-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SZStbETIQ86FHdRUphnTEya1uGwBmHlNhFUcpVekrUIy9eMdtrak4taRmKlRo3Ay 2GRY1lXo6aoXP6DwgwYXSA== 0001025894-00-000148.txt : 20000518 0001025894-00-000148.hdr.sgml : 20000518 ACCESSION NUMBER: 0001025894-00-000148 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20000131 FILED AS OF DATE: 20000517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEWGOLD INC CENTRAL INDEX KEY: 0000878808 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-AUTOMOTIVE REPAIR, SERVICES & PARKING [7500] IRS NUMBER: 161400479 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 000-20722 FILM NUMBER: 638291 BUSINESS ADDRESS: STREET 1: 3090 BOEING RD CITY: CAMERON PARK STATE: CA ZIP: 95612 BUSINESS PHONE: 9166651840 MAIL ADDRESS: STREET 1: 3090 BOEING RD CITY: CAMERON PARK STATE: CA ZIP: 95612 FORMER COMPANY: FORMER CONFORMED NAME: WAREHOUSE AUTO CENTERS INC /DE DATE OF NAME CHANGE: 19950510 10KSB 1 ANNUAL REPORT U.S. Securities and Exchange Commission Washington, D.C. 20549 FORM 10-KSB [X]ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal year ended January 31, 2000 [ ] TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission file number 0-20722 NEWGOLD, INC. ---------------------------------------------- (Name of small business issuer in its charter) Delaware 16-1400479 - ------------------------ -------------------- (State of other juris- (I.R.S. Employer diction of incorporation Identification No.) or organization) 14131 Midway Road, Suite 800, Addison, TX 75001 (972) 851-5434 - ----------------------------------------------- ------------------------- (Principal executive offices) (Zip code) Issuer's Telephone Number Securities registered under Section 12(b) of the Exchange Act: None ---- Securities registered under Section 12(g) of the Exchange Act: Common Stock, par value $0.001 per share ---------------------------------------- (Title of Class) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes No X --- --- Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB [ ]. Issuer's revenues for its most recent fiscal year: $0. Aggregate market value of the voting stock held by non-affiliates as of May 1, 2000: $42,942,703 Number of shares of Common Stock outstanding as of May 15, 2000: 42,942,703 Documents Incorporated by Reference: None. Check whether the issuer has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes No X --- --- Transitional Small Business Disclosure Format (check one): Yes No X --- --- PART I Item 1. Description of Business. Statements contained herein that are not historical facts are forward-looking statements as that term is defined by the Private Securities Litigation Reform Act of 1995. The statements contain words such as "believes," "anticipates," "plans," "expects," "intends," "growth," "future," "opportunities," "goal," "strategy" and similar expressions and include statements regarding the Company's strategy, investment opportunities, and efforts to obtain funding commitments. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, the forward-looking statements are subject to risks and uncertainties that could cause actual results to differ from those projected. The Company cautions investors that any forward-looking statements made by the Company are not guarantees of future performance and that actual results may differ materially from those in the forward-looking statements. Factors that could cause actual results to differ materially from those reflected in the forward-looking statements include, but are not limited to, risks and uncertainties regarding the performance of the Company's partner companies, the unproven nature of the Company's business model, the risk that investment opportunities in target companies meeting the Company's criteria may not be available upon terms acceptable to the Company, if at all, the risk that the capital and other resources that the Company will need to exploit its business model will not be available, and the other risks discussed under Business--"Risk Factors" in this report. THE COMPANY Newgold, Inc., a Delaware corporation (the "Company"), has been engaged in the acquisition, development and exploration of gold-bearing properties in the continental United States. The Company currently has placed its only remaining property, the Relief Canyon Mine, located in Pershing County, Nevada, on a care and maintenance status, and, on April 18, 2000, the Company executed a contract for the sale of the remaining mining assets. The sale is expected to close on or before June 15, 2000. See "Business--Recent Developments." The Company no longer plans to pursue mine development operations. As discussed further in this section and also under Item 6, Management's Discussion and Analysis or Plan of Operation, Newgold, Inc. has recently embarked on a new business strategy whereby the Company will become an Internet holding company that invests in, and manages high-tech, Internet based, business-to-business, supply-chain e-commerce companies. The Company's independent accountants have included an explanatory paragraph in their report dated May 11, 2000, on the Company's financial statements for the years ended January 31, 2000, indicating substantial doubt about the Company's ability to continue as a going concern. If the Company's new strategy is not successful, then the Company will have no other recourse than to seek protection of the Federal Bankruptcy Courts. The Company originally was incorporated as Newgold, Inc. under the laws of Nevada on September 1, 1993. The Company began operations as Newgold, Inc., a Delaware corporation, on November 21, 1996, on the effective date of a reverse merger between itself and a company 2 known as Warehouse Auto Centers. The Company's headquarters are located at 14131 Midway Road, Suite 800, Addison, TX 75001; and its telephone number is (972) 851-5434. All references to the "Company" refer to the merged entity operating as Newgold, Inc. For financial information regarding the Company, see "Item 7: Financial Statements And Supplementary Data." INTERNET INVESTMENT OPERATIONS Newgold, Inc. has recently established itself as an Internet company focused on investing in and developing business-to-business, or B2B, e-commerce and application service providers, or ASPs, through the incubation of a portfolio of what we call partner companies. Our goal is to become the premier B2B e-commerce and ASP incubation company by creating an incubation environment for a portfolio of partner companies that will enable them to emerge as successful Internet firms withstanding the traditional tests for investment: profitability and time. We believe that our sole focus on the B2B e-commerce industry will allow us to capitalize rapidly on new opportunities and to attract and develop leading B2B e-commerce companies Our operating strategy is to integrate our partner companies into a collaborative symbiotic business network providing partner companies core services through the direct investment in companies and the creation of strategic relationships. These key, functionally oriented core services are in technology innovation and development; strategic sales and marketing; recruiting and human resources; legal; and finance and accounting. The goal is to create an incubation environment for portfolio companies that enables them to emerge in the shortest time possible as successful Internet firms. We draw upon the extensive management experience of Newgold's senior management team; the expertise of our partner companies; and the talent provided by the members of our Advisory Board. Current Advisory Board members come from such established firms as Lycos, Nokia, EMC2, and Ernst and Young. We believe that building successful B2B e-commerce companies enhances the ability of our collaborative network to facilitate innovation and growth among our partner companies by understanding the needs of each qualified start-up company. B2B e-commerce is growing at a very rapid pace, thus creating tremendous market opportunities for new emerging companies. Some recent examples of B2B e-commerce growth projections include The Gartner Group's estimate that United States e-commerce trade will grow to $3.9 trillion by 2003; Forrester Research estimates such trade at $3.7 trillion, growing from a base of approximately $50 billion as of 1998. As reported by Merrill Lynch, the number of B2B exchanges supporting e-commerce has grown from 50 at December 1998 to 587 at February 2000. The number of B2B exchanges will continue to grow rapidly to support the explosive growth in B2B e-commerce trade. We expect to focus on two types of B2B e-commerce companies, which we call market makers and enabling application service providers. Market makers bring together corporations and dealers of products in both buying and selling transactions, in a worldwide Internet marketplace. We strive to find business solutions that reduce business process costs, enhance productivity, and provide complete information on market 3 availability and pricing for the global trading community. The end result for all parties involved in the e-commerce transaction should be a more effective and lower cost of commerce. Market makers can operate in a vertical manner, typically in a specific industry or in a horizontal environment providing specific goods and services across multiple industries. Enabling application service providers sell software and services to businesses engaged in e-commerce. Many businesses need assistance in designing business practices to take advantage of the Internet and in building and managing the technological infrastructure needed to support B2B e-commerce. We have been very active since implementing our new business strategy in February 2000. We have evaluated over 300 business plans and have generated 24 letters of intent. We have also moved our headquartered in the United States from California to Dallas, Texas. We expect to continue to evaluate additional acquisition opportunities in the United States. In addition, we plan to open offices in London, England, Monaco and Singapore, which will focus on European and Asia Pacific B2B e-commerce opportunities. Prior to implementing our new strategy, we acquired an equity interest in Business Web, Inc. (also known as Comercis.com.), an Internet company specializing in the development of web sites for communities of like businesses and the development of e-trade shows on the Internet for industries and professional organizations. Our equity interest in Comercis consists of warrants to purchase up to 3,132,794 shares of common stock of Comercis at a purchase price of $3.00 per share. These warrants were acquired in connection with our agreement to terminate a Plan of Reorganization and Merger Agreement entered into with Comercis whereby Comercis was to be merged with our company. Industry Overview Business-to-business electronic commerce or B2B e-commerce refers to that portion of electronic commerce that takes place between businesses. Unlike B2C, or business-to-business-to-consumer e-commerce, B2B e-commerce emphasizes supply chain integration, direct marketing over the web, and electronic marketplaces. B2B e-commerce over the Internet can be as basic as a manufacturer putting up a bare-bones Web site to let distributors securely order a handful of products; it can be as complex as a distributor offering thousands of customers company-specific pricing and content, complex product configuration tools and near real-time access to inventory levels for its entire product line. Compared with traditional electronic data interchange (EDI) systems that run across private networks, Internet-based B2B e-commerce is seen as less of a challenge to implement, especially for smaller customers and suppliers that cannot handle EDI's cost and complexity. In September 1999, Bear Stearns reported on which industries are fertile territory for marketplaces to develop. Two of the characteristics they identified were size and a fragmented supply chain. A marketplace needs to have significant size to substantiate the effort required to build an e-commerce business that aggregates data and facilitates transactions. A fragmented supply chain is one where it is hard for buyers and sellers to find one another. An intermediary 4 conducting e-commerce can bring the two sides together and can help buyers compare offerings. And when products, inventory levels and prices change quickly, or product descriptions are complex, the intermediary can aggregate such information and make it easier to search. In another recent report, The Yankee Group indicated that on average, companies are expected to purchase nearly 30 percent of goods and services electronically by 2004. In certain industries, this figure is expected to move as high as 50 percent. Opportunities for Emerging B2B E-Commerce Companies We believe that there are significant opportunities for companies that can assist traditional businesses in using the Internet to create more efficient markets and enable e-commerce. We focus on two types of B2B e-commerce companies: market makers and enabling application service providers. Market Makers. Market Makers bring together corporations and dealers of products in both buying and selling transactions, in a worldwide Internet marketplace. B2B e-commerce business solutions reduce business process costs, enhance productivity, and provide complete information on market availability and pricing for the global trade community. o Market makers enable more effective and lower cost commerce for traditional businesses by providing access through the Internet to a broader range of buyers and sellers. Market makers typically operate in a specific industry or provide specific goods and services across multiple industries. Market makers tailor their business models to match a target market's distinct characteristics. We refer to market makers operating in a particular industry as vertical market makers, and to market makers operating across multiple industries as horizontal market makers. o Business-to-business marketplaces earn money in a variety of ways. Some sell advertising, although for many that is becoming a less important piece of the revenue stream. Matchmaking sites - those that gather requests for proposals or requests for quotes - may charge sellers a finder's fee for every buyer lead they pass on. Sites with a catalog component take a markup on the items they sell, just as distributors do. The typical range for markups in multivendor catalog sites is 5 percent to 15 percent, according to Bear, Stearns. Auction and exchange sites typically charge buyers or sellers or both a transaction fee. Enabling Application Service Providers. Enabling application service providers offer a new value proposition to customers, combining packaged software applications, workflow management systems, communications services, hardware, network infrastructure and IT services which range from implementation to ongoing support services - all in a single, bundled solution. ASPs are usually capable of providing application solutions to customers at a lower cost than the customers' internal resources. This is due in a large part to the economies of scale they can primarily realize in lower 5 labor management costs. Several characteristics make the overall ASP industry a highly attractive investment environment: o High Recurring Revenue Streams. Most ASPs that are providing enterprise applications sign multi-year contracts with customers. This inherently creates less risk for an ASP to meet its revenue and earnings forecasts. o Sticky Customer Situations. Once deployed, a customer becomes dependent on its ASP to configure, enhance, manage and support both its enterprise applications and corporate data. As a result a customer becomes fundamentally entrenched with its ASP, making it difficult for a customer switch to an internally managed scenario or another ASP. o ASPs Currently Have Significant Margin Expansion Opportunities. Once a customer successfully deploys its first application with an ASP and realizes the benefits of the ASP model, ASPs will have a strong opportunity to cross-sell additional application solutions to that customer. Typically, sales and marketing costs of an additional solution are a fraction of the original solution; thus cross-selling produces both incremental revenue and more profitable margin expansion. The second margin expansion opportunity is the cross selling of additional services. As customers evolve and grow their businesses, a customer may require more bandwidth or additional professional services. ASPs will also benefit as their customers purchase additional seats or user licenses. Finally, many ASPs are still early in their lifecycle and have large fixed investments, such as building data centers and client care organizations. As ASPs experience rapid revenue growth over the next few years, many ASPs will realize significant margin expansion as they leverage their fixed cost structure. o Expected Rapid Revenue Growth. The ASP industry continues to be an early stage, rapid growth market. IDC expects growth of the enterprise portion of the ASP market to exceed 90% per annum over the next few years. Our Solution and Strategy Our strategy is to provide an incubation environment, designed to nurture business-to-business, Internet-based start-ups from the conceptual stage to an initial public offering or other liquidity event. Elements of our strategy include: o Focusing on investing in a portfolio of Internet start-up companies engaged in the digital conversion of traditional business supply chain models into global virtual trade communities. 6 o Optimizing the relationships between our partner companies by creating a collaborative environment that focuses on state-of-the-art technology, human capital, and the use of innovative business solutions. o Providing an investment medium that provides our strategic partners with both funding and revenue opportunities. We are business partners with each of our partner companies, encouraging them to strive for success. We strive to understand the needs of each the companies we invest in as a result of an extensive due diligence effort that is performed for each investment. Our strategy is to provide operational support in the following key, functionally oriented core services of technology innovation and development; strategic sales and marketing; recruiting and human resources; legal; and finance and accounting. We also intend to oversee the business plan implementation of each partner company by providing a business mentor who facilitates the implementation by use of the core services indicated above. Targeting Investment Opportunities We currently utilize several methods to find or create potential partner companies. Our expertise in the B2B e-commerce market has allowed us to create and develop potential concepts on our own. We call such opportunities "hatchings". We also receive many unsolicited requests of individuals or companies regarding specific proposals for investment. Members of our Advisory Board and our strategic partners also provide us potential investments that they are specifically aware of from their daily business activities. Acquiring Interests in Partner Companies After we identify an attractive potential partner company, we negotiate the acquisition of a significant interest in the company. As a condition to an acquisition, we require representation on the company's board of directors to ensure our ability to provide active guidance to the partner company. We structure acquisitions to permit the partner company's management and key personnel to retain an equity stake in the company. After acquiring interests in partner companies, we frequently participate in their follow-on financings and seek to increase our ownership positions. Our team of senior internet and technology executives have leveraged their 100+ years of combined experience to develop and implement a process by which we can invest in the best business-to-business, e-commerce and application service provider companies with the highest probability of success. Our investment process is divided into several key sub-processes to clearly focus on each individual component of what creates a successful investment: 1. The Opportunity Discovery process: 7 This process allows us to invest in companies that clearly match our strategy and benefit our strategic pipeline partners' business model and success. 