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 April 30, 1997.
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the
transition period from _____ to _____.
Commission file number 0-20722
NEWGOLD, INC.
------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 16-1400479
- --------------------------------- ------------------
(State or other jurisdiction (IRS Employer
of 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 July 1, 1997: 18,761,839
Transitional Small Business Disclosure Format (check one):
Yes ; No X
-----
<PAGE>
PART I. Financial Information
1. Interim Financial Statements (unaudited)
Balance Sheet -
March 31, 1996 and April 30, 1997 .......................1
Statements of Operations -
Three months ended March 31, 1996 and April 30, 1997 ....2
Statements of Cash Flows -
Three months ended March 31, 1996 and April 30, 1997 ....3
Notes to Financial Statements ...............................4
2. Management's Discussion and Analysis ..........................5
PART II. Other Information
Signatures ..................................................10
<PAGE>
NEWGOLD, INC.
Balance Sheets
(Unaudited)
March 31, 1996 April 30, 1997
Assets
Cash $ 4,299 $ 171,411
Property,plant and equipment including
undeveloped mineral properties of
$1,345,121 and $3,767,061,
respectively, net of $2,488 and $42,392
accumulated depreciation 1,353,633 4,717,310
Advance to stockholder 36,809 - - -
Reclamation bonds 206,000 256,500
Other assets 3,973 16,580
--------------- --------------
Total assets $ 1,604,714 $ 5,161,801
=============== ==============
Liabilities and Stockholder's Equity
Current liabilities
Accounts payable $ 215,195 $ 437,193
Accrued expenses 161,400 86,385
Accrued reclamation costs 94,470 25,000
Due to affiliate 342,674 86,627
Notes payable 1,390,944 325,000
Shareholder loan - - - 170,000
--------------- --------------
Total current liabilities 2,204,683 1,130,205
Deferred revenue 100,000 500,000
--------------- --------------
Total liabilities 2,304,683 1,630,205
Stockholders' equity
Common stock - Authorized 50,000,000
shares par value $0.001; 6,768,658
and 18,761,839 outstanding at March 31,
1996 and April 30, 1997, respectively 6,769 18,762
Additional paid-in capital 175,231 6,944,722
Accumulated deficit (881,969) (3,431,888)
--------------- --------------
Total stockholders' equity (699,969) 3,531,596
Total liabilities
and stockholders' equity $ 1,604,714 $ 5,161,801
=============== ==============
See accompanying notes to the financial statements.
1
<PAGE>
NEWGOLD, INC.
Statements of Operations
(Unaudited)
For the three months ended
March 31, 1996 April 30, 1997
Sales
Net sales $ - $ -
Cost of sales - -
--------------- --------------
Gross Margin - -
Operating expenses
General and administrative expenses 17,294 370,693
Exploration costs - 75,042
--------------- --------------
Total operating expenses 17,294 445,735
Loss from operations (17,294) (445,735)
Other income (expense)
Interest income 1,738
Other income 4,445
Interest expense (482) (12,881)
--------------- --------------
Total other expense (482) (6,698)
Income tax provision - -
Net loss $ (17,776) $ (452,433)
=============== ==============
Loss per share ($0.003) ($0.024)
=============== ==============
Weighted average number of shares outstanding 6,768,358 18,761,839
=============== ==============
See accompanying notes to the financial statements.
2
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NEWGOLD, INC.
<TABLE>
<CAPTION>
Statements of Cash Flows
(Unaudited)
For the three months ended
March 31, 1996 April 30, 1997
<S> <C> <C>
Cash flows from operating activities
Net loss $ (17,776) $ (452,433)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation 393 16,831
Changes in operating assets and liabilities
Refundable payroll taxes - 154,357
Prepaid expenses 150 -
Other assets (3,973) (3,695)
Accounts payable 5,918 267,871
Accrued expenses 71,289 (59,252)
----------- ----------
Total adjustments to net loss 73,777 376,112
----------- ----------
Net cash used by operations 56,001 (76,321)
----------- ----------
Cash flows from investing activities
Repayment of advance to stockholder (11,170) 92,486
Capital expenditures (176,182) (860,327)
----------- ----------
Net cash used in investing activities (187,352) (767,841)
Cash flows from financing activities
Advances from affiliate 34,739 (31,000)
Deferred revenue 100,000
Net proceeds from stockholder loan 170,000
----------- ----------
Net cash provided by financing activities 134,739 139,000
----------- ----------
Net increase (decrease) in cash 3,388 (705,162)
Cash and cash equivalents, beginning of period 911 876,573
-------
Cash and cash equivalents, end of period $ 4,299 $ 171,411
=========== ==========
</TABLE>
See accompanying notes to the financial statements.
