--------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
AMENDMENT NO. 1
For the Fiscal Year Ended Commission File Number
January 31, 2005 0-20722
NEWGOLD INC.
--------------------------------------------------------------------------------
Delaware 16-1400479
------------------------------------ ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification)
Principal Executive Offices:
400 Capitol Mall, Suite 900
Sacramento, CA 95814
Telephone: (916) 449-3913
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Title of Each Class
-------------------
Common Stock $0.001 Par Value
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
----- -----
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ X ]
The issuer's revenues for its most recent fiscal year were $0.
As of April 15, 2005, the aggregate value of the voting stock held by
non-affiliates of the Registrant, computed by reference to the average of the
bid and ask price on such date was approximately $9,738,000 based upon the
closing price of $0.24/share.
As of April 15, 2005, the Registrant had outstanding 48,777,842 shares of common
stock.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
DOCUMENTS INCORPORATED BY REFERENCE
Certain exhibits required by Item 13 have been incorporated by reference from
Newgold's previously filed Form 8-K's, Form 10-QSB and Form 10-KSB.
--------------------------------------------------------------------------------
Explanatory Note
This amendment on Form 10-KSB/A (the 2005 Form 10-KSB/A) amends the
annual report on Form 10-KSB of Newgold, Inc. (the "Company") for the year ended
January 31, 2005 (the 2005 Form 10-KSB), which was originally filed on May 2,
2005. This Amendment No. 1 to the 2005 Form 10-KSB/A is being filed for the
purpose of identifying the Company as a Development Stage Company by amending
certain portions of the Management's Discussion and Analysis or Plan of
Operations and expanded disclosure appearing in the Company's financial
statements.
As required by Rule 12b-15 of the Securities Exchange Act of 1934, set
forth in their entirety are Item 6 (Management's Discussion and Analysis or Plan
of Operation), Item 7 (Financial Statements) and Item 13 (Exhibits).
As part of this amendment, the Company is also filing new
certifications from its chief executive officer and chief financial officer
(Exhibits 31.1, 31.2, and 32.1).
No attempt has been made in this Form 10-KSB/A to update other
disclosures presented in the 2005 Form 10-KSB. Consequently, except for the
adjustments described above, this Amendment No. 1 to the 2005 Form 10-KSB/A does
not reflect events occurring after May 2, 2005, the date of the original filing
of the Company's 2005 Form 10-KSB, or modify or update those disclosures that
may have been affected by subsequent events. Accordingly, this Amendment No. 1
to the 2005 Form 10-KSB/A should be read in conjunction with the Company's
filings made with the SEC subsequent to the filing of the 2005 Form 10-KSB.
TABLE OF CONTENTS
PAGE OF
REPORT
-------
PART II................................................................... 1
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION................................................... 1
ITEM 7. FINANCIAL STATEMENTS........................................ 9
PART III.................................................................. 10
ITEM 13. EXHIBITS.................................................... 10
SIGNATURES................................................................ 11
PART II
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
For more detailed financial information, please refer to the audited January 31,
2005 Financial Statements included in this Form 10-KSB.
CAUTION ABOUT FORWARD-LOOKING STATEMENTS
This Form 10-KSB 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," we "anticipate" or we "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 Form 10-KSB if any forward-looking statement later turns out to be
inaccurate. Details about risks affecting various aspects of Newgold's business
are discussed throughout this Form 10-KSB and should be considered carefully.
For purposes of the discussion in this Item 6, Newgold, Inc. may be referred to
as "we" or "us."
We are a development stage company and an investment in, or ownership position
in our common stock is inherently risky. Some of these risks pertain to our
business in general, and others are risks which would only affect our common
stock. The price of our common stock could decline and/or remain adversely
affected due to any of these risks and investors could lose all or part of an
investment in our company as a result of any of these risks coming to pass.
Readers of this Report should, in addition to considering these risks carefully,
refer to the other information contained in this Report, including disclosure in
our financial statements and all related notes, for a full description of our
business. When we say that something could or will have a material adverse
effect on it, we mean that it could or will have one or more of these effects.
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).
Our properties now include 78 unpatented mining claims contained in
about 1000 acres.
Our operating plan is to place our mining claims into profitable
production by the end of fiscal 2006, and use the net proceeds from
these operations to fund ongoing exploration
1
and development of our property holdings. Through the use of joint
ventures, royalties and partnerships, we intend to progressively
enlarge the scope and scale of the mining and processing operations,
thereby increasing 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 fiscal year 2006 of between
$2.5 million and $4 million, including costs related to the resumption
of mine operations and production at the Relief Canyon mine.
o Due to the strengthening of the gold market, and consistent with our
exploration growth strategy, we expect exploration, research and
development expenditures in 2005 will total between $500,000 and $1
million.
o Additional funding or the utilization of other venture partners will be
required for mining operations, exploration, research, development and
operating expenses. In the past we have been dependent on the funding
from the private placement of our securities as well as loans from
related parties as the sole sources of capital to fund operations.
