U.S. 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 July 31, 1997.
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the
transition period from _____ to _____.
NEWGOLD, INC.
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(Exact name of small business issuer as specified in its chapter)
Delaware 16-1400479
- ------------------------------- -------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5190 Neil Road, Suite 320, Reno, Nevada 89502
---------------------------------------------
(Address of principal executive offices)
(702) 823-4000
---------------------------
(Issuer's telephone number)
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
--- ---
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court. Yes X No
--- ---
The number of shares of Common Stock outstanding as of September 1, 1997:
18,961,839
----------
Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
<PAGE>
PART I. Financial Information.
1. Interim Financial Statements (unaudited)
Balance Sheet -
July 31, 1997..........................................1
Statements of Operations -
Three months ended July 31, 1997 and June 30, 1996.....2
Statements of Cash Flows -
Three months ended July 31, 1997 and June 30, 1996.....3
Notes to Financial Statements...................................4
2. Management's Discussion and Analysis............................5
PART II. Other information
Signatures.....................................................10
<PAGE>
NEWGOLD, INC.
Balance Sheet
(Unaudited)
July 31, 1997
Cash $ 29,567
Property, plant and equipment including undeveloped
mineral properties of $4,891,359 net of $64,480
accumulated depreciation 4,826,879
Reclamation bonds 256,500
Other assets 6,172
Total assets $ 5,119,118
=========
Liabilities and Stockholder's Equity
Current liabilities
Accounts payable $ 449,541
Accrued expenses 62,637
Accrued reclamation costs 25,000
Due to affiliate 94,706
Notes payable 385,000
Shareholder loan 165,000
Total current liabilities 1,181,884
Deferred revenue 800,000
Total liabilities 1,981,884
Stockholders' equity
Common stock - Authorized 50,000,000 shares par
value $0.001; 18,961,839 and 12,000,000 outstanding
at July 31, 1997 and June 30, 1996, respectively 18,962
Additional paid-in capital 7,144,522
Accumulated deficit (4,026,250)
Total stockholders' equity 3,137,234
Total liabilities and stockholders' equity $ 5,119,118
=========
1
<PAGE>
NEWGOLD, INC.
Statements of Operations
(Unaudited)
For the three months ended
July 31, 1997 June 30, 1996
Sales
Net sales $ - $ -
Cost of sales - -
Gross Margin - -
Operating expenses
General and administrative expenses 504,207 21,521
Exploration costs 74,467 49,144
Total operating expenses 578,674 70,665
--------- ---------
Loss from operations (578,674) (70,665)
Other income (expense)
Interest expense (15,688)
Total other expense (15,688)
Income tax provision - -
Net loss $ (594,362) $ (70,665)
========= =========
Loss per share ($0.032) ($0.007)
======== ========
Weighted average number of shares outstanding 18,779,230 10,649,575
=========== ===========
2
<PAGE>
NEWGOLD, INC.
Statements of Cash Flows
(Unaudited)
For the three months ended
July 31, 1997 June 30, 1996
Cash flows from operating activities
Net loss $ (594,362) $ (70,665)
------------ ------------
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation 22,088 393
Changes in operating assets and liabilities
Reclamation bonds 30,000
Other assets 10,408 -
Accounts payable 12,348 16,309
Accrued expenses (23,748) (1,718)
------------ ------------
Total adjustments to net loss 21,096 44,984
------------ ------------
Net cash used by operations (573,266) (25,681)
Cash flows from investing activities
Capital expenditures (131,657) 13,654
------------ ------------
Net cash used in investing activities (131,657) 13,654
Cash flows from financing activities
Net advances from affiliate 8,079 275,671
Deferred revenue 300,000 -
Proceeds from short-term loan 60,000 -
Net proceeds from stockholder loan (5,000) -
Net reduction of debt converted to equity - (221,625)
Proceeds from sale of stock 200,000 -
------------ ------------
Net cash provided by financing activities 563,079 54,046
------------ ------------
Net increase (decrease) in cash (141,844) 42,019
Cash and cash equivalents, beginning of period 171,411 4,299
------------ ------------
Cash and cash equivalents, end of period $ 29,567 $ 46,318
=========== ============
3
<PAGE>
NEWGOLD, INC.
