As filed with the Securities and Exchange Commission on June 12, 2006

                                                     Registration No. 333-132218
--------------------------------------------------------------------------------

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                 AMENDMENT NO. 1
                                       TO
                                    FORM SB-2
                        REGISTRATION STATEMENT UNDER THE
                             SECURITIES ACT OF 1933

                                  NEWGOLD, INC.
                 (Name of Small Business Issuer in Its Charter)



                                                           
            DELAWARE                          1081                    16-1400479
(State or Other Jurisdiction of   (Primary Standard Industrial     (I.R.S. Employer
 Incorporation or Organization)    Classification Code Number)   Identification No.)


                400 CAPITOL MALL, SUITE 900, SACRAMENTO, CA 95814
                                 (916) 449-3913
          (Address and Telephone Number of Principal Executive Offices)

                400 CAPITOL MALL, SUITE 900, SACRAMENTO, CA 95814
(Address of Principal Place of Business or Intended Principal Place of Business)

                                A. SCOTT DOCKTER
                400 CAPITOL MALL, SUITE 900, SACRAMENTO, CA 95814
                                 (916) 449-3913
            (Name, Address and Telephone Number of Agent For Service)

                                    Copy to:


                               ROGER D. LINN, ESQ.
                   WEINTRAUB GENSHLEA CHEDIAK LAW CORPORATION
               400 CAPITOL MALL, 11TH FLOOR, SACRAMENTO, CA 95814
                                 (916) 558-6000


         Approximate  Date of  Commencement  of Proposed Sale to the Public:  as
soon as practicable after the effective date of this Registration Statement.

         If any of the  securities  being  registered  on  this  Form  are to be
offered  on a  delayed  or  continuous  basis  pursuant  to Rule 415  under  the
Securities Act of 1933, check the following box. [X]








         If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the  Securities  Act,  check the following box and
list the Securities Act registration  statement number of the earlier  effective
registration statement for the same offering. [ ]

         If this  form is a  post-effective  amendment  filed  pursuant  to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act  registration   statement  number  of  the  earlier  effective  registration
statement for the same offering. [ ]

         If this  form is a  post-effective  amendment  filed  pursuant  to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act  registration   statement  number  of  the  earlier  effective  registration
statement for the same offering. [ ]

         If delivery of the  prospectus  is expected to be made pursuant to Rule
434, please check the following box. [ ]

                         CALCULATION OF REGISTRATION FEE



--------------------------------- ------------------- ---------------------- ---------------------- -----------------
                                                        PROPOSED MAXIMUM       PROPOSED MAXIMUM        AMOUNT OF
     TITLE OF EACH CLASS OF          AMOUNT TO BE      OFFERING PRICE PER     AGGREGATE OFFERING      REGISTRATION
  SECURITIES TO BE REGISTERED         REGISTERED            SHARE (1)              PRICE (1)              FEE
--------------------------------- ------------------- ---------------------- ---------------------- -----------------
                                                                                        
Common Stock                          4,500,000               $0.23               $1,035,000            $ 121.82
$.001 par value
--------------------------------- ------------------- ---------------------- ---------------------- -----------------
Common Stock                         24,050,025(2)            $0.23               $5,531,506            $ 651.06
$.001 par value issuable upon
conversion of convertible
debenture
--------------------------------- ------------------- ---------------------- ---------------------- -----------------
Common Stock                          5,000,000               $0.23               $1,150,000            $ 135.35
$.001 par value issuable upon
exercise of warrants
--------------------------------- ------------------- ---------------------- ---------------------- -----------------
                           TOTAL     33,550,025(3)            $0.23               $7,716,506            $ 908.23(4)
--------------------------------- ------------------- ---------------------- ---------------------- -----------------


     (1) The proposed  maximum  offering price per share is estimated solely for
         purpose of calculating  the  registration  fee in accordance  with Rule
         457(c) on the basis of the  average of the high and low sales  price as
         reported by the Over-the-Counter Bulletin Board on May 22, 2006.

     (2) Estimated  number of shares of common stock  underlying  a  Convertible
         Debenture as provided under the  Securities  Purchase  Agreement  dated
         January 27, 2006 between the Registrant and Cornell  Capital  Partners,
         LP.

     (3) If,  as  a  result  of  stock  splits,   stock   dividends  or  similar
         transactions,  the number of  securities  purported to be registered on
         this registration statement increases, the provisions of Rule 416 under
         the Securities Act of 1933 shall apply, and this registration statement
         shall be deemed to cover any such additional shares of common stock.

     (4) $607.65 of the Registration Fee was previously paid

     THE REGISTRANT  HEREBY AMENDS THIS  REGISTRATION  STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER  AMENDMENT  WHICH  SPECIFICALLY  STATES  THAT  THIS  REGISTRATION
STATEMENT SHALL  THEREAFTER  BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE  SECURITIES  ACT OF 1933 OR UNTIL THE  REGISTRATION  STATEMENT  SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION,  ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

--------------------------------------------------------------------------------

                   PART 1 - INFORMATION REQUIRED IN PROSPECTUS


THE  INFORMATION  IN THIS  PROSPECTUS  IS NOT COMPLETE  AND MAY BE CHANGED.  THE
SELLING  SECURITY  HOLDERS MAY NOT SELL THESE  SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE  COMMISSION IS EFFECTIVE.  THIS
PROSPECTUS  IS NOT AN OFFER TO SELL  SECURITIES,  AND WE ARE NOT  SOLICITING  AN
OFFER TO BUY  THESE  SECURITIES,  IN ANY  STATE  WHERE  THE OFFER OR SALE IS NOT
PERMITTED.

                   SUBJECT TO COMPLETION, DATED JUNE 9, 2006.

PROSPECTUS

                                  NEWGOLD, INC.

                        33,550,025 SHARES OF COMMON STOCK

                             ----------------------

         This   prospectus   relates  to  the  disposition  by  certain  selling
stockholders identified in this prospectus (the "Selling Stockholders") of up to
an aggregate of 33,550,025  shares of Common  Stock,  par value $0.001 per share
("Common  Stock")  which  includes  (i)  24,050,025  shares  issuable  upon  the
conversion of a convertible  debenture,  (ii) 5,000,000 shares issuable upon the
exercise of warrants  and (iii)  4,500,000  of shares of  currently  outstanding
Common Stock. All of such shares of Common Stock are being offered for resale by
the Selling Stockholders.

         The prices at which the  Selling  Stockholders  may sell shares will be
determined  by the  prevailing  market  price for the  shares  or in  negotiated
transactions.  We will not  receive any of the  proceeds  from the sale of these
shares by the Selling  Stockholders.  However, we will receive proceeds from the
exercise of warrants if exercised by the Selling Stockholder.

         We will bear all  costs  relating  to the  registration  of the  Common
Stock,  other  than  any  Selling  Stockholder's  legal or  accounting  costs or
commissions.

         Our Common  Stock is quoted on the  Over-the-Counter  ("OTC")  bulletin
board  under the  symbol  "NGLD".  On May 22,  2006,  the last sale price of our
Common Stock on the Over-the-Counter Bulletin Board was $0.23 per share.

         Our principal  executive offices are located at 400 Capitol Mall, Suite
900, Sacramento, CA 95814, and our telephone number is (916) 449-3913.

                             ----------------------














  INVESTING IN THE COMMON STOCK OFFERED HEREIN INVOLVES A HIGH DEGREE OF RISK.
    YOU SHOULD PURCHASE SHARES ONLY IF YOU CAN AFFORD A COMPLETE LOSS OF YOUR
 INVESTMENT. YOU SHOULD CONSIDER CAREFULLY THE "RISK FACTORS" CONTAINED IN THIS
                         PROSPECTUS BEGINNING ON PAGE 4.

