U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
AMENDMENT NO. 1 TO
[ X ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal year ended January 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 0-20722
NEWGOLD, INC.
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(Name of small business issuer in its charter)
Delaware 16-1400479
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(State of other juris- (I.R.S. Employer
diction of incorporation Identification No.)
or organization)
P.O. Box 4155, El Dorado Hills, CA 95672-0013
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(Address of principal (Zip Code)
executive offices)
Issuer's telephone number: (530)672-1116
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Securities registered under Section 12(b) of the Exchange Act: None
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Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $0.001 per share
(Title of Class)
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 if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB [ ].
Issuer's revenues for its most recent fiscal year: $0.
Aggregate market value of the voting stock held by non-affiliates as of July 31,
1999: $19,302,389
Number of shares of Common Stock outstanding as of July 31, 1999: 37,866,882
Documents Incorporated by Reference: None.
Check whether the issuer has 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 X
Transitional Small Business Disclosure Format (check one): Yes No X
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PART I
ITEMS 1 AND 2: BUSINESS AND PROPERTIES
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Newgold, Inc., a Delaware corporation, (the "Company") was engaged in
the acquisition, development and exploration of gold-bearing properties in the
continental United States. The Company currently has placed its only remaining
property, the Relief Canyon Mine, located in Pershing County, Nevada, on a care
and maintenance status. Under care and maintenance, the Company will provide
security for the plant and equipment and will maintain the mine facilities
according to requirements of Nevada Department of Environmental Protection. A
mine in care and maintenance is considered operational to the extent allowed by
permits in place and may not be required to complete reclamation.
The Company no longer plans to pursue mine development operations. As
discussed under Item 6, Management's Discussion Of Financial Condition, the
Company has executed a "Plan of Reorganization and Merger" "Merger Agreement"
with Business Web, Inc., a Texas corporation, (BWI) dba Comercis to effect a
merger of the Company and BWI. The Companies intend to submit the Merger
Agreement to their respective shareholders for approval. The president of the
Company has investigated other merger opportunities; if the shareholders of both
companies do not approve this Merger Agreement, the president believes there are
other merger opportunities available to the Company as an alternative to a
merger with BWI. However, there can be no guarantee that other merger
opportunities will be consummated.
The Company originally was incorporated as Newgold, Inc. under the laws
of Nevada on September 1, 1993 (NGNV). The Company began operations as Newgold,
Inc., a Delaware corporation, on November 21, 1996, on the effective date of a
reverse merger between itself and a company known as Warehouse Auto Centers. The
Company's headquarters are located at 3090 Boeing Road, Cameron Park, CA 95682;
and its telephone number is (530) 672-1116. All references to the "Company"
refer to the merged entity operating as Newgold, Inc.
For financial information regarding the Company, see "Item 7: Financial
Statements And Supplementary Data."
The Company's capital requirements have been and will continue to be
significant. The Company has recorded no revenues from mining operations to
date. The Company had been dependent primarily upon the private placements of
its common stock and loans from its shareholders. The Company anticipates, based
on its current plans and assumptions, that it will be unable to raise sufficient
proceeds from any private placements of the Company's equity securities or
borrowings, and planned revenues will not be sufficient to satisfy the Company's
contemplated cash requirements. In the event the Merger is not approved by the
shareholders of both companies, then the Company will be required to raise
additional funds immediately. If the Company is unable to obtain additional
financing, the Company will have to cease operations. Any additional equity
financing, if available, may involve substantial dilution to the Company's
existing shareholders. The Company's independent accountants have included an
explanatory
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paragraph in their report dated July 20, 1999, on the Company's financial
statements for the years ended January 31, 1999, indicating substantial doubt
about the Company's ability to continue as a going concern. If the shareholders
of the Company and Business Web, Inc. vote to approve the merger as discussed
under Item 6, the Company will be required to divest itself of its mining
property pursuant to the terms of the Merger Agreement. However if the merger is
not approved by the shareholders of both companies, then the Company will have
to other recourse than to seek protection of the Federal Bankruptcy Courts.
BUSINESS WEB, INC.
BWI was incorporated in the state of Texas on October 1, 1998. BWI was
formed to provide Internet services of web site development, web site move-in
and support, and online Internet tradeshows with exhibitors under one roof in a
virtual exhibition hall. BWI has signed a contract to acquire the assets of
Netgate Medical, Inc. With the addition of this technology, BWI will be able to
offer secure Intranet and Extranet communications without the need for
additional networking software. The established Netgate operation currently
provides service to thirty healthcare entities and thousands of networked
physicians, pharmacist, hospitals and pharmaceutical companies. BWI has signed
contracts to provide their core "web creation services" to Netopia, Inc., Xoom,
Inc. and Bell South.
RELIEF CANYON MINE
The Relief Canyon Mine is an open-pit, heap leaching operation located
approximately 110 miles northeast of Reno, Nevada. The Company currently holds
50 unpatented mining claims. The mine is readily accessible by improved roads.
Water for mining and processing of operations is provided by two wells located
on the property in close proximity to the mine and processing facilities. Power
is provided by a local rural electric association and phone lines are present at
the mine site.
Background and History
The Relief Canyon gold deposit was discovered by Duval Corporation,
("Duval") in 1981. Lacana Mining, ("Lacana") purchased the property from Duval,
drilled additional holes to establish reserves, and commenced mining in 1984 as
an open-pit cyanide heap leach operation. In 1986, Pegasus Gold, Inc.
("Pegasus"), purchased the mine from Lacana, drilled additional holes for a
total of approximately 400 with approximately 120,000 linear feet to confirm
reserves, and mined a cumulative total of approximately 6.3 million tons of gold
ore containing an average of 0.035 ounces of gold per ton from 1986-1989.
Pegasus ceased mining activities in 1989 and began the reclamation process of
the mine site from 1990-1992.
In 1993, Pegasus sold the Relief Canyon Mine to its reclamation
contractor, J.D. Welsh & Associates ("Welsh"). Welsh continued to rinse the
heaps to detoxify them of their cyanide
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content and recovered minor amounts of gold in the process. By December 1994,
Welsh had completed detoxification of the heaps and was required only to submit
quarterly water quality reports to the state of Nevada for the next five years.
On January 10, 1995, the former NGNV purchased the mine from Welsh for
$500,000. The mine at that time consisted of 39 unpatented lode mining claims,
an empty building except for three carbon tanks and a boiler for carbon strip
solution, four detoxified leach pads, a preg pond for gold bearing solution, a
barren pond for solution from which gold had been removed, water rights, and
various permits. From acquisition through November 1997, the Company refurbished
the processing facilities by the purchase and installation of all equipment
required to process the gold bearing leach solution when the mine was returned
to production.
There also was a sub-lease (the "Santa Fe Lease") to fee simple real
property entered into between Welsh and Santa Fe Gold Company, which has merged
with Newmont Gold Company ("Santa Fe"). Welsh assigned the Santa Fe Lease to the
Company at its base annual lease payment of $12,500, plus an advance royalty
payment of a similar amount. The Santa Fe Lease required that Santa Fe consent
to any assignment. Santa Fe never consented formally to the assignment. Santa Fe
previously had accepted the Company's lease and royalty payments and it is the
Company's position that such acceptance constituted consent. Subsequent to the
signing of the contract for sale, the parties reduced the amount due Welsh to
$450,000 because of Welsh's inability to secure Santa Fe's acceptance of
assignment of the Santa Fe Lease.
On October 19, 1998, Santa Fe terminated the Welsh lease as a result of
the Company's inability to maintain the required insurance and the Company's
inability to post a reclamation bond for the property. The loss of the Santa Fe
property does not affect significantly the Company's mining position.
If mining operations are not resumed, it is possible the Company may be
required to reclaim the mine. Reclamation consists of recontouring the four
heaps to a 3:1 slope, sale and removal of the building and its contents,
evaporation of all water in both ponds and burial of the building foundation and
floor within the ponds' liners under the soil contained in the pond birms.
Finally, native vegetation must be re-established in all areas of disturbance.
While it is the Company's position that sale of the building and its contents
will cover the costs of the remaining reclamation, it has established an
additional reserve of $50,500 for reclamation.
Repadre Capital Corporation ("Repadre") purchased a 3% NSR royalty,
that was allocated to two properties, from the Company for $500,000 during 1996
(the "Repadre royalty"). These funds were applied to the Company's ongoing
reserve confirmation and expansion program at the Relief Canyon Mine. Under the
terms of Repadre royalty, Repadre had the option to reallocate the Repadre
royalty to the Relief Canyon Mine. In 1997, Repadre purchased a 1% NSR royalty
on the Relief Canyon mine by payment of $300,000 to the Company. This $800,000
has been recorded as deferred revenue by the Company.
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Mining Operations
At the Relief Canyon Mine, the Company has placed its mine development
operations on hold and has placed the mine into a care and maintenance status.
The Company now has two experienced personnel in place at the mine site. The
personnel currently are lowering the water levels of the preg and barren ponds
under a plan approved and monitored by the Nevada Department of Environmental
Protection (NDEP). Prior to suspending operations in November 1997, the mining
facilities to recover gold from ore were completed by the Company with the
exception of an upgrade to leach pad four, which has been approved by NDEP.
The Company sold its full right, title and interest and all associated
liabilities in the Montana property known as the "Washington Gulch Mine" in July
of 1998 for $185,000.
INSURANCE
The business of gold mining is subject to certain types of risks,
including environmental hazards, industrial accidents, and theft. Prior to
suspending operations, the Company carried insurance against certain property
damage loss (including business interruption) and comprehensive general
liability insurance. While the Company maintained insurance consistent with
industry practice, it is not possible to insure against all risks associated
with the mining business, or prudent to assume that insurance will continue to
be available at a reasonable cost. The Company has not obtained environmental
liability insurance because such coverage is not considered by management to be
cost effective. The Company currently carries no insurance on any of its
properties due to the current status of the mine and the Company's current
financial condition.
GOVERNMENT CONTROLS AND REGULATIONS
As long as the Company retains control and has not divested itself of
the Relief Canyon Mine and any liability related thereto, the Company is subject
to extensive governmental controls and regulations which are subject to
amendment from time to time. The Company is unable to predict what additional
legislation or amendments may be proposed that might affect care and maintenance
of the mine or the time at which any such proposals, if enacted, might become
effective. Such legislation or amendments, however, could require increased
capital and operating expenditures and could prevent or delay divesture of the
mine by the Company.
Outlined below are some of the more significant aspects of governmental
controls and regulations which materially affect the Company's interests in the
mine.
Regulation of Mining Activity
The Relief Canyon Mine, including care and maintenance, exploration,
development and production activities, is subject to environmental laws,
policies and regulations. These laws,
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policies and regulations regulate, among other matters, emissions to the air,
discharges to water, management of waste, management of hazardous substances,
protection of natural resources, protection of endangered species, protection of
antiquities and reclamation of land. The mine also is subject to numerous other
federal, state and local laws and regulations. At the federal level, the mine is
subject to inspection and regulation by the Division of Mine Safety and Health
Administration of the Department of Labor ("MSHA") under provisions of the
Federal Mine Safety and Health Act of 1977. The Occupation and Safety Health
Administration ("OSHA") also has jurisdiction over certain safety and health
standards not covered by MSHA. Mining operations and all future exploration and
development will require a variety of permits. Although the Company believes the
permits can be obtained in a timely fashion, permitting procedures are complex,
costly, time consuming and subject to potential regulatory delay. The Company
does not believe that existing permitting requirements or other environmental
protection laws and regulations would have a material adverse effect on its
ability to dispose of the mine. However, the Company cannot be certain that
future changes in laws and regulations would not result in significant
additional expenses, capital expenditures, restrictions or delays associated
with the divestiture of the Company's property. The Company cannot predict
whether it will be able to renew its existing permits or whether material
changes in existing permit conditions will be imposed. Non-renewal of existing
permits or the imposition of additional conditions could have a material adverse
effect on the Company's ability to dispose of Relief Canyon.
The State of Nevada, where the Company's mine property is located,
adopted the Mined Land Reclamation Act (the "Nevada Act") in 1989 which
established design, operation, monitoring and closure requirements for all
mining facilities. The Nevada Act has increased the cost of designing,
operating, monitoring and closing mining facilities and could affect the cost of
operating, monitoring and closing existing mine facilities. The State of Nevada
also has adopted reclamation regulations pursuant to which reclamation plans
have been prepared and financial assurances established for existing facilities.
Environmental Regulations
Legislation and implementation of regulations adopted or proposed by
the United States Environmental Protection Agency ("EPA"), the BLM and by
comparable agencies in various states directly and indirectly affect the mining
industry in the United States. These laws and regulations address the
environmental impact of mining and mineral processing, including potential
contamination of soil and water from tailings discharges and other wastes
generated by mining companies. In particular, legislation such as the Clean
Water Act, the Clean Air Act, the Federal Resource Conservation and Recovery Act
("RCRA"), the Environmental Response, Compensation and Liability Act and the
National Environmental Policy Act require analysis and/or impose effluent
standards, new source performance standards, air quality antimycin standards and
other design or operational requirements for various components of mining and
mineral processing, including gold-ore mining and processing. Such statutes also
may impose liability on the Company for remediation of waste it has disposed.
