As filed with the Securities and Exchange Commission on March 3, 2006
Registration No. 333______________
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
NEWGOLD, INC.
(Name of Small Business Issuer in Its Charter)
DELAWARE 1081 16-1400479
(State or Other Jurisdiction of (Primary Standard Industrial
Incorporation or Organization) Classification Code Number)
400 CAPITOL MALL, SUITE 900, SACRAMENTO, CA 95814
(916) 449-3913
(Address and Telephone Number of Principal Executive Offices)
400 CAPITOL MALL, SUITE 900, SACRAMENTO, CA 95814
(Address of Principal Place of Business or Intended Principal Place of Business)
A. SCOTT DOCKTER
400 CAPITOL MALL, SUITE 900, SACRAMENTO, CA 95814
(916) 449-3913
(Name, Address and Telephone Number of Agent For Service)
Copy to:
ROGER D. LINN, ESQ.
WEINTRAUB GENSHLEA CHEDIAK LAW CORPORATION
400 CAPITOL MALL, 11TH FLOOR, SACRAMENTO, CA 95814
(916) 558-6000
Approximate Date of Commencement of Proposed Sale to the Public: as
soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
--------------------------------- ------------------- ---------------------- ---------------------- -----------------
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED SHARE (1) PRICE (1) FEE
--------------------------------- ------------------- ---------------------- ---------------------- -----------------
Common Stock 2,500,000 $0.18 $ 450,000 $ 52.97
$.001 par value
--------------------------------- ------------------- ---------------------- ---------------------- -----------------
Common Stock 24,050,025(2) $0.18 $ 4,329,005 $509.52
$.001 par value issuable upon
conversion of convertible
debenture
--------------------------------- ------------------- ---------------------- ---------------------- -----------------
Common Stock 5,000,000 $0.18 $ 900,000 $105.93
$.001 par value issuable upon
exercise of warrants
--------------------------------- ------------------- ---------------------- ---------------------- -----------------
TOTAL 31,550,025(3) $0.18 $ 5,679,005 $668.42
--------------------------------- ------------------- ---------------------- ---------------------- -----------------
(1) The proposed maximum offering price per share is estimated solely for
purpose of calculating the registration fee in accordance with Rule
457(c) on the basis of the average of the high and low sales price as
reported by the Over-the-Counter Bulletin Board on February 28, 2006.
(2) Estimated number of shares of common stock underlying a Convertible
Debenture as provided under the Securities Purchase Agreement dated
January 27, 2006 between the Registrant and Cornell Capital Partners,
LP.
(3) If, as a result of stock splits, stock dividends or similar
transactions, the number of securities purported to be registered on
this registration statement increases, the provisions of Rule 416 under
the Securities Act of 1933 shall apply, and this registration statement
shall be deemed to cover any such additional shares of common stock
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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PART 1 - INFORMATION REQUIRED IN PROSPECTUS
I
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE
SELLING SECURITY HOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL SECURITIES, AND WE ARE NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED MARCH 3, 2006.
PROSPECTUS
NEWGOLD, INC.
31,550,025 SHARES OF COMMON STOCK
-------------------
This prospectus relates to the disposition by certain selling
stockholders identified in this prospectus (the "Selling Stockholders") of up to
an aggregate of 31,550,025 shares of Common Stock, par value $0.001 per share
("Common Stock") which includes (i) 24,050,025 shares issuable upon the
conversion of a convertible debenture, (ii) 5,000,000 shares issuable upon the
exercise of warrants and (iii) 2,500,000 of shares of currently outstanding
Common Stock. All of such shares of Common Stock are being offered for resale by
the Selling Stockholders.
The prices at which the Selling Stockholders may sell shares will be
determined by the prevailing market price for the shares or in negotiated
transactions. We will not receive any of the proceeds from the sale of these
shares by the Selling Stockholders. However, we will receive proceeds from the
exercise of warrants if exercised by the Selling Stockholder.
We will bear all costs relating to the registration of the Common
Stock, other than any Selling Stockholder's legal or accounting costs or
commissions.
Our Common Stock is quoted on the Over-the-Counter ("OTC") bulletin
board under the symbol "NGLD". On February 28, 2006, the last sale price of our
Common Stock on the Over-the-Counter Bulletin Board was $0.18 per share.
Our principal executive offices are located at 400 Capitol Mall, Suite
900, Sacramento, CA 95814, and our telephone number is (916) 449-3913.
-------------------
INVESTING IN THE COMMON STOCK OFFERED HEREIN INVOLVES A HIGH DEGREE OF RISK.
YOU SHOULD PURCHASE SHARES ONLY IF YOU CAN AFFORD A COMPLETE LOSS OF YOUR
INVESTMENT. YOU SHOULD CONSIDER CAREFULLY THE "RISK FACTORS" CONTAINED IN THIS
PROSPECTUS BEGINNING ON PAGE 4.
-------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR
DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is ______________, 2006.
TABLE OF CONTENTS
ABOUT THIS PROSPECTUS....................................................................................2
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS........................................................2
PROSPECTUS SUMMARY.......................................................................................3
RISK FACTORS.............................................................................................4
USE OF PROCEEDS.........................................................................................12
MARKET FOR NEWGOLD COMMON STOCK AND RELATED STOCKHOLDER MATTERS.........................................12
BUSINESS................................................................................................14
GOVERNMENT CONTROLS AND REGULATIONS.....................................................................21
DESCRIPTION OF PROPERTY.................................................................................24
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS..............................................24
LEGAL PROCEEDINGS.......................................................................................33
MANAGEMENT..............................................................................................33
EXECUTIVE COMPENSATION..................................................................................35
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS..........38
CERTAIN RELATIONSHIPS AND RELATED TRANSACTION...........................................................39
DESCRIPTION OF SECURITIES...............................................................................40
SELLING SECURITY HOLDERS................................................................................40
PLAN OF DISTRIBUTION....................................................................................42
DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION FOR SECURITIES ACT LIABILITIES.....................44
LEGAL MATTERS...........................................................................................45
EXPERTS.................................................................................................45
WHERE YOU CAN FIND MORE INFORMATION.....................................................................45
ABOUT THIS PROSPECTUS
We have not authorized anyone to provide information different from
that contained in this prospectus. This prospectus is not an offer to sell nor
is it seeking an offer to buy these securities in any jurisdiction where such
offer or sale is not permitted. The information contained in this prospectus is
accurate only as of the date of this prospectus, regardless of the time of
delivery of this prospectus or of any sale of the Common Stock. In this
prospectus, references to "Newgold," the "Company," "we," "us" and "our" refer
to Newgold, Inc., a Delaware corporation.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements in this prospectus and in any prospectus
supplement we may file constitute "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. These statements relate to future events
concerning our business and to our future revenues, operating results, and
financial condition. In some cases, you can identify forward-looking statements
by terminology such as "may," "will," "could," "would," "should," "expect,"
"plan," "anticipate," "intend," "believe," "estimate," "forecast," "predict,"
"propose," "potential," or "continue" or the negative of those terms or other
comparable terminology.
Any forward looking statements contained in this prospectus or any
prospectus supplement are only estimates or predictions of future events based
on information currently available to our management and management's current
beliefs about the potential outcome of future events. Whether these future
events will occur as management anticipates, whether we will achieve our
business objectives, and whether our revenues, operating results, or financial
condition will improve in future periods are subject to numerous risks. The
section of this prospectus captioned "Risk Factors," beginning on page 4,
provides a summary of the various risks that could cause our actual results or
future financial condition to differ materially from forward-looking statements
made in this prospectus. The factors discussed in this section are not intended
to represent a complete list of all the factors that could adversely affect our
business, revenues, operating results, or financial condition. Other factors
that we have not considered may also have an adverse effect on our business,
revenues, operating results, or financial condition, and the factors we have
identified could affect us to a greater extent than we currently anticipate.
Before making any investment in our securities, we encourage you to carefully
read the information contained under the caption "Risk Factors," as well the
other information contained in this prospectus and any prospectus supplement we
may file.
----------------------
2
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the information
contained elsewhere in this prospectus. You should read the entire prospectus,
including "Risk Factors" and the financial statements before making an
investment decision.
-------------------------- --- -------------------------------------------------
ISSUER: Newgold, Inc.
400 Capitol Mall, Suite 900
Sacramento, CA 95814
(916) 449-3913
DESCRIPTION OF BUSINESS: Newgold's business will be to acquire, explore
and, if warranted, develop various mining
properties located in the state of Nevada with
the objective of identifying, mining and
processing gold and silver ore deposits. Newgold
plans to carryout comprehensive exploration and
development programs on its properties which
currently consists of various mineral leases
associated with the Relief Canyon Mine located
near Lovelock, Nevada. A description of our
business begins on page 14 of this prospectus.
On January 25, 2006, Newgold entered into a joint
venture with ASDi LLC to explore and, if
warranted, develop two additional mining
properties known as the Red Caps Project and the
Crescent Valley Project located in the Battle
Mountain - Eureka mineral belt in Nevada. A
description of this joint venture begins on page
18 of this Prospectus.
THE OFFERING: This offering relates to the resale of shares of
our Common Stock that may be acquired from time
to time upon conversion of an outstanding Secured
Convertible Debenture and upon exercise of
outstanding warrants. The selling stockholders
and the number of shares that may be sold by each
are set forth on page 40 of this prospectus.
SHARES: 31,550,025 shares of our Common Stock. A
description of our Common Stock is set forth on
page 40 of this prospectus.
MANNER OF SALE: The shares of our Common Stock may be sold from
time to time by the selling stockholders in open
market or negotiated transactions at prices
determined from time to time by the selling
stockholders. A description of the manner in
which sales may be made is set forth in this
prospectus beginning on page 42 of this
prospectus.
USE OF PROCEEDS: We will not receive any of the proceeds from the
sale of our Common Stock by the Selling
Stockholders. However, we will receive proceeds
from the exercise of warrants.
RISK FACTORS: The securities offered hereby involve a high
degree of risk and will result in immediate and
substantial dilution. A discussion of additional
risk factors relating to our stock, our business
and this offering begins on page 4 of this
prospectus.
-------------------------- --- -------------------------------------------------
3
RISK FACTORS
Please carefully consider the specific factors set forth below as well
as the other information contained in this prospectus before purchasing shares
of our Common Stock. This prospectus contains forward-looking statements that
involve risks and uncertainties. Our actual results may differ significantly
from the results discussed in the forward-looking statements.
RISKS RELATED TO OUR BUSINESS
WE HAVE A LIMITED OPERATING HISTORY AND HAVE NOT GENERATED A PROFIT SINCE WE
RECOMMENCED OPERATIONS, CONSEQUENTLY OUR LONG TERM VIABILITY CANNOT BE ASSURED.
We were inactive from July 2001 to February 2003 at which time we resumed our
mining related activities and have incurred losses in each reporting period
since recommencing operations. Our prospects for financial success are difficult
to forecast because we have a relatively limited operating history and have not
yet commenced exploration at two of our mining properties and have conducted
limited exploration at the Relief Canyon mining property. Our prospects for
financial success must be considered in light of the risks, expenses and
difficulties frequently encountered by development stage mining companies
initiating exploration of unproven properties. Our business could be subject to
any or all of the problems, expenses, delays and risks inherent in the
establishment of a gold and silver exploration enterprise, including limited
capital resources, possible delays in mining explorations and development
failure to identify commercially viable gold or silver deposits, possible cost
overruns due to price and cost increases in exploration and are processing,
uncertain gold and silver market prices, inability to accurately predict mining
results and attract and retain qualified employees. Therefore, there can be no
assurance that our exploration or mining will be successful, that we will be
able to achieve or maintain profitable operations, or that we will not encounter
unforeseen difficulties that may deplete our capital resources more rapidly than
anticipated.
IF WE DO NOT OBTAIN ADDITIONAL FINANCING, OUR BUSINESS WILL FAIL AND OUR
INVESTORS COULD LOSE THEIR INVESTMENT.
We had cash in the amount of $943,428 and working capital deficit of $1,631,899
as of January 31, 2006. We currently do not generate revenues from our
operations. Our business plan calls for substantial investment and cost in
connection with the acquisition and exploration of our mineral properties
currently under lease or joint venture. Any direct acquisition of any of the
claims under lease or joint venture is subject to our ability to obtain the
financing necessary for us to fund and carry out exploration programs on the
subject properties. The requirements are substantial. We do not currently have
any arrangements for financing and we can provide no assurance to investors that
we will be able to find such financing if required. Obtaining additional
financing would be subject to a number of factors, including market prices for
minerals, investor acceptance of our properties, and investor sentiment. These
factors may make the timing, amount, terms or conditions of additional financing
unfavorable to us. The most likely source of future funds presently available to
us is through the sale of additional equity capital and loans. Any sale of
additional shares will result in dilution to existing stockholders while
incurring additional debt will result in encumbrances on our property and future
cash flows.
4
BECAUSE THERE IS NO ASSURANCE WHEN WE WILL GENERATE REVENUES, WE MAY DEPLETE OUR
CASH RESERVES AND NOT HAVE SUFFICIENT OUTSIDE SOURCES OF CAPITAL TO COMPLETE OUR
EXPLORATION OR MINING PROGRAMS.
We have not earned any revenues as of the date of this prospectus and have never
been profitable. To date we have been involved primarily in financing activities
and no exploration activities. We do not have an interest in any revenue
generating properties. Prior to our being able to generate revenues, we will
incur substantial operating and exploration expenditures without realizing any
revenues. We therefore expect to incur significant losses into the foreseeable
future. Our net loss for the nine months ended October 31, 2005 was $1,594,634.
Due to our continuing losses from business operations, our independent auditor's
report dated April 15, 2005, includes a "going concern" explanation relating to
the fact that our continued operations are dependent upon obtaining additional
working capital either through significantly increasing revenues or through
outside financing. We are currently operating with limited cash reserves and no
revenues which could inhibit our ability to continue in business or achieve our
business objectives.
BECAUSE OF THE SPECULATIVE NATURE OF EXPLORATION OF NATURAL RESOURCE PROPERTIES,
THERE IS SUBSTANTIAL RISK THAT WE WILL NOT FIND COMMERCIALLY VIABLE GOLD OR
SILVER ORE DEPOSITS WHICH WOULD PREVENT OUR REALIZATION OF REVENUES.
There is no assurance that any of the claims we explore or acquire will contain
commercially exploitable reserves of gold or silver minerals. Exploration for
natural resources is a speculative venture involving substantial risk. Hazards
such as unusual or unexpected geological formations and other conditions often
result in unsuccessful exploration efforts. Success in exploration is dependent
upon a number of factors including, but not limited to, quality of management,
quality and availability of geological expertise and availability of exploration
capital. Due to these and other factors, no assurance can be given that our
exploration programs will result in the discovery of new mineral reserves or
resources.
WE MAY NOT HAVE ACCESS TO ALL OF THE SUPPLIES AND MATERIALS WE NEED FOR
EXPLORATION, WHICH COULD CAUSE US TO DELAY OR SUSPEND OPERATIONS.
Demand for drilling equipment and limited industry suppliers may result in
occasional shortages of supplies, and certain equipment such as drilling rigs
that we need to conduct exploration activities. While we plan to acquire a used
mobile drilling rig, we have not negotiated any long term contracts with any
suppliers of products, equipment or services. If we cannot find the trained
employees and equipment when required, we will have to suspend or curtail our
exploration plans until such services and equipment can be obtained.
WE HAVE NO KNOWN ORE RESERVES AND WE CANNOT PREDICT WHEN AND IF WE WILL FIND
COMMERCIAL QUANTITIES OF MINERAL ORE DEPOSITS. THE FAILURE TO IDENTIFY AND
EXTRACT COMMERCIALLY VIABLE MINERAL ORE DEPOSITS WILL AFFECT OUR ABILITY TO
GENERATE REVENUES.
We have no known ore reserves and there can be no assurance that any of the
mineral claims we are exploring contain commercial quantities of gold or silver.
Even if we identify commercial
5
reserves, we cannot predict whether we will be able to mine the reserves on a
profitable basis, if at all.
WE HAVE ENTERED INTO ONE JOINT VENTURE IN WHICH OUR JOINT VENTURE PARTNER IS AN
AFFILIATE AND WE INITIALLY OWN A MINORITY INTEREST. CONSEQUENTLY, WE MAY BE
UNABLE TO INFLUENCE OR PREVENT ACTIONS PERTAINING TO THE JOINT VENTURE PROPERTY
WHICH WE DISAGREE WITH.
We have acquired the exploration rights to two mining properties from ASDi LLC
whose sole manager and majority member is A. Scott Dockter, President and CEO of
Newgold. Consequently, Mr. Dockter has a conflict of interest in this joint
venture. Furthermore, ASDi LLC will initially hold a 77.78% interest in a newly
formed Nevada LLC through which the joint venture will be operated. While
Newgold will be the sole manager of the Nevada LLC, Mr. Dockter will be able to
control the joint venture activities through his position with the Manager
(Newgold) and through his ownership and control of the majority member (ASDi
LLC). While Mr. Dockter will endeavor to always act in the best interest of
Newgold and its stockholders, stockholders will have only limited ability to
influence or object to actions taken by the Nevada LLC in exploring, developing
and capital spending on the joint venture properties.
IF WE ARE UNABLE TO HIRE AND RETAIN KEY PERSONNEL, WE MAY NOT BE ABLE TO
IMPLEMENT OUR BUSINESS PLAN.
Newgold is substantially dependent upon the continued services of A. Scott
Dockter, its President. We have no employment agreement with Mr. Dockter, nor is
there either key person life insurance or disability insurance on Mr. Dockter.
While Mr. Dockter expects to spend the majority of his time assisting Newgold
and its business, there can be no assurance that Mr. Dockter's services will
remain available to Newgold. If Mr. Dockter's services are not available to
Newgold, Newgold will be materially and adversely affected. However, Mr. Dockter
has been a significant stockholder of Newgold since its inception and considers
his investment of time and money in Newgold of significant personal value. Our
success is also largely dependent on our ability to hire highly qualified
personnel. This is particularly true in the highly technical business such as
mineral exploration. These individuals are in high demand and we may not be able
to retain the personnel we need. In addition, we may not be able to afford the
high salaries and fees demanded by qualified personnel, or may lose such
employees after they are hired. Failure to hire key personnel when needed, or on
acceptable terms, to carryout our exploration and mining programs would have a
significant negative effect on our business.
BECAUSE THE PROBABILITY OF MANY OF THE INDIVIDUAL MINING PROSPECTS EXPLORED WILL
NOT SHOW COMMERCIALLY VIABLE AMOUNTS OF GOLD OR SILVER ORE DEPOSITS, SUBSTANTIAL
AMOUNTS OF FUNDS SPENT ON EXPLORATION WILL NOT RESULT IN IDENTIFIABLE RESERVES.
The probability of our exploration program identifying individual prospects
having commercially significant reserves cannot be predicted. It is likely that
many of the properties explored will not contain any commercially significant
reserves. As such substantial funds will be spent on exploration which may
identify only a few, if any, claims having commercial development potential.
6
OUR MINING CLAIMS COULD BE CONTESTED WHICH WOULD ADD SIGNIFICANT COSTS AND
DELAYS TO OUR EXPLORATION PROGRAMS.
Our mining property rights consist of 78 mill site and unpatented mining claims
at the Relief Canyon Mine; 96 unpatented mining claims at the Red Caps project;
and 39 unpatented mining claims at the Crescent Valley project. The validity of
unpatented mining claims is often uncertain and is always subject to contest.
Unpatented mining claims are generally considered subject to greater title risk
than patented mining claims, or real property interests that are owned in fee
simple. If title to a particular property is successfully challenged, we may not
be able to develop or retain our royalty interests on that property, which could
reduce our future revenues.
MINING OPERATIONS ARE SUBJECT TO EXTENSIVE FEDERAL AND STATE REGULATION WHICH
INCREASES THE COSTS OF COMPLIANCE AND POSSIBLE LIABILITY FOR NON-COMPLIANCE.
Mining is subject to extensive regulation by state and federal regulatory
authorities. State and federal statutes regulate environmental quality, safety,
exploration procedures, reclamation, employees' health and safety, use of
explosives, air quality standards, pollution of stream and fresh water sources,
noxious odors, noise, dust, and other environmental protection controls as well
as the rights of adjoining property owners. We believe that we are currently
operating in compliance with all known safety and environmental standards and
regulations applicable to our Nevada properties or are in the process of
remediating our property to be compliant. However, there can be no assurance
that our compliance could be challenged or that future changes in federal or
Nevada laws, regulations or interpretations thereof will not have a material
adverse affect on our ability to resume and sustain mining operations.
MINING OPERATIONS ARE SUBJECT TO VARIOUS RISKS AND HAZARDS WHICH COULD RESULT IN
SIGNIFICANT COSTS OR HINDER ONGOING OPERATIONS.
The business of gold mining is subject to certain types of risks, including
environmental hazards, industrial accidents, and theft. We expect to secure
insurance against certain property damage loss (including business interruption)
and comprehensive general liability insurance. While we will maintain 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. We have not obtained
environmental liability insurance because such coverage is not considered by
management to be cost effective. We currently carry no insurance on any of our
properties due to the current status of our mine operations.
COMPLIANCE WITH CORPORATE GOVERNANCE AND PUBLIC DISCLOSURE REGULATIONS MAY
RESULT IN ADDITIONAL EXPENSES.
Changing laws, regulations and standards relating to corporate governance and
public disclosure, including the Sarbanes-Oxley Act of 2002, and new regulations
issued by the Securities and Exchange Commission, are creating uncertainty for
companies. In order to comply with these laws, we may need to invest substantial
resources to comply with evolving standards, and this investment would result in
increased general and administrative expenses and a diversion of management time
and attention from revenue-generating activities to compliance activities.
7
OUR OFFICERS AND DIRECTORS HAVE LIMITED LIABILITY AND HAVE INDEMNIFICATION
RIGHTS
Our Certificate of Incorporation and by-laws provide that we will indemnify our
officers and directors against losses sustained or liabilities incurred which
arise from any transaction in that officer's or director's respective managerial
capacity unless that officer or director violates a duty of loyalty, did not act
in good faith, engaged in intentional misconduct or knowingly violated the law,
approved an improper dividend, or derived an improper benefit from the
transaction.