                             ----------------------

     NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
          COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR
           DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
              REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

              The date of this prospectus is ______________, 2006.
















































                                TABLE OF CONTENTS


PART 1 - INFORMATION REQUIRED IN PROSPECTUS....................................1
ABOUT THIS PROSPECTUS..........................................................2
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS..............................2
PROSPECTUS SUMMARY.............................................................3
RISK FACTORS...................................................................4
USE OF PROCEEDS...............................................................12
MARKET FOR NEWGOLD COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.......................................................................12
BUSINESS......................................................................14
GOVERNMENT CONTROLS AND REGULATIONS...........................................21
DESCRIPTION OF PROPERTY.......................................................24
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS....................25
LEGAL PROCEEDINGS.............................................................35
MANAGEMENT....................................................................36
EXECUTIVE COMPENSATION........................................................38
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS...........................................................40
CERTAIN RELATIONSHIPS AND RELATED TRANSACTION.................................42
DESCRIPTION OF SECURITIES.....................................................42
SELLING SECURITY HOLDERS......................................................43
PLAN OF DISTRIBUTION..........................................................44
DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES....................................................46
LEGAL MATTERS.................................................................46
EXPERTS.......................................................................46
WHERE YOU CAN FIND MORE INFORMATION...........................................47
PART II.....................................................................II-1
INFORMATION NOT REQUIRED IN PROSPECTUS......................................II-1
SIGNATURES..................................................................II-8





























ABOUT THIS PROSPECTUS

         We have not  authorized  anyone to provide  information  different from
that contained in this  prospectus.  This prospectus is not an offer to sell nor
is it seeking an offer to buy these  securities in any  jurisdiction  where such
offer or sale is not permitted.  The information contained in this prospectus is
accurate  only as of the  date of this  prospectus,  regardless  of the  time of
delivery  of  this  prospectus  or of any  sale  of the  Common  Stock.  In this
prospectus,  references to "Newgold," the "Company,"  "we," "us" and "our" refer
to Newgold, Inc., a Delaware corporation.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

         Some  of the  statements  in  this  prospectus  and  in any  prospectus
supplement  we may  file  constitute  "forward-looking  statements"  within  the
meaning of Section  27A of the  Securities  Act of 1933 and  Section  21E of the
Securities  Exchange  Act of 1934.  These  statements  relate to  future  events
concerning  our  business and to our future  revenues,  operating  results,  and
financial condition. In some cases, you can identify forward-looking  statements
by terminology  such as "may," "will,"  "could,"  "would,"  "should,"  "expect,"
"plan," "anticipate,"  "intend," "believe,"  "estimate,"  "forecast," "predict,"
"propose,"  "potential,"  or  "continue" or the negative of those terms or other
comparable terminology.

         Any forward  looking  statements  contained in this  prospectus  or any
prospectus  supplement  are only estimates or predictions of future events based
on information  currently  available to our management and management's  current
beliefs  about the  potential  outcome of future  events.  Whether  these future
events  will  occur as  management  anticipates,  whether  we will  achieve  our
business objectives,  and whether our revenues,  operating results, or financial
condition  will  improve in future  periods are subject to numerous  risks.  The
section  of this  prospectus  captioned  "Risk  Factors,"  beginning  on page 4,
provides a summary of the various  risks that could cause our actual  results or
future financial condition to differ materially from forward-looking  statements
made in this prospectus.  The factors discussed in this section are not intended
to represent a complete list of all the factors that could adversely  affect our
business,  revenues,  operating results, or financial  condition.  Other factors
that we have not  considered  may also have an adverse  effect on our  business,
revenues,  operating results,  or financial  condition,  and the factors we have
identified  could affect us to a greater  extent than we  currently  anticipate.
Before making any  investment in our  securities,  we encourage you to carefully
read the  information  contained  under the caption "Risk  Factors," as well the
other information  contained in this prospectus and any prospectus supplement we
may file.

                             ----------------------













                                        2

PROSPECTUS SUMMARY

         The following  summary is qualified in its entirety by the  information
contained  elsewhere in this prospectus.  You should read the entire prospectus,
including  "Risk  Factors"  and  the  financial   statements  before  making  an
investment decision.

-------------------------- -----------------------------------------------------
                  ISSUER:  Newgold, Inc.
                           -----------------------------------------------------
                           400 Capitol Mall, Suite 900
                           Sacramento, CA  95814
                           (916) 449-3913
-------------------------- -----------------------------------------------------
 DESCRIPTION OF BUSINESS:  Newgold's  business will be to acquire,  explore and,
                           if  warranted,   develop  various  mining  properties
                           located in the state of Nevada with the  objective of
                           identifying,  mining and  processing  gold and silver
                           ore deposits. Newgold plans to carryout comprehensive
                           exploration   and   development   programs   on   its
                           properties   which  currently   consists  of  various
                           mineral leases associated with the Relief Canyon Mine
                           located near Lovelock,  Nevada.  A description of our
                           business begins on page 14 of this prospectus.

                           On January 25,  2006,  Newgold  entered  into a joint
                           venture with ASDi LLC to explore  and, if  warranted,
                           develop two additional mining properties known as the
                           Red Caps  Project  and the  Crescent  Valley  Project
                           located in the Battle  Mountain - Eureka mineral belt
                           in Nevada. A description of this joint venture begins
                           on page 18 of this Prospectus.
-------------------------- -----------------------------------------------------
            THE OFFERING:  This offering  relates to the resale of shares of our
                           Common  Stock that may be acquired  from time to time
                           upon conversion of an outstanding Secured Convertible
                           Debenture and upon exercise of outstanding  warrants.
                           The  selling  stockholders  and the  number of shares
                           that may be sold by each are set  forth on page 40 of
                           this prospectus.
-------------------------- -----------------------------------------------------
                  SHARES:  33,550,025  shares of our Common Stock. A description
                           of our  Common  Stock is set forth on page 40 of this
                           prospectus.
-------------------------- -----------------------------------------------------
          MANNER OF SALE:  The shares of our Common  Stock may be sold from time
                           to time by the selling stockholders in open market or
                           negotiated  transactions  at prices  determined  from
                           time  to  time  by  the   selling   stockholders.   A
                           description  of the manner in which sales may be made
                           is set forth in this prospectus  beginning on page 42
                           of this prospectus.
-------------------------- -----------------------------------------------------
         USE OF PROCEEDS:  We will not receive any of the proceeds from the sale
                           of our  Common  Stock  by the  Selling  Stockholders.
                           However,  we will receive  proceeds from the exercise
                           of warrants.
-------------------------- -----------------------------------------------------
            RISK FACTORS:  The  securities  offered hereby involve a high degree
                           of risk and will result in immediate and  substantial
                           dilution.  A discussion  of  additional  risk factors
                           relating to our stock, our business and this offering
                           begins on page 4 of this prospectus.
-------------------------- -----------------------------------------------------

                                        3

RISK FACTORS

         Please carefully  consider the specific factors set forth below as well
as the other  information  contained in this prospectus before purchasing shares
of our Common Stock. This prospectus  contains  forward-looking  statements that
involve risks and  uncertainties.  Our actual  results may differ  significantly
from the results discussed in the forward-looking  statements.

RISKS RELATED TO OUR BUSINESS

WE HAVE A LIMITED  OPERATING  HISTORY AND HAVE NOT  GENERATED A PROFIT  SINCE WE
RECOMMENCED OPERATIONS, CONSEQUENTLY OUR LONG TERM VIABILITY CANNOT BE ASSURED.

We were  inactive  from July 2001 to February  2003 at which time we resumed our
mining  related  activities and have incurred  losses in each  reporting  period
since recommencing operations. Our prospects for financial success are difficult
to forecast because we have a relatively  limited operating history and have not
yet commenced  exploration  at two of our mining  properties  and have conducted
limited  exploration  at the Relief  Canyon mining  property.  Our prospects for
financial  success  must be  considered  in light  of the  risks,  expenses  and
difficulties  frequently  encountered  by  exploration  stage  mining  companies
initiating exploration of unproven properties.  Our business could be subject to
any  or  all of  the  problems,  expenses,  delays  and  risks  inherent  in the
establishment of a gold and silver  exploration  enterprise,  including  limited
capital  resources,  possible  delays in  mining  explorations  and  development
failure to identify  commercially viable gold or silver deposits,  possible cost
overruns due to price and cost  increases  in  exploration  and are  processing,
uncertain gold and silver market prices,  inability to accurately predict mining
results and attract and retain qualified employees.  Therefore,  there can be no
assurance that our  exploration  or mining will be  successful,  that we will be
able to achieve or maintain profitable operations, or that we will not encounter
unforeseen difficulties that may deplete our capital resources more rapidly than
anticipated.

IF WE DO NOT  OBTAIN  ADDITIONAL  FINANCING,  OUR  BUSINESS  WILL  FAIL  AND OUR
INVESTORS COULD LOSE THEIR INVESTMENT.

