UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 2005
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission File Number: 000-50146
Tornado Gold International Corp.
--------------------------------
(Exact name of small business issuer as specified in its charter)
Nevada 94-3409645
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8600 Technology Way, Suite 118, Reno, Nevada 89521
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(Address of principal executive offices)
775-852-3770
(Issuer's Telephone Number)
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practical date. As of March 30, 2006, there were
28,791,726 shares of the issuer's $.001 par value common stock issued and
outstanding.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
State issuer's net revenues for its most recent fiscal year. $0.
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days. (See definition of affiliate in Rule
12b-2 of the Exchange Act.) As of March 30, 2006, approximately $12,523,201.08.
Documents incorporated by reference. There are no annual reports to security
holders, proxy information statements, or any prospectus filed pursuant to Rule
424 of the Securities Act of 1933 incorporated herein by reference.
Transitional Small Business Disclosure format (check one):
[ ] Yes [X] No
1
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
OUR BACKGROUND. We were incorporated in Nevada as Nucotec, Inc. on October 8,
2001 in order to serve as a holding company for Salty's Warehouse, Inc. We
disposed of that asset in March 2004 as described herein. We changed our name to
Tornado Gold International Corp., in July 2004.
OUR BUSINESS. Subsequent to the period covered by this report, our new
management has undertaken to change our business focus. Prior to March 2004, we
operated through our subsidiary, Salty's Warehouse, as described below.
Under our new management, we have begun acquiring low-risk, high-grade
properties for gold exploration in Nevada. Using the evaluation technique
described herein, we hope to acquire properties that will offer new economically
viable gold mining properties for resale to entities who will undertake to begin
mining operations on those properties. We believe that our technical team,
consisting of our new management will help us operate successfully: Earl W.
Abbott, our officer and director, has extensive data and program management
experience; Stanley B. Keith, one of our directors, has data and technical
advisory experience; and Carl A. Pescio, also one of our directors, has
'on-the-ground' prospecting and property knowledge.
In particular, Stanley B. Keith has developed what we believe to be a new and
unique technological approach for exploration of certain types of gold deposits;
we hope to use this approach to identify suitable properties. Mr. Keith's
approach has been developed over a twenty year period and has been applied to a
large, world-wide database that links specific geochemical signatures of these
types of gold deposits.
We will seek to acquire only properties that exhibit these characteristics. We
believe that using this methodology can enable us to eliminate properties that
would turn out to contain lower quality gold deposits. Utilizing this
geochemical screening methodology, we will seek to operate a successful property
acquisition program that eliminates higher risk properties.
With our most recent acquisitions of property interests in the fourth quarter of
2005, we now have a total of 15 properties comprised of about 44,840 acres all
located in the North Central Nevada area. We believe that this acquisition
provides us with a significant package of claims in what we believe to be a
premier gold producing region.
The North Central Nevada area, roughly 300 km. by 300 km. is home to numerous
producing gold mines, including Barrick's Goldstrike Mine on the Carlin Trend,
Newmont's Twin Creek's Mine on the Getchell Trend, and Placer Dome's Pipeline
Mine on the Eureka-Battle Mountain (Cortez) Trend. In our estimation, our
portfolio of about 44,840 acres makes us one of the largest junior exploration
companies in the region. Our next two phases of development will be to advance
the properties by identifying and prioritizing the very best drill targets and
then drill those targets.
On May 31, 2004, we entered into four preliminary agreements with a company
wholly owned by Mr. Carl A. Pescio one of our directors, to lease four mining
properties. As of April 5, 2005 we finalized those agreements, giving us rights
to four properties in Nevada that meet our preliminary screening criteria and
have begun to undertake our more detailed evaluation process. In addition, we
are actively seeking additional properties; our technical team currently has
about 30 such properties on a `watch list' for acquisition.
In June 2004, we acquired 125 mining claims in Nevada from the Bureau of Land
Management for $21,283, which includes the costs of filing fees and other
related acquisition costs.
During October 2005, we entered into ten preliminary agreements with Mr. Carl A.
Pescio, one of our directors, to acquire ten mineral properties in Nevada. These
properties are comprised of approximately 1600 claims and are subject to
availability and are being acquired by us without warranty from Mr. Pescio as to
total availability and/or mineral potential. We have not yet finalized these
agreements, but a short description of these properties is contained herein. We
acquired these properties for $35,000 per property, or $350,000, with a down
payment of $50,000 and two payments of $150,000; one and November 30, 2005 and
one on December 30, 2005. We also agreed to issue shares to Mr. Pescio in the
form of warrants, options, or other, to be mutually agreed to, of 100,000 shares
of the company for each of the properties.
2
MINING CLAIMS. The properties we hold claims to are described below. Maps of
these properties are located on our website at www.tornadogold.com.
NTGREEN GOLD PROPERTY. The NTGreen gold property is located in central Lander
County, Nevada about 30 miles southwest of the town of Battle Mountain. The
property is connected with Battle Mountain via an interstate highway, paved
roads, good gravel roads, and finally a system of unimproved, dirt roads. We
hold a total of 12 unpatented lode mining claims in the form of an option
agreement with the claimant, Carl A. Pescio, one of our directors. All of the
claims are recorded with the Lander County Recorder and filed with the Bureau of
Land Management. We must make annual rental payments of $140 per claim to the
BLM and Lander County before September 1 of each year to keep the claims
current. We must also make escalating advance royalty payments to Mr. Pescio to
maintain the option agreement, beginning with $22,500 on or before February 5,
2005 and rising to $100,000 by February 5, 2011. We must perform a work
commitment of 5,000 feet of drilling by September 1, 2006 followed by an annual
work commitment of 5,000 feet of drilling until the completion of a bankable
feasibility. Excess footage may be carried over from year to year and an option
to pay $10 per foot not drilled may be exercised. The property is subject to a
4% net smelter royalty that may be bought down to a 2% net smelter royalty by
the payment of $1,500,000 per one percent.
Upper Paleozoic sedimentary rocks are exposed in an erosional window beneath
Tertiary volcanic rocks. The Paleozoic rocks exhibit the characteristics of
gold-bearing rocks in the nearby Cortez mining district where Placer Dome Mining
Company is mining several large gold ore deposits between 4 and 8 miles from the
NTGreen property. One of Placer Dome's major mines, the Pipeline Mine, is
traversed by a fault structure that continues onto the NTGreen property. Placer
Dome reported the area that includes the NTGreen property and their own active
mines and exploration properties contains a "gold endowment of at least 34
million ounces". Placer Dome is a former operator of the NTGreen property, but
no data from their exploration work is in our hands. Low levels of gold as well
as associated trace elements are documented from the property by limited surface
sampling done by Mr. Pescio.
The NTGreen property is undeveloped and no reserves or resources are known. No
mining or other mineral development is known to have been performed on the
property. Carl A. Pescio did only limited work on the property and no work has
been done by us. We believe that there are indications that an extensive gold
system is present on the property that may have significant economic potential,
though there is no guarantee that this is the case. We plan to conduct
exploration work in the form of geological, geochemical, and geophysical studies
to develop drill targets. Drilling will investigate these targets. Discovery of
potentially economic gold values we believe will be followed by development of a
reserve and, eventually, mining.
GOODWIN HILL GOLD PROPERTY. The Goodwin Hill gold property is located in east
central Lander County, Nevada about 60 miles south of the town of Battle
Mountain and about 20 miles northeast of the town of Austin. A good gravel
county road, connecting to Battle Mountain and Austin, traverses the property.
We hold a total of 92 unpatented lode mining claims in the form of an option
agreement with the claimant, Carl A. Pescio. All of the claims are recorded with
the Lander County Recorder and filed with the Bureau of Land Management. We must
make annual rental payments of $140 per claim to the BLM and Lander County
before September 1 of each year to keep the claims current. We must also make
escalating advance royalty payments to Mr. Pescio to maintain the option
agreement, beginning with $22,500 on or before February 5, 2005 and rising to
$100,000 by February 5, 2011. We must perform a work commitment of 5,000 feet of
drilling by September 1, 2006 followed by an annual work commitment of 5,000
feet of drilling until the completion of a bankable feasibility. Excess footage
may be carried over from year to year and an option to pay $10 per foot not
drilled may be exercised. The property is subject to a 4% net smelter royalty
that may be bought down to a 2% NSR net smelter royalty by the payment of
$1,500,000 per one percent.
The property is centered on a small hill of Paleozoic limestone surrounded by
alluvium recent gravels that obscure the basement rocks. Geophysical studies by
Kennecott Mining Company, the former operator, have reportedly indicated that
the basement rocks are at a shallow depth beneath the gravels in some areas on
the property. The limestone outcrop is along the northeast projection of a
dome-like feature that exposes Paleozoic rocks of the lower plate of the Roberts
Mountains Thrust Fault. These rocks are known to be the host rocks for very
large gold deposits 25 to 45 miles to northeast in the Carlin and Cortez mining
districts. Igneous rocks that are believed to by the source of gold intrude an
altered siltstone that is exposed just to the south of the property. Work by the
previous operator, Kennecott has reportedly encountered low level gold and
elevated levels of arsenic and other trace elements known to be associated with
gold. Shallow drilling in the gravels over the geophysically determined shallow
basement rocks reportedly encountered low level gold and associated elements in
the basement rocks.
3
The property is undeveloped and no reserves or resources are known. No mining or
other mineral development is known to have been performed on the property. No
exploration work has been done to date by the Carl A. Pescio or by Tornado Gold
International. However, an extensive gold system is reportedly indicated by the
work of Kennecott that may have significant economic potential. We plan to
conduct exploration work in the form of geological, geochemical, and geophysical
studies are planned to develop drill targets. Drilling will investigate these
targets. If we discover potentially economic gold values we believe the property
will be ready for development of a reserve and, eventually, mining.
WILSON PEAK GOLD PROPERTY. The Wilson Peak property is located in Elko County,
Nevada about 70 miles north of the town of Elko and about 20 miles north of the
town of Tuscarora. Paved highways connect to a good gravel county road that
traverses the property. We hold a total of 61 unpatented lode mining claims in
the form of an option agreement with the claimant, Carl A. Pescio, one of our
directors. All of the claims are recorded with the Lander County Recorder and
filed with the Bureau of Land Management. We must make annual rental payments of
$140 per claim to the BLM and Lander County before September 1 of each year to
keep the claims current. We must also make escalating advance royalty payments
to Mr. Pescio to maintain the option agreement, beginning with $22,500 on or
before February 5, 2005 and rising to $100,000 by February 5, 2011. We must
perform a work commitment of 5,000 feet of drilling by September 1, 2006
followed by an annual work commitment of 5,000 feet of drilling until the
completion of a bankable feasibility. Excess footage may be carried over from
year to year and an option to pay $10 per foot not drilled may be exercised. The
property is subject to a 4% net smelter royalty that may be bought down to a 2%
net smelter royalty by the payment of $1,500,000 per one percent.
The property is on the west flank of the Bull Run Mountains and covers an area
of Tertiary volcanic rocks containing elevated gold values extending for a
length of at least 2 miles. This area has been investigated by previous
operators, including Newmont Mining Company, Teck Resources, Euro-Nevada Mining
Corporation, and Freeport-McMoRan Gold Company. These previous operators
performed surface sampling and drilling. In addition to elevated gold values,
associated trace elements such as arsenic and mercury are present in elevated
amounts.
The Wilson Peak property is undeveloped and no reserves or resources are known.
No mining or other mineral development is known to have been performed on the
property. Carl A. Pescio did no work on the property and no work has been done
by us. Indications are that an extensive gold system is present on the property
that may have significant economic potential. We plan to conduct exploration
work in the form of geological, geochemical, and geophysical studies to develop
drill targets. Drilling will investigate these targets. If we discover
potentially economic gold values on the property, we believe the property will
then be ready for the development of a reserve and, eventually, mining.
HMD GOLD PROPERTY. The HMD gold property is located in Eureka County, Nevada,
about 30 miles southwest of the town of Carlin. An interstate highway, paved
roads and good gravel roads connect the property with Carlin. We hold a total of
32 unpatented lode mining claims in the form of an option agreement with the
claimant, Carl A. Pescio, one of our directors. All of the claims are recorded
with the Lander County Recorder and filed with the Bureau of Land Management. We
must make annual rental payments of $140 per claim to the BLM and Lander County
before September 1 of each year to keep the claims current. We must also make
escalating advance royalty payments to Mr. Pescio to maintain the option
agreement, beginning with $22,500 on or before February 5, 2005 and rising to
$100,000 by February 5, 2011. We must perform a work commitment of 5,000 feet of
drilling by September 1, 2006 followed by an annual work commitment of 5,000
feet of drilling until the completion of a bankable feasibility. Excess footage
may be carried over from year to year and an option to pay $10 per foot not
drilled may be exercised. The property is subject to a 4% net smelter royalty
that may be bought down to a 2% net smelter royalty by the payment of $1,500,000
per one percent.
The HMD property is within a geologic feature called the Northern Nevada Rift
that also contains such active projects as the operating Ken Snyder Mine at
Midas and the Ivanhoe Project being developed by Hecla Mining Company. Recently
mined deposits along the Northern Nevada Rift include the Mule Canyon Mine,
about 1 million ounces of gold pre-mining resource, 20 miles to the northwest
and the Buckhorn Mine, about 500,000 ounces of gold pre-mining resource, 10
miles to the southeast. Near the range front of the Cortez Range, the property
covers a distinct vein of quartz along a fault structure. The structure can be
followed for a length of at least one mile and is probably more extensive under
gravel cover. The vein is more than 50 feet thick in places along the structure.
Shallow drilling by previous operators, including Homestake Mining Company,
reportedly encountered significant intervals of subeconomic gold and surface
samples reportedly contain as much as 0.1 ounces gold per ton.
4
The property is undeveloped and no reserves or resources are known. No mining or
other mineral development is known to have been performed on the property. No
exploration work has been done to date by Carl A. Pescio or by Tornado Gold
International. However, an extensive gold system is reportedly indicated by the
work done by Homestake that may have significant economic potential. We plan to
conduct exploration work in the form of geological, geochemical, and geophysical
studies to develop drill targets. Drilling will investigate these targets. We
hope to discover potentially economic gold values, which we believe will be
followed by development of a reserve and, eventually, mining.
A schedule of the advanced lease payments for the each of the four properties
above (HMD Gold Property, NT Green Gold Property, Wilson Peak Gold Property and
the Goodwin Hill Property) are as follows:
Due Date Amount
-------- ------
June 5, 2004 $ 15,000
Feb 5, 2005 $ 22,500
Feb 5, 2006 $ 30,000
Feb 5, 2007 $ 37,500
Feb 5, 2008 $ 50,000
Feb 5, 2009 $ 62,500
Feb 5, 2010 $ 75,000
Feb 5, 2011 and each
year thereafter until
production commences $100,000
Upon completion of a bankable feasibility study and payments totaling $105,000,
we will own 100% of the property subject to a continuing production royalty of
4%. Once the $105,000 is paid, all subsequent payments will convert into advance
minimum royalty payments that are credited against the 4% production royalty
due. A 1% royalty is also due Mr. Pescio on production on property consisting of
a 2 mile circumference surrounding the leased property.
We will pay additional land acquisition and filling fees on the property. We are
committed to drill 5,000 feet on the property in each year commencing on or
before September 1, 2006 and continuing until the completion of the feasibility
study. Excess footage drilled in any year will be carried forward to subsequent
years. We have the option to pay Mr. Pescio $10 per foot committed to and not
drilled.
Prior to the completion of the feasibility study, we have the right to purchase
2% of the 4% production royalty for $1,500,000 for each percentage point. We
also have the option to purchase 50% of the 1% royalty for $500,000.
We shall be responsible for all environmental liabilities and reclamation costs
we create and indemnify Mr. Pescio against any such claims or obligations. We
can terminate the lease at any time by giving 30 days notice provided that there
are no outstanding environmental or reclamation liabilities and that all lease
and production royalty payments are current.
We are current with all the lease payments on this property as of March 30,
2006.
OTHER CLAIMS ACQUIRED IN 2005
JACK CREEK PROPERTY. On October 3, 2005, we announced the acquisition of the
247-claims (nearly 5,000 acres) Jack Creek property in Elko County, Nevada. Our
final purchase price is still being determined. Prior to September 30, 2005, we
paid $30,875 to the Bureau of Land Management to secure the claims. This payment
was made as consideration on the Exploration License and Option to Lease
Agreement entered into between us and Dr. Earl Abbott, and Stanley Keith ("the
Owners"), to explore 247 claims (nearly 5,000 acres) known as the Jack Creek
Property. Dr. Abbott is our president and Mr. Keith is one of our directors.
