UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JULY 31, 2005
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT FOR THE TRANSITION PERIOD FROM
_______________ to _______________
Commission File Number 0-20722
NEWGOLD, INC.
-------------
(Exact name of small business issuer as specified in its charter)
DELAWARE 16-1400479
--------------------------------- ---------------------------------
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
400 Capitol Mall, Suite 900
Sacramento, California 95814
--------------------------------- ---------------------------------
(Address of Principal Zip Code
Executive Offices)
Issuer's telephone number: (916) 449-3913
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days:
YES X NO
------- -------
Indicate by checkmark whether the registrant is a shell company (as defined by
Rule 12b-2 of the Exchange Act)
YES NO X
------- -------
Common stock, $0.001 par value, 63,104,072 issued and outstanding as of
September 5, 2005.
Transitional Small Business Disclosure Format: Yes No X
------- -------
INDEX
PART I - FINANCIAL INFORMATION.................................................3
ITEM 1. FINANCIAL STATEMENTS.........................................3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATIONS..................................................16
ITEM 3. CONTROLS AND PROCEDURES.....................................23
PART II - OTHER INFORMATION...................................................25
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS....................................................25
ITEM 5. OTHER INFORMATION...........................................26
ITEM 6. EXHIBITS ...................................................26
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NEWGOLD, INC.
INDEX TO UNAUDITED FINANCIAL STATEMENTS
Page
Condensed Balance Sheet as of July 31, 2005 (Unaudited) 4
Condensed Statements of Operations for the three months and six
months ended July 31, 2005 and 2004 (Unaudited) 5
Condensed Statements of Comprehensive Loss for the three months
and six months ended July 31, 2005 and 2004 (Unaudited) 6
Condensed Statements of Cash Flows for the six months
ended July 31, 2005 and 2004 (Unaudited) 7
Notes to Unaudited Financial Statements 8-15
3
NEWGOLD, INC.
CONDENSED BALANCE SHEET
JULY 31, 2005
(UNAUDITED)
--------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash $ 31,326
Travel advance 2,657
----------------
Total current assets 33,983
OTHER ASSETS
Deferred reclamation costs 513,946
----------------
Total other assets 513,946
----------------
TOTAL ASSETS $ 547,929
================
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 586,438
Accrued expenses 1,315,860
Accrued reclamation costs 513,946
Notes payable due to individuals and officers 257,672
----------------
Total current liabilities 2,673,916
----------------
DEFERRED REVENUE 800,000
----------------
Total liabilities 3,473,916
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' DEFICIT
Common stock, $0.001 par value
250,000,000 shares authorized
63,104,072 shares issued and outstanding 63,104
Additional paid in capital 14,647,544
Accumulated deficit (17,636,635)
----------------
Total shareholders' deficit (2,925,987)
----------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 547,929
================
4
The accompanying notes are an integral part of these financial statements
NEWGOLD, INC.
CONDENSED STATEMENTS OF OPERATIONS
FOR THE SIX AND THREE MONTHS ENDED JULY 31,
(UNAUDITED)
--------------------------------------------------------------------------------
For the Six Months Ended For the Three Months Ended
July 31, July 31,
---------------------------- ----------------------------
2005 2004 2005 2004
------------ ------------ ------------ ------------
NET SALES $ - $ - $ - $ -
COST OF GOODS SOLD 139,700 10,000 110,700 5,000
------------ ------------ ------------ ------------
GROSS LOSS (139,700) (10,000) (110,700) (5,000)
OPERATING EXPENSES (384,571) (152,782) (181,692) (77,407)
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (524,271) (162,782) (292,392) (82,407)
------------ ------------ ------------ ------------
OTHER (EXPENSE)
Interest expense (727,061) (99,405) (370,237) (51,841)
------------ ------------ ------------ ------------
Total other (expense) (727,061) (99,405) (370,237) (51,841)
------------ ------------ ------------ ------------
NET LOSS $(1,251,332) $ (262,187) $ (662,629) $ (134,248)
============ ============ ============ ============
BASIC AND DILUTED LOSS PER SHARE $ (0.02) $ (0.01) $ (0.01) $ (0.01)
============ ============ ============ ============
BASIC AND DILUTED WEIGHTED-
AVERAGE SHARES
OUTSTANDING 50,191,822 47,606,174 50,911,822 47,606,174
============ ============ ============ ============
5
The accompanying notes are an integral part of these financial statements
NEWGOLD, INC.
