the elimination of investor relations activities due to poor stock market conditions for most of fiscal 2009, and a reduction in travel expenses due to the elimination of travel on capital raising trips and to investor and industry conferences.
Registration payment arrangements
See Part II, Item 5 above, and Note 9 to the financial statements included herein for details on the registration payment arrangements.
Stock-based compensation
Stock-based compensation expenses of $165,819 decreased from $528,266 in 2008 and $411,546 in 2007. The increase from 2007 to 2008 is due to the effect of re-pricing options in 2008. The decrease from 2008 to 2009 is due to granted options becoming fully vested in 2009.
Financial Position, Liquidity and Capital Resources
Cash used in Operations
Cash used in operations was $252,385 in the current fiscal year compared to cash uses of $2,419,650 in 2008 and $2,614,207 in 2007. The decrease from 2008 is primarily due to the suspension of any major exploration activity in Uganda by Magnus since October 2008 and also due to the elimination of the Vancouver office and all of its full-time employees. This resulted in greatly reduced business activity of the Company in fiscal year 2009. The decrease from 2008 to 2007 is insignificant but reflects the elimination of exploration activities in China.
Financing Activities
The Company used cash for financing activities of $4,696 in the current fiscal year compared to receiving cash of $1,354,767 in 2008 and $2,756,377 in 2007. The decrease in financing activities in 2009 reflects the global economic slowdown in fiscal year 2009 and an extreme reduction in the allocation of capital towards earlier stage exploration companies. The decrease in 2008 was due to a more difficult capital raising environment for earlier stage exploration companies in 2008 than in 2007.
Liquidity and Capital Resources
At July 31, 2009, the Company's total assets were $71,179 as compared to $340,935 in 2008 and $654,979 in 2007. Long-term liabilities as of July 31, 2009 totaled $0 as compared to $0 in the previous year. The Company had a working capital deficiency of $2,485,548at July 31, 2009.
Major cash commitments in the next fiscal year are related to proposed exploration activities in Uganda and corporate administration.
The consolidated financial statements have been prepared on a going-concern basis which assumes that the Company will be able to realize assets and discharge liabilities in the normal course of business for the foreseeable future.
The Company has experienced total losses during the exploration stage amounting to $21,826,615 as of July 31, 2009. As of July 31, 2009, the Company had a total of $20,704 in cash and cash equivalents; however this amount is insufficient to sustain operations over the course of the next twelve months. These factors raise substantial doubt about the Company's ability to continue as a going concern. The ability of the Company to meet its commitments as they become payable, including the exploration and development of mineral properties and projects, is dependent on the ability of the Company to obtain necessary financing or achieving a profitable level of operations. There are no assurances that the Company will be successful in achieving these goals.
The Company is in the process of exploring and evaluating its mineral properties and projects and has not yet determined whether these properties contain economically recoverable ore reserves. The underlying value of the mineral properties is entirely dependent on the existence of economically recoverable reserves, the ability of the Company to obtain the necessary financing to complete development and upon future profitable production or sufficient proceeds from the disposition thereof.
The financial statements do not give effect to adjustments to the amounts and classifications to assets and liabilities that would be necessary should the Company be unable to continue as a going concern.
Critical Accounting Policies
Principles of Consolidation
The consolidated financial statements include accounts of the Company and its direct and indirect wholly-owned subsidiaries. All significant inter-company balances and transactions are eliminated. The statement of operations includes the results of operations for AMF since May 1, 2007, the date of acquisition, as well as the results of Western Mining and Long Teng up to the dates of disposition of those companies.
Mineral Properties and Exploration Expenses
Mineral property acquisition, exploration and development costs are charged to operations as incurred until such time that proven or probable ore reserves are discovered. From that time forward, the Company will capitalize all costs to the extent that future cash flow from reserves equals or exceeds the costs deferred. The deferred costs will be amortized using the unit-of-production method when a property reaches commercial production. As of 31 July 2009, the Company did not have proven or probable reserves.
Transactions with Related Parties / Subsequent Events
In relation to Long Teng Mining Ltd. in China, on May 9, 2009 the Lai group entered into an agreement with Mr. Peijan He under which the Lai group would transfer its interest in Yunnan Long Teng Mining Ltd. to Mr. He for RMB 24.8 million. As the Lai group still owed Magnus RMB 13.5 million for acquiring its interest in Long Teng, on September 3, 2009, Magnus entered into an agreement with the Lai group and Mr. He under which Mr. He agreed to pay RMB 13,500,000 of the purchase price it owes to the Lai group to Magnus instead. This RMB 13,500,000 is payable to Magnus under the agreement as follows: RMB 5,000,000 is payable upon issuance of a new business license of Long Teng to Mr. He or his designee; RMB 4,865,000 is payable to Magnus and 135,000 is payable to Yunnan Beichuan Law firm on or before September 28, 2009; and RMB 3,500,000 is payable on or before October 28, 2009 after the capital verification process has been completed for Long Teng by the relevant government authorities in Yunnan. Under the agreement, Magnus is required to pay a commission of RMB 135,000 and legal fees to Yunnan Beichuan Law firm which is acting as escrow agent for the funds. As at the 10 November 2009, a new business license has been issued reflecting that ownership of Long Teng has been transferred to Mr. He. Consequently, Magnus has received RMB 10,000,000 pursuant to the agreement and has paid RMB 135,000 in commission and 50,000 in legal fees to Yunnan Beichuan Law firm. As at November 12, 2009, the remaining 3.5 million RmB (approximately $510,000) related to the sale of Long Teng Mining in China has not been received by Magnus.
On December 11, 2008, the Company's indirect wholly-owned subsidiary, African Mineral Fields Limited, received notice that a legal action had been instituted against it in Uganda by Kamu Kamu Drilling Experts Limited, a drill
contractor used by the Company in Uganda. Kamu Kamu was seeking special damages in the amount of US$306,595, general damages, interest and costs of the action for the alleged breach by African Mineral Fields Limited of a reverse circulation drilling agreement dated April 29, 2008 between Kamu Kamu and African Mineral Fields Limited. On November 11, 2009, African Mineral Fields entered into a settlement agreement with Kamu Kamu under which Kamu Kamu agreed to deliver to African Mineral Fields a full and final release of its claim in exchange for: (1) US$50,000; and (2) the transfer by African Mineral Fields to Kamu Kamu of 10 mineral properties in Uganda representing 1,706 square kilometers. If any of the properties cannot be transferred then African Mineral Fields will pay an additional US$2,000 to Kamu Kamu for each property that cannot be transferred. The mineral properties are in the process of being transferred, and the Company does not foresee any difficulties in transferring all of the properties to Kamu Kamu. Magnus intends to transfer the following ten licenses to Kamu Kamu as part of the settlement: EL0005, EL0020, EL0022, EL0023, EL0167, EL0187, EL0188, EL0196, EL0199 and EL0200. One of the licenses is part of the Mwerusandu Project (EL0022). Four of the licenses are part of the Mitoma Property (EL0005, EL0023, EL0187 and EL0188). Five of the licenses comprise the Lugazi Property (EL0020, EL0167, EL0196, EL0199 and EL0200).
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITIATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of loss that may impact our financial position, results of operations or cash flows due to adverse change in foreign currency and interest rates.
Exchange Rate
Our reporting currency is United States Dollars (“USD”). In Uganda, the currency is the Ugandan shilling (“UGX”). On November 5, 2009, the exchange rate was UGX 1,881.5 = US$1.00. In China, the currency is the Renminbi yuan (“RMB”). On November 5, 2009, the exchange rate was RMB 1 = US $0.1466.
Interest Rate
In Uganda, interest rates are generally stable. Loans of the Company, if any, typically relate to trade payables and are short term. However, the Company’s debt is likely to rise if it develops a physical plant in connection with any of its mineral properties, and if interest rates rose at the same time this could have a significant impact on our operating and financing activities.
We have not entered into derivative contracts either to hedge existing risks or for speculative purposes.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to the Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of
Magnus International Resources Inc.
(An exploration stage company)
We have audited the accompanying consolidated balance sheet of Magnus International Resources Inc. (an exploration stage company) as of July 31, 2009 and July 31, 2008, the related consolidated statements of stockholders’ equity (deficit), operations and cash flows for the years ended July 31, 2009 and July 31, 2008 and for the period from August 1, 2002 (re-entered into exploration stage on June 2, 2003 described in Note 2) to July 31, 2009. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. The consolidated financial statements as of July 31, 2005 and for the cumulative period from August 1, 2002 to July 31, 2005 were audited by other auditors whose reports dated October 31, 2003, October 15, 2004 and November 15, 2005 expressed unqualified opinions on those statements. The financial statements for the period from August 1, 2002 to July 31, 2005 include total revenues and net loss of $nil and $5,585,963 since inception ($77,143 before re-entering into exploration stage and $5,508,820 after re-entering into exploration stage), respectively. Our opinion on the statements of stockholders’ equity (deficit), operations and cash flows for the period August 1, 2002 (re-entered into exploration stage on June 2, 2003) to July 31, 2009, insofar as it relates to amounts for prior periods through July 31, 2005 is based solely on the reports of other auditors.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's 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 also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits and the reports of the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of July 31, 2009 and July 31, 2008 and the results of its operations and its cash flows for the years ended July 31, 2009 and July 31, 2008, and for the cumulative period from August 1, 2002 (re-entered into exploration stage on June 2, 2003) to July 31, 2009 in conformity with U.S. generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2, the Company has recurring losses from operations since inception , a cash deficiency, a working capital deficiency and has a shareholder deficit that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Schumacher & Associates, Inc.