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Gold mining and processing operations by another entity would generate
large quantities of solid waste which is subject to regulation under the RCRA
and similar state laws. The majority of the waste which was produced by such
operations is "extraction" waste that EPA has determined not to regulate under
RCRA's "hazardous waste" program. Instead, the EPA is developing a solid waste
regulatory program specific to mining operations under the RCRA. Of particular
concern to the mining industry is a proposal by the EPA entitled "Recommendation
for a Regulatory Program for Mining Waste and Materials Under Subtitle D of the
Resource Conservation and Recovery Act" ("Strawman II") which, if implemented,
would create a system of comprehensive Federal regulation of the entire mine
site. Many of these requirements would be duplicates of existing state
regulations. Strawman II as currently proposed would regulate not only mine and
mill wastes but also numerous production facilities and processes which could
limit internal flexibility in operating a mine. To implement Strawman II the EPA
must seek additional statutory authority, which is expected to be requested in
connection with Congress' reauthorization of RCRA.
The Company also is subject to regulations under (i) the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 ("CERCLA" or
"Superfund") which regulates and establishes liability for the release of
hazardous substances and (ii) the Endangered Species Act ("ESA") which
identifies endangered species of plants and animals and regulates activities to
protect these species and their habitats. Revisions to "CERCLA" and "ESA" are
being considered by Congress; the impact of these revisions on the Company is
not clear at this time.
Moreover, the Clean Air Act, as recently amended, mandates the
establishment of a fderal air permitting program, identifies a list of hazardous
air pollutants, including various metals and cyanide, and establishes new
enforcement authority. The EPA has published final regulations establishing the
minimum elements of state operating permit programs. The states had until
November 15, 1993 to submit their permit programs to the EPA for review and
approval. Until the state regulations are promulgated and approved by the EPA,
the full impact of the new regulations on the Company cannot accurately be
predicted.
In addition, the Company is required to mitigate long-term
environmental impacts by stabilizing, contouring, resloping, and revegetating
various portions of a site. While a portion of the required work was performed
concurrently with prior operations, completion of the environmental mitigation
occurs once removal of all facilities has been completed. These reclamation
efforts are conducted in accordance with detailed plans which have been reviewed
and approved by the appropriate regulatory agencies. The Company has posted
security bonds and has made provision to cover the estimated costs of such
reclamation as required by permit.
The Company believes that its care and maintenance operation, as it
exists today, is in substantial compliance with federal and state regulations
and that no further significant capital expenditures for environmental control
facilities will be required.
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COMPETITION
The Company competed with other mining companies in connection with the
acquisition of capital, mining claims and leases on precious metal properties.
The Company also competed in the recruitment and retention of quality employees.
There is significant competition for the limited number of precious
metals acquisition opportunities in the continental United States. As a result
of this competition, much of which is with companies with greater financial
resources, the Company is unable to continue to acquire attractive mining
properties and capital on terms it considers acceptable.
RISK FACTORS
The merger agreement has been approved by the Boards of Directors of
both the Company and BWI. Should the shareholders of either Company fail to
approve the merger, then the risk factors identified below should be considered
in conjunction with the information contained under the caption "Cautionary
Statement for Purposes of the Safe Harbor Provisions of the Private Securities
Litigation Reform Act of 1995."
Limited Relevant Operating History; Significant Operating Losses; Accumulated
Deficit
The Company had been engaged primarily in exploration and development
of its mines and has had minimal revenues. Accordingly, the Company has had a
limited relevant operating history upon which an evaluation of its prospects can
be made. Such prospects must be considered in light of the risks, expenses and
difficulties frequently encountered in the establishment of a new business in
the mining industry, which is a continually evolving industry characterized by
an increasing number of market entrants and intense competition, as well as the
risks, expenses and difficulties encountered in the commercialization of new
mines. As of January 31, 1999, the Company had an accumulated deficit of
approximately $9,629,000. Since such date, additional losses have been incurred.
While the Company's monthly operating expenses have decreased, expenses can be
expected to continue in the future in connection with the Company's efforts to
keep the Relief Canyon Mine in a care and maintenance status. Accordingly, it is
anticipated that the Company will continue to incur losses until it is able to
dispose of the Relief Canyon Mine. There can be no assurance that the Company
will be successful in disposal of the mine or the related costs of reclamation
of the mine site.
Late Payments Relating to Debt; Judgment
As of the date of this Report, the Company is approximately $530,000 in
arrears on interest and principal payments relating to outstanding, unsecured
note payables. In addition, the Company currently owes judgment creditors
approximately $550,000. In the event the Company is unable to settle these
judgments its creditors could force the Company into bankruptcy.
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Litigation
In the event that the merger is not completed the Company could be
subject to law suits from its shareholders who have continued holding on to
their investment in the Company in reliance on the merger becoming effective and
to those shareholders who invested in the Company after the announcement of the
Merger with BWI.
Other
The Company does not own any patents, trademarks, licenses, franchises
or concessions except for mineral interests granted by governmental authorities.
The Company's business is generally not seasonal in nature except to
the extent that weather conditions at certain times of the year may affect the
Company's access to its properties.
The Company, as of January 31, 1999, had a total of 5 employees, 3 of
whom are management and professional staff. None of the Company's employees are
subject to any collective bargaining agreements or union affiliations. Relations
between management and employees are considered to be good.
On August 1, 1999, as result of the signing of the Merger Agreement the
Company's Chief Financial Officer, Robert W. Morris, and Corporate Counsel,
Michael M. Kessler, assumed the same respective positions with BWI. Mr. Kessler,
Corporate Counsel, received from both companies a letter waiving any potential
conflict of interest. Mr. Kessler and Mr. Morris will continue to serve the
Company in their respective positions until the merger is completed.
ITEM 3: LEGAL PROCEEDINGS
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a) On December 3, 1996, the case of Roy Christiansen v. Newgold, et
al., a breach of contract action was filed in the Second Judicial District,
Washoe County, Reno, Nevada. Plaintiff alleged that he was owed $250,000
relating to recovery of his investment in a property subsequently acquired by
the Company. It was discovered during the pendency of this action that a former
Secretary-Treasurer of Newgold, Inc., (prior to the Company going public through
its merger with Warehouse Auto) signed a contract in 1994 which obligated the
Company, Newgold, Inc. (the Delaware Corporation) to pay $250,000 to
Christiansen, a former developer of the Golden Asset project which Newgold
purchased and is located in Helena Montana. This obligation was unknown to the
current principals of the Company. During the course of litigation, Plaintiff
moved the court for summary judgment based on this signed agreement; this motion
was granted and a judgment for $250,000 was entered against the Company. The
Company is in the process of working out a payment schedule with the Plaintiff,
however there can be no assurance that such a schedule can be worked out.
b) On January 28, 1997, the case of Stewart v. Newgold, a purported
breach of contract
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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 was
seeking $40,000 in damages. This case was settled for $20,000.Under the terms of
the Settlement the Company stipulated to the issuance of a judgment against it
in the amount of $20,000. The Company paid this judgment on October 21, 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, were each alleging that they
were 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 was without merit. Mr. Wong filed a $100,000,000 mechanics lien on
the Relief Canyon Mine. The Company believed that the use of a mechanics' lien
was improper and that there was no merit in Messrs. Wirsing and Wong's claims.
This matter was settled by the parties for an issuance of an additional 25,000
shares of the Company's common stock. Said stock is restricted and the
settlement agreement gave no registration rights to the defendants.
d) On June 24, 1998 the Company's former Reno landlord Bedford
Properties initiated an unlawful detainer action against the Company for rents
owed with regard to the Company's offices in Reno, Nevada. The parties
stipulated to a judgment of $40,000 for all past and future rents owed and this
judgment was entered against the Company on October 23, 1998 in the Second
Judicial District, Washoe County, Reno, Nevada. The Company currently is
attempting to work out a payment schedule on this judgment; however there is no
assurance that a schedule acceptable to the Company can be worked out.
e) On March 11, 1998, the Company's former consulting firm, JBR
Consultants, instituted a suit against the Company for sums due under a
consultant engineering contract. On August 19, 1998 the court for the Second
Judicial District entered a default judgment against the Company for $28,815.
The Company is currently attempting to settle this matter with the Plaintiff.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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None.
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PART II
ITEM 5: MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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Under a Plan of Reorganization approved by the U.S. Bankruptcy Court on
November 21, 1996, Warehouse Auto Centers, Inc. (WAC), a Delaware corporation,
was merged into Newgold (NV) to form Newgold (DE). Prior to the Plan, the common
stock of WAC was traded on the OTC Electronic Bulletin Board under the symbol
"WHACQ". Trading of the Company's stock was cleared by NASD on July 7, 1997 and
the first trade was on July 11, 1997 at $2.00 per share.
The following table sets forth the high and low bid prices for the
Common Stock, as reported by the NASD's OTC Bulletin Board for the quarters
indicated. The prices set forth represent quotes between dealers and do not
include commissions, mark-ups or mark-downs, and may not represent actual
transactions.
Common Stock
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Bid Asked
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High Low High Low
---- --- ---- ---
Fiscal Quarter Ended:
October 31, 1995 0.25 0.1875 0.3125 0.25
January 31, 1996 0.0935 0.0625 0.15625 0.125
April 30, 1996 0.35 0.03125 0.09375 0.08
July 31, 1996 0.15625 0.0625 0.25 0.25
October 31, 1996 0.0625 0.0625 0.125 0.125
January 31, 1997 0.0625 0.0625 0.0625 0.0625
March 31, 1997 N/A N/A N/A N/A
July 31, 1997 2.00 1.25 2.00 1.25
October 31, 1997 1.0625 0.625 1.0625 0.625
January 31, 1998 0.25 0.25 0.3125 0.25
April 30, 1998 0.375 0.375 0.375 0.375
July 31, 1998 0.125 0.125 0.50 0.50
October 31, 1998 N/A N/A N/A N/A
January 31, 1999 0.07 0.07 0.07 0.07
April 30, 1999 0.46 0.46 0.52 0.52
July 31, 1999* 0.70 0.64 0.78 0.70
*After the effect of a 3 for 2 stock split which was effected by way of a
dividend.
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ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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The Company was engaged primarily in the exploration and development of
mining properties. The Company is the result of a merger between a Chapter 11
bankrupt shell, Warehouse Auto Centers, Inc. (WAC) and Newgold, Inc., a Nevada
Corporation, (NGNV) pursuant to a Plan of reorganization approved by the U.S.
Bankruptcy Court as of November 21, 1996. For accounting purposes, under the
terms of the Merger, NGNV was 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
thirteen months ended January 31, 1997 and 12 months for the year ended January
31, 1998 and January 31, 1999.
The Company was engaged in the business of acquiring dormant, potential
gold producing properties located in the continental United States and
attempting to develop such properties into commercial gold mining operations.
Considering the present depressed gold market, the Company's Board of Directors
has approved plans for the Company to merge with Business Web, Inc. and to
initiate the process of divesting itself of its mining assets and the associated
liabilities. See "Merger of Newgold With BWI".
As of the date of this Report, the Company has derived no significant
revenue from its operations. The Company's capital requirements have been and
will continue to be significant. The Company has been dependent primarily on the
private placements of its securities to fund its operations and capital
requirements.
Financial Condition of the Company as of January 31, 1999
As of January 31, 1999, the Company had $886 in cash and a negative
working capital of $1,763,642. If the Company were to attempt to continue
pursuing mining operations, the Company would require approximately $4.3 million
in additional working capital. Since January 1998, the Company has pursued
several possible funding opportunities, including the sales of royalties on
other gold properties and on industrial minerals being considered for
acquisition. However, the Company acquired none of these properties. The Company
continues its efforts to obtain funding, but has no current commitments for
funding operations. There can be no assurance that any of such opportunities
will result in actual funding or that additional financing will be available
when needed, on commercially reasonable terms, or at all. As the Company has
been unable to obtain additional financing, it was required to curtail its
development plans in November 1997 and cease operations except for care and
maintenance of the Relief Canyon Mine. The Company's independent accountants
have included an explanatory paragraph in their report on the Company's
financial statements for the year ended January 31, 1999, indicating substantial
doubt about the Company's ability to continue as a going concern.
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FINANCIAL PLAN OF OPERATION FOR THE NEXT TWELVE MONTHS
Merger of Newgold With BWI
On April 2, 1999, the Company issued a Letter of Intent to BWI to effect
a merger of the two companies. On June 25, 1999, the Board of Directors of the
Company approved the Merger Agreement. On July 26, 1999, the Board of Directors
of BWI approved the Merger Agreement and the agreement was executed by both
companies at that time. The Merger Agreement will now be submitted to the
Shareholders of both companies for their respective approval.
Upon consummation of the Merger, BWI will be merged with and into the
Company and the Company will continue as the surviving corporation (and, in such
capacity is sometimes referred to herein as the "Surviving Corporation"), and
BWI will cease to exist as a separate entity as a legal matter. Following
approval of the Merger Agreement by the shareholders of the Company and BWI and
the satisfaction or waiver of the other conditions to consummation of the
Merger, the Merger will become effective at the time (the "Effective Time") of
filing of the Agreement of Merger with the Secretary of State of Delaware and
the Secretary of State of Texas.