RESULTS OF OPERATION
We have only recently resumed business operations after having been inactive
from July 2001 until February 2003. Consequently, 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 Newgold's current and
future operations. As a development stage company with an unproven business
strategy, we may not be able to achieve positive cash flows and our limited
history of operations makes evaluation of our business and prospects difficult.
Therefore, the current management discussion and analysis should be read from
the context of Newgold's recent resumption of its mining business.
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
fiscal year. We have granted a 4% net smelting return royalty 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 Newgold's 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,
2
$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 mining
operations and exploration program.
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. The increase in interest expense
during fiscal year 2005 was primarily due to the increase in accretion of
warrants issued in October 2004 as a debt discount.
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 since inception which has resulted
in an accumulated deficit of $16,385,303 as of the end of fiscal year 2005. At
January 31, 2005, we had cash of $16,730 and a net working capital deficit of
$3,828,226. Since the resumption of our business in February 2003, we have been
dependent on borrowed or invested funds in order to finance Newgold's ongoing
operations. As of January 31, 2005, we had $1,006,088 of outstanding notes
payable which reflects a significant decrease compared to notes payable of
$1,581,721 outstanding as of January 31, 2004.
During fiscal year 2005, we borrowed an additional $41,797 from Newgold's
President and Chief Executive Officer at an interest rate of 8% per year and is
due January 31, 2006. This amount increased our total indebtedness to Newgold's
President to $1,422,587. Of this amount, $1,402,742 which had been in default
was converted into a convertible note payable at a rate of 8% per year due
September 30, 2005. Also during fiscal year 2005, the Chief Financial Officer
converted $209,251 of accrued payroll and other amounts owed to him into a
convertible note payable at a rate of 8% per year. The convertible note is due
September 30, 2005. Principal and interest due four other individuals are due on
demand of the holders.
Subsequent to the fiscal year end, we secured $75,000 of new equity capital
through the sale of 500,000 shares of Newgold common stock and the issuance of
warrants to purchase up to an additional 500,000 shares of Newgold's common
stock exercisable at $0.30 per share.
3
By attempting to resume mining operations, we will require approximately $3
million to $5 million in additional working capital above the current working
capital deficiency to bring the mine into full production. It is our intention
to pursue several possible funding opportunities including the sale of
additional securities or the incurring of additional debt.
Due to our continuing losses from our business operations, the independent
auditor's report 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 January 31, 2005, we were in default on two promissory notes due to
unrelated parties in the principal amounts of $19,844 and $176,500.
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.
If these investors were unwilling or unable to provide necessary working capital
to us, we would probably not be able to commence or sustain our operations.
There is no written agreement or contractual obligation which would require our
investors to fund Newgold's operations up to a certain amount or indeed continue
to finance Newgold's operations at all.
While we believe Newgold has sufficient capital to fund its current
administrative expenses, we will need to raise additional capital to continue to
develop, promote and conduct its mining operations. Such additional capital may
be raised through public or private financing as well as borrowing from other
sources. To date, Newgold's President has paid substantially all of its expenses
since restarting its business in February 2003. Although we believe that these
creditors and investors will continue to fund our expenses based upon their
significant debt or equity interest in Newgold, there is no assurance that such
investors will continue to pay our expenses. If adequate funds are not otherwise
available, we would not be able to sustain mining operations.
CRITICAL ACCOUNTING POLICIES
Newgold's discussion and analysis of its financial conditions and results of
operations are based upon its consolidated financial statements, which have been
prepared in accordance with generally accepted accounting principles in the
United States. The preparation of financial statements require managers to make
estimates and disclosures on the date of the financial statements. On an
on-going basis, Newgold evaluates its estimates, including, but not limited to,
those related to revenue recognition. Newgold uses authoritative pronouncements,
historical experience and other assumptions as the basis for making judgments.
Actual results could differ from those estimates. Newgold believes that the
following critical accounting policies affect its more significant judgments and
estimates in the preparation of its consolidated financial statements.
4
Development Stage Company
-------------------------
Effective January 1, 1995 (date of inception), the Company is considered a
development stage Company as defined in SFAS No. 7. The Company's development
stage activities consist of the development of several mining properties located
in Nevada. Sources of financing for these development stage activities have been
primarily debt and equity financing. The Company has, at the present time, not
paid any dividends and any dividends that may be paid in the future will depend
upon the financial requirements of the Company and other relevant factors.
Valuation of long-lived assets
------------------------------
Long-lived assets, consisting primarily of property and equipment, patents and
trademarks, and goodwill, comprise a significant portion of Newgold's 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.
Factors Newgold considers 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 its use of the acquired
assets or the strategy of its overall business, and
(c) significant negative industry or economic trends.
