U.S. Securities And Exchange Commission
Washington, D.C. 20549
Form 10QSB
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the quarterly period ended July 31, 2000
Commission file number 0-20722
NEWGOLD, INC.
--------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 16-1400479
- - - - - - - - - - - - - - - - -
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
500 Nolen Drive, Suite 300, Southlake, TX 76092
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(Address of principal executive offices)
(817) 410-4400
- - - - - - - - - - -
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
---
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court. Yes X ; No
---
The number of shares of Common Stock outstanding as of July 31, 2000: 43,472,703
----------
Transitional Small Business Disclosure Format (check one): Yes No X
<PAGE>
PART I. Financial Information.
----------------------
1. Interim Financial Statements (Unaudited)
Balance Sheet -
July 31, 2000...............................................1
Statements of Operations -
Three months ended July 31, 2000 and July 31, 1999..........2
Statements of Cash Flows -
Three months ended July 31, 2000 and July 31, 1999..........3
Notes to Financial Statements.......................................4
2. Management's Discussion and Analysis................................5
PART II. Other information
-----------------
Signatures..........................................................9
<PAGE>
NEWGOLD, INC.
BALANCE SHEET
July 31, 2000
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 7,959
Note Receivable 250,000
Deposits 284,351
Prepaid expenses 4,500
-----------
Total current assets 546,810
PROPERTY, PLANT AND EQUIPMENT, including undeveloped
mineral properties of $800,000, net of $24,798 of
accumulated depreciation 820,714
OTHER ASSETS
Reclamation bonds 50,500
Investment in common stock warrants -0-
-----------
Total assets $ 1,418,024
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Account payable $ 570,377
Accrued expenses 660,408
Accrued reclamation costs 50,500
Notes payable to officer 118,200
Note payable to individual 12,500
-----------
Total current liabilities 1,411,985
DEFERRED REVENUE 800,000
-----------
Total liabilities 2,211,985
STOCKHOLDERS' EQUITY
Common stock, $.001 par value,
50,000,000 shares authorized,
43,472,703 shares issued and outstanding 43,472
Additional paid in capital 10,841,540
Accumulated deficit (11,678,973)
-----------
Total stockholders' equity (793,961)
-----------
Total liabilities and stockholders' equity $ 1,418,024
===========
F-1
<PAGE>
NEWGOLD, INC.
STATEMENTS OF OPERATIONS
For the Three Months Ended July 31, 2000 and July 31, 1999
(Unaudited)
<TABLE>
Three Months Three Months
Ended Ended
July 31, 2000 July 31, 1999
------------- -------------
<S> <C> <C>
SALES
Net sales $ -0- $ -0-
Cost of sales -0- -0-
----------- -----------
Gross margin -0- -0-
OPERATING EXPENSES
General and administrative expenses 798,779 132,271
Exploration costs 11,000 8,135
----------- -----------
Total operating expenses 809,779 140,406
----------- -----------
Loss from operations (809,779) (140,406)
OTHER INCOME (EXPENSE)
Interest expense (1,278) -0-
----------- -----------
Total other expense (1,278) -0-
----------- -----------
NET LOSS $ (811,057) $ (140,406)
=========== ===========
LOSS PER SHARE (after giving effect to the
Three-for-two stock split declared on June 8, 1999) (.019) (.004)
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING (after giving effect to the
Three-for-two stock split declared on June 8, 1999) 43,472,703 37,866,882
=========== ===========
F-2
</TABLE>
<PAGE>
<TABLE>
NEWGOLD, INC.