Under the preliminary terms of this agreement, we were granted a license to
explore the property for a period of six-month to determine what claims, if any,
it wishes to lease. The term of the license is for six-months, but we have the
option to extend. The property, located in the Northern Independence Range, is
adjacent to Gateway Gold Corp.'s Big Springs and Dorsey Creek properties
currently being explored at a budget of $5.2 million for 2005.
The Jack Creek property is located 3 miles to the southwest, and is believed to
share the same structural features as well as similar sedimentary rocks and
igneous instructive rocks that are important to the mineralization of the Big
Springs Mine.
Between 1987 and 1993 Independence Mining Company, the mine operator at Big
Springs, mined 510,000 ounces of gold in seven open pits. At Dorsey Creek,
immediately adjacent to the Jack Creek property, Gateway recently announced the
discovery of a large Carlin-style gold system including a drill intercept of 20
feet of 0.255 opt (ounces per ton) gold by a previous operator. Our management
believes that the gold system extends onto the Jack Creek property and therefore
it has the potential of a significant gold deposit discovery.
5
If we lease all of the 247 claims, we will be required to make the following
advance lease payments:
Due Date Amount
-------- ------
Upon signing $ 22,500
1st anniversary $ 30,000
2nd anniversary $ 37,500
3rd anniversary $ 50,000
4th anniversary $ 62,500
5th anniversary and each
anniversary thereafter $100,000
If any payments due from us to the Owners, Dr. Abbott, our president and one of
our directors, and Mr. Keith, one of our directors, are not paid within 30 days
of its due date, interest will be begin to accrue on the late payment at a rate
of 2% over the prime rate established by the Department of Business and Industry
of the State of Nevada.
Upon completion of a bankable feasibility study and payments totaling $140,000,
all subsequent payments will convert into advance minimum royalty payments that
are credited against the 4% production royalty due. A 1% royalty is also due the
owners on production on property consisting of a 2 mile circumference
surrounding the leased property.
We will have the option to purchase one-half of the royalty applicable to the
property representing 2% of the net smelter returns. We will also have the right
to elect to purchase such part of the royalty in increments representing 1% of
the net smelter returns and the purchase price for each such increment shall be
$1,500,000. We will have the option to purchase one-half of the area of interest
royalty applicable to mineral rights, mining claims and properties which we
acquire from third parties representing 0.5% of the Net Smelter Returns. The
purchase price for such part of the area of interest royalty shall be $500,000
for the 0.5% of the area of interest royalty applicable to mineral rights,
mining claims and properties which we acquire from any third party.
We shall be responsible for all environmental liabilities and reclamation costs
it creates and indemnifies the owners against any such claims or obligations. We
can terminate the lease at any time by giving 30 days notice provided that there
are no outstanding environmental or reclamation liabilities and that all lease
and production royalty payments are current.
The terms and obligations disclosed above are based upon preliminary agreements
of the parties still under review and may be subject to change.
BROCK DRY HILLS, GOLCONDA, HORSESHOE BASIN, MARR, NORTH BATTLE MOUNTAIN, SOUTH
LONE MOUNTAIN, STARGO, WALTI, AND WEST WHISTLER PROPERTIES.
On October 6, 2005, we entered into a preliminary agreement with Mr. Carl
Pescio, one of our directors, to lease 10 mineral properties (about 1,300
claims) in Nevada. Under the term of the preliminary agreement, we are to make
advance lease payments to Mr. Pescio on each property based upon the following
schedule:
Due Date Amount
-------- ------
Upon signing $ 35,000
1st anniversary $ 55,000
2nd anniversary $ 75,000
3rd anniversary $100,000
4th anniversary $125,000
5th anniversary $150,000
6th anniversary and each
anniversary thereafter $200,000
6
The above $35,000 advance in 2005 was to be paid in installments of $5,000 upon
signing. The remaining $30,000 was paid in 2006. We are currently in
renegotiations with Mr. Pescio to finalize the actual terms of the 10 leases.
SUMMARY OF MINIMUM LEASE PAYMENTS:
Based upon the actual terms of the leases acquired in May 2004 and the
preliminary terms of the leases acquired in October 2005, our obligation for
minimum lease payments on these 15 properties is as follows:
2006 $ 692,500*
2007 $ 930,000
2008 $ 1,237,500
2009 $ 1,550,000
2010 $ 1,862,500
Minimum lease payments in
Subsequent years $ 2,500,000
* (Excludes the $300,000 paid in 2006 on the above 10 mining properties)
As of December 31, 2005, we incurred $524,333 in acquisition costs. All of the
properties held are located in the state of Nevada. We have recently commenced
our exploration of these properties and have yet to determine whether any of our
properties are commercially viable. In order for us to complete this analysis,
additional funding is required.
DESCRIPTIONS OF OUR PROPERTIES:
Brock Property: A total of 222 lode claims (about 4,440 acres) in Eureka County,
Nevada comprise the Brock Property. It is located in the Monitor Range, about 36
miles southwest of Eureka, Nevada. It is also about 24 miles northeast of the
Northumberland Mine where Newmont Mining Company is developing a gold resource
to augment the more than 200,000 ounces of gold already produced there by
previous operators. The geologic setting at Brock is similar to Northumberland
with alteration and mineralization occurring in the Lower Plate/Eastern
"carbonate" assemblage of the Roberts Mountains Thrust Fault. At Brock
alteration/mineralization in the form of jasperoid is widespread throughout the
carbonate assemblage.
Dry Hills Property: A total of 96 lode claims (about 1,920 acres) in Eureka
County, Nevada comprise the Dry Hills Property. It is located in the Dry Hills,
about 20 miles southwest of Carlin, Nevada. The property is underlain by
Jurassic volcanic rocks and volcanic sediments are cut by mineralized
northeast-trending fracture zones.
Golconda Property: A total of 108 lode claims (about 2,160 acres) in Humboldt
County, Nevada comprise the Golconda Property. It is located in Rock Creek
Valley, about 12 miles east of Winnemucca, Nevada and near the intersection of
the Getchell Trend (more than 30 million ounces of gold) and the north end of
the Battle Mountain-Eureka (also known as the Cortez) Trend (more than 20
million ounces of gold in this area). Total gold resources are taken from a
variety of operating company publications. Mineralized Paleozoic formations and
mineralized fault structures are projected into the Golconda Property, but are
covered by younger alluvium and basalt.
Horseshoe Basin Property: A total of 50 lode claims (about 1,000 acres) in
Lander County, Nevada comprise the Horseshoe Basin Property. It is located in
the Fish Creek Mountains about 30 miles south of Battle Mountain, Nevada and
about 4 miles south of the McCoy and Cove deposits with combined resources of
4.5 million ounces of gold and 165 million ounces of silver. Triassic
sedimentary rocks are intruded by both Jurassic and Tertiary igneous intrusive
rocks, producing precious metal-bearing skarn. At Horseshoe Basin, an erosional
window exposes various intrusive rocks that contain alteration and
mineralization with quartz veins containing values to as high as 0.35 ounce per
ton gold.
7
Marr Property: A total of 93 lode claims (about 1,840 acres) in Lander County,
Nevada comprise the Marr Property. It is located between the Fish Creek
Mountains and the Ravenswood Mountains about 50 miles southwest of Battle
Mountain, Nevada. The property is along the Western Nevada Rift, host to the
Sleeper deposit that has a recorded production of 1.68 million ounces of gold at
less than $100 per ounce production cost. At Marr, northeast-trending fractures
control a 2 mile long and 3,000 feet wide system of mineralization and
alteration in the form of silicification and brecciation with surface grab
samples reported as high 0.10 ounce per ton gold. Limited drilling by a previous
operator encountered gold mineralization to 0.03 ounce per ton.
North Battle Mountain Property: A total of 73 lode claims (about 1,460 acres) in
Lander County, Nevada comprise the North Battle Mountain Property. It is located
in the Sheep Creek Range, about 4 miles northeast of Battle Mountain, Nevada,
along the northern extension of the Battle Mountain-Eureka (Cortez) Trend.
Paleozoic rocks of the upper plate of the Roberts Mountains Thrust Fault exposed
in erosional windows through shallow alluvium, are mineralized on the property
in a similar fashion as at White Knight Resources' Slaven Canyon property
(approx. 100,000 ounces of gold resource) about 20 miles to the southeast.
South Lone Mountain Property: A total of 140 lode claims (about 2,800 acres) in
Eureka County, Nevada comprise the South Lone Mountain Property. It is located
on the west flank of the Mountain Boy Range in Antelope Valley about 15 miles
southwest of Eureka, Nevada. The property is covered by alluvium that obscures
Paleozoic sedimentary rocks. A Jurassic igneous intrusive body is exposed in the
nearby hills to the east. Faults that are an extension of the Cortez Fault
traverse the property.
Stargo Property: A total of 257 lode claims (about 5,140 acres) in Nye County,
Nevada comprise the Stargo Property. It is located in the Monitor Range about 45
miles southwest of Eureka, Nevada and about 20 miles west of the Northumberland
Mine. The geologic setting at Stargo is similar to Northumberland with
alteration and mineralization occurring in the Lower Plate/Eastern "carbonate"
assemblage of the Roberts Mountains Thrust Fault and near altered intrusive
igneous bodies. At Stargo alteration and mineralization in the form of jasperoid
is widespread throughout the carbonate assemblage, near altered igneous
intrusive bodies, and along faults.
Walti Property: A total of 402 lode claims (about 8,040 acres) in Eureka and
Lander Counties, Nevada comprise the Walti Property. It is located in Grass
Valley about 62 miles south of Carlin, Nevada. An intersection of important
fault structures is covered by alluvium on the Walti Property. Regional
published geophysics suggests the presence of an intrusive igneous rock body
coincident with the intersection. Paleozoic rocks that host gold deposits about
12 miles north are believed to exist beneath the alluvium.
West Whistler Property: A total of 103 lode claims (about 2,060 acres) in Eureka
County, Nevada comprise the West Whistler Property. It is located on the west
flank of Whistler Mountain about 10 miles northwest of Eureka, Nevada.
Alteration and mineralization in the form of jasperoid is developed in rocks of
the Overlap assemblage of the Roberts Mountains Thrust Fault on the flanks of an
intrusive igneous body.
Related property maps are viewable at our website: www.tornadogold.com.
INTELLECTUAL PROPERTY. We use the trade names of Tornado Gold International
Corp. We also own the domain name and content of our website, located at
www.tornadogold.com. Our website costs $17 per month, though occasionally higher
costs are incurred when we add information to our website. We depend on our
management's expertise in assessing potential property acquisitions, and as
such, our business depends on that proprietary information.
COMPETITION. In the United States there are numerous mining and exploration
companies, both big and small. All of these mining companies are seeking
properties of merit and availability of funds. We will have to compete against
such companies to acquire the funds to develop our mineral claims. The
availability of funds for exploration is sometimes limited and we may find it
difficult to compete with larger and more well-known companies for capital. Even
though we have the right to the minerals on our claims there is no guarantee we
will be able to raise sufficient funds in the future to maintain our mineral
claims in good standing. Therefore, if we do not have sufficient funds for
exploration our claims might lapse and be staked by other mining interests. We
might be forced to seek a joint venture partner to assist in the exploration of
our mineral claims. In this case, there is the possibility that we might not be
able to pay our proportionate share of the exploration costs and might be
diluted to an insignificant carried interest.
8
Even when a commercial viable ore body is discovered, there is no guarantee
competition in refining the ore will not exist. Other companies may have long
term contracts with refining companies thereby inhibiting our ability to process
our ore and eventually market it. At this point in time we do not have any
contractual agreements to refine any potential ore we might discover on our
mineral claims.
The exploration business is highly competitive and highly fragmented, dominated
by both large and small mining companies. Success will largely depend on our
ability to attract talent from the mining field and our ability to fund our
operations. There is no assurance that our mineral expansion plans will be
realized.
GOVERNMENT REGULATION. We are committed to complying and, to our knowledge, are
in compliance with all governmental and environmental regulations. Permits from
a variety of regulatory authorities are required for many aspects of mine
operation and reclamation. We cannot predict the extent to which future
legislation and regulation could cause additional expense, capital expenditures,
restrictions, and delays in the exploration of our properties.
Our activities are not only subject to extensive federal, state and local
regulations controlling the mining of and exploration for mineral properties,
but also the possible effects of such activities upon the environment. Future
legislation and regulations could cause additional expense, capital
expenditures, restrictions and delays in the exploration of our properties, the
extent of which cannot be predicted. Permits may also be required from a variety
of regulatory authorities for many aspects of mine operation and reclamation. In
the context of environmental permitting, including the approval of reclamation
plans, we must comply with known standards, existing laws and regulations that
may entail greater or lesser costs and delays depending on the nature of the
activity to be permitted and how stringently the regulations are implemented by
the permitting authority. We are not presently aware of any specific material
environmental constraint affecting our properties that would preclude the
economic development or operation of any specific property.
It is reasonable to expect that compliance with environmental regulations will
increase our costs. Such compliance may include feasibility studies on the
surface impact of our proposed exploration operations; costs associated with
minimizing surface impact; water treatment and protection; reclamation
activities, including rehabilitation of various sites; on-going efforts at
alleviating the mining impact on wildlife; and permits or bonds as may be
required to ensure our compliance with applicable regulations. It is possible
that the costs and delays associated with such compliance could become so
prohibitive that we may decide not to proceed with exploration on any of our
mineral properties.
We are prepared to engage professionals, if necessary, to ensure regulatory
compliance but in the near term expect our activities to require minimal
regulatory oversight. If we expand the scope of our activities in the future it
is reasonable to expect expenditures on compliance to rise.
OUR RESEARCH AND DEVELOPMENT. We are not currently conducting any research and
development activities, other than property explorations and assessments. None
of these costs are borne by our customers, however.
EMPLOYEES. We do not have any employees other than our officer, Dr. Abbott, our
President and Chief Executive Officer. We believe that our relations with this
employee are good. We have not finalized the agreement we have with Mr.
Drazenovic, our new Chief Financial Officer, but pay him a salary. We are not a
party to any collective bargaining agreements. We do not compensate our
directors, Mr. Pescio and Mr. Keith, as employees, but have agreements with them
and with Dr. Abbott to issue stock options for their services as our directors.
We pay our officers and directors for their mining exploration and
administrative services to us as consultants, not as employees, and we also have
an assistant who is being paid through a staffing agency.
FACILITIES. As of December 31, 2005, our executive, administrative and operating
offices were located at 8600 Technology Way, Suite 118, Reno NV 89521.
ITEM 2. DESCRIPTION OF PROPERTY.
PROPERTY HELD BY US. As of the dates specified in the following table, we held
the following property:
PROPERTY DECEMBER 31, 2005 DECEMBER 31, 2004
-------- ----------------- -----------------
Cash $64,333 $53,141
Other current asset $6,395 $1,395
Mining claims $524,333 $122,151
A detailed description of our mining claims in included in Item 1.
9
OUR FACILITIES. As of December 31, 2005, our offices our executive,
administrative and operating offices were located at 8600 Technology Way, Suite
118, Reno NV 89521. Our office is leased in six-month terms that automatically
renew, at a cost of $1,395 per month, and consists of office space that is
approximately 258 square feet. Our current lease term expires October 31, 2006,
and automatically renews at that point. We believe these facilities are adequate
for our current needs and that alternate facilities on similar terms would be
readily available if needed.
ITEM 3. LEGAL PROCEEDINGS.
There are no legal actions pending against us nor are any legal actions
contemplated by us at this time.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET PRICE FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
REPORTS TO SECURITY HOLDERS. We are a reporting company with the Securities and
Exchange Commission, or SEC. The public may read and copy any materials filed
with the SEC at the SEC's Public Reference Room at 450 Fifth Street N.W.,
Washington, D.C. 20549. The public may also obtain information on the operation
of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC
maintains an Internet site that contains reports, proxy and information
statements, and other information regarding issuers that file electronically
with the SEC. The address of that site is http://www.sec.gov.
COMMON STOCK. We are authorized to issue 100,000,000 shares of common stock. We
have no other classes of stock authorized.
As of March 30, 2006, there were 28,791,726 shares of our common stock were
issued and outstanding held by 23 record holders of our common stock.
PRICES OF COMMON STOCK. We participate in the OTC Bulletin Board, an electronic
quotation medium for securities traded outside of the Nasdaq Stock Market, and
prices for our common stock are published on the OTC Bulletin Board under the
trading symbol "TOGI". This market is extremely limited and the prices quoted
are not a reliable indication of the value of our common stock.