We had cash in the amount of $700,224 and working  capital deficit of $2,130,847
as of  January  31,  2006.  We  currently  do not  generate  revenues  from  our
operations.  Our  business  plan calls for  substantial  investment  and cost in
connection  with the  acquisition  and  exploration  of our  mineral  properties
currently  under lease or joint  venture.  Any direct  acquisition of any of the
claims  under  lease or joint  venture is  subject to our  ability to obtain the
financing  necessary  for us to fund and carry out  exploration  programs on the
subject properties.  The requirements are substantial.  We do not currently have
any arrangements for financing and we can provide no assurance to investors that
we will  be  able to find  such  financing  if  required.  Obtaining  additional
financing would be subject to a number of factors,  including  market prices for
minerals,  investor acceptance of our properties,  and investor sentiment. These
factors may make the timing, amount, terms or conditions of additional financing
unfavorable to us. The most likely source of future funds presently available to
us is through  the sale of  additional  equity  capital  and loans.  Any sale of
additional  shares  will  result in  dilution  to  existing  stockholders






                                        4

while incurring  additional debt will result in encumbrances on our property and
future cash flows.

BECAUSE THERE IS NO ASSURANCE WHEN WE WILL GENERATE REVENUES, WE MAY DEPLETE OUR
CASH RESERVES AND NOT HAVE SUFFICIENT OUTSIDE SOURCES OF CAPITAL TO COMPLETE OUR
EXPLORATION OR MINING PROGRAMS.

We have not earned any revenues as of the date of this prospectus and have never
been profitable. To date we have been involved primarily in financing activities
and no  exploration  activities.  We do not  have  an  interest  in any  revenue
generating  properties.  Prior to our being able to generate  revenues,  we will
incur substantial  operating and exploration  expenditures without realizing any
revenues.  We therefore expect to incur significant  losses into the foreseeable
future. Our net loss for the fiscal year ended January 31, 2006 was $2,645,231.

Due to our continuing losses from business operations, our independent auditor's
report dated April 26, 2006, includes a "going concern"  explanation relating to
the fact that our continued  operations are dependent upon obtaining  additional
working  capital either  through  significantly  increasing  revenues or through
outside financing.  We are currently operating with limited cash reserves and no
revenues  which could inhibit our ability to continue in business or achieve our
business objectives.

BECAUSE OF THE SPECULATIVE NATURE OF EXPLORATION OF NATURAL RESOURCE PROPERTIES,
THERE IS  SUBSTANTIAL  RISK THAT WE WILL NOT FIND  COMMERCIALLY  VIABLE  GOLD OR
SILVER ORE DEPOSITS WHICH WOULD PREVENT OUR REALIZATION OF REVENUES.

There is no assurance  that any of the claims we explore or acquire will contain
commercially  exploitable  reserves of gold or silver minerals.  Exploration for
natural resources is a speculative  venture involving  substantial risk. Hazards
such as unusual or unexpected  geological  formations and other conditions often
result in unsuccessful  exploration efforts. Success in exploration is dependent
upon a number of factors  including,  but not limited to, quality of management,
quality and availability of geological expertise and availability of exploration
capital.  Due to these and other  factors,  no  assurance  can be given that our
exploration  programs  will result in the  discovery of new mineral  reserves or
resources.

WE MAY NOT  HAVE  ACCESS  TO ALL OF THE  SUPPLIES  AND  MATERIALS  WE  NEED  FOR
EXPLORATION, WHICH COULD CAUSE US TO DELAY OR SUSPEND OPERATIONS.

Demand for  drilling  equipment  and limited  industry  suppliers  may result in
occasional  shortages of supplies,  and certain  equipment such as drilling rigs
that we need to conduct exploration activities.  While we plan to acquire a used
mobile  drilling rig, we have not  negotiated  any long term  contracts with any
suppliers  of products,  equipment  or  services.  If we cannot find the trained
employees and equipment  when  required,  we will have to suspend or curtail our
exploration plans until such services and equipment can be obtained.

WE HAVE NO KNOWN ORE  RESERVES  AND WE CANNOT  PREDICT  WHEN AND IF WE WILL FIND
COMMERCIAL  QUANTITIES  OF MINERAL ORE  DEPOSITS.  THE  FAILURE TO IDENTIFY  AND
EXTRACT  COMMERCIALLY  VIABLE  MINERAL ORE  DEPOSITS  WILL AFFECT OUR ABILITY TO
GENERATE REVENUES.






                                        5

We have no known ore  reserves  and there  can be no  assurance  that any of the
mineral claims we are exploring contain commercial quantities of gold or silver.
Even if we identify  commercial  reserves,  we cannot predict whether we will be
able to mine the reserves on a profitable basis, if at all.

WE HAVE ENTERED INTO ONE JOINT VENTURE IN WHICH OUR JOINT VENTURE  PARTNER IS AN
AFFILIATE  AND WE INITIALLY  OWN A MINORITY  INTEREST.  CONSEQUENTLY,  WE MAY BE
UNABLE TO INFLUENCE OR PREVENT ACTIONS  PERTAINING TO THE JOINT VENTURE PROPERTY
WHICH WE DISAGREE WITH.

We have acquired the exploration  rights to two mining  properties from ASDi LLC
whose sole manager and majority member is A. Scott Dockter, President and CEO of
Newgold.  Consequently,  Mr.  Dockter  has a conflict  of interest in this joint
venture.  Furthermore, ASDi LLC will initially hold a 77.78% interest in a newly
formed  Nevada LLC  through  which the joint  venture  will be  operated.  While
Newgold will be the sole manager of the Nevada LLC, Mr.  Dockter will be able to
control  the joint  venture  activities  through his  position  with the Manager
(Newgold)  and through his  ownership  and control of the majority  member (ASDi
LLC).  While Mr.  Dockter  will  endeavor to always act in the best  interest of
Newgold and its  stockholders,  stockholders  will have only limited  ability to
influence or object to actions taken by the Nevada LLC in exploring,  developing
and capital spending on the joint venture properties.

IF WE ARE  UNABLE  TO  HIRE  AND  RETAIN  KEY  PERSONNEL,  WE MAY NOT BE ABLE TO
IMPLEMENT OUR BUSINESS PLAN.

Newgold is  substantially  dependent  upon the  continued  services  of A. Scott
Dockter, its President. We have no employment agreement with Mr. Dockter, nor is
there either key person life insurance or disability  insurance on Mr.  Dockter.
While Mr. Dockter  expects to spend the majority of his time  assisting  Newgold
and its business,  there can be no assurance  that Mr.  Dockter's  services will
remain  available to Newgold.  If Mr.  Dockter's  services are not  available to
Newgold, Newgold will be materially and adversely affected. However, Mr. Dockter
has been a significant  stockholder of Newgold since its inception and considers
his investment of time and money in Newgold of significant  personal value.  Our
success  is also  largely  dependent  on our  ability to hire  highly  qualified
personnel.  This is particularly  true in the highly technical  business such as
mineral exploration. These individuals are in high demand and we may not be able
to retain the personnel we need.  In addition,  we may not be able to afford the
high  salaries  and fees  demanded  by  qualified  personnel,  or may lose  such
employees after they are hired. Failure to hire key personnel when needed, or on
acceptable  terms,  to carryout our exploration and mining programs would have a
significant negative effect on our business.

BECAUSE THE PROBABILITY OF MANY OF THE INDIVIDUAL MINING PROSPECTS EXPLORED WILL
NOT SHOW COMMERCIALLY VIABLE AMOUNTS OF GOLD OR SILVER ORE DEPOSITS, SUBSTANTIAL
AMOUNTS OF FUNDS SPENT ON EXPLORATION WILL NOT RESULT IN IDENTIFIABLE RESERVES.

The  probability of our exploration  program  identifying  individual  prospects
having commercially  significant reserves cannot be predicted. It is likely that
many of the properties  explored will not contain any  commercially  significant
reserves.  As such  substantial  funds  will be spent on







                                        6

exploration  which may identify  only a few, if any,  claims  having  commercial
development potential.

OUR MINING  CLAIMS  COULD BE  CONTESTED  WHICH WOULD ADD  SIGNIFICANT  COSTS AND
DELAYS TO OUR EXPLORATION PROGRAMS.

Our mining property rights consist of 78 mill site and unpatented  mining claims
at the Relief Canyon Mine; 96 unpatented  mining claims at the Red Caps project;
and 39 unpatented mining claims at the Crescent Valley project.  The validity of
unpatented  mining claims is often  uncertain and is always  subject to contest.
Unpatented mining claims are generally  considered subject to greater title risk
than patented  mining claims,  or real property  interests that are owned in fee
simple. If title to a particular property is successfully challenged, we may not
be able to develop or retain our royalty interests on that property, which could
reduce our future revenues.