When Newgold determines 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, it measures any
impairment based on a projected discounted cash flow method using a discount
rate determined by its management to be commensurate with the risk inherent in
its 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.
5
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.
Reclamation Costs
-----------------
Reclamation costs and related accrued liabilities, which are based on Newgold's
interpretation of current environmental and regulatory requirements, are accrued
and expensed, upon determination.
Based on current environmental regulations and known reclamation requirements,
management has included its best estimates of these obligations in its
reclamation accruals. However, it is reasonably possible that Newgold's best
estimates of its ultimate reclamation liabilities could change as a result of
changes in regulations or cost estimates.
RECENTLY ISSUED 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
6
5 of ARB No. 43, Chapter 4, previously stated that ". . . under some
circumstances, items such as 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
7
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 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.
8
ITEM 7. FINANCIAL STATEMENTS
NEWGOLD, INC.
FINANCIAL STATEMENTS
FOR THE YEARS ENDED
JANUARY 31, 2005 AND 2004
INDEX TO FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM F-1
Balance Sheet F-2
Statements of Operations F-3
Statements of Comprehensive Loss F-4
Statements of Shareholders' Deficit F-5
Statements of Cash Flows F-8
Notes to Financial Statements F-12
9
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Newgold, Inc.
(A Development Stage Company)
Sacramento, California
We have audited the balance sheet of Newgold, Inc. (a development stage company)
(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 and the period from January
1, 1995 to 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 audit.
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 the Company as of January 31,
2006, and the results of its operations and its cash flows for each of the two
years in the period ended January 31, 2005 and the period from January 1, 1995
to January 31, 2005 in conformity with U.S. generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, during the year ended January 31, 2005, the Company
incurred a net loss of $1,278,140 and had negative cash flows from its
operations of $353,201. In addition, the Company had an accumulated
shareholders' deficit of $16,385,303 at January 31, 2005 and a 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 doubts 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
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
April 15, 2005
F-1
NEWGOLD, INC.
(A DEVLOPMENT STAGE COMPANY)
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 SHAREHOLDERS' 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
SHAREHOLDERS' 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
Deficit accumulated during the development stage (16,385,303)
----------------
Total shareholders' deficit (4,114,280)
----------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 532,676
================
F-2
The accompanying notes are an integral part of these financial statements
NEWGOLD, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JANUARY 31, 2005 AND 2004
AND FOR THE PERIOD FROM JANUARY 1, 1995 TO JANUARY 31, 2005
--------------------------------------------------------------------------------
For the Period
For the Years Ended January 31, From January 1,
---------------------------------- 1995 to January
2005 2004 31, 2005
--------------- --------------- ---------------
NET SALES $ - $ - $ -
COST OF GOODS SOLD 28,433 37,916 170,665
--------------- --------------- ---------------
GROSS (LOSS) (28,433) (37,916) (170,665)
OPERATING EXPENSES (353,972) (306,477) (13,237,230)
--------------- --------------- ---------------
LOSS FROM OPERATIONS (382,405) (344,393) (13,407,895)
--------------- --------------- ---------------
OTHER INCOME (EXPENSE)
Interest income 72,687
Dividend income - 10,063 30,188
Other income - - 6,565
Interest expense (614,672) (136,493) (1,467,690)
Loss on sale of marketable securities (281,063) - (281,063)
Bad debt expense - - (40,374)
Loss on disposal of plant, property
and equipment - - (334,927)
Loss on disposal of bond - - (21,000)
--------------- --------------- ---------------
Total other expense (895,735) (126,430) (2,035,614)
--------------- --------------- ---------------
NET LOSS $ (1,278,140) $ (470,823) $ (15,443,509)
=============== =============== ===============
BASIC AND DILUTED LOSS PER SHARE $ (0.03) $ (0.01)
=============== ===============
BASIC AND DILUTED WEIGHTED-AVERAGE
SHARES OUTSTANDING 47,644,745 47,595,763
=============== ===============
F-3
The accompanying notes are an integral part of these financial statements
NEWGOLD, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF COMPREHENSIVE LOSS