Upon consummation of the Merger, the Company will be renamed "Comercis,
Inc." The Company will be managed by a management team composed of members of
the Company's and BWI's current senior management, with Mr. Chris M. Meaux,
BWI's co-founder and Chief Executive Officer, assuming the duties of Chief
Executive Officer of the combined entity. Michael M. Kessler, the Company's
Secretary and Corporate Counsel will have already joined BWI as its Corporate
Counsel and will retain that position in the Surviving Company. Mr. Robert
Morris, the Company's current Chief Financial Officer has assumed the position
of Acting Chief Financial Officer and Controller of BWI and will assume the
position of Controller in the Surviving Company when the Surviving Company
finishes its search for a new Chief Financial Officer. In addition, the
remaining operations of the combined entity will be performed by current BWI
personnel in BWI's facilities.
Upon the consummation of the Merger, the Company will effect a one for
twelve reverse split of its outstanding and issued common stock, for
shareholders currently holding common stock of the Company. Additionally, each
share of BWI outstanding and each BWI Special Warrant shall be canceled and
converted into the right of the former holder to receive, in the case of BWI
shareholders, or to exchange, in the case of holders of the BWI Special Warrants
at no additional cost, on a one for one basis of 15,501,942 shares of Common
Stock. As a result of the merger current Company shareholders will own
approximately 17% of the Surviving Corporation and the BWI shareholders will own
83% of the Surviving Corporation.
Consummation of the Merger
Consummation of the Merger is subject to satisfaction of various
conditions, including approval of the Merger by shareholders of Newgold and BWI,
and receipt of a legal opinion from Gray Cary Ware & Freidenrich, counsel to
Newgold, to the effect that the Merger will constitute a tax free reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), inclusion of the Common Stock to be issued to BWI
shareholders in the Merger for quotation on the NASDAQ OTC-Electronic Bulletin
Board Market, and various other
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conditions.
Termination and Amendment
The Merger Agreement may be terminated any time prior to the Effective
Time (i) by mutual consent of the parties, (ii) by the non-breaching party, upon
the other party's material breach or default of any representation, warranty,
covenant, agreement or obligation under the Merger Agreement, (iii) by Newgold
if the Company's Board of Directors adversely amends, withholds or withdraws its
recommendation of the Merger or the Company's shareholders do not approve the
Merger, (iv) by the BWI if the BWI Board of Directors adversely amends,
withholds or withdraws its recommendation of the Merger or the BWI shareholders
do not approve the Merger, and (v) by either party if the Merger shall not have
been consummated by October 31, 1999.
The Merger Agreement may be amended at anytime prior to the Effective
Time by written agreement of the parties.
To date, BWI has raised capital of approximately $8.6 million. Of this
amount $500,000 has been loaned to Newgold for payment of liabilities and
current operating costs. Under the terms of the Merger Agreement the Company is
to sell the Relief Canyon Mine and the funds received by the Company will be
used to repay BWI, for any amounts of money loaned to the Company and in the
event that excess funds are received these funds will be reinvested into the
Surviving Company.
Risks Associated With BWI
You should carefully consider the following factors and other
information in this Report prior to making any investment in the Company based
upon the potential merger of the two respective companies.
BWI HAS A LIMITED OPERATING HISTORY UPON WHICH TO EVALUATE IT
BWI has only been in business since December 1997. Accordingly, it has
a limited operating history upon which to evaluate it. In addition, BWI's
revenue model is still evolving. Currently, its revenues are primarily generated
from the sale of web site and community memberships and the attempts to
establish additional vertical trade communities. In the future, BWI expects to
generate revenue from multiple sources, including Ecommerce storefronts, booth
space from eTradeshow, community platform licensing, site maintenance, and
advertising revenue. BWI may not be able to sustain its increase in current
revenues from Ecommerce, Etradeshow or the other business units business
services revenues. If BWI does not generate such revenue, its business,
financial condition and operating results will be affected materially and
adversely.
BWI ANTICIPATES THAT IT WILL INCUR CONTINUED LOSSES FOR THE FORSEEABLE FUTURE
To date, BWI has not been profitable. BWI may never be profitable or, if it does
become profitable, it may be unable to sustain profitability. It has incurred
significant losses since
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inception. BWI reported a net loss of $808,532 for the three months ended April
30, 1999. BWI expects to continue to incur significant losses for the
foreseeable future. As of April 30, 1999, the accumulated deficit was
$1,286,893. Its limited operating history makes predicting its future operating
results, including operating expenses, difficult. Its revenues may not grow or
may not even continue at the current level.
BWI EXPECTS ITS OPERATING EXPENSES TO INCREASE
Some of the expenses are fixed, including non-cancelable agreements,
equipment leases and real estate leases. If the revenues do not increase, BWI
may not be able to compensate by reducing expenses in a timely manner. In
addition, BWI plans to significantly increase its operating expenses to:
o launch additional vertical trade communities;
o increase its sales and marketing operations;
o enter into additional sponsorship agreements;
o broaden its customer support capabilities; and
o pursue marketing and distribution alliances.
Expenses may also increase due to the potential impact of goodwill and
other charges resulting from completed and future acquisitions.
Additionally, leading Web sites, browser providers and other Internet
distribution channels may increase their rates to BWI thus making it more
expensive to provide access to BWI's products and services. If any of these
expenses are not accompanied by increased revenues, BWI's business, financial
condition and operating results would be affected materially and adversely.
BWI COULD EXPERIENCE FLUCTUATIONS IN ITS QUARTERLY RESULTS
BWI expects that its quarterly operating results will fluctuate
significantly due to many factors, including:
o the uncertain adoption of the Internet as an advertising medium;
o potential dependence on development of the electronic commerce market;
o intense competition;
o uncertain acceptance of BWI's Internet content;
o management of its growth; and
o risks associated with potential acquisitions.
CHANGES IN INDUSTRY WEB PAGE CREATION AND HOSTING RATES COULD ADVERSELY AFFECT
BWI'S REVENUES
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Changes in industry pricing practices for web page creation and hosting
rates could affect materially and adversely BWI's revenues in the future.
ADOPTION OF THE INTERNET AS A MEANS OF DOING BUSINESS IS UNCERTAIN
The growth of "doing business" over the Internet requires validation of
the Internet as an effective business medium. This validation has yet to occur
fully. Acceptance of the Internet among business also will depend on growth in
the commercial use of the Internet. If widespread commercial use of the Internet
does not develop, or if the Internet does not develop as an effective and
measurable medium for doing business, BWI's, financial condition and operating
results could be affected materially and adversely.
No standards have been widely accepted to measure the effectiveness of
Business on the Internet. If such standards do not develop, existing businesses
may not continue to expand their business to the Internet and those businesses
that currently are not doing business on the Internet may not enter the Internet
business. BWI's business, financial condition and operating results would be
affected adversely if the market for doing business over the Internet fails to
develop or develops slower than expected.
SIGNIFICANT REVENUES FROM ELECTRONIC COMMERCE MAY NOT DEVELOP WHICH COULD
ADVERSELY AFFECT BWI'S FUTURE GROWTH
For the three months ended April 30, 1999, approximately 3.5 % of BWI's
revenues were generated from electronic commerce. If BWI does not generate
increased revenue from electronic commerce, BWI's business, financial condition
and operating results could be materially adversely affected. To generate
significant electronic commerce revenues, BWI will have to continue to build its
web site platforms and increase the number of vertical trade communities it
services.
BWI'S LONG-TERM SUCCESS DEPENDS ON THE DEVELOPMENT OF THE WEB SITE CREATION AND
HOSTING MARKET, ELECTRONIC COMMERCE MARKET, THE ACCEPTANCE OF THE WORLD WIDE WEB
AS A MEDIUM TO PRESENT TRADESHOWS AND AN EFFECTIVE AND SECURE MEANS OF DOING
BUSINESS WHICH IS UNCERTAIN
If BWI is unable to develop successfully its Web Site Services and
create the vertical communities it has targeted and integrate the services of
its divisions into the Internet then its business, financial condition and
operating results would be effected severely. BWI's long-term success depends on
widespread public acceptance of the Internet as a place to do business. A number
of factors could prevent such acceptance, including the following:
o electronic commerce on the Internet is in its infancy and buyers may
be unwilling to shift their purchasing from traditional vendors to
online vendors;
o the necessary network infrastructure for substantial growth in usage
of the Internet may not be developed adequately;
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o increased government regulation or taxation may affect adversely the
viability of electronic commerce;
o insufficient availability of telecommunication services or changes in
telecommunication services could result in slower response times; and
o adverse publicity and consumer concern about the security of
electronic commerce transactions could discourage its acceptance and
growth.
THERE IS INTENSE COMPETITION FOR THE INTERNET PRODUCTS AND SERVICES THAT BWI
OFFERS
Competition for the Internet products and services, which BWI offers in
commerce is intense. BWI expects that competition will continue to intensify.
Barriers to entry are minimal, and competitors can launch new Web sites at a
relatively low cost. While BWI believes there are no companies offering all of
the services that BWI offers, especially with the addition of the Netgate
technology, there are several companies that offer competitive vertical trade
communities. BWI expects that additional companies will offer competing vertical
trade communities on a standalone or portfolio basis.
Additionally, BWI's competitors may develop Internet products or
services that are superior to, or have greater market acceptance than, its
solutions. If BWI is unable to compete successfully against its competitors, its
business, financial condition and operating results will be affected adversely.
Many of BWI's competitors have greater brand recognition and greater
financial, marketing and other resources than BWI This may place BWI at a
disadvantage in responding to BWI's competitors' pricing strategies,
technological advances, advertising campaigns, strategic partnerships and other
initiatives.
CONCERNS REGARDING SECURITY OF TRANSACTIONS AND TRANSMITTING CONFIDENTIAL
INFORMATION OVER THE INTERNET MAY NEGATIVELY IMPACT OUR ELECTRONIC COMMERCE
BUSINESS
BWI believes that concern regarding the security of confidential
information transmitted over the Internet, such as credit card numbers, prevents
many potential customers from engaging in online transactions. If BWI does not
add sufficient security features to future product releases, its products may
not gain market acceptance or there may be additional legal exposure to BWI. BWI
has included basic security features in some of the products to protect the
privacy and integrity of customer data, such as password requirements for access
to portions of our vertical trade communities. BWI does not currently use
authentication technology, which requires passwords and other information to
prevent unauthorized persons from accessing a customer's information, or
encryption, which transforms information into a "code" designed to be unreadable
by third parties, to protect confidential information such as credit card
numbers. However, it intends to license encryption technology to protect
confidential transaction data.
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Despite the measures BWI has taken, BWI's infrastructure potentially is
vulnerable to physical or electronic break-ins, viruses or similar problems. If
a person circumvents BWI's security measures, they could misappropriate
proprietary information or cause interruptions in BWI's operations. Security
breaches that result in access to confidential information could damage BWI's
reputation and expose BWI to a risk of loss or liability. BWI may be required to
make significant investments and efforts to protect against or remedy security
breaches. Additionally, as electronic commerce becomes more prevalent (and
consequently becomes one of the foci of BWI's development of direct marketing
products), BWI's customers will become more concerned about security. If BWI
does not adequately address these concerns, this could materially adversely
affect its business, financial condition and operating results.
MARKETING AND DISTRIBUTION ALLIANCES MAY NOT GENERATE THE EXPECTED NUMBER OF NEW
CUSTOMERS OR MAY BE TERMINATED
BWI uses marketing and distribution alliances with other Internet
companies to create traffic to BWI's web site creation page and consequently, to
assist BWI in generating revenues. These marketing and distribution alliances
allow BWI to link our Web Site creation pages to other Internet companies web
pages such as Xoom.com, Bell South.net and Netopia Virtual Office. The success
of these relationships depends on the amount of increased traffic BWI receives
from the alliance partners' Web sites. These arrangements may not generate the
expected number of new customers. BWI also cannot assure you that it will be
able to renew these marketing and distribution alliance agreements. If any of
these agreements are terminated, the traffic on BWI's web site creation pages
could decrease and therefore this could materially adversely affect its
business, financial condition and operating results.
BWI MAY NOT HAVE OPPORTUNITIES TO ENTER INTO NEW PARTNERSHIPS OR MARKETING AND
DISTRIBUTION ALLIANCES
BWI is interested in entering into additional partnerships with other
Internet businesses to increase traffic to its web site creation site, but BWI
can give no assurance that it will be able to enter into any new partnerships.
If BWI is unable to enter into new arrangements the traffic on BWI's web site
creation pages may not increase.
BWI'S BUSINESS DEPENDS ON THE GROWTH OF THE INTERNET, WHICH IS UNCERTAIN
BWI's market is new and rapidly evolving. BWI's business would be
adversely affected if Internet usage does not continue to grow. Internet usage
may be inhibited by a number of reasons, such as:
o Infrastructure;
o Security concerns;
o Inconsistent quality of service; and
o Lack of availability of cost-effective, high-speed service.
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If Internet usage grows, the Internet infrastructure may not be able to
support the demands placed on it by this growth or its performance or
reliability may decline. In addition, Web sites may from time to time experience
interruptions in their service as a result of outages and other delays occurring
throughout the Internet network infrastructure. If these outages or delays
frequently occur in the future, Internet usage, as well as usage of BWI's web
site creation pages and possibly the vertical trade communities it creates,
could be adversely affected.
