U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
X Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the quarterly period ended April 30, 1998.
Commission File Number : 000-20722
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NEWGOLD INC.
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(Exact Name of Small Business Issuer as Specified in Charter)
Delaware
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(State or Other Jurisdiction of
Incorporation or Organization)
16-1400479
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(IRS Employer Identification No.)
35265 Willow Avenue
Clarksburg, California 95612
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(Address of Principal Executive Offices)
(916) 665-1840
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(Issuer's Telephone Number)
Check whether 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 shorter period
that registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days.)
Yes No XX
----- -----
Check whether 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 a court.
Yes No
----- -----
As of April 30, 1998, Registrant had 24,942,611 shares of Common Stock par value
$.001, issued and outstanding.
<PAGE>
NEWGOLD, INC.
Balance Sheet
(Unaudited)
April 30, 1998
Assets
Cash and cash equivalents $ 5,406
Property, plant and equipment including undeveloped
mineral properties of $3,048,763 net of $32,639
accumulated depreciation 3,016,124
Reclamation bonds 256,500
Other assets 979
----------------
Total assets $ 3,279,009
================
Liabilities and Stockholder's Equity
Current liabilities
Accounts payable $ 693,929
Accrued expenses 191,811
Accrued reclamation costs 25,000
Due to affiliate 80,238
Notes payable to stockholder 125,142
Notes payable to individuals 324,500
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Total current liabilities 1,440,620
Deferred revenue 800,000
----------------
Total liabilities 2,240,620
Stockholders' equity
Common stock - Authorized 50,000,000 shares par
value $0.001; 24,942,611 outstanding 24,627
Additional paid-in capital 7,871,615
Accumulated deficit (6,857,853)
----------------
Total stockholders' equity 1,038,389
----------------
Total liabilities and stockholders' equity $ 3,279,009
================
<PAGE>
NEWGOLD, INC.
<TABLE>
<CAPTION>
Statements of Operations
(Unaudited)
For the three months ended
April 30 April 30
1998 1997
----------------- -----------------
<S> <C> <C>
Sales
Net sales $ - $ -
Cost of sales - -
Gross Margin - -
Operating expenses
General and administrative expenses 175,429 370,693
Exploration costs 24,369 75,042
----------------- -----------------
Total operating expenses 199,798 445,735
----------------- -----------------
Loss from operations (199,798) (445,735)
Other income (expense)
Interest income - 1,738
Other income - 4,445
Interest expense (4,623) (12,881)
Stock issuance expense (36,073)
----------------- -----------------
Total other expense (40,696) (6,698)
Income tax provision - -
Net loss $ (240,494) $ (452,433)
================= =================
Loss per share $ (0.011) $ (0.024)
================= =================
Weighted average number of shares outstanding 22,202,611 18,961,839
================= ==================
</TABLE>
<PAGE>
NEWGOLD, INC.
<TABLE>
<CAPTION>
Statements of Cash Flows
(Unaudited)
For the three months ended
April 30 April 30
1998 1997
----------------- -----------------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (240,494) $ (452,433)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation 4,888 16,831
Changes in operating assets and liabilities
Refundable payroll taxes 154,357
Advances to stockholder repaid 92,486
Other assets (3,695)
Accounts payable (271,199) 267,871
Accrued expenses 14,740 (59,252)
Due to affiliate (50,238) (31,000)
Notes payable to stockholder (2,600) 170,000
----------------- -----------------
Total adjustments to net loss (304,409) 607,598
----------------- -----------------
Net cash provided (used) by operations (544,903) 155,165
Cash flows from investing activities
Capital expenditures (860,327)
----------------- -----------------
Net cash used in investing activities (860,327)
Cash flows from financing activities
Cash provided by stock subscription 548,000
----------------- -----------------
Net cash provided by financing activities 548,000
----------------- -----------------
Net increase (decrease) in cash 3,097 (705,162)
Cash and cash equivalents, beginning of period 2,309 876,573
----------------- -----------------
Cash and cash equivalents, end of period $ 5,406 $ 171,411
================= =================
</TABLE>
<PAGE>
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 April 30, 1998, are
not necessarily indicative of the results that may be expected for the
fiscal year ended January 31, 1999.
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. The Company placed the Relief Canyon Mine, a developed exploration
project, into a maintenance and security status in December 1997 when
it was apparent that gold prices were not returning to former levels.