Certified Public Accountants
2525 15th Street, Suite 3H
Denver, Colorado 80211
November 12, 2009
The accompanying notes to the consolidated financial statements are an integral part of these statements.
The accompanying notes to the consolidated financial statements are an integral part of these statements.
The accompanying notes to the consolidated financial statements are an integral part of these statements.
The accompanying notes to the consolidated financial statements are an integral part of these statements.
MAGNUS INTERNATIONAL RESOURCES INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
July 31, 2009
(Expressed in US Dollars)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Description of Business
The Company was incorporated as Gravity Spin Holdings, Inc. in the State of Nevada on April 4, 2001. On June 30, 2001, the Company acquired all the outstanding stock of Gravity Spin, Inc. (“Gravity Spin”, formerly E-Fusion ATP Inc.), a company incorporated on March 3, 2000 in Canada, by issuing 10,000,000 shares of its common stock. Gravity Spin engaged in advertising, sales promotion, graphic design, branding, new media, and design services principally in Canada. The two companies were under common control. Prior to the acquisition, the Company had only nominal assets and liabilities. The transaction was treated as a reverse acquisition for accounting purposes, which is a capital transaction and not a business combination. The Company sold its subsidiary, Gravity Spin, Inc., on June 2, 2003.
Subsequent to the sale of its operating subsidiary on June 2, 2003, the Company entered an exploration stage in pursuit of new business opportunities (Note 4). As an exploration stage company, the Company presents its financial statements in conformity with the accounting principles generally accepted in the United States that apply in establishing operating enterprises. The Company discloses the deficit accumulated during the exploration stage and the cumulative statements of operations and cash flows from the inception of the exploration stage through July 31, 2009.
The Company formed a subsidiary called Gravity Spin Event Marketing, Inc., in May 2003. The Company formed two new subsidiaries called Magnus International Resources Inc. (“Magnus BVI”) and Magnus Resources (HK) Limited (“Magnus HK”) in April 2004 and December 29, 2003, respectively. Gravity Marketing, Magnus BVI and Magnus HK have no transactions as of July 31, 2009. Subsequent to the fiscal year end, Magnus HK has been deregistered pursuant to Section 291AA(9) of the Companies Ordinance of Hong Kong. Magnus HK was officially dissolved as of September 25, 2009.
Effective May 4, 2004 the Company changed its name to Magnus International Resources Inc. The Company has an office in Vancouver, Canada.
On September 29, 2004 the joint venture agreement entered into by the Company on July 6, 2004 was approved by the Chinese government. With the approval, a new joint venture company, Yunnan Long Teng Mining Ltd., (“Long Teng”) was formed. The Company owned 90% of the issued shares of Long Teng until May 28, 2008. On May 28, 2008, the Company entered an agreement to sell 100% of Long Teng (including the remaining 10% the Company was then negotiating to acquire) for proceeds of RMB 21,000,000 (approximately $3,072,000). The Company subsequently entered into a number of amending agreements (including penalties for late payment) relating to the sale of Long Teng. As at July 31, 2009, Magnus had received a total of RMB 8.42 million (about $1,234,000) in proceeds from the sale of Long Teng and was still owed 13.5 million RMB (about $1,976,000).
See also Notes 3 and 4.
On November 25, 2005, Magnus acquired 100% of the issued and outstanding shares of Golden River Resources Corp., a private British Columbia company (“Golden River”), which was owned by First Fortune Investments Inc. Golden River was participating in a co-operative joint venture in China until December, 2007. Under the joint venture, Golden River acquired a 90% interest in the sino-foreign joint venture company Yunnan Western Mining Ltd. (“Western Mining”) by making capital contributions on the schedule required by the joint venture agreement.
MAGNUS INTERNATIONAL RESOURCES INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
July 31, 2009
(Expressed in US Dollars)
On November 15, 2007 the Company entered an amending agreement (replacing an agreement entered on May 12, 2007) to sell its 90% interest in Western Mining to the joint venture partner in consideration for the remaining 10% of Long Teng that the Company did not already own. On May 30, 2008 the Company entered a final amending agreement to finalize the terms of the transfer, as more fully described in Note 4. The registered ownership of Western Mining was transferred to the former joint venture partner in December 2007 in reliance on the amending agreement.
On May 1, 2007, the Company closed a share purchase agreement by which the Company acquired all of the issued and outstanding shares in the capital of African Mineral Fields Inc. (“AMF”), a company incorporated under the laws of the British Virgin Islands. The Company’s chief executive officer indirectly held a controlling interest in AMF, and was the chief executive and a director of AMF, prior to the acquisition. In exchange, the shareholders of AMF received six million shares of common stock of the Company and 200,000 Series “B” preferred shares.
Through the acquisition of AMF, the Company acquired a 100% interest in two gold projects, Lugazi and Mubende, and an exclusive option to acquire 100% interest in a further two gold properties, Mwerusandu and Mitoma (later reduced to a purchase of the licenses), in Uganda. See Note 4.
In the year ended July 31, 2008 AMF incorporated two subsidiary companies, African Mineral Fields Limited (“AMF Ltd.”) and AB Mining Ltd. (“ABM”), under the laws of Uganda for the purpose of holding legal interest in exploration licenses in Uganda. African Mineral Fields Inc. (“AMF”)), has a 100% interest in eight mineral properties (comprising 25 mineral exploration licenses) in Uganda: Mubende, Mwerusandu, Lugazi, Mitoma, Buhweju East, Kigumba, Kidera and Nyanga.
Principles of Consolidation
The consolidated financial statements include accounts of the Company and its wholly-owned subsidiaries, Golden River, Gravity Marketing, Magnus BVI and Magnus HK, AMF and the two Ugandan subsidiaries. All significant inter-company balances and transactions are eliminated. The statement of operations presented for 2007 includes the results of operations for AMF since May 1, 2007, the date of acquisition. The statements of operations include the results of operations for Western Mining and Long Teng until the effective dates of the sales of those subsidiaries.
The assets of AMF at the time of acquisition have been reflected in these financial statements at their historical cost to AMF, since the transaction was between related parties. The carrying values of AMF’s assets at time of the acquisition consisted of cash of $282 and prepaid expenses of $14,514.
MAGNUS INTERNATIONAL RESOURCES INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
July 31, 2009
(Expressed in US Dollars)
Cash and Cash Equivalents
Cash equivalents comprise certain highly liquid instruments with a maturity of three months or less when purchased. As at July 31, 2009 and 2008, the Company did not have any cash equivalents.
Mineral Properties and Exploration Expenses
Mineral property acquisition, exploration and development costs are charged to operations as incurred until such time that proven or probable ore reserves are discovered. From that time forward, the Company will capitalize all costs to the extent that future cash flow from reserves equals or exceeds the costs deferred. The deferred costs will be amortized using the unit-of-production method when a property reaches commercial production. As at July 31, 2009, the Company did not have proven or probable reserves.
Asset Retirement Obligations
The Company has adopted SFAS No. 143, Accounting for Asset Retirement Obligations which requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred. SFAS No. 143 requires a liability to be recorded for the present value of the estimated site restoration costs with corresponding increase to the carrying amount of the related long-lived asset. The liability will be accreted and the asset will be depreciated over the life of the related assets. Adjustments for changes resulting from the passage of time and changes to either the timing or amount of the original present value estimate underlying the obligation will be made. As at July 31, 2009 the company has no asset retirement obligations.
Fixed Assets
Fixed assets are carried at cost less a provision for depreciation on a straight-line basis over their estimated useful lives as follows:
Computer equipment
3 to 5 years
Computer software
3 years
Field equipment
5 years
Leasehold improvements
2 years
Office furniture and equipment
5 years
Vehicles
10 years
Advertising Expenses
Advertising expenses are expensed as incurred.
Foreign Currency
The parent company’s operation of the Company is located in Canada. It maintains both U.S. Dollar and Canadian Dollar bank accounts. The functional currency is the Canadian Dollar. Transactions in foreign currencies other than the functional currency, if any, are remeasured into the functional currency at the rate in effect at the time of the transaction. Remeasurement gains
MAGNUS INTERNATIONAL RESOURCES INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
July 31, 2009
(Expressed in US Dollars)
and losses that arise from exchange rate fluctuations are included in income or loss from operations. Monetary assets and liabilities denominated in the functional currency are translated into U.S. Dollars at the rate in effect at the balance sheet date. Revenue and expenses denominated in the functional currency are translated at the average exchange rate. Other comprehensive income includes the foreign exchange gains and losses that arise from translating from the functional currency into U.S. Dollars.
The operations of Long Teng and Western Mining were located in China, and they maintain their accounting records in Chinese Renminbi Yuan (“RMB”). The functional currency is the Chinese Renminbi Yuan. Transactions in foreign currencies other than the functional currency, if any, are remeasured into the functional currency at the rate in effect at the time of the transaction. Remeasurement gains and losses that arise from exchange rate fluctuations are included in income or loss from operations. Monetary assets and liabilities denominated in the functional currency are translated into U.S. Dollars at the rate in effect at the balance sheet date. Revenue and expenses denominated in the functional currency are translated at the average exchange rate. Other comprehensive income includes the foreign exchange gains and losses that arise from translating from the functional currency into U.S. Dollars.