NOTES TO FINANCIAL STATEMENTS
- -----------------------------
1. Preparation of Interim Financial Statements: The accompanying financial
statements have been prepared in accordance with the instructions to Form
10-QSB and, therefore, do not include all information and footnotes
necessary for a presentation of financial position, results of operations
and cash flows in conformity with generally accepted accounting principles.
In the opinion of management, the referenced financial statements reflect
all normal and recurring adjustments necessary for a fair presentation of
the results of operations and financial position for the interim periods
presented. Operating results for the three month period ended July 31,
1997, are not necessarily indicative of the results that may be expected
for the fiscal year ended January 31, 1998.
For further information, see the financial statements and footnotes
included in the Company's Annual Report on Form 10-KSB for the thirteen
months ended January 31, 1997.
2. Income Taxes: No income tax provisions have been made due to losses
incurred. Deferred income tax benefits have been fully reserved due to the
uncertainty of future realization.
3. Net (Loss) Per share: Net (loss) per share has been computed on the basis
of the weighted average number of shares outstanding during the period.
4. Reclamation of Mining Areas: Reclamation costs, including the removal of
production facilities at the end of their useful lives, are estimated and
accrued on an undiscounted basis over the productive lives of properties.
Remediation costs are expensed when the liability is probable and
estimable. Based on current environmental regulations and known reclamation
requirements, management has included its best estimate of these
obligations in it reclamation accruals. However, it is reasonably possible
that the Company's estimates of its ultimate reclamation liabilities could
change as a result of changes in regulations or cost estimates. The Company
performs concurrent reclamation to the extent possible. However, most of
the accrued costs are anticipated to be expended at the end of the mine
life.
5. Royalty Agreement: During July, 1997, Repadre International Corporation
purchased for $300,000 a 1.5% royalty on the net proceeds, after smelting,
4
<PAGE>
from the production of the Relief Canyon Mine. The $300,000 received has
been recorded as deferred revenue.
6. Stock Transactions: Repadre International Corporation, under an Offshore
Securities Subscription Agreement as defined by Regulation S under the U.S.
Securities Act of 1933, purchased 200,000 units from Newgold at $1.00 per
unit. A unit is defined as one share of stock and one-half a warrant. The
Company issued Repadre 200,000 shares of stock. The warrant allows Repadre
to purchase up to 100,000 shares of Company stock on or before September 8,
1998 at an exercise price of $1.00 per share. The Company has recorded the
$200,000 received in the equity section of the balance sheet.
7. Sale of Equipment: The Company borrowed $60,000 from Repadre International
Corporation using its aircraft as collateral. Subsequent to the balance
sheet date, the Company executed a sale lease-back of the aircraft. The
$250,000 proceeds were applied to repay the above note and to provide
interim operating capital pending the closing of other financing in
progress. The lease term is for one year, requires monthly payments of
$3,141 beginning October 1, 1997 and has a re-purchase provision of
$290,000 which may be exercised at any time during the lease term.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
Introduction.
- -------------
The Company is engaged in the business of acquiring dormant, potentially
gold-producing properties located in the continental United States and
developing such properties into commercial gold mining operation. The Company is
currently developing or exploring its three properties: (1) the Relief Canyon
Mine, located in Pershing County, Nevada; (2) the Mission Mine, located in
Riverside County, California; and (3) the Bruner Property, located in Nye
County, Nevada. The Company is the result of a merger (the "Merger") between
Warehouse Auto Centers, Inc., a Delaware corporation ("WAC"), and Newgold, Inc.,
a Nevada corporation ("NGNV"), pursuant to a Plan of Reorganization (the "Plan")
approved by the U.S. Bankruptcy Court for the Western District of New York,
effective as of November 21, 1996. For accounting purposes, under the terms of
the Merger, NGNV has been treated as the acquirer.
Financial Plan of Operation for the Next Twelve Months.
- -------------------------------------------------------
As of July 31, 1997, the Company had $29,567 in cash and ($1,062,178) in
working capital. Current plans and assumptions relating to operations will
require approximately $2 million in additional funding to complete permitting
and to begin operations and gold production at its Relief Canyon Mine. Further,
the Company will need approximately
5
<PAGE>
$500,000 to begin production at its Mission Mine and approximately $400,000 for
exploration at its Bruner property. The Company is pursuing a working capital
loan of $1.5 million for Relief Canyon mine production and an off-shore stock
financing of up to $3 million. Further, the Company is investigating a credit
line of $2 million, through multiple sources, for putting Relief Canyon into
production. There can be no assurance that any of these opportunities will
result in actual funding, or that additional financing will be available to the
Company, when needed, on commercially reasonable terms. If the Company is unable
to obtain additional financing, it will be required to curtail its development
plans and cease its operations. The Company's independent accountants have
included an explanatory paragraph in their report on the Company's financial
statements for the thirteen months ended January 31, 1997, indicating
substantial doubt about the Company's ability to continue as a going concern.