Following is information about the range of high and low bid prices for our
common stock for each fiscal quarter since our stock commenced trading in
mid-December 2005 on the OTCBB. Our shares are dually quoted on both the Pink
Sheets and OTCBB. These quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission, and may not necessarily represent actual
transactions.
QUARTER ENDED APPROX. CLOSING PRICE* HIGH BID QUOTATION LOW BID QUOTATION
03/31/05 $ 0.88
06/30/05 $ 0.52
09/30/05 $ 0.84
12/31/05 $ 0.75 $ 0.70
03/31/06 $ 0.60 $ 0.55
*High and low bid quotation data is not available for activity prior to December
2005
10
OPTIONS. We have a total of 210,000 exercisable options to purchase shares of
our common stock currently outstanding, of which 60,000 were granted in 2003,
and 150,000 were granted in 2005.
We have 150,000 options outstanding to purchase shares of our common stock at
$0.75 per share to Access Capital, a consultant, pursuant to a consulting
service agreement. Of these 150,000 options, 25,000 options were granted in
September 2005 and 125,000 options were granted in December 2005. These 150,000
options expire September 28, 2010.
We have 60,000 options outstanding to purchase shares of our common stock at
$0.15 per share. These options were granted to our former management and expire
in March 2014.
WARRANTS. We have 625,000 warrants outstanding to purchase shares of our common
stock at $0.85 per share. These warrants expire in December 2010.
RECENT SALES OF UNREGISTERED SECURITIES. In April 2005, we issued 1,104,271 (or
1,325,126 post-split) shares of our common stock to New Regent Industries, a
noteholder, in settlement of promissory notes totaling $1,025,000 plus accrued
interest at the rate of $1.00 per share. In December 2005, we sold 625,000 units
in a private placement at a price of $0.80 per unit to an investor, Green Shoe
Investments Inc., who is also a note holder. Each unit consisted of one share of
our common stock and a warrant to purchase one share of our common stock at
$0.85 per share. The warrants expire in December 2010.
We have 150,000 options outstanding to purchase shares of our common stock at
$0.75 per share to Access Capital, a consultant, pursuant to a consulting
service agreement. Of these 150,000 options, 25,000 options were granted in
September 2005 and 125,000 options were granted in December 2005. These 150,000
options expire September 28, 2010.
In March 2006, we executed convertible promissory notes with Green Shoe
Investments Inc. for several amounts: $149,857.64, for funds received January
13, 2006; $249,980.00, for funds received February 8, 2006; $250,000.00 for
funds received on February 16, 2006. These notes bear interest at 8% per annum
and are convertible at our sole discretion on or before the due date, December
31, 2006, at a rate of $1.00 per share.
These instruments were all issued in reliance on that exemption from
registration under Regulation S, as a transaction not involving any public
offering to a non-U.S. investor.
DIVIDENDS. There have been no cash dividends declared on our common stock.
Dividends are declared at the sole discretion of our Board of Directors. Each
shareholder of our common stock is entitled to a pro rata share of cash
distributions made to shareholders, including dividend payments. The holders of
our common stock are entitled to one vote for each share of record on all
matters to be voted on by shareholders. There is no cumulative voting with
respect to the election of our directors or any other matter. Therefore, the
holders of more than 50% of the shares voted for the election of those directors
can elect all of the directors. The holders of our common stock are entitled to
receive dividends when, as and if declared by our Board of Directors from funds
legally available therefore. Cash dividends are at the sole discretion of our
Board of Directors. In the event of our liquidation, dissolution or winding up,
the holders of common stock are entitled to share ratably in all assets
remaining available for distribution to them after payment of our liabilities
and after provision has been made for each class of stock, if any, having any
preference in relation to our common stock. Holders of shares of our common
stock have no conversion, preemptive or other subscription rights, and there are
no redemption provisions applicable to our common stock.
EQUITY COMPENSATION PLANS. Our Board of Directors adopted our 2003 Incentive and
Nonstatutory Stock Option Plan (the "2003 Stock Option Plan") on May 1, 2003.
Under the 2003 Stock Option Plan, 5,000,000 shares of common stock were
authorized for issuance as Incentive Stock Options or Nonstatutory Stock
Options. There were 2,500,000 options were originally issued under the 2003
Stock Option Plan. However, in connection with the Transfer and Sale to our new
management as described herein, the 2003 Stock Option Plan was terminated and
all options issued under the stock option plan shall be cancelled except for
60,000 stock options which remain outstanding under this plan.
11
The following information applies as of December 31, 2005.**
-------------------------------- -------------------------------- --------------------------------- --------------------------------
PLAN CATEGORY NUMBER OF SECURITIES TO BE WEIGHTED-AVERAGE EXERCISE PRICE NUMBER OF SECURITIES REMAINING
ISSUED UPON EXERCISE OF OF OUTSTANDING OPTIONS, AVAILABLE FOR FUTURE ISSUANCE
OUTSTANDING OPTIONS, WARRANTS WARRANTS AND RIGHTS(b) UNDER EQUITY COMPENSATION
AND RIGHTS (a) (EXCLUDING SECURITIES
REFLECTED IN COLUMN (a))
-------------------------------- -------------------------------- --------------------------------- --------------------------------
Equity compensation plans 60,000 $.15 n/a
approved by security holders
-------------------------------- -------------------------------- --------------------------------- --------------------------------
Equity compensation plans not 0 n/a n/a
approved by security holders
-------------------------------- -------------------------------- --------------------------------- --------------------------------
Total 60,000 $.15 n/a
-------------------------------- -------------------------------- --------------------------------- --------------------------------
** the table above does not include the stock options described below, which
have not been granted.
Pursuant to our 2005 stock option plan, which was adopted by our Board of
Directors on April 15, 2005, we plan on compensating our directors as follows:
We anticipate that Earl W. Abbott will receive up to 500,000 options, of which
250,000 will vest on December 15, 2005 at an exercise price of $1.00 per share
and another 250,000 which shall vest when we acquire a mining project with a
drill-indicated resource of at least 1.5 million ounces of gold or
gold-equivalent and if financing can be arranged; the exercise price of these
options will be $1.00 per share.
We anticipate that Stanley B. Keith and Carl A. Pescio will each receive up to
250,000 options, of which 125,000 will vest on December 15, 2005 at an exercise
price of $1.00 per share and 125,000 which shall vest according to the same
mining project schedule as above.
As of March 30, 2006, none of these options had been granted, and this 2005 Plan
has not been ratified by our shareholders, which may affect their status as
qualified options.
PENNY STOCK REGULATION. Shares of our common stock are subject to rules adopted
by the Securities and Exchange Commission that regulate broker-dealer practices
in connection with transactions in "penny stocks". Penny stocks are generally
equity securities with a price of less than $5.00 (other than securities
registered on certain national securities exchanges or quoted on the Nasdaq
system, provided that current price and volume information with respect to
transactions in those securities is provided by the exchange or system). The
penny stock rules require a broker-dealer, prior to a transaction in a penny
stock not otherwise exempt from those rules, deliver a standardized risk
disclosure document prepared by the Securities and Exchange Commission, which
contains the following:
o a description of the nature and level of risk in the market for penny
stocks in both public offerings and secondary trading;
o a description of the broker's or dealer's duties to the customer and
of the rights and remedies available to the customer with respect to
violation to such duties or other requirements of securities' laws;
o a brief, clear, narrative description of a dealer market, including
"bid" and "ask" prices for penny stocks and the significance of the
spread between the "bid" and "ask" price;
o a toll-free telephone number for inquiries on disciplinary actions;
o definitions of significant terms in the disclosure document or in the
conductof trading in penny stocks; and
o such other information and is in such form(including language, type,
size and format), as the Securities and Exchange Commission shall
require by rule or regulation.
Prior to effecting any transaction in penny stock, the broker-dealer also must
provide the customer the following:
o the bid and offer quotations for the penny stock;
o the compensation of the broker-dealer and its salesperson in the
transaction;
o the number of shares to which such bid and ask prices apply, or other
comparable information relating to the depth and liquidity of the
market for such stock; and
o monthly account statements showing the market value of each penny
stock held in the customer's account.
In addition, the penny stock rules require that prior to a transaction in a
penny stock not otherwise exempt from those rules, the broker-dealer must make a
special written determination that the penny stock is a suitable investment for
the purchaser and receive the purchaser's written acknowledgment of the receipt
of a risk disclosure statement, a written agreement to transactions involving
penny stocks, and a signed and dated copy of a written suitably statement. These
disclosure requirements may have the effect of reducing the trading activity in
the secondary market for a stock that becomes subject to the penny stock rules.
Holders of shares of our common stock may have difficulty selling those shares
because our common stock will probably be subject to the penny stock rules.
12
DIVIDENDS. We have not paid any cash dividends on our Common Stock since our
inception and we do not anticipate or contemplate paying cash dividends in the
foreseeable future.
STOCK SPLITS. On April 13, 2004, our Board of Directors approved a 50 for 1
stock split of our issued and outstanding common stock which was effectuated
through a dividend of 49 shares for each share of common stock outstanding as of
the record date. Our intent of the stock split was to increase the marketability
and liquidity of its common stock and hopefully increase the value of its common
stock. The dividend was payable on April 27, 2004 for shareholders of record on
April 26, 2004. After the split, the total number of our issued and outstanding
shares of common stock was 6,600,000 shares. Our common stock continues to be
$0.001 par value. Fractional shares were rounded upward.
On August 18, 2004, our Board of Directors approved a 6.81818 for 1 stock split
of our issued and outstanding common stock which was effectuated through a
dividend of 5.81818 shares for each share of common stock outstanding as of the
record date. Our intent of the stock split was to increase the marketability and
liquidity of our common stock and hopefully increase the value of its common
stock. The dividend was payable on August 31, 2004 for shareholders of record on
August 30, 2004. After the split, the total number of our issued and outstanding
shares of common stock was 45,012,000 shares. Our common stock continues to be
$0.001 par value. Fractional shares were rounded upward. This action was
facilitated by the change to our Articles of Incorporation, increasing the our
authorized stock to 100,000,000 shares of common stock, which was given effect
on August 25, 2004 by filing a certificate of amendment with the Nevada
Secretary of State. Subsequent to this August 2004 split and prior to the May
2005 split, on April 15, 2005, we redeemed 22,644,000 shares belonging to our
management.
On May 16, 2005, we authorized a 1.2 for 1 stock split of our outstanding common
stock which was effectuated through a dividend of 0.2 shares for each share of
common stock outstanding as of the record date. Our intent with the stock split
was to increase the marketability and liquidity of our common stock and to
hopefully increase the value of our common stock. The dividend was payable on
May 31, 2005 for shareholders of record on May 27, 2005. After the split, the
total number of our issued and outstanding shares of common stock was 28,166,726
shares. Our common stock will continue to be $0.001 par value. Fractional shares
were rounded upward.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF
OPERATION.
THIS FOLLOWING INFORMATION SPECIFIES CERTAIN FORWARD-LOOKING STATEMENTS OF
MANAGEMENT OF THE COMPANY. FORWARD-LOOKING STATEMENTS ARE STATEMENTS THAT
ESTIMATE THE HAPPENING OF FUTURE EVENTS ARE NOT BASED ON HISTORICAL FACT.
FORWARD-LOOKING STATEMENTS MAY BE IDENTIFIED BY THE USE OF FORWARD-LOOKING
TERMINOLOGY, SUCH AS "MAY", "SHALL", "COULD", "EXPECT", "ESTIMATE",
"ANTICIPATE", "PREDICT", "PROBABLE", "POSSIBLE", "SHOULD", "CONTINUE", OR
SIMILAR TERMS, VARIATIONS OF THOSE TERMS OR THE NEGATIVE OF THOSE TERMS. THE
FORWARD-LOOKING STATEMENTS SPECIFIED IN THE FOLLOWING INFORMATION HAVE BEEN
COMPILED BY OUR MANAGEMENT ON THE BASIS OF ASSUMPTIONS MADE BY MANAGEMENT AND
CONSIDERED BY MANAGEMENT TO BE REASONABLE. OUR FUTURE OPERATING RESULTS,
HOWEVER, ARE IMPOSSIBLE TO PREDICT AND NO REPRESENTATION, GUARANTY, OR WARRANTY
IS TO BE INFERRED FROM THOSE FORWARD-LOOKING STATEMENTS.
THE ASSUMPTIONS USED FOR PURPOSES OF THE FORWARD-LOOKING STATEMENTS SPECIFIED IN
THE FOLLOWING INFORMATION REPRESENT ESTIMATES OF FUTURE EVENTS AND ARE SUBJECT
TO UNCERTAINTY AS TO POSSIBLE CHANGES IN ECONOMIC, LEGISLATIVE, INDUSTRY, AND
OTHER CIRCUMSTANCES. AS A RESULT, THE IDENTIFICATION AND INTERPRETATION OF DATA
AND OTHER INFORMATION AND THEIR USE IN DEVELOPING AND SELECTING ASSUMPTIONS FROM
AND AMONG REASONABLE ALTERNATIVES REQUIRE THE EXERCISE OF JUDGMENT. TO THE
EXTENT THAT THE ASSUMED EVENTS DO NOT OCCUR, THE OUTCOME MAY VARY SUBSTANTIALLY
FROM ANTICIPATED OR PROJECTED RESULTS, AND, ACCORDINGLY, NO OPINION IS EXPRESSED
ON THE ACHIEVABILITY OF THOSE FORWARD-LOOKING STATEMENTS. NO ASSURANCE CAN BE
GIVEN THAT ANY OF THE ASSUMPTIONS RELATING TO THE FORWARD-LOOKING STATEMENTS
SPECIFIED IN THE FOLLOWING INFORMATION ARE ACCURATE, AND WE ASSUME NO OBLIGATION
TO UPDATE ANY SUCH FORWARD-LOOKING STATEMENTS.
CRITICAL ACCOUNTING POLICY AND ESTIMATES.
Our Management's Discussion and Analysis of Financial Condition and Results of
Operations section discusses our financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United States
of America. The preparation of these financial statements requires management to
13
make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. On an on-going basis,
management evaluates its estimates and judgments, including those related to
revenue recognition, accrued expenses, financing operations, and contingencies
and litigation. Management bases its estimates and judgments on historical
experience and on various other factors that are believed to be reasonable under
the circumstances, the results of which form the basis for making judgments
about the carrying value of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates under
different assumptions or conditions. The most significant accounting estimates
inherent in the preparation of our financial statements include estimates as to
the appropriate carrying value of certain assets and liabilities which are not
readily apparent from other sources, primarily allowance for doubtful accounts
receivables, accruals for other costs, and the classification of net operating
loss and tax credit carry forwards between current and long-term assets. These
accounting policies are described at relevant sections in this discussion and
analysis and in the notes to the financial statements included in our Annual
Report on Form 10-KSB for the fiscal year ended December 31, 2005.
It is our policy to initially capitalize all acquisition costs associated with
our mining property including advance lease payments and other such acquisition
costs. General exploration costs and costs to maintain rights and leases are
expensed as incurred. Management periodically reviews the recoverability of the
capitalized mineral properties and mining equipment. Management takes into
consideration various information including, but not limited to, historical
production records taken from previous mine operations, results of exploration
activities conducted to date, estimated future prices and reports and opinions
of outside consultants. When it is determined that a project or property will be
abandoned or its carrying value has been impaired, a provision is made for any
expected loss on the project or property.
OVERVIEW. We were incorporated in Nevada on October 8, 2001 in order to serve as
a holding company for Salty's Warehouse, Inc., which sells consumer electronics
products and other name brand consumer products over the Internet.
In March 2004 , pursuant to a Plan of Reorganization and Acquisition, we
disposed of our operating asset, Salty's Warehouse, Inc., when our prior
management departed. Under our new management, we undertook a different business
focus: the identification and acquisition of properties exhibiting the potential
for gold mining operations by others. On July 7, 2004, we changed our name from
Nucotec, Inc. to Tornado Gold International Corp. to reflect our new business
focus. The name change was approved on May 12, 2004, by unanimous approval of
our Board of Directors.
LIQUIDITY AND CAPITAL RESOURCES. We had cash and cash equivalents totaling
$64,333 as of December 31, 2005 and prepaid expenses of $6,395, making our total
current assets $70,728. We also had mining assets of $859,968, making our total
assets $930,696 as of December 31, 2005. Our current liabilities as of December
31, 2005 were $456,966, which was represented by accounts payable of $13,301 and
notes payable of $443,665 including accrued interest of $12,687. We believe that
our available cash and cash equivalents are not sufficient to pay our day-to-day
expenditures. However, our officers and directors have committed to pay our
day-to-day expenses so that we are able to continue operations until we are able
to obtain additional funding through other sources at levels to implement our
business plan. We may also need to fund our operations through equity or debt
financing, though there is no guarantee we will be able to do so.