The operations of AMF are located in Uganda, and AMF maintains its accounting records in US dollars. The functional currency is the US dollar. Transactions in foreign currencies other than the functional currency, if any, are remeasured into the functional currency at the rate in effect at the time of the transaction. Remeasurement gains and losses that arise from exchange rate fluctuations are included in income or loss from operations.
Use of Estimates
The preparation of the Company’s consolidated financial statements in conformity with generally accepted accounting principles of the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management makes its best estimate of the ultimate outcome for these items based on historical trends and other information available when the financial statements are prepared. Actual results could differ from those estimates.
Loss Per Share
Basic earnings (loss) per share of common stock is computed by dividing the net earnings (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share is equal to the basic loss per share for the year ended July 31, 2009, 2008 and 2007 because common stock equivalents consisting of options to acquire 3,315,000 (2008 - 3,315,000, 2007 - 4,291,500) shares of common stock and warrants to acquire 3.225,891 (2008 - 5,713,141, 2007 - 3,974,874) shares of common stock that are outstanding at July 31, 2009 are anti-dilutive.
MAGNUS INTERNATIONAL RESOURCES INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
July 31, 2009
(Expressed in US Dollars)
Fair Value of Financial Instruments
The carrying value of cash and accounts payable and accrued liabilities at July 31, 2009 and 2008, reflected in these financial statements approximates their fair value due to the short-term maturity of the instruments.
Comprehensive Income
The Company has adopted Statement of Financial Accounting Standards (SFAS) No. 130, “Reporting Comprehensive Income”. Comprehensive income includes net income and all changes in equity during a period that arises from non-owner sources, such as foreign currency items and unrealized gains and losses on certain investments in equity securities.
Income taxes
The Company records deferred taxes in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." The statement requires recognition of deferred tax assets and liabilities for temporary differences between the tax bases of assets and liabilities and the amounts at which they are carried in the financial statements, based upon the enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized.
Concentrations
The Company uses one supplier to supply the exploration licenses and the manpower and the majority of the technical expertise for the minerals exploration for the Company’s projects in Uganda.
The Company holds cash in bank accounts that are not insured against financial institution failure due to holding US currency in Canada, holding US and Ugandan currency in Uganda, and holding US and Chinese currency in China.
Impairment of Long-Lived Assets
The Company periodically analyzes its long-lived assets for potential impairment, assessing the appropriateness of lives and recoverability of unamortized balances through measurement of undiscounted operation cash flows in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-lived Assets. If impairment is deemed to exist, the asset will be written down to its fair value. Fair value is generally determined using a discounted cash flow analysis. As at July 31, 2007, the Company designated all its long-lived assets in China as held for sale, and wrote down its assets in China to $nil. As at July 31, 2008, the Company wrote down all its long-lived assets in Canada and Uganda to $nil due to impairment analysis.
MAGNUS INTERNATIONAL RESOURCES INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
July 31, 2009
(Expressed in US Dollars)
Finders’ fees
Finders’ fees paid to consultants for referring investors are capitalized and are offset against the proceeds of the offering if successful and are expensed and charged to operations if the offering is not successful.
Stock-Based Compensation
As of July 31, 2006, the Company has implemented the provisions of Statement of Financial Accounting Standards No. 123 (revised 2004), Share- Based Payment (“SFAS No. 123R”), which replaced Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (“SFAS No. 123”) as amended by No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure . Compensation expense is recorded in accordance with the fair value recognition provisions of SFAS 123R beginning in 2006 for options issued to employees. Prior to 2006, the Company accounted for stock options granted to its employees and directors using the intrinsic value method of accounting, as prescribed in Accounting Principles Board Opinion No. 25 Accounting for Stock Issued to Employees and related interpretations. Under the intrinsic value method, no compensation expense is recorded if the exercise price of the options is equal to or greater than the market price of the underlying stock on the date of grant. As the exercise price of the Company’s employee stock options equals the market price of the underlying stock on the date of the grant, no compensation expense was recognized under APB25 for 2005 and prior.
Options issued to non-employees are recorded in accordance with the fair value recognition provisions of SFAS No. 123R, which are the same as the provisions previously followed under SFAS No. 123.
The Company has a stock-based compensation plan that is described more fully in Note 11.
New Accounting Pronouncements
In June 2006, the FASB issued Interpretation 48, Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109 (“FIN 48”). This Interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. In addition, FIN 48 expands the disclosure requirements concerning unrecognized tax benefits as well as any significant changes that may occur in the next twelve months associated with such unrecognized tax benefits. FIN 48 is effective for fiscal years beginning after December 15, 2006. FIN 48 did not have a significant impact on the financial statements of the Company.
In September 2006, the FASB issued Statement No. 157, Fair Value Measures . This statement defines and establishes a framework for determining fair value and expands disclosures about fair value measurements. This standard does not require new fair value measurements, but does define fair value for implementation of other standards that permit or require fair value measurement. This statement is effective for fiscal years beginning after November 15, 2007. This statement did not have a significant impact on future financial statements of the Company.
MAGNUS INTERNATIONAL RESOURCES INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
July 31, 2009
(Expressed in US Dollars)
In December 2006, the FASB issued FASB Staff Position No. EITF 00-19-2, Accounting for Registration Payment Arrangements. This FSP specifies that the contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement, whether issued as a separate agreement or included as a provision of a financial instrument or other agreement, should be separately recognized and measured in accordance with FASB Statement No. 5, Accounting for Contingencies. The guidance in this FSP amends FASB Statements No. 133, Accounting for Derivative Instruments and Hedging Activities, and No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, and FASB Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, to include scope exceptions for registration payment arrangements. This FSP further clarifies that a financial instrument subject to a registration payment arrangement should be accounted for in accordance with other applicable generally accepted accounting principles (GAAP) without regard to the contingent obligation to transfer consideration pursuant to the registration payment arrangement. The Company has applied the provisions of EITF 00-19-2 in determining the accounting for registration payment arrangements entered into by the Company in May 2007 and August 2007.
In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities -Including an amendment of FASB Statement No. 115. This standard permits fair value measurement of certain financial assets and liabilities in an effort to eliminate volatility of earnings created by current practice. Most of the Statement applies only to companies that elect fair value. However, the amendment to FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities, applies to all entities with available-for-sale and trading securities. This statement is effective for the first fiscal period beginning after November 15, 2007. This statement did not have a significant impact on future financial statements of the Company.
There were various other accounting standards and interpretations issued during 2008 and 2009, none of which are expected to have a material impact on the Company's financial position, operations or cash flows.
2. BASIS OF PRESENTATION - GOING CONCERN
These consolidated financial statements have been prepared on a going-concern basis which assumes that the Company will be able to realize assets and discharge liabilities in the normal course of business for the foreseeable future.
The Company has experienced losses since the inception of the exploration stage amounting to $21,826,615 as of July 31, 2009. As of July 31, 2009, the Company had a total of $20,704 in cash and cash equivalents and a working capital deficiency of $2,485,548,. and the cash and cash equivalent amount is insufficient to sustain operations over the course of the next year. The Company has a shareholders’ deficit. These factors raise substantial doubt about the Company's ability to continue
MAGNUS INTERNATIONAL RESOURCES INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
July 31, 2009
(Expressed in US Dollars)
as a going concern. The ability of the Company to meet its commitments as they become payable, including the completion of acquisitions, exploration and development of mineral properties and projects, is dependent on the ability of the Company to collect the remaining proceeds from the disposition of the Company’s former Long Teng subsidiary and obtain necessary financing. There are no assurances that the Company will be successful in achieving these goals. Subsequent to year end, the Company collected RMB 10,000,000 (approximately $1.466 million) of the proceeds owed to it from the disposition of the Chinese subsidiaries. However, even with this collection there remains significant doubt as to the Company’s ability to continue as a going concern.
The Company is in the process of exploring and evaluating its mineral properties and projects in Uganda and has not yet determined whether these properties contain economically recoverable ore reserves. The underlying value of the mineral properties is entirely dependent on the existence of economically recoverable reserves, the ability of the Company to obtain the necessary financing to complete development and upon future profitable production or sufficient proceeds from the disposition thereof.
These financial statements do not give effect to adjustments to the amounts and classifications to assets and liabilities that would be necessary should the Company be unable to continue as a going concern.
3. PROCEEDS OF DISPOSITION RECEIVABLE
Proceeds of disposition receivable amounting to $ nil (July 31, 2008 - $100,000) consist of $2,022,955 receivable in respect of the sale of Yunnan Long Teng Mining Ltd. (July 31, 2008 - $2,340,800), carried net of a reserve for uncollectible amounts of $2,022,955 (July 31, 2008 - $2,240,800). The Company has collected $317,845 of the receivable in the year ended July 31, 2009. Subsequent to year end the Company collected an additional RMB 10,000,000 (approximately $1.466 million dollars) See also Note 4 and Note 14 .
Proceeds of disposition receivable amounting to $100,000 at July 31, 2008 consist of $2,340,800 receivable in respect of the sale of Long Teng Mining (See Notes 1 and 5), carried net of a reserve for uncollectible amounts of $2,240,800.