RISKS RELATED TO OUR STOCK
OUR STOCK PRICE IS VOLATILE.
The market price of a share of our Common Stock has fluctuated significantly in
the past and may continue to fluctuate significantly in the future. During
fiscal year 2006, through January 31, 2006, the high and low sales prices of a
share of Newgold Common Stock were $0.34 and $0.10, respectively. During fiscal
year 2005, the high and low sales prices of a share of our Common Stock were
$0.359 and $0.02, respectively. The market price of a share of our Common Stock
may continue to fluctuate in response to a number of factors, including:
o results of our exploration program;
o fluctuations in our quarterly or annual operating results;
o fluctuations in the market price of gold and silver;
o the loss of services of one or more of our executive officers or
other key employees;
o adverse effects to our operating results due to unforeseen
difficulties affecting our exploration program; and
o general economic and market conditions.
WE MAY NEED TO RAISE FUNDS THROUGH DEBT OR EQUITY FINANCINGS IN THE FUTURE,
WHICH WOULD DILUTE THE OWNERSHIP OF OUR EXISTING STOCKHOLDERS AND POSSIBLY
SUBORDINATE CERTAIN OF THEIR RIGHTS TO THE RIGHTS OF NEW INVESTORS OR CREDITORS.
We may choose to raise additional funds in debt or equity financings if they are
available to us on terms we believe reasonable to increase our working capital,
strengthen our financial position or to make acquisitions. Any sales of
additional equity or convertible debt securities would result in dilution of the
equity interests of our existing stockholders, which could be substantial.
Additionally, if we issue shares of preferred stock or convertible debt to raise
funds, the holders of those securities might be entitled to various preferential
rights over the holders of our Common Stock, including repayment of their
investment, and possibly additional amounts, before any payments could be made
to holders of our Common Stock in connection with an acquisition of the Company.
Such additional debt, if authorized, would create rights and preferences that
would be senior to, or otherwise adversely affect, the rights and the value of
our
8
Common Stock. Also, new investors may require that we and certain of our
stockholders enter into voting arrangements that give them additional voting
control or representation on our board of directors.
INADEQUATE MARKET LIQUIDITY MAY MAKE IT DIFFICULT TO SELL OUR STOCK.
There is currently a public market for our Common Stock, but we can give no
assurance that there will always be such a market. Only a limited number of
shares of our Common Stock are actively traded in the public market and we
cannot give assurance that the market for our stock will develop sufficiently to
create significant market liquidity. An investor may find it difficult or
impossible to sell shares of our Common Stock in the public market because of
the limited number of potential buyers at any time. In addition, the shares of
our Common Stock are not eligible as a margin security and lending institutions
may not accept our Common Stock as collateral for a loan.
THE APPLICATION OF THE "PENNY STOCK REGULATION" COULD ADVERSELY AFFECT THE
MARKET PRICE OF OUR COMMON STOCK
Penny stocks generally are equity securities with a price of less than $5.00 per
share other than securities registered on certain national securities exchanges
or quoted on the NASDAQ Stock Market, provided that current price and volume
information with respect to transactions in such securities is provided by the
exchange or system. Our securities may be subject to "penny stock rules" that
impose additional sales practice requirements on broker-dealers who sell such
securities to persons other than established customers and accredited investors
(generally those with assets in excess of $1,000,000 or annual income exceeding
$200,000 or $300,000 together with their spouse). For transactions covered by
these rules, the broker-dealer must make a special suitability determination for
the purchase of such securities and have received the purchaser's written
consent to the transaction prior to the purchase. Consequently, the "penny stock
rules" may restrict the ability of broker-dealers to buy and sell our securities
and may have the effect of reducing the level of trading activity of our Common
Stock in the secondary market.
WE MAY ENGAGE IN FUTURE ACQUISITIONS THAT DILUTE OUR STOCKHOLDERS AND CAUSE US
TO INCUR DEBT OR ASSUME CONTINGENT LIABILITIES.
As part of our strategy, we expect to review opportunities to acquire or
participate in the exploration of other mining properties that would complement
our current exploration or mining program, or that may otherwise offer growth
opportunities. In the event of any future acquisitions, we could:
o issue stock that would dilute current stockholders' percentage
ownership;
o incur debt; or
o assume liabilities.
These acquisitions also involve numerous risks, including:
9
o problems combining additional exploration or mining opportunities
with current business operations:
o unanticipated costs;
o holding a minority interest in other joint ventures or
partnerships;
o possible financial commitments to fund development;
o risks associated with exploring new mining property with negative
results; and
o possible shared control with other persons or entities;
We cannot assure you that we will realize positive exploration results from the
newly acquired Red Caps and Crescent Valley projects or any additional mining
rights we may participate in or acquire in the future.
RISKS RELATING TO OUR CURRENT FINANCING ARRANGEMENT
WE HAVE SIGNIFICANT "EQUITY OVERHANG" WHICH COULD ADVERSELY AFFECT THE MARKET
PRICE OF OUR COMMON STOCK AND IMPAIR OUR ABILITY TO RAISE ADDITIONAL CAPITAL
THROUGH THE SALE OF EQUITY SECURITIES.
As of January 31, 2006, Newgold had approximately 68,104,072 shares of Common
Stock outstanding and a convertible debenture which is convertible into up to
24,050,025 shares of our Common Stock. Additionally, warrants to purchase a
total of 20,924,583 shares of our Common Stock were outstanding as of January
31, 2006. Furthermore, up to an additional 24,050,025 shares of Common Stock
could become issuable to the convertible debenture holders if a default were to
occur. The possibility that substantial amounts of our outstanding Common Stock
may be sold by investors or the perception that such sales could occur, often
called "equity overhang," could adversely affect the market price of our Common
Stock and could impair our ability to raise additional capital through the sale
of equity securities in the future.
THE CONTINUOUSLY ADJUSTABLE CONVERSION PRICE FEATURE OF OUR SECURED CONVERTIBLE
DEBENTURE COULD REQUIRE US TO ISSUE A SUBSTANTIALLY GREATER NUMBER OF SHARES
UPON CONVERSION, WHICH WILL CAUSE IMMEDIATE AND SUBSTANTIAL DILUTION TO OUR
EXISTING STOCKHOLDERS.
At the time of entering into the $1,000,000 Secured Convertible Debenture
("Convertible Debenture") with Cornell Capital Partners, the Fixed Conversion
Price was $0.26 per share which would equal approximately 3,808,073 if the
entire principal were converted into Newgold Common Stock. This represents the
minimum number of shares issuable upon the conversion of the Convertible
Debenture. However, the Convertible Debenture provides for the conversion rate
at any given time to be the lower of the Fixed Conversion Price or 95% of the
lowest Volume Weighted Average Price of Newgold's Common Stock during the 30
trading days immediately preceding the Conversion Date as quoted in Bloomberg,
LP ("Market Conversion Price"). Consequently, if the market price for Newgold
Common Stock should remain below $0.26 per share, we would be required to issue
substantially more shares of Common Stock upon the conversion of the Convertible
Debenture. The issuance of significantly more shares at a
10
lower conversion price would have a dilutive effect to our current stockholders.
See the Table on page 14.
IF AN EVENT OF DEFAULT OCCURS UNDER THE SECURITIES PURCHASE AGREEMENT DATED
JANUARY 27, 2006, SECURED CONVERTIBLE DEBENTURE OR THE SECURITY AGREEMENT, THE
INVESTORS COULD TAKE POSSESSION OF ALL OUR MINING RIGHTS HELD IN THE RELIEF
CANYON PROPERTY.
In connection with the Securities Purchase Agreement dated January 27, 2006, we
executed a Security Agreement in favor of Cornell Capital Partners granting them
a first priority security interest in all of our leasehold interests and mining
rights to the Relief Canyon property as well as any equipment or improvements
located in such property. The Security Agreement states that if an event of
default occurs under the Securities Purchase Agreement, Secured Convertible
Debenture or Security Agreement, Cornell Capital Partners have the right to take
possession of the collateral, to operate our business using the collateral, and
have the right to assign, sell, lease or otherwise dispose of and deliver all or
part of the collateral, at public or private sale or otherwise to satisfy our
obligations under these agreements.
IN THE EVENT A DEFAULT OCCURS UNDER THE SECURED CONVERTIBLE DEBENTURE, WE MAY BE
REQUIRED TO ISSUE UP TO AN ADDITIONAL 24,050,025 SHARES OF NEWGOLD COMMON STOCK
AS AN ADDITIONAL PENALTY FOR SUCH DEFAULT. IF SUCH SHARES WERE TO BE ISSUED, WE
WOULD BE REQUIRED TO FILE A SUBSEQUENT REGISTRATION STATEMENT COVERING THOSE
ADDITIONAL SHARES AND RESULTING IN FURTHER DILUTION TO EXISTING STOCKHOLDERS AND
EXPENSE TO NEWGOLD.
As an additional inducement to Cornell Capital Partners to enter into the
Securities Purchase Agreement, the event of a default in the Convertible
Debenture, we would be required, in addition to other remedies provided, to
issue up to an additional 24,050,025 shares of our Common Stock to Cornell
Capital Partners as an additional penalty for such default. (The exact number of
shares dependent on the amount of principal debt remaining unpaid at the time a
default was declared). In addition to having a dilutive affect on our existing
stockholders, we would be required to file a subsequent registration statement
covering such additional shares. The filing of an additional registration
statement would result in substantial costs to us.
OUR FINANCIAL CONDITION AND THE RESTRICTIVE COVENANTS CONTAINED IN OUR
OUTSTANDING DEBT MAY LIMIT OUR ABILITY TO BORROW ADDITIONAL FUNDS OR TO RAISE
ADDITIONAL EQUITY AS MAY BE REQUIRED TO FUND OUR FUTURE OPERATIONS.
The terms of our outstanding Secured Convertible Debenture with Cornell Capital
Partners may limit our ability, without Cornell Capital's consent, to, among
other things:
o enter into certain transactions;
o create additional liens on our assets;
o issue preferred stock or Common Stock at certain discounts below
market prices; or
o merge or consolidate with other entities.
11
These restrictions could adversely affect our liquidity and our ability to
attract additional funding as required.
WE MAY NOT BE ABLE TO PAY OUR DEBT AND OTHER OBLIGATIONS AND OUR ASSETS MAY BE
SEIZED AS A RESULT.
We do not have sufficient funds to repay our outstanding debt at maturity and we
may not generate the cash flow required to pay our liabilities as they become
due. Our outstanding debt includes approximately $1,000,000 and accrued interest
on the Convertible Debenture with Cornell Capital Partners due on January 27,
2009. If Cornell Capital Partners determines not to convert the Debenture into
shares of Newgold Common Stock they may require us to repay all of the principal
and interest outstanding under the Debenture under certain circumstances. We may
not have sufficient cash reserves to repay the Debenture at such time, which
would cause an event of default under the Debenture and may force us to declare
bankruptcy. If we raise additional funds to repay the Debenture by selling
equity securities, the relative equity ownership of our existing investors could
be diluted and new investors could obtain terms more favorable than previous
investors.
USE OF PROCEEDS
The Shares offered by this prospectus are being registered for the account of
the selling stockholders. We will not receive any proceeds from the sale of
Common Stock by the selling stockholders.
MARKET FOR NEWGOLD COMMON STOCK
AND RELATED STOCKHOLDER MATTERS
MARKET FOR OUR COMMON STOCK
In July 1997, our Common Stock was approved for quotation on the National
Association of Securities Dealers' Over-the-Counter ("OTC") Bulletin Board where
it traded under the symbol "NGLD" until June 2001. In June 2001, our Common
Stock was moved to the "Pink Sheets" published by the Pink Sheets LLC
(previously National Quotation Bureau, LLC). On June 7, 2005, our Common Stock
was again approved for quotation on the OTC Bulletin Board with its symbol of
"NGLD." As of February 28, 2006, the closing bid price of our Common Stock was
$0.18 per share.
PRICE RANGE OF OUR COMMON STOCK
A public trading market having the characteristics of depth, liquidity and
orderliness depends upon the existence of market makers as well as the presence
of willing buyers and sellers, which are circumstances over which we do not have
control. The following table sets forth the high and low sales prices reported
by the OTC Bulletin Board for our Common Stock in the periods indicated. The
quotations below reflect inter-dealer prices, without retail mark-up, markdown
or commission, and may not represent actual transactions.
12
NEWGOLD, INC. COMMON STOCK LOW HIGH
YEAR ENDING JANUARY 31, 2006
Fourth Quarter (November-January) $0.12 $0.225
Third Quarter (August-October) $0.10 $0.29
Second Quarter (May-July) $0.20 $0.34
First Quarter (February-April) $0.15 $0.33
YEAR ENDED JANUARY 31, 2005
First Quarter (November-January) $0.08 $0.33
Second Quarter (August-October) $0.02 $0.25
Third Quarter (May-July) $0.15 $0.26
Fourth Quarter (February-April) $0.16 $0.36
STOCKHOLDERS
As of January 31, 2006, there were approximately 1,065 holders of record of our
Common Stock. This amount does not include stockholders whose shares are held in
street name.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our Common Stock. We
currently anticipate that we will retain all future earnings for the expansion
and operation of our business and do not anticipate paying cash dividends in the
foreseeable future.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
We have not issued any securities pursuant to any equity compensation plans.
SHARES ISSUABLE UPON CONVERSION OF CONVERTIBLE DEBENTURE
The $1,000,000 principal amount held by Cornell Capital is convertible into
shares of our Common Stock at a per share conversion rate at the time of
conversion which will be the lower of $0.2626 per share or 95% of the lowest
Volume Weighted Average Price of Newgold's common stock during the 30 trading
days immediately preceding the Conversion Date as quoted by Bloomberg, LP (the
"Market Conversion Price").
13
The following table sets forth the number of shares which would be issued to
Cornell Capital upon the conversion of the $1,000,000 principal amount of the
Debenture at various assumed Market Conversion Prices:
Total Shares Issued to
Cornell Capital Under the
Assumed Market Conversion Price Debenture if Full
Per Share Conversion(1)
----------------------------------- ----------------------------
$ 0.2626 or higher 3,808,073
$ 0.20 5,000,000
$ 0.18 5,555,556
$ 0.15 6,666,667
$ 0.10 10,000,000
$ 0.05 20,000,000
(1) Does not include conversion of accrued but unpaid interest on the
Debenture
BUSINESS
GENERAL
Newgold has embarked on a business strategy whereby it will invest in, explore
and if warranted, conduct mining operations of its current mining properties and
other mineral producing properties. Newgold is a public company that in the past
has been engaged in the exploration, acquisition and development of gold-bearing
properties in the continental United States. Currently, Newgold's principal
assets include various mineral leases associated with the Relief Canyon Mine
located near Lovelock, Nevada along with various items of mining equipment and
improvement located at that site. Newgold has also entered into a joint venture
to explore additional mining properties known as the Red Caps Project and
Crescent Valley Project, both of which are located in Lander County, Nevada.
From 1995 until the beginning of 2000, Newgold had followed the above described
business activity focusing on the exploration and mining of gold and silver ore
deposits. At the beginning of 2000, Newgold's business strategy became focused
on investing in Internet start-up companies. That strategy was not successful
and by mid-2001 Newgold had abandoned such investments. From approximately July
2001 until February 2003 Newgold had been inactive. During the period of
inactivity, ASDi LLC, an entity controlled by A. Scott Dockter who is also the
Chairman and CEO of Newgold, has made the necessary expenditures to maintain the
current status of the Relief Canyon mining claims. In February 2003, Newgold
resumed its business of acquiring, exploring and if warranted developing its
mining properties.
14
Newgold's mailing address is 400 Capitol Mall, Suite 900, Sacramento, CA 95814;
and its telephone number is (916) 449-3913.
THE COMPANY
Newgold, a Delaware corporation, has been engaged in the acquisition,
development and exploration of gold-bearing properties in the continental United
States since 1995. In fiscal 1999 Newgold placed its only remaining property,
the Relief Canyon Mine, located in Pershing County, Nevada, on a care and
maintenance status. During fiscal 2000, Newgold executed a contract to sell the
Relief Canyon Mine to A. Scott Dockter, Chairman of Newgold; however the sale
was never completed and the asset remains the property of Newgold. It is now
Newgold's intention to resume mining at the Relief Canyon Mine. See "Business"
below for further detail.
Newgold's independent accountants have included a "going concern" explanatory
paragraph in their report dated April 15, 2005 on Newgold's financial statements
for the fiscal year ended January 31, 2005, indicating substantial doubt about
Newgold's ability to continue as a going concern (See Note 2 of Financial
Footnotes). If Newgold's exploration program is not successful or if
insufficient funds are available to carry out Newgold's development plans, then
Newgold will not be able to execute its business plan.
For financial information regarding Newgold, see "Financial Statements."
BUSINESS
Newgold is an "exploration stage" company engaged in the search and/or
verification of ore deposits (reserves) in its property. Our business will be to
acquire, explore and, if warranted, develop various mining properties located in
the state of Nevada. We plan to carryout comprehensive exploration and
development programs on our properties. While we currently plan to fund and
conduct these activities ourselves, we may in the future outsource some of these
activities through the use of various joint venture, royalty or partnership
arrangements pursuant to which other companies would agree to finance and
carryout the exploration and development programs on our mining properties.
Consequently, our current plan will require the hiring of various mining
employees to perform exploration and mining activities for our various mining
properties.
PROPERTIES
RELIEF CANYON MINE
The Relief Canyon Mine is an open-pit, heap leaching operation located
approximately 110 miles northeast of Reno, Nevada. Newgold held 50 unpatented
mining claims covering approximately 1000 acres until October 2004 at which time
Newgold completed re-staking the Relief Canyon mill site and lode claims.
Newgold currently holds a total of 78 claims including 57 mill site claims and
21 unpatented mining claims. The annual payments to maintain these claims are
approximately $15,600. The mine is readily accessible by improved roads. Water
for mining and processing 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
15
association and phone lines are present at the mine site. Relief Canyon is
located in the Humboldt Range, a mining district in Pershing County, Nevada.
Background and History
----------------------
On January 10, 1995, Newgold purchased the Relief Canyon mine from J.D. Welsh &
Associates for $500,000. The mine at that time consisted of 39 unpatented lode
mining claims covering approximately 780 acres and a lease for access to an
additional 800 acres contiguous to the 39 claims located on Newgold's property.
Located on the property are, a building containing five 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, Newgold 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 in 1997. During 1997, Newgold
staked an additional 402 claims. However, subsequent to January 31, 1998,
Newgold reduced the total claims to 50 (covering approximately 1,000 acres). In
1999 Newgold placed the mine in a care and maintenance status.
If mining operations are not resumed at the Relief Canyon mine, it is possible
Newgold 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 berms. Finally, native vegetation must be re-established in all areas of
disturbance.
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 an 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.
Plan for Relief Canyon Production
---------------------------------
Based on past exploration by us and work done by others, we believe the Relief
Canyon Mine presents the potential for gold bearing ore deposits which will
hopefully be validated through further exploration of additional mining claims.
As of January 31, 2006 the Relief Canyon properties include 78 unpatented mining
claims contained in about 1,000 acres.
Newgold's operating plan is to place the most promising mining targets into
production during the 2007 fiscal year, and use the net proceeds from these
operations to fund expanded exploration and development of its entire property
holdings. By this means, Newgold intends to progressively enlarge the scope and
scale of the mining and processing operations, thereby increasing both Newgold's
annual revenues and its net profits.
16
Newgold's goals for environmental protection and reclamation are for minimal
environmental disturbance during mining, and reclamation and/or restoration of
the disturbed area after mining ceases. The economics of Newgold's operations
will permit this environmentally responsible plan of operations.
We will initially focus on exploring the North Relief Canyon mining property. We
recently posted a $243,204 reclamation bond with the Nevada Bureau of Mining
Regulations and Reclamation ("BMRR") which allows us to apply for new permits
for mining and processing on the property. In addition to posting the
reclamation bond, the property must be brought into compliance with the Bureau
of Land Management ("BLM") and Nevada Department of Environmental Protection
("NDEP") before any work can commence. The estimated time for completing the
permitting process is between 9 months to 18 months. However, once the bond is
posted, we expect to be able to carry on limited operations pending full
permitting for full mining operations.
Description of Past Exploration and Existing Development Efforts
----------------------------------------------------------------
Over 400 reverse circulation holes have been drilled at the Relief Canyon
project. Of the 400 holes drilled, 106 had intercepts of gold bearing ore
structures of 0.1 gold/ton content. Additionally there are numerous holes with
several feet of 0.09 - 0.099 gold/ton content.
The ore zone of Relief Canyon is open ended on three sides. It is projected that
additional drilling will increase the size of possible reserves. Most of the
drilling to date was targeted for open pit mining, resulting in shallow holes
which did not test for possible deeper ore deposits. A significant number of
deep holes with 0.3 gold/ton and better were drilled on the North end of the
property. This area is targeted for initial underground mining development.
Additional exploration holes will be drilled when underground mining commences
throughout the various ore zones to determine future development.
Typically, grade values of the Relief Canyon drill holes are reduced as a result
of finds being lost down the hole or vented out as dust. Actual mining and
recovery of gold in the milling process will determine the loss if any which
could be as much as 30%.
Proposed Underground Mining Efforts
-----------------------------------
We will pursue exploration drilling to further identify areas of possible
gold-bearing ore deposits. Results of this additional drilling will allow us to
better plan our eventual underground mining efforts. Further development of our
underground mining activity will also be dependent on the availability of
adequate capital to initiate and sustain this effort. Underground mining is very
expensive costing in the range of $600 to $1,000 per linear foot of underground
development.
Ore Processing
--------------
Some gold-bearing sulfide ores may be processed through a flotation plant. In
flotation, ore is finely ground, turned into slurry, then placed in a tank known
as a flotation cell. Chemicals are added to the slurry causing the
gold-containing sulfides to float in air bubbles to the top of the tank, where
they can be separated from waste particles that sink to the bottom. The sulfides
are
17
removed from the cell and converted into a concentrate that can then be
processed in an autoclave or roaster to recover the gold. The ore is then
processed through an oxide mill.
