U.S. Securities And Exchange Commission
Washington, D.C. 20549
Form 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the quarterly period ended October 31, 1998
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 of (IRS Employer
incorporation or organization) Identification No.)
3090 Boeing Road, Cameron Park, CA 95682
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(Address of principal executive offices)
(530) 672-1116
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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 No X
--- ---
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
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The number of shares of Common Stock outstanding as of January 31, 1998:
19,462,611
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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, 1998............................................1
Statements of Operations -
Three months ended October 31, 1998 and October 31, 1997....2
Statements of Cash Flows -
Three months ended October 31, 1998 and October 31, 1997....3
Notes to Financial Statements........................................4
2. Management's Discussion and Analysis.................................5
PART II. Other information
Signatures...........................................................8
<PAGE>
NEWGOLD, INC.
Balance Sheet
October 31, 1998
(Unaudited)
Assets
Cash and cash equivalents $ 1,644
Property, plant and equipment including undeveloped
mineral properties of $800,000, net of $41,034
accumulated depreciation 857,729
Reclamation bonds 50,500
Other assets 12,579
------------
Total assets $ 922,452
============
Liabilities and Stockholder's Equity
Current liabilities
Accounts payable $ 408,306
Accrued expenses 385,796
Due to affiliate 72,862
Notes payable to stockholders 231,028
Notes payable to individuals 462,500
------------
Total current liabilities 1,560,492
Other Liabilities
Accrued reclamation costs 50,500
Deferred revenue 800,000
------------
Total other liabilities 850,500
------------
Total liabilities 2,410,992
Stockholders' equity
Common stock - Authorized 50,000,000 shares par
value $0.001; 25,244,588 shares outstanding 25,245
Additional paid-in capital 7,932,497
Accumulated deficit (9,446,282)
------------
Total stockholders' equity (1,488,540)
------------
Total liabilities and stockholders' equity $ 922,452
============
<PAGE>
NEWGOLD, INC.
<TABLE>
Statements of Operations
(Unaudited)
For the three months ended
October 31 October 31
1998 1997
-------------- --------------
<S> <C> <C>
Sales
Net sales $ - $ -
Cost of sales - -
-------------- --------------
Gross Margin - -
Operating expenses
General and administrative expenses 125,119 313,736
Exploration costs 14,882 48,173
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Total operating expenses 140,001 361,909
-------------- --------------
Loss from operations (140,001) (361,909)
Other income (expense)
Interest income
Other income (loss) -
Loss on disposal of assets - (151,171)
Interest expense (56,563) (9,917)
-------------- --------------
Total other expense (56,563) (161,088)
Income tax provision - -
-------------- --------------
Net loss $ (196,564) $ (522,997)
============== ==============
Loss per share $ (0.008) $ (0.028)
============== ==============
Weighted average number of shares outstanding 24,942,611 18,961,839
============== ==============
</TABLE>
<PAGE>
NEWGOLD, INC.
<TABLE>
Statements of Cash Flows
(Unaudited)
For the three months ended
October 31 October 31
1998 1997
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<S> <C> <C>
Cash flows from operating activities
Net loss $ (196,564) $ (522,997)
-------------- --------------
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation 5,074 9,051
Changes in operating assets and liabilities
Other assets (10,000) 3,454
Accounts payable (27,155) 83,179
Accrued expenses 120,829 33,007
Due to affiliate 8,052
Notes payable to stockholders 13,791
-------------- --------------
Total adjustments to net loss 110,591 128,691
-------------- --------------
Net cash provided (used) by operations (85,973) (394,306)
Cash flows from investing activities
Capital expenditures - (131,657)
-------------- --------------
Net cash used in investing activities - (131,657)
-------------- --------------
Net increase (decrease) in cash (85,973) (525,963)
Cash and cash equivalents, beginning of period 87,617 876,573
-------------- --------------
Cash and cash equivalents, end of period $ 1,644 $ 350,610
============== ==============
</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 October 31,
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. No
options were outstanding at the end of 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.
5. The Company placed the Relief Canyon Mine, a developed exploration project,
on care and maintenance in December 1997. The Company estimates the annual
cost of maintaining the mine in this status may 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.
Charges care and maintenance of Relief Canyon Mine in the quarter ended
October 31, 1998 were approximately $21,900 less a credit of $7,000 for
equipment disposals. The charges included BLM and Santa Fe rents of
$20,193.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------
Introduction.
-------------
Reference is made to Form 10-KSB as of January 31, 1998, which was
filed October 1, 1999, which reports on the signing of a meger agreement between
the Company and Business Web, Inc as of July 26, 1999. This report discusses the
effects of the merger, the financial plans for future operations and the risks
associated therewith.
The Company was 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 October 31, 1998, the Company had $1,644 in cash and
($1,558,848) in working capital. If the Company were to bring the Relief Canyon
Mine off care and maintenance status, plans and assumptions relating to
operations would require approximately $1.5 million in additional funding to
complete permitting and to resume operations and gold production at the Relief
Canyon Mine.
The Board of Directors previously 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. has created, 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. To date no funds to develop alternate
revenues for the Company through the production of industrial minerals are
available.
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 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 31,
1998, 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.
On August 14, 1998, the Board Of Directors accepted the resignation
of Bradley S. Slattery as Secretary of the Company and appointed Michael M.
Kessler as Secretary. General and Administrative expenses of approximately
$125,120 include an accrual of $64,500 for officers' salaries of which $13,405
was paid.
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. 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 settlement was paid October 22,
1998.
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 $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. 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
manadatory arbitration where again the decision was in favor of the Company.
ITEM 2. Changes in Securities.
---------------------
None.
ITEM 3. Defaults on Senior Securities.
-----------------------------
None.
ITEM 4. Matters Submitted to a Vote of Shareholders.
--------------------------------------------
None.
ITEM 5. Other Information.
-----------------
None.
ITEM 6. Exhibits and Reports on Form 10-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.
(3) Incorporated by reference to the Registrant's Annual Report on
Form 10-KSB-40 for the fiscal year ended January 31, 1998 filed
with the Commission on October 1, 1999.
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: August 23, 1999
- -------------------- ---------------
A. Scott Dockter
Chief Executive Officer
/s/ Robert W. Morris Date: August 23, 1999
- -------------------- ---------------
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> OCT-31-1998
<CASH> 1,644
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0
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