MAGNUS INTERNATIONAL RESOURCES INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
July 31, 2009
(Expressed in US Dollars)
4. MINERAL PROPERTIES AND JOINT VENTURES
To July 31, 2009, the Company had entered into the following material agreements with respect to mineral properties and exploration licenses in China.
Yunnan Long Teng Mining Ltd.
On July 6, 2004, the Company signed a formal cooperative joint venture contract (the “Huidong Agreement”) with Geological Brigade Team 209 of the Nuclear Industry of Yunnan Province (“Team 209”) to form a new cooperative joint venture company, Yunnan Long Teng Mining Ltd. (“Long Teng Mining”), a Sino-foreign Chinese corporation, to carry out minerals exploration and development in an 83.29 square kilometer area of Huidong County in Sichuan Province.
On May 12, 2008, the Company entered into an Agreement for Modification of Joint Venture Rights & Interests (the “Modification Agreement”) with Team 209. Under the Modification Agreement, the Company, which held a 90% interest in Long Teng Mining and a 90% interest in Yunnan Western Mining Co., Ltd. (“Western”, which holds the mineral rights to the Mangshi Property, described below), would obtain the remaining 10% interest in Long Teng Mining from Team 209 in exchange for transferring the Company’s 90% interest in Western to Team 209. Magnus was also required to pay 1 million RMB (approximately US$130,000) to Team 209 for previous services provided by Team 209 to Long Teng Mining and Western and payment of all the liabilities of Western within 10 days after all documents submitted to governmental departments receive approval.
On May 28, 2008, Magnus executed an agreement (the “Transfer Agreement”) with Mr. Jinzang Lai (“Lai”) under which Magnus agreed to sell its 90% interest in Yunnan Long Teng Mining Ltd., which owns the exploration license underlying the Huidong gold exploration property in Sichuan Province, China to Lai. Under the Transfer Agreement, Magnus was to receive; (i) 7,000,000 yuan (approximately US $1,000.000) within seven days of the execution of the Transfer Agreement; (ii) a further 7,000,000 yuan within seven days of the successful renewal of the exploration license underlying the Huidong property; (iii) a further 4,900,000 yuan within seven days of the transfer of Magnus’ 90% interest in Yunnan Long Teng Mining Ltd. to Lai; and (iv) a further 2,100,000 yuan within seven days of the transfer of the remaining 10% interest in Yunnan Long Teng Mining Ltd. held by Team 209 to Lai, whether directly from Team 209 or indirectly from Team 209 to Magnus and then to Lai. In addition, Magnus was to retain a 3% net smelter royalty on any minerals produced from the Huidong property under the exploration license in the future, which were to be paid quarterly. In late May 2008, Lai forwarded the first payment of 7,000,000 yuan to Magnus. The exploration license underlying the property was successfully renewed by the relevant Chinese authorities and 100% of the ownership interest in the company that possesses the license, Long Teng Mining Ltd., has been transferred to Lai.
On November 12, 2008 the Company collected a further RMB 1,000,000 (approximately $146,000) of the proceeds of sale of Long Teng from Lai. On November 16, 2008, the Company signed an amending agreement with Lai to amend the due dates of the remaining outstanding proceeds. Under the amendment, RMB 1,000,000 (approximately $146,000) was due for payment by November 30, 2008, RMB 4,000,000 (approximately $584,000) was due for payment by
MAGNUS INTERNATIONAL RESOURCES INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
July 31, 2009
(Expressed in US Dollars)
December 31, 2008, RMB 4,000,000 was due for payment by January 31, 2009 and RMB 4,000,000 was due for payment by February 28, 2009. The amendment also made Magnus liable for RMB 300,000 (approximately $44,000) of additional costs incurred by Lai to settle pre-existing liabilities of Long Teng. The additional liability would be paid by reduction of the final payment under the agreement. On November 21, 2008 the Company collected RMB 420,000 (approximately $61,000) of the amount that was due by November 30. The Company did not receive the rest of the payment due by November 30 or the payments that were due on December 31, 2009, January 31, 2009 and February 28, 2009.
As of June 17, 2009, Magnus had received a total of RMB 8.42 million out of the 21 million RMB Long Teng sale price originally agreed to on May 28, 2008. On June 17, 2009, Magnus signed a new amended sale agreement requiring the Lai group to pay Magnus RMB 13.5 million within 10 days of the signing of the agreement. Magnus agreed to waive its right to a previously agreed 3% NSR on mineral production and late payments due according to the November 2008 contract in return for an additional 1.38 million RmB payment that was included in the 13.5 million RmB total payment. According to the new agreement, if the Lai group were not to pay Magnus the 13.5 million RmB then Magnus would have the right to take back its ownership of Long Teng Mining Ltd. without refunding any payments received previously from the Lai group or Magnus may elect to continue to accrue a 10% penalty, RMB 1,228,000, per month until the Company is paid by the Lai group. The Company did not receive the RMB 13.5 million within 10 days of the signing of the agreement.
On May 9, 2009 the Lai group entered into an agreement with a new buyer, Mr. Peijan He, under which the Lai group would transfer its interest in Yunnan Long Teng Mining Ltd. to Mr. He for RMB 24.8 million. As the Lai group still owed Magnus RMB 13.5 million for acquiring its interest in Long Teng, Mr. He verbally agreed to pay RMB 13,500,000 of the purchase price it owes to the Lai group to Magnus instead. As at July 31, 2009 no formal written agreement had been consummated by Magnus and Mr. He. A formal agreement was signed on September 3, 2009. See subsequent events section.
As at July 31, 2009, Magnus had received a total of RMB 8.42 million (about $1,234,405) in proceeds from the sale of Long Teng and was still owed 13.5 million RMB (about $1,976,000).
Yunnan Western Mining, Ltd.
Under the Modification Agreement (described above), Magnus agreed to transfer its interest in Western Mining to Team 209 in exchange for Team 209’s interest in Long Teng Mining. The Modification Agreement was consummated and accordingly Magnus has no ownership interest in the Mangshi Property or Western Mining.
On November 25, 2005, Magnus acquired 100% of the issued and outstanding shares of Golden River Resources Corp., a private British Columbia company (“Golden River”), which was owned by First Fortune Investments Inc. Golden River was a party to a co-operative joint venture agreement dated August 29, 2003 (the “Mangshi Agreement”) with Team 209. Under the Mangshi Agreement, Golden River and Team 209 formed Western, a sino-foreign
MAGNUS INTERNATIONAL RESOURCES INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
July 31, 2009
(Expressed in US Dollars)
joint venture company which held the rights to the Mangshi Property, a mineral exploration property comprising approximately 113.96 square kilometres in Yunnan Province. Golden River had the right to earn a 90% interest in Western Mining, with Team 209 retaining the other 10%.
African Mineral Fields Inc.
On May 8, 2006, African Mineral Fields Inc. (“AMF”) acquired an option to acquire a group of three exploration licenses in Uganda (the “Mwerusandu Licenses”) and a group of six exploration licenses in Uganda (the “Mitoma Licenses”) from a previously unrelated third party (the “Grantor”).
In order to exercise the option on the Mwerusandu licenses, AMF was required to pay $30,000 cash immediately and another $15,000 within three months, issue 500,000 shares to the Grantor and incur $2,000,000 on exploration of the licensed properties over three years.
During the year ended July 31, 2006 AMF paid the first $30,000 cash and issued the 500,000 shares to the Grantor. During the year ended July 31, 2007 AMF paid an additional $5,000 cash.
In order to exercise the option on the Mitoma licenses, AMF was required to pay $20,000 cash immediately and another $100,000 within 30 days, another $60,000 within three months and another $55,000 within six months, issue 500,000 shares to the Grantor and incur $2,000,000 on exploration of the licensed properties over three years. During the year ended July 31, 2006 AMF paid the first $120,000 cash and issued the 500,000 shares to the Grantor. During the year ended July 31, 2007 AMF paid an additional $50,000 cash.
On September 1, 2006 the Company entered into an agreement to acquire one exploration license in Uganda (the “Lugazi license”) from the Grantor for consideration consisting of $25,000 cash, 250,000 shares with an agreed issue
MAGNUS INTERNATIONAL RESOURCES INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
July 31, 2009
(Expressed in US Dollars)
price of $0.05 per share or $12,500 in aggregate and additional contingent consideration of 25,000 shares of the Company for each 25,000 economically mineable ounces of gold proven in the future to be a measured and indicated resource on the property covered by the Lugazi license, up to a maximum of 300,000 shares.
On September 1, 2006 the Company entered into an agreement to acquire two exploration licenses in Uganda (the “Mubende licenses”) from the Grantor for consideration consisting of $25,000 cash, 250,000 shares with an agreed issue price of $0.05 per share or $12,500 in aggregate and additional contingent consideration of 25,000 shares of the Company for each 25,000 economically mineable ounces of gold proven in the future to be a measured and indicated resource on the property covered by the Mubende licenses, up to a maximum of 300,000 shares.
On September 17, 2007 the Company completed the incorporation of a 100%-owned subsidiary under the laws of Uganda named African Mineral Fields Limited (“AMF Ltd.”) and approved the transfer of exploration licenses and options on exploration licenses to the new subsidiary.