Higher-grade oxide ores are processed through mills, where the ore is ground
into a fine powder and mixed with water in slurry, which then passes through a
cyanide leaching circuit. Lower grade oxide ores are processed using heap
leaching. Heap leaching consists of stacking crushed or run-of-mine ore on
impermeable pads, where a weak cyanide solution is applied to the top surface of
the heaps to dissolve the gold. In both cases, the gold-bearing solution is then
collected and pumped to facilities to remove the gold by collection on carbon or
by zinc precipitation directly from leach solutions.
CRESCENT VALLEY AND RED CAPS MINE
---------------------------------
Overview
--------
Newgold is the owner of a 22.22% joint venture interest and is the operator of
the Crescent Red Caps Joint Venture ("Crescent Red Caps"). The remaining 77.78%
interest is held by ASDi LLC, a California limited liability company owned by A.
Scott Dockter, Chairman and CEO of Newgold. Additionally, Newgold, by making
expenditures over the next three years aggregating $2,700,000, will end up with
a 66.66% overall interest in the joint venture. Newgold will then have the
opportunity to purchase the remaining joint venture interest held by Mr. Dockter
based on the results of the exploration work contemplated by these additional
expenditures.
The properties are subject to two leases held by individuals and trusts
affiliated with Sam Bida and Leon Belaustagi. The two leases include
approximately 135 unpatented mining claims and cover approximately 2700 acres.
All gold, silver and other mineral production by Crescent Red Caps is subject to
a 3% net smelter return ("NSR") royalty payable to the lessors except for barite
which is subject to a 10% royalty on ore produced from claims covered by the
leases.
Property
--------
The Crescent Red Caps Properties are located in northeastern Nevada,
approximately 60 miles southwest of Elko, Nevada in Lander County. The
properties are accessed via Nevada State Highway 306, which extends southward
from U.S. Interstate 80, both of which are paved roads.
The Cortez area of interest comprises approximately 640,000 acres along the
Cortez/Battle Mountain trend. The two leases controlled by Crescent Red Caps
include approximately 135 unpatented mining claims and cover approximately 2700
acres located along the Cortez/Battle Mountain trend. Currently no exploration,
development or mining permits have been granted for the areas covered by the
leases.
Geology and Mineralization
--------------------------
The Crescent Red Caps properties are situated along the Cortez/Battle Mountain
trend in north-central Nevada. The principal gold deposits and mining operations
are located on the southwest and south sides of Crescent Valley, which was
formed by basin and range extensional tectonism. Mineralization is sedimentary
rock-hosted and consists of micron-sized free gold particles that
18
are disseminated throughout the host rock, commonly in association with
secondary silica, iron oxides or pyrite.
Exploration and Development
------------------------------
Approximately 23,000 feet of exploration drilling has been completed in two
different drill programs conducted in 1991 and 1996. Gold mineralization
encountered both in drilling and in surface sampling is tightly structurally
controlled and is confined to narrow shears and fractures developed mainly in
the non-reactive cherts and argillites. Future drill programs will test for more
extensive bodies of mineralization. Upward migration of gold mineralization from
a stockwork system or replacement mineralization of a more reactive host rock at
depth could produce the type of anomalous gold concentrations found at the prior
drill sites. The exploration potential in the immediate project areas remains
positive. The focus in fiscal 2007 will be additional exploration drilling to
better delineate the extent of the Crescent Red Caps area. The deep hole
drilling program involves drilling exploratory holes to a depth of between 1000
ft. and 3000 ft.
INDUSTRY OVERVIEW
The gold mining and exploration industry has experienced several factors
recently that are favorable to Newgold as described below.
The spot market price of an ounce of gold has increased from a low of $253 in
February 2001 to a high of $572 in February 2006. The price was $568.75 as of
January 31, 2006. This current price level has made it economically more
feasible to produce gold as well as made gold a more attractive investment for
many. Newgold is projecting a cash cost per ounce of gold produced in a range of
$170 to $210. Accordingly, the gross margin per ounce of gold produced per the
historical spot market price range above provides significant profit potential
if successful in identifying and mining gold at Relief Canyon mine.
By industry standards, there are generally four types of mining companies.
Newgold is considered an "exploration stage" company. Typically, an exploration
stage mining company is focused on exploration to identify new, commercially
viable gold deposits. "Junior mining companies" typically have proven and
probable reserves of less then one million ounces of gold, generally produces
less then 100,000 ounces of gold annually and / or are in the process of trying
to raise enough capital to fund the remainder of the steps required to move from
a staked claim to production. "Mid-tier" and large mining ("senior") companies
may have several projects in production plus several million ounces of gold in
reserve.
Generally gold reserves have been declining for a number of years for the
following reasons:
o The extended period of low gold prices from 1996 to 2001 made it
economically unfeasible to explore for new deposits for most
mining companies.
o The demand for and production of gold products have exceeded the
amount of new reserves added over the last several consecutive
years.
19
Reversing the decline in lower gold reserves is a long term process. Due to the
extended time frame it takes to explore, develop and bring new production on
line, the large mining companies are facing an extended period of lower gold
reserves. Accordingly, junior companies that are able to increase their gold
reserves more quickly should directly benefit with an increased valuation.
Additional factors causing higher gold prices over the past two years have come
from a weakened United States dollar. Reasons for the lower dollar compared to
other currencies include the historically low US interest rates, the increasing
US budget and trade deficits and the general worldwide political instability
caused by the war on terrorism.
COMPETITION
There are generally considered four types of mining companies: exploration,
junior, mid-tier and large companies. We believe junior companies represent the
largest group of gold companies in the public stock market. All four types of
mining companies may have projects located in any of the gold producing
continents of the world and many have projects located near the Relief Canyon,
Red Caps and Crescent Valley mines in Nevada. Many of our competitors have
greater exploration, production, and capital resources than we do, and may be
able to compete more effectively in any of these areas. Newgold's inability to
generate capital to fund exploration and production capacity near-term, would
establish a competitive cost disadvantage in the marketplace which would have a
material adverse effect on its operations and potential profitability.
We also compete in the hiring and retention of experienced employees.
Consequently, we may not be able to hire qualified miners or operators in the
numbers or at the times desired.
MINING PROPERTY RIGHTS
Relief Canyon Property
----------------------
Our mining property rights are represented by 78 unpatented mill and mining lode
claims which were re-staked in October 2004. Unpatented mining claims are
generally considered subject to greater title risks than patented mining claims
or real property interests that are owned in fee simple. To remain valid, such
unpatented claims are subject to annual maintenance fees. As of January 31,
2006, we were current in the payment of such maintenance fees.
Red Caps Property
-----------------
Our mining property rights are represented by 96 unpatented mining lode claims.
Unpatented mining claims are generally considered subject to greater title risks
than patented mining claims or real property interests that are owned in fee
simple. To remain valid, such unpatented claims are subject to annual
maintenance fees. As of January 31, 2006, the joint venture was current in the
payment of such maintenance fees.
20
Crescent Valley Property
------------------------
Our mining property rights are represented by 39 unpatented mining lode claims.
Unpatented mining claims are generally considered subject to greater title risks
than patented mining claims or real property interests that are owned in fee
simple. To remain valid, such unpatented claims are subject to annual
maintenance fees. As of January 31, 2006, the joint venture was current in the
payment of such maintenance fees.
EMPLOYEES
As of January 31, 2006, we had two full-time and one part-time employees. We
anticipate hiring additional employees during the current year to work on the
mining sites in Nevada as our exploration program is initiated. While skilled
equipment and operations personnel are in demand, we believe we will be able to
hire the necessary workers to implement our exploration program. Our employees
are not expected to be subject to a labor contract or collective bargaining
agreement. We consider our employee relations to be good.
Consulting services, relating primarily to geologic and geophysical
interpretations, and relating to such metallurgical, engineering, and other
technical matters as may be deemed useful in the operation of our exploration
activities, will be provided by independent contractors.
GOVERNMENT CONTROLS AND REGULATIONS
Our exploration, mining and processing operations are subject to various
federal, state and local laws and regulations governing prospecting,
exploration, development, production, labor standards, occupational health, mine
safety, control of toxic substances, and other matters involving environmental
protection and employment. United States environmental protection laws address
the maintenance of air and water quality standards, the preservation of
threatened and endangered species of wildlife and vegetation, the preservation
of certain archaeological sites, reclamation, and limitations on the generation,
transportation, storage and disposal of solid and hazardous wastes, among other
things. There can be no assurance that all the required permits and governmental
approvals necessary for any mining project with which we may be associated can
be obtained on a timely basis, or maintained. Delays in obtaining or failure to
obtain government permits and approvals may adversely impact our operations. The
regulatory environment in which we operate could change in ways that would
substantially increase costs to achieve compliance. In addition, significant
changes in regulation could have a material adverse effect on our operations or
financial position.
Outlined below are some of the more significant aspects of governmental controls
and regulations which materially affect our interests in the Relief Canyon, Red
Caps and Crescent Valley mines.
Regulation of Mining Activity
-----------------------------
Newgold's mining properties, including care and maintenance, exploration,
development and production activities, is subject to environmental laws,
policies and regulations. These laws, 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,
21
protection of endangered species, protection of antiquities and reclamation of
land. The mines are also subject to numerous other federal, state and local laws
and regulations. At the federal level, the mines are 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 we believe the permits can be obtained in a
timely fashion, permitting procedures are complex, costly, time consuming and
subject to potential regulatory delay. We do not believe that existing
permitting requirements or other environmental protection laws and regulations
would have a material adverse effect on our ability to explore and eventually
operate the mines. However, we 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 operation of our
properties. We cannot predict whether we will be able to obtain new permits or
whether material changes in permit conditions will be imposed. Granting new
permits or the imposition of additional conditions could have a material adverse
effect on our ability to explore and operate the mining properties in which we
have an interest.
On June 9, 2005, we received permission from the NDEP to commence designated
environmental activities previously requested by us. Subsequent to the 2006
fiscal year end, we made a cash deposit of $243,204 to cover future reclamation
costs as required by the NDEP for the Relief Canyon Mine. We are now moving
forward with the permitting process that will allow us to perform additional
exploration, development and mining operations. The Red Caps and Crescent Valley
properties currently are not part of any permitting process. During fiscal 2007
Newgold plans on filing the necessary permits to allow initial exploration
activities to begin at both properties.
Legislation has been introduced in prior sessions of the U.S. Congress to make
significant revisions to the U.S. General Mining Law of 1872 that would affect
our unpatented mining claims on federal lands, including a royalty on gold
production. It cannot be predicted whether any of these proposals will become
law. Any levy of the type proposed would only apply to unpatented federal lands
and accordingly could adversely affect the profitability of portions of any
future gold production from the Relief Canyon mine.
The State of Nevada, where our mine properties are 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 must be prepared and
financial assurances established for existing facilities. The financial
assurances can be in the form of cash placed on deposit with the State or
reclamation bonds underwritten by insurance companies. The State of Nevada has
requested financial assurances from or a posting of a bond by us in the amount
of $464,000. We developed a specific reclamation plan of the Relief Canyon Mine
and began implementation of the plan in April 2005. This work was completed in
the summer of 2005. As a result of completing the work, the State of Nevada
reduced the financial assurance amount to $243,204 which we have deposited in a
blocked account with our bank in Sacramento,
22
California. Our ability to commence full mining operations at the Relief Canyon
Mine is now subject to our obtaining all necessary mining permits.
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 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 us for
remediation of waste we have created.
Gold mining and processing operations by an 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 is 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.
We also are 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;
however, the impact of these potential revisions on us is not clear at this
time.
The Clean Air Act, as amended, mandates the establishment of a Federal 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. Newgold will be required to comply with these EPA
standards to extent adopted by the State of Nevada.
23
In addition, we are 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. We have made the necessary cash deposits and we
made provision to cover the estimated costs of such reclamation as required by
permit.
We believe that our care and maintenance operation at the Relief Canyon Mine, 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 until production resumes at the site. We also
believe we are in substantial compliance with the same federal and state
regulations at the Red Caps and Crescent Valley properties as no exploration,
development or mining activities have yet commenced there.
DESCRIPTION OF PROPERTY
Newgold's executive office is located at 400 Capitol Mall, Suite 900,
Sacramento, California 95814.
Newgold owns 78 unpatented mill and mining claims covering 1000 acres
representing the Relief Canyon mining property located in the Humboldt Range
mining district in Nevada. This property also contains various improvements and
equipment. See "Business - Relief Canyon Mine."
Newgold has entered into a joint venture to explore and develop the following
mining properties:
Approximately 96 unpatented mining claims covering over 1900 acres
representing the Red Caps mining property located in the Battle
Mountain-Eureka mineral belt in Nevada.
Approximately 39 unpatented mining claims covering over 750 acres
representing the Crescent Valley mining property located in the Battle
Mountain-Eureka mineral belt in Nevada. See "Business-Crescent Valley
and Red Caps Mine."
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
CAUTION ABOUT FORWARD-LOOKING STATEMENTS
This prospectus includes "forward-looking" statements about future financial
results, future business changes and other events that haven't yet occurred. For
example, statements like we "expect," "anticipate" or "believe" are
forward-looking statements. Investors should be aware that actual results may
differ materially from our expressed expectations because of risks and
uncertainties about the future. We do not undertake to update the information in
this prospectus if any forward looking statement later turns out to be
inaccurate. Details about risks affecting various aspects of our business are
discussed throughout this prospectus and should be considered carefully.
24
PLAN OF OPERATION FOR THE NEXT TWELVE MONTHS
Certain key factors that have affected our financial and operating results in
the past will affect our future financial and operating results. These include,
but are not limited to the following:
o Gold prices, and to a lesser extent, silver prices;
o Current gold deposits under our control at the Relief Canyon Mine
are estimated by us (based on past exploration by Newgold and work
done by others).
o Our proposed exploration of properties now include 78 unpatented
mining claims contained in about 1000 acres of the Relief Canyon
Property; 96 unpatented mining claims contained in about 1900
acres of the Red Caps Property; and 39 unpatented mining claims
contained in about 750 acres of the Crescent Valley Property.
o Our operating plan is to commence exploration work on all three
mining properties beginning with the Relief Canyon mining property
in March 2006. We expect this exploration program to continue
through the end of 2006. We expect to begin exploration work at
the Red Caps and Crescent Valley properties in May 2006. By the
fourth quarter of fiscal 2007, we plan to resume mining operation
at the Relief Canyon mine. We anticipate by the end of fiscal 2007
to be realizing production revenue from the Relief Canyon mine.
Through the use of joint ventures, royalties, arrangements and
partnerships, we intend to progressively enlarge the scope and
scale of our exploration, mining and processing operations,
thereby potentially increasing our chances of locating
commercially viable ore deposits which could increase both our
annual revenues and ultimately our net profits. Our objective is
to achieve annual growth rates in revenue and net profits for the
foreseeable future.
o We expect to make capital expenditures in calendar years 2006 and
2007 of between $2.5 million and $4 million, including costs
related to the exploration of the Relief Canyon mining property.
We will have to raise additional outside capital to pay for these
activities and the resumption of mine operations and production at
the Relief Canyon mine.
o Additional funding or the utilization of other venture partners
will be required to fund mining operations, exploration, research,
development and operating expenses at the Red Caps and Crescent
Valley properties. In the past we have been dependent on funding
from the private placement of our securities as well as loans from
related and third parties as the sole sources of capital to fund
operations.
RESULTS OF OPERATION
We resumed business operations after having been inactive from July 2001 until
February 2003. Consequently, because we are in the process of reinstituting our
business and mining operations, the results of operations for the last two
fiscal years will likely not be indicative of our current and future operations.
The current management discussion and analysis should be read from the context
of our recent resumption of our mining business.
25
Operating Results for the Fiscal Quarters Ended October 31, 2005 and 2004
-------------------------------------------------------------------------
Although we commenced efforts to re-establish our mining business early in
fiscal year 2004, no mining operations have commenced and no revenues have been
recognized during the quarters ended October 31, 2005 and 2004, respectively. We
hope to be able to commence generating revenues from mining operations during
the 2007 calendar year. We have granted a 4% net smelting return royalty to a
third party related to the Relief Canyon mining property which has been recorded
as an $800,000 deferred option income.
During the quarter ended October 31, 2005 we spent $19,821 on reclamation and
maintenance expenses related to the Relief Canyon mining property. Reclamation
and maintenance expenses expended during the same quarter ended October 31, 2004
were $5,000. These expenses relate primarily to maintenance and retention costs
required to maintain our mining claims. We incurred operating expenses of
$120,227 during the quarter ended October 31, 2005. Of this amount, $93,500
reflects officer compensation and related payroll taxes during the quarter and
$15,000 reflect fees for outside professional services. A large portion of the
outside professional services reflects legal and accounting work pertaining to
our annual and quarterly reporting on Form 10-KSB and Form 10-QSB occurring in
fiscal year 2006. During the quarter ended October 31, 2004 we incurred
operating expenses of $78,561 of which $55,000 represents officer compensation
and related payroll taxes, $8,440 reflecting payroll tax penalties and $13,500
reflect fees for outside professional services. It is anticipated that both
mining costs and operating expenses will increase significantly as we resume our
exploration program and mining operations.
We incurred interest expense of $203,254 during the quarter ended October 31,
2005 which compares to interest expenses of $157,011 incurred during the same
quarter ended October 31, 2004. Although the amount of loans outstanding during
the third quarter of fiscal 2006 were unchanged (until the last day of the
quarter) compared to the third quarter of fiscal 2005, the increase in
additional interest expense was primarily due to the increase in accretion of
warrants issued in October 2004 as a debt discount.
In October 2004, we liquidated our investment in marketable securities through
open market transactions. Net proceeds totaled approximately $34,100. This
resulted in a loss on sale of $281,063. There were no sales of marketable
securities for the comparable period in fiscal 2006.
Our total net loss for the quarter ended October 31, 2005 decreased to $343,302
compared to a net loss of $521,635 incurred for the same quarter ended October
31, 2004. The larger net loss in the third quarter of fiscal 2005 reflects the
loss on sale of marketable securities referred to above.
Operating Results for the Nine Months Ended October 31, 2005 and 2004
---------------------------------------------------------------------
During the nine months ended October 31, 2005 we spent $159,521 on reclamation
and maintenance expenses related to the Relief Canyon mining property.
Reclamation and maintenance expenses expended during the nine months ended
October 31, 2004 were $15,000. These expenses relate primarily to maintenance
and retention costs required to maintain our mining claims. We incurred
operating expenses of $504,798 during the nine months ended
26
October 31, 2005. Of this amount, $280,501 reflects officer compensation and
related payroll taxes during the period and $120,938 reflect fees for outside
professional services. A large portion of the outside professional services
reflects legal and accounting work pertaining to our annual and quarterly
reporting on Form 10-KSB and Form 10-QSB for fiscal years 2005 and 2006. During
the nine months ended October 31, 2004 we incurred operating expenses of
$231,343 of which $165,000 represents officer compensation and $24,945 reflected
payroll tax penalties. It is anticipated that both mining costs and operating
expenses will increase significantly as we resume our mining operations and
exploration program.
We incurred interest expense of $930,315 during the nine months ended October
31, 2005 which compares to interest expenses of $256,417 incurred during the
nine months ended October 31, 2004. The increase in interest expense was
primarily due to $777,645 representing the increase in accretion of warrants
issued in October 2004 as a debt discount.
Our total net loss for the nine months ended October 31, 2005 increased to
$1,594,634 compared to a net loss of $783,823 incurred for the nine months ended
October 31, 2004. The larger net loss in the current fiscal year reflects the
substantial increase in operating expenses ($504,798) and interest expense
($930,315) as well as the continuing lack of revenues recognized during the
first nine months of fiscal year 2006.
Operating Results for the Fiscal Years Ended January 31, 2005 and 2004
-----------------------------------------------------------------------
Although we commenced efforts to re-establish our mining business early in
fiscal year 2004, no mining operations had commenced and no revenues had been
recognized during the fiscal years 2004 and 2005. We were inactive during fiscal
year 2003 and, as a result, generated no revenues from operations. We hope to be
able to commence generating revenues from mining operations during the 2006
calendar year. We have granted a 4% net smelting return royalty applicable to
the Relief Canyon Mine to a third party which has been recorded as an $800,000
deferred option income.
In fiscal year 2005 we spent $28,433 on exploration expenses related to the
Relief Canyon mining property. This compares to exploration expenses of $37,916
expended during fiscal 2004. These expenses relate primarily to maintenance and
retention costs required to maintain our mining claims. We incurred operating
expenses of $353,972 during fiscal year 2005. Of this amount, $220,000 reflects
officer compensation and related payroll taxes during the year, $33,510 reflect
payroll penalties and $89,900 reflect fees for outside professional services.
During fiscal year 2004 we incurred operating expenses of $306,477 of which
$220,000 reflects officer compensation and related payroll taxes during the
year, $32,259 reflect payroll penalties and $28,805 reflect fees for outside
professional services. It is anticipated that both exploration costs and
operating expenses will increase significantly as we resume our exploration
program and mining operations.
We incurred interest expense of $614,672 during fiscal year 2005 which compares
to interest expenses of $136,493 incurred during fiscal year 2004. Although the
amount of loans outstanding during fiscal 2005 increased slightly, the overall
interest rate on such borrowing decreased.
27
Our total net loss for fiscal year 2005 increased to $1,278,140 compared to a
net loss of $470,823 incurred for fiscal year 2004. The larger net loss in
fiscal year 2005 reflects the substantial increase in operating expenses and
interest expense and a lack of revenues recognized during fiscal year 2005.
LIQUIDITY AND CAPITAL RESOURCES
We have incurred significant operating losses during the last two fiscal years
and during the nine months ended October 31, 2005 which has resulted in an
accumulated deficit of $17,979,937 as of October 31, 2005. At October 31, 2005,
we had cash and other current assets of $3,421 compared to $33,983 at July 31,
2005 and a net working capital deficit of $2,983,235. Since the resumption of
our business in February 2003, we have been dependent on borrowed or invested
funds in order to finance our ongoing operations. As of October 31, 2005, we had
outstanding notes payable in the gross principal amount of $457,634 which
reflects a decrease of $1,399,128 compared to notes payable in the gross
principal amount of $1,856,762, (net balance of $663,642 after $1,193,120 of
note payable discount) as of October 31, 2004.