IF BWI DOES NOT DEVELOP THE "COMERCIS" BRAND AS ITS WEB SITE CREATION SITE AND
VERTICAL TRADE COMMUNITY BRANDS, BUSINESS COULD DECREASE CAUSING A CORRESPONDING
DECREASE IN REVENUES
To be successful, BWI must establish and strengthen the brand awareness
of the "Comercis" brand as well as the brands associated with each division
(e.g. Cybermovers). If its brand awareness is weakened, it could decrease the
attractiveness of BWI's audiences to business, which could result in decreasing
advertising revenues. BWI believes that brand recognition will become more
important in the future with the growing number of Internet sites. Its brand
awareness could be diluted, which could affect adversely its business, financial
condition and operating results if users do not perceive BWI products and
services to be of high quality.
BWI IS GROWING RAPIDLY AND EFFECTIVELY MANAGING GROWTH MAY BE DIFFICULT
BWI has grown and expects to continue to grow rapidly both by adding
new products and hiring new employees. This growth is likely to place a
significant strain on its resources and systems. To manage growth, BWI must
implement systems and train and manage its employees.
Many of BWI's senior management have only recently joined the Company.
BWI can make no assurance that its management will be able to manage effectively
or successfully the Company's growth.
BWI MAY NOT BE ABLE TO PROTECT ITS PROPRIETARY RIGHTS AND BWI MAY INFRINGE THE
PROPRIETARY RIGHTS OF OTHERS
Proprietary rights are important to the Company's success and its
competitive position. BWI has applied for several trademarks, none have been
issued to date. Although BWI seeks to protect its proprietary rights, its
actions may be inadequate to protect any trademarks and other proprietary rights
or to prevent others from claiming violations of their trademarks and other
proprietary rights. BWI currently has five pending trademark applications. In
addition, effective copyright and trademark protection may be unenforceable or
limited in certain countries, and the global nature of the Internet makes it
impossible to control the ultimate destination of the Company's work. BWI also
licenses programming code from third parties and it is possible that it could
become subject to infringement actions based upon the content licensed from
those third parties. BWI generally obtains representations as to the origin and
ownership of such licensed content; however, this may not adequately protect the
Company. Any of these claims, with or
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without merit, could subject BWI to costly litigation and the diversion of its
technical and management personnel.
BWI MAY NOT BE ABLE TO ACQUIRE OR MAINTAIN EASILY IDENTIFIABLE WEB ADDRESSES OR
PREVENT THIRD PARTIES FROM ACQUIRING WEB ADDRESSES SIMILAR TO BWI'S AND ITS
VARIOUS DIVISIONS
BWI currently holds various Internet Web addresses relating to itself
and its divisions. The Company may not be able to prevent third parties from
acquiring Web addresses that are similar to its addresses, which could affect
materially and adversely BWI's business, financial condition and operating
results. The acquisition and maintenance of Web addresses generally is regulated
by governmental agencies and their designees. For example, in the United States,
the National Science Foundation has appointed Network Solutions, Inc. as the
exclusive registrar for the ".com," ".net" and ".org" generic top-level
addresses. The regulation of Web addresses in the United States and in foreign
countries is subject to change. As a result, BWI may not be able to acquire or
maintain relevant Web addresses in all countries where it conduct business.
Furthermore, the relationship between regulations governing such addresses and
laws protecting trademarks is unclear.
ACQUISITIONS MAY DISRUPT OR OTHERWISE HAVE A NEGATIVE IMPACT ON BWI'S BUSINESS
BWI has made, and plans to continue to make, investments in
complementary companies, technologies and assets. Future acquisitions are
subject to the following risks:
o acquisitions may cause a disruption in ongoing business, distract
management and other resources and make it difficult to maintain
standards, controls and procedures;
o BWI may acquire companies in markets in which BWI has little
experience;
o BWI may not be able to integrate successfully the services, products
and personnel of any acquisition into its operations;
o BWI may be required to incur debt or issue equity securities, which
may be dilutive to existing shareholders, to pay for acquisitions; and
o BWI's acquisitions may not result in any return on its investment or
the Company may lose its entire investment.
BWI MAY NOT BE ABLE TO EFFECT ITS GROWTH STRATEGY IF BWI IS NOT ABLE TO
CONSUMMATE FUTURE ACQUISITIONS
BWI's acquisition strategy is subject to the risk of not being able to
identify additional suitable acquisition candidates available for sale at
reasonable prices or on reasonable terms. Additionally, regardless of whether
suitable candidates are available, BWI may not be able to consummate future
acquisitions for other reasons such as the availability of capital. If BWI is
unable to consummate future acquisitions, its business, financial condition and
operating results could be adversely affected.
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BWI MAY BE SUBJECT TO LEGAL LIABILITY FOR PUBLISHING OR DISTRIBUTING CONTENT
OVER THE INTERNET
BWI may be subject to legal claims relating to the content in the web
pages it creates for its customer or the vertical trade communities it
establishes, or the downloading and distribution of such content. For example,
persons may bring claims against the Company if material that is inappropriate
for viewing by young children can be accessed from its vertical trade
communities. Claims also could involve matters such as defamation, invasion of
privacy, and copyright infringement. Providers of Internet products and services
have been sued in the past, sometimes successfully, based on the content of
material. In addition, some of the content provided on its created web sites and
vertical trade communities is drawn from data compiled by other parties,
including governmental and commercial sources, and BWI re-keys the data. This
data may have errors. If the content is used improperly or if BWI supplied
incorrect information, it could result in unexpected liability. The Company's
insurance may not cover claims of this type, or may not provide sufficient
coverage. BWI's business, financial condition and operating results could suffer
a material adverse effect if costs resulting from these claims are not covered
by insurance or exceed its coverage.
RISK OF FAILURE OF COMPUTER AND COMMUNICATIONS HARDWARE SYSTEMS INCREASES
WITHOUT BACK-UP FACILITIES
BWI's business depends on the efficient and uninterrupted operation of
its computer and communications hardware systems. Any system interruptions that
cause its vertical trade communities to be unavailable to Web browsers or any of
the Web Pages which it has created and hosts on its resident computers may
reduce the attractiveness of BWI's business and could affect materially and
adversely its business, financial condition and operating results. BWI maintains
its computer systems in Dallas, Texas and North Carolina. However, it does not
have back-up or redundant facilities for its computer systems at this time.
Interruptions could result from natural disasters as well as power loss,
telecommunications failure and similar events.
CAPACITY LIMITS ON BWI'S TECHNOLOGY, TRANSACTION PROCESSING SYSTEM AND NETWORK
HARDWARE AND SOFTWARE MAY BE DIFFICULT TO PROJECT AND THE COMPANY MAY NOT BE
ABLE TO EXPAND AND UPGRADE ITS SYSTEMS TO MEET INCREASED USE
As traffic to the Company's web site and the web sites created for its
clients and the vertical trade communities created continues to increase, BWI
must expand and upgrade its technology, transaction processing systems and
network hardware and software. BWI may not be able to project accurately the
rate of increased use. In addition, BWI may not be able to expand and upgrade
its systems and network hardware and software capabilities quickly enough to
accommodate increased use of its services and created vertical communities. If
BWI does not upgrade appropriately its systems and network hardware and
software, BWI's business, financial condition and operating results will be
affected materially and adversely.
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BWI'S MARKET IS CHARACTERIZED BY RAPID TECHNOLOGICAL CHANGE WHICH IT MAY NOT BE
ABLE TO MAINTAIN IN A COST-EFFECTIVE WAY
BWI's market is characterized by rapid technological change and
frequent new product announcements. Significant technological changes could
render e-commerce on web pages and vertical trade community technology obsolete.
If BWI is unable to respond successfully to these types of developments or does
not respond in a cost-effective way, BWI's business, financial condition and
operating results will be affected materially and adversely. To be successful,
BWI must adapt to the rapidly changing market by continual improvement in its
responsiveness, services and features of the web page creation and vertical
trade communities and by developing new features to meet customer needs. BWI's
success will depend, in part, on its ability to license or to purchase leading
technologies useful in its business, to enhance existing services and to develop
new services and new technology that address the needs of its customers. BWI
also will need to respond to technological advances and emerging industry
standards in a cost-effective and timely manner.
BWI'S SUCCESS IS DEPENDENT ON ITS KEY PERSONNEL WHOM IT MAY NOT BE ABLE TO
RETAIN AND IT MAY NOT BE ABLE TO HIRE ENOUGH ADDITIONAL PERSONNEL TO MEET ITS
HIRING NEEDS
BWI believes that the Company's success will depend on continued
employment of the current senior management team and key technical personnel. If
one or more members of the senior management team were unable or unwilling to
continue in their present positions, the business, financial condition and
operating results of BWI could be affected materially and adversely. Most of
senior management do not have employment agreements. BWI carries key person life
insurance on certain, but not on all, of its senior management personnel.
BWI's success also depends on having a highly trained sales force and
telesales group. BWI's telesales group was formed recently. The Company will
need to continue to hire additional personnel as its business grows. A shortage
in the number of trained salespeople could limit its ability to increase sales
in its existing markets and to sell as it launches new and improved services.
BWI plans to expand its employee base to manage the Company's
anticipated growth. Competition for personnel, particularly for employees with
technical expertise, is intense. BWI's business, financial condition and
operating results will be affected materially and adversely if it cannot hire
and retain suitable personnel.
BWI'S SYSTEMS MAY NOT BE YEAR 2000 COMPLIANT WHICH COULD CAUSE BWI'S SERVICES TO
BE UNAVAILABLE FOR A PERIOD OF TIME AFTER JANUARY 1, 2000 WHICH COULD HAVE A
NEGATIVE IMPACT ON ITS BUSINESS, OPERATING RESULTS AND FINANCIAL POSITION
BWI may realize exposure and risk if the systems on which it is
dependent to conduct operations are not Year 2000 compliant. Potential areas of
exposure include products
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purchased from third parties, computers, software, telephone systems and other
equipment used internally. If the Company's present efforts to address the Year
2000 compliance issues are not successful, or if distributors, suppliers and
other third parties with which it conducts business do not address successfully
such issues, BWI's business, operating results and financial position could be
affected materially and adversely. In the event that its Web-hosting facilities
are not Year 2000 compliant, the Company's production Web sites would be
unavailable and the Company would not be able to deliver services to its users.
In the event that the production and operational facilities that support the Web
sites are not Year 2000 compliant, small portions of the Web sites may become
unavailable.
CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT
OF 1995
Statements in this report, including the exhibits, contain
forward-looking statements and information relating to the Company that are
based on the beliefs of management, as well as assumptions made by and
information currently available to management. Forward-looking statements
include statements preceded by the words "anticipate," "believe," "estimate,"
"expect," "indicate," "intend," "will," and similar expressions. The purpose of
this cautionary statement is to identify certain important factors and
assumptions on which such forward-looking statements may be based or which could
cause actual results to differ materially from those expressed in the
forward-looking statements. The important factors and assumptions set forth
below should be read in conjunction with the items contained under the heading
"RISK FACTORS."
COMPLIANCE WITH YEAR 2000 ISSUE
Newgold, Inc. has had its computer systems, which consist of personal
computers and third party software, tested for compliance with the year 2000
issue. Such testing included forward dating operation of the equipment and
software that was represented as Year 2000 compliant by the third party vendors.
The systems and software so tested performed without failure or interruption and
the Company believes it is Year 2000 compliant. The Company does not have
sufficient contact with third party vendors for these vendors to have a material
effect upon the Company's operations beyond July 31, 1999.
RESULTS OF OPERATIONS
Year Ended January 31, 1999 as Compared to Year Ended January 31, 1998
For the year ended January 31, 1999, operating expenses, which consist
of general and administrative expenses, exploration costs and other operating
charges were approximately $661,700 as compared to approximately $5,422,900 for
the year ended January 31, 1998.
As the Company had placed Relief Canyon Mine on care and maintenance and
had no plan for placing the mine into production, the Company recorded a
provision of approximately $3,311,700 as a loss on impairment of assets for the
year ended January 31, 1998.
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Exploration and evaluation expenses for the year ended January 31, 1999
were $153,064 as compared to exploration expenses of $515,050 for year ended
January 31, 1998. The Company incurred $85,117 in care and maintenance expense
for Relief Canyon. A credit of $25,000 for the reclamation reserve for
Washington Gulch Mine, which was sold in July 1998, partially offset expense
recorded for options and geological surveys of other mining properties of
$92,800. This expense amount included $55,000 for an option payment on a
bentonite mine that was recorded in exchange for 125,000 shares of Company
common stock.
General and administrative expenses were $508,603 for the year ended
January 31, 1999 versus $1,596,160 for the year ended January 31, 1998. Officer
salaries for the year ended January 31, 1999 were $265,750 versus $189,833 for
the year ended January 31, 1998. Of the amount for 1999, $246,470 represented
accrued salaries as of January 31, 1999 of which $150,000 will be exchanged for
BWI stock in the merger. Legal and professional expenses for the year ended
January 31, 1999 were $19,238, and included $13,060 related to the audits and
SEC filings of the Company. Legal and professional expenses for the year ended
January 31, 1998 were $223,281 and included $155,975 related to the initial
audits and SEC filings for the Company.
Liquidity and Capital Resources
The Company had financed most of its operations principally through
private placements of the Company's common stock. In the Statements of Cash
Flows for the year ended January 31, 1998, Repadre exercised warrants for the
purchase of 200,000 of Common Stock for an aggregate consideration of $200,000
in a private placement in July 1998.