At the Relief Canyon Mine, the Company intends to begin operations upon
approval of its Plan of Operations, an environmental assessment by the Nevada
Department of Environmental Protection and final approval by the Bureau of Land
Management ("BLM") . The Company anticipates issuance of the permits before the
end of September 1997. In addition, the Company must post an $888,000
reclamation bond and has filed its application with the State of Nevada Bond
Pool. The Company anticipates that its initial contribution for the bond will be
$145,000 with the remaining $743,000 balance provided by the Bond Pool, of which
there can be no certainty of acceptance. The recovery facilities are complete
with the exception that an additional leach pad will need to be built at an
approximate cost of $200,000 and approved by the State of Nevada and the BLM.
Mining and loading the new pad with processed ore will be accomplished by
third-party contractors. The Company has allocated $1 million for contractor
mobilization and operation for the initial 90 days with $655,000 held in reserve
for possible contingencies. The Company has personnel in place to operate the
leach system recovery facility. The Company intends to have analyses completed
by an independent engineering firm to establish proven and probable reserves for
the Relief Canyon claims based upon the exploration data collected during 1997.
At Mission Mine, the Company has allocated $500,000 for mobilization of
contractors to begin operation at the Mission Mine. In addition, the Company
intends to engage third-party contractors to complete approximately $200,000 in
renovations to the production shaft of the existing mine, make approximately
$50,000 in improvements to the road to the mine and develop a Plan Of Operation
with an anticipated cost of $150,000. The Company has also allocated $100,000 to
possible contingencies. The Company anticipates mining will begin in the next
twelve months using contractors and ore will be processed at existing off-site
mills.
Under the terms of an option agreement with Miramar Mining Company, dated
November 18, 1996, relating to the Bruner property, the Company will complete
20,000 feet of exploration drilling in the next fourteen months. The company
expects to spend approximately $400,000 for exploration by drilling contractors
and $80,000 for maintenance costs of the property.
6
<PAGE>
This report, as well as certain of the notes to the financial statements,
contain "forward-looking statements" within the meaning of Section 27A of the
Securities Exchange Act of 1934, as amended. Such statements include, but are
not limited to, (i) expectations as to the funding of future capital
expenditures and other cash needs, (ii) statements as to the projected
development of certain ore deposits, including estimates of development and
other capital costs and financing plans with respect thereto, (iii) estimates of
future costs and other liabilities for certain environmental matters and (iv)
statements as to the likelihood of the outcome of litigation matters. These
forward-looking statements are subject to risks, uncertainties and other factors
that could cause actual results to differ materially from the forward-looking
statements or the results projected or implied by the forward-looking
statements.
The amount and timing of future capital expenditures could be influenced by
a number of factors, including the timing of receipt of necessary permits and
other governmental approvals, the failure of equipment, processes or facilities
to operate in accordance with specifications and expectations, labor disputes
and unanticipated changes in mine plans. The funding of such expenditures and
other cash needs will be affected by the level of cash flow generated by the
Company, if any, and the ability of the Company to otherwise finance such
expenditures, which in turn could be affected by general U.S. and international
economic and political conditions, political and economic conditions in the
country in which the expenditure is being made, a well as financial market
conditions.
The development of certain ore deposits could be affected by, among other
things, labor disputes, delays in the receipt of or failure to receive necessary
governmental permit or approvals, changes in U.S. or foreign laws or regulations
or the interpretation, enforcement or implementation thereof, the failure of any
of the Company's joint venture partners to perform as agreed under the relevant
agreements or any termination of any such agreements, unanticipated ground and
water conditions, the failure of equipment, processes or facilities to operate
in accordance with specifications or expectations, or delays in the receipt of
or the ability to obtain necessary financing.
Future environmental costs and liabilities could be impacted by changes in
U.S. or foreign laws or regulations or the interpretation, enforcement or
implementation thereof and other factors beyond the control of the Company.