As of October 31, 2005, we were in default on a promissory note due to an
unrelated party in the principal amount $176,500.
In the quarter ended April 30, 2005 we raised a total of $575,000 through the
sale of 2,500,000 shares of Newgold restricted stock.
In the quarter ended July 31, 2005 we issued 12,326,231 shares of Common Stock
at a price of $0.15 per share to our chief executive officer according to the
terms of existing notes payable to the officer. The issuance resulted in the
repayment of principal of $1,402,742 and interest of $446,193 totaling
$1,848,935.
On January 27, 2006, we entered into a Securities Purchase Agreement and a
Convertible Debenture in the principal amount of $1,000,000 and bearing interest
at 8% per annum. The Debenture was funded $600,000 on January 27, 2006 and we
will receive an additional $200,000 upon the filing of this resale registration
statement with the SEC and a final $200,000 upon the registration statement
being declared effective by the SEC.
By attempting to resume mining operations, we will require approximately $10
million to $15 million in additional working capital above the amounts realized
from the convertible debenture to bring the Relief Canyon Mine into full
production. It is our intention to pursue several possible funding opportunities
including the sale of additional securities, entering into joint venture
arrangements, or the incurring of additional debt.
Due to our continuing losses from our business operations, the independent
auditor's report dated April 15, 2005, includes a "going concern" explanation
relating to the fact that Newgold's continuation is dependent upon obtaining
additional working capital either through significantly increasing revenues or
through outside financing. As of October 31, 2005, Newgold's principal
commitments included its obligation to pay ongoing maintenance fees on its 78
unpatented mining claims on the Relief Canyon property.
28
Our management believes that it will need to raise additional capital to
continue to develop, promote and conduct its exploration and mining operations.
Due to our limited cash flow, operating losses and limited assets, it is
unlikely that we could obtain financing through commercial or banking sources.
Consequently, we are dependent on continuous cash infusions from our major
stockholders or other outside sources in order to fund our current operations.
To date, Newgold's president has paid a substantial portion of Newgold's
expenses since restarting its business in February 2003. Although Newgold
believes that these creditors and investors will continue to fund Newgold's
expenses based upon their significant debt or equity interest in Newgold, there
is no assurance that such investors will continue to fund Newgold's ongoing
operating expenses. If adequate funds are not otherwise available, through
public or private financing as well as borrowing from other sources, Newgold
would not be able to establish or sustain its mining operations.
Recent Financing Transaction
----------------------------
On January 27, 2006, we entered into a Securities Purchase Agreement (the
"Purchase Agreement") and other agreements in connection with the private
placement of a convertible debenture, in the principal amount of $1,000,000 and
bearing interest at 8% per annum (the "Debenture"). The Debenture will be funded
$600,000 on January 27, 2006, $200,000 upon the filing of a resale registration
statement with the SEC and $200,000 upon the registration statement being
declared effective by the SEC. The Debenture is due and payable on January 27,
2009 unless it is converted into shares of Newgold Common Stock or is repaid
prior to its expiration date. The conversion rate is adjustable and at any
conversion date, will be the lower of $0.2626 per share or 95% of the Market
Conversion Price. Consequently, the number of shares of Newgold Common Stock
into which the Debenture may be covered will never be less than 3,808,073 shares
but could be substantially more if the average price of Newgold's Common Stock
falls below $0.2626.
In conjunction with the Purchase Agreement, we entered into an Investor
Registration Rights Agreement (the "Registration Rights Agreement"). The
Registration Rights Agreement requires us to register at least 24,050,025 shares
of our Common Stock to cover the conversion of the Debenture (assuming
conversion prices substantially below $0.26) and 2,500,000 shares of our Common
Stock issuable upon conversion of warrants (the "Warrants") granted to the
Debenture holder. We are required to keep this Registration Statement effective
until the Debenture has been fully converted, repaid, or becomes due and the
Warrants have been fully exercised or expire. Both the Debenture and the
Warrants are currently convertible or exercisable, respectively.
In conjunction with the Purchase Agreement, we entered into a Security Agreement
(the "Security Agreement"). The Security Agreement creates a secured interest in
favor of the Debenture holder in our mining interest and assets in the Relief
Canyon Mine property. This security interest was created by recordation of a
Memorandum of Security Agreement filed in Pershing County, Nevada on February
14, 2006. Consequently, should a default occur under the Debenture, the
Debenture holder could take over or sell all of our interests, business and
assets associated with the Relief Canyon Mine.
29
In conjunction with the Purchase Agreement, we granted 2,500,000 warrants to
purchase shares of Newgold Common Stock, 1,250,000 exercisable at $0.20 per
share and 1,250,000 exercisable at $0.30 per share. The Warrants have a term of
four years. The exercisable price may be reduced if shares of Newgold's Common
Stock are sold at a price below the Warrant exercise price.
Lastly, in conjunction with the Purchase Agreement, we entered into a Pledge and
Escrow Agreement whereby up to an additional 24,050,025 shares of Newgold Common
Stock could be issued to the Debenture holder in the event of a default relating
to the Debenture. The precise amount of shares that would be required to be
issued to the Debenture holder would depend on the amount of principal and
interest outstanding under the Debenture at the time a default was declared.
Pursuant to the Purchase Agreement, for so long as at least $200,000 of
principal remains outstanding under the Debenture, the Debenture holder will
have approval rights over any major transaction (i.e., merger, stock splits,
sale of assets) or any issuance of common or preferred stock by Newgold with
certain exceptions. The Debenture holder will also have a right of first refusal
for a period of 18 months with regard to any additional capital sought to be
raised by Newgold.
Off-Balance Sheet Arrangements
------------------------------
During the fiscal quarter ended October 31, 2005, Newgold did not engage in any
off-balance sheet arrangements as defined in Item 303(c) of the SEC's Regulation
S-B.
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of our financial condition and results of operation
are based upon our financial statements, which have been prepared in accordance
with generally accepted accounting principles in the United States. The
preparation of financial statements requires management to make estimates and
disclosures on the date of the financial statements. On an on-going basis, we
evaluate our estimates, including, but not limited to, those related to revenue
recognition. We use authoritative pronouncements, historical experience and
other assumptions as the basis for making judgments. Actual results could differ
from those estimates. We believe that the following critical accounting policies
affect our more significant judgments and estimates in the preparation of our
financial statements.
Valuation of long-lived assets
------------------------------
Long-lived assets, consisting primarily of property and equipment, patents and
trademarks, and goodwill, comprise a significant portion of our total assets.
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that their carrying values may not be recoverable.
Recoverability of assets is measured by a comparison of the carrying value of an
asset to the future net cash flows expected to be generated by those assets. The
cash flow projections are based on historical experience, management's view of
growth rates within the industry, and the anticipated future economic
environment.
30
Factors we consider important that could trigger a review for impairment include
the following:
(a) significant underperformance relative to expected historical
or projected future operating results,
(b) significant changes in the manner of our use of the acquired
assets or the strategy of our overall business, and
(c) significant negative industry or economic trends.
When we determine that the carrying value of long-lived assets and related
goodwill and enterprise-level goodwill may not be recoverable based upon the
existence of one or more of the above indicators of impairment, we measure any
impairment based on a projected discounted cash flow method using a discount
rate determined by our management to be commensurate with the risk inherent in
our current business model.
Deferred Reclamation Costs
--------------------------
In August 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 143, "Accounting for
Asset Retirement Obligations," which established a uniform methodology for
accounting for estimated reclamation and abandonment costs. The statement was
adopted February 1, 2003. The reclamation costs will be allocated to expense
over the life of the related assets and will be adjusted for changes resulting
from the passage of time and revisions to either the timing or amount of the
original present value estimate.
Prior to adoption of SFAS No. 143, estimated future reclamation costs were based
principally on legal and regulatory requirements. Such costs related to active
mines were accrued and charged over the expected operating lives of the mines
using the units of production method based on proven and probable reserves.
Future remediation costs for inactive mines were accrued based on management's
best estimate at the end of each period of the undiscounted costs expected to be
incurred at a site. Such cost estimates included, where applicable, ongoing
care, maintenance and monitoring costs. Changes in estimates at inactive mines
were reflected in earnings in the period an estimate was revised.
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
31
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.
Reclamation Costs
-----------------
Reclamation costs and related accrued liabilities, which are based on our
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 our best estimates
of our ultimate reclamation liabilities could change as a result of changes in
regulations or cost estimates.
Recent Accounting Pronouncements
--------------------------------
In March 2005, the FASB issued FASB Interpretation ("FIN") No. 47, "Accounting
for Conditional Asset Retirement Obligations". FIN No. 47 clarifies that the
term conditional asset retirement obligation as used in FASB Statement No. 143,
"Accounting for Asset Retirement Obligations," refers to a legal obligation to
perform an asset retirement activity in which the timing and (or) method of
settlement are conditional on a future event that may or may not be within the
control of the entity. The obligation to perform the asset retirement activity
is unconditional even though uncertainty exists about the timing and (or) method
of settlement. Uncertainty about the timing and/or method of settlement of a
conditional asset retirement obligation should be factored into the measurement
of the liability when sufficient information exists. This interpretation also
clarifies when an entity would have sufficient information to reasonably
estimate the fair value of an asset retirement obligation. FIN No. 47 is
effective no later than the end of fiscal years ending after December 15, 2005
(December 31, 2005 for calendar-year companies). Retrospective application of
interim financial information is permitted but is not required. Management does
not expect adoption of FIN No. 47 to have a material impact on our financial
statements.
In May 2005, the FASB issued Statement of Accounting Standards (SFAS) No. 154,
"Accounting Changes and Error Corrections" an amendment to Accounting Principles
Bulletin (APB) Opinion No. 20, "Accounting Changes", and SFAS No. 3, "Reporting
Accounting Changes in Interim Financial Statements" though SFAS No. 154 carries
forward the guidance in APB No. 20 and SFAS No. 3 with respect to accounting for
changes in estimates, changes in reporting entity, and the correction of errors.
SFAS No. 154 establishes new standards on accounting for changes in accounting
principles, whereby all such changes must be accounted for by retrospective
application to the financial statements of prior periods unless it is
impracticable to do so. SFAS No. 154 is effective for accounting changes and
error corrections made in fiscal years beginning after December 15, 2005, with
early adoption permitted for changes and corrections made in years beginning
after May 2005.
32
LEGAL PROCEEDINGS
On February 4, 2000, a complaint was filed against Newgold by Sun G. Wong in the
Superior Court of Sacramento County, California (Case No. 00AS00690). In the
complaint, Mr. Wong claims that he was held liable as a guarantor of Newgold in
a claim brought by Don Christianson in a breach of contract action against
Newgold. Despite the fact that Newgold settled the action with Mr. Christianson
through the issuance of 350,000 shares of Newgold Common Stock, Mr. Wong,
nevertheless, paid $60,000 to a third party claiming to hold Mr. Christianson's
judgment pursuant to Mr. Wong's guaranty agreement. Similarly, Mr. Wong alleges
that he was held liable as a guarantor for a debt of $200,000 owed by Newgold to
Roger Primm with regard to money borrowed by Newgold. Mr. Primm filed suit
against Newgold which was settled through the issuance of 300,000 shares of
Newgold Common Stock. Nevertheless, Mr. Wong alleges that he remains liable to a
third party claiming to hold Mr. Primm's judgment for approximately $200,000
pursuant to his guaranty of such debt of Mr. Primm. On December 29, 2000, the
superior court entered a default judgment against Newgold in the amount of
$400,553 with regard to the Christianson judgment and an additional $212,500 in
regard to the Primm judgment against Mr. Wong. Newgold believes that Mr. Wong
was not obligated to pay any sums pursuant to his guarantees with regard to the
Christianson and Primm judgments against Newgold. Should Mr. Wong seek to assert
these judgments against Newgold, Newgold cannot predict the outcome of any such
action or the amount of expenses that would be ultimately incurred in defending
any such claims. Newgold is currently negotiating a settlement with Mr. Wong,
however there is no assurance that an acceptable settlement will be consummated.
On May 18, 2004 Paul Ngoyi filed a petition for involuntary bankruptcy against
Newgold (Case No. BK-N-0451511). Mr. Ngoyi claims to be the holder of both the
Christiansen and Primm judgments against Newgold and is claming that Newgold
cannot pay such judgments because it is insolvent. Newgold maintains that Mr.
Ngoyi's claims are invalid as the two judgments were previously satisfied and
that Newgold is not insolvent. A pre-trial hearing was held on April 4, 2005 at
which time Newgold prevailed in having Mr. Ngoyi's petition dismissed. An order
of dismissal was issued May 10, 2005.
MANAGEMENT
The following table sets forth information about the directors and executive
officers of Newgold together with the principal positions and offices with
Newgold held by each:
---------------------------- ------- ------------------------------------------------------ ------------------------
NAME OF PERSON AGE POSITION AND OFFICE PRESENTLY HELD WITH NEWGOLD DIRECTOR SINCE
---------------------------- ------- ------------------------------------------------------ ------------------------
A. Scott Dockter 50 Chairman, CEO and President 1996
---------------------------- ------- ------------------------------------------------------ ------------------------
James W. Kluber 55 Chief Financial Officer and Director 2000
---------------------------- ------- ------------------------------------------------------ ------------------------
Biographical information for directors and executive officers:
--------------------------------------------------------------
A. SCOTT DOCKTER has been the Chief Executive Officer and Chairman since
December 2000, assuming such positions upon the resignation of James Cutburth.
Mr. Dockter had previously served as Newgold's CEO and President from November
1996 until February 2000 at which
33
time Mr. Cutburth assumed such positions. Mr. Dockter has been self-employed in
the business sector since 1978 and currently operates his business through ASD
CORP and ASDi LLC. He has held a Class A General Engineering and Contracting
License for more than 20 years, operating his businesses in California, Nevada
and Montana, specializing in earth moving, mining, pipeline projects,
structures, dams, industrial parks and sub divisions. Mr. Dockter has directed
his companies in large landfill operations, underground concrete structures
projects, large excavations, reclamation projects and others, which include
state and local municipal projects. Mr. Dockter has also been a real estate
developer, worked on oil & gas projects and has spent 15 years in the mining
industry. He has personally owned mines, operated mines, constructed mine
infrastructures (physical, production and process) and produced precious metals.
In January 2002, Mr. Dockter pleaded guilty to one felony charge of
environmental pollution and was sentenced to 5 months in a Federal detention
camp and a $5,000 fine. The charge related to the release in the summer 1997 of
a hazardous material (asbestos) at a demolition project owned by Riverfront
Development Corporation, a corporation founded by Mr. Dockter of which he was
then the CEO.
JAMES W. KLUBER has been the Chief Financial Officer of Newgold since February
2000 and a director since April 2000. Mr. Kluber has served as a senior
financial consultant in a variety of service and technology environments with
special focus on high growth companies and restructuring operations. He has
successfully raised capital for companies in a variety of markets, utilizing
public and private equity as well as securitized and unsecured debt to
accomplish funding requirements. From December 2001 to September 2003, Mr.
Kluber was the CFO and until October 2005 was the interim CFO of NutraCea a
public company involved in the development and distribution of products based on
the use of stabilized rice bran. Additionally, he was the Senior Vice President
and CFO from 1996 to 1999 for RealPage, Inc. a leading provider of software and
services to the real estate industry. From 1993 to 1996 he served as Vice
President of Financial Operations for two public companies sponsored by Security
Capital Group, ProLogis Trust and Archstone Communities.
The current Directors will serve and hold office until the next annual
stockholders' meeting or until their respective successors have been duly
elected and qualified. Newgold's executive officers are appointed by the Board
of Directors and serve at the discretion of the Board.
FAMILY RELATIONSHIPS
There are no family relationships between any director or executive officer.
BOARD MEETINGS AND COMMITTEES
Our Board of Directors held six meetings during the fiscal year ended January
31, 2006 and acted by unanimous written consent on two occasions. The Board does
not currently have an Audit, Executive or Compensation Committee. At the current
time, the entire Board of Directors acts as Newgold's audit committee. In
addition, we do not have an audit committee financial expert because it does not
currently have a designated audit committee. We have only two directors, both of
whom are also officers of Newgold. We plan to appoint additional directors to
our Board and appoint an independent audit committee during the current year.
34
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our
executive officers and directors, and persons who own more than 10% of Newgold's
Common Stock to file reports of ownership on Form 3 and changes in ownership on
Form 4 with the Securities and Exchange Commission (the "SEC"). Such executive
officers, directors and 10% stockholders are also required by SEC rules to
furnish us with copies of all Section 16(a) forms they file. Based solely upon
its review of copies of such forms received by it, or on written representations
from certain reporting persons that no other filings were required for such
persons, Newgold believes that, during the fiscal year ended January 31, 2006,
its executive officers and directors and 10% stockholders complied with all
applicable Section 16(a) filing requirements except as follows:
Mr. Dockter sold 6,316,414 shares of Newgold Common Stock on September 1, 2005.
He did not file a Form 4 regarding this disposition until September 16, 2005.
Mr. Dockter, through an affiliated entity, acquired 2.5 million shares of
Newgold Common Stock and options to purchase 2.5 million shares of Newgold
Common Stock on January 25, 2006. He did not file a Form 4 timely but reported
this transaction on a Form 5 which was timely filed on February 14, 2006.
EXECUTIVE COMPENSATION
The following table sets forth the compensation of our chief executive officer
during the last three complete fiscal years and each officer who received annual
compensation in excess of $100,000 during the last completed fiscal year.
SUMMARY COMPENSATION TABLE
For Years Ended January 31, 2006, 2005 and 2004
Annual Compensation Long Term Compensation
--------------------------------------- --------------------------------------------
Awards Payout
------------------------------ ----------
Restricted Securities
Other Annual Stock Underlying LTIP All Other
Fiscal Salary Bonus Compensation Award(s) Options Payout Compensation
Year ($) ($) ($) (#) ($) ($)
------ -------------- ------- ---------------- -------------- --------------- ---------- --------------
Scott Dockter (CEO) 2006 $180,000 -0- -0- -0- -0- -0- -0-
2005 $ 60,000 -0- -0- -0- -0- -0- -0-
2004 $ 60,000(1) -0- -0- -0- -0- -0- -0-
35
James Kluber(2) (CFO) 2006 $160,000 -0- -0- -0- -0- -0- 6,000(3)
2005 $140,000 -0- -0- -0- -0- -0- 6,000(3)
2004 $140,000 -0- -0- -0- -0- -0- 6,000(3)
-----------------------------
(1) Of the amounts shown, the following amounts have been deferred: 2006 -
$75,000; 2004 - $24,000. The deferred amount for 2004 was converted to
a convertible note payable on October 1, 2004.
(2) Of the amounts shown, the following amounts have been deferred: 2006 -
$11,057; 2005 - $93,500; 2004 - $89,000. The deferred amount for 2004
was converted to a convertible note payable on October 1, 2004.
(3) Amount reflects a home office allowance
STOCK OPTION PLAN
We do not have a formal stock option plan currently in place. Options to date
have been granted on an individual basis pursuant to individual option
agreements. We expect to adopt a formal stock option plan during this current
fiscal year.
Options/SAR Grants in Last Fiscal Year
--------------------------------------
The following table sets forth certain information with respect to options or
SAR grants of Common Stock during the fiscal year ended January 31, 2006 to the
Named Executive Officers.
------------------------- ------------------------- ----------------------- ------------------ ----------------------
Name Number of Securities Percent of Total Exercise or Base Expiration Date
Underlying Options Options Granted to Price
Granted Employees at January ($ Per Share)
31, 2006
------------------------- ------------------------- ----------------------- ------------------ ----------------------
None
------------------------- ------------------------- ----------------------- ------------------ ----------------------
Aggregated Option/SAR Exercises Year-End Table.
During the fiscal year ended January 31, 2006, none of the Named Executive
Officers had exercised any options/SARs issued by Newgold. The following table
sets forth information regarding the stock options held as of January 31, 2006
by the Named Executive Officers.
----------------------------- ------------------------------------------- -------------------------------------------
Name Number of Securities Underlying Value of Unexercised
Unexercised Options at In-the-Money Options at
January 31, 2006 January 31, 2006
----------------------------- --------------------- --------------------- -------------------- ----------------------
Exercisable Unexercisable Exercisable Unexercisable
----------------------------- --------------------- --------------------- -------------------- ----------------------
None
----------------------------- --------------------- --------------------- -------------------- ----------------------
36
EMPLOYMENT AGREEMENTS
On February 1, 2006, we entered into an employment agreement with A. Scott
Dockter to serve as our chief executive officer for Newgold, Inc. Pursuant to
the agreement, Mr. Dockter will receive an annual salary of $180,000 and an
automobile expense allowance of $1,000 per month. In addition, Mr. Dockter will
be eligible to participate in any discretionary bonuses or employee stock option
plans which may be adopted in the future. The employment agreement has a term of
three years.
On February 1, 2006, we entered into an employment agreement with James W.
Kluber to serve as our chief financial officer of Newgold, Inc. Pursuant to the
agreement, Mr. Kluber will receive an annual salary of $160,000 and an office
expense allowance of $500 per month. In addition, Mr. Kluber will be eligible to
participate in any future discretionary bonuses or employee stock option plans
which may be adopted in the future. The employment agreement has a term of three
years.
EMPLOYEE PENSION, PROFIT SHARING OR OTHER RETIREMENT PLANS
We do not have a defined benefit pension plan or profit sharing or other
retirement plan.
COMPENSATION OF DIRECTORS
Our directors are also officers of Newgold and do not receive any additional
compensation for their services as members of the Board of Directors.
We intend to appoint additional directors in the future who may or may not be
employees. For the non-employee directors, we may seek stockholder approval for
a "Director Option Plan" which would serve as the compensation plan for such
directors. No specific plan had been developed as of the end of the last fiscal
year.