In the Statement of Cash Flows for the year ended January 31, 1999, the
Company issued in April 1998, 5,616,977 shares to investors and brokers who had
contributed $548,000 from a Regulation S offering at $.10 per share.
Approximately $229,000 was distributed by the investment banker directly to lien
holders of Relief Canyon Mine and approximately $62,000 was distributed in
commissions and fees. The balance of approximately $257,000 was remitted to the
Company for operating expenses.
On August 31, 1995, the Company granted to Edward Mackay ("Mackay") a
one-year option (the "Option") to purchase 40% of NGNV in exchange for a $50,000
option payment (the "Option Payment") and the contribution of the Washington
Gulch Mine located in Montana. On January 1, 1996, in exchange for Mackay
arranging a $350,000 debt financing for the Company, the Option was amended (the
"Amendment") and exercised whereby the $50,000 Option Payment was converted into
a promissory note granted to Mackay and Mackay would receive 3.8 million shares
of Common Stock of the Company Mackay was an officer and director of the
Company; however, he was not an officer or director at the execution of the
Option or the Amendment.
WGM, at the time of transfer from Mackay in January 1996, was recorded
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at its net value of $181,000. Certain elements of the operation, such as the
plant and equipment on site, were offered for sale, after which the property
would be reclaimed and the Company would request return of its $206,000 bond
that was being held by the State of Montana. The equipment on site had not been
given any value nor reported on the financial statements. The property,
equipment and bond were sold in July 1998 for $185,000.
On April 2, 1999, the Company issued a Letter of Intent to BWI to effect
a merger of the two companies. To date, BWI has raised capital of approximately
$8.6 million. Of this amount $500,000 was loaned to Newgold for payment of
operating costs incurred prior to July 31, 1999.
In June 1999, the Company declared a stock split of 3 shares for 2 as
of June 17, 1999 to shareholders of record as of June 10, 1999. This split
increased the outstanding shares as of June 17, 1999 to 37,866,882.
ITEM 7: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
See pages F-1 through F-16.
ITEM 8: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- -------------------------------------------------------------------------
FINANCIAL DISCLOSURE
- --------------------
On September 3, 1998 the Company's auditors KPMG Peat Marwick LLP
withdrew as the auditors for the Company.
On April 28, 1999, the Company appointed the firm of Burnett Umphress &
Company, LLP as the Company's new auditors.
25
<PAGE>
PART III
ITEM 9: DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
- --------------------------------------------------------------------------------
WITH SECTION 16(a) OF THE EXCHANGE ACT
- --------------------------------------
Listed below are the names and ages, as of August 1, 1999, of each of
the present directors and executive officers of the Company together with the
principal positions and offices with the Company held by each. Executive
officers are appointed annually by the Board of Directors to serve for the
ensuing year or until their successors have been appointed. No officer is
related to any other by blood, marriage or adoption.
Name Age Position(s) (1)
- ---- --- ---------------
A. Scott Dockter 43 President, Director and CEO
Calvin Lim 42 Director
John Mackay 50 Director
Michael J. Morrison, Esq. 53 Director
Robert W. Morris 59 Treasurer/ Chief Financial Officer
Michael M. Kessler 43 Secretary/ Corporate Counsel
(1) All Directors will hold their position until the next annual meeting of
the Shareholders of the Company, or until their successors have been
elected and qualified or until resignation, whichever occurs first.
Background Information of Officers and Directors
A. Scott Dockter has been Chairman of the Board, CEO and President of
the Company since November 21, 1996. Mr. Dockter was the founder, Chairman of
the Board, CEO and President of NGNV since 1993. Mr. Dockter is a founder,
president and CEO of Riverfront Development Corporation. From June 1988 to June
1993, Mr. Dockter was the owner and founder of Earthco, a sole proprietorship,
which was a general engineering contractor specializing in dams, levies and
mining projects. In December 1992, Mr. Dockter, as the result of litigation,
voluntarily filed a bankruptcy action pursuant to Chapter 11 of the U.S.
Bankruptcy Code in the Eastern District of California. The proceeding was
dismissed and the Court did not discharge Mr. Dockter's obligations. Mr. Dockter
devotes a minimal amount of time to Riverfront Development Corporation.
Robert W. Morris has been Chief Financial Officer and Treasurer of the
Company since February 1997. From November 1996 to February 1997 he was the Vice
President of Finance. Mr. Morris was the Chief Financial Officer of NGNV from
26
<PAGE>
July 1995 to November 1996. From July 1995 to the present, Mr. Morris has been
CFO of Riverfront Development Corporation. From December 1993 to December 1995,
Mr. Morris was the CFO of Tolson Construction Co. From July 1990 to November
1993, Mr. Morris was CFO of Elk Grove Ready Mix. Mr. Morris has been a Certified
Public Accountant for 31 years with 13 years in public accounting and 18 years
as a treasurer and controller. Mr. Morris devotes his full time to the business
of the Company. He holds a BS degree in Business and Accounting from Indiana
University.
Calvin Lim was born in Hong Kong in 1957, holds an AA Degree in Art,
and attended Sacramento State University in California majoring in business. He
has owned several businesses and specifically had been in the restaurant
business from 1976 till 1997. Mr. Lim has been involved in the import-export
business between the United States and China since 1983 to the Present,
exporting machinery to Mainland China.
John Mackay, Esq. an attorney at law and is admitted to practice in the
State of California and has specialized in real estate and insurance litigation
for the last fifteen years. Mr. has been engaged by lenders as an independent
contractor since 1985 to Present to develop plans for the effective utilization
of real estate and to manage recoveries of large portfolios of non-performing
real estate loans. He holds MBA and JD degrees from the University of Southern
California.
Michael J. Morrison, Esq. has been a director of the Company since
November 1996 and has been a practicing attorney in Reno, Nevada for 20 years
specializing in the areas of corporate, business and securities law. Mr.
Morrison sits on no other boards. He is also admitted to practice in the State
of California and the District of Columbia.
Michael M. Kessler, Esq. is the Corporate Secretary and Corporate
Counsel to the Company. From 1989-1991 Mr. Kessler was an associate where he was
in charge of business litigation and transactional affairs. From April
1991-November 1996 Mr. Kessler was in private practice where he concentrated in
the areas of business litigation and transactional matters. From November
1996-Present Mr. Kessler has been the Company's in house corporate counsel. Mr.
Kessler holds a Bachelors Degree in Business Administration from New York
University. He received his Juris Doctor Degree from Western State University
College of Law and is a member of the California Bar.
Board of Directors
Directors of the Company are elected to serve until the next annual
meeting of the stockholders or until their earlier resignation or removal.
Director Compensation
Each non-employee director is reimbursed for all out-of-pocket expenses
incurred by the director in attending Board meetings and performing other duties
on behalf of the Company. Directors do not receive any additional compensation.
27
<PAGE>
Committees of the Board
There is currently an Audit Committee for the Board of Directors.
Directors John Mackay and Calvin Lim are the members of the Audit Committee.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities and Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent of the Company's Common Stock, to file with the Securities and Exchange
Commission, by a specified date, reports regarding their ownership of Common
Stock. Arthur Scott Dockter, Michael J. Morrison, Calvin Lim and Robert W.
Morris have each filed late a Form 3 and a Form 5.
ITEM 10: EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company for
services performed on the Company's behalf during each of the last three
completed fiscal years with respect to the Company's Chief Executive Officer and
each of the Company's other executive officers whose annual compensation during
the last fiscal year exceeded $100,000 (the "Named Executive Officer"):
<TABLE>
Summary Compensation Table
Other Annual All Other
Name and Period Salary Bonus Compen- Options Compen-
Principal Position Ended ($) ($) sation($) (In shares) sation($)
------------------------ ------- ------ ------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Arthur Scott Dockter 1/31/99 -- -- -- -- --
Chief Executive 1/31/98 -- -- -- -- --
Officer, President 1/31/97 45,000 229,651 -- -- --
12/31/96 -- -- -- -- --
</TABLE>
Options
No stock options were granted to the directors, officers or employees of
the Company during 1998 and 1999.
28
<PAGE>
Employment Contracts
Mr. Dockter, Mr. Morris and Mr. Kessler had entered into employment
contracts with the Company. The contracts were due to expire on of January 31,
2000. Under the terms of the Merger Agreement, all three individuals' contracts
were cancelled as of the date of the signing of the Merger agreement. Whereupon,
Messrs. Dockter, Morris, and Kessler be came at-will employees of the Company.
Subsequent to the signing of the Merger Agreement with BWI and with the
consent of the Company and BWI, Mr. Morris accepted the position of Acting Chief
Financial Officer of BWI and Controller with the understanding that he would
continue to act as Chief Financial Officer of Newgold to facilitate the
completion of the Merger.
Mr. Morris has not received a contract of employment from BWI.
Subsequent to the signing of the Merger Agreement and with the consent
of the Company and BWI, Mr. Kessler accepted the position of Corporate Counsel
for BWI, with the understanding that Mr. Kessler would continue in his role as
Corporate Counsel for Newgold in order to facilitate the completion of the
Merger. Mr. Kessler has obtained a waiver of conflict of interest from the
Company and BWI. Mr. Kessler has not received a contract for employment from
BWI.
Mr. Dockter continues to be President and Chief Executive Officer of
the Company on an at-will basis. Mr. Dockter will step down from this position
upon the completion of the Merger.
ITEM 11: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
The table below sets forth certain information as of July 31, 1999 (the
"Reference Date") with respect to the beneficial ownership of (i) each person
who beneficially owns more than 5% of the outstanding shares of Common Stock,
(ii) each director, (iii) the named executive officer and (iv) all officers and
directors as a group. Except as otherwise indicated below, the address for each
such person is: c/o Newgold, Inc., P.O. Box 4155, El Dorado Hills, CA.,
95762-0013.
Number of Shares of Percent of Common
Name of Beneficial Owner Common Stock Stock Outstanding (1)
- ------------------------ ------------ ---------------------
Arthur Scott Dockter 9,276,537 24.50%
Robert W. Morris 7,500 *
Michael J. Morrison, Esq. 18,750 *
Calvin Lim 758,463 2.00%
John Mackay 230,790 *
29
<PAGE>
All Officers and Directors
as a Group (5 persons) 10,292,040 27.18%
* Less than 1%
(1) After 3:2 common stock split effective June 17, 1999.
(2) Percentage figures based on 37,866,882 shares of Common Stock outstanding on
the Reference Date.
ITEM 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
On June 30, 1995, the Company purchased machinery and equipment from
Riverfront Development Corporation, of which Mr. Dockter is president and sole
shareholder and Mr. Morris was chief financial officer, for the purchase price
of $250,000. As of the date of this Report, the Company owes Riverfront
Development Corporation approximately $130,335 relating to the purchase.
On August 31, 1995, the Company granted to Edward Mackay ("Mackay") a
one-year option (the "Option") to purchase 40% of NGNV in exchange for a $50,000
option payment (the "Option Payment") and the contribution of the Washington
Gulch Mine located in Montana. On January 1, 1996, in exchange for Mackay
arranging a $350,000 debt financing for the Company, the Option was amended (the
"Amendment") and exercised whereby the $50,000 option payment was converted into
a promissory note granted to Mackay and Mackay received 3.8 million shares of
Common Stock of the Company (56.14360233 pre-Stock Dividend and approximately
35% of the outstanding shares of Common Stock on January 1, 1996) in exchange
for the contribution of the Washington Gulch Mine by Mackay. Mackay was a
director and officer of the Company; however, he was not a director or officer
at the execution of the Option or the Amendment. The Washington Gulch Mine was
never activated by the Company and was sold in July 1998 for $185,000.
As of January 31, 1997, the Company had made advances totaling $92,486
to A. Scott Dockter, President and Chief Executive Officer of the Company. The
advances were draws against future salary, did not bear interest and were repaid
in April 1997.
On April 2, 1997, Mr. Dockter loaned $100,000 to the Company at 8% per
annum, due and payable on demand. As of January 31, 1999, this loan has been
repaid.
On April 17, 1997, Mr. Dockter loaned $50,000 to the Company at 8% per
annum, due and payable on demand. As of January 31, 1999, $11,888 has been
repaid on this loan.
30
<PAGE>
On April 30, 1997, Mr. Dockter loaned $20,000 to the Company at 8% per
annum, due and payable on demand. As of this Report, no payments have been paid
on this loan.
On May 30, 1997, Mr. Dockter loaned $35,000 to the Company at 8% per
annum, due and payable on demand. As of January 31, 1999, no payments have been
made on this loan.
At January 31, 1999 the balance due to Mr. Dockter was $117,112.
The total interest accrued as of this Report on the above loans is
$10,568. None of the accrued interest has been paid to Mr. Dockter.
As of January 31, 1999, there is accrued, but unpaid salary of $150,000
due Mr. Dockter.