As of December 31, 2005 we had a net working capital deficit of $386,238 as
compared to $981,013 of December 31, 2004. In March 2004, we borrowed $650,000
from an unrelated third party pursuant to a promissory note that was due January
5, 2005 and thereafter extended to April 15, 2005, which bears interest at 8%
per annum. In addition, on April 27, 2004 we borrowed an additional $225,000
from the same unrelated third party pursuant to a promissory note, which bears
interest at the rate of 8% per annum and is due upon demand. In November 2004,
we borrowed $100,000 from the same unrelated third party, pursuant to a
promissory note executed in February 2005, which bears interest at the rate of
8% per annum and is due April 15, 2005. On April 15, 2005, we converted these
notes to shares of our common stock at $1.00 per share; a total of $1,104,271,
represented by $1,025,000 in principal and $79,271 as accrued interest,
converted to 1,104,271 post-split shares of our common stock.
On July 1, 2005, we entered into a promissory note with another unrelated third
party, Gatinnara Holdings, for $100,000 due December 31, 2005 and bearing 8% per
annum interest. This note was extended to December 31, 2006. From August through
October 2005, we executed a series of promissory notes with yet another
unrelated third party, Green Shoe Investments Inc., for funds as follows: August
9, 2005 for $150,000; August 26, 2005 for $31,000; September 15, 2005 for
$50,000; and October 5, 2005 for $99,977.50. Each of these notes was due
December 31, 2005 and extended to December 31, 2006 and bears interest at 8% per
annum. We use these funds for working capital and payment on our property
leases.
14
In December 2005, we sold 625,000 units to Green Shoe Investments Inc., for
approximately $500,000 or $0.80 per unit; each unit consisted of one share of
our common stock and one warrant to purchase a share of our common stock for
$0.85. These units were sold in a private placement.
Subsequent to the year ended December 31, 2005, we executed another series of
promissory notes with Green Shoe Investments Inc., as follows: $149,857.64
received on January 13, 2006; $249,980.000 received on February 8, 2006; and
$250,000.00 received on February 16, 2006. These are convertible promissory
notes bearing interest at 8% per annum, and convertible to shares of our common
stock at the rate of $1.00 per share, at the discretion of our management. We
use these funds for working capital and payment on our property leases.
Net cash used in operating activities was $223,645 for the year ended December
31, 2005 compared to $199,435 for the year ended December 31, 2004.
Since we have no current source of revenue, our only source of cash is from the
issuance of debt or equity instruments.
Due to numerous economic and competitive risks, any or all of which may have a
material adverse impact upon our operations, there can be no assurance that we
will be able to successfully generate significant revenues or achieve a level of
profits which will permit us to stay in business. Since March 2004, when we had
a change of management and undertook a different business focus, which is the
identification and acquisition of potential gold mining properties for resale to
others, we no source of revenues for the foreseeable future. However, due to the
change in our business plan, we must raise additional capital in order to have
resources sufficient to fund all or our general and administrative expenses for
the next twelve months.
Since we have as no established source of material revenue and have incurred a
net loss from continuing operations of $281,224, and at December 31, 2005 had a
negative working capital of $386,238 and had an accumulated deficit of
$1,203,983, there is a substantial doubt about our ability to continue as a
going concern as noted by our independent auditor.
RESULTS OF OPERATIONS.
FOR THE YEAR ENDED DECEMBER 31, 2005 COMPARED TO THE YEAR ENDED DECEMBER 31,
2004.
REVENUE. We have realized no revenues for the year ended December 31, 2005. We
will be unable to generate revenues until we are able to resell one of the
properties we have acquired, or may in the future acquire, if such property
exhibits the potential for gold mining operations, which would make it
attractive for purchase by a potential operator. For the year ended December 31,
2004, we also had no revenues.
OPERATING EXPENSES. For the year ended December 31, 2005, our total operating
expenses were $580,934 of which $404,543 was specifically related to mining
exploration and $158,522 related to general and administrative expenses. In
addition, we recognized compensation expense in 2005 of $17,869 in connection
with the granting of options to purchase 150,000 shares of our common stock.
During the year ended December 31, 2005, we accrued $35,925 in interest expense
on notes payable totaling $443,665. No interest has been paid on these notes.
Of the $404,543 in expenses that we incurred in our mining operations during the
year ended December 31, 2005, $61,775 was paid to Dr. Abbott, our president and
one of our directors for his technical consulting services to us, $5,744 was
paid to Mr. Pescio and $1,389 paid to Mr. Keith, our other directors. The
remaining $335,635 was paid to the Bureau of Land Management for the annual
leasing of our properties. Of the $158,522 that we incurred in general and
administrative expenses, $28,175 was paid to Dr. Abbott, our president for
management services and $1,960 was paid to Mr. Keith for administrative
expenses, $47,877 was incurred for accounting and legal professional services
relating to the preparation and filing our reporting obligations, rent expense
of $16,742, investor relations expense of $19,084, office expenses of $7,008,
telephone of $1,034 and travel expenses which were reimbursed to Dr. Abbott
totaling $25,609 and $579 to Mr. Keith.
15
This is in comparison to the year ended December 31, 2004: of the $51,388 that
we incurred in our mining operations $26,763 related to geological studies of
which $17,482 was paid to our President for his technical consulting services to
us. The remaining $24,625 was paid to the Bureau of Land Management for the
annual leasing of our properties. Of the $147,931 that we incurred in general
and administrative expenses, $18,786 was paid to our president for management
services, $102,820 was incurred for accounting and legal professional services
relating to the preparation and filing our application for listing on the Over
the Counter Bulletin Board and reporting obligations, rent expense of $13,095,
and travel expenses which were reimbursed to our President totaling $8,768. Also
in 2004, we recognized compensation expense of $4,540 in connection with the
granting of options to our former management to purchase 60,000 shares of our
common stock.
The increase in our operating expenses, and loss from operations and net loss is
due to our acquisitions of additional property interests.
NET INCOME (LOSS). Our loss from operations for the year ended December 31, 2005
totaled $580,934. With our interest expense of $35,925, our net loss was
$616,859. This is in comparison to the year ended December 31, 2004, where we
had operating expenses of $203,859. We also had $57,873 in interest expenses
which we incurred during the year ended December 31, 2004. Loss from
discontinued operations during the year ended December 31, 2004 amounted to
$871, making our net loss $260,861.
Our expenses and net losses for the year ended December 31, 2005 are higher than
those for the same period ended in 2004 due to increased property acquisitions
and exploration under our new business plan. In March 2004, we underwent a
change of management; our prior management received our former operating
subsidiary, and our new management has acquired interests in properties
exhibiting the potential for mining operations as part of our new business plan,
which accounts for the changes in our operating expenses. We anticipate that we
will continue to incur significant general and administrative expenses, but hope
to generate income as we acquire property interests, perform our geological
analyses and sell or lease those property interests to others.
OUR PLAN OF OPERATIONS FOR THE NEXT TWELVE MONTHS. During the year ended
December 31, 2005, we acquired ten mineral properties in Nevada from Carl Pescio
(a non-employee director) for $140,000 which in the aggregate represent
approximately 1,600 claims. Each of the ten properties obligated us to pay
advance royalties of $35,000 per property (i.e., $350,000 in the aggregate), and
$50,000 upon execution of the letter agreement. Management believes that these
acquisitions will provide us greater opportunities for exploration.
During the last quarter in 2005, we issued five promissory notes totaling in
aggregate $430,977.50. Each promissory note carried terms of 8% annual interest
and conversion rights at the discretion of management. Earlier in the year, we
converted our outstanding notes payable as of December 31, 2005 to New Regent
Industries Limited 1,104,271 pre-split shares of our common stock on a
one-for-one basis.
In addition, we received approximately $500,000 in the last quarter of 2005.
These funds represent a private placement purchase of 625,000 units at US$.80
per unit by Green Shoe Investments, Inc. The units issued to Green Shoe
Investments Inc. included 625,000 warrants, each warrant allows Green Shoe
Investments, Inc., to purchase one share of our common stock at $0.85; those
warrants expire in 5 years.
Subsequent to the December 31, 2005 year-end, we issued three convertible
promissory notes to Green Shoe Investments Inc. for an aggregate total of
approximately $649,898. The funds received are intended for general working
capital purposes and holding costs for properties we acquired. The amounts of
the notes are as follows: (1) $149,857.64 for funds received January 13, 2006,
(2) $249,980.00 received February 8, 2006, and (3) $250,000.00 for funds
received February 16, 2006. These notes are all due December 31, 2006, bear
interest at 8% and are convertible at the discretion of the board to shares of
our common stock at $1.00 per share.
During the quarter ended March 31, 2006, we made advance lease payments of
$550,000 to Mr. Pescio on our mining claims.
In anticipation of further exploration activity and hence financing
requirements, we hired a new Chief Financial Officer. Effective March 28, 2006,
the Board of Directors accepted the resignation of Earl W. Abbott as Chief
Financial Officer (Dr. Abbott remains on as our President and CEO) and appointed
George Drazenovic as our Chief Financial Officer.
With the acquisition of several mining properties in 2005 and the recent
appointment of a new Chief Financial Officer, we believe we are in a more
favorable position to pursue further exploration activities over the next twelve
months. However, it is management's opinion that we will require significant
financial resources (approximately $5,000,000) to fully complete our intended
exploration program.
16
We have a cash balance of $64,333 as of December 31, 2005, and we believe we do
not have adequate funds to satisfy our working capital requirements for the next
twelve months. Our forecast for the period for which our financial resources
will be adequate to support our operations involves risks and uncertainties and
actual results could fail as a result of a number of factors. We will need to
raise additional capital to exploit our properties. In the event that we
experience a shortfall in our capital, we intend to pursue capital through
public or private financing as well as borrowings and other sources. We cannot
guarantee that additional funding will be available on favorable terms, if at
all and if adequate funds are not available. Our ability to continue or expand
our operations may be significantly hindered. We have not contemplated any plan
of liquidation in the event that we do not generate revenues.
As an exploration company, we are not currently conducting any research and
development activities and we do not anticipate conducting such activities in
the near future. In the event that we obtain significant funding to fully
implement our exploration program, we will need to hire additional employees or
independent contractors and possibly purchase or lease additional equipment.
With large current demand for resource exploration equipment and human capital
in the state of Nevada, there is no guarantee that we will be able to meet our
equipment and human capital needs. However, management believes that the network
of relationships developed over the years by our officers and directors in
Nevada will largely mitigate any shortages that similar companies face.
OFF-BALANCE SHEET ARRANGEMENTS. There are no off balance sheet arrangements that
have or are reasonably likely to have a current or future effect on our
financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources that
are material to investors.
ITEM 7. FINANCIAL STATEMENTS
The financial statements required by Item 7 are presented in the following
order:
TORNADO GOLD INTERNATIONAL CORP.
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2005 AND 2004
CONTENTS
Page
----
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM F-1
FINANCIAL STATEMENTS:
Balance Sheet as of December 31, 2005 F-2
Statements of Operations for the years
ended December 31, 2005 and 2004 F-3
Statement of Stockholders' Deficit for
the years ended December31, 2005and 2004 F-4
Statements of Cash Flows for the years
ended December 31, 2005 and 2004 F-5
Notes to Financial Statements F-6 to F-19
17
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To The Board of Directors and Stockholders of
Tornado Gold International Corp. (formerly Nucotec, Inc.)
Reno, Nevada
We have audited the accompanying balance sheet of Tornado Gold International,
Inc. (formerly Nucotec, Inc.) as of December 31, 2005 and the related statements
of operations, stockholders' equity (deficit) and cash flows for the years ended
December 31, 2005 and 2004. 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 audits.
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 audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Tornado Gold International
Corp. as of December 31, 2005, and the results of its operations and its cash
flows for the years ended December 31, 2005 and 2004 in conformity with
accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
accompanying financial statements, the Company has no established source of
material revenue, has incurred a net loss from continuing operations of
$616,859, and at December 31, 2005 had a negative working capital of $386,238
and had an accumulated deficit of $1,539,618, all of which raise a substantial
doubt about its ability to continue as a going concern. Management's plan in
regard to these matters is also discussed in Note 2. These financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
/s/ Jonathon Reuben
----------------------------
Jonathon Reuben
CERTIFIED PUBLIC ACCOUNTANTS
Torrance, California
March 31, 2006
F-1
TORNADO GOLD INTERNATIONAL CORP.
(formerly Nucotec, Inc.)
Balance Sheet
DECEMBER 31,
2005
-----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 64,333
Prepaid expenses 6,395
-----------
TOTAL CURRENT ASSETS 70,728
MINING CLAIMS 524,333
-----------
TOTAL ASSETS $ 595,061
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 13,301
Notes payable (including accrued interest of $12,687) 443,665
-----------
TOTAL CURRENT LIABILITIES 456,966
-----------
COMMITMENTS AND CONTINGENCIES --
STOCKHOLDERS' DEFICIT
Common stock; $0.001 par value; 100,000,000 shares
authorized; 28,791,726 shares issued and outstanding 28,792
Additional paid in capital 1,649,339
Accumulated deficit (1,539,618)
Subscription receivable (418)
-----------
TOTAL STOCKHOLDERS' DEFICIT 138,095
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 595,061
===========
The accompanying notes are an integral part of these financial statements
F-2
TORNADO GOLD INTERNATIONAL CORP.
(formerly Nucotec, Inc.)
Statements of Operations
YEARS ENDED
------------------------------
DECEMBER 31, DECEMBER 31,
2005 2004
------------- -------------
NET REVENUE $ -- $ --
OPERATING EXPENSES
Compensation expense on option grant 17,869 4,540
Mining exploration expenses 404,543 51,388
General and administrative expenses 158,522 147,931
------------- -------------
580,934 203,859
------------- -------------
LOSS FROM OPERATIONS (580,934) (203,859)
------------- -------------
OTHER INCOME (EXPENSE)
Interest expense (35,925) (57,873)
------------- -------------
TOTAL OTHER INCOME (EXPENSE) (35,925) (57,873)
------------- -------------
LOSS BEFORE PROVISION FOR INCOME TAXES
AND DISCONTINUED OPERATIONS (616,859) (261,732)
PROVISION FOR INCOME TAXES -- --
------------- -------------
NET LOSS FROM CONTINUING OPERATIONS (616,859) (261,732)
------------- -------------
DISCONTINUED OPERATONS:
Income (loss) from operations of discontinued operations -- 871
------------- -------------
-- 871
------------- -------------
NET LOSS $ (616,859) $ (260,861)
============= =============
NET LOSS PER SHARE - BASIC AND DILUTED
Continuing operations $ (0.02) $ (0.00)
Discontinued operations (0.02) (0.00)
------------- -------------
$ (0.02) $ (0.00)
============= =============
WEIGHTED AVERAGE COMMON EQUIVALENT
SHARES OUTSTANDING - BASIC AND DILUTED 35,582,682 573,790,330
============= =============
The accompanying notes are an integral part of these financial statements
F-3
Tornado Gold International Corp.
(FORMERLY NUCOTEC, INC.)
Consolidated Statement of Stockholders' Deficit
FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004
ADDITIONAL
COMMON STOCK PAID-IN ACCUMULATED SUBSCRIPTION
SHARES AMOUNT CAPITAL DEFICIT RECEIVABLE TOTAL
-------------- -------------- -------------- -------------- -------------- --------------
BALANCE, DECEMBER 31, 2003 2,486,299,200 $ 6,076 $ 17,424 $ (111,658) $ -- $ (88,158)
Redemption of
shares for Saltys (2,091,093,840) (5,110) 1,418 -- (3,692)
Redemption of
shares for cash (375,563,760) (918) (17,424) (551,658) -- (570,000)
Issuance of shares
for cash 34,372,800 84 9,916 -- -- 10,000
Gain on settlement
of notes -- -- 49,309 -- -- 49,309
Fair value of options
granted to consultants -- -- 4,540 -- -- 4,540
Reallocation due to
stock splits -- 53,882 (53,882) -- --
Net loss -- -- -- (260,861) -- (260,861)
-------------- -------------- -------------- -------------- -------------- --------------
BALANCE, DECEMBER 31, 2004 54,014,400 54,014 9,883 (922,759) -- (858,862)
Coversion of notes
payabe and accrued
interest into shares
of common stock 1,325,126 1,325 1,102,946 -- -- 1,104,271
Redemption of shares
for cash (27,172,800) (27,172) 19,266 (7,906)
Issuance of shares for cash 625,000 625 499,375 -- (418) 499,582
Fair value of options
granted to consultants -- -- 17,869 -- -- 17,869
Net loss -- -- -- (616,859) -- (616,859)
-------------- -------------- -------------- -------------- -------------- --------------
BALANCE, DECEMBER 31, 2005 28,791,726 $ 28,792 $ 1,649,339 $ (1,539,618) $ (418) $ 138,095
============== ============== ============== ============== ============== ==============
The accompanying notes are an integral part of these financial statements
F-4
TORNADO GOLD INTERNATIONAL CORP.