On November 8, 2007, AMF entered into a license transfer agreement (the “License Transfer Agreement”) with the Grantor under which the Grantor agreed to transfer 100% of the right, title and interest to the licenses comprising the Mwerusandu Property and the Mitoma Property to AMF Ltd. for consideration already paid under the option agreements. The Ugandan Department of Geological Survey and Mines ratified the transfer of the licenses on December 20, 2007, and accordingly AMF Ltd. now holds a 100% interest in the Mwerusandu Property and Mitoma properties. The Grantor is entitled to receive from AMF Ltd. a net smelter returns royalty on the Mwerusandu and Mitoma properties on a sliding scale between 0.5% (if the gold price is below $250/oz.) and 2.1% (if the gold price is above $1,200/oz.), depending on the price of gold when the NSR is being paid.
In addition to the Mwerusandu licenses transferred to AMF Ltd. under the License Transfer Agreement, AMF Ltd. received an additional exploration license covering 147.63 sq. km. During fiscal year 2008, three licenses were renewed for a period of two years, each with a 50% reduction in area, so that the Mwerusandu Property is now comprised of four exploration licenses covering 175.43 sq. km.
In the year ended July 31, 2008, AMF received two additional exploration license on the Mitoma property covering 159.49 sq. km. During fiscal year 2008, four licenses were renewed for a period of two years with a 50% reduction in area and one license was relinquished. The Mitoma Property is now comprised of seven exploration licenses covering 359.49 sq. km.
In the year ended July 31, 2008, AMF received an additional exploration license on the Mubende property covering 71.20 sq. km., so that the Mubende Property is now comprised of three exploration licenses covering 851.20 sq. km.
On August 30, 2007, AMF entered into an agreement (the “Mashonga Agreement”) with a consortium of Ugandan businessmen respecting mineral exploration licenses covering 460.84 square kilometers of land in Uganda (the “Mashonga Property”). Under the Mashonga Agreement, AMF has been granted an option on a 60% interest in the Mashonga Property. To exercise the option, AMF was required to make aggregate cash payments of $US 650,000 to its joint
MAGNUS INTERNATIONAL RESOURCES INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
July 31, 2009
(Expressed in US Dollars)
venture partners, make $US 250,000 in property exploration expenditures by August 30, 2008, make another $US 3.75 million in property exploration expenditures and complete a pre-feasibility study on the property by August 30, 2012. AMF’s joint venture partners had the right to accept common shares of Magnus in lieu of the cash payments. Once AMF acquired its 60% interest in the Mashonga Property, the parties would form a new joint venture company to further explore and develop the Property.
As at 1 December, 2008 when the Company terminated the Mashonga agreement, AMF had paid the first payment of $40,000 under the agreement and $30,000 towards the second payment and incurred $310,136 on exploration of the Mashonga Property.
The Company withdrew from the Mashonga agreement in December 2008.
On May 1, 2008, the Company entered into an earn-in agreement (the “Ibanda Agreement”) with Canmin-Gold Limited, a subsidiary of IBI Corporation, respecting a mineral exploration license covering 332.70 square kilometers of land contiguous in southwest Uganda, northeast of the Mashonga Property (the “Ibanda Property”). Under the Ibanda Agreement, the Company has the right to earn a 5% interest in the Ibanda Property for each $150,000 of expenditures that it makes and may earn up to an 80% interest by making an aggregate of $2 million in expenditures on the property within five years. Upon the Company earning an 80% interest in the Ibanda Property, the parties would form a joint venture under which each party will be required to contribute its proportionate share of further expenditures or have its interest be diluted. The Company withdrew from the Ibanda agreement in December 2008.
On May 12, 2008, a mineral exploration license covering 363 square kilometers of land in western Uganada (the “Kigumba Property”) was granted to the Company. The Company plans to explore for uranium and gold across a 20km long uranium anomaly which was picked up by processing the data from the airborne geophysical survey which is being flown over 80% of Uganda. Since acquiring this licence, three additional licences totalling 1402.55 square kilometers were also acquired under the name of the Company’s indirect wholly-owned subsidiary, ABM.
On May 12, 2008, a mineral exploration license covering 291 square kilometers of land in southwestern Uganda (the “Rubindi Property”) was granted to the Company. Since acquiring this licence, an additional licence covering 429 square kilometers was also acquired under the name of ABM.
On June 30, 2008, a mineral exploration license covering 485 square kilometers of land in central Uganada (the “Kidera Property”) was granted to the Company. The Company expects to explore for minerals such as tantalum and rare earth metals associated with a carbonatite complex, as well as diamonds associated with potential kimberlite pipes.
MAGNUS INTERNATIONAL RESOURCES INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
July 31, 2009
(Expressed in US Dollars)
On June 30, 2008, a mineral exploration license covering 23.28 square kilometers of land in central Uganada (the “Nyanga Property”) was granted to the Company. The tantalum potential at this project will be evaluated.
A summary of the licenses in Uganda is as follows (annual rentals given in Ugandan Shillings amount, with total shown also in approximate $US amount):
MAGNUS INTERNATIONAL RESOURCES INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
July 31, 2009
(Expressed in US Dollars)
5. DEMAND LOAN PAYABLE
As at 31 July 2009, the demand loan payable consisted of principal of $20,000 (2008 - $30,000) plus accrued interest from the commencement of the loan on June 2, 2008. $10,000 was repaid on 11 September, 2009. The loan carried an interest rate of 15% per annum non-compounded. The loan was secured by a personal guarantee of the Company’s Chief Executive Officer.
6. LOANS FROM SHAREHOLDERS
The loans from shareholders do not bear interest. As at 31 July 2009, one loan of $50,000 was repayable on demand, the other loans have no stated terms of repayment. The Company has recognized imputed interest in the amount of $89,610 (2008 -$ 78,072 ) on the loans which is included in general and administrative expenses and in additional paid-in capital, since the imputed interest is not payable.
7. LEASES
The lease on the office premises in Entebbe Uganda expired in September 2008. The Company currently pays rent of $1,100 per month on month to month basis.
The Company has a commitment for payments of $CAD 9,063 (approximately $US 8,407 as at July 31, 2009) per year for the next three years for the lease of a photocopier.
8. COMMON STOCK
On August 14, 2008, the Company issued an aggregate of 400,000 units (each a “Unit”) for an aggregate of CAD $100,000 or (at a price of CAD$0.25 per Unit). Each Unit consists of one share of common stock of the Company and one-half of one share purchase warrant, with each whole warrant entitling the holder to purchase one additional share of common stock of the Company at CAD$0.50 per warrant share until two years from the date of issuance of the warrants. The Company paid $10,000 in cash to a consultant as a finder’s fee in connection with the issuance of Units.
Concurrent with the effective date of the final amending agreement for the transfer of the Company’s interest in Western Mining in return for the remaining 10% interest in Long Teng (see Note 5), the Company’s board approved the cancellation of the 285,714 common shares previously issued to the joint venture partner and also approved the cancellation of the allotment of 150,000 common shares previously allotted for issue to the joint venture partner in consideration for licenses transferred to Western Mining.
Warrants outstanding and exercisable as of July 31, 2009 are as follows:
MAGNUS INTERNATIONAL RESOURCES INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
July 31, 2009
(Expressed in US Dollars)
9. PREFERRED STOCK
On October 15, 2007 the Chief Executive Officer of the Company surrendered for cancellation the 100,000 issued and outstanding Series “A” preferred shares and those shares were cancelled by the Company.
10. RELATED PARTY TRANSACTIONS
Related party transactions not disclosed elsewhere in the consolidated financial statements are as follows:
In the year ended July 31, 2009, the Company incurred fees of $90,888 (2008 - $120,000) to the chief executive officer of the Company for consulting services rendered. all of which remained unpaid at July 31, 2009. Total amount owed to the chief executive officer at July 31, 2009 for consulting services is $146,075 (2008 - $ 26,826) . The Company incurred fees of $50,000 to a former director of the Company (2008 - $120,000 ) for geological consulting services rendered, all which was unpaid at July 31, 2009. The total amount owed to this former director at July 31, 2009 is $130,000 (2008- $95,000)
As at 31 July 2009, the Company had an accrued liability of $23,581 (2008 - $23,581) to a relative of a director in respect of consulting fees rendered in 2006.
MAGNUS INTERNATIONAL RESOURCES INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
July 31, 2009
(Expressed in US Dollars)
11. STOCK-BASED COMPENSATION
The Company’s 2004 Stock Option Plan (the “Plan”) allows the Company to award stock options for up to 6,000,000 shares to its directors, officers, employees, and consultants. The plan is administered by the Company’s Board of Directors, or its assigned committee, who has discretion as to the awards and terms of the options to be issued. Upon exercise of options, shares are issued from treasury.
During the year ended July 31, 2004, 4,000,000 (post-split) stock options were granted under the Plan with the exercise price of $0.50 per share, being the market price at the time of the grant. Of these options, 1,660,000 were issued to directors and employees and 2,340,000 were issued to consultants.
166,667 of 4,000,000 options vested on February 1, 2004 (the “Initial Vesting Date”) with the reminder to vest in equal monthly proportions over a period of twenty-three (23) months from the Initial Vesting Date. The options expire on January 26, 2009.
