UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 2006
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ________________ to _______________
000-50146
(Commission file number)
TORNADO GOLD INTERNATIONAL CORP.
(Exact name of small business issuer as specified in its charter)
Nevada 94-3409645
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
3841 Amador Way, Reno, Nevada 89502
(Address of principal executive offices)
(775) 827-2324
(Issuer's telephone number)
N/A
(Former name, former address and former fiscal year, if changed since
last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
The number of shares of common stock outstanding as of May 10, 2006 was
28,791,725.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
TORNADO GOLD INTERNATIONAL CORP.
Index
Page
Number
PART I. FINANCIAL INFORMATION 2
Item 1. Financial Statements 2
Balance Sheet as of March 31, 2006 (unaudited) 2
Statements of Operations for the
three months ended March 31, 2006 and 2005 (unaudited) 3
Statements of Cash Flows for the
three months ended March 31, 2006 and 2005 (unaudited) 4
Notes to Financial Statements (unaudited) 5
Item 2. Management's Discussion and Analysis or Plan of Operation 10
Item 3. Controls and Procedures 12
PART II. OTHER INFORMATION 13
Item 6. Exhibits 13
SIGNATURES 14
CERTIFICATIONS 15
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TORNADO GOLD INTERNATIONAL CORP.
(formerly Nucotec, Inc.)
BALANCE SHEET
March 31
2006
-----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 181,165
Prepaid expenses 5,306
-----------
TOTAL CURRENT ASSETS 186,471
MINING CLAIMS 944,333
-----------
TOTAL ASSETS $ 1,130,804
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable - related party $ 9,238
Accounts payable - others 13,739
Notes payable (including accrued interest of $28,867) 1,109,683
-----------
TOTAL CURRENT LIABILITIES 1,132,660
-----------
COMMITMENTS AND CONTINGENCIES --
STOCKHOLDERS' DEFICIT
Common stock; $0.001 par value; 100,000,000 shares
authorized; 28,791,725 shares issued and outstanding 28,792
Additional paid in capital 1,649,339
Accumulated deficit (1,679,569)
Stock subscription receivable (418)
-----------
TOTAL STOCKHOLDERS' DEFICIT (1,856)
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 1,130,804
===========
The accompanying notes are an integral part of these financial statements.
2
TORNADO GOLD INTERNATIONAL CORP.
(formerly Nucotec, Inc.)
STATEMENTS OF OPERATIONS
For the Three Months Ended
March 31,
2006 2005
--------------- ---------------
(Unaudited) (Unaudited)
NET REVENUE $ -- $ --
OPERATING EXPENSES
Mining exploration expenses 39,960 17,850
General and administrative expenses 83,810 28,125
--------------- ---------------
123,770 45,975
--------------- ---------------
LOSS FROM OPERATIONS (123,770) (45,975)
--------------- ---------------
OTHER INCOME (EXPENSE)
Interest expense (16,181) (19,638)
--------------- ---------------
TOTAL OTHER INCOME (EXPENSE) (16,181) (19,638)
--------------- ---------------
LOSS BEFORE PROVISION FOR INCOME TAXES (139,951) (65,613)
PROVISION FOR INCOME TAXES -- --
--------------- ---------------
NET LOSS $ (139,951) $ (65,613)
--------------- ---------------
NET LOSS PER SHARE - BASIC AND DILUTED $ (0.00) $ (0.00)
=============== ===============
WEIGHTED AVERAGE COMMON EQUIVALENT
SHARES OUTSTANDING - BASIC AND DILUTED 28,791,725 54,014,400
=============== ===============
The accompanying notes are an integral part of these financial statements.
3
TORNADO GOLD INTERNATIONAL CORP.
(formerly Nucotec, Inc.)
STATEMENTS OF CASH FLOWS
For the Three Months Ended
March 31,
2006 2005
---------- ----------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss from continuing operations $ (139,951) $ (65,613)
Adjustment to reconcile net loss to net cash
used in operating activities:
Changes in:
Prepaid expenses and other current assets 1,088 --
Accounts payable and accrued expenses 25,857 32,673
---------- ----------
Net cash used in operating activities (113,006) (32,940)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of mining claims (420,000) (43,314)
---------- ----------
Net cash used in investing activities (420,000) (43,314)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 649,838 50,000
---------- ----------
Net cash provided by financing activities 649,838 50,000
---------- ----------
NET CASH PROVIDED BY CONTINUING OPERATIONS 116,832 (26,254)
CASH AND CASH EQUIVALENTS, Beginning of year 64,333 53,141
---------- ----------
CASH AND CASH EQUIVALENTS, End of year $ 181,165 $ 26,887
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ -- $ --
========== ==========
Income taxes paid $ -- $ --
========== ==========
The accompanying notes are an integral part of these financial statements.