(formerly Nucotec, Inc.)
Statements of Cash Flows
YEARS ENDED
-------------------------
DECEMBER 31, DECEMBER 31,
2005 2004
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss from continuing operations $ (616,859) $ (261,732)
Adjustment to reconcile net loss to net cash
used in operating activities:
Value of options/warrants granted for services 17,869 4,540
Changes in:
Accounts receivable -- 52
Inventory -- 680
Prepaid expenses and other current assets (5,000) (1,395)
Accounts payable and accrued expenses 44,710 58,420
----------- -----------
Net cash used in operating activities (559,280) (199,435)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of mining claims (402,182) (122,151)
----------- -----------
Net cash used in investing activities (402,182) (122,151)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 480,978 975,000
Payment on note payable, related party -- (42,500)
Repurchase of shares of common stock (7,906) (570,000)
Proceeds from issuance of common stock 499,582 10,000
Transfer of Salty's Warehouse, Inc's cash balance at date of disposition -- (6,068)
----------- -----------
Net cash provided by financing activities 972,654 366,432
----------- -----------
NET CASH PROVIDED BY CONTINUING OPERATIONS 11,192 44,846
NET LOSS FROM DISCONTINUED OPERATIONS -- 871
CASH AND CASH EQUIVALENTS, Beginning of year 53,141 7,424
----------- -----------
CASH AND CASH EQUIVALENTS, End of year $ 64,333 $ 53,141
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ -- $ --
=========== ===========
Income taxes paid $ -- $ --
=========== ===========
The accompanying notes are an integral part of these financial statements
F-5
TORNADO GOLD INTERNATIONAL CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004
NOTE 1 - ORGANIZATION
Organization
------------
Tornado Gold International Corp. (formerly Nucotec, Inc.) was incorporated
in the state of Nevada on October 8, 2001. On July 7, 2004, the name of the
company was officially changed to Tornado Gold International Corp. (the
"Company"). Prior to the plan of reorganization (see Note 2 below) which
occurred on March 19, 2004, the Company through its subsidiary, Salty's
Warehouse, Inc. sold various home and automobile electronic equipment,
computer accessories and supplies. The Company is currently exploring
certain mining properties for future development and production (See Note
3).
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Going Concern
-------------
The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America,
which contemplate continuation of the Company as a going concern. The
Company has no established source of material revenue, has incurred a net
loss for the year ended December 31, 2005 of $616,859, and at December 31,
2005 had a negative working capital of $386,238 and had an accumulated
deficit of $1,539,618. These conditions raise substantial doubt as to the
Company's ability to continue as a going concern. These financial
statements do not include any adjustments that might result from the
outcome of this uncertainty. These financial statements do not include any
adjustments relating to the recoverability and classification of recorded
asset amounts, or amounts and classification of liabilities that might be
necessary should the Company be unable to continue as a going concern.
Management plans to take the following steps that it believes will be
sufficient to provide the Company with the ability to continue in
existence:
The Company plans to raise additional operating funds through equity or
debt financing. There is no assurance that the Company will be able to
arrange for financing and has not, to date, had any substantive
discussions with any third parties regarding such financing.
The holders of the Company's notes payable recent converted all principal
and accrued interest into shares of the Company's common stock.
Stock Split
-----------
On April 19, 2004, the Company authorized a 50 for 1 stock split. On August
18, 2004, the Company authorized a 6.82 for 1 stock split. On May 16, 2005,
the Company authorized a 1.20 for 1 stock split. The accompanying financial
statements have been retroactively restated to present the effect of these
three stock splits.
F-6
TORNADO GOLD INTERNATIONAL CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004
Plan of Reorganization
----------------------
On March 19, 2004, Earl T. Shannon, Steven W. Hudson, and Scott W.
Bodenweber agreed to redeem 2,091,093,840 (5,110,200 pre-split) of their
shares of the Company's common stock in exchange for all of the Company's
shares of Salty's Warehouse, Inc. (the "Transfer"). Earl T. Shannon, Steven
W. Hudson, and Scott W. Bodenweber to redeem 397,660,560 (917,800
pre-split) of their shares of the Company's common stock in exchange for
$570,000 (the "Sale"). The $570,000 was paid on March 19, 2004. As a
condition to these transactions, Messrs. Shannon, Hudson, and Bodenweber
have resigned as officers of the Company. Earl W. Abbott has been appointed
President, Chief Financial Officer and Secretary of the Company. In
addition, Mr. Abbott, Carl A. Pescio and Stanley B. Keith have collectively
purchased 34,372,800 (84,000 pre-split) shares of common stock from the
Company for $10,000. Mr. Abbott, Mr. Pescio and Mr. Keith replaced Messrs.
Shannon, Hudson and Bodenweber on the Board of Directors of the Company.
Stock Based Compensation
------------------------
SFAS No. 123, "Accounting for Stock-Based Compensation," establishes and
encourages the use of the fair value based method of accounting for
stock-based compensation arrangements under which compensation cost is
determined using the fair value of stock-based compensation determined as
of the date of grant and is recognized over the periods in which the
related services are rendered. The statement also permits companies to
elect to continue using the current intrinsic value accounting method
specified in Accounting Principles Board ("APB") Opinion No. 25,"Accounting
for Stock Issued to Employees," to account for stock-based compensation.
The Company has elected to use the intrinsic value based method and has
disclosed the pro forma effect of using the fair value based method to
account for its stock-based compensation. The Company uses the fair value
method for options granted to non-employees. There were no options issued
to employees during the year ended December 31, 2005 and 2004; therefore
the pro forma disclosure is not presented.
As of April 15, 2005, the Company adopted its 2005 stock option plan to
compensate its directors as follows:
Earl W. Abbott: up to 500,000 options, of which 250,000 vest on December
15, 2005 at an exercise price of $1.00 per share and another 250,000 which
shall vest when the Company acquires a mining project with a
drill-indicated resource (1) of at least 1.5 million ounces of gold or
gold-equivalent (2) and if financing can be arranged; the exercise price of
these options will be $1.00 per share.
Stanley B. Keith and Carl A. Pescio are to each to receive the following:
up to 250,000 options, of which 125,000 vest on December 15, 2005 at an
exercise price of $1.00 per share and 125,000 which shall according to the
same mining project schedule as above.
None of these options have yet been granted.
F-7
TORNADO GOLD INTERNATIONAL CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004
Use of Estimates
----------------
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting periods. Actual
results could differ from these estimates.
Fair Value of Financial Instruments
-----------------------------------
For certain of the Company's financial instruments, including cash,
deposits, accounts payable and accrued interest, the carrying amounts
approximate fair value due to their short maturities. The amounts shown for
notes payable also approximate fair value because current interest rates
and terms offered to the Company for similar debt are substantially the
same.
Cash and Cash Equivalents
-------------------------
For purposes of the statements of cash flows, the Company defines cash
equivalents as all highly liquid debt instruments purchased with a maturity
of three months or less, plus all certificates of deposit.
Concentration of Credit Risk
----------------------------
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist of cash and accounts receivables.
The Company places its cash with high quality financial institutions and at
times may exceed the FDIC $100,000 insurance limit. The Company extends
credit based on an evaluation of the customer's financial condition,
generally without collateral. Exposure to losses on receivables is
principally dependent on each customer's financial condition. The Company
monitors its exposure for credit losses and maintains allowances for
anticipated losses, as required.
Revenue Recognition
-------------------
The Company accounted for revenues from its Salty's Warehouse, Inc.
subsidiary pursuant to SAB 101 -"Revenue Recognition" and EITF 99-19
-"Reporting Revenue Gross as a Principal versus Net as an Agent." Net
revenue as an agent, from the sale of products (consisting primarily of
automobile electronic equipment, home electronics, computer accessories and
supplies) are recognized when title to the products are transferred to the
customer (product shipment) and only when no further contingencies or
material performance obligations are warranted and, thereby, have earned
the right to receive and retain reasonably assured payments.
The Company has not generated any revenue from it mining operations.
F-8
TORNADO GOLD INTERNATIONAL CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004
Mining Costs
------------
Costs incurred to purchase, lease or otherwise acquire property are
capitalized when incurred. General exploration costs and costs to maintain
rights and leases are expensed as incurred. Management periodically reviews
the recoverability of the capitalized mineral properties and mining
equipment. Management takes into consideration various information
including, but not limited to, historical production records taken from
previous mine operations, results of exploration activities conducted to
date, estimated future prices and reports and opinions of outside
consultants. When it is determined that a project or property will be
abandoned or its carrying value has been impaired, a provision is made for
any expected loss on the project or property.
Income Taxes
------------
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Deferred taxes are provided on the liability
method whereby deferred tax assets are recognized for deductible temporary
differences, and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between
the reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all
of the deferred tax assets will be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates
on the date of enactment.
Loss Per Share
--------------
The Company reports earnings (loss) per share in accordance with SFAS No.
128, "Earnings per Share." Basic earnings (loss) per share is computed by
dividing income (loss) available to common shareholders by the weighted
average number of common shares available. Diluted earnings (loss) per
share is computed similar to basic earnings (loss) per share except that
the denominator is increased to include the number of additional common
shares that would have been outstanding if the potential common shares had
been issued and if the additional common shares were dilutive. Diluted
earnings (loss) per share has not been presented since the effect of the
assumed conversion of options to purchase common shares would have an
anti-dilutive effect. The only potential common shares as of December 31,
2005 were 210,000 options and 650,000 warrants that have been excluded from
the computation of diluted net loss per share because the effect would have
been anti-dilutive. If such shares were included in diluted EPS, they would
have resulted in weighted-average common shares of 35,692,201 and
573,837,508 for the year ended December 31, 2005 and 2004, respectively.
Reclassification
----------------
Certain reclassifications have been made to the 2004 balances to conform to
the 2005 presentation.
F-9
TORNADO GOLD INTERNATIONAL CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004
Recently Issued Accounting Pronouncements
-----------------------------------------
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections." This statement applies to all voluntary changes in accounting
principle and requires retrospective application to prior periods'
financial statements of changes in accounting principle, unless this would
be impracticable. This statement also makes a distinction between
"retrospective application" of an accounting principle and the
"restatement" of financial statements to reflect the correction of an
error. This statement is effective for accounting changes and corrections
of errors made in fiscal years beginning after December 15, 2005.
In February 2006, FASB issued SFAS No. 155, "Accounting for Certain Hybrid
Financial Instruments". SFAS No. 155 amends SFAS No 133, "Accounting for
Derivative Instruments and Hedging Activities", and SFAF No. 140,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities". SFAS No. 155, permits fair value
remeasurement for any hybrid financial instrument that contains an embedded
derivative that otherwise would require bifurcation, clarifies which
interest-only strips and principal-only strips are not subject to the
requirements of SFAS No. 133, establishes a requirement to evaluate
interest in securitized financial assets to identify interests that are
freestanding derivatives or that are hybrid financial instruments that
contain an embedded derivative requiring bifurcation, clarifies that
concentrations of credit risk in the form of subordination are not embedded
derivatives, and amends SFAS No. 140 to eliminate the prohibition on the
qualifying special-purpose entity from holding a derivative financial
instrument that pertains to a beneficial interest other than another
derivative financial instrument. This statement is effective for all
financial instruments acquired or issued after the beginning of the
Company's first fiscal year that begins after September 15, 2006.
In December 2004, the FASB issued FASB Statement No. 123R, "Share-Based
Payment, an Amendment of FASB Statement No. 123" ("FAS No. 123R"). FAS No.
123R requires companies to recognize in the statement of operations the
grant- date fair value of stock options and other equity-based compensation
issued to employees. FAS No. 123R is effective beginning in the Company's
first quarter of fiscal 2006.
In June 2005, the EITF reached consensus on Issue No. 05-6, Determining the
Amortization Period for Leasehold Improvements ("EITF 05-6.") EITF 05-6
provides guidance on determining the amortization period for leasehold
improvements acquired in a business combination or acquired subsequent to
lease inception. The guidance in EITF 05-6 will be applied prospectively
and is effective for periods beginning after June 29, 2005. EITF 05-6 is
not expected to have a material effect on its consolidated financial
position or results of operations.
The Company believes that the adoption of these standards will have no
material impact on its financial statements.
F-10
TORNADO GOLD INTERNATIONAL CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004
NOTE 3 - MINING CLAIMS
On May 31, 2004, the Company entered into four agreements with a company
wholly owned by Mr. Carl Pescio ("Pescio"), a Director of the Company, to
lease four mining properties. Terms of each of the four leases are as
follows:
Schedule of advanced lease payment for each property:
Due Date Amount
-------- ------
June 5, 2004 $ 15,000
May 15, 2005 $ 22,500
February 5, 2006 $ 30,000
February 5, 2007 $ 37,500
February 5, 2008 $ 50,000
February 5, 2009 $ 62,500
February 5, 2010 $ 75,000
February 5, 2011 and each
year thereafter until
production commences $100,000
Upon completion of a bankable feasibility study and payments totaling
$105,000, the Company will own 100% of the property subject to a continuing
production royalty of 4%. Once the $105,000 is paid, all subsequent
payments will convert into advance minimum royalty payments that are
deductible against the 4% production royalty due. A 1% royalty is also due
Pescio on production on property consisting of a 2 mile circumference
surrounding the leased property.
The Company will pay additional land acquisition and filling fees on the
property. The Company is committed to drill 5,000 feet on the property in
each year commencing on or before September 1, 2006 and continuing until
the completion of the feasibility study. Excess footage drilled in any year
will be carried forward to subsequent years. The Company has the option to
pay Pescio $10 per foot committed to and not drilled.
Prior to the completion of the feasibility study, the Company has the right
to purchase 2% of the 4% production royalty for $1,500,000 for each
percentage point. The Company also has the option to purchase 50% of the 1%
royalty for $500,000.
The Company shall be responsible for all environmental liabilities and
reclamation costs it creates and indemnifies Pescio against any such claims
or obligations. The Company can terminate the lease at any time by giving
30 days notice provided that there are no outstanding environmental or
reclamation liabilities and that all lease and production royalty payments
are current.
F-11
TORNADO GOLD INTERNATIONAL CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004
The Company paid the first lease payment of $15,000 in June 2004 and paid
the second lease payment in July 2005 on each of the four properties.
On October 3, 2005, the Company announced the acquisition of the 247-claims
(nearly 5,000 acres) Jack Creek property in Elko County, Nevada. The
Company final purchase price is still being determined. Prior to September
30, 2005, the Company paid $30,875 to the Bureau of Land Management to
secure the claims. This amount is shown as a deposit in the accompanying
balance sheet.
On October 6, 2005, the Company entered into a preliminary agreement with
Mr. Carl Pescio, a Director of the Company, to lease 10 mineral properties
(about 1,300 claims) in Nevada. Under the term of the preliminary
agreement, the Company is to make advance lease payments to Mr. Pescio on
each property based upon the following schedule:
Due Date Amount
-------------------------- ------
Upon signing $ 35,000
1st anniversary $ 55,000
2nd anniversary $ 75,000
3rd anniversary $100,000
4th anniversary $125,000
5th anniversary $150,000
6th anniversary and each
anniversary thereafter $200,000
The above $35,000 advance in 2005 was to be paid in installments of $5,000
upon signing. The remaining $30,000 was paid in 2006. The Company is
currently in renegotiations with Mr. Pescio to finalize the actual terms of
the 10 leases.
Based upon the actual terms of the leases acquired in May 2004 and the
preliminary terms of the leases acquired in October 2005, the Company's
obligation for minimum lease payments on these 14 properties is as follows:
2005
2006 $ 670,000
2007 $ 900,000
2008 $1,200,000
2009 $1,500,000
2010 $1,800,000
Minimum lease payments in
Subsequent years $2,400,000
F-12
TORNADO GOLD INTERNATIONAL CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004
Other claims:
-------------
In June 2004, the Company acquired 125 mining claims from the Bureau of
Land Management for $21,283, which includes the costs of filing fees
and other related acquisition costs.