During the year ended July 31, 2005, 390,000 stock options were granted under the Plan with the exercise price of $1.60 per share, being the market price at the time of the grant. Of these options, 130,000 were issued to directors and employees and 260,000 were issued to consultants. The options vest in equal monthly proportions over a period of thirty-six (36) months from the Initial Vesting Date. The options expire on February 18, 2010. 60,000 stock options granted to a consultant were forfeited during the year ended July 31, 2005 and 326,000 stock options granted to consultants were forfeited during the year ended July 31, 2006.
During the three months ended January 31, 2006, 1,398,000 stock options were granted under the Plan with the exercise price of $1.70 per share, being the market price at the time of the grant. Of these options, 305,000 were issued to directors and employees and 1,093,000 were issued to consultants. The options vest in equal monthly proportions over a period of thirty-six (36) months from the Initial Vesting Date. 653,000 of these options expire on November 1, 2011 and 745,000 expire on December 15, 2011. 75,000 options granted to a consultant were forfeited during the year ended July 31, 2006.
On November 1, 2005, 250,000 stock options were granted under the Plan with the exercise price of $1.75 and 250,000 stock options were granted under the Plan with the exercise price of $3.50 pursuant to a services agreement. These options vested immediately and expire on November 1, 2007.
On January 31, 2006, 60,000 stock options were granted under the Plan with the exercise price of $2.15 per share, being the market price at the time of the grant. All of these options were issued to consultants. The options vest in equal monthly proportions over a period of thirty-six (36) months from the Initial Vesting Date of April 30, 2006. The options expire on January 31, 2012. 30,000 of these options were forfeited during the year ended July 31, 2006.
On February 1, 2006, 60,000 stock options were granted under the Plan to a consultant, with the exercise price of $2.20 per share. The options vest in equal monthly proportions over a period of thirty-six (36) months from the Initial Vesting Date of February 1, 2006. The options expire on February 1, 2012.
MAGNUS INTERNATIONAL RESOURCES INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
July 31, 2009
(Expressed in US Dollars)
On April 12, 2006, 54,000 stock options were granted under the Plan to two employees, with the exercise price of $2.59 per share. The options vest in equal monthly proportions over a period of thirty-six (36) months from the Initial Vesting Date of April 12, 2006. The options expire on April 12, 2012.
On April 27, 2006, 210,000 stock options were granted under the Plan to three employees, with the exercise price of $2.35 per share. The options vest in equal monthly proportions over a period of thirty-six (36) months from the Initial Vesting Date of April 27, 2006. The options expire on April 27, 2012.
During the year ended July 31, 2007, 244,444 unvested options expired upon the death of a director of the Company and 499,056 options expired upon the termination of employees and consultants.
On November 1, 2007 the Company granted 300,000 options to a director and 150,000 options to a senior employee, with exercise price of $0.50. Of the 300,000 options, 50,000 vested immediately and the remainder will vest over 30 months. Of the 150,000 options, 8,334 vested immediately and the remainder will vest evenly over 34 months.
On January 31, 2008 the Company granted 535,000 options with exercise price of $0.50 to various employees and consultants. 1/36 of the options will vest on the last day of each of the 36 months following the date of the grant. Any remaining unexercised options will expire on January 31, 2013.
On January 31, 2008 the Company re-priced 854,000 options with previous exercise prices ranging from $1.60 to $2.59 to the new exercise price of $0.50. At the same time, the Company extended the expiry date on 2,730,000 options with previous expiry dates ranging from January 2009 to November 2012. The new expiry date is January 31, 2013. The fair values of the re-priced and extended options have been re-estimated based on their new terms. The increase in estimated fair values of fully vested options was recognized as stock-based compensation expense for the three months ended January 31, 2008. The increase in estimated fair values of not-fully-vested options is being recognized as stock-based compensation expense over the remaining vesting period of the options.
On May 28, 2008 the Company granted 50,000 options with exercise price of $0.50 to a consultant. 1/36 of the options will vest on the last day of each of the 36 months following the date of the grant. Any remaining unexercised options will expire on January 31, 2013.
A summary of the Company’s stock option activities is presented below:
MAGNUS INTERNATIONAL RESOURCES INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
July 31, 2009
(Expressed in US Dollars)
MAGNUS INTERNATIONAL RESOURCES INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
July 31, 2009
(Expressed in US Dollars)
Compensation cost related to options to vest in the future will be recognized as the related options vest.
Outstanding options vest as follows:
Non-vested options are as follows:
If not previously exercised or canceled, options outstanding at July 31, 2009 will expire as follows:
MAGNUS INTERNATIONAL RESOURCES INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
July 31, 2009
(Expressed in US Dollars)
The fair values of the options granted November 1, 2007 were estimated at $0.35 per share, the fair values of the options granted January 31, 2008 were estimated at $0.14 per share, the fair values of the options re-priced and extended on January 31, 2008 were estimated at $0.14 per share and the fair values of the options granted May 28, 2008 were estimated at $0.13 per share. The fair values of the options granted in the year ended July 31, 2006 were estimated at values ranging from $0.18 per share to $1.08 per share. The fair values of the options granted in the years 2005 and 2004 were estimated at $1.05 per share and $0.47 per share, respectively. The valuations were performed using the Black-Scholes Option Pricing Model with the following weighted average assumptions:
Option-pricing models require the use of highly subjective estimates and assumptions including the expected stock price volatility. Changes in the underlying assumptions can materially affect the fair value estimates and therefore, in management’s opinion, existing models do not necessarily provide reliable measure of the fair value of the Company’s stock options.
The following table illustrates the effect on net earnings (loss) and earnings (loss) per share for the 2008, 2007 and 2006 years as reported due to implementation of SFAS 123R:
MAGNUS INTERNATIONAL RESOURCES INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
July 31, 2009
(Expressed in US Dollars)
12. INCOME TAXES
The Company is subject to United States income taxes, Canadian income taxes (to the extent of its operations in Canada), Chinese income taxes (to the extent of its operations in China) and Ugandan income taxes (to the extent of its operations in Uganda). The company had no income tax expense during the reported periods due to net operating losses.
A reconciliation of income tax expense to the amount computed at the statutory rates is as follows:
Significant components of deferred income tax assets are as follows:
MAGNUS INTERNATIONAL RESOURCES INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
July 31, 2009
(Expressed in US Dollars)
The Company has net operating losses carried forward of $9,488,000 for United States tax purposes and $2,618,000 for Ugandan tax purposes which will expire in 2028 if not utilized. No tax returns have been filed and all years are open for examination.
13. SEGMENTED INFORMATION
The Company is operating in a single segment based upon the Company’s organizational structure, the way in which its operations are managed and evaluated, the availability of separate financial results and materiality considerations. The Company’s assets by geographical location are as follows:
MAGNUS INTERNATIONAL RESOURCES INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
July 31, 2009
(Expressed in US Dollars)
14. SUBSEQUENT EVENTS
On May 9, 2009 the Lai group entered into an agreement with a new buyer for Long Teng Minging, Mr. Peijan He, under which the Lai group would transfer its interest in Yunnan Long Teng Mining Ltd. to Mr. He for RMB 24.8 million. As the Lai group still owed Magnus RMB 13.5 million for acquiring its interest in Long Teng, on September 3, 2009, Magnus entered into an agreement with the Lai group and Mr. He under which Mr. He agreed to pay RMB 13,500,000 of the purchase price it owes to the Lai group to Magnus instead. This RMB 13,500,000 is payable to Magnus under the agreement as follows: RMB 5,000,000 is payable upon issuance of a new business license of Long Teng to Mr. He or his designee; RMB 4,865,000 is payable to Magnus and 135,000 is payable to Yunnan Beichuan Law firm on or before September 28, 2009; and RMB 3,500,000 is payable on or before October 28, 2009. Under the agreement, Magnus is required to pay a commission of RMB 135,000 and legal fees to Yunnan Beichuan Law firm which is acting as a trust agent for the funds. As at November 10, 2009, a new business license has been issued reflecting that ownership of Long Teng has been transferred to Mr. He. Consequently, Magnus has received RMB 10,000,000 (approximately $1.466 million) pursuant to the agreement and has paid RMB 135,000 in commission and 50,000 in legal fees to Yunnan Beichuan Law firm. As at November 12, 2009, the remaining 3.5 million RmB (approximately $510,000) related to the sale of Long Teng Mining in China has not been received by Magnus.
On December 11, 2008, the Company's indirect wholly-owned subsidiary, African Mineral Fields Limited, received notice that a legal action had been instituted against it in Uganda by Kamu Kamu Drilling Experts Limited, a drill contractor used by the Company in Uganda. Kamu Kamu was seeking special damages in the amount of US$306,595, general damages, interest and costs of the action for the alleged breach by African Mineral Fields Limited of a reverse circulation drilling agreement dated April 29, 2008 between Kamu Kamu and African Mineral Fields Limited. On November 11, 2009, African Mineral Fields entered into a settlement agreement with Kamu Kamu under which Kamu Kamu agreed to deliver to African Mineral Fields a full and final release of its claim in exchange for: (1) US$50,000; and (2) the transfer by African Mineral Fields to Kamu Kamu of 10 mineral properties in Uganda representing 1,706 square kilometers. If any of the properties cannot be transferred then African Mineral Fields will pay an additional US$2,000 to Kamu Kamu for each property that cannot be transferred. The mineral properties are in the process of being transferred, and the Company does not foresee any difficulties in transferring all of the properties to Kamu Kamu.