CONDENSED STATEMENTS OF COMPREHENSIVE LOSS
FOR THE SIX AND THREE MONTHS ENDED JULY 31,
(UNAUDITED)
--------------------------------------------------------------------------------
For the Six Months Ended For the Three Months Ended
July 31, July 31,
---------------------------- ----------------------------
2005 2004 2005 2004
------------ ------------ ------------ ------------
NET LOSS $(1,251,332) $ (262,187) $ (662,629) $ (134,248)
OTHER COMPREHENSIVE LOSS
Unrealized loss from
marketable securities - (49,843) - (19,225)
------------ ------------ ------------ ------------
COMPREHENSIVE LOSS $(1,251,332) $ (312,030) $ (662,629) $ (153,473)
============ ============ ============ ============
6
The accompanying notes are an integral part of these financial statements
NEWGOLD, INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JULY 31,
(UNAUDITED)
--------------------------------------------------------------------------------
2005 2004
--------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,251,332) $ (262,187)
Adjustments to reconcile net loss to net cash
used in operating activities
Accretion of warrants issued as a debt discount 585,006 35,337
Accretion of beneficial conversion of warrants 69,320 -
Fair value of warrants issued for services 15,690 -
(Increase) Decrease in
Deposits - 22,000
Travel advance (657) -
Increase (Decrease) in
Accounts payable 18,160 -
Accrued salaries and benefits 34,676 82,500
Accrued expenses (477,460) 103,574
--------------- ----------------
Net cash (used) by
operating activities (1,006,597) (18,777)
--------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES - -
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of common stock 2,423,935 -
Proceeds from note payable - 18,500
Repayments of note payable (1,402,742) (350)
--------------- ----------------
Net cash provided by financing activities 1,021,193 18,150
--------------- ----------------
Net increase (decrease) in cash 14,596 (627)
CASH, BEGINNING OF PERIOD 16,730 5,967
--------------- ----------------
CASH, END OF PERIOD $ 31,326 $ 5,340
=============== ================
7
The accompanying notes are an integral part of these financial statements
NEWGOLD, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JULY 31, 2005
(UNAUDITED)
--------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION AND LINE OF BUSINESS
NEWGOLD, Inc. has been in the business of acquiring, exploring,
developing, and producing gold properties. Newgold had rights to mine
properties in Nevada and Montana. Its primary focus was on the Relief
Canyon mine located near Lovelock, Nevada, where it has performed
development and exploratory drilling and was in the process of
obtaining permits to allow operation of the Relief Canyon Mine. In
December 1997, Newgold placed the Relief Canyon Mine on care and
maintenance status. From mid-2001 until the beginning of 2003 Newgold
was essentially inactive, only continuing with some of the care and
maintenance at Relief Canyon, as provided for by a non-affiliate
company owned by the Chairman and CEO of Newgold.
Newgold has embarked on a business strategy whereby it will invest in
and/or manage gold mining and other mineral producing properties.
Currently, Newgold's principal assets include various mineral leases
associated with the Relief Canyon mine located near Lovelock, Nevada
along with various items of mining equipment located at that site.
Newgold's business will be to acquire, explore and, if warranted,
develop various mining properties located in the state of Nevada.
Newgold plans to carryout comprehensive exploration and development
programs on its properties. While Newgold may fund and conduct these
activities itself, Newgold's current plan is to outsource most of these
activities through the use of various joint venture, royalty or
partnership arrangements pursuant to which other companies would agree
to finance and carryout the exploration and development programs on
Newgold's mining properties. Consequently, Newgold's current plan will
not require the hiring of significant amounts of mining employees but
will require a smaller group of employees to monitor and/or supervise
the mining and exploration activities of other entities in exchange for
royalties or other revenue sharing arrangements.
NOTE 2 - GOING CONCERN
These financial statements have been prepared on a going concern basis.
However, during the year ended January 31, 2005, Newgold incurred a net
loss of $1,278,140 and had negative cash flows from operations of
$353,201. In addition, Newgold had an accumulated shareholders' deficit
of $4,114,280 at January 31, 2005. Information for the six months ended
July 31, 2005 include a net loss of $727,061; negative cash flows from
operations of $1,006,597 and an accumulated shareholders' deficit of
$2,925,987. Newgold's ability to continue as a going concern is
dependent upon its ability to generate profitable operations in the
future and/or to obtain the necessary financing to meet its obligations
and repay its liabilities arising from normal business operations when
they come due. The outcome of these matters cannot be predicted with
any certainty at this time. Since inception, Newgold has satisfied its
capital needs by issuing equity securities.
Management plans to continue to provide for its capital needs during
the year ended January 31, 2006 by issuing equity securities or
incurring additional debt financing, with the proceeds to be used to
re-establish mining operations at Relief Canyon as well as improve its
working capital position. These financial statements do not include any
adjustments to the amounts and
8
classification of assets and liabilities that may be necessary should
Newgold be unable to continue as a going concern.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
---------------------
These financial statements have been prepared in accordance with the
rules and regulations of the Securities and Exchange Commission
("SEC"). Certain information and footnotes normally included in
financial statements prepared in accordance with generally accepted
accounting principles in the United States of America have been
condensed or omitted pursuant to these rules and regulations. These
consolidated financial statements should be read in conjunction with
the consolidated financial statements and the notes thereto included in
Newgold's Form 10-KSB, as filed with the SEC for the year ended January
31, 2005.
Cash and Cash Equivalents
-------------------------
For the purpose of the statements of cash flows, Newgold considers all
highly liquid investments purchased with original maturities of three
months or less to be cash equivalents.
Marketable Securities Available for Sale
----------------------------------------
Investments in equity securities are classified as available-for-sale.
Securities classified as available for sale are marked to market at
each period end. Changes in value on such securities are recorded as a
component of Other comprehensive income (loss). If declines in value
are deemed other than temporary, losses are reflected in Net income
(loss).
Deferred Reclamation Costs
--------------------------
In August 2001, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 143,
"Accounting for Asset Retirement Obligations," which established a
uniform methodology for accounting for estimated reclamation and
abandonment costs. The statement was adopted February 1, 2003. The
reclamation costs will be allocated to expense over the life of the
related assets and will be adjusted for changes resulting from the
passage of time and revisions to either the timing or amount of the
original present value estimate.
Prior to adoption of SFAS No. 143, estimated future reclamation costs
were based principally on legal and regulatory requirements. Such costs
related to active mines were accrued and charged over the expected
operating lives of the mines using the UOP method based on proven and
probable reserves. Future remediation costs for inactive mines were
accrued based on management's best estimate at the end of each period
of the undiscounted costs expected to be incurred at a site. Such cost
estimates included, where applicable, ongoing care, maintenance and
monitoring costs. Changes in estimates at inactive mines were reflected
in earnings in the period an estimate was revised.