2. The Assessment process: With the optimal probability of a successful IPO or liquidity event foremost on our mind, we apply a specific set of screening criteria that assures a more educated and accurate choice for inclusion into our portfolio. 3. The LOI/Term Sheet process: The specific steps of this process insure the development of a strong, mutual agreement between our company and the candidate team and, more importantly, the agreement on the requirements to achieve success. 4. The Due Diligence process: Our Due Diligence process has been developed in a way that creates a very collaborative environment, by which (1) supporting information and documentation are shared without hesitation, and (2) a detailed gap analysis of our partnership company is prepared to provide a valuable roadmap for our partnership company in executing on their business plan. 5. The Funding agreement process: We have developed a unique funding process that eliminates the roadblocks, which many times slows down or prevents the completion of this agreement. 6. The Deployment process: We dedicate a highly skilled and experienced managing director (MD) to support each partnership company. The MD starts the company on our unique Fast Start program, which accelerates the company's execution of their business plan. The MD continually applies our ongoing gap analysis process to judge progress, and leverages the collaboration between portfolio partners to meet the ever-increasing needs of a fast growing company. Implementing the Strategy In implementing our strategy, we leverage the collective knowledge and experience of our partner companies, strategic partners and Advisory Board members. Our Advisory Board will consist of more than 10 experienced executives from various backgrounds who provide our network with strategic guidance, sales, marketing and information technology expertise and industry contacts. Ideally, we will own 40% or more of each of our partner companies, with management and public shareholders owning the remaining interests; however, we believe that we 8 can have significant influence at any ownership level. Government Regulation Our existing and future partner companies are and will be subject to federal, state and local laws governing conduct of business on the Internet. Legislative and regulatory proposals are under consideration that would regulate certain aspects of the Internet, including online content, copyright infringement, user privacy, taxation, access charges, liability for third-party activities, and jurisdiction. In addition, various federal, state, local and foreign governmental organizations are considering, and may consider in the future, other legislative and regulatory proposals that would regulate certain aspects of the Internet. For example, the U.S. Federal Trade Commission is considering regulations regarding the collection and use of personal identifying information obtained from individuals when accessing Web sites, with particular emphasis on access by minors. The U.S. Congress is also considering legislation that would address similar privacy issues. The European Union has recently enacted several directives relating to the Internet, including directives that regulate the distribution of certain prohibited materials, privacy, e-Commerce, security, commercial piracy, consumer protection and taxation of transactions completed over the Internet. Other areas of potential regulation include libel, pricing, quality of products and services and intellectual property. The continued growth and development of e-Commerce may prompt calls for more stringent consumer protection laws that may impose additional burdens on those companies conducting business online. The adoption of additional laws or regulations may impair the growth of the Internet or create uncertainty in the marketplace, which could result in a decrease the demand for our partner companies' services and increase their cost of doing business. A number of legislative proposals have been made in the United States and by some European governments that would impose additional taxes on the sale of goods and services over the Internet, and some states have taken measures to tax Internet-related activities. Although the U.S. Congress recently placed a three-year moratorium on state and local taxes on Internet access and discriminatory taxes on electronic commerce, existing state or local laws were expressly excepted from this moratorium. Once this moratorium is lifted, federal or state taxes could be imposed on Internet commerce. This legislation, or other attempts at regulating commerce over the Internet, could substantially increase the costs incurred by our partner companies' customers when doing business over the Internet, and as a result, materially adversely affect the demand for our partner companies' services. Competition We may compete with our shareholders, partner companies, Advisory Board members and strategic partners for Internet-related opportunities. These shareholders, Advisory Board members and strategic partners may compete with us to acquire interests in B2B e-commerce companies, which may give these companies access to our business plan and knowledge about potential acquisitions. In addition, we may compete with our partner companies to acquire interests in B2B e-commerce companies, and our partner companies may compete with each other for acquisitions or other B2B e-commerce opportunities. These elements of competition may 9 prevent potential investment companies from partnering with us and reduce our ability to implement our Internet investment strategy. We face competition from other capital providers including publicly traded Internet companies, venture capital companies and large corporations. Many of these competitors have greater financial resources and brand name recognition than we do. These competitors may limit our opportunity to acquire interests in new partner companies. If we cannot acquire interests in attractive companies, our strategy to build a collaborative network of partner companies may not succeed. MINING OPERATIONS The Relief Canyon Mine is an open-pit, heap leaching operation located approximately 110 miles northeast of Reno, Nevada. The Company currently holds 50 unpatented mining claims. The mine is readily accessible by improved roads. Water for mining and processing of operations is provided by two wells located on the property in close proximity to the mine and processing facilities. Power is provided by a local rural electric association and phone lines are present at the mine site. Background and History The Relief Canyon gold deposit was discovered by Duval Corporation, ("Duval") in 1981. Lacana Mining, ("Lacana") purchased the property from Duval, drilled additional holes to establish reserves, and commenced mining in 1984 as an open-pit cyanide heap leach operation. In 1986, Pegasus Gold, Inc. ("Pegasus"), purchased the mine from Lacana, drilled additional holes for a total of approximately 400 with approximately 120,000 linear feet to confirm reserves, and mined a cumulative total of approximately 6.3 million tons of gold ore containing an average of 0.035 ounces of gold per ton from 1986-1989. Pegasus ceased mining activities in 1989 and began the reclamation process of the mine site from 1990-1992. In 1993, Pegasus sold the Relief Canyon Mine to its reclamation contractor, J.D. Welsh & Associates ("Welsh"). Welsh continued to rinse the heaps to detoxify them of their cyanide content and recovered minor amounts of gold in the process. By December 1994, Welsh had completed detoxification of the heaps and was required only to submit quarterly water quality reports to the state of Nevada for the next five years. On January 10, 1995, the Company purchased the mine from Welsh for $500,000. The mine at that time consisted of 39 unpatented lode mining claims, an empty building except for three carbon tanks and a boiler for carbon strip solution, four detoxified leach pads, a preg pond for gold bearing solution, a barren pond for solution from which gold had been removed, water rights, and various permits. From acquisition through November 1997, the Company refurbished the processing facilities by the purchase and installation of all equipment required to process the gold bearing leach solution when the mine was returned to production. There also was a sub-lease (the "Santa Fe Lease") to fee simple real property entered into 10 between Welsh and Santa Fe Gold Company, which has merged with Newmont Gold Company ("Santa Fe"). Welsh assigned the Santa Fe Lease to the Company at its base annual lease payment of $12,500, plus an advance royalty payment of a similar amount. The Santa Fe Lease required that Santa Fe consent to any assignment. Santa Fe never consented formally to the assignment. Santa Fe previously had accepted the Company's lease and royalty payments and it is the Company's position that such acceptance constituted consent. Subsequent to the signing of the contract for sale, the parties reduced the amount due Welsh to $450,000 because of Welsh's inability to secure Santa Fe's acceptance of assignment of the Santa Fe Lease. On October 19, 1998, Santa Fe terminated the Welsh lease as a result of the Company's inability to maintain the required insurance and the Company's inability to post a reclamation bond for the property. The loss of the Santa Fe property in no way adversely affects the Company's mining position. If mining operations are not resumed, it is possible the Company may be required to reclaim the mine. Reclamation consists of recontouring the four heaps to a 3:1 slope, sale and removal of the building and its contents, evaporation of all water in both ponds and burial of the building foundation and floor within the ponds' liners under the soil contained in the pond birms. Finally, native vegetation must be re-established in all areas of disturbance. While it is the Company's position that sale of the building and its contents will cover the costs of the remaining reclamation, it has established an additional reserve of $50,500 for reclamation. Repadre Capital Corporation ("Repadre") purchased a 3% NSR royalty, that was allocated to two properties, from the Company for $500,000 during 1996 (the "Repadre royalty"). These funds were applied to the Company's ongoing reserve confirmation and expansion program at the Relief Canyon Mine. Under the terms of Repadre royalty, Repadre had the option to reallocate the Repadre royalty to the Relief Canyon Mine. In 1997, Repadre purchased a 1% NSR royalty on the Relief Canyon mine by payment of $300,000 to the Company. The Company has recorded the total payyments received of $800,000 as deferred revenue. Insurance The business of gold mining is subject to certain types of risks, including environmental hazards, industrial accidents, and theft. Prior to suspending operations, the Company carried insurance against certain property damage loss (including business interruption) and comprehensive general liability insurance. While the Company maintained insurance consistent with industry practice, it is not possible to insure against all risks associated with the mining business, or prudent to assume that insurance will continue to be available at a reasonable cost. The Company has not obtained environmental liability insurance because such coverage is not considered by management to be cost effective. The Company currently carries no insurance on any of its properties due to the current status of the mine and the Company's current financial condition. Government Controls and Regulations 11 As long as the Company retains control and has not divested itself of the Relief Canyon Mine and any liability related thereto, the Company is subject to extensive governmental controls and regulations that are subject to amendment from time to time. The Company is unable to predict what additional legislation or amendments may be proposed that might affect care and maintenance of the mine or the time at which any such proposals, if enacted, might become effective. Such legislation or amendments, however, could require increased capital and operating expenditures and could prevent or delay divesture of the mine by the Company. Outlined below are some of the more significant aspects of governmental controls and regulations that materially affect the Company's interests in the mine. Regulation of Mining Activity The Relief Canyon Mine, including care and maintenance, exploration, development and production activities, is subject to environmental laws, policies and regulations. These laws, policies and regulations regulate, among other matters, emissions to the air, discharges to water, management of waste, management of hazardous substances, protection of natural resources, protection of endangered species, protection of antiquities and reclamation of land. The mine also is subject to numerous other federal, state and local laws and regulations. At the federal level, the mine is subject to inspection and regulation by the Division of Mine Safety and Health Administration of the Department of Labor ("MSHA") under provisions of the Federal Mine Safety and Health Act of 1977. The Occupation and Safety Health Administration ("OSHA") also has jurisdiction over certain safety and health standards not covered by MSHA. Mining operations and all future exploration and development will require a variety of permits. Although the Company believes the permits can be obtained in a timely fashion, permitting procedures are complex, costly, time consuming and subject to potential regulatory delay. The Company does not believe that existing permitting requirements or other environmental protection laws and regulations would have a material adverse effect on its ability to dispose of the mine. However, the Company cannot be certain that future changes in laws and regulations would not result in significant additional expenses, capital expenditures, restrictions or delays associated with the divestiture of the Company's property. The Company cannot predict whether it will be able to renew its existing permits or whether material changes in existing permit conditions will be imposed. Non-renewal of existing permits or the imposition of additional conditions could have a material adverse effect on the Company's ability to dispose of Relief Canyon. The State of Nevada, where the Company's mine property is located, adopted the Mined Land Reclamation Act (the "Nevada Act") in 1989 which established design, operation, monitoring and closure requirements for all mining facilities. The Nevada Act has increased the cost of designing, operating, monitoring and closing mining facilities and could affect the cost of operating; monitoring and closing existing mine facilities. The State of Nevada also has adopted reclamation regulations pursuant to which reclamation plans have been prepared and financial assurances established for existing facilities. Environmental Regulations 12 Legislation and implementation of regulations adopted or proposed by the United States Environmental Protection Agency ("EPA"), the BLM and by comparable agencies in various states directly and indirectly affect the mining industry in the United States. These laws and regulations address the environmental impact of mining and mineral processing, including potential contamination of soil and water from tailings discharges and other wastes generated by mining companies. In particular, legislation such as the Clean Water Act, the Clean Air Act, the Federal Resource Conservation and Recovery Act ("RCRA"), the Environmental Response, Compensation and Liability Act and the National Environmental Policy Act require analysis and/or impose effluent standards, new source performance standards, air quality antimycin standards and other design or operational requirements for various components of mining and mineral processing, including gold-ore mining and processing. Such statutes also may impose liability on the Company for remediation of waste it has disposed. Gold mining and processing operations by another entity would generate large quantities of solid waste, which is subject to regulation under the RCRA and similar state laws. The majority of the waste, which was produced by such operations, is "extraction" waste that EPA has determined not to regulate under RCRA's "hazardous waste" program. Instead, the EPA is developing a solid waste regulatory program specific to mining operations under the RCRA. Of particular concern to the mining industry is a proposal by the EPA entitled "Recommendation for a Regulatory Program for Mining Waste and Materials Under Subtitle D of the Resource Conservation and Recovery Act" ("Strawman II") which, if implemented, would create a system of comprehensive Federal regulation of the entire mine site. Many of these requirements would be duplicates of existing state regulations. Strawman II as currently proposed would regulate not only mine and mill wastes but also numerous production facilities and processes which could limit internal flexibility in operating a mine. To implement Strawman II the EPA must seek additional statutory authority, which is expected to be requested in connection with Congress' reauthorization of RCRA. The Company also is subject to regulations under (i) the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA" or "Superfund") which regulates and establishes liability for the release of hazardous substances and (ii) the Endangered Species Act ("ESA") which identifies endangered species of plants and animals and regulates activities to protect these species and their habitats. Congress is considering revisions to "CERCLA" and "ESA"; the impact of these revisions on the Company is not clear at this time. Moreover, the Clean Air Act, as recently amended, mandates the establishment of a fderal air permitting program, identifies a list of hazardous air pollutants, including various metals and cyanide, and establishes new enforcement authority. The EPA has published final regulations establishing the minimum elements of state operating permit programs. The states had until November 15, 1993 to submit their permit programs to the EPA for review and approval. Until the state regulations are promulgated and approved by the EPA, the full impact of the new regulations on the Company cannot accurately be predicted. In addition, the Company is required to mitigate long-term environmental impacts by stabilizing, contouring, resloping, and revegetating various portions of a site. While a portion of 13 the required work was performed concurrently with prior operations, completion of the environmental mitigation occurs once removal of all facilities has been completed. These reclamation efforts are conducted in accordance with detailed plans which have been reviewed and approved by the appropriate regulatory agencies. The Company has posted security bonds and has made provision to cover the estimated costs of such reclamation as required by permit. The Company believes that its care and maintenance operation, as it exists today, is in substantial compliance with federal and state regulations and that no further significant capital expenditures for environmental control facilities will be required. Competition The Company has competed with other mining companies in connection with the acquisition of capital, mining claims and leases on precious metal properties. There is significant competition for the limited number of precious metals acquisition opportunities in the continental United States. As a result of this competition, much of which is with companies with greater financial resources, the Company is unable to continue to acquire attractive mining properties and capital on terms it considers acceptable. EMPLOYEES As of May 15, 2000, the Company had a total of 7 full-time employees. None of the Company's employees are subject to any collective bargaining agreements or union affiliations. Relations