STATEMENTS OF CASH FLOWS
For the Three Months Ended July 31, 2000 and July 31, 1999
(Unaudited)
Three Months Three Months
Ended Ended
July 31, 2000 July 31, 1999
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (811,057) $ (140,406)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 3,207 3,963
Changes in operating assets and liabilities:
Accounts payable 234,089 (997)
Accrued expenses 307,548 (204,162)
Due to affiliate -0- (85,561)
Notes payable to stockholder -0- (83,098)
----------- -----------
Net cash used in operating activities (266,213) (510,261)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures (3,992) -0-
Funding of deposits (120,000) -0-
----------- -----------
Net cash used in investing activities (123,992) -0-
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of notes payable 118,200 155,000
Payments on notes payable -0- 339,038
----------- -----------
Net cash provided by financing activities 118,200 494,038
----------- -----------
NET DECREASE IN CASH (272,005) (16,223)
CASH, beginning of period 279,964 18,189
----------- -----------
CASH, end of period $ 7,959 $ 1,966
=========== ===========
SUPPLEMENTAL DISCLOSURES REGARDING CASH FLOWS
Cash paid for interest $ -0- $ -0-
=========== ===========
Cash paid for income taxes $ -0- $ -0-
=========== ===========
</TABLE>
F-3
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Preparation of Interim Financial Statements: The accompanying financial
statements have been prepared in accordance with the instructions to Form
10-QSB and, therefore, do not include all information and footnotes
necessary for a presentation of financial position, results of operations
and cash flows in conformity with generally accepted accounting principles.
In the opinion of management, the referenced financial statements reflect
all normal and recurring adjustments necessary for a fair presentation of
the results of operations and financial position for the interim periods
presented. Operating results for the three month period ended July 31 2000,
are not necessarily indicative of the results that may be expected for the
fiscal year ended January 31, 2001.
2. Income Taxes: No income tax provisions have been made due to losses
incurred. Deferred income tax benefits have been fully reserved due to the
uncertainty of future realization.
3. Net (Loss) Per share: Net (loss) per share has been computed on the basis of
the weighted average number of shares outstanding during the period. No
options were outstanding at the end of the period.
4. Reclamation of Mining Areas: Reclamation costs, including the removal of
production facilities at the end of their useful lives, are estimated and
accrued on an undiscounted basis over the productive lives of properties.
Remediation costs are expensed when the liability is probable and estimable.
Based on current environmental regulations and known reclamation
requirements, management has included its best estimate of these obligations
in its reclamation accruals. However, it is reasonably possible that the
Company's estimates of its ultimate reclamation liabilities could change as
a result of changes in regulations or cost estimates. The Company performs
concurrent reclamation to the extent possible. However, most of the accrued
costs would be spent at the end of the mine life.
5. The Company placed the Relief Canyon Mine, a developed exploration project,
on care and maintenance in December 1997. The Company estimates the annual
cost of maintaining the mine in this status may be approximately $50,000.
Included in this cost estimate are the annual BLM rent for the claims, water
testing for Nevada Department of Environmental Protection, and costs of
utilities and security at the site. Charges for care and maintenance of
Relief Canyon in the quarter and six months ended July 31, 2000 were $11,000
and $22,000, respectively.
6. Newgold, Inc., in February 2000, established itself as an Internet company
focused on incubating, funding and developing a portfolio of Internet
companies: business-to-business companies (B2B), e-commerce enterprises and
application service providers (ASPs). Since that time, we have expanded our
strategy to include revenue streams generated from
4
<PAGE>
offering our business development and technology services to a variety of
clients including our strategic partners, venture capital companies and
recently funded B2B/ASP Internet startups. Our goal is to successfully build
increased value for our shareholders by transitioning Newgold's focus to a
revenue/profitability structure, rather than being measured solely on the
equity value potential of our portfolio companies. Moving forward, our
portfolio companies will continue receiving all the benefits of the
incubation environment but we will be able to expand our revenue and profit
potential to many more client companies enabling them to emerge as
successful Internet firms and Newgold profiting from this success. We
believe that revenue creation from our unique offerings of business services
will allow us to capitalize on new opportunities and to attract and develop
leading B2B e- commerce companies.
7. We will be required to obtain additional financing in both the short term
and the long term to successfully carry out our new business plan. Depending
on how rapidly we are able to implement this business plan will impact how
much additional financing we will require over the next 24 months; we could
require up to an additional $30 to $40 million in funding. We currently have
no committed sources of additional capital. We can offer no assurances that
additional funds can be raised. In addition, even if we find outside funding
sources, we may be required to issue to such outside sources securities with
greater rights than those currently possessed by holders of our common
stock. We may also be required to take other actions that may lessen the
value of our common stock, including borrowing money on terms that are not
favorable to us.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
Introduction.