MINING  OPERATIONS ARE SUBJECT TO EXTENSIVE  FEDERAL AND STATE  REGULATION WHICH
INCREASES THE COSTS OF COMPLIANCE AND POSSIBLE LIABILITY FOR NON-COMPLIANCE.

Mining is  subject  to  extensive  regulation  by state and  federal  regulatory
authorities.  State and federal statutes regulate environmental quality, safety,
exploration  procedures,  reclamation,  employees'  health  and  safety,  use of
explosives, air quality standards,  pollution of stream and fresh water sources,
noxious odors, noise, dust, and other environmental  protection controls as well
as the rights of adjoining  property  owners.  We believe that we are  currently
operating in compliance  with all known safety and  environmental  standards and
regulations  applicable  to our  Nevada  properties  or are  in the  process  of
remediating  our property to be  compliant.  However,  there can be no assurance
that our  compliance  could be challenged  or that future  changes in federal or
Nevada laws,  regulations  or  interpretations  thereof will not have a material
adverse affect on our ability to resume and sustain mining operations.

MINING OPERATIONS ARE SUBJECT TO VARIOUS RISKS AND HAZARDS WHICH COULD RESULT IN
SIGNIFICANT COSTS OR HINDER ONGOING OPERATIONS.

The  business  of gold  mining is subject to certain  types of risks,  including
environmental  hazards,  industrial  accidents,  and theft.  We expect to secure
insurance against certain property damage loss (including business interruption)
and comprehensive general liability insurance.  While we will maintain insurance
consistent  with  industry  practice,  it is not possible to insure  against all
risks associated with the mining  business,  or prudent to assume that insurance
will  continue  to be  available  at a  reasonable  cost.  We have not  obtained
environmental  liability  insurance  because such coverage is not  considered by
management to be cost  effective.  We currently carry no insurance on any of our
properties due to the current status of our mine operations.

COMPLIANCE  WITH CORPORATE  GOVERNANCE  AND PUBLIC  DISCLOSURE  REGULATIONS  MAY
RESULT IN ADDITIONAL EXPENSES.

Changing laws,  regulations and standards  relating to corporate  governance and
public disclosure, including the Sarbanes-Oxley Act of 2002, and new regulations
issued by the Securities and Exchange  Commission,  are creating uncertainty for
companies. In order to comply with these laws, we may need to invest substantial
resources to comply with evolving standards, and this





                                        7

investment would result in increased general and  administrative  expenses and a
diversion of management time and attention from revenue-generating activities to
compliance activities.

OUR  OFFICERS AND  DIRECTORS  HAVE LIMITED  LIABILITY  AND HAVE  INDEMNIFICATION
RIGHTS

Our Certificate of Incorporation  and by-laws provide that we will indemnify our
officers and directors  against losses  sustained or liabilities  incurred which
arise from any transaction in that officer's or director's respective managerial
capacity unless that officer or director violates a duty of loyalty, did not act
in good faith, engaged in intentional  misconduct or knowingly violated the law,
approved  an  improper  dividend,  or  derived  an  improper  benefit  from  the
transaction.

RISKS RELATED TO OUR STOCK

OUR STOCK PRICE IS VOLATILE.

The market price of a share of our Common Stock has fluctuated  significantly in
the past and may  continue to  fluctuate  significantly  in the  future.  During
fiscal year 2006,  through  January 31, 2006, the high and low sales prices of a
share of Newgold Common Stock were $0.34 and $0.10, respectively.  During fiscal
year 2005,  the high and low sales  prices of a share of our  Common  Stock were
$0.359 and $0.02, respectively.  The market price of a share of our Common Stock
may continue to fluctuate in response to a number of factors, including:

         o    results of our exploration program;

         o    fluctuations in our quarterly or annual operating results;

         o    fluctuations in the market price of gold and silver;

         o    the loss of services of one or more of our  executive  officers or
              other key employees;

         o    adverse  effects  to  our  operating  results  due  to  unforeseen
              difficulties affecting our exploration program; and

         o    general economic and market conditions.

WE MAY NEED TO RAISE  FUNDS  THROUGH  DEBT OR EQUITY  FINANCINGS  IN THE FUTURE,
WHICH WOULD  DILUTE THE  OWNERSHIP  OF OUR  EXISTING  STOCKHOLDERS  AND POSSIBLY
SUBORDINATE CERTAIN OF THEIR RIGHTS TO THE RIGHTS OF NEW INVESTORS OR CREDITORS.

We may choose to raise additional funds in debt or equity financings if they are
available to us on terms we believe  reasonable to increase our working capital,
strengthen  our  financial  position  or to  make  acquisitions.  Any  sales  of
additional equity or convertible debt securities would result in dilution of the
equity  interests  of our  existing  stockholders,  which could be  substantial.
Additionally, if we issue shares of preferred stock or convertible debt to raise
funds, the holders of those securities might be entitled to various preferential
rights  over the  holders  of our Common  Stock,  including  repayment  of their
investment,  and possibly additional amounts,





                                        8

before any payments  could be made to holders of our Common Stock in  connection
with an acquisition of the Company.  Such additional debt, if authorized,  would
create rights and  preferences  that would be senior to, or otherwise  adversely
affect,  the rights and the value of our Common Stock.  Also,  new investors may
require that we and certain of our stockholders  enter into voting  arrangements
that give them  additional  voting  control  or  representation  on our board of
directors.

INADEQUATE MARKET LIQUIDITY MAY MAKE IT DIFFICULT TO SELL OUR STOCK.

There is  currently  a public  market for our Common  Stock,  but we can give no
assurance  that there  will  always be such a market.  Only a limited  number of
shares of our  Common  Stock are  actively  traded in the  public  market and we
cannot give assurance that the market for our stock will develop sufficiently to
create  significant  market  liquidity.  An investor  may find it  difficult  or
impossible  to sell shares of our Common Stock in the public  market  because of
the limited number of potential  buyers at any time. In addition,  the shares of
our Common Stock are not eligible as a margin security and lending  institutions
may not accept our Common Stock as collateral for a loan.

THE  APPLICATION  OF THE "PENNY STOCK  REGULATION"  COULD  ADVERSELY  AFFECT THE
MARKET PRICE OF OUR COMMON STOCK

Penny stocks generally are equity securities with a price of less than $5.00 per
share other than securities  registered on certain national securities exchanges
or quoted on the NASDAQ Stock  Market,  provided  that current  price and volume
information  with respect to  transactions in such securities is provided by the
exchange or system.  Our  securities  may be subject to "penny stock rules" that
impose additional sales practice  requirements on  broker-dealers  who sell such
securities to persons other than established  customers and accredited investors
(generally  those with assets in excess of $1,000,000 or annual income exceeding
$200,000 or $300,000  together with their spouse).  For transactions  covered by
these rules, the broker-dealer must make a special suitability determination for
the  purchase of such  securities  and have  received  the  purchaser's  written
consent to the transaction prior to the purchase. Consequently, the "penny stock
rules" may restrict the ability of broker-dealers to buy and sell our securities
and may have the effect of reducing the level of trading  activity of our Common
Stock in the secondary market.

WE MAY ENGAGE IN FUTURE  ACQUISITIONS  THAT DILUTE OUR STOCKHOLDERS AND CAUSE US
TO INCUR DEBT OR ASSUME CONTINGENT LIABILITIES.

As part of our  strategy,  we expect  to  review  opportunities  to  acquire  or
participate in the exploration of other mining  properties that would complement
our current  exploration or mining  program,  or that may otherwise offer growth
opportunities. In the event of any future acquisitions, we could:

         o    issue stock that would  dilute  current  stockholders'  percentage
              ownership;

         o    incur debt; or

         o    assume liabilities.






                                        9

         These acquisitions also involve numerous risks, including:

         o    problems combining additional  exploration or mining opportunities
              with current business operations:

         o    unanticipated costs;

         o    holding  a  minority   interest   in  other   joint   ventures  or
              partnerships;

         o    possible financial commitments to fund development;

         o    risks  associated with exploring new mining property with negative
              results; and

         o    possible shared control with other persons or entities;

We cannot assure you that we will realize positive  exploration results from the
newly acquired Red Caps and Crescent  Valley  projects or any additional  mining
rights we may participate in or acquire in the future.