between management and employees are considered to be good. RISK FACTORS We have no relevant Internet operating history upon which you may evaluate us. Although we were formed in September 1993, we have only recently adopted our new business strategy of investing in, and managing high-tech, Internet based, business-to-business, supply-chain e-commerce companies. Accordingly, we have no operating history upon which you may evaluate our new business and prospects. The partner companies that we intend to invest in are among the many companies that have entered into the emerging business-to-business e-commerce market. Many of those companies are in the early stages of their development. Our business and prospects must be considered in light of the risk, expense and difficulties frequently encountered by companies in early stages of development, particularly companies in new and rapidly evolving markets such as business-to-business e-commerce. If we are unable to effectively allocate our resources to acquire and help grow those companies, our stock price may be adversely affected and we may be unable to execute our strategy of developing a collaborative network of partner companies. The success of our Internet business will depend upon the performance of our partner companies, which is uncertain. Economic, governmental, industry and internal company factors outside our control will 14 affect each of our future partner companies. If those companies do not succeed, the value of our assets and the price of our common stock could decline. The material risks relating to our future partner companies include any future lack of the widespread commercial use of the Internet, which may prevent those companies from succeeding; and intensifying competition for the products and services e-commerce companies offer, which could lead to the failure of some of those companies. Our Internet business model is unproven. Our strategy is based on an unproven business model. Our business model depends on the willingness of companies to join our collaborative network and the ability of the collaborative network to assist our partner companies. Our business model depends on our ability to share information within our network of partner companies. If competition develops among our partner companies, we may be unable to fully benefit from the sharing of information within our network of partner companies. If we cannot convince companies of the value of our business model, our ability to attract new companies will be adversely affected and our strategy of building a collaborative network may not succeed. We face competition from other potential acquirers of business-to-business e-commerce companies. We face competition from other capital providers including publicly traded Internet companies, venture capital companies and large corporations. Many of these competitors have greater financial resources and brand name recognition than we do. These competitors may limit our opportunity to acquire interests in new partner companies. If we cannot acquire interests in attractive companies on reasonable terms, our strategy to build a collaborative network of partner companies may not succeed. We have incurred significant operating losses and have a large accumulated deficit. We have incurred significant operating losses from our mining business in each fiscal quarter since our inception. For the years ended January 31, 1999 and 2000, our operating losses were $661,667 and $770,680, respectively, and, at January 31, 2000, we had an accumulated deficit of $10,535,717. These losses are continuing, though at a higher rate, and will likely continue in the near future. Even though we have changed the focus of our business, we will continue to carry this accumulated deficit and can offer you no assurances that we will ever be able to achieve profitable operations. We may have difficulty raising the money we need in the future. We will likely be required to obtain additional financing in both the short term and the long term to successfully carry out our new business plan. We currently have no committed sources of additional capital. We can offer no assurances that additional funds can be raised. In addition, even if we find outside funding sources, we may be required to issue to such outside sources securities with greater rights than those currently possessed by holders of our common stock. We may also be required to take other actions that may lessen the value of our common 15 stock, including borrowing money on terms that are not favorable to us. Our strategy of expanding our business through acquisitions of other businesses and technologies presents special risks. We intend to expand through the acquisition of businesses, technologies, products and services from other businesses. Acquisitions involve a number of special problems, including: o Difficulty integrating acquired technologies, operations, and operational resources as personnel with our existing management tries to oversee business; larger operations; o Strain on our managerial and operational resources as our management tries to oversee larger operations; o Diversion of our management's attention in connection with negotiating the acquisitions and integrating the assets; o Exposure to unforeseen liabilities of acquired companies; o The requirement to record additional future operating costs for the amortization of good will and other intangible assets, which amounts could be significant; o Potential issuance of securities in connection with acquisitions, which securities dilute the holders of our currently outstanding securities; and o The need to incur additional debt. We may not be able to successfully address these problems. Moreover, our future operating results will depend to a significant degree on its ability to successfully manage growth and integrate acquisitions. In addition, many of our investments are in early-stage companies with limited operating histories and limited or no revenues. We may not be able to successfully develop these young companies. We may not have opportunities to acquire interests in additional companies. We may be unable to identify companies that complement our strategy, and even if we identify a company that complements our strategy, we may be unable to acquire an interest in the company for many reasons, including: o A failure to agree on the terms of the acquisition, such as the amount or price of our acquired interest. o Incompatibility between us and management of the company; o Competition from other acquirors of business to business e-commerce companies. o A lack of capital to acquire an interest in the company. 16 o The unwillingness of the company to partner with us. If we cannot acquire interests in attractive companies, our strategy to build a collaborative network of partner companies may not succeed. Our resources and our ability to manage newly acquired partner companies may be strained as we acquire more business-to-business e-commerce companies. We plan to acquire significant interests in business-to-business e-commerce companies that complement our business strategy. These acquisitions may place a significant strain on our resources, ability to manage such companies and ability to integrate them into our collaborative network. Future acquisitions are subject to the following risks: o Our acquisitions may cause a disruption in our ongoing support of our partner companies, distract our management and other resources and make it difficult to maintain our standards, controls and procedures. o We may acquire interests in companies in business-to-business e-commerce markets in which we have little experience. o We may not be able to facilitate collaboration between all of the companies that we acquire. o To fund future acquisitions we may be required to incur debt or issue equity securities, which may be dilutive to existing shareholders. We may have to incur the time and expense of registration under the Investment Company Act of 1940 or take significant steps to avoid becoming subject to regulation under that Act. Our business plan is to actively engage in the business of business-to-business e-commerce through a network of majority-owned subsidiaries and companies that we will be considered to "control." Under the Investment Company Act, a company is considered to control another company if it owns more than 25% of that company's voting securities. A company may be required to register as an investment company if more than 45% of its total assets consists of, and more than 45% of its income/loss and revenue attributable to it over the last four quarters is derived from, ownership interests in companies it does not control. Because many of our future partner companies may not be majority-owned subsidiaries, and because we may own 25% or less of the voting securities of some of our future partner companies, we may become subject to regulation under the Investment Company Act unless we take precautionary steps. For example, in order to avoid having excessive income from "non- controlled" interests, we may not sell minority interests we would otherwise want to sell or we may have to generate non-investment income by selling interests in partner companies that we are considered to control. We may also need to ensure that we retain more than 25% ownership interests in our future partner companies after any equity offerings. In addition, we may have to acquire additional income or loss generating majority-owned or controlled interests that we might not otherwise have acquired or 17 may not be able to acquire "non- controlling" interests in companies that we would otherwise want to acquire. We depend on certain important employees, and the loss of any of those employees may harm our business. Our performance will be substantially dependent on the performance of our executive officers and other key employees, in particular, Jamie Cutburth, our chairman, president and chief executive officer, Jes Engelmann, our chief operating officer, and Jim Kluber, our chief financial officer. The familiarity of these individuals with the Internet industry makes them especially critical to our success. In addition, our success is dependent on its ability to attract, train, retain and motivate high quality personnel, especially for our management team. The loss of the services of any of our executive officers or key employees may harm our business. Our success also depends on its continuing ability to attract, train, retain, and motivate other highly qualified technical and managerial personnel. Competition for such personnel is intense. The success of some of our future partner companies will also depend on their having highly trained technical and marketing personnel. Our partner companies will need to continue to hire additional personnel as their businesses grow. A shortage in the number of trained technical and marketing personnel could limit the ability of our partner companies to increase sales of their existing products and services and launch new product offerings. Our growth could be impaired by limitations on our and our partner companies' access to the capital markets. We are dependent on the capital markets for access to funds for acquisitions and other purposes. Our future partner companies will also be dependent on the capital markets to raise capital for their own purposes. To date, there have been a substantial number of Internet-related initial public offerings and additional offerings are expected to be made in the future. If the market for Internet-related companies and initial public offerings were to weaken for an extended period of time, our ability and the ability of our partner companies to grow and access the capital markets will be impaired. We may be unable to obtain maximum value for our future partner company interests. We expect to acquire significant positions in our partner companies. While we generally do not anticipate selling our interests in those companies, if we were to divest all or part of an interest in a partner company, we may not receive maximum value for this position. If we elect to sell an interest in partner companies with publicly traded stock, we may be unable to sell our interest at then-quoted market prices. Furthermore, for those partner companies that do not have publicly-traded stock, the realizable value of our interests may ultimately prove to be lower than the carrying value currently reflected in our consolidated financial statements. 18 The success of our partner companies will depend on the development of the business-to-business e- commerce market, which is uncertain. Many of our future partner companies will rely on the Internet for the success of their businesses. The development of the e-commerce market is in its early stages. If widespread commercial use of the Internet does not develop, or if the Internet does not develop as an effective medium for providing products and services, our partner companies may not succeed. Our long-term success depends on widespread market-acceptance of business-to-business e- commerce. A number of factors could prevent such acceptance, including the following: o The unwillingness of businesses to shift from traditional processes to business to business e-commerce processes; o The necessary network infrastructure for substantial growth in usage of business to business e-commerce may not be adequately developed; o Increased government regulation or taxation may adversely affect the viability of business to business e-commerce; o Insufficient availability of telecommunication services or changes in telecommunication services could result in slower response times for the users of business to business e-commerce; and o Concern and adverse publicity about the security of business to business e-commerce transactions. Concerns regarding security of transactions and transmitting confidential information over the Internet may have an adverse impact on our business. We believe that concern regarding the security of confidential information transmitted over the Internet prevents many potential customers from engaging in online transactions. If we invest in partner companies that depend on such transactions but do not add sufficient security features to their product releases, those partner companies' products may not gain market acceptance or there may be additional legal exposure to them. Despite the measures some of our partner companies may take, the infrastructure of each of them will be potentially vulnerable to physical or electronic break-ins, viruses or similar problems. If a person circumvents the security measures imposed by any one of those companies, he or she could misappropriate proprietary information or cause interruption in operations of the company. Security breaches that result in access to confidential information could damage the reputation of any one of our future partner companies and expose the company affected to a risk of loss or liability. Some companies may be required to make significant investments and efforts to protect against or remedy security breaches. Additionally, as e-commerce becomes more widespread, our future partner companies' customers will become more concerned about security. If our future partner companies are unable to adequately address these concerns, they may be unable to sell their goods and services. 19 Rapid technological changes may prevent our partner companies from remaining current with their technical resources and maintaining competitive product and service offerings. The markets in which our future partner companies will operate are characterized by rapid technological change, frequent new product and service introductions and evolving industry standards. Significant technological changes could render their existing Web site technology or other products and services obsolete. The e-commerce market's growth and intense competition exacerbate these conditions. If our future partner companies are unable to successfully respond to these developments or do not respond in a cost-effective way, our business, financial condition and operating results will be adversely affected. To be successful, those companies must adapt to their rapidly changing markets by continually improving the responsiveness, services and features of their products and services and by developing new features to meet the needs of their customers. Our success will depend, in part, on our partner companies' ability to license leading technologies useful in their businesses, enhance their existing products and services and develop new offerings and technology that address the needs of their customers. Our partner companies will also need to respond to technological advances and emerging industry standards in a cost- effective and timely manner. Government regulations and legal uncertainties may place financial burdens on our business and the businesses of our partner companies. As of the date of this filing, there were few laws or regulations directed specifically at e-commerce. However, because of the Internet's popularity and increasing use, new laws and regulations may be adopted. These laws and regulations may cover issues such as the collection and use of data from Web site visitors and related privacy issues, pricing, content, copyrights, online gambling, distribution and quality of goods and services. The enactment of any additional laws or regulations may impede the growth of the Internet and business-to-business e-commerce, which could decrease the revenue of our partner companies and place additional financial burdens on our business and the businesses of our future partner companies. Laws and regulations directly applicable to e-commerce or Internet communications are becoming more prevalent. For example, the United States Congress recently enacted laws regarding online copyright infringement and the protection of information collected online from children. Although these laws may not have a direct adverse effect on our business or those of our partner companies, they add to the legal and regulatory burden faced by business-to-business e-commerce companies. We may issue securities, which may dilute current shareholders' ownership interest. In the future, we may issue securities to raise cash for acquisitions, and we may also pay for interests in additional partner companies by using a combination of cash and our common stock, or just our common stock. Any of these events may dilute our shareholders' ownership interest in us. Our common stock price may become highly volatile. 