ITEM 13: EXHIBITS AND REPORTS ON FORM 8-K
- ------------------------------------------
A. Exhibits. The following exhibits are filed herewith:
--------
Exhibit
No. Description of Exhibit
------- ----------------------
1.1 Merger Agreement With Business Web, Inc. (4)
2.1 Plan of Reorganization. (1)
3.1 Certificate of Incorporation of the Registrant.(2)
3.2 Certificate of Amendment to Certificate of Incorporation of
the Registrant.(1)
3.3 Bylaws of the Registrant.(2)
10.1 Contract of Sale between the Registrant and J.D. Welsh &
Associates.(1)
10.2 Agreement for Lease/Purchase and Sale of Property between the
Registrant, Joie Jamison and T.K.M. Corporation dated
September 2, 1996.(1)
10.3 Office Building Lease between the Registrant and Duffel
Financial and Construction Company dated May 20, 1996.(1)
10.4 Option to Purchase Forty (40%) Percent of Newgold, Inc. and
Riverfront Development, Inc., between Edward Mackay and the
Company (the "Option Agreement"). (3)
31
<PAGE>
10.5 First Amendment to the Option to Purchase Newgold Inc.,
between the Registrant and Edward Mackay dated as of January
1, 1996 (the "Option Amendment"). (3)
10.6 Clarification Agreement (clarifying the Option and Option
Amendment) between A. Scott Dockter, Edward Mackay, Gold Bug,
and the Company dated effective as of June 18, 1996. (3)
10.7 Letter of Intent between the Registrant and Miramar Mining
Corporation dated October 8, 1996. (3)
10.8 Agreement and Plan of Merger by and between the Registrant and
Newgold, Inc. dated August 1996. (3)
10.9 Promissory Note between the Company and A. Scott Dockter,
dated April 2, 1997, for the principal amount of $100,000.
10.10 Promissory Note between the Company and A. Scott Dockter,
dated April 17, 1997, for the principal amount of $50,000. (3)
10.11 Promissory Note between the Company and A. Scott Dockter,
dated April 30, 1997, for the principal amount of $20,000. (3)
10.12 Promissory Note between the Company and A. Scott Dockter,
dated May 30, 1997, for the principal amount of $35,000. (3)
10.13 Promissory Note between the Company and A. Scott Dockter,
dated December 24, 1997, for the principal amount of $24,000.
27.1 Financial Data Schedule.
- -------------------------------------
(1) 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.
(2) 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.
(3) Incorporated by reference to the Registrant Annual Report on Form
10-KSB-40 for the fiscal year ended January 31, 1997 filed with the
commission on June 30, 1997.
(4) 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.
32
<PAGE>
B. Reports on Form 8-K
-------------------
(1) The Registrant filed a Form 8-K with the Commission on March 19,
1997 reporting merger of Newgold, Inc. with Warehouse Auto Centers
through the U.S. Bankruptcy Court, Western District of New York.
(2) The Registrant filed a Form 8-K with the Commission on August 28,
1998 reporting the issuance of a Letter of Intent for merger of
Newgold, Inc. with Vauquelin Mines Ltd. of Montreal, Canada.
(3) The Registrant filed a Form 8-K with the Commission on September
17, 1998 reporting the resignation of KPMG, LLP as the Company's
independent accountants.
(4) The Registrant filed a Form 8-K with the Commission on June 8, 1999
reporting a 3:2 stock split in preparation for a 1:12 reverse stock
split required by a pending merger agreement between the Company
and Business Web Inc.
(5) The Registrant filed a Form 8-K with the Commission on July 27,
1999 reporting the signing of the definitive merger agreement on
July 26, 1999 between the Company and Business Web Inc.
33
<PAGE>
<TABLE>
INDEX TO FINANCIAL STATEMENTS
<S> <C>
Report of Burnett, Umphress & Company, LLP...................................................F-1
Balance Sheet as of January 31, 1999.........................................................F-2
Statements of Operations for the years ended January 31, 1998 and 1999 ......................F-3
Statements of Stockholders' Deficit for the years ended January 31, 1998 and 1999 ...........F-4
Statements of Cash Flows for the years ended January 31, 1998 and 1999 ......................F-5
Notes to Financial Statements........................................................F-6 to F-16
</TABLE>
34
<PAGE>
To the Board of Directors
NEWGOLD, INC.
El Dorado Hills, California
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheet of NEWGOLD, INC. as of January
31, 1999 and the related statements of operations, stockholders' deficit and
cash flows for the years ended January 31, 1999 and 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of NEWGOLD, INC. as of January 31,
1999, and the results of its operations and cash flows for the years ended
January 31, 1999 and 1998 in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has been dependent primarily upon cash
proceeds from private placement of its common stock. The Company anticipates
that current working capital and anticipated revenues will not be sufficient to
satisfy its future cash needs, and accordingly, the Company will need to raise
additional capital in the near term. Currently, the Company has no commitments
for additional funding. Management's plans in regard to these matters are also
described in Note 1. These matters raise substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/Burnett, Umphress & Company, LLP
Rancho Cordova, California
July 20, 1999
F-1
<PAGE>
NEWGOLD, INC.
BALANCE SHEET
January 31, 1999
ASSETS
CURRENT ASSETS
Cash $ 886
Prepaid expenses 1,600
------------
Total current assets 2,486
PROPERTY, PLANT AND EQUIPMENT, including undeveloped
mineral properties of $800,000, net of $45,461 of accumulated
depreciation 853,302
Reclamation bonds 50,500
Total assets $ 906,288
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Account payable $ 415,728
Accrued expenses 493,903
Accrued reclamation costs 50,500
Due to affiliate 92,195
Notes payable to individuals and related parties 712,202
------------
Total current liabilities 1,764,528
DEFERRED REVENUE 800,000
Total liabilities 2,564,528
STOCKHOLDERS' DEFICIT
Common stock, $.001 par value,
50,000,000 shares authorized,
25,244,588 shares issued and outstanding 25,245
Additional paid in capital 7,932,497
Accumulated deficit (9,615,982)
------------
Total stockholders' deficit (1,658,240)
Total liabilities and stockholders' deficit $ 906,288
============
The accompanying notes are an integral part of the financial statements.
F-2
<PAGE>
<TABLE>
NEWGOLD, INC.
STATEMENTS OF OPERATIONS
For the Years Ended January 31, 1998 and January 31, 1999
Year Ended Year Ended
January 31, January 31,
1998 1999
---------------- ----------------
<S> <C> <C>
SALES
Net sales $ -0- $ -0-
Cost of sales -0- -0-
---------------- ----------------
Gross margin -0- -0-
OPERATING EXPENSES
General and administrative expenses 1,596,160 508,603
Impairment of assets 3,311,672 -0-
Exploration costs 515,050 153,064
---------------- ----------------
Total operating expenses 5,422,882 661,667
---------------- ----------------
Loss from operations (5,422,882) (661,667)
OTHER INCOME (EXPENSE)
Interest income 1,799 15
Other expense (7,235) (3,000)
Interest expense (137,423) (67,567)
Loss on disposal of property, plant and equipment (317,568) -0-
Loss on disposal of bond -0- (21,000)
---------------- ----------------
Total other expense (460,427) (91,552)
---------------- ----------------
NET LOSS $ (5,883,309) $ (753,219)
================= ================
LOSS PER SHARE (after giving effect to the
Three-for-two stock split declared on June 8, 1999 -
See Note 10) (.21) (.02)
---------------- ----------------
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING (after giving effect to the
Three-for-two stock split declared on June 8, 1999 -
See Note 10) 28,701,450 36,275,997
================ ================
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
<TABLE>
NEWGOLD, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
For the Years Ended January 31, 1998 and January 31, 1999
Common Common Additional Total
Stock Stock Paid in Accumulated Shareholders'
Shares $ Capital Deficit Deficit
----------- ----------- -------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Balances, January 31, 1997 18,761,839 $ 18,762 $ 6,944,722 $ (2,979,454) $ 3,984,030
Shares issued to Warehouse Auto
Center, Inc. shareholders
subsequently cancelled (25,242) (25) (25,217) -0- (25,242)
Shares issued to others 12,500 13 4,987 -0- 5,000
Additional shares issued to
investors and underwriters
for delay in share trading 513,514 513 204,487 -0- 205,000
Shares issued to Repadre 200,000 200 199,800 -0- 200,000
Net loss for period from February
1,1997 to January 31, 1998 -0- -0- -0- (5,883,309) (5,883,309)
----------- ----------- -------------- -------------- ----------------
Balances, January 31, 1998 19,462,611 19,463 7,328,779 (8,862,763) (1,514,521)
=========== =========== ============== ============== ================
Shares issued in exchange
for rent 15,000 15 5,985 -0- 6,000
Shares issued to IBK 5,616,977 5,617 542,383 -0- 548,000
Shares issued in exchange
for property 150,000 150 55,350 -0- 55,500
Net loss for period from February
1, 1998 to January 31, 1999 -0- -0- -0- (753,219) (753,219)
----------- ----------- -------------- -------------- ----------------
Balances, January 31, 1999 25,244,588 $ 25,245 $ 7,932,497 $ (9,615,982) $ (1,658,240)
=========== =========== ============== ============== ================
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
<TABLE>
NEWGOLD, INC.
STATEMENTS OF CASH FLOWS
For the Years Ended January 31, 1998 and January 31, 1999
Year Ended Year Ended
January 31, January 31,
1998 1999
---------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (5,883,309) $ (753,219)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 52,734 17,709
Loss on disposal of property, plant and equipment 317,568 -0-
Impairment in value of Relief Canyon 3,311,672 -0-
Assigned value of common stock 184,758 61,500
Judgement loss 250,000 -0-
Loss on disposal of bond -0- 21,000
Gain on write off of note payable -0- (7,000)
Changes in operating assets and liabilities:
Refundable payroll taxes 154,357 -0-
Prepaid expenses -0- -0-
Reclamation bonds -0- 185,000
Other assets 11,906 (621)
Accounts payable 497,252 (250,847)
Accrued expenses 125,033 223,234
Accrued reclamation costs 50,500 (25,000)
---------------- ----------------
Net cash used in operating activities (927,529) (528,244)
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Advances from stockholder/(repayment of advances) 92,486 -0-
Capital expenditures (957,953) -0-
Proceeds from disposal of property, plant and equipment 278,783 -0-
---------------- ----------------
Net cash used in investing activities (586,684) -0-
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Advance from affiliate/(repayment of advances) 12,708 (38,140)
Deferred revenue 300,000 -0-
Proceeds from issuance of notes payable 772,000 62,321
Payments on notes payable (644,758) (45,361)
Proceeds from sale of common stock 200,000 548,000
---------------- ----------------
Net cash provided by financing activities 639,950 526,820
---------------- ----------------
NET DECREASE IN CASH (874,263) (1,424)
CASH, beginning of year 876,573 2,310
---------------- ----------------
CASH, end of year $ 2,310 $ 886
================ ================
SUPPLEMENTAL DISCLOSURES REGARDING CASH FLOWS
Cash paid for interest $ 71,556 $ 3,215
================ ================
Cash paid for income taxes $ -0- $ -0-
================ ================
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
NEWGOLD, INC.
NOTES TO THE FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Company's Activities - NEWGOLD, Inc. ("the Company") was in the business of
acquiring, exploring, developing, and producing gold properties. The Company had
rights to mine properties in Nevada and Montana. Its primary focus was on the
Relief Canyon Mine located near Lovelock, Nevada, where it has performed
development and exploratory drilling and was in the process of obtaining permits
to allow operation of the Relief Canyon Mine. In December 1997, the Company
placed the Relief Canyon Mine on care and maintenance status. The Company also
conducted exploration at its Washington Gulch Mine property in Montana.
Merger - In November 1996, Newgold, Inc. of Nevada (Old Newgold) was merged into
Warehouse Auto Centers, Inc. (WAC), a public company, which had previously filed
an involuntary petition under Chapter 11 of the United States Bankruptcy Code in
the United States Bankruptcy Court for the Western District of New York.
Pursuant to the plan of reorganization and merger (the Plan), (i) WAC which was
the surviving corporation for legal purposes, changed its name to Newgold Inc.
(the Company), (ii) the outstanding shares of Old Newgold were converted into
the right to receive an aggregate of 12,000,000 shares or approximately 69% of
the post merger outstanding common stock of the Company, (iii) each outstanding
share of WAC was converted into the right to receive 1/65 share of the common
stock of the Company, for an aggregate of 51,034 shares or less than 1% of the
post merger outstanding common stock, (iv) unsecured trade debts and other
unsecured pre-petition liabilities were paid in full via the issuance of one
share of the Company's stock, for each $42 of debt, for an aggregate of 63,374
shares or less than 1% of the post merger outstanding common stock, and (v) post
petition creditors received 1 share of stock for each $1 of debt, for an
aggregate of 191,301 shares or approximately 1% of the post merger outstanding
common stock. The Plan also required an amendment to the Company's capital
structure to increase the number of shares authorized to 50,000,000 and to
reduce the corresponding par value to $.001.
In connection with the Plan, the Company raised $4,707,000 of cash through the
issuance of convertible debtor certificates. Shortly after confirmation of the
Plan, the debtor certificates were exchanged for 5,135,130 shares of common
stock (including 428,130 shares issued in lieu of paying cash for underwriter's
fees) representing approximately 29% of the post merger outstanding common
stock. An additional bonus of 513,514 shares were issued to investors and
underwriters during the year ended January 31, 1998 for delay in the effective
date of the Company's stock trading.
