U.S. Securities And Exchange Commission
Washington, D.C. 20549
Form 10QSB
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the quarterly period ended October 31, 1997
Commission file number 0-20722
NEWGOLD, INC.
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(Exact name of small business issuer as specified in its charter)
Delaware 16-1400479
- ------------------------------- -------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5190 Neil Road, Suite 320, Reno, Nevada 89502
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(Address of principal executive offices)
(702) 823-4000
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(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 December 1, 1997:
18,961,839
Transitional Small Business Disclosure Format (check one): Yes No X
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<PAGE>
PART I. Financial Information.
1. Interim Financial Statements (unaudited)
Balance Sheet -
October 31, 1997............................................1
Statements of Operations -
Three months ended October 31, 1997 and September 30, 1996..2
Statements of Cash Flows -
Three months ended October 31, 1997 and September 30, 1996..3
Notes to Financial Statements....................................4
2. Management's Discussion and Analysis.............................5
PART II. Other information
Signatures......................................................10
<PAGE>
NEWGOLD, INC.
Statements of Operations
(Unaudited)
For the three months ended
October 31 September 30
1997 1996
------------ ------------
Sales
Net sales $ - $ -
Cost of sales - -
Gross Margin - -
Operating expenses
General and administrative expenses 313,736 177,871
Exploration costs 48,173 63,107
Total operating expenses 361,909 240,978
Loss from operations (361,909) (240,978)
Other income (expense)
Interest income 478
Interest expense (9,917) (1,647)
Loss on disposal of assets (151,171)
Total other expense (161,088) (1,169)
Income tax provision - -
Net loss $ (522,997) $ (242,147)
Loss per share ($0.028) ($0.020)
Weighted average number of shares outstanding 18,961,839 12,000,000
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NEWGOLD, INC.
Balance Sheet
(Unaudited)
October 31, 1997
Assets
Property, plant and equipment including undeveloped
mineral properties of $4,472,681 net of $36,453
accumulated depreciation $ 4,436,228
Reclamation bonds 256,500
Other assets 2,718
Total assets $ 4,695,446
Liabilities and Stockholder's Equity
Current liabilities
Bank overdraft $ 56,324
Accounts payable 532,720
Accrued expenses 95,644
Accrued reclamation costs 25,000
Due to affiliate 89,021
Notes payable 317,500
Shareholder loan 165,000
Total current liabilities 1,281,209
Deferred revenue 800,000
Total liabilities $ 2,081,209
Stockholders' equity
Common stock - Authorized 50,000,000 shares par
value $0.001; 18,961,839 and 12,000,000 outstanding
at October 31, 1997 and September 30, 1996, respectively 18,962
Additional paid-in capital 7,144,522
Accumulated deficit (4,549,247)
Total stockholders' equity 2,614,237
Total liabilities and stockholders' equity $ 4,695,446
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<TABLE>
<CAPTION>
NEWGOLD, INC.
Statements of Cash Flows
(Unaudited)
For the three months ended
October 31,1977 September 30, 1996
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (522,997) $ (242,147)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation 9,051 1,126
Changes in operating assets and liabilities
Reclamation bonds 10,000
Other assets 3,454 19,868
Accounts payable 83,179 42,867
Accrued expenses 33,007 8,333
Total adjustments to net loss 128,691 82,194
Net cash used by operations (394,306) (159,953)
Cash flows from investing activities
Net book value of aircraft sold 518,671
Capital expenditures (137,071) (20,987)
Net cash used in investing activities 381,600 (20,987)
Cash flows from financing activities
Net advances from affiliate (5,685) 5,219
Net reduction in notes payable (67,500) -
Increase in deferred revenue 200,000
Net cash provided by financing activities (73,185) 205,219
Net increase (decrease) in cash (85,891) 24,279
Cash and cash equivalents, beginning of period 29,567 46,318
Cash and cash equivalents, end of period $ (56,324) $ 70,597
</TABLE>
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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
nd 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
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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. Sale of Equipment: The Company negotiated a sale lease back agreement
for the Commander aircraft on September 4, 1997. Under this agreement,
the Company sold the Commander for $250,000 with an option to buy back
the aircraft for $290,000 in September 1998. The Company will make
twelve monthly interest payments of $3,141 in the interim. A loss on
sale of $143,158 was recorded.
The Company sold the Cessna P210 for $117,500 on October 1, 1997. A
loss on the sale of $8,013 was recorded.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Introduction.
-------------
The Company is engaged in the business of acquiring dormant,
potential gold-producing properties located in the continental United States and
developing such properties into a commercial gold mining operation. 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 $500,000 to begin
production at its Mission Mine and approximately $400,000 for exploration at its
Bruner property. The Company expects to close two financing plans during
mid-September which include a working capital loan of $1.5 million for Relief
Canyon mine production and an off-shore placement of a stock offering for a
minimum of $1 million with a cap of $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
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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") and upon a significant increase in the price
of gold. The Company anticipates issuance of the permits before the end of April
1998. 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 is unsure
at this point in time how the cost for the bond will be distributed between
itself and the State of Nevada Bond Pool. The company anticipates this expense
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.
The company has completed its review of the Mission Mine and
at this time feels that the expense to bring this mine into production at
current gold prices is not ecnomically feasable and therefore has chosen to
terminates its purchase contract for this property
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
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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 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 totalling $20,000; the Company is
waiting for funds to complete the transaction.
7
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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.
ITEM 4. Matters Submitted to a Vote of Security Holders.
None.
ITEM 5. Other Information.
None.
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
8
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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.
A current report was filed on March 12, 1997, to
announce the approval of the Plan of Reorganization
by the U.S. Bankruptcy Court and the merger of
Newgold, Inc., a Nevada corporation, And the
Registrant on November 21, 1996.
9
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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: December 12, 1997
- --------------------
A. Scott Dockter
Chief Executive Officer
/s/ Robert W. Morris Date: December 12, 1997
- --------------------
Robert W. Morris
Chief Financial Officer
10
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> OCT-31-1997
<CASH> (56,324)
<SECURITIES> 0
<RECEIVABLES> 0
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<PP&E> 4,472,681
<DEPRECIATION> 36,453
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<CURRENT-LIABILITIES> 1,224,885
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0
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<COMMON> 18,962
<OTHER-SE> 2,595,275
<TOTAL-LIABILITY-AND-EQUITY> 4,695,446
<SALES> 0
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<TOTAL-COSTS> 513,080
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 9,917
<INCOME-PRETAX> (522,997)
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