Risks Associated with Gold Mining
---------------------------------
The business of gold mining is subject to certain types of risks,
including environmental hazards, industrial accidents, and theft. Prior
to suspending operations, Newgold carried insurance against certain
property damage loss (including business interruption) and
comprehensive general liability insurance. While Newgold maintained
insurance consistent with industry practice, it is not possible to
insure against all risks associated with the mining business, or
prudent to assume that insurance will continue to be available at a
reasonable cost. Newgold has not obtained environmental liability
insurance because such coverage is not considered by management to be
9
cost effective. Newgold currently carries no insurance on any of its
properties due to the current status of the mine and Newgold's current
financial condition.
Comprehensive Income
--------------------
Newgold utilizes SFAS No. 130, "Reporting Comprehensive Income." This
statement establishes standards for reporting comprehensive income and
its components in a financial statement. Comprehensive income as
defined includes all changes in equity (net assets) during a period
from non-owner sources. Examples of items to be included in
comprehensive income, which are excluded from net income, include
foreign currency translation adjustments, minimum pension liability
adjustments, and unrealized gains and losses on available-for-sale
marketable securities. Comprehensive income is presented in Newgold's
financial statements since Newgold did have unrealized gain (loss) from
changes in equity from available-for-sale marketable securities.
Stock-Based Compensation
------------------------
SFAS No. 123, "Accounting for Stock-Based Compensation," as amended by
SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure," defines a fair value based method of accounting for
stock-based compensation. However, SFAS No. 123 allows an entity to
continue to measure compensation cost related to stock and stock
options issued to employees using the intrinsic method of accounting
prescribed by Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees." Entities electing to remain
with the accounting method of APB No. 25 must make pro forma
disclosures of net income and earnings per share as if the fair value
method of accounting defined in SFAS No. 123 had been applied. Newgold
has elected to account for its stock-based compensation to employees
using the intrinsic value method under APB No. 25. There were no stock
options granted or outstanding for the three months ended July 31, 2005
and 2004.
Estimates
---------
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could
differ from those estimates.
Loss Per Share
--------------
Newgold utilizes SFAS No. 128, "Earnings per Share." Basic loss per
share is computed by dividing loss available to common shareholders by
the weighted-average number of common shares outstanding. Diluted loss
per share is computed similar to basic loss per share except that the
denominator is increased to include the number of additional common
shares that would have been outstanding if the potential common shares
had been issued and if the additional common shares were dilutive.
Common equivalent shares are excluded from the computation if their
effect is anti-dilutive.
The following common stock equivalents were excluded from the
calculation of diluted loss per share since their effect would have
been anti-dilutive:
2005 2004
------------ ------------
Warrants 13,374,583 3,839,229
Recent Accounting Pronouncements
--------------------------------
In March 2005, the FASB issued FASB Interpretation ("FIN") No. 47,
"Accounting for
10
Conditional Asset Retirement Obligations". FIN No. 47 clarifies that
the term conditional asset retirement obligation as used in FASB
Statement No. 143, "Accounting for Asset Retirement Obligations,"
refers to a legal obligation to perform an asset retirement activity in
which the timing and (or) method of settlement are conditional on a
future event that may or may not be within the control of the entity.
The obligation to perform the asset retirement activity is
unconditional even though uncertainty exists about the timing and (or)
method of settlement. Uncertainty about the timing and/or method of
settlement of a conditional asset retirement obligation should be
factored into the measurement of the liability when sufficient
information exists. This interpretation also clarifies when an entity
would have sufficient information to reasonably estimate the fair value
of an asset retirement obligation. FIN No. 47 is effective no later
than the end of fiscal years ending after December 15, 2005 (December
31, 2005 for calendar-year companies). Retrospective application of
interim financial information is permitted but is not required.
Management does not expect adoption of FIN No. 47 to have a material
impact on Newgold's financial statements.
In May 2005, the FASB issued Statement of Accounting Standards (SFAS)
No. 154, "Accounting Changes and Error Corrections" an amendment to
Accounting Principles Bulletin (APB) Opinion No. 20, "Accounting
Changes", and SFAS No. 3, "Reporting Accounting Changes in Interim
Financial Statements" though SFAS No. 154 carries forward the guidance
in APB No. 20 and SFAS No. 3 with respect to accounting for changes in
estimates, changes in reporting entity, and the correction of errors.
SFAS No. 154 establishes new standards on accounting for changes in
accounting principles, whereby all such changes must be accounted for
by retrospective application to the financial statements of prior
periods unless it is impracticable to do so. SFAS No. 154 is effective
for accounting changes and error corrections made in fiscal years
beginning after December 15, 2005, with early adoption permitted for
changes and corrections made in years beginning after May 2005.
NOTE 4 - MARKETABLE SECURITIES AVAILABLE FOR SALE
At July 31, 2005 Newgold held no marketable securities available for
sale. At July 31, 2004 Newgold held 71,205 common shares of NutraCea
which was accounted for as an investment in marketable securities.
Unrealized holding losses of $0 and $0 for the three and six months
ended July 31, 2005, respectively, and $19,225 and $49,843 for the
three months and six months ended July 31, 2004, respectively, were
recorded in Other comprehensive loss to reflect the market value
decrease during the period. In October 2004 Newgold sold all of its
investment in marketable securities.