Magnus intends to transfer the following ten licenses to Kamu Kamu as part of the settlement: EL0005, EL0020, EL0022, EL0023, EL0167, EL0187, EL0188, EL0196, EL0199 and EL0200. One of the licenses is part of the Mwerusandu Project (EL0022). Four of the licenses are part of the Mitoma Property (EL0005, EL0023, EL0187 and EL0188). Five of the licenses comprise the Lugazi Property (EL0020, EL0167, EL0196, EL0199 and EL0200).
Between July 31, 2009 and November 12, 2009, 1,091,374 warrants have expired. 2,134,517 warrants remain outstanding and exercisable at November 12, 2009.
Three of the Company’s exploration licenses in Uganda expired in August 2009: EL0116, EL0122 and EL0123. The Company has reapplied for EL0122 and EL0123.
Supplementary Data
Net income for the fourth quarter of 2008 includes gains of $1,342,001 on dispositions of subsidiaries in China. See Notes 1 and 4 to the finacial statements included herein.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
N/A
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our President, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our President concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective such that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and (ii) accumulated and communicated to our management, including our President, as appropriate to allow timely decisions regarding disclosure. A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.
Annual Report of Management on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives. Furthermore, smaller reporting companies face additional limitations. Smaller reporting companies employ fewer individuals and find it difficult to properly segregate duties. Often, one or two individuals control every aspect of our operation and are in a position to override any system of internal control. Additionally, smaller reporting companies tend to utilize general accounting software packages that lack a rigorous set of software controls.
Our management, with the participation of the President, evaluated the effectiveness of our internal control over financial reporting as of July 31, 2009. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control -- Integrated Framework. Based on this evaluation, our management, with the participation of the President, concluded that, as of July 31, 2009, our internal control over financial reporting was not effective due to material weaknesses in the system of internal control.
Specifically, management identified the following control deficiencies:
(1) We have not properly segregated duties as one individual initiates, authorizes, and completes all transactions. We have not implemented measures that would prevent the individual from overriding the internal control system. We do not believe that this control deficiency has resulted in deficient financial reporting because the Chief Financial Officer is aware of his responsibilities under the SEC's reporting requirements and personally certifies the financial reports; and
(2) We have installed accounting software that does not prevent erroneous or unauthorized changes to previous reporting periods and does not provide an adequate audit trail of entries made in the accounting software. We do not think that this control deficiency has resulted in deficient financial reporting because we have implemented a series of manual checks and balances to verify that previous reporting periods have not been improperly modified and that no unauthorized entries have been made in the current reporting period.
Accordingly, while we have identified certain material weaknesses in our system of internal control over financial reporting, we believe that we have taken reasonable steps to ascertain that the financial information contained in this Annual Report is in accordance with generally accepted accounting principles. Management has determined that current resources would be appropriately applied elsewhere and when resources permit, they will alleviate material weaknesses through various steps.
(a)
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal controls over financial reporting that occurred during our fourth fiscal quarter of the period covered by this Annual Report on Form 10-KSB that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Current Directors and Executive Officers
As of the date of this Annual Report, the Company’s directors and executive officers are as follows:
The Directors hold their positions until the next annual general meeting of the Company’s shareholders or until their successors are duly elected and qualified. The Company’s executive officers serve at the pleasure of the Board of Directors.
The backgrounds of our directors and executive officers are as follows:
GRAHAM TAYLOR is the principal founder of Magnus. He has been the President and CEO of the Company since November 24, 2003. Mr. Taylor is also the founder and President of Technique Capital Corporation, which was founded in 1999 and is a venture capital, mergers and acquisitions, and corporate advisory firm for North American, Chinese and other international companies. Mr. Taylor has eleven years of experience in the world of global finance, having started his finance career in the investment industry in London, England with the international investment banks Nomura International and Banque National de Paris. In 1996, he returned to Vancouver, British Columbia, Canada to establish himself as a financier to small cap companies publicly listed in Canada and in the United States. Since that time, Mr. Taylor has been involved in private and public securities deal structuring and financing for a variety of companies spanning several different industries.
STEVEN TAN has been a director of the Company since February 8, 2005. Mr. Tan is a professional engineer who received his mechanical engineering certification from Loughborough University (Midlands, United Kingdom) in 1960 and a D.I.C. degree from the Imperial College of Science and Technology in London in 1961. In 1964, Mr. Tan founded Setron, a company that he would turn into the largest television and electronic equipment manufacturer in South East Asia, and which listed on the Singapore Stock Exchange. Mr. Tan eventually sold Setron to Haw Par International in 1980. Also in 1980, the Republic of Singapore acknowledged Mr. Tan's contributions to his country by presenting him with a lifetime contribution Public Service Medal (P.B.M.). Mr. Tan has extensive experience serving on the Boards of both public and private companies, but has not served on the Board of another public company in the last five years.
Involvement in Certain Legal Proceedings
To our knowledge, during the past five years, no present or former director or executive officer of the Company: (1) filed a petition under the federal bankruptcy laws or any state insolvency law, nor had a receiver, fiscal agent or similar officer appointed by a court for the business or present of such a person, or any partnership in which he was a general partner at or within two yeas before the time of such filing, or any corporation or business association of which he was an executive officer within two years before the time of such filing; (2) was convicted in a criminal proceeding or named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from or otherwise limiting the following activities: (i) acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, associated person of any of the foregoing, or as an investment advisor, underwriter, broker or dealer in securities, or as an affiliated person, director of any investment company, or engaging in or continuing any conduct or practice in connection with such activity; (ii) engaging in any type of business practice; (iii) engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of federal or state securities laws or federal commodity laws; (4) was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any federal or state authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described above under this Item, or to be associated with persons engaged in any such activity; (5) was found by a court of competent jurisdiction in a civil action or by the Securities and Exchange Commission to have violated any federal or state securities law and the judgment in subsequently reversed, suspended or vacate; (6) was found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act, as amended, requires our executive officers, directors and persons who beneficially own more than 10% of our shares of common stock to file reports of their beneficial ownership and changes in ownership (Forms 3, 4 and 5, and any amendment thereto) with the SEC. Executive officers, directors, and greater-than-ten percent holders are required to furnish us with copies of all Section 16(a) forms they file.
Based solely upon a review of the Forms 3, 4, and 5 furnished to us for the fiscal year ended July 31, 2009, we have determined that our directors, officers, and greater than 10% beneficial owners complied with all applicable Section 16 filing requirements.
Information concerning the Company's audit committee, including designation of the “Audit Committee Financial Expert” under applicable Securities and Exchange Commission rules
At the present time, the Company does not have an audit committee, nor does it have a financial expert on the Board of Directors. The Company intends to search for and have a financial expert appointed to the Board of Directors in the near future. In addition, the Company intends to appoint an audit committee in the near future.
Code of Ethics
At the present time, the Company has not adopted a code of ethics. The Company intends to adopt a code of ethics.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information with respect to compensation paid by the Company to the Chief Executive Officer and other named executive officers during the three most recent fiscal years. The Company did not have any other highly compensated executive officers with annual salary and bonus in excess of $100,000 per year.
(1) Mr. Graham Taylor was appointed the President, CEO, CFO, Secretary, Treasurer and a Director of the Company on November 24, 2003. From December 1, 2003 to December 31, 2008, Mr. Taylor was being paid a consulting fee of $120,000 per year to serve as the President, CEO, CFO, Secretary, Treasurer and a Director of the Company. From 1 January 2009 to 1 July 2009 Mr. Taylor was paid a consulting fee of $6,250 Canadian per month.
(2) On January 26, 2004, the Board of Directors granted 4,000,000 stock options to various directors, officers, employees and consultants of the Company. Mr. Taylor was granted 1,600,000 stock options with the following terms: 1/24 of the options vested on February 1, 2004, and a further 1/24 of the original grant vests on the first day of each subsequent month. The exercise price for these stock options is $0.50 per share. As of the date of this Annual Report, Mr. Taylor has exercised 800,000 options. See note 12 to the financial statements for details on assumptions made in valuing options.
(3) Mr. Gavin Conway was appointed Director of the Company on June 21, 2007 and was the Company’s VP Exploration in Africa. Mr. Conway resigned from these positions on December 31, 2008 but remains as a consultant to the Company. On November 1, 2007, he was issued 300,000 options, 225,000 of which have vested as of the date of this Annual Report and the remainder of which will vest evenly over 9 months.
Officers and directors of the Company are reimbursed for any out-of-pocket expenses incurred by them on behalf of the Company. None of the Company's directors or officers is currently a party to employment agreements with the Company. The Company presently has no pension or annuity programs. However, as of August of 2005, the Company initiated an employment group health and benefits plan, which gives some employees and consultants limited health, dental, travel insurance and life insurance benefits.
No long term incentive plan awards were made to any executive officer during the fiscal year ended July 31, 2009.
Option/SAR Grants in Fiscal Year
The Company did not grant any options in fiscal year 2009.
See Note to the financial statements included herein for discussion of particular option grants, duration and vesting periods, valuation methods and underlying assumptions used in making the valuation calculations.