On October 3, 2005, the Company announced the acquisition of the
247-claims (nearly 5,000 acres) Jack Creek property in Elko County,
Nevada. The Company final purchase price is still being determined.
Prior to September 30, 2005, the Company paid $30,875 to the Bureau of
Land Management to secure the claims.
A Description of the mining properties leased by the Company is as follows:
---------------------------------------------------------------------------
The NTGreen Property is located in central Lander County, Nevada about
40 miles southwest of the town of Battle Mountain. The property is
within the Battle Mountain/Eureka (Cortez) Trend at the northern end of
the Toiyabe Range.
The HMD Gold Property is located in Eureka County, Nevada along the
west side of the Cortez Range, about 30 miles southwest of the town of
Carlin, and about 10 miles north of the Buckhorn deposit. Access to the
property is gained by driving 41 miles west of Elko on I-80, then 20
miles south on SH-306 to the town of Crescent Valley. A well-maintained
gravel road leads east-southeast past the Hot Springs Point to the
vicinity of the Dean Ranch. A two-track road leads to the southeast and
the property position is reached in about one-half mile.
The Goodwin Hill Gold Property is located in east central Lander
County, Nevada about 60 miles south of the town of Battle Mountain and
about 25 miles northeast of the town of Austin. It is positioned in
grass Valley between the Simpson Park Range to the east and the Toiyabe
Range to the west.
The Wilson Peak property is located in Elko County, Nevada about 70
miles north of the town of Elko and about 20 miles north of the town of
Tuscarora. The property area is west of the Independence Gold Trend and
is part of a north-south line of gold-silver occurrences in Tertiary
volcanic rocks.
Jack Creek Property is located in the northern Independence Range about
50 miles north of Elko, Elko County, Nevada. It is comprised of 247
lode mining claims (nearly 5,000 acres) adjacent to Gateway Gold
Corp.'s (TSX Venture:GTQ) Big Springs and Dorsey Creek Properties.
About 3 miles to the northeast.
Stargo Property is located in the Monitor Range about 45 miles
southwest of the town of Eureka and about 20 miles west of the
Northumberland Mine and comprises of a total of 257 lode claims (about
5,140 acres) in Nye County, Nevada.
F-13
TORNADO GOLD INTERNATIONAL CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004
West Whistler Property is located on the west flank of Whistler
Mountain, about 10 miles northwest of the town of Eureka and comprises
of a total of 103 lode claims (about 2,060 acres) in Eureka County,
Nevada.
Brock Property is located in the Monitor Range about 36 miles southwest
of the town of Eureka and about 24 miles northeast of the
Northumberland Mine and comprises a total of 222 lode claims (about
4,440 acres) in Eureka County, Nevada.
Horseshoe Basin Property is located in the Fish Creek Mountains about
30 miles south of the town of Battle Mountain and about 4 miles south
of the McCoy and Cove deposits
South Lone Mountain Property is located on the west flank of the
Mountain Boy Range in Antelope Valley about 15 miles southwest of the
town of Eureka and consists of a total of 140 lode claims (about 2,800
acres) in Eureka County, Nevada
Golconda Property is located in Rock Creek Valley about 12 miles east
of the town of Winnemucca and near the intersection of the Getchell
Trend and the north end of the Battle Mountain-Eureka Trend and
comprises of a total of 108 lode claims (about 2,160 acres) in Humboldt
County, Nevada.
North Battle Mountain Property is located in the Sheep Creek Range
about 4 miles northeast of the town of Battle Mountain near the
northern extension of the Battle Mountain-Eureka (Cortez) Trend and
comprises a total of 73 lode claims (about 1,460 acres) in Lander
County, Nevada.
Dry Hills Property is located in the Dry Hills about 20 miles southwest
of the town of Carlin and .comprises of a total of 96 lode claims
(about 1,920 acres) in Eureka County, Nevada.
Walti Property is located in Grass Valley about 62 miles south of the
town of Carlin and consists of a total of 402 lode claims (about 8,040
acres) in Eureka and Lander Counties, Nevada.
Marr Property is located between the Fish Creek Mountains and the
Ravenswood Mountains about 50 miles southwest of the town of Battle
Mountain. The property is along the Western Nevada Rift and consists of
a total of 93 lode claims (about 1,840 acres) in Lander County, Nevada.
As of December 31, 2005, the Company incurred a total of $524,333 in
acquisition costs. The Company has recently commenced its exploration
of its properties and has yet to determine whether any of its
properties are commercially feasible. In order for the Company to
complete its analysis, additional funding is required.
F-14
TORNADO GOLD INTERNATIONAL CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004
NOTE 4 - NOTES PAYABLE, RELATED PARTIES
On April 15, 2005, the holders of the notes payable converted the principal
amount of the notes totaling $1,025,000 and accrued interest of $79,271
into 1,325,126 shares of the Company's common stock.
On July 1, 2005, the Company borrowed $100,000 from Gatinara Holdings,
Inc., an unrelated third party. The loan is evidenced by an unsecured
promissory note. The note accrues interest at 8% per annum and matures on
December 31, 2006. Accrued interest related to this note at December 31,
2005 amounted to $4,011.
From August 9, 2005 to October 5, 2005, the Company borrowed a total of
$330,978 from Greenshoe Investment, Inc., an unrelated third party. The
loans are evidenced by unsecured promissory notes. The notes accrue
interest at 8% per annum and matures on December 31, 2006. Accrued interest
related to these notes at December 31, 2005 amounted to $8,676.
NOTE 5 - STOCKHOLDERS' EQUITY
Common stock
------------
On April 19, 2004, the Company authorized a 50 for 1 stock split. On August
18, 2004, the Company authorized a 6.82 for 1 stock split. On May 16, 2005,
the Company authorized a 1.20 for 1 stock split. In addition, the Company
increased it authorized shares to 100,000,000. The accompanying financial
statements have been retroactively restated to present the effect of these
three stock splits.
In March 19, 2004, Earl T. Shannon, Steven W. Hudson, and Scott W.
Bodenweber redeemed 1,742,113,632 of their shares of the Company's common
stock in exchange for all of the Company's shares of Salty's Warehouse,
Inc.
In March 2004, Earl T. Shannon, Steven W. Hudson, and Scott W. Bodenweber
redeemed 312,886,363 of their shares of the Company's common stock in
exchange for $570,000. The $570,000 was paid on March 19, 2004.
In March 2004, Mr. Earl W. Abbott, Carl A. Pescio and Stanley B. Keith (the
new management of the Company) collectively purchased 28,836,364 of common
stock from the Company for $10,000. The payment for these shares was
received in April 2004.
On April 15, 2005, the Company's officers and directors agreed to redeem
27,172,800 of their shares for $7,906 or $.0002909 per share. This includes
13,586,400 shares from Dr. Abbott, and 6,793,200 shares from Messrs. Pescio
and Keith. Dr. Abbott's shares were redeemed for $3,954, and Messrs. Pescio
and Keith each received $1,976 for their shares. These amounts are the
equivalent to the pre-split prices they paid for their shares when they
joined the Company in March 2004. The $7,906 was paid during the three
months ended September 30, 2005.
F-15
TORNADO GOLD INTERNATIONAL CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004
As discussed in Note 4, on April 15, 2005, the holders of the notes payable
converted the principal amount of the notes totaling $1,025,000 and accrued
interest of $79,271 into 1,325,126 shares of the Company's common stock.
In the 4th quarter of 2005, the Company sold 625,000 shares of common stock
to an investor for total cash proceeds of $500,000. In connection with this
transaction, the Company also issued to this investor a warrant to purchase
625,000 shares of common stock for $0.85 per shares. As of December 31,
2005, the Company received $499,582. The remaining $418 has been charged to
equity and included in subscription receivable.
Options and Warrants:
---------------------
In March 2004, the Company issued 60,000 options to former employees of the
Company. The fair value for these options was estimated to be $4,540 and
has been recorded as an expense in the accompanying statement of
operations. The fair value was estimated using a Black-Scholes option
pricing model with the following weighted-average assumptions: risk-free
interest rate of 5.5%; dividend yields of 0%; volatility factors of the
expected market price of the Company's common stock of 50%; and a weighted
average expected life of the option of 10 years, respectively.
In accordance with a consulting agreement with Access Capital Management
Corp., the Company issued Access Capital, 25,000 options in September 2005
to purchase shares of the Company's common stock for $0.75 per shares.
These options were valued using the Black-Scholes option pricing model
using the following assumptions: term of 1,853 days, a risk-free interest
rate of 3.85%, a dividend yield of 0% and volatility of 63%. The value of
these options of $12,075 was amortized over the three-month initial term of
the agreement and was charged to operations in 2005.
In December 2005, the Company extended the term of the agreement and
granted Access an additional 125,000 options to purchase shares of the
Company's common stock at a price of $0.75 per shares. These options were
valued using the Black-Scholes option pricing model using the following
assumptions: term of 1,762 days, a risk-free interest rate of 4.45%, a
dividend yield of 0% and volatility of 71%. These options were valued
$52,150 and are being amortized over the nine month remaining term of the
agreement. In 2005, $5,794 was charged to operations in 2005.
The 150,000 options granted in 2005 expire on September 28, 2010 unless
Access Capital no longer provides services for the Company whereby the
options expire one year from the date of termination.
As discussed above, in connection with the issuance of the 625,000 shares
of the Company's common stock, the Company granted 625,000 warrants to
purchase shares of the Company's common stock at $.85 per share.
F-16
TORNADO GOLD INTERNATIONAL CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004
The following table summarizes the options and warrants outstanding:
Weighted-
Average
Option/ Exercise
Warrants Price
------------ ---------
Balance, December 31, 2003 852,000,000 $ 0.0000
Canceled (852,000,000) $ 0.0000
Granted 60,000 $ 0.0000
------------
Balance, December 31, 2004 60,000 $ 0.1500
Granted 775,000 $ 0.8306
------------
Balance, December 31, 2005 835,000 $ 0.7817
============
NOTE 6 - INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
statement purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax liabilities and assets
as of December 31, 2005 are as follows:
Deferred tax assets:
Net operating loss $ 221,000
Less valuation allowance (221,000)
---------
$ --
=========
At December 31, 2005, the Company had federal net operating loss ("NOL")
carryforwards of approximately $650,000. Federal NOLs could, if unused,
begin to expire in 2017.
The valuation allowance increased by approximately $96,000 and $86,000
during the year ended December 31, 2005 and 2004, respectively.
F-17
TORNADO GOLD INTERNATIONAL CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004
The reconciliation of the effective income tax rate to the federal
statutory rate for the years ended December 31, 2005 and 2004 is as
follows:
2005 2004
---------- ----------
Federal income tax rate (34.0%) (34.0%)
State tax, net of federal benefit -- --
Loss for which no federal benefit
was received 34.0% 34.0%
---------- ----------
Effective income tax rate 0.0% 0.0%
========== ==========
Utilization of the net operating loss and tax credit carryforwards is
subject to significant limitations imposed by the change in control under
I.R.C. 382, limiting its annual utilization to the value of the Company at
the date of change in control times the federal discount rate.
NOTE 7 - DISCONTINUED OPERATION
On March 19, 2004, Earl T. Shannon, Steven W. Hudson, and Scott W.
Bodenweber agreed that 1,742,113,632 of their shares of the Company will be
redeemed by the Company in exchange for all of the Company's shares of
Salty's Warehouse, Inc. As a result of this transaction, the operations of
Salty's has been shown as a discontinued operation in the accompanying
financial statements.
Salty's revenues were $1,415 for the period starting January 1, 2004 to
March 19, 2004. The results of operations of Salty's have been reported
separately as discontinued operations.
Actual net income (loss) of Salty's during the period from January 1, 2004
through March 19, 2004was $871. The gain on the disposition of Salty's was
$1,418, which has been recorded directly to stockholders' deficit since
this was a transaction among related parties.
The following is a summary of the net assets of Salty's at March 19, 2004:
March 19,
2004
---------
Assets:
Cash $ 6,068
---------
Total assets $ 6,068
---------
Liabilities:
Accounts payable $ 1,371
Accrued expenses 1,005
---------
Total liabilities $ 2,376
---------
Net assets of discontinued operations $ 3,692
=========
F-18
TORNADO GOLD INTERNATIONAL CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004
The gain on the disposition of Salty's of $1,418 was calculated as the
difference in the value of the stock returned of $5,110 and the net assets
of Salty's of $3,692.
NOTE 8 - RELATED PARTY TRANSACTIONS
During the years ended December 31, 2005 and 2004, the Company had the
following transactions with related parties:
As discussed in Note 3, the Company entered into agreements with a company
owned by Mr. Carl Pescio, a Director of the Company, to acquire mining
claims. During the year ended December 31, 2005 and 2004, the Company paid
Mr. Pescio $140,000 and $60,000, respectively, related to these agreements.
In addition, during the years ended December 31, 2005 and 2004, the Company
incurred $5,744 and $0, respectively to Mr. Pescio for consulting services
related to mining exploration.
During the year ended December 31, 2005, the Company incurred consulting
fees for services rendered by Mr. Earl Abbott, the Company's President
totaling $89,950 of which $61,775 related to mining exploration and the
remaining $28,175 related to was charged to general administrative
activities. The Company also during the year ended December 31, 2005, the
Company reimbursed Mr. Abbott $25,609 for travel and other company related
expenses. During the year ended December 31, 2004, the Company incurred
consulting fees for services rendered by Mr. Earl Abbott, the Company's
President totaling $36,268 of which $17,482 related to mining exploration
and the remaining $18,786 related to was charged to general administrative
activities. The Company also during the year ended December 31, 2004, the
Company reimbursed Mr. Abbott $9,470 for travel and other company related
expenses.
During the year ended December 31, 2005, the Company incurred consulting
fees for services rendered by Mr. Stanley Keith, a director of the Company
totaling $3,349 of which $1,389 related to mining exploration and the
remaining $1,960 related to was charged to general administrative
activities. The Company also during the year ended December 31, 2005, the
Company reimbursed Mr. Keith $579 for travel and other company related
expenses. During the year ended December 31, 2004, the Company incurred
consulting fees for services rendered by Mr. Stanley Keith, a director of
the Company totaling $5,007 of which $3,361 related to mining exploration
and the remaining $1,646 related to was charged to general administrative
activities.
As of April 15, 2005, the Company adopted its 2005 stock option plan to
compensate its directors as discussed in Note 2 above.
NOTE 9 - SUBSEQUENT EVENTS
During the three months ended March 31, 2006, the Company received $649.838
through the issuance of 3 convertible debentures, each bear interest at an
annual rate of 8% and mature on December 31, 2005, when the principal and
accrued interest become fully due and payable. The Company has the sole
right to convert the three notes in its common shares at a rate of $1.00
per share.
During the three months ended March 31, 2006, the Company made advance
lease payments to Mr. Carl Pescio on its mining claims totaling $550,000.
F-19
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
There have been no changes in or disagreements with our accountants since our
formation required to be disclosed pursuant to Item 304 of Regulation S-B that
have not been previously reported.
The reports of Jonathon P. Reuben for these fiscal years ending December 31,
2005 and December 31, 2004 did not contain an adverse opinion, or disclaimer of
opinion and were not qualified or modified as to audit scope or accounting
principles except as described herein. The report of Jonathon P. Reuben for
these fiscal years was qualified with respect to uncertainty as to our ability
to continue as a going concern.
ITEM 8A. CONTROLS AND PROCEDURES.
(a) Evaluation of disclosure controls and procedures. We maintain controls and
procedures designed to ensure that information required to be disclosed in the
reports that we file or submit under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified
in the rules and forms of the Securities and Exchange Commission. Based upon
their evaluation of those controls and procedures performed as of December 31,
2005, the end of the period covered by this report, our chief executive officer
and the principal financial officer concluded that our disclosure controls and
procedures were effective.
(b) Changes in internal controls. There were no significant changes in our
internal controls or in other factors that could significantly affect these
controls subsequent to the date of the evaluation of those controls by the chief
executive officer and principal financial officer.
ITEM 8B. OTHER INFORMATION.
In November 2005, we announced that we had secured a non-brokered private
placement of $500,000 consisting of 625,000 units at a price of $0.80 per unit.
Each unit consists of one common share and one full warrant. Each warrant allows
the purchase of an additional common share of the company at a price of $0.85
cents per share for a two year period.