NOTE 5 - PROPERTY AND EQUIPMENT
Newgold had previously determined that the value of its fixed assets at
the Relief Canyon Mine were permanently impaired and wrote off assets
with a basis of $800,000. If Newgold can reestablish mining operations
at Relief Canyon it is possible that some of these assets could be
utilized in such operations.
11
A summary of property and equipment was as follows:
` Machinery
& Development Capitalized
Buildings Equipment Costs Interest Total
----------- ----------- ------------- ------------- -----------
Relief Canyon Mine $ 215,510 $ 277,307 $ 261,742 $ 45,441 $ 800,000
All office furniture and equipment has been fully depreciated as of
July 31, 2005.
NOTE 6 - NOTES PAYABLE TO RELATED PARTIES AND INDIVIDUALS
Unsecured notes payable to individuals and related parties consist of
the following at July 31, 2005:
Loans from officers:
Convertible notes payable $ 209,251
The notes bear interest at 8% per year.
In October 2004, Newgold consolidated the amounts owed to the
Chief Executive Officer and the Chief Financial Officer referred
to in Note 9 (excluding accrued interest payable) into new
convertible notes payable due September 30, 2005. The notes and
any interest accrued on the new notes are convertible into common
shares of Newgold at a conversion price of $0.15 per share. On
July 31, 2005 the Chief Executive Officer converted his note
payable and accrued interest payable on all of his notes payable
into 12,326,231 common shares of Newgold. In connection with the
loans, warrants to purchase 5,798,140 and 1,395,007 shares of
common stock have been issued to the Chief Executive Officer and
the Chief Financial Officer, respectively.
Term notes payable $ 19,844
The notes bear interest at 8% per year.
The notes are due January 31, 2006. Newgold is not in default
with respect to these loans. In connection with the loans,
warrants to purchase 141,540 shares of common stock have been
issued. The warrants have been valued using the Black-Scholes
option pricing model (see Note 8). The warrants were issued at
$0.15 per share and expire in five years from the date of
issuance.
Loan from individual $ 176,500
The note bears interest at 8% per year.
The note is currently due. Newgold is in default with respect to
this loan.
Other non-interest bearing advances 47,038
Unamortized warrant expense (55,932)
----------
Total notes payable to individuals and related parties $ 396,701
==========
Newgold recorded interest expense of $370,237 and $727,061 for the
three months and six months ended July 31, 2005 compared to interest
expense of $51,841 and $99,405 for the three months and six months
ended July 31, 2004.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Except for the advance royalty and rent payments noted below, Newgold
is not obligated under any capital leases or non-cancelable operating
lease with initial or remaining lease terms in excess of one year as of
July 31, 2005. However, minimum annual royalty payments are required to
12
retain the lease rights to Newgold's properties.
Relief Canyon Mine
------------------
Newgold purchased the Relief Canyon Mine from J.D. Welsh Associates
("Welsh") in January 1995. The mine consisted of 39 claims and a lease
for access to an additional 800 acres contiguous to the claims. During
1997, Newgold staked an additional 402 claims. Subsequent to January
31, 1998, Newgold reduced the total claims to 50 (approximately 1,000
acres). The annual payment to maintain these claims is $5,000. As part
of the original purchase of Relief Canyon Mine, Welsh assigned the
lease from Santa Fe Gold Corporation (Santa Fe) to Newgold. The lease
granted Santa Fe the sole right of approval of transfer to any
subsequent owner of the Relief Canyon Mine. Santa Fe had accepted lease
and minimum royalty payments from Newgold, but has declined to approve
the transfer. Due to Welsh's inability to transfer the Santa Fe lease,
the original purchase price of $500,000 for Relief Canyon Mine was
reduced by $50,000 in 1996 to $450,000.
Subsequent to January 31, 1998, the lease was terminated by Santa Fe.
Management believes loss of the Santa Fe lease will have no material
adverse affect on the remaining operations of the mine operation or the
financial position of Newgold.
During 1996, Repadre Capital Corporation ("Repadre") purchased for
$500,000 a net smelter return royalty (Repadre Royalty). Repadre was to
receive a 1.5% royalty from production at each of the Relief Canyon
Mine and Mission Mines. In July 1997, an additional $300,000 was paid
by Repadre for an additional 1% royalty from the Relief Canyon Mine. In
October, 1997, when the Mission Mine lease was terminated, Repadre
exercised its option to transfer the Repadre Royalty solely to the
Relief Canyon Mine resulting in a total 4% royalty. The total amount
received of $800,000 has been recorded as deferred revenue in the
accompanying financial statements.
Litigation
----------
On February 4, 2000, a complaint was filed against Newgold by Sun G.
Wong in the Superior Court of Sacramento County, California (Case No.
00AS00690). In the complaint, Mr. Wong claims that he was held liable
as a guarantor of Newgold in a claim brought by Don Christianson in a
breach of contract action against Newgold. Despite the fact that
Newgold settled the action with Mr. Christianson through the issuance
of 350,000 shares of Newgold common stock, Mr. Wong, nevertheless, paid
$60,000 to a third party claiming to hold Mr. Christianson's judgment
pursuant to Mr. Wong's guaranty agreement. Similarly, Mr. Wong alleges
that he was held liable as a guarantor for a debt of $200,000 owed by
Newgold to Roger Primm with regard to money borrowed by Newgold. Mr.
Primm filed suit against Newgold which was settled through the issuance
of 300,000 shares of Newgold common stock. Nevertheless, Mr. Wong
alleges that he remains liable to a third party claiming to hold Mr.
Primm's judgment for up to $200,000 pursuant to his guaranty of such
debt of Mr. Primm.