20 The trading prices of many technology and Internet-related company stocks have experienced significant price and volume fluctuations in recent months. These fluctuations often have been unrelated or disproportionate to the operating performance of these companies. Any negative change in the public's perception of the prospects of Internet or e-commerce companies could depress our stock price regardless of our results. The following factors will add to our common stock price's volatility: o Actual or anticipated variations in our quarterly results and those of our future partner companies; o New sales formats or new products or services offered by us, our future partner companies and their competitors; o Changes in our financial estimates and those of our future partner companies by securities analysts; o Changes in the size, form or rate of our acquisitions; o Conditions or trends in the Internet industry in general and the business to business e-commerce industry in particular; o Announcements by our future partner companies and their competitors of technological innovations; o Announcements by us or our partner companies or our competitors of significant acquisitions, strategic partnerships or joint ventures; o Changes in the market valuations of our future partner companies and other Internet companies; o Our capital commitments; o Negative changes in the public's perception of the prospects of e-commerce companies; o General economic conditions such as a recession, or interest rate or currency rate fluctuations; o Additions or departures of our key personnel and key personnel of our future partner companies; and o Additional sales of our securities. Many of these factors are beyond our control. These factors may decrease the market price of our common stock, regardless of our operating performance. In the past, securities class action litigation has often been brought against a company following periods of volatility in the 21 market price of its securities. We may in the future be the target of similar litigation. Securities litigation could result in substantial costs and divert management's attention and resources, which could have a material adverse effect on our business, operating results and financial condition. A significant number of our shares that are not currently eligible for sale in the market will become eligible in the future and may impact the market price of our common stock. There are 42,942,703 shares of our common stock issued and outstanding as of the date of this filing. Of these shares, approximately 17,000,000 shares are freely tradable without restriction. The balance of the shares is restricted from resale, and none of these restricted shares may currently be sold under SEC Rule 144. These shares may become eligible for sale at such time as may be permitted under the provisions of Rule 144. We can make no prediction as to the effect, if any, that future sales of additional shares of common stock or the availability of additional shares for sale will have on the market price of the common stock. Nevertheless, the possibility that substantial amounts of our common stock may be sold in the public market may adversely affect prevailing market prices for the common stock. FORWARD LOOKING STATEMENTS. A number of the matters and subject areas discussed in the foregoing "Risk Factors" section and elsewhere in this Annual Report that are not historical or current facts deal with potential future circumstances and developments. The discussion of such matters and subject areas is qualified by the inherent risks and uncertainties surrounding future expectations generally, and also may materially differ from the Company's actual future experience involving any one or more of such matters and subject areas. The Company has attempted to identify, in context, certain of the factors that it currently believes may cause actual future experience and results to differ from the Company's current expectations regarding the relevant matter or subject area. The operation and results of the Company's business also may be subject to the effect of other risks and uncertainties in addition to the relevant qualifying factors identified elsewhere in the foregoing "Risk Factors" section, including, but not limited to, general economic conditions in the Internet industry, access to sufficient debt or equity capital to meet the Company's operating and financing needs, and other risks and uncertainties described from time to time in the Company's reports filed with the Securities and Exchange Commission. RECENT DEVELOPMENTS In April 2000, the Company announced that it has entered into an agreement for the sale of its Relief Canyon Mining Project to an entity owned by A. Scott Dockter, a former officer and director of the Company and a current significant shareholder of the Company, in exchange for the payment of $960,000 and the surrender of $960,000 worth of the Company's Common Stock based on the average closing bid price of the Company's Common Stock during the 10-day period prior to closing. The sale is expected to close in June 2000. A separate independent valuation of the Company's Relief Canyon assets will be performed to insure that at minimum a fair market value is received. Item 2. Description of Properties. 22 The Company's corporate office is located at 14131 Midway Road, Suite 800, Addison, Texas. The Company leases an aggregate of 3,000 square feet of office space at this address at a monthly rental of approximately $10,000 per month. The rental rate includes phone, receptionist and other general office services in the monthly rent. The Company also owns the Relief Canyon Mine. See "Business--Mining Operations." Item 3. Legal Proceedings. On December 3, 1996, plaintiff Roy Christiansen filed a breach of contract action against the Company in the Second Judicial District, Washoe County, Reno, Nevada. Plaintiff alleged that he was owed $250,000 relating to recovery of his investment in a property subsequently acquired by the Company. It was discovered during the pendancy of this action that a former Secretary-Treasurer of Newgold, Inc., (prior to the Company going public through its merger with Warehouse Auto) signed a contract in 1994 which obligated the Company, Newgold, Inc. (the Delaware Corporation) to pay $250,000 to Christiansen, a former developer of the Golden Asset project which Newgold purchased and is located in Helena Montana. This obligation was unknown to the current principals of the Company. During the course of litigation, Plaintiff moved the court for summary judgment based on this signed agreement; this motion was granted and a judgment for $250,000 was entered against the Company. Subsequent to January 31, 2000, the Company paid this judgment through the issuance of 350,000 shares of Common Stock to a shareholder that acquired an interest in this judgment. On May 7, 1997 a judgment was entered against the Company on behalf of the plaintiff, Roger Primm, in the Second Judicial District, Washoe County, Reno, Nevada. The underlying lawsuit sought repayment of a loan made by the plaintiff to the Company; loan proceeds were used for development purposes at the Company's mining properties. Subsequent to January 31, 2000, the Company paid this judgment through the issuance of 300,000 shares of Common Stock to a shareholder that acquired the interest in this judgment. On June 24, 1998 the Company's former Reno landlord, Bedford Properties, initiated an unlawful detainer action against the Company for rents owed with regard to the Company's offices in Reno, Nevada. The parties stipulated to a judgment of $40,000 for all past and future rents owed and this judgment was entered against the Company on October 23, 1998 in the Second Judicial District, Washoe County, Reno, Nevada. On March 11, 1998, one of the Company's former consulting firms, JBR Consultants, instituted a suit against the Company for sums due under a consultant engineering contract. On August 19, 1998 the court for the Second Judicial District, Washoe County, Reno, Nevada, entered a default judgment against the Company for $28,815. During the fiscal year ended January 31, 2000, the outstanding balance of the judgment was paid down to approximately $815. Item 4. Submission of Matters to a Vote of Security Holders. None. 23 PART II Item 5. Market for Common Equity and Related Stockholder Matters. The Company's Common Stock is listed on the NASD Electronic Bulletin Board and trades under the symbol "NGLD." As of May 15, 2000, there were 889 holders of record of the Common Stock The following table sets forth the high and low bid prices for the Common Stock, as reported by the NASD's Electronic Bulletin Board for the quarters indicated. The prices set forth represent quotes between dealers and do not include commissions, mark-ups or mark-downs, and may not represent actual transactions. High Bid Low Bid -------- ------- Fiscal Quarter Ended: --------------------- April 30, 1998 0.375 0.375 July 31, 1998 0.125 0.125 October 31, 1998 N/A N/A January 31, 1999 0.07 0.07 April 30, 1999 0.46 0.46 July 31, 1999* 0.70 0.64 October 31, 1999 0.67 0.24 January 31, 2000 0.44 0.115 *After the effect of a 3 for 2 stock split. The Company has paid no cash dividends to date on its Common Stock. The Company anticipates for the foreseeable future its earnings, if any, will be retained for use in its business and that no cash dividends will be paid on the Common Stock. Item 6. Management's Discussion and Analysis or Plan of Operation. The following discussion should be read in conjunction with, and is qualified by reference in its entirety by, the financial statements and notes thereto included elsewhere in this report. Statements contained herein that are not historical facts are forward-looking statements as that term is defined by the Private Securities Litigation Reform Act of 1995. The statements contain words such as "believes," "anticipates," "plans," "expects," "intends," "growth," "future," "opportunities," "goal," "strategy" and similar expressions and include statements regarding the Company's strategy, investment opportunities, and efforts to obtain funding commitments. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, the forward-looking statements are subject to risks and uncertainties that could cause actual results to differ from those projected. The Company cautions investors that any forward-looking statements made by the Company are not guarantees 24 of future performance and that actual results may differ materially from those in the forward-looking statements. Factors that could cause actual results to differ materially from those reflected in the forward-looking statements include, but are not limited to, risks and uncertainties regarding the performance of the Company's partner companies, the unproven nature of the Company's business model, the risk that investment opportunities in target companies meeting the Company's criteria may not be available upon terms acceptable to the Company, if at all, the risk that the capital and other resources that the Company will need to exploit its business model will not be available, and the other risks discussed under Business--"Risk Factors" in this report. The Company was engaged primarily in the exploration and development of mining properties. The Company is the result of a merger between a Chapter 11 bankrupt shell, Warehouse Auto Centers, Inc. (WAC) and Newgold, Inc., a Nevada Corporation, (NGNV) pursuant to a Plan of reorganization approved by the U.S. Bankruptcy Court as of November 21, 1996. For accounting purposes, under the terms of the Merger, NGNV was treated as the acquirer. Accordingly, the historical financial statements prior to November 21, 1996 are those of NGNV and do not reflect any financial information of WAC as a separate entity. In addition, under the terms of the Merger, NGNV's fiscal year was changed from December 31 to January 31. Hence, the comparative financial information is for thirteen months ended January 31, 1997 and 12 months for the years ended January 31, 1999 and January 31, 2000. The Company was engaged in the business of acquiring dormant, potential gold producing properties located in the continental United States and of developing such properties into commercial gold mining operations. Considering the present depressed gold market, the Company's Board of Directors has approved plans for the Company to sell its remaining gold mining assets. Newgold, Inc. has recently embarked on a new business strategy whereby the Company will become an Internet holding company that invests in, and manages high-tech, Internet based, business-to-business, supply-chain e-commerce companies. Plan of Operation Subsequent to January 31, 2000, the Company began to implement its new business strategy . Accordingly, the Company has begun to hire executives and professional staff familiar with such companies. While no specific transactions have closed as of the date of this filing, the operating expenses of the Company have increased substantially since January 31, 2000 and are expected to continue to increase in order to implement its new business strategy. The new business strategy will require additional capital to be raised, as current working capital is not sufficient to fund operations for the remainder of the current fiscal year. Each new investment that the Company makes will generally require additional capital from $500,000 to $5,000,000; such amounts would typically be funded in the respective investment over a one to two year period. 25 The Company does not conduct research and development per se, but does expend considerable effort to source viable investment opportunities. Currently most employees are utilized in this effort. As investments are made, some of the current management employees will become actively involved with overseeing our investments in partner companies. Current plans are for the company to have between 20 and 30 employees; the timing of the hiring of any additional employees is dependent on how successful we are at finding qualified investments. Funding will be required for investments and to cover operating expenses. Subsequent to January 31, 2000 the Company has raised $1.1 million in this regard. Additional funding is currently required to continue to implement the Internet investment strategy. As of the date of this filing, the Company has derived no significant revenue from its operations. As a mine owner, and until the mining assets are sold, the Company's capital requirements have been and will continue to be significant. The Company has been dependent primarily on the private placements of its securities as its sole source of funding its operations. Financial Condition of the Company as of January 31, 2000 As of January 31, 2000, the Company had $2,163 in cash and a negative working capital of $1,354,924. If the Company were to attempt to continue pursuing mining operations, the Company would require approximately $2.5 million in additional working capital above the current working capital deficiency to bring the mine into full production. Since January 1998, the Company had pursued several possible funding opportunities including the sales of royalties on other gold properties and on industrial minerals. As the Company has been unable to obtain additional financing, it was required to curtail its development plans in November 1997 and cease operations except for care and maintenance of the Relief Canyon Mine. The Company is no longer continuing its efforts to obtain funding for its mining operations. Currently the Company is attempting to obtain funding for its Internet investment operations. Subsequent to January 31, 2000, the Company raised approximately $1.1 million based on its new operating strategy and is continuing efforts to raise additional capital for future investments and to fund current operating expenses. There can be no assurance that any of such opportunities will result in actual funding or that additional financing will be available when needed, on commercially reasonable terms, or at all. The Company's independent accountants have included an explanatory paragraph in their report on the Company's financial statements for the year ended January 31, 2000, indicating substantial doubt about the Company's ability to continue as a going concern. 26 Results of Operations For the year ended January 31, 2000, operating expenses, which consist of general and administrative expenses, exploration costs and other operating charges were approximately $770,700 as compared to approximately $661,700 for the year ended January 31, 1999. Exploration and evaluation expenses for the year ended January 31, 2000 were approximately $45,000 as compared to exploration expenses of approximately $153,000 for year ended January 31, 1999. A credit of $25,000 for the reclamation reserve for Washington Gulch Mine, which was sold in July 1998, partially offset expense recorded for options and geological surveys of other mining properties of $92,800. This expense amount included $55,000 for an option payment on a bentonite mine that was recorded in exchange for 125,000 shares of Company common stock. General and administrative expenses were approximately $714,300 for the year ended January 31, 2000 versus approximately $508,600 for the year ended January 31, 1999. Officer salaries for the year ended January 31, 2000 were $247,250 versus $265,750 for the year ended January 31, 1999. Legal and professional expenses for the year ended January 31, 2000 were $275,324, and included $12,155 related to the audits and SEC filings of the Company. Legal and professional expenses for the year ended January 31, 1999 were $19,238 and included $13,060 related to the audits and SEC filings for the Company. Liquidity and Capital Resources The Company has financed most of its operations principally through private placements of the Company's common stock. In April 1998 the Company issued 5,616,977 shares to investors and brokers who had contributed $548,000 from a Regulation S offering at $.10 per share. Funds of approximately $229,000 were distributed by the investment banker directly to lien holders of Relief Canyon Mine and approximately $62,000 was distributed in commissions and fees. The balance of approximately $257,000 was remitted to the Company for operating expenses. 27 On August 31, 1995, the Company granted to Edward Mackay ("Mackay") a one-year option (the "Option") to purchase 40% of NGNV in exchange for a $50,000 option payment (the "Option Payment") and the contribution of the Washington Gulch Mine located in Montana. On January 1, 1996, in exchange for Mackay arranging a $350,000 debt financing for the Company, the Option was amended (the "Amendment") and exercised whereby the $50,000 Option Payment was converted into a promissory note granted to Mackay and Mackay would receive 3.8 million shares of Common Stock of the Company in exchange for the contribution of the Washington Gulch Mine ("WGM") by Mackay. Mackay was an officer and director of the Company; however, he was not an officer or director at the execution of the Option or the Amendment. WGM, at the time of transfer from Mackay in January 1996, was recorded at its net value of $181,000. Certain elements of the operation, such as the plant and equipment on site, were offered for sale, after which the property would be reclaimed and the Company would request return of its $206,000 bond that was being held by the State of Montana. The equipment on site had not been given any value nor reported on the financial statements. The property, equipment and bond were sold in July 1998 for $185,000. The Company declared a 3:2 stock dividend as of June 17, 1999 to shareholders of record as of June 10, 1999. On January 31, 2000 the Company converted $1,282,271 of debt owed to certain shareholders in exchange for 3,205,674 shares of stock. The debt was converted at a price of $0.40 per share. Item 7. Financial Statements. See pages F-1 through F-16. Item 8. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure. On September 3, 1998, the Company's auditors KPMG Peat Marwick withdrew as the auditors for the Company. No reason was given the Company for their decision to withdraw. On April 28, 1999, the Company appointed the firm of Burnett + Company LLP as the Company's new auditors. PART III Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act. Listed below are the names and ages, as of May 15, 2000, of each of the present directors and executive officers of the Company together with the 28 principal positions and offices with the Company held by each. Executive officers are appointed annually by the Board of Directors to serve for the ensuing year or until their successors have been appointed. No officer is related to any other by blood, marriage or adoption. Name Age Position(s) - ---- --- ----------- James H. Cutburth 49 President, CEO and Director Jes Engelmann 43 COO and Director James W. Kluber 49 CFO and Director John Mackay 50 Secretary and Director Pat Dane 50 Director Michael J. Morrison 53 Director Background Information of Officers and Directors James H. Cutburth has been Chairman of the Board since April 2000, a director since March 2000 and CEO and President of the Company since February 2000. He had most recently been the Chief Operating Officer of Business Web Inc. (Comercis.com), a Dallas based business-to-business e-commerce and ASP company in which Newgold, Inc. has a significant interest. Cutburth has also served in senior management positions with Rockwell International 1998-1999; Diamond Multimedia 1996-1998; 3Com/US Robotics Corporation 1995-1996; and Intel Corporation 1990 -1995. Cutburth brings experience in operations, brand and channel development, sales and product marketing in the Internet, Telecommunications, and PC industries. Jes Engelmann has been a director since April 2000 and Executive Vice President and Chief Operating Officer of the Company since February 2000. Mr. Engelmann previously served as Managing Director of Eastern European operations for AT&T Lucent. After leaving AT&T Lucent, Engelmann held various senior executive positions in several Internet related companies, including Paradyne, Cisco and Paragon Networks, and most recently served as General Manager and Chief Operating Officer of Comercis International. James W. Kluber has been a director since April 2000 and Executive Vice President and Chief Operating Officer of the Company since February 2000. From 1996 through 1999 he was the Senior Vice President and Chief Financial Officer at RealPage, Inc., a provider of business software and Internet services to the multi-family real estate industry. From 1993 to 1996 he was the Vice President of Financial Operations for first, ProLogis Trust and next, Archstone Properties; both NYSE listed companies organized by Security Capital Group. Mr. Kluber has extensive experience in raising capital as well as creating finance organizations for high growth companies. John Mackay has been a director since November 1998 and is the Corporate Secretary and Corporate Counsel to the Company. He is an attorney at law and is admitted to practice in the State of California and has specialized in real estate and insurance litigation for the last fifteen 29 years. Mr. Mackay has been engaged by lenders as an independent contractor since 1985 to present to develop plans for the effective utilization of real estate and to manage recoveries of large portfolios of non-performing real estate loans. He holds MBA and JD degrees from the University of Southern California. Pat Dane has been a director of the Company since April 2000. He is the founder and President of Dane Interactive, which advises start-up Internet companies on a variety of issues. Mr. Dane has over 20 years of technology experience having spent 15 years in sales and marketing at Xerox and having served as CEO and President of SoftNet, the company that created FaxWorks. Mr. Dane was also responsible for founding several successful Internet companies including Tuneup.com and Cybermovers.net. Michael J. Morrison has been a director of the Company since November 1996 and has been a practicing attorney in Reno, Nevada for 20 years specializing in the areas of corporate, business and securities law. Board of Directors Directors of the Company are elected to serve until the next annual meeting of the stockholders or until their earlier resignation or removal. Director Compensation Each non-employee director is reimbursed for all out-of-pocket expenses incurred by the director in attending Board meetings and performing other duties on behalf of the Company. Directors do not receive any additional compensation. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), requires the Company's executive officers and directors and persons who own more than ten percent of a registered class of the Company's equity securities registered under the Exchange Act, to file initial reports of ownership and reports indicating changes in ownership with the Securities and Exchange Commission (the "SEC") and each exchange in which its securities are traded. Executive officers and directors and greater than ten percent stockholders are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file. A. Scott Dockter, a former officer and director of the Company and current holder of more than ten percent of the Company's Common Stock, failed to timely file two reports on Form 4 with respect to transactions that occurred during the Company's fiscal year ended January 31, 2000. To the Company's knowledge, based solely on its review of the copies of such reports furnished to the Company, all other Section 16(a) filing requirements applicable to its officers, directors and greater than ten percent beneficial owners were complied with during the fiscal year ended January 31, 2000. 30 Item 10. Executive Compensation The following table sets forth the compensation paid by the Company for services performed on the Company's behalf during each of the last three completed fiscal years with respect to the Company's Chief Executive Officer and each of the Company's other executive officers whose annual compensation during the last fiscal year exceeded $100,000 (the "Named Executive Officers"):
Summary Compensation Table Other Annual All Other Name and Period Salary Bonus Compen- Options Compen- Principal Position Ended ($) ($) sation($) (In shares) sation($) ------------------------ -------- ------- ------- --------- ----------- --------- Arthur Scott Dockter 1/31/00 150,000 -- -- -- -- Chief Executive 1/31/99 122,500 -- -- -- -- Officer, President 1/31/98 102,500 22,666 -- -- --
Item 11. Security Ownership of Certain Beneficial Owners and Management The table below sets forth certain information as of April 30, 2000 (the "Reference Date") with respect to the beneficial ownership of (i) each person who beneficially owns more than 5% of the outstanding shares of Common Stock, (ii) each director, (iii) each Named Executive Officer, and (iv) all officers and directors as a group. Except as otherwise indicated below, the address for each such person is: c/o Newgold, Inc., 14131Midway Road, Suite 800, Addison, Texas 75001. Number of Shares of Percent of Common Name of Beneficial Owner Common Stock Stock Outstanding(1) - ------------------------ ------------ -------------------- James H. Cutburth 27,000 * Jes Engelmann -- * James W. Kluber -- * John Mackay 230,790 * Pat Dane -- -- Michael J. Morrison 18,750 * A. Scott Dockter 9,276,537 24.50% All Officers and Directors as a Group (6 persons) 276,540 * 31 * Less than 1% (1) Percentage figures based on 42,942,703 shares of Common Stock outstanding on the Reference Date. Item 12. Certain Relationships and Related Transactions On June 30, 1995, the Company purchased machinery and equipment from Riverfront Development Corporation, a company for which Arthur Scott Dockter, a former officer and director of the Company, is president and sole shareholder for the purchase price of $250,000. All amounts outstanding were repaid by the Company effective as of January 31, 2000, by converting such debt into shares of the Company's Common Stock. On April 2, 1997, Mr. Dockter loaned $100,000 to the Company at 8% per annum, due and payable on demand. This loan was subsequently repaid. On April 17, 1997, Mr. Dockter loaned $50,000 to the Company at 8% per annum, due and payable on demand. This loan was subsequently repaid effective as of January 31, 2000, by converting the debt into shares of the Company's Common Stock. On April 30, 1997, Mr. Dockter loaned $20,000 to the Company at 8% per annum, due and payable on demand. This loan was subsequently repaid effective as of January 31, 2000, by converting the debt into shares of the Company's Common Stock. On May 30, 1997, Mr. Dockter loaned $35,000 to the Company at 8% per annum, due and payable on demand. This loan was subsequently repaid effective as of January 31, 2000, by converting the debt into shares of the Company's Common Stock. On December 24, 1998, Mr. Dockter loaned $24,000 to the Company at 8% per annum, due and payable on demand. This loan was subsequently repaid effective as of January 31, 2000, by converting the debt into shares of the Company's Common Stock. The Company has entered into an agreement for the sale of its Relief Canyon Mining Project to an entity owned by Mr. Dockter in exchange for the payment of $960,000 and the surrender of $960,000 worth of the Company's Common Stock based on the average closing bid price of the Company's Common Stock during the 10-day period prior to closing. The sale is expected to close in June 2000. On January 31, 2000, Mr. John Mackey, an officer and director of the Company, was owed $125,000 for an advance made on behalf of the Company to settle amounts owed to Business Web Inc. in connection with the proposed merger between the two companies. This advance was repaid as of January 31, 2000 by converting the debt into shares of the Company's Common Stock. 32 On January 31, 2000 Mr. Calvin Lim, a director of the Company as of that date, was owed $203,733 for advances made to the Company to cover operating expenses. This advance was repaid as of January 31, 2000 by converting the debt into shares of the Company's Common Stock. Item 13. Exhibits and Reports on Form 8-K (a) Exhibits. The following exhibits are filed herewith: -------- Exhibit No. Description of Exhibit ------- ---------------------- 2.1 Plan of Reorganization and Merger Agreement, dated as of July 23, 1999, between the Registrant and Business Web, Inc. (4) 2.2 First Amendment to Plan of Reorganization and Merger Agreement, dated as of October 31, 1999, between the Registrant and Business Web, Inc. 2.3 Termination Agreement, dated as of December 27, 1999, between the Registrant and Business Web, Inc. 3.1 Certificate of Incorporation of the Registrant.(2) 3.2 Certificate of Amendment to Certificate of Incorporation of the Registrant.(1) 3.3 Bylaws of the Registrant.(2) 10.1 Promissory Note between the Company and A. Scott Dockter, dated April 2, 1997, for the principal amount of $100,000. (3) 10.2 Promissory Note between the Company and A. Scott Dockter, dated April 17, 1997, for the principal amount of $50,000. (3) 10.3 Promissory Note between the Company and A. Scott Dockter, dated April 30, 1997, for the principal amount of $20,000. (3) 10.4 Promissory Note between the Company and A. Scott Dockter, dated May 30, 1997, for the principal amount of $35,000. (3) 33 10.5 Promissory Note between the Company and A. Scott Dockter, dated December 24, 1998, for the principal amount of $24,000. (5) 10.6 Warrant to Purchase shares of Common Stock of Business Web, Inc. 27 Financial Data Schedule - ---------- (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 Commission on January 22, 1997. (2) Incorporated by reference to the Registrant's Registration Statement on Form SB-2 (File No. 33-49920) filed with the Commission on October 14, 1993. (3) Incorporated by reference to the Registrant Annual Report on Form 10-KSB for the fiscal year ended January 31, 1997 filed with the Commission on June 30, 1997. (4) Incorporated by reference to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended January 31, 1999, filed with the Commission on October 1, 1999. (5) Incorporated by reference to the 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. (b) Reports on Form 8-K ------------------- (1) The Registrant filed a Form 8-K with the Commission on March 19, 1997 reporting merger of Newgold, Inc. with Warehouse Auto Centers through the U.S. Bankruptcy Court, Western District of New York. (2) The Registrant filed a Form 8-K with the Commission on August 28, 1998 reporting the issuance of a Letter of Intent of Newgold, Inc. with Vauquelin Mines Ltd. Of Montreal, Canada. (3) The Registrant filed a Form 8-K with the Commission on September 17, 1998 reporting the resignation of KPMG, LLP as the Company's independent accountants. (4) The Registrant filed a Form 8-K with the Commission on June 8, 1999 reporting a 3:2 stock split required by a pending merger between the Company and Business Web Inc. (5) The Registrant filed a Form 8-K with the Commission on July 27, 1999 reporting the signing of the definitive merger agreement on July 26, 1999 between the Company and Business Web Inc. (6) The Registrant filed a Form 8-K with the Commission on November 2, 1999 reporting the extension of the expiration date to February 1, 2000 of the Plan of Reorganization and Merger Agreement, dated as of July 23, 1999, between the Registrant and Business Web, Inc. relating to the proposed and ultimately abandoned merger between the Registrant and Business Web, Inc. 34 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned; thereunto duly authorized, on May 16, 2000. NEWGOLD, INC. By: /s/James W. Kluber ------------------ James W. Kluber, Executive Vice President and Chief Financial 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/ James H. Cutburth Chief Executive Officer, May 16, 2000 - --------------------------- President, and James Cutburth Director /s/James W. Kluber Chief Financial Officer, May 16, 2000 - ------------------ Executive Vice President, and James W. Kluber Director (Principal Financial Officer) /s/ Jes Engelmann Chief Operating Officer, May 16, 2000 - ----------------------- Executive Vice President, and Jes Engelmann Director /s/ John Mackay Secretary and Director May 16, 2000 - ------------------------ John Mackay /s/ Pat Dane Director May 16, 2000 - ------------------ Pat Dane INDEX TO EXHIBITS Exhibit No. Description of Exhibit ------- ---------------------- 2.1 Plan of Reorganization and Merger Agreement, dated as of July 23, 1999, between the Registrant and Business Web, Inc. (4) 2.2 First Amendment to Plan of Reorganization and Merger Agreement, dated as of October 31, 1999, between the Registrant and Business Web, Inc. 2.3 Termination Agreement, dated as of December 27, 1999, between the Registrant and Business Web, Inc. 3.1 Certificate of Incorporation of the Registrant.(2) 3.2 Certificate of Amendment to Certificate of Incorporation of the Registrant.(1) 3.3 Bylaws of the Registrant.(2) 10.1 Promissory Note between the Company and A. Scott Dockter, dated April 2, 1997, for the principal amount of $100,000. (3) 10.2 Promissory Note between the Company and A. Scott Dockter, dated April 17, 1997, for the principal amount of $50,000. (3) 10.3 Promissory Note between the Company and A. Scott Dockter, dated April 30, 1997, for the principal amount of $20,000. (3) 10.4 Promissory Note between the Company and A. Scott Dockter, dated May 30, 1997, for the principal amount of $35,000. (3) 10.5 Promissory Note between the Company and A. Scott Dockter, dated December 24, 1998, for the principal amount of $24,000. (5) 10.6 Warrant to Purchase shares of Common Stock of Business Web, Inc. 27 Financial Data Schedule - ------------------------------------- (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 Commission on January 22, 1997. (2) Incorporated by reference to the Registrant's Registration Statement on Form SB-2 (File No. 33-49920) filed with the Commission on October 14, 1993. (3) Incorporated by reference to the Registrant Annual Report on Form 10-KSB for the fiscal year ended January 31, 1997 filed with the Commission on June 30, 1997. (4) Incorporated by reference to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended January 31, 1999, filed with the Commission on October 1, 1999. (5) Incorporated by reference to the 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.
INDEX TO FINANCIAL STATEMENTS Report of Burnett + Company LLP..................................................... F-1 Balance Sheet as of January 31, 2000................................................ F-2 Statements of Operations for the years ended January 31, 1999 and 2000 ............. F-3 Statements of Stockholders' Deficit for the years ended January 31, 1999 and 2000 .. F-4 Statements of Cash Flows for the years ended January 31, 1999 and 2000 ............. F-5 Notes to Financial Statements....................................................... F-6 to F-16
To the Board of Directors NEWGOLD, INC. Addison, Texas INDEPENDENT AUDITORS' REPORT ---------------------------- We have audited the accompanying balance sheet of NEWGOLD, INC. as of January 31, 2000 and the related statements of operations, stockholders' deficit and cash flows for the years ended January 31, 2000 and 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of NEWGOLD, INC. as of January 31, 2000, and the results of its operations and cash flows for the years ended January 31, 2000 and 1999 in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has been dependent primarily upon cash proceeds from private placement of its common stock. The Company anticipates that current working capital and anticipated revenues will not be sufficient to satisfy its future cash needs, and accordingly, the Company will need to raise additional capital in the near term. Currently, the Company has no commitments for additional funding. Management's plans in regard to these matters are also described in Note 1. These matters raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Rancho Cordova, California May 11, 2000 F-1 NEWGOLD, INC. BALANCE SHEET January 31, 2000 - -------------------------------------------------------------------------------- ASSETS CURRENT ASSETS Cash $ 2,163 Prepaid expenses 4,500 ------------ Total current assets 6,663 PROPERTY, PLANT AND EQUIPMENT, including undeveloped mineral properties of $827,105, net of $18,385 of accumulated depreciation 808,720 OTHER ASSETS Reclamation bonds 50,500 Investment in common stock warrants -0- ------------ Total assets $ 865,883 ============ LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES Account payable $ 373,228 Accrued expenses 442,867 Accrued reclamation costs 50,500 Notes payable to individuals and related parties 494,992 ------------ Total current liabilities 1,361,587 DEFERRED REVENUE 800,000 ------------ Total liabilities 2,161,587 STOCKHOLDERS' DEFICIT Common stock, $.001 par value, 50,000,000 shares authorized, 41,122,703 shares issued and outstanding 41,122 Additional paid in capital 9,198,891 Accumulated deficit (10,535,717) ------------ Total stockholders' deficit (1,295,704) ------------ Total liabilities and stockholders' deficit $ 865,883 ============ The accompanying notes are an integral part of the financial statements. F-2 NEWGOLD, INC. STATEMENTS OF OPERATIONS For the Years Ended January 31, 2000 and January 31, 1999 - -------------------------------------------------------------------------------- Year Ended Year Ended January 31, January 31, 2000 1999 ------------- ------------- SALES Net sales -0- -0- Cost of sales -0- -0- ------------- ------------- Gross margin -0- -0- OPERATING EXPENSES General and administrative expenses 714,287 508,603 Impairment of assets 11,371 -0- Exploration costs 45,022 153,064 ------------- ------------- Total operating expenses 770,680 661,667 ------------- ------------- Loss from operations (770,680) (661,667) OTHER INCOME (EXPENSE) Interest income 2 15 Other expense -0- (3,000) Interest expense (131,698) (67,567) Loss on disposal of property, plant and equipment (17,359) -0- Loss on disposal of bond -0- (21,000) ------------- ------------- (149,055) (91,552) ------------- ------------- NET LOSS $ (919,735) $ (753,219) ============= ============= LOSS PER SHARE (after giving effect to the Three-for-two stock split declared on June 8, 1999 - See Note 7) (.02) (.02) ------------- ------------- WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING (after giving effect to the Three-for-two stock split declared on June 8, 1999 - See Note 7) 38,138,200 36,275,997 ============= ============= The accompanying notes are an integral part of the financial statements. F-3 NEWGOLD, INC. STATEMENTS OF STOCKHOLDERS' DEFICIT For the Years Ended January 31, 2000 and January 31, 1999 - -------------------------------------------------------------------------------- Common Common Additional Total Stock Stock Paid in Accumulated Shareholders' Shares $ Capital Deficit Deficit --------------------------------------------------------------- Balances, January 31, 1998 19,462,611 $ 19,463 $ 7,328,779 $ (8,862,763) $(1,514,521) Shares issued in exchange for rent 15,000 15 5,985 -0- 6,000 Shares issued to IBK 5,616,977 5,617 542,383 -0- 548,000 Shares issued in exchange for property 150,000 150 55,350 -0- 55,500 Net loss for period from February 1,1998 to January 31, 1999 -0- -0- -0- (753,219) (753,219) ----------- ----------- ----------- ----------- ----------- Balances, January 31, 1999 25,244,588 25,245 7,932,497 (9,615,982) (1,658,240) =========== =========== =========== =========== =========== Three-for-two stock split 12,672,441 12,671 (12,671) -0- -0- Shares issued in exchange for debt conversion 3,205,674 3,206 1,279,065 -0- 1,282,271 Net loss for period from February 1, 1999 to January 31, 2000 -0- -0- -0- (919,735) (919,735) ----------- ----------- ----------- ----------- ----------- Balances, January 31, 2000 41,122,703 $ 41,122 $ 9,198,891 $(10,535,717) $(1,295,704) =========== =========== =========== =========== ===========