The following table describes the stock options of the Company that are currently outstanding:
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth information as of the date of this Annual Report, with respect to the Company’s directors, named executive officers, and each person who is known by the Company to own beneficially, more than five percent (5%) of the Company’s common stock, and with respect to shares owned beneficially by all of the Company’s directors and executive officers as a group. Common Stock not outstanding but deemed beneficially owned by virtue of the right of an individual to acquire shares within 60 days is treated as outstanding only when determining the amount and percentage of Common Stock owned by such individual. Except as noted, each person or entity has sole voting and sole investment power with respect to the shares shown.
As of the date of this Annual Report, there are 54,740,470 shares of common stock issued and outstanding.
(*) indicates less than 1%
(1) Beneficial ownership of common stock has been determined for this purpose in accordance with Rule 13d-3 under the Exchange Act, under which a person is deemed to be the beneficial owner of securities if such person has or shares voting power or investment power with respect to such securities, has the right to acquire beneficial ownership within 60 days or acquires such securities with the purpose or effect of changing or influencing the control of the Company.
(2) This figure includes 800,000 stock options which have already vested.
(3) This figure includes 75,000 stock options which have already vested as of the date of this Annual Report.
(4) Excel Capital Corp. is a corporation organized under the laws of the Federation of St. Kitts & Nevis, West Indies. Graham Taylor, the President and CEO of Magnus, has indirect control over Excel Capital Corp. through an indirect power to appoint advisors of Excel Capital Private Foundation, which owns Excel Capital Corp. Excel Capital Corp. also holds 42,500 Series B Preferred Shares of Magnus.
(5) Emerson Capital Corp. is a corporation organized under the laws of the Federation of St. Kitts & Nevis, West Indies. Graham Taylor, the President and CEO of Magnus, has indirect control over Emerson Capital Corp. through an indirect power to appoint advisors of Emerson Capital Private Foundation, which owns Emerson Capital Corp. Emerson Capital Corp. also holds 42,500 Series B Preferred Shares of Magnus.
(6) This figure includes 800,000 stock options which are owned by Graham Taylor and which have vested as of the date off this Annual Report; 75,000 stock options which are owned by Steven Tan and which have vested or will vest within 60 days of the date of this Annual Report; 8,066,666 common shares held by Excel Capital Corp. and 8,066,668 common shares held by Emerson Capital Corp.
Securities Authorized for Issuance under Equity Compensation Plans
On January 9, 2004, the Board of Directors of the Company unanimously approved and adopted a stock option plan (the “Stock Option Plan”). The purpose of the Stock Option Plan is to advance the interests of the Company and its shareholders by affording key personnel of the Company an opportunity for investment in the Company and the incentive advantages inherent in stock ownership in the Company. Pursuant to the provisions of the Stock Option Plan, stock options (the “Stock Options”) will be granted only to key personnel of the Company, generally defined as a person designated by the Board of Directors upon whose judgment, initiative and efforts the Company may rely including any director, officer, employee or consultant of the Company.
The Stock Option Plan is to be administered by the Board of Directors of the Company, which shall determine (i) the persons to be granted Stock Options under the Stock Option Plan; (ii) the number of shares subject to each option; (iii) the exercise price of each Stock Option; and (iv) whether the Stock Option shall be exercisable at any time during the option period of ten (10) years or whether the Stock Option shall be exercisable in installments or by vesting only. The Stock Option Plan provides authorization to the Board of Directors to grant Stock Options to purchase a total number of shares of common stock of the Company, not to exceed thirty percent (30%) of the total issued and outstanding shares of common stock of the Company as at the date of adoption by the Board of Directors of the Stock Option Plan. At the time the Stock Option is granted under the Stock Option Plan, the Board of Directors shall fix and determine the exercise price at which shares of common stock of the Company may be acquired; provided, however, that any such exercise price shall not be less than that permitted under the rules and policies of any stock exchange or over-the-counter market which is applicable to the Company.
In the event an optionee who is a director or officer of the Company ceases to serve in that position, any Stock Option held by such optionee generally may be exercisable within up to ninety (90) days after the effective date that his position ceases, and after such ninety-day period any unexercised Stock Option shall expire unless otherwise approved by the Company’s board of directors. In the event an optionee who is an employee or consultant of the Company ceases to be employed by the Company, any Stock Option held by such optionee generally may be exercisable within up to ninety (90) days (or up to thirty (30) days where the optionee provided only investor relations services to the Company) after the effective date that his employment ceases, and after such ninety or thirty-day period any unexercised Stock Option shall expire unless otherwise approved by the Company’s board of directors.
No Stock Options granted under the Stock Option Plan will be transferable by the optionee, and each Stock Option will be exercisable during the lifetime of the optionee subject to the option period of ten (10) years or limitations described above. Any Stock Option held by an optionee at the time of his death may be exercised by his estate within one (1) year of his death or such longer period as the Board of Directors may determine.
The exercise price of a Stock Option granted pursuant to the Stock Option Plan shall be paid in cash or certified funds upon exercise of the option.
Incentive Stock Options
The Stock Option Plan further provides that, subject to the provisions of the Stock Option Plan, the Board of Directors may grant to any key personnel of the Company who is an employee eligible to receive options one or more incentive stock options to purchase the number of shares of common stock allotted by the Board of Directors (the “Incentive Stock Options”). The option price per share of common stock deliverable upon the exercise of an Incentive Stock Option shall be no less than fair market value of a share of common stock on the date of grant of the Incentive Stock Option. In accordance with the terms of the Stock Option Plan, “fair market value” of the Incentive Stock Option as of any date shall not be less than the closing price for the shares of common stock on the last trading day preceding the date of grant. The option term of each Incentive Stock Option shall be determined by the Board of Directors, which shall not commence sooner than from the date of grant and shall terminate no later than ten (10) years from the date of grant of the Incentive Stock Option, subject to possible early termination as described above.
As of the date of this Annual Report, the Company has 3,315,000 Stock Options and/or Incentive Stock Options outstanding. By action of the majority shareholders which occurred on May 4, 2004, the majority of the shareholders of the Company approved the Stock Option Plan and the Board of Directors is authorized, without further shareholder approval, to grant stock options from time to time to acquire up to an aggregate of 6,000,000 shares of the Company’s restricted common stock.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Graham Taylor, the Company’s President and CEO, has indirect control over Excel Capital Corp. and Emerson Capital Corp. through an indirect power to appoint advisors of Excel Capital Private Foundation and Emerson Capital Private Foundation, which own Excel Capital Corp. and Emerson Capital Corp., respectively.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees
The aggregate fees billed for the last two fiscal years for professional services rendered by the principal accountant for the audit of the Company’s annual financial statements and review of financial statements included in the Company’s Form 10-QSBs or services that are normally provided by the accountant in connection with statutory and regulatory engagements for those fiscal years was:
2009 - $ 27,000 - Schumacher & Associates Inc.
2008 - $ 54,250 - Schumacher & Associates Inc.
2007 - $118,700 - Schumacher & Associates Inc.
2006 - $85,600 - Schumacher & Associates Inc.
2005 - $77,942 - Moore Stephens Ellis Foster Ltd., Ernst & Young
2004 - $13,710 - Moore Stephens Ellis Foster Ltd.
2003 - $16,203 - Miller & McCollom
Audit - Related Fees
The aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountants that are reasonably related to the performance of the audit or review of the Company’s financial statements and are not reported in the preceding paragraph:
2009 - Nil - Schumacher & Associates Inc.
2008 - Nil - Schumacher & Associates Inc.
2007 - Nil - Schumacher & Associates Inc.
2006 - Nil - Schumacher & Associates Inc.
2005 - Nil - Moore Stephens Ellis Foster Ltd., Ernst & Young
2004 - Nil - Moore Stephens Ellis Foster Ltd.
2004 - Nil - Miller & McCollom
2003 - Nil - Miller & McCollom
Tax Fees
The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning was:
2009 - Nil - Schumacher & Associates Inc
2008 - Nil - Schumacher & Associates Inc
2007 - Nil - Schumacher & Associates Inc.
2006 - Nil - Shumacher and Associates Inc.
2005 - Nil - Moore Stephens Ellis Foster Ltd., Ernst & Young
2004 - Nil - Moore Stephens Ellis Foster Ltd.
2004 - Nil - Miller & McCollom
2003 - Nil - Miller & McCollom
All Other Fees
The aggregate fees billed in each of the last two fiscal years for the products and services provided by the principal accountant, other than the services reported in paragraphs (1), (2), and (3) was:
2009 - Nil - Schumacher & Associates Inc
2008 - Nil - Schumacher & Associates Inc
2007 - Nil - Schumacher & Associates Inc.
2006 - Nil - Schumacher and Associates Inc.
2005 - Nil - Moore Stephens Ellis Foster Ltd., Ernst & Young
2004 - Nil - Moore Stephens Ellis Foster Ltd.
2004 - Nil - Miller & McCollom
2003 - Nil - Miller & McCollom
PART IV
ITEM 15.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
The following exhibits are filed as part of this Annual Report:
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 13th day of November, 2009.
MAGNUS INTERNATIONAL RESOURCES INC.
(Registrant)
By: /s/ Graham Taylor
Graham Taylor
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
Signature
Title
Date
/s/ Graham Taylor
Graham Taylor
President, CEO, CFO, Secretary, Treasurer and Director
November 13, 2009
/s/ Steven Tan
Steven Tan
Director
November 13, 2009