4
TORNADO GOLD INTERNATIONAL CORP.
(formerly Nucotec, Inc.)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
5
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"). 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 three months ended March 31, 2006 of $139,951, and as of
March 31, 2006 had a negative working capital of $946,189 and had an
accumulated deficit of $1,679,569. 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.
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 prepared as if all of the
stock-splits occurred at the beginning of each period presented.
Stock Based Compensation
The Company accounts for stock-based compensation under SFAS No. 123,
"Accounting for Stock-Based Compensation" and SFAS No. 148, "Accounting for
Stock-Based Compensation--Transition and Disclosure--An amendment to SFAS
No. 123." These standards define a fair value based method of accounting
for stock-based compensation. In accordance with SFAS Nos. 123 and 148, the
cost of stock-based employee compensation is measured at the grant date
based on the value of the award and is recognized over the vesting period.
The value of the stock-based award is determined using the Black-Scholes
option-pricing model, whereby compensation cost is the excess of the fair
value of the award as determined by the pricing model at the grant date or
other measurement date over the amount an employee must pay to acquire the
stock. The resulting amount is charged to expense on the straight-line
basis over the period in which the Company expects to receive the benefit,
which is generally the vesting period. During the three months ended March
31, 2006 and 2005, the Company recognized no compensation expense under
SFAS No. 123 as no options were issued to employees during these two
periods.
5
As of April 15, 2005, the Company adopted its 2005 stock option plan to
compensate its directors. As of march 31, 2006, no options have been
granted to the directors.
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.
6
Revenue Recognition
The Company has not generated any revenue from its mining operations.
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 March 31,
2006 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
29,626,725 and 54,074,400 for the three months ended March 31, 2006 and
2005, respectively.
Reclassification
Certain reclassifications have been made to the 2005 balances to conform
to the 2006 presentation.
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.
7
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.
Note 3 - Mining Claims
NT Green Property, HMD Gold Property, Goodwin Hill Gold Property, and
Wilson Peak Property
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. The terms of the four leases are
substantially identical and are as follows:
A schedule of the advanced lease payments for each of the four properties
is as follows:
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
8
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 credited 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.
Jack Creek Property
On October 3, 2005, the Company paid the Bureau of Land Management $30,875
as consideration on the Exploration License and Option to Lease Agreement
entered into between the Company and Mr. Earl Abbott, and Stanley Keith
("the owners"), to explore 247 claims (nearly 5,000 acres) known as the
Jack Creek Property. Mr. Abbott is the Company's President and Mr. Keith
is a Company Director.
Under the preliminary terms of this agreement, the Company was granted a
license to explore the property for a period of six months to determine
what claims, if any, it wishes to lease. The term of the license is for
six months, but the Company has the option to extend.
If the Company leases all of the 247 claims, it 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
9
If any payments due by the Company to the owners are not paid within 30
days of its due date, interest will 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.
The Company shall have the option to purchase one-half (1/2) of the
royalty applicable to the property representing two percent (2%) of the
Net Smelter Returns. The Company shall have the right to elect to purchase
such part of the royalty in increments representing one percent (1%) of
the Net Smelter Returns and the purchase price for each such increment
shall be $1,500,000. The Company shall have the option to purchase
one-half (1/2) of the area-of-interest royalty applicable to mineral
rights, mining claims and properties which the Company acquires from third
parties representing one-half percent (.5%) of the Net Smelter Returns.
The purchase price for such part of the area-of-interest royalty shall be
$500,000 for the one-half percent (.5%) of the area-of-interest royalty
applicable to mineral rights, mining claims and properties which the
Company acquires from any third party.
The Company shall be responsible for all environmental liabilities and
reclamation costs it creates and indemnifies the owners 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.
The terms and obligations disclosed above are based upon preliminary
agreements of the parties still under review and may be subject to change.
Additional Properties
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.