On December 29, 2000, the superior court entered a default judgment
against Newgold in the amount of $400,553 with regard to the
Christianson judgment and an additional $212,500 in regard to the Primm
judgment against Mr. Wong. Newgold believes that Mr. Wong was not
obligated to pay any sums pursuant to his guarantees with regard to the
Christianson and Primm judgments against Newgold and, as a result, Mr.
Wong should not have any recourse against Newgold for reimbursement.
Should Mr. Wong seek to assert these judgments against Newgold, Newgold
cannot predict the outcome of any such action or the amount of expenses
that would be ultimately incurred in defending any such claims. Newgold
is currently negotiating a settlement with Mr. Wong, however there is
no assurance that an acceptable settlement will be consummated.
13
Newgold is involved in various other claims and legal actions arising
in the ordinary course of business. In the opinion of management, the
ultimate dispositions of these matters will not have a material adverse
effect on Newgold's financial position, results of operations or
liquidity.
NOTE 8 - SHAREHOLDERS' DEFICIT
Common Stock
------------
In March 2005 a Special Meeting of Shareholders of Newgold was held for
the purpose of amending the Articles of Incorporation to affect an
increase in the authorized shares of common stock issuable to
250,000,000 shares. At the meeting the proposal was approved by the
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.
In February 2005 Newgold issued 500,000 shares of common stock at a
price of $0.15 per share to an investor for total proceeds of $75,000.
Additionally, 500,000 warrants to purchase common stock at a price of
$0.30 per share were issued to the investor. The warrants expire three
years from the date of issuance.
In April 2005 Newgold issued 2,000,000 shares of common stock at a
price of $0.25 per share to investors for total proceeds of $500,000.
Additionally, 1,000,000 warrants to purchase common stock at a price of
$0.50 per share were issued to the investors. The warrants expire three
years from the date of issuance.
In July 2005 Newgold issued 12,326,231 shares of common stock at a
price of $0.15 per share to the Chief Executive Officer according to
the terms of existing notes payable to the officer. The issuance
resulted in the repayment of principal and interest totaling
$1,848,935.
Warrants
--------
Newgold has issued common stock warrants to officers of Newgold as part
of certain financing transactions (see Note 6). Newgold has also issued
warrants as part of the issuance of common stock (see this Note 8).
The fair market value of warrants issued during the six months ended
July 31, 2005 in conjunction with the issuance of common stock was
determined to be $310,256 and was calculated under the Black-Scholes
option pricing model with the following assumptions used:
Expected life 3 years
Risk free interest rate 3.77% - 4.01%
Volatility 199.8% - 266.1%
Expected dividend yield None
The fair value of $294,566 warrants has been recorded as both a debit
and credit to additional paid in capital. The fair value of $15,690
warrants has been recorded as a debit to operating expense for services
rendered and a credit to additional paid in capital.
14
The following table presents warrant activity from January 31, 2005
through July 31, 2005:
Weighted-
Average
Number Exercise
of Shares Price
------------ -------------
Outstanding, January 31, 2005 11,724,583 $ 0.16
Granted 1,650,000 $ 0.43
------------ -------------
Outstanding, July 31, 2005 13,374,583 $ 0.19
============ =============
Exercisable, July 31, 2005 13,374,583 $ 0.19
============ =============
NOTE 9 - RELATED PARTY TRANSACTIONS
Loans from officers
-------------------
During prior periods, the Chief Executive Officer and Chairman of
Newgold loaned Newgold an aggregate of $1,422,587. As of July 31, 2005
the net principal balance owing to him was $19,844 and accrued interest
payable was $32,007. See Note 6.
During prior periods, the Chief Financial Officer and Secretary of
Newgold loaned Newgold an aggregate of $209,251. As of July 31, 2005
the net principal balance owing to him was $209,251 and accrued
interest payable was $14,136. See Note 6.
Accrued Payroll and Expenses Owed to Officers
---------------------------------------------
As of July 31, 2005 Newgold owed the Chief Financial Officer and
Secretary of Newgold $93,500 for back wages and $6,000 for accrued
expenses.
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
CAUTION ABOUT FORWARD-LOOKING STATEMENTS
This Form 10-QSB includes "forward-looking" statements about future financial
results, future business changes and other events that haven't yet occurred. For
example, statements like Newgold "expects," "anticipates" or "believes" are
forward-looking statements. Investors should be aware that actual results may
differ materially from Newgold's expressed expectations because of risks and
uncertainties about the future. Newgold does not undertake to update the
information in this Form 10-QSB 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-QSB and should be considered
carefully.
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 or early fiscal 2007, and use the
net proceeds from these operations to fund ongoing exploration and
development of our property holdings. Through the use of joint
ventures, royalties, arrangements 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 years 2006 and 2007 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 2006 and 2007 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.
16
RESULTS OF OPERATION
Newgold 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. 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 Quarters Ended July 31, 2005 and 2004
----------------------------------------------------------------------
Although Newgold commenced efforts to re-establish its mining business early in
fiscal year 2004, no mining operations have commenced and no revenues have been
recognized during the quarters ended July 31, 2005 and 2004, respectively.
Newgold hopes to be able to commence generating revenues from mining operations
during the 2007 fiscal year. Newgold has granted a 4% net smelting return
royalty to a third party related to the Relief Canyon mining property which has
been recorded as an $800,000 deferred option income.