CODE OF ETHICS
We have adopted a Code of Ethics that applies to the principal executive
officer, principal accounting officer or controller, or persons performing
similar functions.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Newgold's bylaws provide that it will indemnify its officers and directors,
employees and agents and former officers, directors, employees and agents unless
their conduct is finally adjudged as grossly negligent or to be willful
misconduct. This indemnification includes expenses (including attorneys' fees),
judgments, fines, and amounts paid in settlement actually and reasonably
incurred by these individuals in connection with such action, suit, or
proceeding, including any appeal thereof, subject to the qualifications
contained in Delaware law as it now exists. Expenses (including attorneys' fees)
incurred in defending a civil or criminal action, suit, or proceeding will be
paid by Newgold in advance of the final disposition of such action, suit, or
proceeding upon receipt of an undertaking by or on behalf of the director,
officer, employee or agent to repay such amount, unless it shall ultimately be
determined that he or she is entitled to be indemnified by Newgold as authorized
in the bylaws. This indemnification will continue as
37
to a person who has ceased to be a director, officer, employee or agent, and
will benefit their heirs, executors, and administrators. These indemnification
rights are not deemed exclusive of any other rights to which any such person may
otherwise be entitled apart from the bylaws. Delaware law generally provides
that a corporation shall have the power to indemnify persons if they acted in
good faith in a manner reasonably believed to be in, or not opposed to, the best
interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the conduct was unlawful. In the
event any such person is judged liable for negligence or misconduct, this
indemnification will apply only if approved by the court in which the action was
pending. Any other indemnification shall be made only after the determination by
Newgold's Board of Directors (excluding any directors who were party to such
action), by independent legal counsel in a written opinion, or by a majority
vote of stockholders (excluding any stockholders who were parties to such
action) to provide such indemnification.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "1933Act") may be permitted to directors, officers and controlling
persons of Newgold pursuant to the foregoing provisions, or otherwise, Newgold
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the 1933 Act and
is, therefore, enforceable.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The following table sets forth the number of shares of Newgold's Common Stock
beneficially owned as of January 31, 2006 by, (i) each executive officer and
director of Newgold; (ii) all executive officers and directors of Newgold as a
group; and (iii) owners of more than 5% of Newgold's Common Stock.
--------------------------------------- ----------------------- ------------------------ -------------------
NAME AND ADDRESS OF BENEFICIAL OWNER POSITION NUMBER OF SHARES PERCENT
BENEFICIALLY OWNED
--------------------------------------- ----------------------- ------------------------ -------------------
OFFICERS AND DIRECTORS
--------------------------------------- ----------------------- ------------------------ -------------------
A. Scott Dockter Chairman and CEO 23,021,306(1) 29%
400 Capitol Mall, Suite 900
Sacramento, CA 95814
--------------------------------------- ----------------------- ------------------------ -------------------
James Kluber CFO, Executive Vice 1,395,007(2) 2%
327 Copperstone Trail President, and
Coppell, TX 75019 Secretary
--------------------------------------- ----------------------- ------------------------ -------------------
All officers and directors as a group 24,416,313 31%
( 2 individuals)
--------------------------------------- ----------------------- ------------------------ -------------------
STOCKHOLDERS OWNING 5% OR MORE
--------------------------------------- ----------------------- ------------------------ -------------------
City Natural Resources 5,000,000(3) 7.1%
High Yield Trust
Mansfield House
1 Southhampton Street
London , England WC2R OLR
--------------------------------------- ----------------------- ------------------------ -------------------
(1) Amount includes 12,157,909 shares issuable under stock warrants
exercisable within 60 days of January 31, 2006.
(2) Amount represents 1,395,007 shares issuable under stock warrants
exercisable within 60 days of January 31, 2006. Amount excludes shares
issuable pursuant to a convertible promissory note in the principal
amount of $209,251.
38
(3) Amount includes 2,500,000 shares issuable under stock warrants
exercisable within 60 days of January 31, 2006.
EQUITY COMPENSATION PLAN INFORMATION
------------------------------- ---------------------------- ---------------------------- ----------------------------
Plan Category Number of securities to be Weighted-average exercise Number of securities
issued upon exercise of price of outstanding remaining available for
outstanding options, options, warrants and right future issuance under
warrants and rights equity compensation
plans (excluding securities
reflected in column
(a))
(a) (b) (c)
------------------------------- ---------------------------- ---------------------------- ----------------------------
Equity compensation plans
approved by security holders N/A
------------------------------- ---------------------------- ---------------------------- ----------------------------
Equity compensation plans not
approved by security holders N/A
------------------------------- ---------------------------- ---------------------------- ----------------------------
N/A
Total
------------------------------- ---------------------------- ---------------------------- ----------------------------
CERTAIN RELATIONSHIPS AND RELATED TRANSACTION
During the 2005 fiscal year, the President of Newgold, Scott Dockter, had loaned
Newgold an aggregate of $41,797 and was repaid $21,953. In October 2004 various
loans made by Mr. Dockter were consolidated into a convertible promissory note
which is due on September 30, 2005 and bears interest at 8% per annum. As of
January 31, 2005, Mr. Dockter had loaned Newgold a total of $1,422,587 and
accrued interest of $446,193. Mr. Dockter is the largest creditor of Newgold. In
addition to the convertible promissory note, Mr. Dockter has been issued
Warrants to purchase up to 3,859,769 shares of Newgold's Common Stock at an
exercise price of $0.15/share.
On January 25, 2006, Newgold entered into a joint venture with ASDi, LLC to
develop two Nevada mining properties known as the Red Caps Project and Crescent
Valley Project. The Red Caps consists of approximately 96 unpatented mining
claims covering 1900 acres and the Crescent Valley consists of approximately 39
unpatented mining claims covering 750 acres. The Red Caps and Crescent Valley
mining claims are currently owned by ASDi, LLC, which is owned and managed by A.
Scott Dockter, Chairman and CEO of Newgold. The joint venture
39
will be operated through a newly formed Nevada limited liability company called
Crescent Red Caps, LLC. The terms of the joint venture provide for ASDi to
contribute the Red Caps and Crescent Valley mining claims to the LLC in exchange
for Newgold issuing 2.5 million shares of its Common Stock to ASDi. Newgold will
initially own a 22.22% interest in the LLC and ASDi will hold a 77.78% interest.
By expending up to $1,350,000 on each project over the next three years, Newgold
can increase its interest in the LLC to 66.66%. Thereafter, Newgold has the
right to purchase the remaining interest in the LLC held by ASDi at a price to
be determined by the results of the exploration work conducted. Newgold will be
the Manager of the LLC.
Should a transaction, proposed transaction, or series of transactions involve
one of our officers or directors or a related entity or an affiliate of a
related entity, or holders of stock representing 5% or more of the voting power
(a "related entity") of our then outstanding voting stock, the transactions must
be approved by the unanimous consent of our board of directors. In the event a
member of the board of directors is a related party, that member will abstain
from the vote.
DESCRIPTION OF SECURITIES
We are authorized to issue 250,000,000 shares of Common Stock, $.001 par value
per share. We are not authorized to issue any preferred stock consisting. We had
68,104,072 shares of our Common Stock and no shares of preferred stock
outstanding as of January 31, 2006.
COMMON STOCK
The holders of outstanding shares of Common Stock are entitled to receive
dividends out of assets or funds legally available for the payment of dividends
at such times and in such amounts as the board from time to time may determine.
The Common Stock is not entitled to pre-emptive rights and is not subject to
conversion or redemption. Upon liquidation, dissolution or winding up of our
business, the assets legally available for distribution to stockholders are
distributable ratably among the holders of the Common Stock after payment of
liquidation preferences, if any, on any outstanding preferred or Common Stock or
other claims of creditors.
Each outstanding share of Common Stock is duly and validly issued, fully paid
and non-assessable.
The holders of Newgold Common Stock are entitled to one vote for each share held
on all matters submitted to a vote of Newgold stockholders. Under certain
circumstances, California law permits the holders of Newgold Common Stock to
assert their right to cumulate their votes for the election of directors, in
which case holders of less than a majority of the outstanding shares of Newgold
Common Stock could elect one or more of Newgold's directors. Holders of Newgold
Common Stock have no preemptive, subscription, or redemption rights.
TRANSFER AGENT
Transfer Online, Inc., Portland Oregon, serves as a transfer agent for the
shares of Newgold Common Stock.
SELLING SECURITY HOLDERS
The table below lists the selling stockholders and other information regarding
the beneficial ownership of the Common Stock by each of the selling
stockholders. The first column lists the
40
name of each selling stockholder. The second column lists the number of shares
of Common Stock beneficially owned by each selling stockholder as of January 31,
2006. The third column lists the number of shares of Common Stock that may be
resold under this prospectus. The fourth and fifth columns list the number of
shares of Common Stock owned and the percentage of Common Stock owned after the
resale of the Common Stock registered under this prospectus. The total number of
shares of our Common Stock outstanding as of January 31, 2006 was 68,104,072.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, and includes voting and investment power
with respect to such shares. Shares of Common Stock issuable upon conversion of
a convertible debenture and shares of Common Stock subject to options or
warrants that are currently exercisable or exercisable within 60 days after
January 31, 2006 are deemed to be beneficially owned by the person holding such
options for the purpose of computing the percentage ownership of such person but
are not treated as outstanding for the purpose of computing the percentage
ownership of any other stockholder.
41
COMMON SHARES COMMON SHARES COMMON SHARES
BENEFICIALLY OWNED OFFERED BY THIS BENEFICIALLY OWNED
NAME OF SELLING STOCKHOLDER PRIOR TO OFFERING PROSPECTUS AFTER OFFERING
-------------------------------------- ----------------------- -------------------- --------------- -- --------------
NUMBER PERCENTAGE
--------------- --------------
Cornell Capital Partners, LP 25,000,000(1) 25,000,000 ---- *
City Natural Resources High Yield
Trust(2) 5,000,000 5,000,000 ---- *
----------------------- -------------------- --------------- --------------
30,000,000 30,000,000 ---- *
======================= ==================== =============== ==============
* Represents holdings of less than one percent
(1) Estimated maximum number of shares of common issuable upon conversion of
Convertible Debenture (22,500,000 shares) beneficially owned by Cornell
Capital Partners, and 2,500,000 shares of common stock underlying warrants
immediately exercisable. Yorkville Advisors, LLC, which is the investment
advisor and general partner of Cornell Capital Partners, has sole
dispositive, investment and voting power for all the shares. Pursuant to
the Convertible Debenture, Cornell Capital Partners will not own more than
4.9% of our then outstanding common stock at any time. The address for
Cornell Capital Partners, is 101 Hudson Street, Suite 3700, Jersey City,
New Jersey 07303.
(2) Securities beneficially owned by City Natural Resources High Yield Trust,
represent 2,500,000 shares of common stock and 2,500,000 shares of common
stock underlying warrants immediately exercisable. The address for City
Natural Resources High Yield Trust is Mansfield House, 1 Southhampton
Trust, London, England WC2 ROLR
PLAN OF DISTRIBUTION
Each of the selling stockholders, and any of their donees, pledgees, transferees
or other successors-in-interest selling shares of Newgold Common Stock or
interests in shares of Newgold Common Stock received after the date of this
prospectus from a selling stockholder as a gift, pledge, partnership
distribution or other transfer, may, from time to time, sell, transfer or
otherwise dispose of any or all of their shares of Common Stock or interests in
shares of Common Stock on any stock exchange, market or trading facility on
which the shares are traded or in private transactions. These dispositions may
be at fixed prices, at prevailing market prices at the time of sale, at prices
related to the prevailing market price, at varying prices determined at the time
of sale, or at negotiated prices. A selling stockholder will act independently
of Newgold in making decisions with respect to the timing, manner and size of
each sale.
Each of the selling stockholders may use any one or more of the following
methods when selling shares:
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the block
as principal to facilitate the transaction;
42
o purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o an exchange distribution in accordance with the rules of the
applicable exchange;
o privately negotiated transactions;
o settlement of short sales entered into after the date of this
prospectus;
o broker-dealers may agree with the selling stockholders to sell a
specified number of such shares at a stipulated price per share;
o a combination of any such methods of sale;
o through the writing or settlement of options or other hedging
transactions, whether through an options exchange or otherwise; or
o any other method permitted pursuant to applicable law.
Broker-dealers engaged by the selling stockholders may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the selling stockholders (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. Each selling stockholder does not expect these commissions and
discounts relating to its sales of shares to exceed what are customary in the
types of transactions involved.
In connection with the sale of our Common Stock or interests therein, the
selling stockholders may enter into hedging transactions with broker-dealers or
other financial institutions, which may in turn engage in short sales of the
Common Stock in the course of hedging the positions they assume. The selling
stockholders may also sell shares of our Common Stock short and deliver these
securities to close out their short positions, or loan or pledge the Common
Stock to broker-dealers that in turn may sell these securities. The selling
stockholders may also enter into options or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such transaction).
The selling stockholders and any broker-dealers or agents that are involved in
selling the shares may be deemed to be "underwriters" within the meaning of the
Securities Act of 1933 (the "Securities Act") in connection with such sales. In
such event, any commissions received by such broker-dealers or agents and any
profit on the resale of the shares purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act. Discounts,
concessions, commissions and similar selling expenses, if any, that can be
attributed to the sale of securities will be paid by the selling stockholders
and/or the purchasers. Each selling stockholder has informed Newgold that it
does not have any agreement or understanding, directly or indirectly, with any
person to distribute the Common Stock.
43
Newgold is required to pay certain fees and expenses incurred by it incident to
the registration of the shares. Newgold has agreed to indemnify the selling
stockholders against certain losses, claims, damages and liabilities, including
liabilities under the Securities Act.
Because selling stockholders may be deemed to be "underwriters" within the
meaning of the Securities Act, they will be subject to the prospectus delivery
requirements of the Securities Act. In addition, any securities covered by this
prospectus which qualify for sale pursuant to Rule 144 under the Securities Act
may be sold under Rule 144 rather than under this prospectus. Each selling
stockholder has advised us that they have not entered into any agreements,
understandings or arrangements with any underwriter or broker-dealer regarding
the sale of the shares. There is no underwriter or coordinating broker acting in
connection with the proposed sale of the shares by the selling stockholders.
We agreed to keep this prospectus effective until the earlier of (i) January 27,
2009 (ii) the date on which the shares may be resold by the selling stockholders
pursuant to Rule 144(k) under the Securities Act or any other rule of similar
effect or (iii) all of the shares have been sold pursuant to the prospectus or
Rule 144 under the Securities Act or any other rule of similar effect. The
resale shares will be sold only through registered or licensed brokers or
dealers if required under applicable state securities laws. In addition, in
certain states, the resale shares may not be sold unless they have been
registered or qualified for sale in the applicable state or an exemption from
the registration or qualification requirement is available and is complied with.
Under applicable rules and regulations under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), any person engaged in the distribution of
the shares may not simultaneously engage in market making activities with
respect to our Common Stock for a period of two business days prior to the
commencement of the distribution. In addition, the selling stockholders will be
subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder, including Regulation M, which may limit the timing of
purchases and sales of shares of our Common Stock by the selling stockholders or
any other person. We will make copies of this prospectus available to the
selling stockholders and have informed them of the need to deliver a copy of
this prospectus to each purchaser at or prior to the time of the sale.
DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
Our Bylaws, subject to the provisions of Delaware Corporation Law, contain
provisions which allow the corporation to indemnify any person against
liabilities and other expenses incurred as the result of defending or
administering any pending or anticipated legal issue in connection with service
to us if it is determined that person acted in good faith and in a manner which
he reasonably believed was in the best interest of the corporation. Insofar as
indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to our directors, officers and controlling persons, we have been
advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
44
LEGAL MATTERS
The validity of the shares offered under this registration statement is being
passed upon by Weintraub Genshlea Chediak Law Corporation, Sacramento,
California.
EXPERTS
Our financial statements for the nine month period ended October 31 2005 and for
the fiscal years ending January 31, 2004 and 2005 included in this prospectus
have been so included in reliance on the report of Singer Lewak Greenbaum &
Goldstein LLP independent registered public accounting firm, given on that
firm's authority as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form SB-2 (File Number
333-__________) under the Securities Act of 1933 regarding the shares of Common
Stock offered hereby. This prospectus does not contain all of the information
found in the registration statement, portions of which are omitted as permitted
under the rules and regulations of the SEC. For further information regarding us
and the securities offered by this prospectus, please refer to the registration
statement, including its exhibits and schedules. Statements made in this
prospectus concerning the contents of any contract, agreement or other document
filed as an exhibit to the registration statement are summaries of the terms of
those documents. The registration statement of which this prospectus forms a
part, including its exhibits and schedules, may be inspected and copied at the
public reference room maintained by the SEC at 100 F Street, N.E., Washington,
D.C. 20549. You may obtain information on the operation of the public reference
room by calling the SEC at 1-800-SEC-0330.
The SEC maintains a web site on the Internet at www.sec.gov. Our registration
statement and other information that we file with the SEC are available at the
SEC's website.
We intend to make available to our stockholders annual reports (on Form 10-KSB)
containing our audited consolidated financial statements and make available
quarterly reports (on Form 10-QSB) containing our unaudited interim consolidated
financial information for the first three fiscal quarters of each of our fiscal
years.
If you are a stockholder, you may request a copy of these filings at no cost by
contacting us at:
NEWGOLD, INC.
400 CAPITOL MALL, SUITE 900
SACRAMENTO, CA 95814
(916) 449-3913 (O)
(916) 449-8259 (F)
45
FINANCIAL STATEMENTS
NEWGOLD, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
ANNUAL FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm F-1
Consolidated Balance Sheet as of January 31, 2005 F-2
Consolidated Statements of Operations for the years ended January
31, 2005 and 2004 F-3
Consolidated Statements of Comprehensive Losses for the years ended
January 31, 2005 and 2004 F-4
Consolidated Statements of Changes in Stockholders' Deficit as of
January 31, 2005 and 2004 F-5
Consolidated Statements of Cash Flows for the years ended January
31, 2005 and 2004 F-6
Notes to Consolidated Financial Statements F-7
INDEX TO UNAUDITED FINANCIAL STATEMENTS F-21
INTERIM FINANCIAL STATEMENTS
Consolidated Balance Sheet as of October 31, 2005 (Unaudited) F-22
Consolidated Statements of Operations for the nine and three months
ended October 31, 2005 and 2004 (Unaudited) F-23
Consolidated Statements of Comprehensive Losses for the nine and
three months ended October 31, 2005 and 2004 (Unaudited) F-24
Consolidated Statements of Cash Flows for the nine months ended
October 31, 2005 and 2004 (Unaudited) F-25
Notes to Unaudited Consolidated Financial Statements F-26
46
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Newgold, Inc.
We have audited the balance sheet of Newgold, Inc. (the "Company") as of January
31, 2005, and the related statements of operations, comprehensive loss,
shareholders' deficit, and cash flows for each of the two years in the period
ended January 31, 2005. 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit 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 provided 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,
2005, and the results of its operations and its cash flows for each of the two
years in the period ended January 31, 2005 in conformity with accounting
principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, during the year ended January 31, 2005, the Company
incurred a net loss of $1,273,140 and had negative cash flows from operations of
$353,201. In addition, the Company had an accumulated shareholders' deficit of
$4,114,280 at January 31, 2005. These factors, among others, as discussed in
Note 2 to the financial statements, raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 2. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
April 15, 2005
F-1
NEWGOLD, INC.
BALANCE SHEET
JANUARY 31, 2005
--------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash $ 16,730
Travel advance 2,000
-------------
Total current assets 18,730
OTHER ASSETS
Deferred reclamation costs 513,946
-------------
Total other assets 513,946
-------------
TOTAL ASSETS $ 532,676
=============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 568,276
Accrued expenses 1,758,646
Accrued reclamation costs 513,946
Notes payable due to individuals and officers 1,006,088
-------------
Total current liabilities 3,846,956
--------------
DEFERRED REVENUE 800,000
--------------
Total liabilities 4,646,956
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Common stock, $0.001 par value
50,000,000 shares authorized
48,277,841 shares issued and outstanding 48,278
Additional paid in capital 12,222,745
Accumulated deficit (16,385,303)
-------------
Total stockholders' deficit (4,114,280)
--------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 532,676
==============
The accompanying notes are an integral part of these financial statements
F-2
NEWGOLD, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JANUARY 31,
--------------------------------------------------------------------------------
2005 2004
----------- -----------
NET SALES $ - $ -
COST OF GOODS SOLD 28,433 37,916
----------- -----------
GROSS PROFIT (LOSS) (28,433) (37,916)
OPERATING EXPENSES (353,972) (306,477)
------------ -----------
LOSS FROM OPERATIONS (382,405) (344,393)
------------ -----------
OTHER INCOME (EXPENSE)
Dividend income - 10,063
Interest expense (614,672) (136,493)
Loss on sale of marketable securities (281,063) -
------------ -----------
Total other income (expense) (895,735) (126,430)
------------ -----------
NET LOSS (1,278,140) $ (470,823)
=========== ===========
BASIC AND DILUTED LOSS PER SHARE $ (0.03) $ (0.01)
=========== ===========
BASIC AND DILUTED WEIGHTED-AVERAGE
SHARES OUTSTANDING 47,644,745 47,595,763
============= ===========
The accompanying notes are an integral part of these financial statements
F-3
NEWGOLD, INC.
STATEMENTS OF COMPREHENSIVE LOSS
FOR THE YEARS ENDED JANUARY 31,
--------------------------------------------------------------------------------
2005 2004
------------- -------------
NET LOSS $ (1,273,140) $ (470,823)
OTHER COMPREHENSIVE LOSS
Unrealized loss from
marketable securities - (204,820)
SALE OF SECURITIES WITH PREVIOUS UNREALIZED
HOLDING LOSS $ 204,820 -
------------- -------------
COMPREHENSIVE LOSS $ (1,068,320) $ (675,643)
============= =============
The accompanying notes are an integral part of these financial statements
F-4
NEWGOLD, INC.