For a more detailed discussion of the foregoing risks and uncertainties
affecting the Company and its operations, see "Cautionary Statement for Purposes
of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of
1995." and "Risk Factors" contained in Item 1 and 2 of the Company's annual
Report on Form 10-KSB for the period ended January 31, 1997, as well as other
filings made by the Company from time to time with the Securities and Exchange
Commission. Many of these factors are beyond the Company's ability to control or
predict. Readers are cautioned not to put undue reliance on forward-looking
statements. The
7
<PAGE>
Company disclaims any intent or obligation to update publicly any
forward-looking statements set forth in this discussion, whether as a result of
new information, future events or otherwise.
PART II. OTHER INFORMATION.
------------------
ITEM 1. Legal Proceedings.
------------------
a) On December 3, 1996, the case of Christiansen v. Newgold, et al., a
purported breach of contract action was filed in the Second Judicial District,
Washoe County, Reno, Nevada. Plaintiff alleges that he is owed $250,000 relating
to recovery of his investment with a property subsequently acquired by the
Company. The Company believes that Plaintiff's claim is meritless and the claim
is being vigorously defended by counsel.
b) On January 28, 1997, the case of Stewart v. Newgold, a purported breach
of contract for the purchase of the Cerro Gordo Mine in California, was filed in
the Second Judicial District, Washoe County, Reno, Nevada. Plaintiff was unable
to present clear title to the property and the Company was unable to clear title
and refused to make additional payments called for under the contract. Plaintiff
is seeking $40,000 in damages. The parties have reached an agreement for
settlement totaling $20,000; the Company is waiting for funds to complete the
transaction.
c) On April 25, 1997, the Company filed a declaratory relief action in the
case of Newgold v. Wirsing, et al. in the Sacramento County Superior Court. Mr.
Wirsing and his fellow defendant, Mr. Wong, are each alleging that they are the
owners of a 10% share of the net profits interest from Relief Canyon. The
Company filed the action to seek declaratory relief that Messrs. Wirsing and
Wong's claim is without merit. Mr. Wong has filed a $100,000,000 mechanics lien
on the Relief Canyon Mine. The Company believes that the use of a mechanics'
lien is improper and that there is no merit in Messrs. Wirsing and Wong's
claims. The case currently is in the discovery stage. However, to the extent
that Messrs. Wiring and Wong are successful, it could have a material adverse
effect on the Company.
ITEM 2. Changes in Securities.
----------------------
None.
ITEM 3. Defaults on Senior Securities.
------------------------------
None.
8
<PAGE>
ITEM 4. Matters Submitted to a Vote of Security Holders.
------------------------------------------------
None.
ITEM 5. Other Information.
------------------
On September 8, 1997, pursuant to an Offshore Securities Subscription
Agreement, Repadre International Corporation, a non-U.S. person, purchased
200,000 units with a unit defined as one share of Common Stock with one-half
warrant. The price per unit was $1.00. Repadre was issued 200,000 shares
("Shares") of the Company Common Stock and a warrant ("Warrant") to purchase an
aggregate 100,000 shares of Common Stock from September 8, 1997 through
September 8, 1998 at an exercise price of $1.00 per share. The Shares and the
Warrant were issued without registration under the Securities Act of 1933, as
amended (the "Act"), pursuant to Regulation S promulgated under the Act.
ITEM 6. Exhibits and Reports on Form 8-K.
a) Exhibits.
Exhibit 3.1 Certificate of Incorporation of the Registrant (1)
Exhibit 3.2 Certificate of Amendment to
Certificate of Incorporation of the
Registrant (2).
Exhibit 3.3 Bylaws of the Registrant (1).
Exhibit 27 Financial Data Schedule.
(1) Incorporated by reference to the Registrant's
Registration Statement on Form SB-2 (File No.
33-49920) filed with the Commission on October 14,
1993.
(2) Incorporated by reference to the Registrant's Annual
Report on Form 10-KSB-40 for the fiscal year ended
January 31, 1996 filed with the Commission on January
22, 1997.
b) Reports on Form 8-K.
None
9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto authorized.
NEWGOLD, INC.
/s/ A. Scott Dockter Date: September 12, 1997
- --------------------
A. Scott Dockter
Chief Executive Officer
/s/ Robert W. Morris Date: September 12, 1997
- --------------------
Robert W. Morris
Chief Financial Officer
10
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<PERIOD-END> JUL-31-1997
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<RECEIVABLES> 0
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0
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