For accounting purposes, Old Newgold has been treated as the acquirer (reverse
acquisition). Accordingly, the historical financial statements prior to November
21, 1996 are those of Old Newgold. There were no assets or liabilities acquired
in this transaction and there is no impact on the statement of operations.
F-6
<PAGE>
NEWGOLD, INC.
NOTES TO THE FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Basis for Presentation - The accompanying financial statements have been
prepared assuming the Company will continue as a going concern. The Company's
current plans are to suspend development and operation of the Relief Canyon Mine
and to keep the mine on care and maintenance status until the Company receives
additional funding. Currently, the Company's plans indicate that it will be
unable to continue operating unless it receives significant additional funding.
Management is exploring various means of raising additional capital. Strategic
alternatives being considered include: (i) entering into an agreement to merge
with another company, (ii) the sale of Company assets, (iii) the sale of Relief
Canyon Mine to another entity to develop the mine, and (iv) conversion of
certain debt to equity. There can be no assurance that the Company will be
successful in its attempts to consummate one or more of these strategic
alternatives. Failure to do so will necessitate that the Company curtail its
plans and cease its operations. (See Note 10).
Currency - The Company presents its financial statement information in United
States dollars as all of its assets and operations are located in the United
States.
Cash and Cash Equivalents - For financial statement purposes, the Company
considers all highly liquid instruments with original maturities of 90 days or
less to be cash equivalents.
Property and Equipment - Depreciation, depletion and amortization of mining
properties, mine development costs and major plant facilities will be computed
principally by the units-of-production method based on estimated proven and
probable ore reserves. Proven and probable ore reserves reflect estimated
quantities of ore which can be economically recovered in the future from known
mineral deposits. Such estimates are based on current and projected costs and
prices. Other equipment is depreciated using the straight-line method
principally over the estimated useful life of seven years.
Exploration Costs - Exploration costs are expensed as incurred. All costs
related to property acquisitions are capitalized.
Mine Development Costs - Mine development costs consist of all costs associated
with bringing mines into production, to develop new ore bodies and to develop
mine areas substantially in advance of current production. The decision to
develop a mine is based on assessment of the commercial viability of the
property and the availability of financing. Once the decision to proceed to
development is made, development and other expenditures relating to the project
will be deferred and carried at cost with the intention that these will be
depleted by charges against earnings from future mining operations. No
depreciation will be charged against the property until commercial production
commences. After a mine has been brought into commercial production, any
additional work on that property will be expensed as incurred, except for large
development programs, which will be deferred and depleted.
Financing Costs - Financing costs, including interest, are capitalized when they
arise from indebtedness incurred to finance development and construction
activities on properties that are not yet subject to depreciation or depletion.
Financing costs are charged against earnings from the time that mining
operations commence. Capitalization is based upon the actual interest on debt
specifically incurred or on the average borrowing rate for all other debt except
where shares are issued to fund the cost of the project. As of January 31, 1999,
an aggregate of $45,441 of interest has been capitalized.
F-7
<PAGE>
NEWGOLD, INC.
NOTES TO THE FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Depreciation, Depletion and Amortization - Assets other than mining properties
and mineral rights are depreciated using the straight-line method over their
estimated useful lives. Capitalized development costs are amortized on the units
of production method considering proven and probable reserves. Aircraft are
depreciated ratable over their estimated total useful hours. Depreciation and
depletion rates are subject to periodic review to ensure that asset costs are
amortized over their useful lives.
Impairment - Mining projects and properties are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of these
assets may not be recoverable. If estimated future cash flows expected to result
from the use of the mining project or property and its eventual disposition are
less than the carrying amount, an impairment is recognized based on the
estimated fair market value of the mining project or property. Fair value
generally is based on the present value of estimated future net cash flows for
each mining project or property, calculated using estimates of proven and
probable mineable reserves, geological resources, future prices, operating
costs, capital requirements and reclamation costs. A provision for impairment in
valuation of development costs and property, plant and equipment amounted to
$3,311,672 for the year ended January 31, 1998 and was charged to operating
expense. The remaining book value of the mine after the impairment write-down
approximates the amount of deferred revenue recognized upon the sale of the net
smelter return royalty.
Management's estimates of future cash flows are subject to risks and
uncertainties. Therefore, it is reasonably possible that changes could occur
which may affect the recoverability of the Company's investment in mineral
properties.
Reclamation Costs - Reclamation costs and related accrued liabilities, which are
based on the Company's interpretation of current environmental and regulatory
requirements, are accrued and expensed, upon determination.
Based on current environmental regulations and known reclamation requirements,
management has included its best estimates of these obligations in its
reclamation accruals. However, it is reasonably possible that the Company's best
estimates of its ultimate reclamation liabilities could change as a result of
changes in regulations or cost estimates.
Revenue Recognition - Revenues will be recognized when deliveries of gold are
made. Deferred revenue represents non-refundable cash received in exchange for
royalties on net smelter returns on the Relief Canyon Mine. Deferred revenue
will be amortized to earnings based on estimated production in accordance with
the royalty agreement.
F-8
<PAGE>
NEWGOLD, INC.
NOTES TO THE FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Income Taxes - The Company accounts for income taxes using the liability method,
which requires recognition of deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Deferred tax assets and liabilities are
determined based on the difference between the financial statements and tax
bases of assets and liabilities using enacted tax rates in effect for the year
in which the deferred tax assets are recorded to the extent management estimates
that the future benefit will be realized.
Loss Per Share - Loss per share is calculated based on the weighted average
number of common shares outstanding during each period.
Estimates, Risks and Uncertainties - The preparation of financial statements in
conformity with Generally Accepted Accounting Principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of the
financial statements, as well as the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Fair Vale of Financial Instruments - The following disclosure of the estimated
fair value of financial instruments is made in accordance with the requirements
of SFAS No. 107, "Disclosures about Fair Value of Financial Instruments." The
estimated fair value amounts have been determined by the Company, using
available market information and appropriate valuation methodologies.
The fair value of financial instruments classified as current assets or
liabilities including cash and cash equivalents, receivables and accounts
payable approximate carrying value due to the short-term maturity of the
instruments. The fair value of notes payable approximates carrying value based
on their effective interest rates compared to current market rates.
Recent Pronouncements - In February 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standard (SFAS) No. 128, earnings
per share, which is effective for periods beginning after December 15, 1997.
SFAS No. 128 has simplified the existing computational guidelines as well as
revised the existing disclosure requirements. The Company adopted the provisions
of SFAS No. 128 for the year ended January 31, 1998.
Statement of Financial Accounting Standards (SFAS) 129, "Disclosure of
Information About Capital Structure", establishes standards for disclosure about
an entity's capital structure including rights, liquidation preferences,
participation and conversion features. The Company has adopted the provisions of
this SFAS for the year ended January 31, 1998. The financial statements are
unaffected by the implementation of this new standard.
Statement of Financial Accounting Standards (SFAS) 130, "Reporting Comprehensive
Income", establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income is defined
to include all changes in equity except those resulting from investments by
owners and distributions to owners. Among other disclosures, SFAS 130 requires
that all items that are required to be recognized under current accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. The Company has adopted the provisions of this SFAS for the year
ended January 31, 1998. Results of operations and financial position are
unaffected by implementation of this new standard.
F-9
<PAGE>
NEWGOLD, INC.
NOTES TO THE FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Statement of Financial Accounting Standard (SFAS) 131, "Disclosure about
Segments of a Business Enterprise", establishes standards for the way that
public enterprises report information about operating segments in annual
financial statements and requires reporting of selected information about
operating segments in interim financial statements issued to the public. It also
establishes standards for disclosures regarding products and services,
geographic areas and major customers. SFAS 131 defines operating segments as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. Because the
Company considers its operations to be in one industry segment, this accounting
pronouncement will not have an effect on the Company's financial statements.
Statement of Financial Accounting Standards (SFAS) 132, "Employers' Disclosure
about Pensions and Other Post-retirement Benefits," revises standards for
disclosures regarding pensions and other post-retirement benefits. It also
requires additional information on changes in the benefit obligations and fair
values of plan assets that will facilitate financial analysis. The Company has
adopted the provisions of this SFAS for the year ended and January 31, 1998. The
financial statements are unaffected by the implementation of this new standard.
Statement of Financial Accounting Standards (SFAS) 133, "Accounting for
Derivative Instruments and Hedging Activities," establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments as fair value. If certain conditions are
met, a derivative may be specifically designated as (a) a hedge of the exposure
to changes in the fair value of a recognized asset or liability or an
unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows
of a forecasted transaction, or (c) a hedge of the foreign currency exposure of
a net investment in a foreign operation, an unrecognized firm commitment, an
available-for-sale security, or a foreign-currency-denominated forecasted
transaction. The Company has adopted the provisions of this SFAS for the year
ended January 31, 1998. Because the Company has no derivatives, this accounting
pronouncement has no effect on the Company's financial statements.
F-10
<PAGE>
NEWGOLD, INC.
NOTES TO THE FINANCIAL STATEMENTS
2. PROPERTY, PLANT AND EQUIPMENT
A summary of changes in property, plant and equipment and related accumulated
depreciation accounts is as follows:
<TABLE>
Machinery
& Development Capitalized
Buildings Equipment Costs Interest Total
-------------- ------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Cost:
Balances at January 31, 1998 $ 215,510 $ 376,070 $ 261,742 $ 45,441 $ 898,763
Additions -0- -0- -0- -0- -0-
Disposals, retirements and
reclassifications -0- -0- -0- -0- -0-
-------------- ------------- ------------- -------------- ---------------
Balances at January 31, 1999 215,510 376,070 261,742 45,441 898,763
============== ============= ============= ============== ===============
Accumulated depreciation:
Balances at January 31, 1998 -0- 27,752 -0- -0- 27,752
Depreciation and amortization -0- 17,709 -0- -0- 17,709
Disposals, retirements and
reclassifications -0- -0- -0- -0- -0-
-------------- ------------- ------------- -------------- ---------------
Balances at January 31, 1999 -0- 45,461 -0- -0- 45,461
============== ============= ============= ============== ===============
Property, plant and equipment,
net, January 31, 1999:
Relief Canyon Mine 215,510 277,307 261,742 45,441 800,000
Other -0- 53,302 -0- -0- 53,302
-------------- ------------- ------------- -------------- ---------------
Total Company $ 215,510 $ 330,609 $ 261,742 $ 45,441 $ 853,302
============== ============= ============= ============== ===============
</TABLE>
3. NOTES PAYABLE TO INDIVIDUALS AND RELATED PARTIES
Unsecured notes payable to individuals and related parties consist of the
following at January 31, 1999:
Loan was extended by a stockholder in June 1996 in the original
amount of $215,000. The note bears interest at 8% per year.
Full repayment was due September 30, 1996. The Company is
in default with respect to this loan. $ 110,000
Loan from individual. The note bears interest at 10% per year.
The note is currently due. The Company is in default with
respect to this loan. 200,000
Loans were extended by an officer and significant stockholder for
various amounts. The notes bear interest at 8% per year. The note is
due on demand. 117,112
F-11
<PAGE>
NEWGOLD, INC.
NOTES TO THE FINANCIAL STATEMENTS
3. NOTES PAYABLE TO INDIVIDUALS AND RELATED PARTIES, Continued
A judgement payable to an individual was rendered on October 23,
1997. The judgement accrues interest at 10% per year until paid.
The Company is in default with respect to this judgement. 250,000
Other non-interest bearing advances 35,090
Total notes payable to individuals and related parties $ 712,202
==========
The Company recorded $67,567 of interest expense in the current period. Interest
of $0 and $11,038 was capitalized during the years ended January 31, 1999 and
January 31, 1998, respectively.
4. LEASES
Except for the advance royalty and rent payments noted below, the Company is not
obligated under any capital leases or noncancelable operating lease with initial
or remaining lease terms in excess of one year as of January 31, 1999. However,
minimum annual royalty payments are required to retain the lease rights to the
Company's properties.
Relief Canyon Mine - The Company purchased the Relief Canyon Mine from J.D.
Welsh Associates (Welsh) in January 1995. The mine consisted of 39 claims and a
lease for access to an additional 800 acres contiguous to the claims. During
1997, the Company staked an additional 402 claims. Subsequent to January 31,
1998, the Company reduced the total claims to 50 (approximately 1,000 acres). As
part of the original purchase of Relief Canyon Mine, Welsh assigned the lease
from Santa Fe Gold Corporation (Santa Fe) to the Company. The lease granted
Santa Fe the sole right of approval of transfer to any subsequent owner of the
Relief Canyon Mine. Santa Fe had accepted lease and minimum royalty payments
from the Company, but has declined to approve the transfer. Due to Welsh's
inability to transfer the Santa Fe lease, the original purchase price of
$500,000 for Relief Canyon Mine was reduced by $50,000 in 1996 to $450,000.
Subsequent to January 31, 1998, the lease was terminated by Santa Fe. Management
believes loss of the Santa Fe lease will have no material adverse affect on the
remaining operations of the mine operation or the financial position of the
Company.
Mission Mine Property - The Company entered into a seven-year lease purchase of
the Mission Mine property for an aggregate purchase price, of $3,500,000. The
Mission Mine property is an inactive underground mining operation in California
which includes, 22 unpatented mining claims on approximately 440 acres. This
lease was cancelled during the year ended January 31, 1998. The terms of the
lease assigned a $300,000 payment as the value of existing mine equipment. This
was charged to loss on disposal of assets in the Statement of Operations for the
year ended January 31, 1998.