During the quarter ended July 31, 2005 Newgold spent $110,700 on reclamation and
maintenance expenses related to the Relief Canyon mining property. Reclamation
and maintenance expenses expended during the same quarter ended July 31, 2004
were $5,000. These expenses relate primarily to maintenance and retention costs
required to maintain Newgold's mining claims. Newgold incurred operating
expenses of $181,692 during the quarter ended July 31, 2005. Of this amount,
$93,501 reflects officer compensation and related payroll taxes during the
quarter, $19,440 reflect web site development expense and $46,090 reflect fees
for outside professional services. A large portion of the outside professional
services reflects legal and accounting work pertaining to Newgold's annual and
quarterly reporting on Form 10-KSB and Form 10-QSB for fiscal years 2005 and
2006. During the quarter ended July 31, 2004 Newgold incurred operating expenses
of $77,407 of which $55,000 represents officer compensation and related payroll
taxes and $12,000 reflect fees for outside professional services. It is
anticipated that both mining costs and operating expenses will increase
significantly as Newgold resumes its mining operations and exploration program.
Newgold incurred interest expense of $370,237 during the quarter ended July 31,
2005 which compares to interest expenses of $51,841 incurred during the same
quarter ended July 31, 2004. Although the amount of loans outstanding during the
second quarter of fiscal 2006 were unchanged (until the last day of the quarter)
compared to the second quarter of fiscal 2005, the increase in additional
interest expense was primarily due to the increase in accretion of warrants
issued in October 2004 as a debt discount.
Newgold's total net loss for the quarter ended July 31, 2005 increased to
$662,629 compared to a net loss of $134,248 incurred for the same quarter ended
July 31, 2004. The larger net loss in the second quarter reflects the
substantial increase in operating expenses and interest expense as well as the
continuing lack of revenues recognized during the second quarter of fiscal year
2006.
17
Operating Results for the Six Months Ended July 31, 2005 and 2004
-----------------------------------------------------------------
During the six months ended July 31, 2005 Newgold spent $139,700 on reclamation
and maintenance expenses related to the Relief Canyon mining property.
Reclamation and maintenance expenses expended during the six months ended July
31, 2004 were $10,000. These expenses relate primarily to maintenance and
retention costs required to maintain Newgold's mining claims. Newgold incurred
operating expenses of $384,571during the six months ended July 31, 2005. Of this
amount, $187,001 reflects officer compensation and related payroll taxes during
the quarter and $105,938 reflect fees for outside professional services. A large
portion of the outside professional services reflects legal and accounting work
pertaining to Newgold's annual and quarterly reporting on Form 10-KSB and Form
10-QSB for fiscal years 2005 and 2006. During the six months ended July 31, 2004
Newgold incurred operating expenses of $152,782 of which $110,000 represents
officer compensation and $23,000 reflect fees for outside professional services.
It is anticipated that both mining costs and operating expenses will increase
significantly as Newgold resumes its mining operations and exploration program.
Newgold incurred interest expense of $727,061 during the six months ended July
31, 2005 which compares to interest expenses of $99,405 incurred during the six
months ended July 31, 2004. Although the amount of loans outstanding during the
first six months of fiscal 2006 were unchanged (until July 31, 2005) compared to
the first six months of fiscal 2005, the increase in additional interest expense
was primarily due to $585,006 representing the increase in accretion of warrants
issued in October 2004 as a debt discount.
Newgold's total net loss for the six months ended July 31, 2005 increased to
$1,251,332 compared to a net loss of $262,187 incurred for the six months ended
July 31, 2004. The larger net loss in the current fiscal year reflects the
substantial increase in operating expenses ($384,571) and interest expense
($727,061) as well as the continuing lack of revenues recognized during the
first six months of fiscal year 2006.
LIQUIDITY AND CAPITAL RESOURCES
Newgold has incurred significant operating losses during the last two fiscal
years and during the six months ended July 31, 2005 which has resulted in an
accumulated deficit of $17,636,635 as of July 31, 2006. At July 31, 2005,
Newgold had cash and other current assets of $31,326 and a net working capital
deficit of $2,639,933. While cash decreased by $211,866 during the quarter, the
net working capital deficit decreased by 31% during the second quarter due
primarily to the approximately $1 million reduction in notes payable to
individuals and officers. Since the resumption of its business in February 2003,
Newgold has been dependent on borrowed or invested funds in order to finance its
ongoing operations. As of July 31, 2005, Newgold had outstanding notes payable
in the gross principal amount of $452,634(net balance of $257,672 after $194,962
of note payable discount) which reflects a decrease of $1,191,796 compared to
notes payable in the gross principal amount of $1,644,430,(net balance of
$1,612,630 after $31,800 of note payable discount) as of July 31, 2004.
As of July 31, 2005, we were in default on a promissory note due to an unrelated
party in the principal amount $176,500.
18
In the quarter ended April 30, 2005 Newgold raised a total of $575,000 through
the sale of 2,500,000 shares of its restricted stock.
In the quarter ended July 31, 2005 Newgold issued 12,326,231 shares of common
stock at a price of $0.15 per share to its Chief Executive Officer according to
the terms of existing notes payable to the officer. The issuance resulted in the
repayment of principal of $1,402,742 and interest of $446,193 totaling
$1,848,935.
By attempting to resume mining operations, Newgold 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 Newgold's
intention to pursue several possible funding opportunities including the sale of
additional securities, entering into joint venture arrangements, or the
incurring of additional debt.
Due to Newgold's continuing losses from its business operations, the independent
auditor's report dated April 15, 2005, includes a "going concern" explanation
relating to the fact that Newgold's continuation is dependent upon obtaining
additional working capital either through significantly increasing revenues or
through outside financing. As of July 31, 2005, Newgold's principal commitments
included its obligation to pay ongoing maintenance fees on its 78 unpatented
mining claims.