The accompanying notes are an integral part of the financial statements. F-4 NEWGOLD, INC. STATEMENTS OF CASH FLOWS For the Years Ended January 31, 2000 and January 31, 1999 Year Ended Year Ended January 31, January 31, 2000 1999 ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (919,735) $ (753,219) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 15,852 17,709 Loss on disposal of property, plant and equipment 17,359 -0- Impairment in value of property, plant and equipment 11,371 -0- Assigned value of common stock -0- 61,500 Loss on disposal of bond -0- 21,000 Gain on write off of note payable -0- (7,000) Changes in operating assets and liabilities: Prepaid expenses (2,900) -0- Reclamation bonds -0- 185,000 Other assets -0- (621) Accounts payable (42,500) (250,847) Accrued expenses (51,036) 223,234 Accrued reclamation costs -0- (25,000) ------------- ------------- Net cash used in operating activities (971,589) (528,244) ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES Repayment of advances -0- (38,140) Proceeds from issuance of notes payable 1,222,118 62,321 Payments on notes payable (249,252) (45,361) Proceeds from issuance of common stock 548,000 ------------- ------------- Net cash provided by financing activities 972,866 526,820 ------------- ------------- NET DECREASE IN CASH 1,277 (1,424) CASH, beginning of year 886 2,310 ------------- ------------- CASH, end of year $ 2,163 $ 886 ============= ============= SUPPLEMENTAL DISCLOSURES REGARDING CASH FLOWS Cash paid for interest $ 49,000 $ 3,215 ============= ============= Cash paid for income taxes $ -0- $ -0- ============= ============= The accompanying notes are an integral part of the financial statements. F-5 NEWGOLD, INC. NOTES TO THE FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Company's Activities - NEWGOLD, INC. ("the Company") was formerly 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. Subsequent to January 31, 2000 the Company has entered into a contract to sell its assets and leasehold interests in the Relief Canyon Mine. This sale would bring an end to all of the Company's prior gold mining activities (See Note 11). In February 2000 the Company began to implement an entirely new business model of investing in Internet companies. Specifically, the Company is now actively engaged in the investment in and incubation of business-to-business, e-commerce, and application service provider companies, described as partner or portfolio companies. The Company will provide partner companies core services through direct investment and the creation of strategic relationships. These key, functionally oriented core services are in technology innovation and development, strategic sales and marketing, recruiting and human resources, legal, and finance and accounting. The goal is to create an incubation environment for portfolio companies that enables them to emerge in the shortest time possible as successful Internet firms withstanding the traditional tests for investment: profitability and time. Basis for Presentation - The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The Company's current plans are to suspend development and operation of the Relief Canyon Mine and to keep the mine on care and maintenance status until the Company receives additional funding. Currently, the Company's plans indicate that it will be unable to continue operating unless it receives significant additional funding. Management is exploring various means of raising additional capital. Strategic alternatives being considered include: (i) entering into an agreement to merge with another company, (ii) the sale of Company assets, (iii) the sale of Relief Canyon Mine to another entity to develop the mine, and (iv) conversion of certain debt to equity. There can be no assurance that the Company will be successful in its attempts to consummate one or more of these strategic alternatives. Failure to do so will necessitate that the Company curtail its plans and cease its operations. (See Note 11). F-6 NEWGOLD, INC. NOTES TO THE FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued Currency - The Company presents its financial statement information in United States dollars as all of its assets and operations are located in the United States. Cash and Cash Equivalents - For financial statement purposes, the Company considers all highly liquid instruments with original maturities of 90 days or less to be cash equivalents. Property Plant, and Equipment - Depreciation, depletion and amortization of mining properties, mine development costs and major plant facilities will be computed principally by the units-of-production method based on estimated proven and probable ore reserves. Proven and probable ore reserves reflect estimated quantities of ore which can be economically recovered in the future from known mineral deposits. Such estimates are based on current and projected costs and prices. Other equipment is depreciated using the straight-line method principally over the estimated useful life of seven years. Exploration Costs - Exploration costs are expensed as incurred. All costs related to property acquisitions are capitalized. Mine Development Costs - Mine development costs consist of all costs associated with bringing mines into production, to develop new ore bodies and to develop mine areas substantially in advance of current production. The decision to develop a mine is based on assessment of the commercial viability of the property and the availability of financing. Once the decision to proceed to development is made, development and other expenditures relating to the project will be deferred and carried at cost with the intention that these will be depleted by charges against earnings from future mining operations. No depreciation will be charged against the property until commercial production commences. After a mine has been brought into commercial production, any additional work on that property will be expensed as incurred, except for large development programs, which will be deferred and depleted. Financing Costs - Financing costs, including interest, are capitalized when they arise from indebtedness incurred to finance development and construction activities on properties that are not yet subject to depreciation or depletion. Financing costs are charged against earnings from the time that mining operations commence. Capitalization is based upon the actual interest on debt specifically incurred or on the average borrowing rate for all other debt except where shares are issued to fund the cost of the project. As of January 31, 2000, an aggregate of $45,441 of interest has been capitalized. F-7 NEWGOLD, INC. NOTES TO THE FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued Depreciation, Depletion and Amortization - Assets other than mining properties and mineral rights are depreciated using the straight-line method over their estimated useful lives. Capitalized development costs are amortized on the units of production method considering proven and probable reserves. Depreciation and depletion rates are subject to periodic review to ensure that asset costs are amortized over their useful lives. Impairment - Mining projects and properties are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. If estimated future cash flows expected to result from the use of the mining project or property and its eventual disposition are less than the carrying amount, an impairment is recognized based on the estimated fair market value of the mining project or property. Fair value generally is based on the present value of estimated future net cash flows for each mining project or property, calculated using estimates of proven and probable mineable reserves, geological resources, future prices, operating costs, capital requirements and reclamation costs. A provision for impairment in valuation of development costs and property, plant and equipment amounted to $3,311,672 for the year ended January 31, 1998 and was charged to operating expense. The remaining book value of the mine after the impairment write-down approximates the amount of deferred revenue recognized upon the sale of the net smelter return royalty. A provision for impairment in valuation of development costs and property, plant and equipment amounted to $11,371 for the year ended January 31, 2000 and was charged to operating expense. Management's estimates of future cash flows are subject to risks and uncertainties. Therefore, it is reasonably possible that changes could occur which may affect the recoverability of the Company's investment in mineral properties. Reclamation Costs - Reclamation costs and related accrued liabilities, which are based on the Company's interpretation of current environmental and regulatory requirements, are accrued and expensed, upon determination. Based on current environmental regulations and known reclamation requirements, management has included its best estimates of these obligations in its reclamation accruals. However, it is reasonably possible that the Company's best estimates of its ultimate reclamation liabilities could change as a result of changes in regulations or cost estimates. Revenue Recognition - Revenues will be recognized when deliveries of gold are made. Deferred revenue represents non-refundable cash received in exchange for royalties on net smelter returns on the Relief Canyon Mine. Deferred revenue will be amortized to earnings based on estimated production in accordance with the royalty agreement (See Note 9). F-8 NOTES TO THE FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued Income Taxes - The Company accounts for income taxes using the liability method, which requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the deferred tax assets are recorded to the extent management estimates that the future benefit will be realized. Significant differences include deferred revenue and valuation allowances recorded on property, plant and eqipment. Loss Per Share - Loss per share is calculated based on the weighted average number of common shares outstanding during each period. Estimates, Risks and Uncertainties - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Fair Vale of Financial Instruments - The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of SFAS No. 107, "Disclosures about Fair Value of Financial Instruments." The estimated fair value amounts have been determined by the Company, using available market information and appropriate valuation methodologies. The fair value of financial instruments classified as current assets or liabilities including cash and cash equivalents, receivables and accounts payable approximate carrying value due to the short-term maturity of the instruments. The fair value of notes payable approximates carrying value based on their effective interest rates compared to current market rates. F-9 NEWGOLD, INC. NOTES TO THE FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 2. PROPERTY, PLANT AND EQUIPMENT A summary of changes in property, plant and equipment and related accumulated depreciation accounts is as follows: Machinery & Development Capitalized Buildings Equipment Costs Interest Total ------------- ----------- ----------- ----------- ----------- Cost: Balances at January 31, 1999 $ 215,510 $ 376,070 $ 261,742 $ 45,441 $ 898,763 Additions -0- -0- -0- -0- -0- Disposals, retirements and reclassifications -0- (71,658) -0- -0- (71,658) ------------- ----------- ----------- ----------- ----------- Balances at January 31, 2000 215,510 304,412 261,742 45,441 827,105 ============= =========== =========== =========== =========== Accumulated depreciation: Balances at January 31, 1999 -0- 45,461 -0- -0- 45,461 Depreciation and amortization -0- 15,852 -0- -0- 15,852 Disposals, retirements and reclassifications -0- (42,928) -0- -0- (42,928) ------------- ----------- ----------- ----------- ----------- Balances at January 31, 2000 -0- 18,385 -0- -0- 18,385 ============= =========== =========== =========== =========== Property, plant and equipment, net, January 31, 2000: Relief Canyon Mine 215,510 277,307 261,742 45,441 800,000 Other -0- 8,720 -0- -0- 8,720 ------------- ----------- ----------- ----------- ----------- Total Company $ 215,510 $ 286,027 $ 261,742 $ 45,441 $ 808,720 ============= =========== =========== =========== ===========
3. INVESTMENT IN COMMON STOCK WARRANTS The Company received warrants to purchase 3,132,794 shares of Business Web, Inc. common stock as a merger termination fee upon the decision of Business Web, Inc. not to proceed with their proposed merger with the Company. These warrants have an exercise price of $3 per share and expire one year after the closing of an underwritten initial public offering of Business Web, Inc. common stock. The Company has recorded this investment at $0 as the value of the warrants is not determinable as Business Web, Inc. is a privately held company with no ready market for their common stock or warrants. F-10 NEWGOLD, INC. NOTES TO THE FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 4. NOTES PAYABLE TO INDIVIDUALS AND RELATED PARTIES Unsecured notes payable to individuals and related parties consist of the following at January 31, 2000: Loan from individual. The note bears interest at 10% per year. The note is currently due. The Company is in default with respect to this loan. $ 200,000 A judgment payable to an individual was rendered on October 23, 1997. The judgment accrues interest at 10% per year until paid. The Company is in default with respect to this judgment. 250,000 Other non-interest bearing advances 44,992 ------------- Total notes payable to individuals and related parties $ 494,992 ============= The Company recorded $96,646 of interest expense in the current period. No interest was capitalized during the years ended January 31, 2000 and 1999. 5. LEASES Except for the advance royalty and rent payments noted below, the Company is not obligated under any capital leases or noncancelable operating lease with initial or remaining lease terms in excess of one year as of January 31, 2000. However, minimum annual royalty payments are required to retain the lease rights to the Company's properties. Relief Canyon Mine - The Company purchased the Relief Canyon Mine from J.D. Welsh Associates (Welsh) in January 1995. The mine consisted of 39 claims and a lease for access to an additional 800 acres contiguous to the claims. During 1997, the Company staked an additional 402 claims. Subsequent to January 31, 1998, the Company reduced the total claims to 50 (approximately 1,000 acres). As part of the original purchase of Relief Canyon Mine, Welsh assigned the lease from Santa Fe Gold Corporation (Santa Fe) to the Company. The lease granted Santa Fe the sole right of approval of transfer to any subsequent owner of the Relief Canyon Mine. Santa Fe had accepted lease and minimum royalty payments from the Company, but has declined to approve the transfer. Due to Welsh's inability to transfer the Santa Fe lease, the original purchase price of $500,000 for Relief Canyon Mine was reduced by $50,000 in 1996 to $450,000. During 1998, the lease was terminated by Santa Fe covering a portion of the claims at Relief Canyon. 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. F-11 NEWGOLD, INC. NOTES TO THE FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 6. INCOME TAXES As of January 31, 2000 and 1999, the Company had net operating loss carryforwards of approximately $5,470,000 and $4,550,000 available to reduce future Federal taxable income which, if not used, will expire at various dates through January 31, 2020. Due to changes in the ownership of the Company, the utilization of these loss carryforwards may be subject to substantial annual limitations. Deferred tax assets (liabilities) are comprised of the following at January 31, 2000 and 1999: January 31, January 31, 2000 1999 ------------- ------------- Deferred tax assets: Net operating loss carryforwards $ 1,863,000 $ 1,550,000 Deferred revenue 280,000 280,000 Impairment of value on Relief Canyon Mine 1,120,000 1,120,000 Valuation allowance for deferred tax assets (3,263,000) (2,950,000) ------------- ------------- Net deferred tax assets $ -0- $ -0- ============= ============= The net change in the total valuation allowance for the years ended January 31, 2000 and 1999 was $313,000 and $220,000, respectively. The valuation allowance is provided to reduce the deferred tax asset to a level which, more likely than not, will be realized. The expected Federal income tax benefit, computed based on the Company's pre-tax losses at January 31, 2000 and 1999 and the statutory Federal income tax rate, is reconciled to the actual tax benefit reflected in the accompanying financial statements as follows: January 31, January 31, 2000 1999 ------------- ------------- Expected tax benefit at statutory rates $ 313,000 $ 256,000 Decrease resulting from valuation allowance for benefits from net operating loss carryforwards and other (313,000) (256,000) ------------- ------------- Total $ -0- $ -0- ============= ============= Previous to June 21, 1996, the stockholder of the Company elected under Internal Revenue Code Section 1362 to have the Company taxed as an S Corporation. As such, all Federal and substantially all State income tax attributes passed through the Company directly to the stockholder until that date. F-12 NEWGOLD, INC. NOTES TO THE FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 7. STOCKHOLDERS' EQUITY The following common stock transactions occurred during the years ended January 31, 2000 and 1999: At a January 2000 meeting of the Board of Directors, it was 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 (See Note 9). 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. The weighted average shares outstanding and the loss per share for the years ended January 31, 2000 and 1999 have been presented giving effect to this stock split. 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 for 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-13 NEWGOLD, INC. NOTES TO THE FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 8. COMMITMENTS, CONTINGENCIES AND UNCERTAINTIES Environmental Obligations - The Company's mining and exploration activities are subject to various federal and state laws and regulations governing the protection of the environment. These laws and regulations are continually changing and are generally becoming more restrictive. The Company strives to conduct its operations so as to protect the public health and environment and believes its operations are in compliance with all applicable laws and regulations. The Company has made, and expects to make in the future, expenditures to comply with such laws and regulations. Reclamation Costs - The ultimate amount of reclamation obligations to be incurred is uncertain. However, as of January 31, 1998, the Company has accrued $50,500 for Relief Canyon Mine and $25,000 for its Washington Gulch site. Relief Canyon Mine and Washington Gulch are bonded for $50,500 and $206,000, respectively. At January 31, 1999, the Company had accrued reclamation cost of $50,500. There can be no assurances given that the above estimate accurately reflects the actual costs of all reclamation activities that may be required. In July 1998, the Company sold its interest in the Washington Gulch Mine and related reclamation bond for $185,000. The Company was also relieved of any future liability in connection with the Washington Gulch Mine. Legal - The Company is involved in various other claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate dispositions of these matters will not have a material adverse effect on the Company's financial position, results or operations or liquidity. 