RISKS RELATING TO OUR CURRENT FINANCING ARRANGEMENT

WE HAVE  SIGNIFICANT  "EQUITY  OVERHANG" WHICH COULD ADVERSELY AFFECT THE MARKET
PRICE OF OUR COMMON  STOCK AND IMPAIR OUR  ABILITY TO RAISE  ADDITIONAL  CAPITAL
THROUGH THE SALE OF EQUITY SECURITIES.

As of January 31, 2006,  Newgold had  approximately  68,604,072 shares of Common
Stock  outstanding and a convertible  debenture which is convertible  into up to
24,050,025  shares of our Common  Stock.  Additionally,  warrants  to purchase a
total of 20,924,583  shares of our Common Stock were  outstanding  as of January
31, 2006.  Furthermore,  up to an additional  24,050,025  shares of Common Stock
could become issuable to the convertible  debenture holders if a default were to
occur. The possibility that substantial  amounts of our outstanding Common Stock
may be sold by investors or the  perception  that such sales could occur,  often
called "equity  overhang," could adversely affect the market price of our Common
Stock and could impair our ability to raise additional  capital through the sale
of equity securities in the future.

THE CONTINUOUSLY  ADJUSTABLE CONVERSION PRICE FEATURE OF OUR SECURED CONVERTIBLE
DEBENTURE  COULD REQUIRE US TO ISSUE A  SUBSTANTIALLY  GREATER  NUMBER OF SHARES
UPON  CONVERSION,  WHICH WILL CAUSE  IMMEDIATE AND  SUBSTANTIAL  DILUTION TO OUR
EXISTING STOCKHOLDERS.

At the  time of  entering  into the  $1,000,000  Secured  Convertible  Debenture
("Convertible  Debenture") with Cornell Capital  Partners,  the Fixed Conversion
Price was $0.26 per share  which  would  equal  approximately  3,808,073  if the
entire  principal were converted into Newgold Common Stock.  This represents the
minimum  number  of  shares  issuable  upon the  conversion  of the  Convertible
Debenture.  However, the Convertible  Debenture provides for the conversion rate
at any given  time to be the lower of the Fixed  Conversion  Price or 95% of the
lowest Volume  Weighted  Average  Price of Newgold's  Common Stock during the 30
trading days  immediately  preceding the Conversion Date as quoted in Bloomberg,
LP ("Market  Conversion Price").  Consequently,  if the market price for Newgold
Common Stock should remain below




                                       10

$0.26 per share,  we would be  required  to issue  substantially  more shares of
Common Stock upon the conversion of the Convertible  Debenture.  The issuance of
significantly  more  shares at a lower  conversion  price  would have a dilutive
effect to our current stockholders. See the Table on page 14.

IF AN EVENT OF DEFAULT  OCCURS UNDER THE  SECURITIES  PURCHASE  AGREEMENT  DATED
JANUARY 27, 2006, SECURED CONVERTIBLE  DEBENTURE OR THE SECURITY AGREEMENT,  THE
INVESTORS  COULD TAKE  POSSESSION  OF ALL OUR MINING  RIGHTS  HELD IN THE RELIEF
CANYON PROPERTY.

In connection with the Securities  Purchase Agreement dated January 27, 2006, we
executed a Security Agreement in favor of Cornell Capital Partners granting them
a first priority security interest in all of our leasehold  interests and mining
rights to the Relief Canyon  property as well as any  equipment or  improvements
located in such  property.  The  Security  Agreement  states that if an event of
default  occurs under the Securities  Purchase  Agreement,  Secured  Convertible
Debenture or Security Agreement, Cornell Capital Partners have the right to take
possession of the collateral, to operate our business using the collateral,  and
have the right to assign, sell, lease or otherwise dispose of and deliver all or
part of the  collateral,  at public or private  sale or otherwise to satisfy our
obligations under these agreements.

IN THE EVENT A DEFAULT OCCURS UNDER THE SECURED CONVERTIBLE DEBENTURE, WE MAY BE
REQUIRED TO ISSUE UP TO AN ADDITIONAL  24,050,025 SHARES OF NEWGOLD COMMON STOCK
AS AN ADDITIONAL PENALTY FOR SUCH DEFAULT.  IF SUCH SHARES WERE TO BE ISSUED, WE
WOULD BE REQUIRED TO FILE A SUBSEQUENT  REGISTRATION  STATEMENT  COVERING  THOSE
ADDITIONAL SHARES AND RESULTING IN FURTHER DILUTION TO EXISTING STOCKHOLDERS AND
EXPENSE TO NEWGOLD.

As an  additional  inducement  to  Cornell  Capital  Partners  to enter into the
Securities  Purchase  Agreement,  the  event  of a  default  in the  Convertible
Debenture,  we would be required,  in addition to other  remedies  provided,  to
issue up to an  additional  24,050,025  shares of our  Common  Stock to  Cornell
Capital Partners as an additional penalty for such default. (The exact number of
shares  dependent on the amount of principal debt remaining unpaid at the time a
default was declared).  In addition to having a dilutive  affect on our existing
stockholders,  we would be required to file a subsequent  registration statement
covering  such  additional  shares.  The  filing of an  additional  registration
statement would result in substantial costs to us.

OUR  FINANCIAL  CONDITION  AND  THE  RESTRICTIVE   COVENANTS  CONTAINED  IN  OUR
OUTSTANDING  DEBT MAY LIMIT OUR ABILITY TO BORROW  ADDITIONAL  FUNDS OR TO RAISE
ADDITIONAL EQUITY AS MAY BE REQUIRED TO FUND OUR FUTURE OPERATIONS.

The terms of our outstanding Secured Convertible  Debenture with Cornell Capital
Partners may limit our ability,  without Cornell  Capital's  consent,  to, among
other things:

         o    enter into certain transactions;

         o    create additional liens on our assets;

         o    issue preferred  stock or Common Stock at certain  discounts below
              market prices; or

         o    merge or consolidate with other entities.



                                       11

These  restrictions  could  adversely  affect our  liquidity  and our ability to
attract additional funding as required.

WE MAY NOT BE ABLE TO PAY OUR DEBT AND OTHER  OBLIGATIONS  AND OUR ASSETS MAY BE
SEIZED AS A RESULT.

We do not have sufficient funds to repay our outstanding debt at maturity and we
may not generate the cash flow  required to pay our  liabilities  as they become
due. Our outstanding debt includes approximately $1,000,000 and accrued interest
on the Convertible  Debenture with Cornell  Capital  Partners due on January 27,
2009. If Cornell Capital  Partners  determines not to convert the Debenture into
shares of Newgold Common Stock they may require us to repay all of the principal
and interest outstanding under the Debenture under certain circumstances. We may
not have  sufficient  cash reserves to repay the  Debenture at such time,  which
would cause an event of default  under the Debenture and may force us to declare
bankruptcy.  If we raise  additional  funds to repay the  Debenture  by  selling
equity securities, the relative equity ownership of our existing investors could
be diluted and new  investors  could obtain terms more  favorable  than previous
investors.

USE OF PROCEEDS

The Shares offered by this  prospectus  are being  registered for the account of
the selling  stockholders.  We will not receive  any  proceeds  from the sale of
Common Stock by the selling stockholders.

MARKET FOR NEWGOLD COMMON STOCK
AND RELATED STOCKHOLDER MATTERS

MARKET FOR OUR COMMON STOCK

In July 1997,  our Common  Stock was  approved  for  quotation  on the  National
Association of Securities Dealers' Over-the-Counter ("OTC") Bulletin Board where
it traded  under the symbol  "NGLD"  until June 2001.  In June 2001,  our Common
Stock  was  moved  to the  "Pink  Sheets"  published  by  the  Pink  Sheets  LLC
(previously  National Quotation Bureau,  LLC). On June 7, 2005, our Common Stock
was again  approved for  quotation on the OTC Bulletin  Board with its symbol of
"NGLD." As of May 22, 2006,  the closing bid price of our Common Stock was $0.23
per share.

PRICE RANGE OF OUR COMMON STOCK

A public  trading  market  having the  characteristics  of depth,  liquidity and
orderliness  depends upon the existence of market makers as well as the presence
of willing buyers and sellers, which are circumstances over which we do not have
control.  The following  table sets forth the high and low sales prices reported
by the OTC  Bulletin  Board for our Common Stock in the periods  indicated.  The
quotations below reflect inter-dealer prices,  without retail mark-up,  markdown
or commission, and may not represent actual transactions.