F-12
<PAGE>
NEWGOLD, INC.
NOTES TO THE FINANCIAL STATEMENTS
5. INCOME TAXES
As of January 31, 1999 and 1998, the Company had net operating loss
carryforwards of approximately $4,550,000 and $3,800,000 available to reduce
future Federal taxable income which, if not used, will expire at various dates
through January 31, 2019. Due to changes in the ownership of the Company, the
utilization of these loss carryforwards may be subject to substantial annual
limitations. Deferred tax assets (liabilities) are comprised of the following at
January 31, 1999 and 1998:
<TABLE>
January 31, January 31,
1998 1999
---------------- ----------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 1,330,000 $ 1,550,000
Deferred revenue 280,000 280,000
Impairment of value on Relief Canyon Mine 1,120,000 1,120,000
Valuation allowance for deferred tax assets (2,730,000) (2,950,000)
---------------- ----------------
Net deferred tax assets $ -0- $ -0-
================= ================
</TABLE>
The net change in the total valuation allowance for the years ended January 31,
1999 and 1998 was $220,000 and $2,390,000, respectively. The valuation allowance
is provided to reduce the deferred tax asset to a level which, more likely than
not, will be realized.
The expected Federal income tax benefit, computed based on the Company's pre-tax
losses at January 31, 1999 and 1998 and the statutory Federal income tax rate,
is reconciled to the actual tax benefit reflected in the accompanying financial
statements as follows:
<TABLE>
January 31, January 31,
1998 1999
---------------- ----------------
<S> <C> <C>
Expected tax benefit at statutory rates $ 975,000 $ 256,000
Decrease resulting from valuation allowance
for benefits from net operating loss
carryforwards and other (975,000) (256,000)
---------------- ----------------
Total $ -0- $ -0-
================ ================
</TABLE>
Previous to June 21, 1996, the stockholder of the Company elected under Internal
Revenue Code Section 1362 to have the Company taxed as an S Corporation. As
such, all Federal and substantially all State income tax attributes passed
through the Company directly to the stockholder until that date.
F-13
<PAGE>
NEWGOLD, INC.
NOTES TO THE FINANCIAL STATEMENTS
6. STOCKHOLDERS' EQUITY
The following common stock transactions occurred during the years ended January
31, 1999 and 1998:
In the bankruptcy reorganization of WAC, all creditors were issued stock in
settlement of accounts payable. Post petition creditors had the option of
receiving cash in lieu of stock. Five creditors returned 25,242 shares to the
Company, resulting in a charge to stockholders' deficit of $25,242.
On May 9, 1997, the Company issued 12,500 shares to a note holder of
Newgold-Nevada in payment of a $5,000 note, which had originally been issued in
exchange for an agreement to defer filing a judgement for collection of the
$200,000 note.
The Company's stock was approved by NASD for trading on July 7, 1997. On May 27,
1997, the investors in the WAC bankruptcy reorganization, which had been
approved by the court on November 21, 1996, were issued a ten-percent bonus of
470,700 shares for the delay in trading. An additional 42,814 shares issued to
the investment bankers for a total of 513,514 shares. A total of $205,000 was
credited to stockholders' deficit for the transaction.
Repadre Capital Corp. exercised warrants to purchase 200,000 shares in October
1997 at $1.00 per share.
The employment contract for the corporate counsel stipulated the Company would
pay the rent for a law office. In March 1998, the Company issued 15,000 shares
in lieu of cash for six months rent. General and administrative expense was
charged $6,000 for the rent. The corporate counsel's office was subsequently
relocated to the Company's headquarters.
In April 1998, the Company closed a Regulation S offering for 5,480,000 shares
to raise $548,000 at $.10 per share. In connection with this offering 136,977
shares were issued as commission to brokers.
As an alternative to gold mining, the Board of Directors approved an exploration
program for a calcium bentonite mine located in southern California. In payment
of a purchase option on the mine, the Company issued 150,000 shares of stock to
the mine owner in May 1998. The Company charged $55,500 to exploration expense
for the option. After completing the due diligence on the mine property, the
Company abandoned development of the mine in August 1998.
F-14
<PAGE>
NEWGOLD, INC.
NOTES TO THE FINANCIAL STATEMENTS
7. COMMITMENTS, CONTINGENCIES AND UNCERTAINTIES
Environmental Obligations - The Company's mining and exploration activities are
subject to various federal and state laws and regulations governing the
protection of the environment. These laws and regulations are continually
changing and are generally becoming more restrictive. The Company strives to
conduct its operations so as to protect the public health and environment and
believes its operations are in compliance with all applicable laws and
regulations. The Company has made, and expects to make in the future,
expenditures to comply with such laws and regulations.
Reclamation Costs - The ultimate amount of reclamation obligations to be
incurred is uncertain. However, as of January 31, 1998, the Company has accrued
$50,500 for Relief Canyon Mine and $25,000 for its Washington Gulch site. Relief
Canyon Mine and Washington Gulch are bonded for $50,500 and $206,000,
respectively. At January 31, 1999, the Company had accrued reclamation cost of
$50,500. There can be no assurances given that the above estimate accurately
reflects the actual costs of all reclamation activities that may be required. In
July 1998, the Company sold its interest in the Washington Gulch Mine and
related reclamation bond for $185,000. The Company was also relieved of any
future liability in connection with the Washington Gulch Mine.
Legal - The Company is involved in various other claims and legal actions
arising in the ordinary course of business. In the opinion of management, the
ultimate dispositions of these matters will not have a material adverse effect
on the Company's financial position, results or operations or liquidity.
8. RELATED PARTY TRANSACTIONS
Advances from Shareholders - As of January 31, 1998, A. Scott Dockter, President
and Chairman of the Company, loaned the Company an aggregate of $205,000 and was
repaid $77,258. During the year ended January 31, 1999, A. Scott Dockter loaned
the Company $24,100 and was repaid $34,730. As of January 31, 1999 the net
balance owing to A. Scott Dockter was $117,112 (Note 3). The advances are due on
demand, unsecured and bear interest at 8% per annum.
Due to Affiliate - As of January 31, 1999 the Company owed $92,195 to Riverfront
Development, Inc. for equipment purchases. Riverfront Development, Inc. is a
related entity owned by A. Scott Dockter.
Note Payable to Stockholder - At January 31, 1999 the Company owed Calvin Lim, a
stockholder and board member, $110,000. The Company is in default with respect
to this loan.
Relief Canyon Mine - During 1996, Repadre Capital Corporation ("Repadre")
purchased for $500,000 a net smelter return royalty (Repadre Royalty). Repadre
was to receive a 1.5% royalty from production at each of the Relief Canyon Mine
and Mission Mines. In July 1997, an additional $300,000 was paid by Repadre for
and additional 1% royalty from the Relief Canyon Mine. In October, 1997, when
the Mission Mine lease was terminated, Repadre exercised its option to transfer
the Repadre Royalty solely to the Relief Canyon Mine resulting in a total 4%
royalty. The total amount received of $800,000 has been recorded as deferred
revenue in the accompanying financial statements.
F-15
<PAGE>
NEWGOLD, INC.
NOTES TO THE FINANCIAL STATEMENTS
9. SUPPLEMENTAL CASH FLOWS
Non-cash transactions for the year ended January 31, 1999 consist of the
assigned value of common stock issued and returned in the amount of $61,500
which consists of 15,000 shares issued for $6,000 of rent and 150,000 shares
issued for $55,500 in exploration costs.
Non-cash transactions for the year ended January 31, 1998 consist of the
assigned value of common stock issued and returned in the amount of $184,758
which results from WAC creditors returning 25,242 shares of stock to the
Company, 12,500 shares issued to a note holder in lieu of judgment being filed
and 205,000 shares issued to investors and underwriters due to a delay in stock
trading. Additionally, the Company executed a note payable in the amount of
$250,000 in satisfaction of a judgment payable by the Company.
10. SUBSEQUENT EVENTS
On June 8, 1999 the Board of Directors approved a three-for-two stock split, to
be effected in the form of a 50% stock dividend, payable to stockholders of
record on June 10, 1999. The weighted average shares outstanding and the loss
per share for the years ended January 31, 1999 and 1998 have been presented
giving effect to this stock split.
On April 2, 1999, the Company issued a Letter of Intent to Business Web, Inc.
(BWI) to effect a reverse merger of Newgold, Inc. and BWI, with BWI being the
acquiring corporation. A merger agreement, which has been approved by the Boards
of Directors, will be submitted to the shareholders of both companies for their
expected approval. Terms of the agreement provide for a 3 for 2 split of the
Company's common stock. After the merger, the Company's shareholders will
receive one share of BWI stock for each twelve shares of Newgold stock,
representing approximately 14 percent of the outstanding shares of BWI.
BWI, a Texas corporation, is an Internet company specializing in the development
of web sites for communities of like businesses and the development of e-trade
shows on the internet for industries and professional organizations. Subsequent
to January 31, 1998, BWI has loaned $500,000 has been loaned to the Company for
payment of liabilities and current operating costs. It is anticipated that other
liabilities of the Company will be settled with BWI stock and cash as required.
Although no agreement has been negotiated, the Relief Canyon Mine is expected to
be sold or transferred to another corporation and a portion of any funds raised
by the Company will be committed to repay BWI for loans and other payments made
for the benefit of the Company.
F-16
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on September 15, 1999.
NEWGOLD, INC.
By: /s/ Arthur Scott Dockter
------------------------
Arthur Scott Dockter,
President and Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Robert W. Morris Chief Financial Officer, September 15, 1999
- ------------------------ Treasurer (Principal
Robert W. Morris Financial Officer)
/s/ Arthur Scott Dockter President, Chief Executive September 15, 1999
- ------------------------ Officer, Director
Arthur Scott Dockter (Principal Executive Officer)
/s/ John Mackay Director September 15, 1999
- ------------------------
John Mackay
/s/ Calvin Lim Director September 15, 1999
- ------------------------
Calvin Lim
/s/ Michael J. Morrison Director September 15, 1999
- -----------------------
Michael J. Morrison
<PAGE>
INDEX TO EXHIBITS
Exhibit
No. Description of Exhibit
- ------- ----------------------
1.1 Merger Agreement With Business Web, Inc.
2.1 Plan of Reorganization.(1)
3.1 Certificate of Incorporation of the Registrant.(2)
3.2 Certificate of Amendment to Certificate of Incorporation of the
Registrant.(1)
3.3 Bylaws of the Registrant.(2)
10.1 Contract of Sale between the Registrant and J.D. Welsh &
Associates.(1)
10.2 Agreement for Lease/Purchase and Sale of Property between the
Registrant, Joie Jamison and T.K.M. Corporation dated September 2,
1996.(1)
10.3 Office Building Lease between the Registrant and Duffel Financial and
Construction Company dated May 20, 1996.(1)
10.4 Option to Purchase Forty (40%) Percent of Newgold, Inc. and
Riverfront Development, Inc., between Edward Mackay and the Company
(the "Option Agreement"). (3)
10.5 First Amendment to the Option to Purchase Newgold Inc., between the
Registrant and Edward Mackay dated as of January 1, 1996 (the "Option
Amendment"). (3)
10.6 Clarification Agreement (clarifying the Option and Option Amendment)
between A. Scott Dockter, Edward Mackay, Gold Bug, and the Company
dated effective as of June 18, 1996. (3)
10.7 Letter of Intent between the Registrant and Mirimar Mining
Corporation dated October 8, 1996. (3)
10.8 Agreement and Plan of Merger by and between the Registrant and
Newgold, Inc. dated August 1996. (3)
10.9 Promissory Note between the Company and A. Scott Dockter, dated April
2, 1997, for the principal amount of $100,000.
10.10 Promissory Note between the Company and A. Scott Dockter, dated April
17, 1997, for the principal amount of $50,000. (3)
<PAGE>
10.11 Promissory Note between the Company and A. Scott Dockter, dated April
30, 1997, for the principal amount of $20,000. (3)
10.12 Promissory Note between the Company and A. Scott Dockter, dated May
30, 1997, for the principal amount of $35,000. (3)
10.13 Promissory Note between the Company and A. Scott Dockter, dated
December 24, 1997, for the principal amount of $24,000.
27.1 Financial Data Schedule.
- -------------------------------------
(1) Incorporated by reference to 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.
(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 Registration Statement on
Form SB-2 (File No. 33-49920) filed with the Commission on October 14,
1993.
Exhibit 10.13
NOTE
$24,000.00 December 24, 1998
Received of A. Scott Dockter the sum of Twenty-four Thousand Dollars
($24,000.00) as personal loan to Newgold, Inc. This loan shall bear interest at
the rate of eight per cent (8%) per annum from December 24, 1998 until paid in
full and shall be due upon demand.
/s/ Robert W. Morris
Treasurer-CFO
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-END> JAN-31-1999
<CASH> 886
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,486
<PP&E> 898,763
<DEPRECIATION> 45,461
<TOTAL-ASSETS> 906,288
<CURRENT-LIABILITIES> 1,764,528
<BONDS> 0
0
0
<COMMON> 25,245
<OTHER-SE> 0
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<EPS-BASIC> (0.02)
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</TABLE>