-------------
The Company formerly was engaged in the business of acquiring
dormant, potential gold-producing properties located in the continental United
States and developing such properties into commercial gold mining operation. The
Company is the result of a merger (the "Merger") between Warehouse Auto Centers,
Inc., a Delaware corporation ("WAC"), and Newgold, Inc., a Nevada corporation
("NGNV"), pursuant to a Plan of Reorganization (the "Plan") approved by the U.S.
Bankruptcy Court for the Western District of New York, effective as of November
21, 1996. For accounting purposes, under the terms of the Merger, NGNV was
treated as the acquirer.
Financial Plan of Operation for the Next Twelve Months.
-------------------------------------------------------
The Company's new strategy is comprised of solutions for the three
most critical points of failure for any high-tech or Internet company:
operations management, funding and technology. These services integrate
strategic business/corporate hatching and acceleration, technology
infrastructure provision and funding assistance, and enable clients to achieve
success in the market place by effectively managing the most critical points of
failure. Revenue will be generated from these three business service areas.
5
<PAGE>
Strategic business hatching and acceleration services apply
proven, "best-in-class" business management methodologies and processes to
high-tech and Internet companies, allowing them to concentrate on core
competencies without the resource consuming trial and error approach that
plagues most Internet companies. In addition, the Company will receive
compensation from a group of core service partners that provide day-to-day
operational business services such as staff recruiting and human resources,
strategic sales and marketing, financial and accounting, technology development
and information systems management.
Funding assistance is comprised of equity funding and liquidity
event services. These services are targeted at both the venture capital
community and successful startups that are ready to execute an exit strategy.
Equity funding services identifies superior venture opportunities through
venture assessment, detailed due diligence, funding agreement development and
cash flow funding management. Liquidity event services provide potential
capitalization for qualified high-tech or Internet companies as well as
liquidity for investors by the arrangement and execution of a variety equity
events such as an IPO, M&A, RTO, or LBO.
At the beginning of the current fiscal year, the Company began to
implement its new business strategy. Accordingly, the Company has begun to hire
executives and professional staff familiar with such operations. The operating
expenses of the Company have increased substantially since the prior year and
are expected to continue to increase in order to implement its new business
strategy.
We will be required to obtain additional financing in both the
short term and the long term to successfully carry out our new business plan;
current working capital is not sufficient to fund operations for the remainder
of the current fiscal year. Depending on how rapidly we are able to implement
this business plan will impact how much additional financing we will require
over the next 24 months; we could require up to an additional $30 to $40 million
in funding. We currently have no committed sources of additional capital. We can
offer no assurances that additional funds can be raised. In addition, even if we
find outside funding sources, we may be required to issue to such outside
sources securities with greater rights than those currently possessed by holders
of our common stock. We may also be required to take other actions that may
lessen the value of our common stock, including borrowing money on terms that
are not favorable to us.
The Company does not conduct research and development per se, but
does expend considerable effort to source viable business opportunities.
Currently most employees are utilized in this effort. As opportunities are
become a revenue producing service, some of the current management employees are
becoming actively involved with overseeing the provisioning of services to
customers. Current plans are for the company to have between 20 and 30
employees; the timing of the hiring of any additional employees is dependent on
how successful we are at finding qualified opportunities.
As of the date of this filing, the Company has derived no
significant revenue from its operations. As a mine owner, and until the mining
assets are sold, 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 as its sole source of funding its operations.
6
<PAGE>
Financial Condition of the Company as of July 31, 2000
------------------------------------------------------
As of July 31, 2000, the Company had $7,959 in cash and working
capital deficit of ($865,175). If the Company were to attempt to continue
pursuing mining operations, the Company would require approximately $2.5 million
in additional working capital to bring the mine into full production. Since
January 1998, the Company had pursued several possible funding opportunities
including the sales of royalties on other gold properties and on industrial
minerals. 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 is no
longer continuing its efforts to obtain funding for its mining operations.