                                       12

NEWGOLD, INC. COMMON STOCK                             LOW              HIGH
------------------------------------------------  --------------  --------------

YEAR ENDING JANUARY 31, 2007
------------------------------------------------  --------------  --------------
First Quarter (February-April)                        $0.14            $0.245
------------------------------------------------  --------------  --------------

YEAR ENDING JANUARY 31, 2006
------------------------------------------------  --------------  --------------
Fourth Quarter (November-January)                     $0.12            $0.225
Third Quarter (August-October)                        $0.10             $0.29
Second Quarter (May-July)                             $0.20             $0.34
First Quarter (February-April)                        $0.15             $0.33
------------------------------------------------  --------------  --------------

YEAR ENDED JANUARY 31, 2005
------------------------------------------------  --------------  --------------
First Quarter (November-January)                      $0.08             $0.33
Second Quarter (August-October)                       $0.02             $0.25
Third Quarter (May-July)                              $0.15             $0.26
Fourth Quarter (February-April)                       $0.16             $0.36
------------------------------------------------  --------------  --------------


STOCKHOLDERS

As of January 31, 2006, there were approximately  1,065 holders of record of our
Common Stock. This amount does not include stockholders whose shares are held in
street name.

DIVIDEND POLICY

We have  never  declared  or paid any cash  dividends  on our Common  Stock.  We
currently  anticipate  that we will retain all future earnings for the expansion
and operation of our business and do not anticipate paying cash dividends in the
foreseeable future.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

We have not issued any securities pursuant to any equity compensation plans.


















                                       13

SHARES ISSUABLE UPON CONVERSION OF CONVERTIBLE DEBENTURE

The $1,000,000  principal  amount held by Cornell  Capital is  convertible  into
shares  of our  Common  Stock  at a per  share  conversion  rate at the  time of
conversion  which  will be the lower of  $0.2626  per share or 95% of the lowest
Volume  Weighted  Average Price of Newgold's  common stock during the 30 trading
days immediately  preceding the Conversion Date as quoted by Bloomberg,  LP (the
"Market Conversion Price").

The  following  table sets forth the number of shares  which  would be issued to
Cornell  Capital upon the conversion of the $1,000,000  principal  amount of the
Debenture at various assumed Market Conversion Prices:

        ----------------------------------- -- ----------------------------
                                                 Total Shares Issued to
                                                Cornell Capital Under the
         Assumed Market Conversion Price            Debenture if Full
                    Per Share                         Conversion(1)
        ----------------------------------- -- ----------------------------
               $   0.2626 or higher                     3,808,073
        ----------------------------------- -- ----------------------------
               $   0.20                                 5,000,000
        ----------------------------------- -- ----------------------------
               $   0.18                                 5,555,556
        ----------------------------------- -- ----------------------------
               $   0.15                                 6,666,667
        ----------------------------------- -- ----------------------------
               $   0.10                                10,000,000
        ----------------------------------- -- ----------------------------
               $   0.05                                20,000,000
        ----------------------------------- -- ----------------------------
         (1)  Does not include  conversion of accrued but unpaid interest on the
              Debenture


BUSINESS

GENERAL

Newgold has embarked on a business  strategy  whereby it will invest in, explore
and if warranted, conduct mining operations of its current mining properties and
other mineral producing properties. Newgold is a public company that in the past
has been engaged in the exploration, acquisition and development of gold-bearing
properties in the  continental  United States.  Currently,  Newgold's  principal
assets include  various  mineral leases  associated  with the Relief Canyon Mine
located near Lovelock,  Nevada along with various items of mining  equipment and
improvement  located at that site. Newgold has also entered into a joint venture
to  explore  additional  mining  properties  known as the Red Caps  Project  and
Crescent Valley Project, both of which are located in Lander County, Nevada.

From 1995 until the beginning of 2000,  Newgold had followed the above described
business  activity focusing on the exploration and mining of gold and silver ore
deposits.  At the beginning of 2000,  Newgold's business strategy became focused
on investing in Internet start-up





                                       14

companies.  That  strategy  was  not  successful  and by  mid-2001  Newgold  had
abandoned such  investments.  From  approximately  July 2001 until February 2003
Newgold had been inactive. During the period of inactivity,  ASDi LLC, an entity
controlled by A. Scott Dockter who is also the Chairman and CEO of Newgold,  has
made the  necessary  expenditures  to maintain the current  status of the Relief
Canyon  mining  claims.  In  February  2003,  Newgold  resumed  its  business of
acquiring, exploring and if warranted developing its mining properties.

Newgold's mailing address is 400 Capitol Mall, Suite 900, Sacramento,  CA 95814;
and its telephone number is (916) 449-3913.

THE COMPANY

Newgold,  a  Delaware   corporation,   has  been  engaged  in  the  acquisition,
development and exploration of gold-bearing properties in the continental United
States since 1995. In fiscal 1999 Newgold  placed its only  remaining  property,
the Relief  Canyon  Mine,  located in  Pershing  County,  Nevada,  on a care and
maintenance status.  During fiscal 2000, Newgold executed a contract to sell the
Relief Canyon Mine to A. Scott  Dockter,  Chairman of Newgold;  however the sale
was never  completed  and the asset  remains the property of Newgold.  It is now
Newgold's  intention to resume mining at the Relief Canyon Mine.  See "Business"
below for further detail.

Newgold's  independent  accountants have included a "going concern"  explanatory
paragraph in their report dated April 26, 2006 on Newgold's financial statements
for the fiscal year ended January 31, 2006,  indicating  substantial doubt about
Newgold's  ability  to  continue  as a going  concern  (See Note 2 of  Financial
Footnotes).   If  Newgold's   exploration   program  is  not  successful  or  if
insufficient funds are available to carry out Newgold's  development plans, then
Newgold will not be able to execute its business plan.

For financial information regarding Newgold, see "Financial Statements."

BUSINESS

Newgold  is  an  "exploration  stage"  company  engaged  in  the  search  and/or
verification of ore deposits (reserves) in its property. Our business will be to
acquire, explore and, if warranted, develop various mining properties located in
the  state  of  Nevada.  We  plan  to  carryout  comprehensive  exploration  and
development  programs on our  properties.  While we  currently  plan to fund and
conduct these activities ourselves, we may in the future outsource some of these
activities  through the use of various  joint  venture,  royalty or  partnership
arrangements  pursuant  to which  other  companies  would  agree to finance  and
carryout the  exploration  and  development  programs on our mining  properties.
Consequently,  our  current  plan will  require  the  hiring of  various  mining
employees to perform  exploration  and mining  activities for our various mining
properties.

PROPERTIES

RELIEF CANYON MINE

The  Relief  Canyon  Mine  is  an  open-pit,  heap  leaching  operation  located
approximately  110 miles northeast of Reno,  Nevada.  Newgold held 50 unpatented
mining claims covering




                                       15

approximately  1000 acres until  October  2004 at which time  Newgold  completed
re-staking the Relief Canyon mill site and lode claims.  Newgold currently holds
a total of 78 claims  including  57 mill site  claims and 21  unpatented  mining
claims. The annual payments to maintain these claims are approximately  $15,600.
The  mine is  readily  accessible  by  improved  roads.  Water  for  mining  and
processing  operations is provided by two wells located on the property in close
proximity to the mine and  processing  facilities.  Power is provided by a local
rural electric  association and phone lines are present at the mine site. Relief
Canyon is located in the Humboldt Range, a mining  district in Pershing  County,
Nevada.

Background and History
----------------------

On January 10, 1995,  Newgold purchased the Relief Canyon mine from J.D. Welsh &
Associates for $500,000.  The mine at that time consisted of 39 unpatented  lode
mining  claims  covering  approximately  780 acres and a lease for  access to an
additional 800 acres contiguous to the 39 claims located on Newgold's  property.
Located on the  property  are, a building  containing  five  carbon  tanks and a
boiler for carbon strip solution,  four  detoxified  leach pads, a preg pond for
gold  bearing  solution,  a barren  pond for  solution  from which gold had been
removed,  water rights, and various permits.  From acquisition  through November
1997,  Newgold  refurbished  the  processing  facilities  by  the  purchase  and
installation  of all  equipment  required  to  process  the gold  bearing  leach
solution when the mine was returned to production in 1997. During 1997,  Newgold
staked an  additional  402 claims.  However,  subsequent  to January  31,  1998,
Newgold reduced the total claims to 50 (covering  approximately 1,000 acres). In
1999 Newgold placed the mine in a care and maintenance status.