Management of Newgold believes that it will need to raise additional capital to
continue to develop, promote and conduct its mining operations. Due to Newgold's
limited cash flow, operating losses and limited assets, it is unlikely that
Newgold could obtain financing through commercial or banking sources.
Consequently, Newgold is dependent on continuous cash infusions from its major
stockholders or other outside sources in order to fund its current operations.
To date, Newgold's President has paid a substantial portion of Newgold's
expenses since restarting its business in February 2003. Although Newgold
believes that these creditors and investors will continue to fund Newgold's
expenses based upon their significant debt or equity interest in Newgold, there
is no assurance that such investors will continue to pay Newgold's expenses. If
adequate funds are not otherwise available, through public or private financing
as well as borrowing from other sources, Newgold would not be able to establish
or sustain its mining operations.
Off-Balance Sheet Arrangements
------------------------------
During the fiscal quarter ended July 31, 2005, Newgold did not engage in any
off-balance sheet arrangements as defined in Item 303(c) of the SEC's Regulation
S-B.
FACTORS AFFECTING FUTURE OPERATING RESULTS
Newgold had been relatively inactive until February 2003. Consequently, it is
only recently reactivating its business operations and has generated no
revenues, other than dividend income, since its inception. As a result, Newgold
has only a limited operating history upon which to evaluate its future potential
performance. Newgold's prospects must be considered in light of
19
the risks and difficulties encountered by new companies which have not yet
established their business operations.
Newgold will need additional funds to finance its mining and exploration
activities as well as fund its current operations. It currently has limited cash
reserves and a working capital deficit and is unable to fund its operations from
revenues. Consequently, its ability to meet its obligations in the ordinary
course of business is dependent upon its ability to raise additional financing
through public or private equity financings, establish increasing cash flow from
operations, enter into joint ventures or other arrangements with corporate
sources, or secure other sources of financing to fund operations.
The audit report of Newgold's independent auditors includes a "going concern"
qualification. In the auditor's opinion, Newgold's limited operating history and
the accumulated shareholders' deficit as of January 31, 2005, raise substantial
doubt about its ability to continue as a going concern. See Note 2 of the Notes
to Financial Statements for the six months ended July 31, 2005.
The price of gold has experienced an increase in value over the past three
years, generally reflecting among other things declining interest rates in the
United States; worldwide instability due to terrorism; and a global economic
slump. Any significant drop in the price of gold may have a materially adverse
affect on the results of Newgold's operations unless it is able to offset such a
price drop by substantially increased production.
Newgold's disclosures of its mineral resources are only estimates. Newgold has
no proven or probable reserves and has no ability to currently measure or prove
its reserves other then estimating such reserves relying on information produced
in the 1990's and thus may be unable to actually recover the quantity of gold
anticipated. Newgold can only estimate a potential mineral resource which is a
subjective process which depends in part on the quality of available data and
the assumptions used and judgments made in interpreting such data. There is
significant uncertainty in any resource estimate such that the actual deposits
encountered or reserves validated and the economic viability of mining the
deposits may differ materially from Newgold's estimates.
Gold exploration is highly speculative in nature. Success in exploration is
dependent upon a number of factors including, but not limited to, quality of
management, quality and availability of geological expertise and availability of
exploration capital. Due to these and other factors, no assurance can be given
that Newgold's exploration programs will result in the discovery of new mineral
reserves or resources.
Newgold's mining property rights consist of 78 mill site and unpatented mining
claims. The validity of unpatented mining claims is often uncertain and is
always subject to contest. Unpatented mining claims are generally considered
subject to greater title risk than patented mining claims, or real property
interests that are owned in fee simple. If title to a particular property is
successfully challenged, Newgold may not be able to retain its royalty interests
on
20
that property, which could reduce its future revenues.
Mining is subject to extensive regulation by state and federal regulatory
authorities. State and federal statutes regulate environmental quality, safety,
exploration procedures, reclamation, employees' health and safety, use of
explosives, air quality standards, pollution of stream and fresh water sources,
noxious odors, noise, dust, and other environmental protection controls as well
as the rights of adjoining property owners. Newgold believes that, it is
currently operating in compliance with all known safety and environmental
standards and regulations applicable to its Nevada property. Currently, Newgold
is only permitted to carry on designated mining activities until it posts a
reclamation bond and the mining property is brought into compliance with the
requirements of the Nevada Department of Environmental Protection. Permitting
Newgold's mining property for full exploration and mining activities is expected
to take 6 to 15 months. However, there can be no assurance that permits will be
granted or that future changes in federal or Nevada laws, regulations or
interpretations thereof will not have a material adverse affect on Newgold's
ability to resume and sustain mining operations.
The business of gold mining is subject to certain types of risks, including
environmental hazards, industrial accidents, and theft. Prior to suspending
operations, Newgold carried insurance against certain property damage loss
(including business interruption) and comprehensive general liability insurance.
While Newgold maintained insurance consistent with industry practice, it is not
possible to insure against all risks associated with the mining business, or
prudent to assume that insurance will continue to be available at a reasonable
cost. Newgold has not obtained environmental liability insurance because such
coverage is not considered by management to be cost effective. Newgold currently
carries no insurance on any of its properties due to the current status of the
mine and Newgold's current financial condition.
Newgold is substantially dependent upon the continued services of A. Scott
Dockter, its President. Newgold has no employment agreement with Mr. Dockter,
nor is there either key person life insurance or disability insurance on Mr.