STATMENTS OF SHAREHOLDERS' DEFICIT
FOR THE YEARS ENDED JANUARY 31,
--------------------------------------------------------------------------------
Common Stock Additional Other Com-
-------------------- Paid in prehensive Accumulated
Shares Amount Capital (Loss) Deficit Total
------------ ------- ------------ ----------- ----------- ------------
BALANCE, JANUARY
31, 2003 47,406,174 $47,406 $ 10,754,714 - (14,636,339) (3,834,219)
COMMON STOCK
ISSUED
upon exercise of
warrants 200,000 200 19,800 20,000
WARRANTS ISSUED
WITH DEBT - - 63,918 63,918
OTHER COMPREHENSIVE
LOSS (204,820) (204,820)
NET LOSS (470,823) (470,823)
------------ ------- ------------- ----------- ----------- ------------
BALANCE, JANUARY
31, 2004 47,606,174 47,606 10,838,432 (204,820) (15,107,162) (4,425,944)
COMMON STOCK
ISSUED FOR CASH 671,667 672 100,078 100,750
OFFERING COSTS (124,337) (124,337)
WARRANTS ISSUED
WITH COMMON STOCK 124,337 124,337
WARRANTS ISSUED
WITH DEBT - - 1,284,234 1,284,234
SALE OF MARKETABLE
SECURITIES 204,820 204,820
NET LOSS (1,278,140) 1,278,140)
------------ ------- ------------- ----------- ----------- ------------
BALANCE, JANUARY
31, 2005 48,277,841 $48,278 $ 12,222,745 - $(16,385,303) $ (4,114,280)
============ ======= ============= =========== =========== ============
The accompanying notes are an integral part of these financial statements
F-5
NEWGOLD, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JANUARY 31,
--------------------------------------------------------------------------------
2005 2004
--------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,278,140) $ (470,823)
Adjustments to reconcile net loss to net cash
used in operating activities
Accretion of warrants issued as a debt discount 443,682 22,753
Accretion of beneficial conversion of warrants 35,823 -
Loss on sale of marketable securities 281,063 -
(Increase) decrease in
Employee receivable 2,000 -
Deposits 45,000 (38,500)
Deferred reclamation costs - (463,446)
Increase (decrease) in
Accounts payable 28,082 (2,000)
Accrued salaries and benefits (106,394) 113,000
Accrued expenses 195,683 662,433
--------------- ----------------
Net cash used by operating activities (353,201) (176,583)
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of marketable securities 34,124 (10,063)
--------------- ----------------
Net cash provided (used) by financing activities 34,124 (10,063)
--------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of Common Stock 100,750 20,000
Proceeds from notes payable 251,043 338,943
Principal repayments of notes payable (21,953) (171,952)
--------------- ----------------
Net cash provided by financing activities 329,840 186,991
--------------- ----------------
Net increase in cash 10,763 345
CASH, BEGINNING OF YEAR 5,967 5,622
--------------- ----------------
CASH, END OF YEAR $ $ 16,730 $ 5,967
=============== ================
The accompanying notes are an integral part of these financial statements
F-6
NEWGOLD, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31,
--------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION AND LINE OF BUSINESS
NEWGOLD, Inc. ("the Company") has been 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.
In February 2000 the Company began to implement an entirely new
business model of investing in Internet companies. Due to the
deterioration of the investment market for these types of companies
later in 2000, the Company abandoned this investment strategy. From
mid-2001 until the beginning of 2003 Newgold was essentially inactive,
only continuing with some of the care and maintenance at Relief Canyon,
as provided for by a non-affiliate company owned by the Chairman and
CEO of Newgold.
The Company has embarked on a business strategy whereby it will invest
in and/or manage gold mining and other mineral producing properties.
Currently, the Company's principal assets include various mineral
leases associated with the Relief Canyon mine located near Lovelock,
Nevada along with various items of mining equipment located at that
site. The Company's business will be to acquire, explore and, if
warranted, develop various mining properties located in the state of
Nevada. The Company plans to carryout comprehensive exploration and
development programs on its properties. While the Company may fund and
conduct these activities itself, the Company's current plan is to
outsource most of these activities through the use of various joint
venture, royalty or partnership arrangements pursuant to which other
companies would agree to finance and carryout the exploration and
development programs on Newgold's mining properties. Consequently, the
Company's current plan will not require the hiring of significant
amounts of mining employees but will require a smaller group of
employees to monitor and/or supervise the mining and exploration
activities of other entities in exchange for royalties or other revenue
sharing arrangements.
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.
F-7
NEWGOLD, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31,
--------------------------------------------------------------------------------
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 was 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.
NOTE 2 - GOING CONCERN
These financial statements have been prepared on a going concern basis.
However, during the year ended January 31, 2005, the Company incurred a
net loss of $1,273,140 and had negative cash flows from operations of
$634,265. In addition, the Company had an accumulated stockholders'
deficit of $4,109,280 at January 31, 2005. The Company's ability to
continue as a going concern is dependent upon its ability to generate
profitable operations in the future and/or to obtain the necessary
financing to meet its obligations and repay its liabilities arising
from normal business operations when they come due. The outcome of
these matters cannot be predicted with any certainty at this time.
Since inception, the Company has satisfied its capital needs by issuing
equity securities.
Management plans to continue to provide for its capital needs during
the year ended January 31, 2006 by issuing equity securities or
incurring additional debt financing, with the proceeds to be used to
re-establish mining operations at Relief Canyon as well as improve its
working capital position. These financial statements do not include any
adjustments to the amounts and classification of assets and liabilities
that may be necessary should the Company be unable to continue as a
going concern.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
-------------------------
For the purpose of the statements of cash flows, the Company considers
all highly liquid investments purchased with original maturities of
three months or less to be cash equivalents.
Marketable Securities Available for Sale
----------------------------------------
Investments in equity securities are classified as available-for-sale.
Securities classified as available for sale are marked to market at
each period end. Changes in value on such securities are recorded as a
component of Other comprehensive income (loss). If declines in value
are deemed other than temporary, losses are reflected in Net income
(loss).
F-8
NEWGOLD, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31,
--------------------------------------------------------------------------------
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.
Deferred Reclamation Costs
--------------------------
In August 2001, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 143,
"Accounting for Asset Retirement Obligations," which established a
uniform methodology for accounting for estimated reclamation and
abandonment costs. The statement was adopted February 1, 2003. The
reclamation costs will be allocated to expense over the life of the
related assets and will be adjusted for changes resulting from the
passage of time and revisions to either the timing or amount of the
original present value estimate.
Prior to adoption of SFAS No. 143, estimated future reclamation costs
were based principally on legal and regulatory requirements. Such costs
related to active mines were accrued and charged over the expected
operating lives of the mines using the UOP method based on proven and
probable reserves. Future remediation costs for inactive mines were
accrued based on management's best estimate at the end of each period
of the undiscounted costs expected to be incurred at a site. Such cost
estimates included, where applicable, ongoing care, maintenance and
monitoring costs. Changes in estimates at inactive mines were reflected
in earnings in the period an estimate was revised.
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
F-9
NEWGOLD, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31,
--------------------------------------------------------------------------------
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.
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. 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, 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 minable 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 $800,000 for the year ended January 31, 2002 and was
charged to operating expense. After these adjustments all development
costs and property, plant and equipment have been fully written off.
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.
Risks Associated with Gold Mining
---------------------------------
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.
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.
F-10
NEWGOLD, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31,
--------------------------------------------------------------------------------
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, title and
risk of loss passes to the buyer and collectibility is reasonably
assured. 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.
Fair Value of Financial Instruments
-----------------------------------
The Company's financial instruments include cash and cash equivalents
and accounts payable - trade. The carrying amounts for these financial
instruments approximate fair value due to their short maturities.
Comprehensive Income
--------------------
The Company utilizes SFAS No. 130, "Reporting Comprehensive Income."
This statement establishes standards for reporting comprehensive income
and its components in a financial statement. Comprehensive income as
defined includes all changes in equity (net assets) during a period
from non-owner sources. Examples of items to be included in
comprehensive income, which are excluded from net income, include
foreign currency translation adjustments, minimum pension liability
adjustments, and unrealized gains and losses on available-for-sale
marketable securities. Comprehensive income is presented in the
Company's financial statements since the Company did have unrealized
gain (loss) of from changes in equity from available-for-sale
marketable securities.
Stock-Based Compensation
------------------------
SFAS No. 123, "Accounting for Stock-Based Compensation," as amended by
SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure," defines a fair value based method of accounting for
stock-based compensation. However, SFAS No. 123 allows an entity to
continue to measure compensation cost related to stock and stock
options issued to employees using the intrinsic method of accounting
prescribed by Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees." Entities electing to remain
with the accounting method of APB No. 25 must make pro forma
disclosures of net income and earnings per share as if the fair value
method of accounting defined in SFAS No. 123 had been applied. The
Company has elected to account for its stock-based compensation to
employees using the intrinsic value method under APB No. 25. There were
no stock options granted or outstanding for the years ended January 31,
2005 and 2004.
Income Taxes
------------
The Company accounts for income taxes under the liability method, which
requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in
the financial statements or tax returns. Under this method, deferred
income taxes are recognized for the tax consequences in future years of
differences
F-11
NEWGOLD, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31,
--------------------------------------------------------------------------------
between the tax bases of assets and liabilities and their financial
reporting amounts at each period end based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences
are expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the
amount expected to be realized.
As of January 31, 2005, the deferred tax assets related to the
Company's net operating loss carry-forwards are fully reserved. Due to
the provisions of Internal Revenue Code Section 338, the Company may
not have any net operating loss carry-forwards available to offset
financial statement or tax return taxable income in future periods as a
result of a change in control involving 50 percentage points or more of
the issued and outstanding securities of the Company.
Estimates
---------
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could
differ from those estimates.
Loss Per Share
--------------
The Company utilizes SFAS No. 128, "Earnings per Share." Basic loss per
share is computed by dividing loss available to Common Stockholders by
the weighted-average number of common shares outstanding. Diluted loss
per share is computed similar to basic loss per share except that the
denominator is increased to include the number of additional common
shares that would have been outstanding if the potential common shares
had been issued and if the additional common shares were dilutive.
Common equivalent shares are excluded from the computation if their
effect is anti-dilutive.
The following Common Stock equivalents were excluded from the
calculation of diluted loss per share since their effect would have
been anti-dilutive:
2005 2004
--------------- ---------------
Warrants 11,724,583 3,718,229
Concentrations of Credit Risk
-----------------------------
Financial instruments which potentially subject the Company to
concentrations of credit risk consist of cash and cash equivalents. The
Company places its cash and cash equivalents with high credit, quality
financial institutions. At times, such cash and cash equivalents may be
in excess of the Federal Deposit Insurance Corporation insurance limit
of $100,000. The Company has not experienced any losses in such
accounts and believes it is not exposed to any significant credit risk
on cash and cash equivalents.
Recent Accounting Pronouncements
--------------------------------
In November 2004, the FASB issued SFAS No. 151,"Inventory Costs". SFAS
No. 151 amends the accounting for abnormal amounts of idle facility
expense, freight, handling costs, and wasted material (spoilage) under
the guidance in ARB No. 43, Chapter 4,"Inventory Pricing". Paragraph 5
of ARB No. 43, Chapter 4, previously stated that ". . . under some
circumstances, items such as
F-12
NEWGOLD, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31,
--------------------------------------------------------------------------------
idle facility expense, excessive spoilage, double freight, and
rehandling costs may be so abnormal as to require treatment as current
period charges. . . ." This Statement requires that those items be
recognized as current-period charges regardless of whether they meet
the criterion of "so abnormal." In addition, this Statement requires
that allocation of fixed production overheads to the costs of
conversion be based on the normal capacity of the production
facilities. This statement is effective for inventory costs incurred
during fiscal years beginning after June 15, 2005. Management does not
expect adoption of SFAS No. 151 to have a material impact on the
Company's financial statements.
In December 2004, the FASB issued SFAS No. 152,"Accounting for Real
Estate Time-Sharing Transactions". The FASB issued this Statement as a
result of the guidance provided in AICPA Statement of Position (SOP)
04-2,"Accounting for Real Estate Time-Sharing Transactions". SOP 04-2
applies to all real estate time-sharing transactions. Among other
items, the SOP provides guidance on the recording of credit losses and
the treatment of selling costs, but does not change the revenue
recognition guidance in SFAS No. 66,"Accounting for Sales of Real
Estate", for real estate time-sharing transactions. SFAS No. 152 amends
Statement No. 66 to reference the guidance provided in SOP 04-2. SFAS
No. 152 also amends SFAS No. 67, "Accounting for Costs and Initial
Rental Operations of Real Estate Projects", to state that SOP 04-2
provides the relevant guidance on accounting for incidental operations
and costs related to the sale of real estate time-sharing transactions.
SFAS No. 152 is effective for years beginning after June 15, 2005, with
restatements of previously issued financial statements prohibited. This
statement is not applicable to the Company.
In December 2004, the FASB issued SFAS No. 153,"Exchanges of
Nonmonetary Assets," an amendment to Opinion No. 29,"Accounting for
Nonmonetary Transactions". Statement No. 153 eliminates certain
differences in the guidance in Opinion No. 29 as compared to the
guidance contained in standards issued by the International Accounting
Standards Board. The amendment to Opinion No. 29 eliminates the fair
value exception for nonmonetary exchanges of similar productive assets
and replaces it with a general exception for exchanges of nonmonetary
assets that do not have commercial substance. Such an exchange has
commercial substance if the future cash flows of the entity are
expected to change significantly as a result of the exchange. SFAS No.
153 is effective for nonmonetary asset exchanges occurring in periods
beginning after June 15, 2005. Earlier application is permitted for
nonmonetary asset exchanges occurring in periods beginning after
December 16, 2004. Management does not expect adoption of SFAS No. 153
to have a material impact on the Company's financial statements.
In December 2004, the FASB issued SFAS No. 123(R),"Share-Based
Payment". SFAS 123(R) amends SFAS No. 123,"Accountung for Stock-Based
Compensation", and APB Opinion 25,"Accounting for Stock Issued to
Employees." SFAS No.123(R) requires that the cost of share-based
payment transactions (including those with employees and non-employees)
be recognized in the financial statements. SFAS No. 123(R) applies to
all share-based payment transactions in which an entity acquires goods
or services by issuing (or offering to issue) its shares, share
options, or other equity instruments (except for those held by an ESOP)
or by incurring liabilities (1) in amounts based (even in part) on the
price of the entity's shares or other equity instruments, or (2) that
require (or may require) settlement by the issuance of an entity's
shares or other equity instruments. This statement is effective (1) for
public companies qualifying
F-13
NEWGOLD, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31,
--------------------------------------------------------------------------------
as SEC small business issuers, as of the first interim period or fiscal
year beginning after December 15, 2005, or (2) for all other public
companies, as of the first interim period or fiscal year beginning
after June 15, 2005, or (3) for all nonpublic entities, as of the first
fiscal year beginning after December 15, 2005. Management is currently
assessing the effect of SFAS No. 123(R) on the Company's financial
statement. On April 14, 2005, the Securities and Exchange Commission
amended the compliance dates to allow companies to implement Statement
No. 123R at the beginning of their next fiscal year, instead of the
next reporting period, that begins after June 15, 2005, or Dec. 15,
2005 for small business issuers.
Effective for reporting periods beginning after April 29, 2004, the
Emerging Issues Task Force (EITF) released Issue 04-2, "Whether Mineral
Rights are Tangible or Intangible Assets." The consensus was that
mineral rights acquired on a business combination are tangible assets
and should be recorded as a separate component of property, plant and
equipment either on the face of the financial statements or in the
notes. The Company will comply with the Issue in the future as
required.
Effective for reporting periods beginning after March 31, 2004, the
EITF released Issue No. 04-3, "Mining Assets: Impairment and Business
Combinations." The EITF reached consensus that an entity should include
value beyond proven and probable reserves in the value allocated to
mining assets in a purchase price allocation to the extent a market
participant would include such value in determining the fair market
value of the asset. The EITF also reached consensus that an entity
should include the effects of anticipated changes in market prices of
minerals when determining the fair market value of mining assets in a
purchase price equation in a manner consistent with expectations of the
marketplace.
Effective for reporting periods beginning after December 15, 2005, the
EITF released Issue No. 04-6, "Accounting For Stripping Costs Incurred
During Production In The Mining Industry." The EITF reached a consensus
of accounting for "stripping cost", the cost of removing overburden
(material overlying a mineral deposit that must be removed prior to
mining) and waste materials, during the production phase and determined
that such costs are considered variable production costs and thus
should be included in the cost of inventory produced during the period
in which the stripping costs are incurred. The consensus applies to
only entities involved in finding and removing wasting natural
resources. As such, this statement is not applicable to the Company.
NOTE 4 - MARKETABLE SECURITIES AVAILABLE FOR SALE
At January 31, 2005 the Company held no marketable securities available
for sales. During the year ended January 31, 2004, unrealized holding
losses of $204,820 were recorded in Other comprehensive loss to reflect
the market value decrease during the period. In October 2004 the
Company sold all of its investment in marketable securities. This
resulted in net proceeds of $34,124 and a recognized loss of sale of
$281,063.
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment at January 31, 2005 was recorded at no value.
The Company had previously determined that the value of its fixed
assets at the Relief Canyon Mine were permanently impaired and wrote
off assets with a basis of $800,000. If the Company can
F-14
NEWGOLD, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31,
--------------------------------------------------------------------------------
reestablish mining operations at Relief Canyon it is possible that some
of these assets could be utilized in such operations.
A summary of property, plant and equipment was as follows:
` Machinery
& Development Capitalized
Buildings Equipment Costs Interest Total
--------- --------- ----------- ----------- --------
Relief Canyon Mine $215,510 $277,307 $261,742 $45,441 $800,000
All office furniture and equipment has been fully depreciated as of
January 31, 2005.
NOTE 6 - NOTES PAYABLE TO RELATED PARTIES AND INDIVIDUALS
Unsecured notes payable to individuals and related parties consist of
the following at January 31, 2005:
Loans from officers:
Convertible notes payable $1,611,993
The notes bear interest at 8% per year.
In October 2004, the Company consolidated the amounts owed to the
Chief Executive Officer and the Chief Financial Officer referred to
in Note 10 (excluding accrued interest payable) into new
convertible notes payable due September 30, 2005. The notes and any
interest accrued on the new notes are convertible into common
shares of the Company at a conversion price of $0.15 per share. In
connection with the loans, warrants to purchase 5,798,140 and
1,395,007 shares of Common Stock have been issued to the Chief
Executive Officer and the Chief Financial Officer, respectively.
Term notes payable $19,844
The notes bear interest at 8% per year.
The notes are due January 31, 2006. The Company is in default with
respect to these loans. In connection with the loans, warrants to
purchase 141,540 shares of Common Stock have been issued. The
warrants have been valued using the Black-Scholes option pricing
model (see Note 7). The warrants were issued at $0.15per share and
expire in five years from the date of issuance.
Loan from individual. $176,500
The note bears interest at 8% per year.
The note is currently due. The Company is in default with respect
to this loan.
Other non-interest bearing advances 47,038
Unamortized warrant expense (849,288)
--------------
Total notes payable to individuals and related parties $ 1,006,088
==============
Interest expense was $614,672 and $136,493 for 2005 and 2004,
respectively.
F-15
NEWGOLD, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31,
--------------------------------------------------------------------------------
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Except for the advance royalty and rent payments noted below, the
Company is not obligated under any capital leases or non-cancelable
operating lease with initial or remaining lease terms in excess of one
year as of January 31, 2005. 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). The annual payment to maintain these
claims is $5,000. 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.
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 an 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.
Litigation
----------
On February 4, 2000, a complaint was filed against the Company by Sun
G. Wong in the Superior Court of Sacramento County, California (Case
No. 00AS00690). In the complaint, Mr. Wong claims that he was held
liable as a guarantor of Newgold in a claim brought by Don Christianson
in a breach of contract action against Newgold. Despite the fact that
Newgold settled the action with Mr. Christianson through the issuance
of 350,000 shares of Newgold Common Stock, Mr. Wong, nevertheless, paid
$60,000 to a third party claiming to hold Mr. Christianson's judgment
pursuant to Mr. Wong's guaranty agreement. Similarly, Mr. Wong alleges
that he was held liable as a guarantor for a debt of $200,000 owed by
Newgold to Roger Primm with regard to money borrowed by Newgold. Mr.
Primm filed suit against the Company which was settled through the
issuance of 300,000 shares of Newgold Common Stock. Nevertheless, Mr.
Wong alleges that he remains liable to a third party claiming to hold
Mr. Primm's judgment for up to $200,000 pursuant to his guaranty of
such debt of Mr. Primm.
F-16
NEWGOLD, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31,
--------------------------------------------------------------------------------
On December 29, 2000, the superior court entered a default judgment
against Newgold in the amount of $400,553 with regard to the
Christianson judgment and an additional $212,500 in regard to the Primm
judgment against Mr. Wong. The Company believes that Mr. Wong was not
obligated to pay any sums pursuant to his guarantees with regard to the
Christianson and Primm judgments against Newgold and, as a result, Mr.
Wong should not have any recourse against the Company for
reimbursement. Should Mr. Wong seek to assert these judgments against
the Company, the Company cannot predict the outcome of any such action
or the amount of expenses that would be ultimately incurred in
defending any such claims. The Company is currently negotiating a
settlement with Mr. Wong; however there is no assurance that an
acceptable settlement will be consummated.
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.
NOTE 8 - STOCKHOLDERS' DEFICIT
The following Common Stock transactions occurred during the years ended
January 31, 2005 and 2004:
Common Stock
------------
In January 2005 the Company issued 671,667 shares of commons stock at a
price of $0.15 per share to four investors for total proceeds of
$100,750. Additionally, 671,667 warrants to purchase Common Stock at a
price of $0.30 per share were issued to the investors. The warrants
expire three years from the date of issuance. The fair market value of
these warrants was determined to be $124,337 and was calculated under
the Black-Scholes option pricing model with the following assumptions
used:
2005
---------
Expected life 3 years
Risk free interest rate 3.41%
Volatility 266%
Expected dividend yield None
Warrants
--------
The Company has issued Common Stock warrants to two officers of the
Company as part of certain financing transactions (see Note 6).
The fair market value of these warrants issued during the years ended
January 31, 2005 and 2004 was determined to be $1,176,766 and $63,919,
respectively, and was calculated under the Black-Scholes option pricing
model with the following assumptions used:
F-17
NEWGOLD, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31,
--------------------------------------------------------------------------------
2005 2004
------- -------
Expected life 5 years 5 years
Risk free interest rate 3.3%-3.71% 3.16%
Volatility 348% 400%
Expected dividend yield None None
The fair value of these warrants is being amortized to interest expense
over one year, the original life of the loans. Total amortization
expense for the years ended January 31, 2005 and 2004 was approximately
$443,682 and $22,800 respectively.