FOR THE YEARS ENDED JANUARY 31, 2005 AND 2004
AND FOR THE PERIOD FROM JANUARY 1, 1995 TO JANUARY 31, 2005
--------------------------------------------------------------------------------
For the Period
For the Years Ended January 31, From January 1,
---------------------------------- 1995 to January
2005 2004 31, 2005
--------------- --------------- ---------------
NET LOSS $ (1,278,140) $ (470,823) $ (15,443,509)
OTHER COMPREHENSIVE LOSS
Unrealized loss from
marketable securities - (204,820) (204,820)
SALE OF SECURITIES WITH PREVIOUS UNREALIZED
HOLDING LOSS 204,820 - 204,820
--------------- --------------- ---------------
COMPREHENSIVE LOSS $ (1,073,320) $ (675,643) $ (15,443,509)
=============== =============== ===============
F-4
The accompanying notes are an integral part of these financial statements
NEWGOLD, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF SHAREHOLDERS' DEFICIT
FOR THE YEARS ENDED JANUARY 31, 2005 AND 2004
AND FOR THE PERIOD FROM JANUARY 1, 1995 TO JANUARY 31, 2005
--------------------------------------------------------------------------------
Common Stock Additional Other Com-
--------------------------- Paid in prehensive Accumulated
Shares Amount Capital (Loss) Deficit Total
------------- ------------- ------------- ------------ ------------- -------------
Balance December 31, 1994 6,768,358 $ 6,768 - - $ (636,084) $ (629,316)
Net loss (233,877) (233,877)
------------- ------------- ------------- ------------ ------------- -------------
Balance December 31, 1995 6,768,358 6,768 - - (869,961) (863,193)
Shares issued to creditors and shareholders
of Warehouse Auto Centers, Inc. 305,709 306 305,403 - (305,709) -
Shares issued to investors and underwriters 5,135,130 5,135 4,701,835 4,706,970
Shares issued to purchase Washington Gulch 3,800,000 3,800 177,200 181,000
Shares issued in exchange for net profits interest 1,431,642 1,432 440,605 442,067
Shares issued to others 21,000 221 220,779 221,000
Shares issued to Repadre 100,000 100 99,900 100,000
Shares issued to repurchase 50% interest
in Relief Canyon 1,000,000 1,000 999,000 1,000,000
Net loss for the period January 1, 1996
to January 31, 1997 (1,803,784) (1,803,784)
------------- ------------- ------------- ------------ ------------- -------------
Balance January 31, 1997 18,761,839 18,762 6,944,722 - (2,979,454) 3,984,030
Shares issued to Warehouse Auto Centers, Inc.
shareholders subsequently cancelled (25,242) (25) (25,217) (25,242)
Shares issued to others 12,500 13 4,987 5,000
Additional shares issued to investors and
underwriters for delay in share trading 513,514 513 204,487 205,000
F-5
The accompanying notes are an integral part of these financial statements
NEWGOLD, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF SHAREHOLDERS' DEFICIT
FOR THE YEARS ENDED JANUARY 31, 2005 AND 2004
AND FOR THE PERIOD FROM JANUARY 1, 1995 TO JANUARY 31, 2005
--------------------------------------------------------------------------------
Shares issued to Repadre 200,000 200 199,800 200,000
Net loss (5,883,309) (5,883,309)
------------- ------------- ------------- ------------ ------------- -------------
Balance January 31, 1998 19,462,611 19,463 7,328,779 - (8,862,763) (1,514,521)
Shares issued in exchange for rent 15,000 15 5,985 6,000
Shares issued to IBK 5,616,977 5,617 542,383 548,000
Shares issued in exchange for property 150,000 150 55,350 55,000
Net loss (753,219) (753,219)
------------- ------------- ------------- ------------ ------------- -------------
Balance January 31, 1999 25,244,588 25,245 7,932,497 - (9,615,982) (1,658,240)
Three-for-two stock split 12,672,441 12,671 (12,671) -
Shares issued in exchange for debt conversion 3,205,674 3,206 1,279,065 1,282,271
Net loss (919,735) (919,735)
------------- ------------- ------------- ------------ ------------- -------------
Balance January 31, 2000 41,122,703 41,122 9,198,891 - (10,535,717) (1,295,704)
Shares issued for cash 1,796,000 1,796 663,204 665,000
Additional shares issued for delay in registration 239,200 239 (239) -
Shares issued for offering costs 120,000 120 (60,120) (60,000)
Shares issued for legal settlement 1,000,000 1,000 649,000 650,000
Shares issued for services 78,271 78 69,922 70,000
Net loss (2,382,723) (2,382,723)
------------- ------------- ------------- ------------ ------------- -------------
Balance January 31, 2001 44,356,174 44,356 10,520,657 - (12,918,440) (2,353,427)
Shares issued for cash 2,500,000 2,500 147,500 150,000
Warrants issued with debt 20,000 20,000
------------- ------------- ------------- ------------ ------------- -------------
F-6
The accompanying notes are an integral part of these financial statements
NEWGOLD, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF SHAREHOLDERS' DEFICIT
FOR THE YEARS ENDED JANUARY 31, 2005 AND 2004
AND FOR THE PERIOD FROM JANUARY 1, 1995 TO JANUARY 31, 2005
--------------------------------------------------------------------------------
Net loss (1,502,366) (1,502,366)