9. RELATED PARTY TRANSACTIONS Advances from Stockholder - As of January 31, 1999, A. Scott Dockter, President and Chairman of the Company, loaned the Company an aggregate of $229,100 and was repaid $111,988. During the year ended January 31, 2000, A. Scott Dockter loaned the Company $73,103 and was repaid $98,869. As of January 31, 2000 the net balance owing to A. Scott Dockter was $108,081, including accrued interest of $34,489, this was converted into 270,202 shares of stock issued to him during January 2000. As of January 31, 2000 the net balance owing to two relatives of A. Scott Dockter was $26,028, including accrued interest of $2,028, this was converted into 65,067 shares of stock issued to them during January 2000. Accrued Payroll to Stockholder - As of January 31, 2000 the Company owed A. Scott Dockter $277,722 for back wages and accrued interest thereon, this was converted into 694,305 shares of stock issued to him during January 2000. Due to Affiliate - As of January 31, 2000 the Company owed $92,174 to Riverfront Development, Inc. for equipment purchases. Riverfront Development, Inc. is a related entity owned by A. Scott Dockter, this was converted into 230,436 shares of stock issued to him during January 2000. F-14 NEWGOLD, INC. NOTES TO THE FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 9. RELATED PARTY TRANSACTIONS, Continued Note Payable to Stockholder - During the year ended January 31, 2000, Calvin Lim, a stockholder and board member, advanced the Company $201,000 and was repaid $150,000. At January 31, 2000 the Company owed Mr. Lim $203,733 (including accrued interest of $47,733), this was converted into 509,333 shares of stock issued to him during January 2000. Note Payable to Stockholder - At January 31, 2000 the Company owed Edward Mackay, a stockholder and board member, $49,533 (including accrued interest of $6,942), this was converted into 123,831 shares of stock issued to him during January 2000. Advances from Stockholders - During the year ended January 31, 2000, four stockholders repaid a note payable to Business Web, Inc. in the amount of $525,000. At January 31, 2000 the Company issued these stockholders 1,312,500 shares of stock in exchange for the debt repayment during January 2000. Advances from Stockholder - Included in notes payable to individuals and related parties is $32,492 advanced by the former Chief Financial Officer during the year ended January 31, 2000 to pay operating expenses. Relief Canyon Mine - During 1996, Repadre Capital Corporation ("Repadre") purchased for $500,000 a net smelter return royalty (Repadre Royalty). Repadre was to receive a 1.5% royalty from production at each of the Relief Canyon Mine and Mission Mines. In July 1997, an additional $300,000 was paid by Repadre for and additional 1% royalty from the Relief Canyon Mine. In October, 1997, when the Mission Mine lease was terminated, Repadre exercised its option to transfer the Repadre Royalty solely to the Relief Canyon Mine resulting in a total 4% royalty. The total amount received of $800,000 has been recorded as deferred revenue in the accompanying financial statements. 10. SUPPLEMENTAL CASH FLOWS Non-cash transactions for the year ended January 31, 2000 consist of the issuance of 3,205,674 share of common stock as settlement of notes, advances and accrued expenses payable totaling $1,282,271 (Note 7). The Company also received warrants to purchase common stock in Business Web, Inc. as a merger termination fee (Note 3). Non-cash transactions for the year ended January 31, 1999 consist of the assigned value of common stock issued and returned in the amount of $61,500, which consists of 15,000 shares issued for $6,000 of rent and 150,000 shares issued for $55,500 in exploration costs. F-15 NEWGOLD, INC. NOTES TO THE FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 11. SUBSEQUENT EVENTS In February 2000, the Company closed a private placement offering for 1,200,000 shares to raise $600,000 at $.50 per share. Additionally, a warrant was issued with each share to purchase an additional share of common stock at $1 per share. The warrants expire four years from the original date of closing. In connection with this offering $60,000 were paid as commission to brokers. In April 2000, the Chairman of the Board of Directors and another board member resigned from the Board. As permitted by the by-laws of the Company the remaining directors elected a new Chairman, and three additional directors were elected at that time. In April 2000, the Company announced that it has signed a contract for the sale of its Relief Canyon Mining Project including all mining assets, leaseholds and subject to the related net smelter return royalty due to Repadre (see Note 9). The sale is expected to close in June 2000 and will be sold to an affiliate of the former Chairman of the Company. The sales price is $960,000 and the Company will receive an equivalent amount of it shares based on the most recent 10-day average closing bid price of its stock prior to closing. A separate independent valuation of the Company's Relief Canyon assets will be performed to insure that at minimum a fair market value is received. See Notes 2, 5, 8 and 9. In April 2000, the Company closed a private placement offering for 500,000 shares to raise $500,000 at $1.00 per share. Additionally, a warrant was issued with each share to purchase an additional share of common stock at $1 per share. The warrants expire four years from the original date of closing. In connection with this offering $45,000 were paid and 50,000 warrants issued with the same terms as those above as commission to brokers. In April 2000, the $200,000 note payable and the $250,000 judgment payable (see Note 4) were settled and paid off in full by a shareholder of the company. The total balances due including interest and legal fees had grown to approximately $650,000 at the time of settlement. The shareholder has received an additional 650,000 shares of stock as reimbursement for the payment of these amounts on behalf of the Company. F-16 EX-2.2 2 FIRST AMENDMENT TO PLAN OF REORGANIZATION Exhibit 2.2 FIRST AMENDMENT --------------- to PLAN OF REORGANIZATION AND MERGER AGREEMENT This First Amendment (the "First Amendment") dated effective as of October 31, 1999, to the Plan of Reorganization and Merger Agreement dated effective as of July 23, 1999 (the "Agreement"), is made and entered into by and between NEWGOLD, INC., a Delaware corporation (the "Company") and BUSINESS WEB, INC., a Texas corporation doing business as "Comercis, Inc." ("BWI"), and amends the Agreement as set forth herein. All capitalized terms used but not otherwise defined herein shall have the respective meanings that are assigned to such terms in the Agreement. WITNESSETH: WHEREAS, pursuant to Article XIV of the Agreement, the Agreement will terminate automatically if the Merger shall not become effective on or prior to October 31, 1999, unless the parties hereto, acting pursuant to the authority of their respective boards of directors, shall have otherwise agreed in writing on or prior to that date to extend such date; WHEREAS, pursuant to Section 6.04 of the Agreement, on or before July 23, 1999, the Company was required to file with the SEC an application on Form S-4 seeking the registration of newly issued shares of Company Stock; WHEREAS, pursuant to Section 6.05 of the Agreement, on or before July 23, 1999, the Company was required to (a) prepare a notice of special meeting of stockholders and proxy statement in connection therewith seeking approval of, among other things, the Merger; and (b) deliver a copy of the notice of special meeting and proxy statement to BWI for its review and comment; WHEREAS, the Company was delayed in performing its obligations under Sections 6.04 and 6.05 for reasons that are justifiable and acceptable to BWI; WHEREAS, the Company and BWI acknowledge that the Merger will not become effective on or before October 31, 1999; WHEREAS, the Company expects to perform its obligations under Section 6.04 and 6.05 on or before December 1, 1999; WHEREAS, the Company and BWI mutually desire to continue with the Merger; 1 WHEREAS, the Company and BWI therefore mutually desire to extend (a) the periods in which the Company is obligated to perform its obligations under Sections 6.04 and 6.05; and (b) the date before which the Merger must become effective; WHEREAS, the Agreement has not yet been submitted to the shareholders of either the Company or BWI for their approval; and WHEREAS, pursuant to Article XIII, the boards of directors of the Company and BWI may amend the Agreement without seeking shareholder approval if the Agreement has not theretofore been approved by the shareholders of the respective companies; NOW, THEREFORE, in consideration of the foregoing premises and of the mutual covenants and undertakings contained herein, and for such other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties to this First Amendment hereby agree as follows: ARTICLE I AMENDMENTS 1.01. Obligations of the Company. Sections 6.04 and 6.05 are hereby amended by deleting the date July 23, 1999, wherever it appears and by substituting in each such place the date December 1, 1999. 1.02. Effective Date of Merger. Article XIV is hereby amended by deleting the date October 31, 1999, and by substituting in its place the date January 1, 2000. 1.03. Other Provisions Not Affected. No other provision, term, representation, warranty, obligation, or condition of the Agreement shall be affected as a result of this First Amendment, and the parties hereby mutually affirm and ratify the Agreement as amended by this First Amendment. [The remainder of this page left intentionally blank] 2 IN WITNESS WHEREOF, the duly authorized officers of the parties hereto have caused this First Amendment to be executed as of the date first written above. BUSINESS WEB, INC. (Doing Business As Comercis, Inc.) ------------------------------------ Mr. Chris M. Meaux, President and CEO ------------------------------------ Mr. Robert W. Gallagher, CFO NEWGOLD, INC. ------------------------------------ Mr. A. Scott Dockter, President and CEO ------------------------------------ Mr. Robert W. Morris, CFO 3 EX-2.3 3 TERMINATION AGREEMENT Exhibit 2.3 TERMINATION AGREEMENT This Termination Agreement (this "Agreement") is entered into as of December 27, 1999 (the "Effective Date"), by and between NewGold, Inc., a Delaware corporation ("NewGold"), and Business Web, Inc., a Texas corporation doing business as "Comercis, Inc." ("Comercis"). (NewGold and Comercis are each sometimes referred to herein as a "Party" and collectively as the "Parties"). RECITALS -------- A. WHEREAS, NewGold and Comercis have entered into a Plan of Reorganization and Merger Agreement, dated as of July 23, 1999, a copy of which is attached as Exhibit A hereto (the "Merger Agreement"), pursuant to which Comercis was to be merged with and into NewGold upon the terms and conditions set forth therein (the "Merger"); B. WHEREAS, NewGold and Comercis have entered into that certain First Amendment to Plan of Reorganization and Merger Agreement, dated as of October 30, 1999, a copy of which is attached as Exhibit B hereto (the "First Amendment"), pursuant to which certain time periods relating to the Merger were extended upon the terms and conditions set forth therein; C. WHEREAS, the Parties desire to terminate the Merger Agreement and the First Amendment upon the terms and conditions set forth in this Agreement; D. WHEREAS, the respective Boards of Directors of the Parties have approved the execution, delivery and performance of this Agreement and the termination of the Merger Agreement and the First Amendment upon the terms and conditions set forth herein; and E. WHEREAS, Comercis has loaned to NewGold an aggregate of $435,000 (the "Comercis Loan") and has agreed to pay on behalf of NewGold an aggregate of $98,796 in attorneys' fees and costs incurred by NewGold in connection with the Merger Agreement and the transactions contemplated thereby (the "NewGold Attorneys' Fees"); NOW, THEREFORE, in consideration of the mutual covenants herein and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Parties agree as follows: AGREEMENT --------- 1. Termination. The Merger Agreement and the First Amendment are each hereby terminated as of the Effective Date of this Agreement (the "Termination Date"), subject to the terms and conditions of this Agreement. The Parties hereby release each other of and shall not hereafter owe any obligations to each other under the Merger Agreement and the First Amendment except as specifically set forth herein. 2. Waiver of Post-Termination Rights. Effective upon the Termination Date, the Parties hereby waive any rights they may have pursuant to the terms of the Merger Agreement and the First Amendment after the termination thereof, provided, however, that any obligations of confidentiality set forth in the Merger Agreement, the First Amendment or any other agreement between the Parties shall survive the Termination Date. 3. Issuance of Warrant. As partial consideration for the execution and delivery of this Agreement, Comercis shall, contemporaneously with the execution and delivery of this Agreement, execute and deliver to NewGold a warrant (the "Warrant") to purchase an aggregate of 3,132,794 shares of Common Stock of Comercis at a purchase price of $3.00 per share. The Warrant shall, at the sole option of NewGold, be transferable in whole or in part, subject to compliance with applicable federal and state securities laws. The Warrant shall have such other terms and conditions substantially as set forth in the form of Warrant attached as Exhibit C hereto. 4. Secured Promissory Note. As full repayment of the Comercis Loan and the payment by Comercis of the NewGold Attorneys' Fees, NewGold shall, contemporaneously with the execution and delivery of this Agreement, issue to Comercis a Promissory Note in the principal amount of $525,000 substantially in the form of Exhibit D attached hereto (the "NewGold Note"). 5. Mutual General Releases. Each Party, on its own behalf and on behalf of its successors or assigns, hereby releases and forever discharges the other Party and the other Party's officers, directors, employees, agents, attorneys, successors and assigns, from all debts, demands, actions, causes of action, suits, accounts, covenants, contracts, agreements (except for the provisions of this Agreement and except as set forth in Section 2 hereof), damages, and any and all claims, demands and liabilities whatsoever, in law or in equity, whether now known or unknown, suspected or unsuspected, that such Party has or ever had until the Termination Date, insofar as such debts, demands, actions, causes of action, suits, accounts, covenants, contracts, agreements or damages relate to or arise from the Merger Agreement and/or the First Amendment (collectively, the "Released Matters"). In connection with such waiver and relinquishment, each of the Parties acknowledges that it is aware that it or its attorneys or accountants or other agents may hereafter discover claims or facts in addition to or different from those which it now knows or believes to exist with respect to the subject matter of the Merger Agreement and the First Amendment or the other Parties, but that it intends fully, finally and forever to settle and release all of the Released Matters. In furtherance of this intention, the release given herein shall be and remain in effect as a full and complete release notwithstanding the discovery or existence of any additional or different claims or facts. 6. Further Assurances. Each of the Parties agrees, without the need for additional consideration, that it will take such further actions and execute upon request any further documents as may be reasonably required to fully effectuate the terms, conditions and intent of this Agreement and to fully vest in the other Party(ies) the rights and other benefits provided to such other Party hereunder. 7. Transfer of Obligations. This Agreement shall be binding upon the Parties and their respective heirs, legal representatives, successors and assigns. 2 8. Severability. In the event that any provision of this Agreement shall be held unenforceable or invalid, such provision shall be amended and interpreted so as to best accomplish the economic objectives of the original provision. The other parts of the Agreement shall remain in full force and effect. 9. Governing Law. This Agreement shall be governed in all respects by the laws of the State of Texas. 10. Amendments. This Agreement shall not be modified or amended in any manner except in a writing signed by both Parties. 11. Counterparts. This Agreement may be executed in any number of counterparts and each executed counterpart shall have the same force and effect as an original instrument. 12. Entire Agreement. This Agreement constitutes and expresses the entire agreement of the Parties with respect to the subject matter hereof, and all prior or collateral discussions, proposals, negotiations and representations, are merged into and superseded by this Agreement. [SIGNATURES ON FOLLOWING PAGE] 3 IN WITNESS WHEREOF, the Parties have caused their duly authorized individuals to execute this Agreement. NEWGOLD, INC. By: ----------------------------------- Name: A. Scott Dockter Title: President BUSINESS WEB, INC. By: ----------------------------------- Name: Chris Meaux Title: Chief Executive Officer 4 EXHIBIT A MERGER AGREEMENT [attached] EXHIBIT B FIRST AMENDMENT [attached] EXHIBIT C FORM OF WARRANT [attached] EXHIBIT D NEWGOLD NOTE [attached] EX-10.6 4 WARRANT TO PURCHASE COMMON STOCK Exhibit 10.6 THE SECURITIES EVIDENCED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF SUCH SECURITIES REASONABLY SATISFACTORY TO THE COMPANY STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT. No. December 27, 1999 --------------- WARRANT TO PURCHASE COMMON STOCK OF BUSINESS WEB, INC. 1. Number of Shares Subject to Warrant. FOR VALUE RECEIVED, on and after the date of this Warrant, and subject to the terms and conditions herein set forth, Holder (as defined below) is entitled to purchase from Business Web, Inc., a Texas corporation doing business as "Comercis, Inc." (the "Company"), at any time before 5:00 p.m., California time, on the Termination Date (as defined below), at a price per share equal to the Warrant Price (as defined below), the Warrant Stock (as defined below and subject to adjustments as described below) upon exercise of this Warrant pursuant to Section 6 hereof. 2. Definitions. As used in this Warrant, the following terms shall have the definitions ascribed to them below: (a) "Holder" shall mean NewGold, Inc., a Delaware corporation, and its assigns. (b) "Securities" shall mean the Common Stock of the Company, together with such other securities or property that may become issuable upon exercise of this Warrant as described in Section 3 below. (c) "Termination Date" shall mean the date that is one (1) year after the closing of an underwritten initial public offering of shares of Common Stock of the Company. (d) "Warrant Price" shall be equal to $3.00 per share, subject to adjustment as described in Section 3 below. (e) "Warrant Stock" shall mean the 3,132,794 shares of Securities purchasable upon exercise of this Warrant, subject to adjustment as described in Section 3 below. 