10
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 as of March 31, 2006 for the payment of minimum lease payments
on these 15 properties is as follows:
2006 $ 572,500
2007 $ 930,000
2008 $ 1,237,500
2009 $ 1,550,000
2010 $ 1,862,500
Minimum lease payments in
Subsequent years $ 2,500,000
A description of the mining properties leased by the Company is as
follows:
NT Green 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.
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.
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.
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.
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.
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.
11
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 March 31, 2006, the Company incurred a total of $944,333 in
acquisition costs. The Company has recently commenced 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.
Note 4 - Notes Payable
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 as of March 31,
2006 amounted to $5,984.
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 mature on December 31, 2006. Accrued interest
related to these notes as of March 31, 2006 amounted to $15,204.
During the three months ended March 31, 2006, the Company borrowed a total
of $649,838 from Greenshoe Investment, Inc. The loans are evidenced by
unsecured promissory notes. The notes accrue interest at 8% per annum and
mature on December 31, 2006. Accrued interest related to these notes as of
March 31, 2006 amounted to $7,679.
12
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.
On April 15, 2005, the Company's officers and directors agreed to redeem
an aggregate of 27,172,800 of their shares for $7,906 or $.0002909 per
share. The shares includes 13,586,400 shares from Dr. Abbott, and
6,793,200 shares from each of 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.
In 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 fourth 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
The following table summarizes the options and warrants outstanding as of
March 31, 2006:
Weighted-
Average
Option/ Exercise
Warrants Price
----------- ------------
Balance, March 31, 2006 835,000 $ 0.7817
===========
There was no activity for the three months ended March 31, 2006.
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 March 31, 2006 are as follows:
Deferred tax assets:
Net operating loss $ 268,500
Less valuation allowance (268,500)
----------
$ --
==========
13
At March 31, 2006, the Company had federal net operating loss ("NOL")
carryforwards of approximately $790,000. Federal NOLs could, if unused,
begin to expire in 2017.
The valuation allowance increased by approximately $48,000 and $22,000
during the three-months ended March 31, 2006 and 2005, respectively.
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 - Related Party Transactions
During the three months ended March 31, 2006 and 2005, 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 three months ended March 31, 2006, the Company paid Mr.
Pescio $420,000 related to these agreements.
During the three months ended March 31, 2006, the Company incurred
consulting fees for services rendered by Mr. Earl Abbott, the Company's
President, totaling $66,579 of which $30,992 related to mining exploration
and the remaining $35,587 related to general administrative activities.
During the three months ended March 31, 2005, the Company incurred
consulting fees for services rendered by Mr. Earl Abbott, the Company's
President, totaling $23,100 of which $17,850 related to mining exploration
and the remaining $5,250 was charged to general administrative activities.
The Company also during the three months ended March 31, 2005 reimbursed
Mr. Abbott $7,809.39 for travel and other company related expenses.
During the three months ended March 31, 2006, the Company paid a $10,000
consulting fee to George Drazenovic, the Company's Chief Financial
Officer.
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Item 2. Management's Discussion and Analysis or Plan of Operations
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 POLICIES
Our Management's Discussion and Analysis or Plan of Operation 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 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, 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 more fully described
in the notes to the financial statements included in our Annual Report on Form
10-KSB for the fiscal year ended December 31, 2005.
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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.
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.
On March 19, 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. In addition, shareholders holding a majority of our
outstanding common stock approved those actions by written consent in lieu of a
meeting on May 12, 2004, in accordance with the relevant sections of the Nevada
Revised Statutes.
LIQUIDITY AND CAPITAL RESOURCES. We had cash and cash equivalents totaling
$181,165 as of March 31, 2006 and had prepaid our office lease and attorney fees
totaling $5,306, making our total current assets $186,471. We also had mining
assets of $944,333, making our total assets $1,130,804 as of March 31, 2006. We
believe that our available cash and cash equivalents are not sufficient to pay
our day-to-day expenditures. We are committed to seek the necessary financing
needed to continue operating through the sale of equity or debt financing,
though there is no guarantee we will be able to do so.
As of March 31, 2006, we had a net working capital deficit of $946,189 as
compared to $1,089,940 of March 31, 2005.
Net cash used in operating activities was $113,006 for the three months ended
March 31, 2006 compared to $32,940 for the three months ended March 31, 2005.