------------- ------------- ------------- ------------ ------------- -------------
Balance January 31, 2002 46,856,174 46,856 10,688,157 - (14,420,806) (3,685,793)
Shares issued upon exercise of warrants 550,000 550 54,450 55,000
Offering costs (1,467) (1,467)
Warrants issued with debt 13,574 13,574
Net loss (215,533) (215,533)
------------- ------------- ------------- ------------ ------------- -------------
Balance January 31, 2003 47,406,174 47,406 10,754,714 - (14,636,339) (3,834,219)
Shares 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)
Shares 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 12,222,744 - (16,385,302) (4,114,280)
F-7
The accompanying notes are an integral part of these financial statements
NEWGOLD, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JANUARY 31, 2005 AND 2004
AND FOR THE PERIOD FROM JANUARY 1, 1995 TO JANUARY 31, 2005
--------------------------------------------------------------------------------
For the Period
For the Years Ended January 31, From January 1,
----------------------------------- 1995 to January
2005 2004 31, 2005
--------------- --------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ($1,278,140) ($470,823) ($15,443,509)
Adjustments to reconcile net loss to net cash
used in operating activities
Accretion of warrants issued as a debt discount 443,682 22,753 496,615
Accretion of beneficial conversion 35,823 - 35,823
Loss on sale of marketable securities 281,063 - 281,063
Depreciation and amortization - - 124,157
Loss on disposal of property, plant and equipment - - 334,927
Impairment in value of property, plant and equipment - - 807,266
Loss on disposal of bond - - 21,000
Impairment in value of Relief Canyon Mine - - 3,311,672
Impairment in value of joint investments - - 490,000
Bad debt - - 40,374
Assigned value of stock and warrants exchanged for services - - 537,258
Gain on write off of note payable - - (7,000)
F-8
The accompanying notes are an integral part of these financial statements
NEWGOLD, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JANUARY 31, 2005 AND 2004
AND FOR THE PERIOD FROM JANUARY 1, 1995 TO JANUARY 31, 2005
--------------------------------------------------------------------------------
Judgment loss accrued - - 250,000
(Increase) decrease in
Employee receivable 2,000 - 2,000
Deposits 45,000 (38,500) 4,500
Deferred reclamation costs - (463,446) (437,952)
Prepaid expenses - - (2,900)
Reclamation bonds - - 185,000
Other assets - - (1,600)
Increase (decrease) in
Accounts payable 28,082 (2,000) 287,318
Accrued expenses 89,289 775,433 2,213,461
--------------- --------------- ---------------
Net cash used by operating activities (353,201) (176,583) (6,470,527)
--------------- --------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of marketable securities 34,124 (10,063) 34,124
Investment in marketable securities - - (315,188)
Advances from shareholder - - 7,436
Contribution from joint venture partner - - 775,000
Purchase of joint venture partner interest - - (900,000)
Capital expenditures - - (2,951,507)
Proceeds from disposal of property, plant and equipment - - 278,783
F-9
The accompanying notes are an integral part of these financial statements
NEWGOLD, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JANUARY 31, 2005 AND 2004
AND FOR THE PERIOD FROM JANUARY 1, 1995 TO JANUARY 31, 2005
--------------------------------------------------------------------------------
Investments in joint ventures - - (490,000)
Note receivable - - (268,333)
Repayment of note receivable - - 268,333
Net cash used by investing activities 34,124 (10,063) (3,561,352)
--------------- --------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of common stock 100,750 20,000 6,484,253
Proceeds from notes payable 251,043 338,943 5,027,048
Principal repayments of notes payable (21,953) (171,952) (2,037,706)
Repayment of advances to affiliate - - (231,663)
Deferred revenue - - 800,000
Net cash provided by financing activities 329,840 186,991 10,041,932
--------------- --------------- ---------------
Net increase in cash 10,763 345 10,053
CASH, BEGINNING OF YEAR 5,967 5,622 6,677
--------------- --------------- ---------------
CASH, END OF YEAR $ 16,730 $ 5,967 $ 16,730
=============== =============== ===============
F-10
The accompanying notes are an integral part of these financial statements
SUPPLEMENTAL CASH FLOW INFORMATION FOR THE YEARS ENDED JANUARY 31, 2005 AND 2004
AND JANUARY 1, 1995 THROUGH JANUARY 31, 2005 AS FOLLOWS:
For the Period
For the Years Ended January 31, From January 1,
----------------------------------- 1995 to January
2005 2004 31, 2005
--------------- --------------- ---------------
Cash paid for interest $ - $ - $ 161,107
--------------- --------------- ---------------
Cash paid for income taxes $ - $ - $ -
--------------- --------------- ---------------
F-11
The accompanying notes are an integral part of these financial statements
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.