18
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
As of December 31, 2005, our directors and executive officers were as follows:
NAME AGE POSITION
------------------------ --- -----------------------------------
Earl W. Abbott 64 President, Chief Executive Officer,
Secretary, Director
George J. Drazenovic* 35 Chief Financial Officer
Carl A. Pescio 54 Director
Stanley B. Keith 57 Director
*Mr. Drazenovic was appointed as our Chief Financial Officer in March 2006.
EARL W. ABBOTT, PRESIDENT, CHIEF EXECUTIVE OFFICER, SECRETARY, AND A DIRECTOR.
Dr. Abbot was appointed as our President, Chief Executive Officer, Chief
Financial Officer, Secretary and a Director in March 2004. He resigned as our
Chief Financial Officer in March 2006 when Mr. Drazenovic was appointed as Chief
Financial Officer. Dr. Abbott is a senior geologist and Qualified Person with
thirty-three years of experience in mineral exploration for large and small
companies in the western United States, Alaska, Mexico, China, Africa, and Costa
Rica. From 2003 to the present, Dr. Abbott has been the president of Big Bar
Gold Corp., a company reporting on a Canadian exchange, and from 1999 to
present, Dr. Abbot has served as the president of King Midas Resources Ltd., a
private Canadian company he founded which has acquired U.S. and Mexican gold
properties. From 1982 to the Present, Dr. Abbott has been self-employed as a
geological consultant, in which he manages metallic and industrial mineral
projects and exploration programs. From 1988 to 1997, Dr. Abbott was the Vice
President and Director the Trio Gold Corp., where he managed gold exploration
activities in the U.S., Ghana, and Costa Rica. From 1983 to 1984, he served as a
regional geologist for U.S. Minerals Exploration Company, where he conducted a
successful gold exploration program in Nevada & Utah. From 1978 to 1982 he was a
district geologist for Energy Reserves Group, Inc. where he opened and managed
the Reno District exploration office, and managed on more than twenty projects
which included geologic mapping, geochemical surveys, and more than 70,000 feet
of rotary drilling, along with conducting uranium exploration in Nevada,
Wyoming, South Dakota, and Montana. From 1975 to 1985, Dr. Abbott was a senior
geologist with Urangesellschaft USA, Inc., where he conceived, managed, and
conducted uranium exploration programs in remote terrains in Alaska, and from
1971 to 1975, Dr. Abbot was a project geologist for Continental Oil Company
where he supervised uranium exploration rotary drilling programs in Wyoming.
Dr. Abbott is a member of the American Institute of Professional Geologists and
is a Certified Professional Geologist, and a past president of the Nevada
Section. He is also a member of the Geological Society of Nevada and its past
president. Dr. Abbott is also a member of the Society of Mining Engineers of
American Institute of Mining, Metallurgical and Petroleum, the Denver Region
Exploration Geologists Society and its past president, and a member of the
Nevada Petroleum Society, and served as its past president as well. Dr. Abbott
earned his Ph.D. in Geology in 1972 and his Master of Arts in Geology, 1971 from
Rice University, Houston, Texas. Dr. Abbott earned his Bachelor of Arts degree
in Geology in 1965 from San Jose State College, San Jose, California. Dr. Abbott
is not an officer or director of any other reporting company.
GEORGE J. DRAZENOVIC, CHIEF FINANCIAL OFFICER. Mr. Drazenovic was appointed as
our Chief Financial Officer on March 28, 2006. Prior to joining us, and from
April 2005 until the present, Mr. Drazenovic was the Chief Financial Officer of
EPOD International, Inc. a U.S. reporting company, and from 2001 to 2005, was a
Corporate Finance Manager with BC Hydro. Mr. Drazenovic earned his Bachelor of
Arts in Economics from the University of British Columbia in 1991, a Diploma in
Financial Management from the British Columbia Institute of Technology in 1993,
and a Masters of Business Administration in Finance from the University of Notre
Dame in 2001. He also obtained licensing as a CGA (Certified General Accountant)
in 1997 and is a CFA Charter holder (Chartered Financial Analyst) since 2001.
Mr. Drazenovic is a member of the Certified General Accountants of British
Columbia, and the Vancouver Society of Financial Analysts. Mr. Drazenovic is a
citizen of and resides in Canada. Mr. Drazenovic is not an officer or director
of any other reporting company.
19
CARL A. PESCIO, DIRECTOR. Carl A. Pescio is a geologist offering more than 30
years of experience in the mining resource sector. In 1974, Mr. Pescio graduated
from the University of Nevada with a Bachelor of Science in Geology. After
graduating Mr. Pescio joined Kennecott Copper Corp. as a geologist. Since 1975,
Mr. Pescio has worked for numerous other natural resource companies in various
positions including; Geologist, Chief Geologist, Geological Engineer, Mine
Manager, and Vice President of Exploration. Mr. Pescio's tenure with Alta Gold
between 1987-1991 as Vice-President of Mining and Exploration, led to his
interest and focus on exploration for precious metal deposits in the Nevada gold
trends. Since 1991, he has focused his efforts in acquiring properties with
potential for deposits large enough to interest the major mining companies in
the area. Currently, Mr. Pescio is the President of Pescio Exploration which
owns approximately 45 properties, covering more than 20,000 hectares in Nevada.
More than half of Pescio Exploration's properties are under lease and being
explored by others. Mr. Pescio is also Vice-President of Exploration and a
Director for Mill City International Corp. Mr. Pescio is not an officer or
director of any other reporting company.
STANLEY B. KEITH, DIRECTOR. Stanley B. Keith is a geologist and geochemist with
25 years experience in minerals exploration. After graduating from the
University of Arizona with a Master's degree in Geology in 1978, he worked for
major companies such as Exxon Minerals and was a geologist for the Arizona
Geological Survey. In 1983 he co-founded and continues to be the President of
MagmaChem, LLC, offering highly skilled services to the exploration and mining
industry. He has consulted for major mining companies, including Newmont,
Barrick, BHP, Phelps-Dodge, AngloGold, and many others. Since 1993, he has
worked with Dr. Earl W. Abbott on numerous gold projects in Nevada, especially
the Carlin Trend. Mr. Keith is not an officer or director of any other reporting
company.
There are no orders, judgments, or decrees of any governmental agency or
administrator, or of any court of competent jurisdiction, revoking or suspending
for cause any license, permit or other authority to engage in the securities
business or in the sale of a particular security or temporarily or permanently
restraining any of our officers or directors from engaging in or continuing any
conduct, practice or employment in connection with the purchase or sale of
securities, or convicting such person of any felony or misdemeanor involving a
security, or any aspect of the securities business or of theft or of any felony,
nor are any of the officers or directors of any corporation or entity affiliated
with us so enjoined.
Dr. Abbott and Messrs. Keith and Pescio, our directors, were all appointed on
March 19, 2004. Directors serve until the next annual meeting or until their
successors are qualified and elected. Officers serve at the discretion of the
Board of Directors.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE. Section 16(a) of the
Securities Act of 1934 requires our directors, executive officers, and any
persons who own more than 10% of a registered class of our equity securities, to
file reports of ownership and changes in ownership with the Securities and
Exchange Commission. SEC regulation requires executive officers, directors and
greater than 10% stockholders to furnish us with copies of all Section 16(a)
forms they file. Based solely on our review of the copies of such forms received
by us, or written representations from certain reporting persons, we believe
that during the fiscal year ended December 31, 2005 our executive officers,
directors, and greater than 10% stockholders complied with all applicable filing
requirements.
AUDIT COMMITTEE AND FINANCIAL EXPERT. Because we do not have the resources to
expand our management at this time, we do not have an audit committee, nor do we
have a financial expert on our Board of Directors as that term is defined by
Item 401(e)2.
CODE OF ETHICS. We have not adopted a code of ethics that applies to our
principal executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions. We are in the
process of preparing and adopting a code of ethics.
CONFLICTS OF INTEREST. We believe that Messrs. Pescio and Keith will be subject
to conflicts of interest. The conflicts of interest arise from their
relationships in other mining companies, the property ownership interests of
those other mining companies and the amount of time they may spend with the
operations of those other entities.
20
We face strong competition from other mining companies, including those owned by
two of our directors, for the acquisition of new properties. Mines have limited
lives and as a result, we continually seek to find new properties. In addition,
there is a limited supply of desirable mineral lands available in the United
States where we would consider conducting exploration activities. Because we
face strong competition for new properties from other mining companies,
including those which are owned by Messrs. Pescio and Keith, two of our
directors, and other competitors, some of whom have greater financial resources
than we do, we may be unable to acquire attractive new mining properties on
terms that we consider acceptable. Since these directors have conflicts of
interests in that they manage other mining companies and have entered into
agreements with them and their companies to acquire certain properties or
properity rights, a conflict of interest exists. In addition, i the future, if
we decide to acquire additional interests in such mining properties, which are
also sought by one of the companies which Mr. Pescio or Mr. Keith manage or
control, or owned by them or one of those companies, a direct conflict of
interest could result. Our Articles of Incorporation provide that any conflict
must be disclosed, but Mr. Pescio or Mr. Keith would be allowed to vote on any
transaction in which they were interested.
With regard to any future related party transaction, we plan to fully disclose
any and all related party transactions, including, disclosing such transactions
and obtaining shareholder consent where required.
ITEM 10. EXECUTIVE COMPENSATION
Any compensation received by our officers, directors, and management personnel
will be determined from time to time by our Board of Directors. Our officers,
directors, and management personnel will be reimbursed for any out-of-pocket
expenses incurred on our behalf.
SUMMARY COMPENSATION TABLE. The following table sets forth the total
compensation earned by or paid to our Chief Executive Officer and our other most
highly compensated executive officers for the fiscal years ended December 31,
2005 and December 31, 2004.
ANNUAL COMPENSATION LONG TERM COMPENSATION
------- ----------------------------------- ------------------------------------------ -----------------
NAME AND YEAR SALARY BONUS OTHER ANNUAL AWARDS PAYOUTS ALL OTHER
PRINCIPAL POSITION ($) ($) COMPENSATION COMPENSATION
($)
------- -------- -------- ----------------- ------------------------------ ----------- -----------------
RESTRICTED SECURITIES LTIP
STOCK UNDERLYING PAYOUTS
AWARDS OPTIONS/SARS ($)
($) (#)
------- -------- -------- ----------------- ------------ ----------------- ----------- -----------------
Earl W. Abbott, 2005 None None None None None(1) None $89,950(2)
CEO, president, 2004 None None None None None None $36,268(3)
secretary,
treasurer
Earl T. Shannon, 2004 None None None None None None None
former president
secretary
Steven W. Hudson, 2004 None None None None None None None
former secretary
Scott W. 2004 None None None None None None None
Bodenweber,
former CFO
(1) Dr. Abbott is due to receive 250,000 options which vested in December 2005.
(2) Dr. Abbott received a total of $89,950 for consulting services during the
year ended December 31, 2005, of which $61,775 relates to mining exploration and
the remaining $21,875 related to general administrative services. In addition,
during 2005, Dr. Abbott was reimbursed $25,609 for travel and other
company-related expenses.
(3) Dr. Abbott received a total of $36,268 for consulting services during the
year ended December 31, 2004, of which $17,482 relates to geological services
and $18,786 relates to administrative services, In addition during 2004, Dr.
Abbott was reimbursed $9,470 for travel and related expenses.
21
Mr. Drazenovic was appointed in March 2006, and will be paid a salary of $2,500
per month. The terms of his employment are still being finalized.
Mr. Pescio and Mr. Keith, two of our directors, are also compensated for their
mining exploration services, administrative services and travel expenses, as
those services are rendered. Those services are rendered to us on a contractor
basis. Mr. Pescio and Mr. Keith are each due to receive 125,000 options to
purchase shares of our common stock, which vested in December 2005, but have not
yet been granted.
STOCK OPTIONS. Our Board of Directors adopted our 2003 Incentive and
Nonstatutory Stock Option Plan (the "2003 Stock Option Plan") on May 1, 2003.
Under the 2003 Stock Option Plan, 5,000,000 shares of common stock were
authorized for issuance upon the exercise of Incentive Stock Options or
Nonstatutory Stock Options. The 2003 Stock Option Plan anticipates qualifying
under Section 423 of the Internal Revenue Code of 1986, as an "employee stock
purchase plan." Under the 2003 Stock Option Plan, options may be granted to our
key employees, officers, directors or consultants.
The purchase price of the common stock subject to each Incentive Stock Option
shall not be less than the fair market value (as determined in the 2003 Stock
Option Plan), or in the case of the grant of an Incentive Stock Option to a
principal stockholder, not less that 110% of fair market value of such common
stock at the time such option is granted. The purchase price of the common stock
subject to each Nonstatutory Stock Option shall be determined at the time such
option is granted, but in no case less than 100% of the fair market value of
such shares of common stock at the time such option is granted.
The 2003 Stock Option Plan shall terminate 10 years from the earlier of the date
of its adoption by the Board of Directors or the date on which the 2003 Stock
Option Plan is approved by the affirmative vote of the holders of a majority of
the outstanding shares of our capital stock entitled to vote thereon, and no
option shall be granted after termination of the 2003 Stock Option Plan. Subject
to certain restrictions, the 2003 Stock Option Plan may at any time be
terminated and from time to time be modified or amended by the affirmative vote
of the holders of a majority of the outstanding shares of our capital stock
present, or represented, and entitled to vote at a meeting duly held in
accordance with the applicable laws of the State of Nevada.
The shares underlying the 2003 Stock Option plan were registered for sale under
the Securities Act of 1933, as amended, on Form S-8. The consent of a majority
of our voting shares was given for the approval of the 2003 Stock Option Plan by
written consent on May 1, 2003.
There were 2,500,000 options originally issued under the 2003 Stock Option Plan.
However, in connection with the Transfer and Sale to our new management as
described herein, the 2003 Stock Option Plan will terminate and all options
issued under the stock option plan shall be cancelled excepting 60,000 stock
options shall remain outstanding on a pro rata basis among the holders as listed
below pursuant to amended Stock Option Agreements.
OPTION GRANTS IN 2003--INDIVIDUAL GRANTS
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO
OPTIONS/SARS EMPLOYEES IN FISCAL EXERCISE OR BASE EXPIRATION
NAME (1) GRANTED (#) YEAR PRICE ($/SH) DATE
---------------------------------------- -------------- --------------------- ------------------ ------------
Earl T. Shannon, President 28,800 48 % $ 0.15/Sh 05/01/13
Steven W. Hudson, Secretary 24,000 40 % $ 0.15/Sh 05/01/13
Scott W. Bodenweber, CFO 7,200 12 % $ 0.15/Sh 05/01/13
(1) This table reflects ownership and positions held as of December 31, 2003.
We issued 60,000 options to former employees in March 2004, pursuant to
agreements amending the terms of the option agreements from March 2003.
22
OPTION GRANTS IN 2004 - INDIVIDUAL GRANTS
No options were granted during 2004.
OPTIONS GRANTS IN 2005 - INDIVIDUAL GRANTS
We agreed to grant, but have not yet granted options to Dr. Abbott and Messrs.
Pescio and Keith as follows:
Earl W. Abbott: up to 500,000 options, of which 250,000 vest on December 15,
2005 at an exercise price of $1.00 per share and another 250,000 which shall
vest when we acquire a mining project with a drill-indicated resource (1) of at
least 1.5 million ounces of gold or gold-equivalent (2) and if financing can be
arranged; the exercise price of these options will be $1.00 per share. Stanley
B. Keith and Carl A. Pescio are to each to receive the following: up to 250,000
options, of which 125,000 vest on December 15, 2005 at an exercise price of
$1.00 per share and 125,000 which shall according to the same mining project
schedule as Dr. Abbott.
(1) Drill-indicated resource means a deposit that has been investigated
and measured through industry-standard geologic and engineering
methods, but that has not had a positive feasibility study performed.
(2) Gold equivalent means the value of gold and other metals expressed
as gold ounces at the price of gold and the other metals at the time of
acquisition.
In September 2005, we granted a total of 150,000 options to Access Capital for
consulting services. These options have a strike price of $0.75 and expire
September 28, 2010.
There were no other option grants during the year ended December 31, 2005.
COMPENSATION OF DIRECTORS. Our directors do not receive any cash compensation,
but are entitled to reimbursement of their reasonable expenses incurred in
attending directors' meetings. We anticipate entering into stock option
agreements with our directors, Dr. Abbott and Messrs. Pescio and Keith.
Dr. Abbott is due to receive 250,000 options which vested in December 2005. Mr.
Pescio and Mr. Keith are each due to receive 125,000 options to purchase shares
of our common stock, which vested in December 2005, but have not yet been
granted.