Dockter. While Mr. Dockter expects to spend the majority of his time assisting
Newgold, there can be no assurance that Mr. Dockter's services will remain
available to Newgold. If Mr. Dockter's services are not available to Newgold,
Newgold will be materially and adversely affected. However, Mr. Dockter has been
a significant shareholder of Newgold since its inception and considers his
investment of time and money in Newgold of significant personal value.
CRITICAL ACCOUNTING POLICIES
Newgold's discussion and analysis of its financial conditions and results of
operations are based upon its financial statements, which have been prepared in
accordance with generally accepted accounting principles in the United States.
The preparation of financial statements requires management to make estimates
and disclosures on the date of the financial statements. On an on-going basis,
Newgold evaluates its estimates, including, but not limited to, those related to
revenue recognition. Newgold uses authoritative pronouncements, historical
experience and
21
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 financial statements.
Valuation of long-lived assets
------------------------------
Long-lived assets, consisting primarily of property and equipment, patents and
trademarks, and goodwill, comprise a significant portion of 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.
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
22
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.
Recent Accounting Pronouncements
--------------------------------
In March 2005, the FASB issued FASB Interpretation ("FIN") No. 47, "Accounting
for Conditional Asset Retirement Obligations". FIN No. 47 clarifies that the
term conditional asset retirement obligation as used in FASB Statement No. 143,
"Accounting for Asset Retirement Obligations," refers to a legal obligation to
perform an asset retirement activity in which the timing and (or) method of
settlement are conditional on a future event that may or may not be within the
control of the entity. The obligation to perform the asset retirement activity
is unconditional even though uncertainty exists about the timing and (or) method
of settlement. Uncertainty about the timing and/or method of settlement of a
conditional asset retirement obligation should be factored into the measurement
of the liability when sufficient information exists. This interpretation also
clarifies when an entity would have sufficient information to
23
reasonably estimate the fair value of an asset retirement obligation. FIN No. 47
is effective no later than the end of fiscal years ending after December 15,
2005 (December 31, 2005 for calendar-year companies). Retrospective application
of interim financial information is permitted but is not required. Management
does not expect adoption of FIN No. 47 to have a material impact on Newgold's
financial statements.
In May 2005, the FASB issued Statement of Accounting Standards (SFAS) No. 154,
"Accounting Changes and Error Corrections" an amendment to Accounting Principles
Bulletin (APB) Opinion No. 20, "Accounting Changes", and SFAS No. 3, "Reporting
Accounting Changes in Interim Financial Statements" though SFAS No. 154 carries
forward the guidance in APB No. 20 and SFAS No. 3 with respect to accounting for
changes in estimates, changes in reporting entity, and the correction of errors.
SFAS No. 154 establishes new standards on accounting for changes in accounting
principles, whereby all such changes must be accounted for by retrospective
application to the financial statements of prior periods unless it is
impracticable to do so. SFAS No. 154 is effective for accounting changes and
error corrections made in fiscal years beginning after December 15, 2005, with
early adoption permitted for changes and corrections made in years beginning
after May 2005.
ITEM 3. CONTROLS AND PROCEDURES
Newgold carried out an evaluation, under the supervision and with the
participation of Newgold's management, including Newgold's President and Chief
Executive Officer along with Newgold's Chief Financial Officer, of the
effectiveness of the design and operation of Newgold's disclosure controls and
procedures pursuant to Exchange Act Rule 13a-14 as of the end of the period
covered by this report. Based upon that evaluation, Newgold's President and
Chief Executive Officer along with Newgold's Chief Financial Officer concluded
that Newgold's disclosure controls and procedures are effective to ensure the
information required to be disclosed by Newgold in reports filed or submitted
under the Exchange Act were timely recorded, processed and reported within the
time periods specified in the Securities and Exchange Commission rules and
forms.
There have been no significant changes in Newgold's internal controls over
financial reporting or in other factors which occurred during the last quarter
covered by this report, which could materially affect or are reasonably likely
to materially affect Newgold's internal controls over financial reporting.
24
PART II - OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
SALES OF UNREGISTERED SECURITIES DURING THE QUARTER
During the quarter ended July 31, 2005, Newgold issued the following securities
without registration under the Securities Act of 1933 ("1933 Act").
In July 2005 Newgold issued upon conversion 12,326,231 shares of common stock at
a price of $0.15 per share to the Chief Executive Officer according to the terms
of an existing convertible note payable to the officer. The issuance resulted in
the repayment of principal and interest totaling $1,848,935 owed by Newgold to
the officer. The issued shares of common stock are deemed to be "restricted
securities" as defined in Rule 144 under the 1933 Act and bear a legend stating
the restrictions on resale.
Prior issuances of Newgold's common stock during fiscal years 2006, 2005 and
2004 have been reported in Newgold's prior filings with the Securities and
Exchange Commission.
ITEM 5. OTHER INFORMATION
Effective June 7, 2005 Newgold was cleared to resume trading on the
Over-the-Counter Bulletin Board trading service. Newgold's trading symbol is
NGLD.
ITEM 6. EXHIBITS
31.1 Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
31.2 Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
32 Certification by CEO and CFO pursuant to Section 906 of the
Sarbanes- Oxley Act of 2002
25
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: September 12, 2005 NEWGOLD, INC.
/s/ SCOTT DOCKTER
--------------------------------------------
Scott Dockter, President and Chief Executive
Officer
/s/ JAMES KLUBER
--------------------------------------------
James Kluber, Principal Accounting Officer
and Chief Financial Officer
26