Merger
------
In November 1996, Newgold, Inc. of Nevada (Old Newgold) was merged into
Warehouse Auto Centers, Inc. (WAC), a public company, which had previously
filed an involuntary petition under Chapter 11 of the United States
Bankruptcy Code in the United States Bankruptcy Court for the Western
District of New York. Pursuant to the plan of reorganization and merger
(the Plan), (i) WAC which was the surviving corporation for legal purposes,
changed its name to Newgold Inc. (the Company), (ii) the outstanding shares
of Old Newgold were converted into the right to receive an aggregate of
12,000,000 shares or approximately 69% of the post merger outstanding
common stock of the Company, (iii) each outstanding share of WAC was
converted into the right to receive 1/65 share of the common stock of the
Company, for an aggregate of 51,034 shares or less than 1% of the post
merger outstanding common stock, (iv) unsecured trade debts and other
unsecured pre-petition liabilities were paid in full via the issuance of
one share of the Company's stock, for each $42 of debt, for an aggregate of
63,374 shares or less than 1% of the post merger outstanding common stock,
and (v) post petition creditors received 1 share of stock for each $1 of
debt, for an aggregate of 191,301 shares or approximately 1% of the post
merger outstanding common stock. The Plan also required an amendment to the
Company's capital structure to increase the number of shares authorized to
50,000,000 and to reduce the corresponding par value to $.001.
In connection with the Plan, the Company raised $4,707,000 of cash through
the issuance of convertible debtor certificates. Shortly after confirmation
of the Plan, the debtor certificates were exchanged for 5,135,130 shares of
common stock (including 428,130 shares issued in lieu of paying cash for
underwriter's fees) representing approximately 29% of the post merger
outstanding common stock. An additional bonus of 513,514 shares 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.
F-12
NOTE 2 - GOING CONCERN
These financial statements have been prepared on a going concern basis.
However, during the year ended January 31, 2005 and 2004 and the period
from January 1, 1995 to January 31, 2005 the Company incurred a net loss of
$1,278,140, $470,823 and $15,443,509, respectively and had negative cash
flows from operations of $353,201. In addition, the Company had an
accumulated shareholders' deficit of $4,114,280 and was in the development
stage since inception and through 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
Development Stage Company
-------------------------
Effective January 1, 1995 (date of inception), the Company is considered a
development stage Company as defined in SFAS No. 7. The Company's
development stage activities consist of the development of several mining
properties located in Nevada. Sources of financing for these development
stage activities have been primarily debt and equity financing. The Company
has, at the present time, not paid any dividends and any dividends that may
be paid in the future will depend upon the financial requirements of the
Company and other relevant factors.
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).
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.
F-13
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 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.
F-14
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.
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.
F-15
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 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 shareholders by the
weighted-average number of common
F-16
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 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.
F-17
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 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.
F-18
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 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 - RECLAMATION ASSET AND OBLIGATION
Effective February 1, 2003, the Company became subject to and adopted SFAS
No. 143, Accounting for Asset Retirement Obligations, which establishes a
uniform methodology for accounting for estimated reclamation and abandoned
costs. As of January 31, 2003, the Company had recognized a reclamation
liability of $513,946 representing the net present value of the estimated
reclamation costs related to the Relief Canyon property given its current
condition of being inactive and in a care and maintenance status. No
additional liability was recorded through January 31, 2003 since the
property was not in production and existing generally accepted accounting
principles did not provide for the recognition of addition liability under
those circumstances. SFAS No. 143 requires that the fair value of a
liability for an asset retirement obligation be recognized in the period in
which it is incurred if a reasonable estimate of fair value can be made.
Fair value is determined by estimating the retirement obligations in the
period the asset is first placed in service or acquired and then adjusted
for
F-19
the amount of estimated inflation and market risk contingencies to the
projected settlement date of the liability. The result is then discounted
to a present value from the projected settlement date to the date the asset
was first placed in service or acquired. The present value of the asset
retirement obligation is recorded as an additional property cost and as an
asset retirement liability. When and if the Relief Canyon property is
placed back into an exploration, development, or operating status then the
amortization of the additional property cost (using the units of production
method) will be included in depreciation expense and the accretion of the
discounted liability will be recorded as a separate operating expense in
the Company's statement of operations with a corresponding increase in the
reclamation liability. On this basis, due to the current liability
classification of the asset retirement obligation the Company has not
recorded any additional results due to the adoption of SFAS 143 and
therefore, there are no additional results to be reported for a cumulative
effect of the change in this accounting principle during the year ended
January 31, 2004. Since the Relief Canyon property was not in production
prior to January 31, 2003, no depreciation of the reclamation asset has
been considered pursuant to the adoption of SFAS No. 143 for the period
from January 1, 1995 through January 31, 2003.
There would have been no pro forma impact on the year ended January 31,
2004 as a result of the application of SFAS No. 143 with no changes to the
reclamation obligation recognized prior to the application of SFAS No. 143
related to the Relief Canyon property through January 31, 2004.
NOTE 7 - 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)
--------------
F-20
Total notes payable to individuals and related parties $ 1,006,088
==============
Interest expense was $614,672, $136,493 and $1,467,690 for 2005 and 2004,
and the period from January 1, 1995 to January 31, 2005, respectively.