The following table presents warrant activity through January 31, 2005:
Weighted-
Average
Number Exercise
of Shares Price
Outstanding, January 31, 2003 3,648,463 $ 0.43
Granted 1,265,766 $ 0.15
Exercised (200,000) $ (0.10)
Expired (996,000) $ 1.00
------------- ------------
Outstanding, January 31, 2004 3,718,229 $ 0.15
Granted 8,006,354 $ 0.16
Exercised - $ -
------------- ------------
OUTSTANDING, JANUARY 31, 2005 11,724,583 $ 0.16
============= ============
EXERCISABLE, JANUARY 31, 2005 11,724,583 $ 0.16
============= ============
Weighted average remaining contractual term 47 months
NOTE 9 - INCOME TAXES
As of January 31, 2005, the Company had net operating loss
carry-forwards of approximately $10,263,063 available to reduce future
Federal taxable income which, if not used, will expire at various dates
through January 31, 2025. Due to changes in the ownership of the
Company, the utilization of these loss carry-forwards may be subject to
substantial annual limitations. Deferred tax assets (liabilities) are
comprised of the following at January 31, 2005:
Deferred Tax Assets
Net Operating Loss Carry-forwards $ 4,396,555
Accrued Interest Payable 178,633
Accrued Payroll Tax 139,586
Accrued Payroll 2,843
AmortizationDiffBook/Tax 212,890
AccruedAccountsPayable 88,250
Capital Loss Difference 120,416
Other 272
F-18
NEWGOLD, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31,
--------------------------------------------------------------------------------
Less valuation allowance (4,778,925)
-----------
Total Deferred Tax Assets 360,520
-------
Deferred Tax Liability
State Taxes (360,520)
---------
Total Deferred Tax Liabilities (360,520)
---------
NET DEFERRED TAX ASSETS $ -
============
The net change in the total valuation allowance for the year ended
January 31, 2005 was $174,971. 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, 2005 and the statutory Federal
income tax rate, is reconciled to the actual tax benefit reflected in
the accompanying financial statements as follows:
Expected tax benefit at statutory rates $ 283,437
Decrease resulting from valuation allowance for benefits
from net operating loss carry-forwards and other (283,437)
----------
TOTAL $ -
==========
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.
NOTE 10 - RELATED PARTY TRANSACTIONS
Loans from officers
-------------------
During the year ended January 31, 2005, the Chief Executive Officer and
Chairman of the Company, loaned the Company an aggregate of $41,797 and
was repaid $21,953. As of January 31, 2005 the net principal balance
owing to him was $1,422,587 and accrued interest payable was $446,193.
See Note 6.
During the year ended January 31, 2005, the Chief Financial Officer and
Secretary of the Company, loaned the Company an aggregate of $209,251.
As of January 31, 2005 the net principal balance owing to him was
$209,251 and accrued interest payable was $5,720. See Note 5.
Accrued Payroll and Expenses Owed to Officers
---------------------------------------------
As of January 31, 2005 the Company owed the Chief Financial Officer and
Secretary of the Company $93,500 for back wages and $6,000 for accrued
expenses.
F-19
NEWGOLD, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31,
--------------------------------------------------------------------------------
NOTE 11 - SUBSEQUENT EVENTS
In February 2005 the Company issued 500,000 shares of commons stock at
a price of $0.15 per share to an investor for total proceeds of
$75,000. Additionally, 500,000 warrants to purchase common stock at a
price of $0.30 per share were issued to the investor. The warrants
expire three years from the date of issuance.
On March 29, 2005 a Special Meeting of Shareholders of the Company was
held for the purpose of amending the Articles of Incorporation to
affect an increase in the authorized shares of common stock issuable to
250,000,000 shares. At the meeting the proposal was approved by the
shareholders, with a total of 31,392,611 shares voting in favor of the
amendment, 411,711 voting against the amendment and 10,207 shares
abstained from voting.
On May 18, 2004 Paul Ngoyi filed a petition for involuntary bankruptcy
against Newgold (Case No. BK-N-0451511). Mr. Ngoyi claims to be the
holder of both the Christiansen and Primm judgments against Newgold and
is claming that Newgold cannot pay such judgments because it is
insolvent. Newgold maintains that Mr. Ngoyi's claims are invalid as the
two judgments were previously satisfied and that Newgold is not
insolvent. A pre-trial hearing was held on April 4, 2005 at which time
Newgold prevailed in having Mr. Ngoyi's petition dismissed. An order of
dismissal is expected to be issued shortly.
F-20
NEWGOLD, INC.
INDEX TO UNAUDITED FINANCIAL STATEMENTS
Page
Condensed Balance Sheet as of October 31, 2005 (Unaudited) F-22
Condensed Statements of Operations for the three months and nine
months ended October 31, 2005 and 2004 (Unaudited) F-23
Condensed Statements of Comprehensive Loss for the three months
and nine months ended October 31, 2005 and 2004 (Unaudited) F-24
Condensed Statements of Cash Flows for the nine months
ended October 31, 2005 and 2004 (Unaudited) F-25
Notes to Unaudited Financial Statements F-26
F-21
NEWGOLD, INC.
CONDENSED BALANCE SHEET
OCTOBER 31, 2005
(UNAUDITED)
--------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash $ 764
Travel advance 2,657
----------------
Total current assets 3,421
OTHER ASSETS
Deferred reclamation costs 513,946
----------------
Total other assets 513,946
----------------
TOTAL ASSETS $ 517,367
================
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 602,438
Accrued expenses 1,412,638
Accrued reclamation costs 513,946
Notes payable due to individuals and officers 457,634
----------------
Total current liabilities 2,986,656
----------------
DEFERRED REVENUE 800,000
----------------
Total liabilities 3,786,656
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Common stock, $0.001 par value
250,000,000 shares authorized
63,104,072 shares issued and outstanding 63,104
Additional paid in capital 14,647,544
Accumulated deficit (17,979,937)
----------------
Total stockholders' deficit (3,269,289)
----------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 517,367
================
The accompanying notes are an integral part of these financial statements
F-22
NEWGOLD, INC.
CONDENSED STATEMENTS OF OPERATIONS
FOR THE NINE AND THREE MONTHS ENDED OCTOBER 31,
(UNAUDITED)
--------------------------------------------------------------------------------
For the Nine Months Ended For the Three Months Ended
October 31, October 31,
------------------------------- --------------------------------
2005 2004 2005 2004
-------------- -------------- -------------- --------------
NET SALES $ - $ - $ - $ -
COST OF GOODS SOLD 159,521 15,000 19,821 5,000
-------------- -------------- -------------- --------------
GROSS LOSS (159,521) (15,000) (19,821) (5,000)
OPERATING EXPENSES (504,798) (231,343) (120,227) (78,561)
-------------- -------------- -------------- --------------
LOSS FROM OPERATIONS (664,319) (246,343) (140,048) (83,561)
-------------- -------------- -------------- --------------
OTHER (EXPENSE)
Interest expense (930,315) (256,417) (203,254) (157,011)
Loss on sale of
marketable securities - (281,063) - (281,063)
-------------- -------------- -------------- --------------
Total other (expense) (930,315) (537,480) (203,254) (438,074)
-------------- -------------- -------------- --------------
NET LOSS $ (1,594,634) $ (783,823) $ (343,302) $ (521,635)
============== ============== ============== ==============
BASIC AND DILUTED LOSS PER SHARE $ (0.03) $ (0.02) $ (0.01) $ (0.01)
============== ============== ============== ==============
BASIC AND DILUTED WEIGHTED-
AVERAGE SHARES
OUTSTANDING 54,542,821 47,606,174 63,104,072 47,606,174
============== ============== ============== ==============
The accompanying notes are an integral part of these financial statements
F-23
NEWGOLD, INC.
CONDENSED STATEMENTS OF COMPREHENSIVE LOSS
FOR THE NINE AND THREE MONTHS ENDED OCTOBER 31,
(UNAUDITED)
--------------------------------------------------------------------------------
For the Nine Months Ended For the Three Months Ended
October 31, October 31,
------------------------------- --------------------------------
2005 2004 2005 2004
-------------- -------------- -------------- --------------
NET LOSS $ (1,594,634) $ (783,823) $ (343,302) $ (521,635)
OTHER COMPREHENSIVE LOSS
Unrealized loss from
marketable securities - (49,843) - -
LESS: RECLASSIFICATION
Adjusted for losses
included in net loss - 254,663 - 254,663
-------------- -------------- -------------- --------------
COMPREHENSIVE LOSS $ (1,594,634) $ (579,003) $ (343,302) $ (266,972)
============== ============== ============== ==============
The accompanying notes are an integral part of these financial statements
F-24
NEWGOLD, INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED OCTOBER 31,
(UNAUDITED)
--------------------------------------------------------------------------------
2005 2004
--------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,594,634) $ (783,823)
Adjustments to reconcile net loss to net cash
used in operating activities
Accretion of warrants issued as a debt discount 777,643 158,249
Accretion of beneficial conversion of warrants 71,645 -
Fair value of warrants issued for services 15,690 -
(Increase) Decrease in
Deposits - 33,000
Travel advance (657) -
Increase (Decrease) in
Accounts payable 34,160 (1,917)
Accrued salaries and benefits 109,136 (94,334)
Accrued expenses (455,142) 142,613
--------------- ----------------
Net cash (used) by
operating activities (1,042,159) (546,212)
--------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Marketable securities - 315,187
--------------- ----------------
Net cash provided (used) by investing activities - 315,187
--------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of Common Stock 2,423,935 -
Proceeds from note payable 5,000 230,832
Repayments of note payable (1,402,742) (350)
--------------- ----------------
Net cash provided by financing activities 1,026,193 230,482
--------------- ----------------
Net (decrease) in cash (15,966) (543)
CASH, BEGINNING OF PERIOD 16,730 5,967
--------------- ----------------
CASH, END OF PERIOD $ 764 $ 5,424
=============== ================
The accompanying notes are an integral part of these financial statements
F-25
NOTE 1 - ORGANIZATION AND LINE OF BUSINESS
NEWGOLD, Inc. has been in the business of acquiring, exploring,
developing, and producing gold properties. Newgold 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, Newgold placed the Relief Canyon Mine on care and
maintenance status. From mid-2001 until the beginning of 2003 Newgold
was essentially inactive, only continuing with some of the care and
maintenance at Relief Canyon, as provided for by a non-affiliate
company owned by the Chairman and CEO of Newgold.
Newgold has embarked on a business strategy whereby it will invest in
and/or manage gold mining and other mineral producing properties.
Currently, Newgold's principal assets include various mineral leases
associated with the Relief Canyon mine located near Lovelock, Nevada
along with various items of mining equipment located at that site.
Newgold's business will be to acquire, explore and, if warranted,
develop various mining properties located in the state of Nevada.
Newgold plans to carryout comprehensive exploration and development
programs on its properties. While Newgold may fund and conduct these
activities itself, Newgold's current plan is to outsource most of these
activities through the use of various joint venture, royalty or
partnership arrangements pursuant to which other companies would agree
to finance and carryout the exploration and development programs on
Newgold's mining properties. Consequently, Newgold's current plan will
not require the hiring of significant amounts of mining employees but
will require a smaller group of employees to monitor and/or supervise
the mining and exploration activities of other entities in exchange for
royalties or other revenue sharing arrangements.
NOTE 2 - GOING CONCERN
These financial statements have been prepared on a going concern basis.
However, during the year ended January 31, 2005, Newgold incurred a net
loss of $1,278,140 and had negative cash flows from operations of
$353,201. In addition, Newgold had an accumulated stockholders' deficit
of $4,114,280 at January 31, 2005. Information for the nine month ended
October 31, 2005 include a net loss of $1,594,634; negative cash flows
from operations of $1,042,159 and an accumulated stockholders' deficit
of $3,269,289. Newgold's ability to continue as a going concern is
dependent upon its ability to generate profitable operations in the
future and/or to obtain the necessary financing to meet its obligations
and repay its liabilities arising from normal business operations when
they come due. The outcome of these matters cannot be predicted with
any certainty at this time. Since inception, Newgold has satisfied its
capital needs by issuing equity securities.
Management plans to continue to provide for its capital needs during
the year ended January 31, 2006 by issuing equity securities or
incurring additional debt financing, with the proceeds to be used to
re-establish mining operations at Relief Canyon as well as improve its
working capital position. These financial statements do not include any
adjustments to the amounts and classification of assets and liabilities
that may be necessary should Newgold be unable to continue as a going
concern.
F-26
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
---------------------
These financial statements have been prepared in accordance with the
rules and regulations of the Securities and Exchange Commission
("SEC"). Certain information and footnotes normally included in
financial statements prepared in accordance with generally accepted
accounting principles in the United States of America have been
condensed or omitted pursuant to these rules and regulations. These
consolidated financial statements should be read in conjunction with
the consolidated financial statements and the notes thereto included in
Newgold's Form 10-KSB, as filed with the SEC for the year ended January
31, 2005.
Cash and Cash Equivalents
-------------------------
For the purpose of the statements of cash flows, Newgold considers all
highly liquid investments purchased with original maturities of three
months or less to be cash equivalents.
Marketable Securities Available for Sale
----------------------------------------
Investments in equity securities are classified as available-for-sale.
Securities classified as available for sale are marked to market at
each period end. Changes in value on such securities are recorded as a
component of Other comprehensive income (loss). If declines in value
are deemed other than temporary, losses are reflected in Net income
(loss).
Deferred Reclamation Costs
--------------------------
In August 2001, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 143,
"Accounting for Asset Retirement Obligations," which established a
uniform methodology for accounting for estimated reclamation and
abandonment costs. The statement was adopted February 1, 2003. The
reclamation costs will be allocated to expense over the life of the
related assets and will be adjusted for changes resulting from the
passage of time and revisions to either the timing or amount of the
original present value estimate.
Prior to adoption of SFAS No. 143, estimated future reclamation costs
were based principally on legal and regulatory requirements. Such costs
related to active mines were accrued and charged over the expected
operating lives of the mines using the UOP method based on proven and
probable reserves. Future remediation costs for inactive mines were
accrued based on management's best estimate at the end of each period
of the undiscounted costs expected to be incurred at a site. Such cost
estimates included, where applicable, ongoing care, maintenance and
monitoring costs. Changes in estimates at inactive mines were reflected
in earnings in the period an estimate was revised.
Risks Associated with Gold Mining
---------------------------------
The business of gold mining is subject to certain types of risks,
including environmental hazards, industrial accidents, and theft. Prior
to suspending operations, Newgold carried insurance against certain
property damage loss (including business interruption) and
comprehensive general liability insurance. While Newgold 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. Newgold has not obtained environmental liability
insurance because such coverage is not considered by management to be
cost effective. Newgold currently carries no insurance on any of its
properties due to the current status of the mine and Newgold's current
financial condition.
F-27
Comprehensive Income
--------------------
Newgold utilizes SFAS No. 130, "Reporting Comprehensive Income." This
statement establishes standards for reporting comprehensive income and
its components in a financial statement. Comprehensive income as
defined includes all changes in equity (net assets) during a period
from non-owner sources. Examples of items to be included in
comprehensive income, which are excluded from net income, include
foreign currency translation adjustments, minimum pension liability
adjustments, and unrealized gains and losses on available-for-sale
marketable securities. Comprehensive income is presented in Newgold's
financial statements since Newgold did have unrealized gain (loss) from
changes in equity from available-for-sale marketable securities.
Stock-Based Compensation
------------------------
SFAS No. 123, "Accounting for Stock-Based Compensation," as amended by
SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure," defines a fair value based method of accounting for
stock-based compensation. However, SFAS No. 123 allows an entity to
continue to measure compensation cost related to stock and stock
options issued to employees using the intrinsic method of accounting
prescribed by Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees." Entities electing to remain
with the accounting method of APB No. 25 must make pro forma
disclosures of net income and earnings per share as if the fair value
method of accounting defined in SFAS No. 123 had been applied. Newgold
has elected to account for its stock-based compensation to employees
using the intrinsic value method under APB No. 25. There were no stock
options granted or outstanding for the three months ended October 31,
2005 and 2004.
Estimates
---------
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could
differ from those estimates.
Loss Per Share
--------------
Newgold utilizes SFAS No. 128, "Earnings per Share." Basic loss per
share is computed by dividing loss available to Common Stockholders by
the weighted-average number of common shares outstanding. Diluted loss
per share is computed similar to basic loss per share except that the
denominator is increased to include the number of additional common
shares that would have been outstanding if the potential common shares
had been issued and if the additional common shares were dilutive.
Common equivalent shares are excluded from the computation if their
effect is anti-dilutive.
The following Common Stock equivalents were excluded from the
calculation of diluted loss per share since their effect would have
been anti-dilutive:
2005 2004
------------ ------------
Warrants 13,374,583 11,052,916
Recent Accounting Pronouncements
--------------------------------
In March 2005, the FASB issued FASB Interpretation ("FIN") No. 47,
"Accounting for Conditional Asset Retirement Obligations". FIN No. 47
clarifies that the term conditional asset retirement obligation as used
in FASB Statement No. 143, "Accounting for Asset Retirement
Obligations," refers to a legal obligation to perform an asset
retirement activity in which the timing and (or) method of settlement
are conditional on a future event that may or may not be
F-28
within the control of the entity. The obligation to perform the asset
retirement activity is unconditional even though uncertainty exists
about the timing and (or) method of settlement. Uncertainty about the
timing and/or method of settlement of a conditional asset retirement
obligation should be factored into the measurement of the liability
when sufficient information exists. This interpretation also clarifies
when an entity would have sufficient information to reasonably estimate
the fair value of an asset retirement obligation. FIN No. 47 is
effective no later than the end of fiscal years ending after December
15, 2005 (December 31, 2005 for calendar-year companies). Retrospective
application of interim financial information is permitted but is not
required. Management does not expect adoption of FIN No. 47 to have a
material impact on Newgold's financial statements.
In May 2005, the FASB issued Statement of Accounting Standards (SFAS)
No. 154, "Accounting Changes and Error Corrections" an amendment to
Accounting Principles Bulletin (APB) Opinion No. 20, "Accounting
Changes", and SFAS No. 3, "Reporting Accounting Changes in Interim
Financial Statements" though SFAS No. 154 carries forward the guidance
in APB No. 20 and SFAS No. 3 with respect to accounting for changes in
estimates, changes in reporting entity, and the correction of errors.
SFAS No. 154 establishes new standards on accounting for changes in
accounting principles, whereby all such changes must be accounted for
by retrospective application to the financial statements of prior
periods unless it is impracticable to do so. SFAS No. 154 is effective
for accounting changes and error corrections made in fiscal years
beginning after December 15, 2005, with early adoption permitted for
changes and corrections made in years beginning after May 2005.
NOTE 4 - MARKETABLE SECURITIES AVAILABLE FOR SALE
At October 31, 2005 and 2004 Newgold held no marketable securities
available for sale. In October 2004, the Company sold all of its
investment in marketable securities through open market transactions
with net proceeds aggregating approximately $34,100. The Company
recorded a loss on sale of securities on the Statements of Operations
of $281,063 and $281,063 for the three and nine months ended October
31, 2004, respectively.
NOTE 5 - PROPERTY AND EQUIPMENT
Newgold had previously determined that the value of its fixed assets at
the Relief Canyon Mine were permanently impaired and wrote off assets
with a basis of $800,000. If Newgold can reestablish mining operations
at Relief Canyon it is possible that some of these assets could be
utilized in such operations.
A summary of property and equipment was as follows:
Machinery
& Development Capitalized
Buildings Equipment Costs Interest Total
------------- ------------- ------------- ------------- -------------
Relief Canyon Mine $ 215,510 $ 277,307 $ 261,742 $ 45,441 $ 800,000
All office furniture and equipment has been fully depreciated as of
October 31, 2005.
NOTE 6 - NOTES PAYABLE TO RELATED PARTIES AND INDIVIDUALS
Unsecured notes payable to individuals and related parties consist of
the following at October 31, 2005:
F-29
Loans from officers:
Convertible note payable $209,251
The note bears interest at 8% per year.
In October 2004, Newgold consolidated the amounts owed to the
Chief Executive Officer and the Chief Financial Officer referred
to in Note 9 (excluding accrued interest payable) into new
convertible notes payable due September 30, 2005. The notes and
any interest accrued on the new notes are convertible into common
shares of Newgold at a conversion price of $0.15 per share. On
July 31, 2005 the Chief Executive Officer converted his note
payable and accrued interest payable on all of his notes payable
into 12,326,231 common shares of Newgold. In connection with the
loans, warrants to purchase 5,798,140 and 1,395,007 shares of
Common Stock have been issued to the Chief Executive Officer and
the Chief Financial Officer, respectively.
Term notes payable $24,844
The notes bear interest at 8% per year.
The notes are due January 31 and October 31, 2006. Newgold is not
in default with respect to these loans. In connection with the
loans, warrants to purchase 141,540 shares of Common Stock have
been issued. The warrants have been valued using the
Black-Scholes option pricing model (see Note 8). The warrants
were issued at $0.15 per share and expire in five years from the
date of issuance.
Loan from individual $176,500
The note bears interest at 8% per year.
The note is currently due. Newgold is in default with respect to
this loan.
Other non-interest bearing advances 47,039
----------
Total notes payable to individuals and related parties $ 457,634
==========
Newgold recorded interest expense of $203,254 and $930,315 for the
three months and nine months ended October 31, 2005 compared to
interest expense of $157,011 and $256,417 for the three months and nine
months ended October 31, 2004.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Except for the advance royalty and rent payments noted below, Newgold
is not obligated under any capital leases or non-cancelable operating
lease with initial or remaining lease terms in excess of one year as of
October 31, 2005. However, minimum annual royalty payments are required
to retain the lease rights to Newgold's properties.
Relief Canyon Mine
------------------
Newgold 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, Newgold staked an additional 402 claims. Subsequent to January
31, 1998, Newgold reduced the total claims to 50 (approximately 1,000
acres). The annual payment to maintain these claims is $5,000. As part
of the original purchase of Relief Canyon Mine, Welsh assigned the
lease from Santa Fe Gold Corporation (Santa Fe) to Newgold. 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 Newgold, 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.