Since we have no current source of revenue, our only source of cash is from the
issuance of debt or equity instruments. During the three months ended March 31,
2006, we borrowed $649,838 compared to the $50,000 we borrowed during the three
months ended March 31, 2005. We used $420,000 to make advance lease payments and
acquisition costs on our mining claims during the three months ended March 31,
2006 compared to $43,314 we incurred during the three months ended March 31,
2005.
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. In March 2004, our management
team changed. 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. However, due to the change in our business
plan, we must raise additional capital in order to have resources sufficient to
fund all of our general and administrative expenses for the next twelve months.
No assurances can be given that we will be able to obtain sufficient working
capital trough the sale of our common stock and borrowing or that the
development and implementation of our business plan will generate sufficient
revenues in the future to sustain ongoing operations. These factors raise
substantial doubt with our auditor about our ability to continue as a going
concern.
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RESULTS OF OPERATIONS.
FOR THE THREE MONTHS ENDED MARCH 31, 2006 COMPARED TO THE THREE MONTHS ENDED
MARCH 31, 2005.
REVENUE. We have realized no revenues for the three months ended March 31, 2006
and 2005.
OPERATING EXPENSES. For the three months ended March 31, 2006, our total
operating expenses were $123,770 compared to our total operating expenses
incurred during the three months ended March 31, 2005 of $45,975. Of the
$123,770 incurred in 2006, $39,960 related to our mining exploration and $83,810
was incurred in general and administrative activities. Of the $45,975 incurred
in 2005, $17,850 related to mining exploration and $28,125 related to general
and administrative activities. During the three months ended March 31, 2006, we
accrued $16,181 in interest expenses on notes payable compared to interest
accruing during the three months ended March 31, 2005 of $19,638. No interest
has been paid on notes payable during either quarter.
Of the $39,960 that we incurred in our mining operations during the three months
ended March 31, 2006, $30,992 relates to technical consulting services rendered
by our President. Of the $83,810 that we incurred in general and administrative
expenses during the three-months ended March 31, 2006, $35,587 relates to
management services rendered by our President, and $10,000 relates to services
rendered by our Chief Financial Officer. Other general and administrative
expenses incurred in 2006 include investor relations fees of $6,231, consulting
fees of $3,000, accounting and auditing fees of $15,344, legal fees of $2,415,
rent expense of $4,187, and fees paid to the staffing agency for the services
rendered by our President's assistant during the three-month period amounting to
$4,802.
Of the $17,850 that we incurred in our mining operations during the three months
ended March 31, 2005, $17,850 relates to technical services rendered by our
president. Of the $28,125 that we incurred in general and administrative
expenses, $5,250 is attributable to our President for management services,
$4,392 was incurred for accounting and legal professional services, rent expense
of $4,185, and travel and other related company expenses which were reimbursed
to our President totaling $7,809.
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; except for our commitment to lease certain mining
property that require us to make substantial lease payments in the future as
disclosed in Note 3 to the financial statements included elsewhere in this
Quarterly Report on Form 10-QSB.
Item 3. Controls and Procedures
Under the supervision and with the participation of our management, including
our principal executive officer and the principal financial officer, we have
conducted an evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as of the end of the period covered
by this report. Based on this evaluation, our principal executive officer and
principal financial officer concluded as of the evaluation date that our
disclosure controls and procedures were effective such that the material
information required to be included in our Securities and Exchange Commission
reports is recorded, processed, summarized and reported within the time periods
specified in SEC rules and forms relating to our company, including any
consolidating subsidiaries, and was made known to us by others within those
entities, particularly during the period when this report was being prepared.
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Additionally, there were no significant changes in our internal controls or in
other factors that could significantly affect these controls subsequent to the
evaluation date. We have not identified any significant deficiencies or material
weaknesses in our internal controls, and therefore there were no corrective
actions taken.
Part II. OTHER INFORMATION
Item 6. Exhibits
Exhibit
Number Description of Document
31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act
31.2 Certification pursuant to Section 302 of the Sarbanes-Oxley Act
32.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
TORNADO GOLD INTERNATIONAL CORP.
May 15, 2006 By: /s/ GEORGE DRAZENOVIC
--------------------------------
George Drazenovic, Chief Financial
Officer (Principal financial officer
and duly authorized signatory)
18