If mining  operations  are not resumed at the Relief Canyon mine, it is possible
Newgold  may  be  required  to  reclaim  the  mine.   Reclamation   consists  of
recontouring the four heaps to a 3:1 slope, sale and removal of the building and
its contents,  evaporation of all water in both ponds and burial of the building
foundation  and floor within the ponds'  liners under the soil  contained in the
pond berms.  Finally,  native  vegetation must be re-established in all areas of
disturbance.

During 1996, Repadre Capital  Corporation  ("Repadre")  purchased for $500,000 a
net smelter  return  royalty  (Repadre  Royalty).  Repadre was to receive a 1.5%
royalty from  production at each of the Relief Canyon Mine and Mission Mines. In
July 1997,  an  additional  $300,000  was paid by Repadre for an  additional  1%
royalty from the Relief  Canyon Mine.  In October,  1997,  when the Mission Mine
lease was  terminated,  Repadre  exercised  its option to  transfer  the Repadre
Royalty  solely to the Relief Canyon Mine  resulting in a total 4% royalty.  The
total amount  received of $800,000 has been recorded as deferred  revenue in the
accompanying financial statements.

Plan for Relief Canyon Production
---------------------------------

Based on past  exploration by us and work done by others,  we believe the Relief
Canyon Mine  presents the  potential  for gold  bearing ore deposits  which will
hopefully be validated through further exploration of additional mining claims.

As of January 31, 2006 the Relief Canyon properties include 78 unpatented mining
claims contained in about 1,000 acres.



                                       16

Newgold's  operating  plan is to place the most  promising  mining  targets into
production  during the 2007 fiscal  year,  and use the net  proceeds  from these
operations to fund expanded  exploration  and development of its entire property
holdings.  By this means, Newgold intends to progressively enlarge the scope and
scale of the mining and processing operations, thereby increasing both Newgold's
annual revenues and its net profits.

Newgold's  goals for  environmental  protection and  reclamation are for minimal
environmental  disturbance  during mining, and reclamation and/or restoration of
the disturbed  area after mining ceases.  The economics of Newgold's  operations
will permit this environmentally responsible plan of operations.

We will initially focus on exploring the North Relief Canyon mining property. We
recently  posted a $243,204  reclamation  bond with the Nevada  Bureau of Mining
Regulations  and  Reclamation  ("BMRR") which allows us to apply for new permits
for  mining  and  processing  on  the  property.  In  addition  to  posting  the
reclamation  bond, the property must be brought into  compliance with the Bureau
of Land Management  ("BLM") and Nevada  Department of  Environmental  Protection
("NDEP") before any work can commence.  We have completed  approximately  75% of
all the  environmental  work  required  by NDEP in the  administrative  Order of
Consent issued May 2005 (the AOC). The purpose of the AOC is to bring the Relief
Canyon mine up to current environmental compliance.

To assist us in this effort, we have retained Dyer Engineering Consultants, Inc.
as our lead engineering firm for the permitting and compliance  engineering work
at the Relief  Canyon,  Crescent  Valley and Red Caps  exploration  projects  in
Nevada.

Once we have achieved environmental  compliance, we can proceed with the permits
to commence full scale exploration and mining activities. The estimated time for
completing  the  permitting  process is between 9 months to 18 months.  However,
upon posting the bond, we are able to carry on limited  operations  pending full
permitting for full mining operations.

Description of Past Exploration and Existing Development Efforts
----------------------------------------------------------------

Over 400  reverse  circulation  holes have been  drilled  at the  Relief  Canyon
project.  Of the 400 holes  drilled,  106 had  intercepts  of gold  bearing  ore
structures of 0.1 gold/ton content.  Additionally  there are numerous holes with
several feet of 0.09 - 0.099 gold/ton content.

The ore zone of Relief Canyon is open ended on three sides. It is projected that
additional  drilling  will increase the size of possible  reserves.  Most of the
drilling to date was  targeted for open pit mining,  resulting in shallow  holes
which did not test for possible  deeper ore deposits.  A  significant  number of
deep holes with 0.3  gold/ton  and better  were  drilled on the North end of the
property.  This area is targeted  for initial  underground  mining  development.
Additional  exploration holes will be drilled when underground  mining commences
throughout the various ore zones to determine future development.

Typically, grade values of the Relief Canyon drill holes are reduced as a result
of finds  being  lost down the hole or vented  out as dust.  Actual  mining  and
recovery of gold in the milling  process  will  determine  the loss if any which
could be as much as 30%.




                                       17

Proposed Underground Mining Efforts
-----------------------------------

We will  pursue  exploration  drilling  to further  identify  areas of  possible
gold-bearing ore deposits.  Results of this additional drilling will allow us to
better plan our eventual underground mining efforts.  Further development of our
underground  mining  activity  will also be  dependent  on the  availability  of
adequate capital to initiate and sustain this effort. Underground mining is very
expensive  costing in the range of $600 to $1,000 per linear foot of underground
development.

Ore Processing
--------------

Some  gold-bearing  sulfide ores may be processed  through a flotation plant. In
flotation, ore is finely ground, turned into slurry, then placed in a tank known
as  a  flotation   cell.   Chemicals  are  added  to  the  slurry   causing  the
gold-containing  sulfides to float in air bubbles to the top of the tank,  where
they can be separated from waste particles that sink to the bottom. The sulfides
are removed  from the cell and  converted  into a  concentrate  that can then be
processed  in an  autoclave  or  roaster to  recover  the gold.  The ore is then
processed through an oxide mill.

Higher-grade  oxide ores are processed  through  mills,  where the ore is ground
into a fine powder and mixed with water in slurry,  which then passes  through a
cyanide  leaching  circuit.  Lower  grade  oxide ores are  processed  using heap
leaching.  Heap  leaching  consists of stacking  crushed or  run-of-mine  ore on
impermeable pads, where a weak cyanide solution is applied to the top surface of
the heaps to dissolve the gold. In both cases, the gold-bearing solution is then
collected and pumped to facilities to remove the gold by collection on carbon or
by zinc precipitation directly from leach solutions.

CRESCENT VALLEY AND RED CAPS MINE
---------------------------------

Overview
--------

Newgold is the owner of a 22.22% joint  venture  interest and is the operator of
the Crescent Red Caps Joint Venture  ("Crescent Red Caps"). The remaining 77.78%
interest is held by ASDi LLC, a California limited liability company owned by A.
Scott Dockter,  Chairman and CEO of Newgold.  Additionally,  Newgold,  by making
expenditures over the next three years aggregating $2,700,000,  will end up with
a 66.66%  overall  interest  in the joint  venture.  Newgold  will then have the
opportunity to purchase the remaining joint venture interest held by Mr. Dockter
based on the results of the exploration  work  contemplated by these  additional
expenditures.

The  properties  are  subject  to two  leases  held by  individuals  and  trusts
affiliated  with  Sam  Bida  and  Leon   Belaustagi.   The  two  leases  include
approximately 135 unpatented mining claims and cover  approximately  2700 acres.
All gold, silver and other mineral production by Crescent Red Caps is subject to
a 3% net smelter return ("NSR") royalty payable to the lessors except for barite
which is subject to a 10% royalty on ore  produced  from  claims  covered by the
leases.




                                       18

Property
--------

The  Crescent  Red  Caps   Properties  are  located  in   northeastern   Nevada,
approximately  60  miles  southwest  of  Elko,  Nevada  in  Lander  County.  The
properties  are accessed via Nevada State Highway 306,  which extends  southward
from U.S. Interstate 80, both of which are paved roads.
The Cortez  area of interest  comprises  approximately  640,000  acres along the
Cortez/Battle  Mountain  trend.  The two leases  controlled by Crescent Red Caps
include  approximately 135 unpatented mining claims and cover approximately 2700
acres located along the Cortez/Battle  Mountain trend. Currently no exploration,
development  or mining  permits have been  granted for the areas  covered by the
leases.

Geology and Mineralization
--------------------------

The Crescent Red Caps properties are situated along the  Cortez/Battle  Mountain
trend in north-central Nevada. The principal gold deposits and mining operations
are  located on the  southwest  and south sides of  Crescent  Valley,  which was
formed by basin and range extensional  tectonism.  Mineralization is sedimentary
rock-hosted  and  consists  of   micron-sized   free  gold  particles  that  are
disseminated  throughout the host rock,  commonly in association  with secondary
silica, iron oxides or pyrite.