NOTE 8 - 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-21
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 9 - SHAREHOLDERS' DEFICIT
The following common stock transactions occurred during the period from
January 1, 1995 to January 31, 2005:
Common Stock
------------
In January 1996 3,800,000 shares were issued for the purchase of rights to
the Washington Gulch property. The site was acquired from a former officer
of the Company. The property consists of a mill site located in Montana.
The value of the common stock issued on the property was recorded at the
cash value of the net monetary assets received which amounted to $181,000.
In June, 1996 the Company exchanged several "net profits interests" for
shares of common stock of the Company. A net profit interest is a royalty
based on the profit remaining after recapture of certain operating, capital
and other costs as defined by agreement. Net profits interests sold for
$442,037 were repurchased for 1,431,642 shares of common stock.
In October 1996 the Company issued 1,000,000 shares, valued at $1 per
share, to Casmyn Corp. as partial consideration for the repurchase of their
50% interest in the Relief Canyon Mine.
In November 1996, the Company sold 100,000 shares in exchange for $100,000
in cash to Repadre Capital Corporation.
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
F-22
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 1 share of stock for each $1 of debt, for an aggregate of 191,301
shares or approximately 1% of the post merger outstanding common stock. The
Plan also required an amendment to the Company's capital structure to
increase the number of shares authorized to 50,000,000 and to reduce the
corresponding par value to $.001.
In connection with the Plan, the Company raised $4,707,000 of cash through
the issuance of convertible debtor certificates. Shortly after confirmation
of the Plan, the debtor certificates were exchanged for 5,135,130 shares of
common stock (including 428,130 shares issued in lieu of paying cash for
underwriter's fees) of the Company representing approximately 29% of the
post merger outstanding common stock.
In the bankruptcy reorganization of WAC, all creditors were issued stock in
settlement of accounts payable. During fiscal 1998 post petition creditors
had the option of receiving cash in lieu of stock. Five creditors returned
25,242 shares to the Company, resulting in a charge to stockholders'
deficit of $25,242.
In May 1997, the Company issued 12,500 shares to a note holder in payment
of a $5,000 note, which had originally been issued in exchange for an
agreement to defer filing a judgment for collection of the $200,000 note.
The Company's stock was approved by NASD for trading on July 7, 1997. On
May 27, 1997, the investors in the WAC bankruptcy reorganization, which had
been approved by the court on November 21, 1996, were issued a ten-percent
bonus of 470,700 shares for the delay in trading. An additional 42,814
shares issued to the investment bankers for a total of 513,514 shares. A
total of $205,000 was credited to stockholders' deficit for the
transaction.
In October 1997 Repadre Capital Corp. exercised warrants to purchase
200,000 shares 1997 at $1.00 per share.
The employment contract for the corporate counsel stipulated the Company
would pay the rent for a law office. In March 1998, the Company issued
15,000 shares in lieu of cash for six months rent. General and
administrative expense was charged $6,000 for the rent. The corporate
counsel's office was subsequently relocated to the Company's headquarters.
In April 1998, the Company closed a Regulation S offering for 5,480,000
shares to raise $548,000 at $.10 per share. In connection with this
offering 136,977 shares were issued as commission to brokers.
As an alternative to gold mining, the Board of Directors approved an
exploration program for a calcium bentonite mine located in southern
California. In payment of a purchase option on the mine, the Company issued
150,000 shares of stock to the mine owner in May 1998. The Company charged
$55,500 to exploration expense for the option. After completing the due
diligence on the mine property, the Company abandoned development of the
mine in August 1998.
F-23
On June 8, 1999 the Board of Directors approved a three-for-two stock
split, effected in the form of a 50% stock dividend, payable to
stockholders of record on June 10, 1999.
In January 2000 the Board of Directors, agreed that various creditors of
the Company would settle their debt through conversion of the debt into
equity by issuing stock at a price of $0.40 per share. In total, $1,282,271
of debt was converted into 3,205,674 shares of stock. $477,977 or 1,194,943
shares were for amounts owed to the Chairman of the Company; $328,733 or
821,833 shares were for amounts owed to two directors and $475,561 or
1,188,898 shares were for amounts owed to other shareholders.
In February 2000, the Company closed a private placement offering or
1,196,000 shares to raise $598,000 at $.50 per share. Additionally, a
warrant was issued with each share to purchase an additional share of
common stock at $1 per share. The warrants expired four years from the
original date of closing. In connection with this offering $60,000 were
paid as commission to brokers in the form of 120,000 shares of common stock
and were accounted for as offering costs. Due to the registration of the
shares not being completed, as a penalty the Company issued an additional
239,200 to the investors in August 2000.
In April 2000, the Company issued 78,271 shares of common stock in exchange
for services related to an Internet interview and broadcast with the
Chairman and Chief Executive Officer of the Company..