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, such consolidated
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 April 30, 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 its 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.
4
<PAGE>
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 operations. 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. Accordingly, the historical financial statements prior
to November 21, 1996 are those of NGNV and do not reflect any financial
information of WAC as a separate entity. In addition, under the terms of the
Merger, NGNV's fiscal year was changed from December 31 to January 31. Hence,
the comparative financial information is for the thirteen months ended January
31, 1997 to the year ended December 31, 1995.
Financial Plan of Operation for the Next Twelve Months
As of April 30, 1997, the Company had $171,411 in cash and $($1,301,616)
in working capital. Based upon current plans and assumptions relating to
operations, the Company will require approximately an additional $2 million 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 $500,000 for exploration at its
Bruner Property. The Company is currently pursuing several potential funding
opportunities including the sale of a 1.5% net smelter return ("NSR") relating
to the Relief Canyon Mine for approximately $500,000; however, the Company has
no current commitments for additional funding. There can be no assurance that
any of such opportunities will result in actual funding or that additional
financing will be available to the Company when needed, on commercially
reasonable terms, or at all. If the Company is unable to obtain additional
financing, it will be required to curtail its development plans and cease its
operations. Any additional equity financing may involve substantial dilution to
the Company's then-existing shareholders. 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, issuance of a zero discharge permit, 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 during the beginning of the third quarter of
1997. In addition, the Company must post an $800,000 reclamation bond and
anticipates that its contribution to the bond will be $300,000 with the
remaining $500,000 balance provided by the State of Nevada Bond Pool, of which
there can be no certainty. 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 $500,000 held in reserve for possible
contingencies. The Company has personnel in place to operate the leach system
and recovery facility, and does not expect to hire
5
<PAGE>
additional employees for the Relief Canyon Mine operations. 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.
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 $200,0000 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 a letter of intent with Miramar Mining Company dated
October 11, 1996 relating to the Bruner property, the Company will complete
10,000 feet of exploration drilling in the next eighteen months. The Company
expects to spend approximately $400,000 for exploration by drilling contractors
and $80,000 for maintenance costs of the property.
The Company also intends to conduct aggressive mine site exploration
utilizing new geologic interpretations at each of the Company's mines along with
a grass roots drilling program. In addition, non-mine site efforts will focus on
reconnaissance efforts to locate potential mine and property acquisition
candidates. Further, the Company intends to enter into exploration joint
ventures on certain of its properties during 1997. The Company estimates that it
will spend approximately $2 million during the fiscal year ending January 31,
1998 in exploration.
Actual exploration and evaluation expenditures will vary as a result of the
acquisition of new properties, the success of exploration activities on existing
properties and the success of financing efforts. Spending on advanced projects
and acquisitions, which depends on opportunities and discoveries, cannot be
projected.
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,
6
<PAGE>
political and economic conditions in the country in which the expenditure is
being made, as 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 permits 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 as
well as other 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.
7
<PAGE>
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. This case is in the initial
pleadings stage and is being vigorously defended by counsel.
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. However, to the extent that Messrs. Wirsing 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.
8
<PAGE>
Item 6. Exhibits and Reports on From 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
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
<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 thereunto authorized.
NEWGOLD, INC.
Date: July 3, 1997
/s/ A. Scott Dockter
- ---------------------------
A. Scott Dockter
Chief Executive Officer
Date: July 3, 1997
/s/ Robert W. Morris
- ---------------------------
Robert W. Morris
Principal Financial Officer
7
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
3.1 Certificate of Incorporation of the Registrant(1)
3.2 Certificate of Amendment to Certificate of Incorporation of
the Registrant(2)
3.3 Bylaws of the Registrant(1)
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.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Jan-31-1997
<PERIOD-END> Apr-30-1997
<CASH> 171,411
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 171,411
<PP&E> 4,759,702
<DEPRECIATION> 42,392
<TOTAL-ASSETS> 5,161,801
<CURRENT-LIABILITIES> 1,130,205
<BONDS> 0
0
0
<COMMON> 18,762
<OTHER-SE> 3,512,834
<TOTAL-LIABILITY-AND-EQUITY> 5,161,801
<SALES> 0
<TOTAL-REVENUES> 6,183
<CGS> 0
<TOTAL-COSTS> 445,735
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,881
<INCOME-PRETAX> (452,433)
<INCOME-TAX> 0
<INCOME-CONTINUING> (452,433)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (452,433)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