Dr. Abbott, our employee and one of our officers and directors, is compensated
for the consulting services he provides as an independent contractor for mining
exploration and general administrative services to us. In addition, he is also
reimbursed for travel and other company-related expenses. Mr. Pescio and Mr.
Keith, our other two directors, are also compensated for their mining
exploration services, administrative services and travel expenses, as those
services are rendered. Those services are rendered to us on a contractor basis.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding the shares of our
outstanding Common Stock beneficially owned as December 31, 2005 by (i) each of
our directors and executive officers, (ii) all directors and executive officers
as a group, and (iii) each other person who is known by us to own beneficially
more than 5% of our Common Stock based upon 28,791,726 issued common shares.
TITLE OF CLASS NAME AND ADDRESS OF AMOUNT AND NATURE OF BENEFICIAL PERCENT OF CLASS
BENEFICIAL OWNER OWNER
----------------------------------------- ----------------------------------- ------------------------------
Common Stock Earl W. Abbott 3,600,000 shares(3) 12.5%
8600 Technology Way, Suite 118, President, Secretary, Treasurer,
Reno NV 89521 Director
----------------------------------------- ----------------------------------- ------------------------------
Common Stock George J. Drazenovic(2) no shares
8600 Technology Way, Suite 118, Chief Financial Officer
Reno NV 89521 0.0%
----------------------------------------- ----------------------------------- ------------------------------
Common Stock Stanley B. Keith 1,800,000 shares(3)
8600 Technology Way, Suite 118, Director
Reno NV 89521 6.3%
----------------------------------------- ----------------------------------- ------------------------------
Common Stock Carl A. Pescio 1,800,000 shares(3)
8600 Technology Way, Suite 118, Director
Reno NV 8952 6.3%
----------------------------------------- ----------------------------------- ------------------------------
Common Stock All directors and named executive 25.0%(1)
officers as a group 7,200,000 shares
----------------------------------------- ----------------------------------- ------------------------------
(1) Figures may vary due to rounding.
(2) Mr. Drazenovic was appointed in March 2006, and does not own any
shares of our common stock or any other of our securities.
(3) Dr. Abbott is due to receive 250,000 options which vested in December
2005. Mr. Pescio and Mr. Keith are each due to receive 125,000
options to purchase shares of our common stock, which vested in
December 2005, but have not yet been granted.
23
CHANGES IN CONTROL. As of December 31, 2005, our management was not aware of any
arrangements which may result in "changes in control" as that term is defined by
the provisions of Item 403(c) of Regulation S-B, except for the following:
On April 15, 2005, our officers and directors agreed to redeem 22,654,000 of
their shares for $7,909.25 or $.000349 per share. This includes 11,332,000
shares from Dr. Abbott, and 5,661,000 shares from Messrs. Pescio and Keith. Dr.
Abbott's shares were redeemed for $3,954.87, and Messrs. Pescio and Keith each
received $1,975.69 for their shares. These amounts are the equivalent to the
pre-split prices they paid for their shares when they joined us in March 2004.
This transaction changes their ownership percentage from 63.7% to 26.8%. We also
issued shares of our common stock to an unrelated third party who has loaned us
an aggregate total of $1,025,000 since March 2004 to settle that debt. The
number of shares issued was 1,104,271 or 4.7% of our current issued and
outstanding common stock, which is represented by 1,025,000 shares for the
principal owed and 79,271 for the interest that had accrued through April 15,
2005. This transaction changes our management's ownership percentage from 26.8%
to 25.6%.
On March 19, 2004, Earl T. Shannon, Steven W. Hudson, and Scott W. Bodenweber
our former officers and directors at the time, agreed to have 255,510,000
(5,110,200 pre-split) of their shares redeemed by us in exchange for all of our
shares of Salty's Warehouse, Inc. Earl T. Shannon, Steven W. Hudson, and Scott
W. Bodenweber agreed that 45,890,000 (917,800 pre-split) of their shares in us
would be redeemed by us in exchange for $570,000. As a condition to these
transactions, Messrs. Shannon, Hudson, and Bodenweber resigned as our officers.
Earl W. Abbott was appointed as our President, Chief Financial Officer and
Secretary. In addition, Dr. Abbott, Carl A. Pescio and Stanley B. Keith have
collectively purchased 84,000 shares of pre-split common stock from us. Dr.
Abbott, Mr. Pescio and Mr. Keith replaced Messrs. Shannon, Hudson and Bodenweber
on our Board of Directors ten days after a Schedule 14f-1 was delivered to our
shareholders.
On April 15, 2005, we adopted our 2005 stock option plan to compensate our
directors as follows:
Earl W. Abbott will be eligible to receive up to 500,000 options, of which
250,000 vest on December 15, 2005 at an exercise price of $1.00 per share and
another 250,000 which shall vest when we acquire a mining project with a
drill-indicated resource of at least 1.5 million ounces of gold or
gold-equivalent and if financing can be arranged; the exercise price of these
options will be $1.00 per share. None of these options have yet been granted.
Stanley B. Keith and Carl A. Pescio are to each to receive the following: up to
250,000 options, of which 125,000 vest on December 15, 2005 at an exercise price
of $1.00 per share and 125,000 which shall according to the same mining project
schedule as above. None of these options have yet been granted.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. In accordance with Securities and Exchange
Commission rules, shares of our common stock which may be acquired upon exercise
of stock options or warrants which are currently exercisable or which become
exercisable within 60 days of the date of the table are deemed beneficially
owned by the optionees. Subject to community property laws, where applicable,
the persons or entities named in the table above have sole voting and investment
power with respect to all shares of our common stock indicated as beneficially
owned by them.
24
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
RELATED PARTY TRANSACTIONS.
On May 1, 2002, Salty's Warehouse bought back 10 shares of Salty's Warehouse
each from Mark Shannon and Ronald Shannon for $30 per share, counting $290 in
paid-in capital by each of them. At the time of this transaction, these shares
represented 20% of the outstanding shares of Salty's Warehouse. These shares
were cancelled by Salty's Warehouse.
Earl T. Shannon, Steven W. Hudson, Mark R. Shannon, Ronald J. Shannon are
promoters of Salty's Warehouse as defined by the Securities and Exchange
Commission. The only items of value they received from Salty's Warehouse are the
stock they were issued by Salty's and any consideration they have received from
sales of this stock. On July 16, 1998, Earl T. Shannon, Mark R. Shannon and
Ronald Shannon each received 33.333 shares, representing in the aggregate 100%
of Salty's Warehouse at par value for services rendered. The determination of
the value of their services was made by Earl T. Shannon, Mark R. Shannon and
Ronald Shannon as the shareholders of Salty's Warehouse. On March 15, 1999, they
redistributed this stock such that Earl T. Shannon and Steven W. Hudson each
received 40 shares and Mark R. Shannon and Ronald J. Shannon each received 10
shares. Subsequently Mark R. Shannon and Ronald J. Shannon each sold all of
their shares back to Salty's Warehouse for $30 per share and Earl T. Shannon and
Steven W. Hudson sold 80% of their shares to Nucotec in return for 456,000
Nucotec shares, representing 15% of the outstanding shares of Nucotec on a fully
diluted basis.
On May 10, 2002, we acquired an 80% interest in Salty's Warehouse from Earl T.
Shannon and Steven W. Hudson. In return, Earl T. Shannon and Steven W. Hudson
each received 456,000 shares our common stock, which in the aggregate was equal
to 15% of our outstanding shares on a fully diluted basis. See a discussion of
this transaction under "Business." As of December 31, 2003 Earl T. Shannon was
our President and one of our directors and Steven W. Hudson was our Secretary
and one of our directors.
Steven W. Hudson is a principal of Hudson Capital Group, which as of December
31, 2003 was furnishing us with office space and storage space on a rent-free
basis.
On October 18, 2002, we borrowed $15,000 from Earl T. Shannon and Steven W.
Hudson, pursuant to promissory notes requiring us to repay the principal and
interest accrued at the rate of 10% on October 18, 2003.
On April 30, 2003, we borrowed a total of $25,000 from Earl T. Shannon and
Steven W. Hudson ($12,500 from each), pursuant to promissory notes requiring us
to repay the principal and interest accrued at the rate of 10% on April 30,
2004. On August 8, 2003, we borrowed a total of $30,000 from Earl T. Shannon and
Steven W. Hudson ($15,000 from each), pursuant to promissory notes requiring us
to repay the principal and interest accrued at the rate of 10% on August 8,
2004. On November 12, 2003, we borrowed $7,500 from Earl T. Shannon pursuant to
a promissory note requiring us to repay the principal and interest accrued at
the rate of 10% on November 12, 2004. On December 1, 2003, we borrowed $7,500
from Steven W. Hudson pursuant to a promissory note requiring us to repay the
principal and interest accrued at the rate of 10% on December 1, 2004.
As of December 31, 2003 on its website, Salty's Warehouse was advertising for
sale a $7,800,000 yacht. International Yacht Collection, a yacht brokerage
company, is the listing broker of this yacht. If the yacht sells through Salty's
Warehouse, Salty's Warehouse will receive 1.25% of the selling price and
International Yacht Collection will receive between 1%-6% of the selling price,
dependent upon whether the yacht is sold by an International Yacht Collection
agent, in which case International Yacht Collection will receive 3%-6% or by
another unaffiliated agent, in which case International Yacht Collection will
receive 1%-3%. In the future, Salty's Warehouse may offer for sale other
products of International Yacht Collection on a similar basis. International
Yacht Collection is owned by Harris W. Hudson, who is one of our stockholders as
well as the father of our Secretary and director, Steven W. Hudson. The yacht is
owned by Steven W. Hudson's parents. Additionally, Steven W. Hudson is the
President and CEO of International Yacht Collection. Steven W. Hudson has
advised us that he will not be personally receiving any commission from the sale
of the yacht.
On March 19, 2004, our officers and directors at the time, Earl T. Shannon,
Steven W. Hudson, and Scott W. Bodenweber agreed that 253,510,000 (5,110,200
pre-split) of their shares will be redeemed by us in exchange for all of our
shares of Salty's Warehouse, Inc. Earl T. Shannon, Steven W. Hudson, and Scott
W. Bodenweber have agreed that 45,890,000 (917,800 pre-split) of their shares of
our stock will be redeemed by us in exchange for $570,000. As of March 19, 2004,
we no longer hold any ownership interest in Salty's Warehouse, Inc.
25
In addition, in March 2004, Earl W. Abbott, Carl A. Pescio and Stanley B. Keith
collectively purchased 84,000 pre-split (28,654,000 post-split) shares of common
stock from us for $10,000.
As discussed herein, we entered into agreements with a company owned by Mr. Carl
A. Pescio, one of our directors, to acquire mining claims. Preliminary forms of
these agreements were entered into on May 31, 2004 and were finalized on April
5, 2005.
During the year ended December 31, 2004, we incurred consulting fees for
services rendered by Dr. Earl W. Abbott, our President, totaling $36,268 of
which $17,482 related to mining exploration and the remaining $18,786 related to
was charged to general administrative activities.
Also during the year ended December 31, 2004, we incurred consulting fees for
services rendered by a company wholly owned by Mr. Stanley Keith, one of our
directors, totaling $5,007 of which $3,361 related to mining exploration and the
remaining $1,646 related to was charged to general administrative activities.
On April 15, 2005, our officers and directors agreed to redeem 22,654,000 of
their shares for $7,909.25 or $.000349 per share. This includes 11,332,000
shares from Dr. Abbott, and 5,661,000 shares from Messrs. Pescio and Keith. Dr.
Abbott's shares were redeemed for $3,954.87, and Messrs. Pescio and Keith each
received $1,975.69 for their shares. These amounts are the equivalent to the
pre-split prices they paid for their shares when they joined us in March 2004.
As of April 15, 2005, we have adopted our 2005 stock option plan ("2005 Stock
Option Plan") to compensate our directors as follows: Earl W. Abbott: up to
500,000 options, of which 250,000 will vest on December 15, 2005 at an exercise
price of $1.00 per share and another 250,000 which shall vest when we acquire a
mining project with a drill-indicated resource (as defined above) of at least
1.5 million ounces of gold or gold-equivalent (as defined above) and if
financing can be arranged; the exercise price of these options will be $1.00 per
share.
Stanley B. Keith and Carl A. Pescio are to each to receive the following: up to
250,000 options, of which 125,000 will vest on December 15, 2005 at an exercise
price of $1.00 per share and 125,000 which shall vest according to the same
mining project schedule as above. None of these options have been granted. The
2005 Stock Option Plan has not yet been ratified by our shareholders.
During the year ended December 31, 2005 we had the following transactions with
related parties:
o Pursuant to the 2004 agreements to acquire mining claims with a
company owned by Mr. Carl Pescio, one of our directors, we paid Mr.
Pescio $140,000 related to these agreements. In addition, during the
year ended December 31, 2005 we incurred $5,744 to Mr. Pescio in
consulting services related to mining exploration.
o We entered into an agreement with Dr. Earl Abbott, one of our
officers and directors, and Mr. Stanley Keith, one of our directors,
to explore the feasibility and possible lease and acquisition of
certain mining claims owned jointly by Dr. Abbott and Mr. Keith.
o We incurred consulting fees for services rendered by Dr. Earl Abbott,
our President, totaling $89,950 of which $61,775 related to mining
exploration and the remaining $28,175 related to general
administrative activities. Also during the year ended December 31,
2005, we reimbursed Dr. Abbott $25,609 for travel and other company
related expenses.
o We incurred consulting fees for services rendered by Mr. Stanley
Keith, one of our directors, totaling $3,349 of which $1,389 related
to mining exploration and the remaining $1,960 related to was charged
to general administrative activities. Also during the year ended
December 31, 2005, we reimbursed Mr. Keith $579 for travel and other
company related expenses.
During the three months ended March 31, 2006, we made advance lease payments of
$550,000 to Mr. Pescio on our mining claims.
26
With regard to any future related party transaction, we plan to fully disclose
any and all related party transactions, including, but not limited to, the
following:
o disclose such transactions in prospectuses where required;
o disclose in any and all filings with the Securities and Exchange
Commission, where required;
o obtain disinterested directors' consent; and
o obtain shareholder consent where required.
ITEM 13. EXHIBITS
(a) Exhibit No.
---------------
3.1 Articles of Incorporation*
3.1.1 Certificate of Amendment to Articles of Incorporation **
3.1.2 Certificate of Amendment to Articles of Incorporation ***
3.2 Bylaws*
31 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer and
Chief Financial Officer of the Company
32 Section 906 Certification by Chief Executive Officer and Chief
Financial Officer
* Incorporated by reference from our Registration Statement on Form SB-2,
filed on September 11, 2002, as amended (Registration No. 333-99443).
** Filed with our report on Form 8-K filed July 7, 2004
*** Filed with our report on Form 8-K filed on August 31, 2004
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
AUDIT FEES. The aggregate fees billed in each of the fiscal years ended December
31, 2005 and 2004 for professional services rendered by the principal accountant
for the audit of our annual financial statements and review of the financial
statements included in our Form 10-KSB or services that are normally provided by
the accountant in connection with statutory and regulatory filings or
engagements for those fiscal years were $12,400 and $16,500 respectively.
AUDIT-RELATED FEES. There were no fees billed for services reasonably related to
the performance of the audit or review of the financial statements outside of
those fees disclosed above under "Audit Fees" for fiscal years 2005 and 2004.
TAX FEES. For the fiscal years ended December 31, 2005 and December 31, 2004,
our principal accountants did not render any services for tax compliance, tax
advice, and tax planning work.
ALL OTHER FEES. None.
PRE-APPROVAL POLICIES AND PROCEDURES. Prior to engaging its accountants to
perform a particular service, our board of directors obtains an estimate for the
service to be performed. All of the services described above were approved by
the board of directors in accordance with its procedures.
27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned in the City of Reno, Nevada, on April 10, 2006.
Tornado Gold International Corp.,
a Nevada corporation
/s/ Earl W. Abbott
-----------------------------------------
Earl W. Abbott
principal executive officer
president, treasurer, secretary, director
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Earl W. Abbott April 10, 2006
--------------------------------------------
Earl W. Abbott
Its: principal executive officer
president, treasurer, secretary, director
By: /s/ George Drazenovic April 10, 2006
--------------------------------------------
George Drazenovic
Its: chief financial director
By: /s/ Carl A. Pescio April 10, 2006
--------------------------------------------
Carl A. Pescio
Its: director
By: April 10, 2006
--------------------------------------------
Stanley R. Keith
Its: director
28