The Company estimates the annual cost of maintaining the mine in this
status will be approximately $100,000. Included in this cost estimate
are the annual BLM rent for the claims, sub-lease payments to Santa Fe
Gold, water testing for Nevada Department of Environmental Protection,
and costs of utilities and security at the site. Approximately $24,370
was charged to operations for the maintenance of Relief Canyon in the
quarter ended April 30, 1998. During the quarter, the Company paid
$215,180 to satisfy liens that had been placed upon the property and
paid
<PAGE>
$28,940 to Santa Fe Gold Corporation for the total sub-lease and
minimum annual royalty payments due on the leased portion of the
property.
6. On April 2, 1998, the Company closed a Regulation S offering for
5,480,000 shares at $.10 per share to raise $548,000. Of this amount,
approximately $265,300 was paid to creditors of the Relief Canyon
project, which includes the amounts paid to lien holders and Santa Fe
Gold above. Brokers who placed the offering were paid commissions of
$36,073.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
Introduction.
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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 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 was
treated as the acquirer.
Financial Plan of Operation for the Next Twelve Months.
------------------------------------------------------
As of April 30, 1998, the Company had $5,406 in cash and ($1,435,214)
in working capital. If the Company were to bring the Relief Canyon Mine off the
maintenance and secure status, plans and assumptions relating to operations
would require approximately $2 million in additional funding to complete
permitting and to begin operations and gold production at the Relief Canyon
Mine. There is some question as to profitability with regard to the current
price of gold.
The Board of Directors has approved for the Company to investigate
expansion of its operations into industrial minerals as an alternate means of
producing future revenue for the Company. The industrial minerals currently
being investigated by the Company include calcium bentonite, talc and pumice.
The Company anticipates that production of industrial minerals would be through
a wholly-owned subsidiary that Newgold, Inc. will create, thereby leaving
Newgold, Inc. solely as a producer of precious metals. The Company is seeking to
raise $2.5 million to finance an industrial minerals operation that will include
acquisition of currently permitted mineral property and construction of
production facilities. Proposals will be submitted to the Board of Directors
within the next thirty days for consideration and possible approval. One
proposal to be submitted to the Board is for Riverfront Development Corporation,
which is wholly-owned by Newgold's president, A. Scott Dockter, to be merged
into a subsidiary of Newgold, Inc. in exchange for Newgold stock. An independent
appraisal has been completed of the Riverfront Development property and a
fairness opinion has been issued by Certified Valuation Analyst. The Riverfront
property will be proposed as a site of production facilities for products
derived from the industrial minerals.
There can be no assurance that any of these opportunities will result
in actual
<PAGE>
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 will
include an explanatory paragraph in their report on the Company's financial
statements for the year ended January 31, 1998, indicating substantial doubt
about the Company's ability to continue as a going concern.
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
<PAGE>
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.
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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. Christiansen prevailed in this action and the
Company accrued the $250,000 judgement as of January 31, 1998; the Company is
waiting for funds to complete the transaction.
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 stipulated under the
contract. Plaintiff sought $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.
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 had filed a 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. A motion for
summary judgement filed by Messrs. Wirsing and Wong was denied by the Court in
favor of the Company. The case was submitted to court ordered non-binding
arbitration where again the decision was in favor of the Company. Messrs.
Wirsing and Wong have exercised their right and rejected the arbitrator's
decision and requested a trial de novo. Trial setting is scheduled for August of
1998.
ITEM 2. Changes in Securities.
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None.
ITEM 3. Defaults on Senior Securities.
-----------------------------
None.
<PAGE>
ITEM 4. Matters Submitted to a Vote of Security Holders.
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None.
ITEM 5. Other Information.
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None.
ITEM 6. Exhibits and Reports on Form 8-K.
--------------------------------
a) Exhibits.
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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 is 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 and all amendments thereto.
(3) Incorporated by reference is the Registrant's Annual
Report on Form 10-KSB-40 for the fiscal year ended
January 31, 1997 filed with the Commission on June
30, 1997.
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: June 20, 1998
- --------------------
A. Scott Dockter
Chief Executive Officer
/s/ Robert W. Morris Date: June 20, 1998
- --------------------
Robert W. Morris
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-END> APR-30-1998
<CASH> 5,406
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 3,048,763
<DEPRECIATION> 32,639
<TOTAL-ASSETS> 3,279,009
<CURRENT-LIABILITIES> 1,440,620
<BONDS> 0
0
0
<COMMON> 24,627
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,279,009
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 235,871
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,623
<INCOME-PRETAX> (240,494)
<INCOME-TAX> 0
<INCOME-CONTINUING> (240,494)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (240,494)
<EPS-PRIMARY> (0.011)
<EPS-DILUTED> (0.011)
</TABLE>