3. Adjustments and Notices. The Warrant Price and the number of shares of Warrant Stock shall be subject to adjustment from time to time in accordance with the following provisions: (a) Subdivision, Stock Dividends or Combinations. In case the Company shall at any time subdivide the outstanding shares of the Securities or shall issue a dividend in the form of Securities with respect to the Securities, the Warrant Price in effect immediately prior to such subdivision or the issuance of such dividend shall be proportionately decreased, and the number of shares of Warrant Stock purchasable immediately prior to such subdivision or issuance of dividend shall be proportionately increased, and in case the Company shall at any time combine the outstanding shares of the Securities, the Warrant Price in effect immediately prior to such combination shall be proportionately increased, and the number of Warrant Stock purchasable immediately prior to such combination shall be proportionately decreased, effective at the close of business on the date of such subdivision, dividend or combination, as the case may be. (b) Reclassification, Exchange, Substitute, In-Kind Distribution. Upon any reclassifications, exchange, substitution or other event that results in a change of the number and/or class of the securities issuable upon exercise or conversion of this Warrant or upon the payment of a dividend in securities or property other than Securities, the Holder shall be entitled to receive, upon exercise or conversion of this Warrant, the number and kind of securities and property that Holder would have received if this Warrant had been exercised immediately before the record date for such reclassification, exchange, substitution or other event or immediately prior to the record date for such dividend. The Company or its successor shall promptly issue to Holder a new Warrant for such new securities or other property. The new Warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 3 including, without limitation, adjustments to the Warrant Price and to the number of securities or property issuable upon exercise of the new Warrant. The provisions of this Section 3(b) shall similarly apply to successive reclassifications, exchanges, substitutions or other events and successive dividends. (c) Reorganization, Merger, etc. In case of any (i) merger or consolidation of the Company into or with another corporation, (ii) sale, transfer or lease (but not including a transfer or lease by pledge or mortgage to a bona fide lender) of all or substantially all of the assets of the Company, or (iii) sale by the Company's shareholders of 50% or more of the Company's outstanding securities in one or more related transactions, the Company, or such successor or purchasing corporation, as the case may be, shall, as a condition to the consummation of any such reorganization, merger or sale, duly execute and deliver to the Holder hereof a new warrant such that the Holder shall have the right to receive, in lieu of the shares of the Securities theretofore issuable upon exercise of this Warrant, the kind and amount of shares of stock, other securities, money and property to which such Holder would have been entitled upon such consummation if such Holder had exercised this Warrant immediately prior to the consummation of such reorganization, merger, or sale. Such new warrant shall provide for adjustments that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 3. The provisions of this subparagraph (c) shall similarly apply to successive reorganizations, mergers and sales. 2 (d) No Impairment. The Company shall not, by amendment of its Articles or Certificate of Incorporation or through a reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed under this Warrant by the Company, but shall at all times in good faith assist in carrying out of all the provisions of this Section 3 and in taking all such action as may be necessary or appropriate to protect the Holder's rights under this Section 3 against impairment. (e) Notice. Upon any adjustment of the Warrant Price and any increase or decrease in the number of shares of the Securities purchasable upon the exercise or conversion of this Warrant, then, and in each such case, the Company, within thirty (30) days thereafter, shall give written notice thereof to the Holder of this Warrant at the address of such Holder as shown on the books of the Company which notice shall state the Warrant Price as adjusted and the increased or decreased number of shares purchasable upon the exercise or conversion of this Warrant, setting forth in reasonable detail the method of calculation of each. The Company further agrees to notify the Holder of this Warrant in writing of a reorganization, merger or sale in accordance with Section 3(c) hereof at least forty-five (45) days prior to the effective date thereof. The Company also agrees to notify the Holder of this Warrant in writing of a proposed public offering at least thirty (30) days prior to the effective date thereof. (f) Fractional Shares. No fractional shares shall be issuable upon exercise or conversion of the Warrant and the number of shares to be issued shall be rounded down to the nearest whole share. If a fractional share interest arises upon any exercise or conversion of the Warrant, the Company shall eliminate such fractional share interest by paying the Holder an amount computed by multiplying the fractional interest by the fair market value of a full share. 4. No Shareholder Rights. This Warrant, by itself, as distinguished from any shares purchased hereunder, shall not entitle its Holder to any of the rights of a shareholder of the Company. 5. Representations of the Company and Reservation of Stock. This Warrant has been duly and validly authorized, executed and delivered by the Company and constitutes a valid and binding agreement of the Company enforceable against the Company in accordance with its terms. All Securities which may be issued upon the exercise or conversion of this Warrant shall, upon issuance in accordance with the terms hereof, be duly authorized, validly issued, fully paid and nonassessable, and free of any liens and encumbrances, except for restrictions on transfer provided for herein or under applicable federal and state securities laws. On and after the date of this Warrant, the Company will reserve from its authorized and unissued Securities a sufficient number of shares to provide for the issuance of Warrant Stock upon the exercise or conversion of this Warrant. Issuance of this Warrant shall constitute full authority to the Company's officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Warrant Stock issuable upon the exercise or conversion of this Warrant. 6. Exercise of Warrant. This Warrant may be exercised in whole or part by the Holder subsequent to the date hereof and on or before the Termination Date by the surrender of this Warrant, together with the Notice of Exercise and Investment Representation Statement in the forms attached hereto as Attachments 1 and 2, respectively, duly completed and executed at 3 the principal office of the Company, specifying the portion of the Warrant to be exercised and accompanied by payment in full of the Warrant Price in cash, check or wire transfer with respect to the shares of Warrant Stock being purchased. This Warrant shall be deemed to have been exercised immediately prior to the close of business on the date of its surrender for exercise as provided above, and the person entitled to receive the shares of Warrant Stock issuable upon such exercise shall be treated for all purposes as Holder of such shares of record as of the close of business on such date. As promptly as practicable after such date, but in any event within ten (10) business days thereafter, the Company shall issue and deliver to the person or persons entitled to receive the same a certificate or certificates for the number of full shares of Warrant Stock issuable upon such exercise. If the Warrant shall be exercised for less than the total number of shares of Warrant Stock then issuable upon exercise, promptly after surrender of the Warrant upon such exercise, the Company will execute and deliver a new Warrant, dated the date hereof, evidencing the right of the Holder to the balance of the Warrant Stock purchasable hereunder upon the same terms and conditions set forth herein. 7. Conversion. In lieu of exercising this Warrant or any portion hereof, the Holder hereof shall have the right to convert this Warrant or any portion hereof into Securities by executing and delivering to the Company at its principal office the written Notice of Conversion and Investment Representation Statement in the forms attached hereto as Attachments 2 and 3, specifying the portion of the Warrant to be converted, and accompanied by this Warrant. The number of shares of Securities to be issued to Holder upon such conversion shall be computed using the following formula: X = (P)(Y)(A-B)/A where X = the number of shares of Securities to be issued to the Holder for the portion of the Warrant being converted. P = the portion of the Warrant being converted expressed as a decimal fraction. Y = the total number of shares of Securities issuable upon exercise of the Warrant in full. A = the fair market value of one share of Securities, which shall mean (i) the fair market value of one share of Securities as of the last business day immediately prior to the date the notice of conversion is received by the Company, as determined in good faith by the Company's Board of Directors, provided that in the event the Holder disagrees with the Board's good faith determination, the valuation shall be determined by a mutually agreeable valuation firm, or (ii) if this Warrant is being converted in conjunction with a public offering of Securities, the price to the public per share in such offering, or (iii) if the Securities are publicly traded on a stock exchange or national market system, the average closing price for the ten (10) 4 trading day period immediately prior to the date of conversion. B = the Warrant Price on the date of conversion. Any portion of this Warrant that is converted shall be immediately canceled. This Warrant or any portion hereof shall be deemed to have been converted immediately prior to the close of business on the date of its surrender for conversion as provided above, and the person entitled to receive the shares of Warrant Stock issuable upon such conversion shall be treated for all purposes as Holder of such shares of record as of the close of business on such date. As promptly as practicable after such date, but in any event within ten (10) business days thereafter, the Company shall issue and deliver to the person or persons entitled to receive the same a certificate or certificates for the number of full shares of Warrant Stock issuable upon such conversion. If the Warrant shall be converted for less than the total number of shares of Warrant Stock then issuable upon conversion, promptly after surrender of the Warrant upon such conversion, the Company will execute and deliver a new Warrant, dated the date hereof, evidencing the right of the Holder to the balance of the Warrant Stock purchasable hereunder upon the same terms and conditions set forth herein. 8. Transfer of Warrant. This Warrant may be transferred or assigned by the Holder hereof, in whole or in part, provided that such transfer is effected in compliance with all applicable state and federal securities laws. 9. Piggyback Registration Rights. (a) Corporate Obligation. If the Company shall determine to register any of the Securities either for its own account or the account of a shareholder(s) exercising demand registration rights, other than a registration relating solely to employee benefit plans, or a registration relating solely to a transaction pursuant to Rule 145 promulgated under the Securities Act of 1933, as amended (the "Act"), or a registration on any registration form which does not permit secondary sales or does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Warrant Stock, the Company will promptly give to the Holder written notice thereof and include in such registration (and any related qualification under blue sky laws), and in any underwriting involved therein, the number of shares of Warrant Stock specified in a written request made by the Holder within fifteen (15) days after receipt of such written notice from the Company, except as set forth in Section 9(b) below. (b) Underwritten Public Offering. If the registration for which the Company gives notice is for a registered public offering involving an underwriting, the right of the Holder to registration shall be conditioned upon the Holder's participation in such underwriting and the inclusion of the Holder's Warrant Stock in the underwriting pursuant to an underwriting agreement in customary form with the underwriter or underwriters selected by the Company. Notwithstanding any other provision of this Section, if the underwriter reasonably determines that marketing factors require a limitation on the number of shares to be underwritten the underwriter may exclude some or all of the Warrant Stock with the number of shares that may be included in the registration and underwriting being allocated among the Holder and all other shareholders entitled to have securities included in such registration in proportion, as nearly as 5 practicable, to the respective amounts of securities which they had requested to be included in such registration (provided, however, that if the registration is for the account of shareholders exercising demand registration rights, the number of shares that may be included by the Holder shall be cut back entirely before any limitation on the number of shares that may be included by such shareholders). (c) Expenses. All expenses of the registration shall be borne by the Company, except underwriting discounts and selling commissions applicable to the sale of any shares of Warrant Stock and any other securities of the Company being sold in the same registration by other shareholders, which shall be borne by the Holder and such other shareholders pro rata on the basis of the number of shares registered. 10. "Market Stand-Off" Agreement. The Holder hereby agrees that it shall not, to the extent reasonably requested by the Company and an underwriter of Common Stock of the Company, sell or otherwise transfer or dispose (other than to donees who agree to be similarly bound) of any Common Stock of the Company during the one hundred eighty (180)-day period following the effective date of an underwritten initial public offering of the Company, provided that all officers and directors of the Company enter into similar agreements. Such agreement shall be in writing in a form satisfactory to the Company and such underwriter. 11. Miscellaneous. This Warrant shall be governed by the laws of the State of California, as such laws are applied to contracts to be entered into and performed entirely in California by California residents. The headings in this Warrant are for purposes of convenience and reference only, and shall not be deemed to constitute a part hereof. Neither this Warrant nor any term hereof may be changed or waived orally, but only by an instrument in writing signed by the Company and the Holder of this Warrant. All notices and other communications from the Company to the Holder of this Warrant shall be delivered personally or mailed by first class mail, postage prepaid, to the address furnished to the Company in writing by the last Holder of this Warrant who shall have furnished an address to the Company in writing, and if mailed shall be deemed given three days after deposit in the United States mail. ISSUED: December 27, 1999 BUSINESS WEB, INC. By: ---------------------------------- Name: Chris Meaux Title: Chief Executive Officer 6 Attachment 1 NOTICE OF EXERCISE TO: BUSINESS WEB, INC. 1. The undersigned hereby elects to purchase ______________shares of the Warrant Stock of Business Web, Inc. pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price in full. 2. Please issue a certificate or certificates representing said shares of Warrant Stock in the name of the undersigned or in such other name as is specified below: ----------------------------------- (Name) ----------------------------------- (Address) - ----------------------------------- --------------------------------------- (Date) (Name of Warrant Holder) By: ---------------------------------------- Title: ------------------------------------- (Title and signature of authorized person) Attachment 2 INVESTMENT REPRESENTATION STATEMENT Shares of the Securities (as defined in the attached Warrant) of BUSINESS WEB, INC. In connection with the purchase of the above-listed securities, the undersigned hereby represents to Business Web, Inc. (the "Company") as follows: (a) The securities to be received upon the exercise of the Warrant (the "Securities") will be acquired for investment for its own account, not as a nominee or agent, and not with a view to the sale or distribution of any part thereof, and the undersigned has no present intention of selling, granting participation in or otherwise distributing the same, but subject, nevertheless, to any requirement of law that the disposition of its property shall at all times be within its control. (b) The undersigned understands that the Securities issuable upon exercise of the Warrant at the time of issuance may not be registered under the Securities Act of 1933, as amended (the "Act"), and applicable state securities laws, on the ground that the issuance of such securities is exempt pursuant to Section 4(2) of the Act and state law exemptions relating to offers and sales not by means of a public offering, and that the Company's reliance on such exemptions is predicated on the undersigned's representations set forth herein. (c) The undersigned agrees that in no event will it make a disposition of any Securities acquired upon the exercise of the Warrant unless and until (i) it shall have notified the Company of the proposed disposition and shall have furnished the Company with a statement of the circumstances surrounding the proposed disposition, and (ii) it shall have furnished the Company with an opinion of counsel reasonably satisfactory to the Company and Company's counsel to the effect that (A) appropriate action necessary for compliance with the Act and any applicable state securities laws has been taken or an exemption from the registration requirements of the Act and such laws is available, and (B) the proposed transfer will not violate any of said laws. (d) The undersigned acknowledges that an investment in the Company is highly speculative and represents that it is able to fend for itself in the transactions contemplated by this Statement, has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investments, and has the ability to bear the economic risks (including the risk of a total loss) of its investment. The undersigned represents that it has had the opportunity to ask questions of the Company concerning the Company's business and assets and to obtain any additional information which it considered necessary, and has had all questions which have been asked by it satisfactorily answered by the Company. (e) The undersigned acknowledges that the Securities issuable upon exercise of the Warrant must be held indefinitely unless subsequently registered under the Act or an exemption from such registration is available. The undersigned is aware of the provisions of Rule 144 promulgated under the Act which permit limited resale of shares purchased in a private placement subject to the satisfaction of certain conditions, including, among other things, the existence of a public market for the shares, the availability of certain current public information about the Company, the resale occurring not less than one (1) year after a party has purchased and paid for the security to be sold, the sale being through a "broker's transaction" or in transactions directly with a "market makers" (as provided by Rule 144(f)) and the number of shares being sold during any three-month period not exceeding specified limitations. Dated: ------------------------- ------------------------------------------- (Typed or Printed Name) By: ---------------------------------------- (Signature) Title: ------------------------------------- Attachment 3 NOTICE OF CONVERSION TO: BUSINESS WEB, INC. 1. The undersigned hereby elects to acquire__________ shares of the Securities of Business Web, Inc. pursuant to the terms of the attached Warrant, by conversion of percent (__ %) of the Warrant. 2. Please issue a certificate or certificates representing said shares of Securities in the name of the undersigned or in such other name as is specified below: ----------------------------------- (Name) ----------------------------------- (Address) - ----------------------------------- --------------------------------------- (Date) (Name of Warrant Holder) By: ---------------------------------------- Title: ------------------------------------- (Title and signature of authorized person) EX-27 5
5 12-MOS JAN-31-2000 JAN-31-2000 2,163 0 0 0 0 6,663 827,105 18,385 865,883 1,361,587 0 0 0 41,122 0 865,883 0 0 0 770,680 0 0 131,698 (919,735) 0 0 (919,735) 0 0 (919,735) (0.02) (0.02)
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