F-30
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 Newgold.
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 an 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.
Litigation
----------
On February 4, 2000, a complaint was filed against Newgold by Sun G.
Wong in the Superior Court of Sacramento County, California (Case No.
00AS00690). In the complaint, Mr. Wong claims that he was held liable
as a guarantor of Newgold in a claim brought by Don Christianson in a
breach of contract action against Newgold. Despite the fact that
Newgold settled the action with Mr. Christianson through the issuance
of 350,000 shares of Newgold Common Stock, Mr. Wong, nevertheless, paid
$60,000 to a third party claiming to hold Mr. Christianson's judgment
pursuant to Mr. Wong's guaranty agreement. Similarly, Mr. Wong alleges
that he was held liable as a guarantor for a debt of $200,000 owed by
Newgold to Roger Primm with regard to money borrowed by Newgold. Mr.
Primm filed suit against Newgold which was settled through the issuance
of 300,000 shares of Newgold Common Stock. Nevertheless, Mr. Wong
alleges that he remains liable to a third party claiming to hold Mr.
Primm's judgment for up to $200,000 pursuant to his guaranty of such
debt of Mr. Primm.
On December 29, 2000, the superior court entered a default judgment
against Newgold in the amount of $400,553 with regard to the
Christianson judgment and an additional $212,500 in regard to the Primm
judgment against Mr. Wong. Newgold believes that Mr. Wong was not
obligated to pay any sums pursuant to his guarantees with regard to the
Christianson and Primm judgments against Newgold and, as a result, Mr.
Wong should not have any recourse against Newgold for reimbursement.
Should Mr. Wong seek to assert these judgments against Newgold, Newgold
cannot predict the outcome of any such action or the amount of expenses
that would be ultimately incurred in defending any such claims. Newgold
is currently negotiating a settlement with Mr. Wong, however there is
no assurance that an acceptable settlement will be consummated.
Newgold 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 Newgold's financial position, results of operations or
liquidity.
NOTE 8 - STOCKHOLDERS' DEFICIT
Common Stock
------------
In March 2005 a Special Meeting of Stockholders of Newgold was held for
the purpose of amending the Articles of Incorporation to affect an
increase in the authorized shares of Common Stock issuable to
250,000,000 shares. At the meeting the proposal was approved by the
stockholders, with a total of 31,392,611 shares voting in favor of the
amendment, 411,711 voting against the amendment and 10,207 shares
abstained from voting.
F-31
In February 2005 Newgold issued 500,000 shares of Common Stock at a
price of $0.15 per share to an investor for total proceeds of $75,000.
Additionally, 500,000 warrants to purchase Common Stock at a price of
$0.30 per share were issued to the investor. The warrants expire three
years from the date of issuance.
In April 2005 Newgold issued 2,000,000 shares of Common Stock at a
price of $0.25 per share to investors for total proceeds of $500,000.
Additionally, 1,000,000 warrants to purchase Common Stock at a price of
$0.50 per share were issued to the investors. The warrants expire three
years from the date of issuance.
In July 2005 Newgold issued 12,326,231 shares of Common Stock at a
price of $0.15 per share to the Chief Executive Officer according to
the terms of existing notes payable to the officer. The issuance
resulted in the repayment of principal and interest totaling
$1,848,935.
Warrants
--------
Newgold has issued Common Stock warrants to officers of Newgold as part
of certain financing transactions (see Note 6). Newgold has also issued
warrants as part of the issuance of Common Stock (see this Note 8).
The fair market value of warrants issued during the nine months ended
October 31, 2005 in conjunction with the issuance of Common Stock was
determined to be $310,256 and was calculated under the Black-Scholes
option pricing model with the following assumptions used:
Expected life 3 years
Risk free interest rate 3.77% - 4.01%
Volatility 199.8% - 266.1%
Expected dividend yield None
The fair value of $294,566 warrants has been recorded as both a debit
and credit to additional paid in capital. The fair value of $15,690
warrants has been recorded as a debit to operating expense for services
rendered and a credit to additional paid in capital.
The following table presents warrant activity from January 31, 2005
through October 31, 2005:
Weighted-
Average
Number Exercise
of Shares Price
------------- -------------
Outstanding, January 31, 2005 11,724,583 $ 0.16
Granted 1,650,000 $ 0.43
------------- -------------
Outstanding, October 31, 2005 13,374,583 $ 0.19
============= =============
Exercisable, October 31, 2005 13,374,583 $ 0.19
============= =============
NOTE 9 - RELATED PARTY TRANSACTIONS
Loans from officers
-------------------
During the quarter ended October 31, 2005 the Chief Executive Officer
and Chairman of Newgold loaned the Company $5,000. As of October 31,
2005 the net principal balance owing to him was $24,844 and accrued
interest payable was $32,413. See Note 6.
F-32
During prior periods, the Chief Financial Officer and Secretary of
Newgold loaned Newgold an aggregate of $209,251. As of October 31, 2005
the net principal balance owing to him was $209,251 and accrued
interest payable was $18,414. See Note 6.
Accrued Payroll and Expenses Owed to Officers
---------------------------------------------
As of October 31, 2005 Newgold owed the Chief Executive Officer and
Chairman of Newgold $30,000 for back wages.
As of October 31, 2005 Newgold owed the Chief Financial Officer and
Secretary of Newgold $120,167 for back wages and $7,000 for accrued
expenses.
F-33
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
------------------------------------------
Our Certificate of Incorporation provides that no director or officer of
Newgold, Inc. (the "Company") shall be personally liable to the Company or its
stockholders for monetary damages for any breach of fiduciary duty by such
person as a director or officer, except for (i) breach of director's duty of
loyalty to the Company or its stockholders; (ii) acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law;
(iii) unlawful payment of dividends or unlawful stock purchase or redemption; or
(iv) any transaction from which the director derived an improper personal
benefit. Our Bylaws provide, in pertinent part, that the Company shall indemnify
any person made a party to or involved in any civil, criminal or administrative
action, suit or proceeding by reason of the fact that such person is or was a
director or officer of the Company, or of any corporation which such person
served as such at the request of the Company, against expenses reasonably
incurred by, or imposed on, such person in connection with, or resulting from,
the exercise of such action, suit, proceeding or appeal thereon, except with
respect to matters as to which it is adjudged in such action, suit or proceeding
that such person was liable to the Company, or such other corporation, for
negligence or misconduct in the performance of such person's duties as a
director or officer of the Company. The determination of the rights of such
indemnification and the amount thereof may be made, at the option of the person
to be indemnified, by (i) order of the Court or administrative body or agency
having jurisdiction over the matter for which indemnification is being sought;
(ii) resolution adopted by a majority of a quorum of our disinterested
directors; (iii) if there is no such quorum, resolution adopted by a majority of
the committee of stockholders and disinterested directors of the Company; (iv)
resolution adopted by a majority of the quorum of directors entitled to vote at
any meeting; or (v) order of any Court having jurisdiction over the Company.
Such right of indemnification is not exclusive of any other right which such
director or officer may have, and without limiting the generality of such
statement, they are entitled to their respective rights of indemnification under
any bylaws, agreement, vote of stockholders, provision of law, or otherwise in
addition to their rights under the Company's Bylaws.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of Newgold pursuant to the foregoing provisions, or
otherwise, Newgold has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTIONS.
---------------------------------------------
The estimated expenses of this offering in connection with the issuance and
distribution of the securities being registered, are as follows:
II-1
Registration Fee $ 670
Blue Sky Fees 500
Printing 1,000
Legal Fees and Expenses 30,000
Accounting Fees and Expenses 15,000
Miscellaneous 830
---------
Total $ 48,000
=========
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The following issuances of stock, warrants, and other equity securities were
made without any public solicitation to a limited number of investors or related
individuals or entities in separately negotiated transactions. Each investor
represented to us that the securities were being acquired for investment
purposes only and not with an intention to resell or distribute such securities.
Each of the individuals or entities had access to information about our business
and financial condition and was deemed capable of protecting their own
interests. The stock, warrants and other securities were issued pursuant to the
private placement exemption provided by Section 4(2) or Section 4(6) of the
Securities Act. These are deemed to be "restricted securities" as defined in
Rule 144 under the Securities Act and the warrant certificates and the stock
certificates bear a legend limiting the resale thereof.
During Newgold's fiscal year ended January 31, 2006, it issued the following
securities pursuant to exemptions from registration under the Securities Act:
(a) On January 27, 2006, Newgold entered into a Securities Purchase
Agreement (the "Purchase Agreement") and a Registration Rights Agreement (the
"Registration Rights Agreement") in connection with a private placement of a
convertible debenture, in the principal amount of $1,000,000 and bearing
interest of 8% per annum (the "Debenture"). The Debenture will be funded
$600,000 at the closing , $200,000 upon the filing of a resale registration
statement with the Securities and Exchange Commission and $200,000 upon the
registration statement being declared effective. The Debenture is due and
payable on January 27, 2009 unless it is converted into shares of the Company's
common stock or is repaid prior to its expiration date. Additionally, pursuant
to the Purchase Agreement, the investor was issued warrants (the "Warrants") to
purchase an aggregate of 2,500,000 shares of Newgold common stock with 1,250,000
warrants exercisable at $0.20 per share and 1,250,000 warrants exercisable at
$0.30 per share. The Warrants have a term of four years and are immediately
exercisable.
(b) On January 27, 2006 Newgold issued 2,500,000 shares of commons
stock at a price of $0.20 per share to an investor for total proceeds of
$500,000. Additionally, 2,500,000 warrants to purchase common stock at a price
of $0.40 per share were issued to the investor. The warrants expire three years
from the date of issuance. The shares were offered and sold exclusively to
individuals residing or entities formed outside the United States and are not
deemed to be "U.S. persons" as that term is defined under Regulation S. Each
investor represented that it is purchasing such shares for its own account. Both
the offer and the sale of the Newgold shares were made outside the United States
and are deemed to be "offshore
II-2
transactions" as that term is defined under Regulation S. The share certificate
contains a legend indicating that such shares can only be transferred in
compliance with the provisions of Regulation S. In light of the foregoing, such
sales were deemed exempt from registration pursuant to Regulation S of the 1933
Act. The shares are deemed to be "restricted securities" as defined in Rule 144
under the 1933 Act.
(c) On January 25, 2006, Newgold entered into a joint venture with
ASDi, LLC to develop two Nevada mining properties known as the Red Caps Project
("Red Caps") and Crescent Valley Project ("Crescent Valley"). The Red Caps and
Crescent Valley mining claims are currently owned by ASDi, LLC which is owned
and managed by A. Scott Dockter, Chairman and CEO of Newgold. The joint venture
will be operated through a newly formed Nevada limited liability company called
Crescent Red Caps, LLC. The terms of the joint venture provide for ASDi to
contribute the Red Caps and Crescent Valley mining claims to the LLC in exchange
for Newgold issuing 2.5 million shares of its common stock to ASDi. Newgold will
initially own a 22.22% interest in the LLC and ASDi will hold a 77.78% interest.
By expending up to $1,350,000 on each project over the next three years, Newgold
can increase its interest in the LLC to 66.66%. Thereafter, Newgold has the
right to purchase the remaining interest in the LLC held by ASDi at a price to
be determined by the results of the exploration work conducted. Newgold will be
the Manager of the LLC.
During Newgold's fiscal year ended January 31, 2005, it issued the
following equity securities pursuant to exemptions from registration under the
Securities Act:
(d) In April 2004, Newgold borrowed $9,650 from its President, Scott
Dockter. The promissory note is not convertible into stock, is due on April
30,2005, and bears interest at 8% per year. In connection with the loans,
warrants to purchase 64,333 shares of Newgold common stock have been issued. The
warrants have been valued using the Black-Scholes option pricing model. The
warrants were issued at $0.15 per share and expire in five years from the date
of issuance.
(e) In July 2004, Newgold borrowed $8,500 from its President, Scott
Dockter. The promissory note is not convertible into stock, is due on July 31,
2005, and bears interest at 8% per year. In connection with the loans, warrants
to purchase 56,667 shares of Newgold common stock have been issued. The warrants
have been valued using the Black-Scholes option pricing model. The warrants were
issued at $0.15 per share and expire in five years from the date of issuance.
(f) In October 2004, Newgold borrowed $3,081 from its President, Scott
Dockter. The promissory note is not convertible into stock, is due on in one
year and bears interest at 8% per year. In conjunction with this loan, the
President was issued warrants to purchase 20,540 shares of Newgold's common
stock of $0.15 per share. In addition, new convertible promissory notes were
issued to Scott Dockter, Newgold's CEO and James Kluber, Newgold's CFO in the
principal amounts of $1,402,742 and $209,251, respectively. The notes bear
interest at 8% per annum and are due September 30, 2005. In connection with the
issuance of these notes, Newgold issued warrants to purchase 5,798,140 and
1,395,007 shares of common stock to its Chief Executive Officer and Chief
Financial Officer, respectively.
II-3
During Newgold's fiscal year ended January 31, 2004, it issued the
following equity securities pursuant to exemptions from registration under the
Securities Act:
(g) In February 2003, one person exercised a warrant to purchase
200,000 shares of Newgold's common stock. The exercise price was $0.10/share.
ITEM 27. EXHIBITS
Exhibit No. Description of Exhibit
2.1((4)) Plan of Reorganization and Merger Agreement, dated as of July
23, 1999, between the Registrant and Business Web, Inc.
2.2(6) First Amendment to Plan of Reorganization and Merger
Agreement, dated as of October 31, 1999, between the
Registrant and Business Web, Inc.
2.3(7) Termination Agreement, dated as of December 27, 1999, between
the Registrant and Business Web, Inc.
3.1(2) Certificate of Incorporation of the Registrant.
3.2(1) Certificate of Amendment to Certificate of Incorporation of
the Registrant.
3.3(2) Bylaws of the Registrant
4.1(9) Convertible Debenture
4.2.1(9) Form of Warrant - $0.20 exercise price
4.2.2(9) Form of Warrant - $0.30 exercise price
5.1 Opinion of Counsel (to be filed by amendment)
10.1(3) Promissory Note between Newgold and A. Scott Dockter, dated
April 2, 1997, for the principal amount of $100,000.
10.2(3) Promissory Note between Newgold and A. Scott Dockter, dated
April 17, 1997, for the principal amount of $50,000.
10.3(3) Promissory Note between Newgold and A. Scott Dockter, dated
April 30, 1997, for the principal amount of $20,000.
10.4(3) Promissory Note between Newgold and A. Scott Dockter, dated
May 30, 1997, for the principal amount of $35,000
10.5(5) Promissory Note between Newgold and A. Scott Dockter, dated
December 24, 1998, for the principal amount of $24,000.
10.6(7) Warrant to Purchase shares of Common Stock of Business Web,
Inc.
10.7(9) Securities Purchase Agreement dated January 27, 2006 by and
among Newgold and the investor named therein.
10.8(9) Registration Rights Agreement dated January 27, 2006 by and
among Newgold and the investor named therein.
10.9(10) Joint Venture Agreement dated January 25, 2006 between
Newgold, Inc. and ASDi, LLC
10.10(10) Crescent Red Caps LLC - Operating Agreement
10.11* Employment Agreement for A. Scott Dockter dated February 1,
2006
10.12* Employment Agreement for James W. Kluber dated February 1,
2006
14(8) Code of Business Conduct and Ethics.
23.1 Consent of Counsel (incorporated by reference to Exhibit 5.1
of this filing)
II-4
23.2* Consent of Independent Registered Public Accounting Firm
--------------------
* Filed with this SB-2 Registration Statement
(1) Incorporated by reference to the Registrant's Annual Report on Form 10-KSB
for the fiscal year ended January 31, 1996 filed with the omission 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 Registrant's Annual Report on Form 10-KSB for
the fiscal year ended January 31, 1997 filed with the Commission on June
30, 1997.
(4) Incorporated by reference to Registrant's Annual Report on Form 10-KSB for
the fiscal year ended January 31, 1999 filed with the Commission on October
1, 1999.
(5) Incorporated by reference to Registrant's First Amendment to Annual Report
on Form 10-KSB for the fiscal year ended January 31, 1999, filed with the
Commission on October 20, 1999.
(6) Incorporated by reference to Registrant's Form 8-K filed with the
Commission on November 2, 1999. (7) Incorporated by reference to
Registrant's Annual Report on Form 10-KSB for the fiscal year ended January
31, 2000 filed with the Commission on May 17, 2000.
(8) Incorporated by reference to Registrant's Annual Report on Form 10-KSB for
the fiscal year ended January 31, 2005 filed with the Commission on May 2,
2005
(9) Incorporated by reference to Registrant's Form 8-K filed with the
Commission on February 2, 2006 (10) Incorporated by reference to
Registrant's Form 8-K/A filed with Commission on February 27, 2006.
ITEM 28. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Sections 10(a)(3) of the
Securities Act of 1933 (the "1933 Act");
(ii) Reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective Registration Statement;
(iii) Include any additional or changed material information with
respect to the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement.
II-5
(2) That, for the purpose of determining any liability under the 1933 Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities that remain unsold at the end of the offering.
(4) For determining liability of the undersigned small business issuer
under the Securities Act to any purchaser in the initial distribution of the
securities, the undersigned small business issuer undertakes that in a primary
offering of securities of the undersigned small business issuer pursuant to this
registration statement, regardless of the underwriting method used to sell the
securities to the purchaser, if the securities are offered or sold to such
purchaser by means of any of the following communications, the undersigned small
business issuer will be a seller to the purchaser and will be considered to
offer or sell such securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned small
business issuer relating to the offering required to be filed pursuant to Rule
424;
(ii) Any free writing prospectus relating to the offering prepared by
or on behalf of the undersigned small business issuer or used or referred to by
the undersigned small business issuer;
(iii) The portion of any other free writing prospectus relating to the
offering containing material information about the undersigned small business
issuer or its securities provided by or on behalf of the undersigned small
business issuer; and
(iv) Any other communication that is an offer in the offering made by
the undersigned small business issuer to the purchaser.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable.
Each prospectus filed pursuant to Rule 424(b) as part of a registration
statement relating to an offering, other than registration statements relying on
Rule 430(B) or other than prospectuses filed in reliance on Rule 430A, shall be
deemed to be part of and included in the registration statement as of the date
it is first used after effectiveness. Provided; however, that no statement made
in a registration statement or prospectus that is part of the registration
statement or made in a document incorporated or deemed incorporated by
referenced into the registration statement or prospectus that is part of the
registration statement will, as to a purchaser with a time of contract of sale
prior to such first use, supersede or modify any statement that was made in the
registration statement or prospectus that was part of the registration statement
or made in any such document immediately prior to such date of first use.
II-6
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on our behalf by the undersigned, in the City of
Sacramento, State of California on March 2, 2006.
NEWGOLD, INC.
By: /s/ A. SCOTT DOCKTER
---------------------------------------
Name: A. Scott Dockter
Title: Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated:
---------------------------------------- -------------------------------------- --------------------------------------
SIGNATURES TITLE DATE
---------------------------------------- -------------------------------------- --------------------------------------
/s/ A. SCOTT DOCKTER
---------------------------
A. Scott Dockter Chief Executive Officer and March 2, 2006
Director
---------------------------------------- -------------------------------------- --------------------------------------
/s/ JAMES KLUBER
--------------------------- Principal Accounting Officer, March 3, 2006
James Kluber Principal Financial Officer,
Secretary and Director
---------------------------------------- -------------------------------------- --------------------------------------
II-7
EXHIBIT INDEX
Exhibit No. Description of Exhibit
----------- ----------------------
Exhibit 2.1 Plan of Reorganization and Merger Agreement, dated as of July
23, 1999 between the Registrant and Business Web, Inc.
Exhibit 2.2 First Amendment to Plan of Reorganization and Merger
Agreement, dated as of October 31, 1999, between the
Registrant and Business Web, Inc.
Exhibit 2.3 Termination Agreement, dated as of December 27, 1999, between
the Registrant and Business Web, Inc.
Exhibit 3.1 Certificate of Incorporation of the Registrant.
Exhibit 3.2 Certificate of Amendment to Certificate of Incorporation of
the Registrant.
Exhibit 3.3 Bylaws of the Registrant
Exhibit 4.1 Convertible Debenture
Exhibit 4.2.1 Form of Warrant - $0.20 exercise price
Exhibit 4.2.2 Form of Warrant - $0.30 exercise price
Exhibit 5.1 Opinion of Counsel (to be filed by amendment)
Exhibit 10.1 Promissory Note between Newgold and A. Scott Dockter, dated
April 2, 1997, for the principal amount of $100,000.
Exhibit 10.2 Promissory Note between Newgold and A. Scott Dockter, dated
April 17, 1997, for the principal amount of $50,000.
Exhibit 10.3 Promissory Note between Newgold and A. Scott Dockter, dated
April 30, 1997, for the principal amount of $20,000.
Exhibit 10.4 Promissory Note between Newgold and A. Scott Dockter, dated
May 30, 1997, for the principal amount of $35,000
Exhibit 10.5 Promissory Note between Newgold and A. Scott Dockter, dated
December 24, 1998, for the principal amount of $24,000.
Exhibit 10.6 Warrant to Purchase shares of Common Stock of Business Web,
Inc.
Exhibit 10.7 Securities Purchase Agreement dated January 27, 2006 by and
among Newgold and the investor named therein.
Exhibit 10.8 Registration Rights Agreement dated January 27, 2006 by and
among Newgold and the investor named therein.
Exhibit 10.9 Joint Venture Agreement dated January 25, 2006 between
Newgold, Inc. and ASDi, LLC
Exhibit 10.10 Crescent Red Caps LLC - Operating Agreement
Exhibit 10.11* Employment Agreement for A. Scott Dockter dated February 1,
2006
Exhibit 10.12* Employment Agreement for James W. Kluber dated February 1,
2006
Exhibit 14 Code of Business Conduct and Ethics.
Exhibit 23.1 Consent of Counsel (incorporated by reference to Exhibit 5.1
of this filing)
Exhibit 23.2* Consent of Independent Registered Public Accounting Firm
----------------------------------------
*Exhibits included in this SB-2 Registration statement
II-8