Currently the Company is attempting to obtain funding for its
Internet business service operations. The Company raised approximately $1.75
million based on its new operating strategy in the first fiscal quarter of this
year and is continuing its efforts to raise additional capital for future
business expansion and to fund current operating expenses. 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. 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, 2000, indicating substantial doubt about the
Company's ability to continue as a going concern.
This report, as well as certain of the notes to the financial
statements, contain "forward-looking statements" within the meaning of Section
27A of the Securities Exchange Act of 1934, as amended. Such statements include,
but are not limited to, (i) expectations as to the funding of future capital
expenditures and other cash needs, (ii) statements as to the projected
development of certain ore deposits, including estimates of development and
other capital costs and financing plans with respect thereto, (iii) estimates of
future costs and other liabilities for certain environmental matters and (iv)
statements as to the likelihood of the outcome of litigation matters. These
forward-looking statements are subject to risks, uncertainties and other factors
that could cause actual results to differ materially from the forward-looking
statements or the results projected or implied by the forward-looking
statements.
For a more detailed discussion of the foregoing risks and
uncertainties affecting the Company and its operations, see "Cautionary
Statement for Purposes of the Safe Harbor Provisions of the Private Securities
Litigation Reform Act of 1995." and "Risk Factors" contained in Item 1 and 2 of
the Company's annual Report on Form 10-KSB for the period ended January 31,
2000, as well as other filings made by the Company from time to time with the
Securities and Exchange Commission. Many of these factors are beyond the
Company's ability to control or predict. Readers are cautioned not to put undue
reliance on forward-looking statements. The Company disclaims any intent or
obligation to update publicly any forward-looking statements set forth in this
discussion, whether as a result of new information, future events or otherwise.
7
<PAGE>
PART II. OTHER INFORMATION.
-----------------
ITEM 1. Legal Proceedings.
-----------------
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.
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.
ITEM 2. Changes in Securities.
---------------------
Private Placements
------------------
(1) In February 2000, the Company closed a private placement
offering or 1,200,000 shares to raise $600,000 at $.50 per
share. Additionally, a warrant was issued with each share to
purchase an additional share of common stock at $1 per share.
The warrants expire four years from the original date of
closing. In connection with this offering $60,000 were paid
as commission to brokers.
(2) In April 2000, the Company closed a private placement
offering for 500,000 shares to raise $500,000 at $1.00 per
share. Additionally, a warrant was issued with each share to
purchase an additional share of common stock at $1 per share.
The warrants expire four years from the original date of
closing. In connection with this offering $45,000 were paid
and 50,000 warrants issued with the same terms as those above
as commission to brokers.
(3) In April 2000, a $200,000 note payable and a $250,000
judgment payable were settled and paid off in full by a
shareholder of the company. The total balances due including
interest and legal fees had grown to approximately $650,000
at the time of settlement. The shareholder has received an
additional 650,000 shares of stock as reimbursement for the
payment of these amounts on behalf of the Company.
ITEM 3. Defaults on Senior Securities.
-----------------------------
None.
8
<PAGE>
ITEM 4. Matters Submitted to a Vote of Shareholders.
-------------------------------------------
None.
ITEM 5. Other Information.
-----------------
None.
ITEM 6. Exhibits and Reports on Form 10-K.
---------------------------------
a) Exhibits.
--------
Exhibit 3.1 Certificate of Incorporation of the Registrant (1).
Exhibit 3.2 Certificate of Amendment to Certificate of
Incorporation of the Registrant (2).
Exhibit 3.3 Bylaws of the Registrant (1).
Exhibit 27 Financial Data Schedule.
(1) Incorporated by reference to the Registrant's Registration
Statement on Form SB-2 (File No. 33-49920) filed with the
Commission on October 14, 1993.
(2) Incorporated by reference to the Registrant's Annual Report
on Form 10-KSB-40 for the fiscal year ended January 31, 1996
filed with the Commission on January 22, 1997.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto authorized.
NEWGOLD, INC.
/s/ James H. Cutburth Date: September 20, 2000
---------------------
James H. Cutburth
Chief Executive Officer
/s/ James W. Kluber Date: September 20, 2000
-------------------
James W. Kluber
Chief Financial Officer
9