In April 2000, a $200,000 note payable and a $250,000 judgment payable were
settled and paid off in full by a shareholder of the company. The total
balances due including interest and legal fees had grown to approximately
$650,000 at the time of settlement. The shareholder has received an
additional 1,000,000 shares of stock as reimbursement for the payment of
these amounts on behalf of the Company.
In October 2000 the Company issued 600,000 shares of common stock to an
investor for $67,000.
In February 2001 the Company issued 2,500,000 shares of common stock to an
investor for $150,000.
In January 2003 warrants to purchase 550,000 shares of common stock were
exercised at a price of $0.10 per share. The original exercise price was
$1.00 however the investors and the Company renegotiated the exercise price
to $0.10 per share.
In February 2003 warrants to purchase 200,000 shares of common stock were
exercised at a price of $0.10 per share. The original exercise price was
$1.00 however the investor and the Company renegotiated the exercise price
to $0.10 per share.
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.
Warrants
--------
F-24
The Company has issued common stock warrants to two officers of the Company
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 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:
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 and the period from January
1, 1995 to January 31, 2005 was approximately $443,682, $22,800, and
$496,615, respectively.
F-25
The following table presents warrant activity through January 31, 2005:
Weighted Average
Number of Shares Exercise Price
-------------------- --------------------
Outstanding at January 31, 2000 - $ -
Granted 3,746,000 0.55
Exercised - -
Canceled or expired - -
-------------------------------------------------- -------------------- --------------------
Outstanding at January 31, 2001 and 2002 3,746,000 0.55
Granted 452,463 0.15
Exercised (550,000) (0.10)
Canceled or expired - -
--------------------------------------------------
-------------------- --------------------
Outstanding at January 31, 2003 3,648,463 0.43
Granted 1,265,766 0.15
Exercised (200,000) (0.10)
Canceled or expired (996,000) (1.00)
-------------------------------------------------- -------------------- --------------------
Outstanding at January 31, 2004 3,718,229 0.15
Granted 8,006,354 0.16
Exercised - -
Canceled or expired - -
-------------------------------------------------- -------------------- --------------------
Outstanding at January 31, 2005 11,724,583 $ 0.16
==================== ====================
Exercisable at January 31, 2005 11,724,583 $ 0.16
--------------------
Weighted average remaining contractual term 47 months
NOTE 10 - 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
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 $ -
==================
F-26
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 11 - 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.
NOTE 12 - 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.
F-27
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-28
PART III
ITEM 13. EXHIBITS
Exhibit 2.1(4) Plan of Reorganization and Merger Agreement, dated as of July
23, 1999, between the Registrant and Business Web, Inc.
Exhibit 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.
Exhibit 2.3(7) Termination Agreement, dated as of December 27, 1999, between
the Registrant and Business Web, Inc.
Exhibit 3.1(2) Certificate of Incorporation of the Registrant.
Exhibit 3.2(1) Certificate of Amendment to Certificate of Incorporation of
the Registrant.
Exhibit 3.3(2) Bylaws of the Registrant.
Exhibit 10.1(3) Promissory Note between Newgold and A. Scott Dockter, dated
April 2, 1997, for the principal amount of $100,000.
Exhibit 10.2(3) Promissory Note between Newgold and A. Scott Dockter, dated
April 17, 1997, for the principal amount of $50,000.
Exhibit 10.3(3) Promissory Note between Newgold and A. Scott Dockter, dated
April 30, 1997, for the principal amount of $20,000.
Exhibit 10.4(3) Promissory Note between Newgold and A. Scott Dockter, dated
May 30, 1997, for the principal amount of $35,000
Exhibit 10.5(5) Promissory Note between Newgold and A. Scott Dockter, dated
December 24, 1998, for the principal amount of $24,000.
Exhibit 10.6(7) Warrant to Purchase shares of Common Stock of Business Web,
Inc.
Exhibit 14(7) Code of Business Conduct and Ethics.
Exhibit 31.1* Certification by CEO pursuant to Sections 302 of the
Sarbanes-Oxley Act of 2002.
Exhibit 31.2* Certification by CFO pursuant to Sections 302 of the
Sarbanes-Oxley Act of 2002.
Exhibit 32* Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
--------------------
(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.
* Exhibits filed with this Amendment No. 1 to Form 10-KSB/A for the fiscal
year end of January 31, 2005.
10
SIGNATURES
In accordance with Section 13 or 15 (d) of the Exchange Act, the
registrant caused this amended report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NEWGOLD, INC.
Date: June 2, 2006 By: /s/ A. SCOTT DOCKTER
---------------------------------------
A. Scott Dockter
President and Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
SIGNATURE TITLE DATE
/s/ A. SCOTT DOCKTER
-----------------------------
A. Scott Dockter Chairman of the Board and June 2, 2006
President
/s/ JAMES W. KLUBER
----------------------------- Director, Secretary and
James W. Kluber Chief Financial Officer June 2, 2006
(Principal Financial and Accounting Officer)
11