Exploration and Development
---------------------------

Approximately  23,000 feet of  exploration  drilling  has been  completed in two
different  drill  programs  conducted  in 1991  and  1996.  Gold  mineralization
encountered  both in drilling  and in surface  sampling is tightly  structurally
controlled  and is confined to narrow shears and fractures  developed  mainly in
the non-reactive cherts and argillites. Future drill programs will test for more
extensive bodies of mineralization. Upward migration of gold mineralization from
a stockwork system or replacement mineralization of a more reactive host rock at
depth could produce the type of anomalous gold concentrations found at the prior
drill sites.  The exploration  potential in the immediate  project areas remains
positive.  The focus in fiscal 2007 will be additional  exploration  drilling to
better  delineate  the  extent  of the  Crescent  Red Caps  area.  The deep hole
drilling program involves drilling  exploratory holes to a depth of between 1000
ft. and 3000 ft.

INDUSTRY OVERVIEW

The gold  mining  and  exploration  industry  has  experienced  several  factors
recently that are favorable to Newgold as described below.

The spot market  price of an ounce of gold has  increased  from a low of $253 in
February  2001 to a high of $645 in April  2006.  The  price was  $568.75  as of
January  31,  2006.  This  current  price  level has made it  economically  more
feasible to produce gold as well as made gold a more  attractive  investment for
many. Newgold is projecting a cash cost per ounce of gold produced in a range of
$170 to $210.  Accordingly,  the gross margin per ounce of gold produced per the
historical spot market price range above provides  significant  profit potential
if successful in identifying and mining gold at Relief Canyon mine.




                                       19

By  industry  standards,  there are  generally  four types of mining  companies.
Newgold is considered an "exploration stage" company.  Typically, an exploration
stage mining  company is focused on  exploration  to identify new,  commercially
viable  gold  deposits.  "Junior  mining  companies"  typically  have proven and
probable  reserves of less then one million ounces of gold,  generally  produces
less then 100,000  ounces of gold annually and / or are in the process of trying
to raise enough capital to fund the remainder of the steps required to move from
a staked claim to production.  "Mid-tier" and large mining ("senior")  companies
may have several  projects in production  plus several million ounces of gold in
reserve.

Generally  gold  reserves  have  been  declining  for a number  of years for the
following reasons:

     o   The  extended  period  of low gold  prices  from  1996 to 2001  made it
         economically  unfeasible  to explore for new  deposits  for most mining
         companies.

     o   The demand for and production of gold products have exceeded the amount
         of new reserves added over the last several consecutive years.

Reversing the decline in lower gold reserves is a long term process.  Due to the
extended  time frame it takes to explore,  develop and bring new  production  on
line,  the large mining  companies  are facing an extended  period of lower gold
reserves.  Accordingly,  junior  companies  that are able to increase their gold
reserves more quickly should directly benefit with an increased valuation.

Additional  factors causing higher gold prices over the past two years have come
from a weakened  United States dollar.  Reasons for the lower dollar compared to
other currencies  include the historically low US interest rates, the increasing
US budget and trade  deficits and the general  worldwide  political  instability
caused by the war on terrorism.

COMPETITION

There are  generally  considered  four types of mining  companies:  exploration,
junior,  mid-tier and large companies. We believe junior companies represent the
largest group of gold  companies in the public stock  market.  All four types of
mining  companies  may  have  projects  located  in any of  the  gold  producing
continents of the world and many have projects  located near the Relief  Canyon,
Red Caps and  Crescent  Valley  mines in Nevada.  Many of our  competitors  have
greater  exploration,  production,  and capital resources than we do, and may be
able to compete more effectively in any of these areas.  Newgold's  inability to
generate capital to fund exploration and production  capacity  near-term,  would
establish a competitive cost  disadvantage in the marketplace which would have a
material adverse effect on its operations and potential profitability.

We  also  compete  in  the  hiring  and  retention  of  experienced   employees.
Consequently,  we may not be able to hire  qualified  miners or operators in the
numbers or at the times desired.









                                       20

MINING PROPERTY RIGHTS

Relief Canyon Property
----------------------

Our mining property rights are represented by 78 unpatented mill and mining lode
claims  which were  re-staked  in October  2004.  Unpatented  mining  claims are
generally  considered subject to greater title risks than patented mining claims
or real property  interests that are owned in fee simple.  To remain valid, such
unpatented  claims are  subject to annual  maintenance  fees.  As of January 31,
2006, we were current in the payment of such maintenance fees.

Red Caps Property
-----------------

Our mining property rights are represented by 96 unpatented  mining lode claims.
Unpatented mining claims are generally considered subject to greater title risks
than patented  mining claims or real  property  interests  that are owned in fee
simple.   To  remain  valid,  such  unpatented  claims  are  subject  to  annual
maintenance  fees. As of January 31, 2006,  the joint venture was current in the
payment of such maintenance fees.

Crescent Valley Property
------------------------

Our mining property rights are represented by 39 unpatented  mining lode claims.
Unpatented mining claims are generally considered subject to greater title risks
than patented  mining claims or real  property  interests  that are owned in fee
simple.   To  remain  valid,  such  unpatented  claims  are  subject  to  annual
maintenance  fees. As of January 31, 2006,  the joint venture was current in the
payment of such maintenance fees.

EMPLOYEES

As of January 31, 2006, we had two full-time  and one  part-time  employees.  We
anticipate  hiring  additional  employees during the current year to work on the
mining sites in Nevada as our  exploration  program is initiated.  While skilled
equipment and operations  personnel are in demand, we believe we will be able to
hire the necessary workers to implement our exploration  program.  Our employees
are not  expected  to be subject to a labor  contract or  collective  bargaining
agreement. We consider our employee relations to be good.

Consulting   services,   relating   primarily   to  geologic   and   geophysical
interpretations,  and  relating to such  metallurgical,  engineering,  and other
technical  matters as may be deemed useful in the  operation of our  exploration
activities, will be provided by independent contractors.

GOVERNMENT CONTROLS AND REGULATIONS

Our  exploration,  mining  and  processing  operations  are  subject  to various
federal,   state  and  local  laws  and   regulations   governing   prospecting,
exploration, development, production, labor standards, occupational health, mine
safety, control of toxic substances,  and other matters involving  environmental
protection and employment.  United States environmental  protection laws address
the  maintenance  of air  and  water  quality  standards,  the  preservation  of
threatened and endangered  species of wildlife and vegetation,  the preservation
of certain archaeological sites, reclamation, and limitations on the generation,
transportation,  storage and disposal of solid

                                       21

and hazardous wastes, among other things. There can be no assurance that all the
required  permits and  governmental  approvals  necessary for any mining project
with  which  we  may be  associated  can  be  obtained  on a  timely  basis,  or
maintained.  Delays in  obtaining  or failure to obtain  government  permits and
approvals may adversely  impact our  operations.  The regulatory  environment in
which we operate could change in ways that would substantially increase costs to
achieve compliance. In addition,  significant changes in regulation could have a
material adverse effect on our operations or financial position.

Outlined below are some of the more significant aspects of governmental controls
and regulations which materially affect our interests in the Relief Canyon,  Red
Caps and Crescent Valley mines.

Regulation of Mining Activity
-----------------------------

Newgold's  mining  properties,  including  care  and  maintenance,  exploration,
development  and  production  activities,  is  subject  to  environmental  laws,
policies and regulations.  These laws, policies and regulations regulate,  among
other matters,  emissions to the air, discharges to water,  management of waste,
management of hazardous substances,  protection of natural resources, protection
of endangered  species,  protection of antiquities  and reclamation of land. The
mines are also  subject  to  numerous  other  federal,  state and local laws and
regulations.  At the  federal  level,  the mines are subject to  inspection  and
regulation  by the  Division  of Mine  Safety and Health  Administration  of the
Department  of Labor  ("MSHA")  under  provisions of the Federal Mine Safety and
Health Act of 1977.  The Occupation  and Safety Health  Administration  ("OSHA")
also has  jurisdiction  over certain safety and health  standards not covered by
MSHA. Mining operations and all future  exploration and development will require
a variety of  permits.  Although  we believe  the  permits  can be obtained in a
timely fashion,  permitting  procedures are complex,  costly, time consuming and
subject  to  potential  regulatory  delay.  We  do  not  believe  that  existing
permitting  requirements or other environmental  protection laws and regulations
would have a material  adverse  effect on our ability to explore and  eventually
operate the mines. However, we cannot be certain that future changes in laws and
regulations  would  not  result  in  significant  additional  expenses,  capital
expenditures,  restrictions  or  delays  associated  with the  operation  of our
properties.  We cannot predict  whether we will be able to obtain new permits or
whether  material  changes in permit  conditions  will be imposed.  Granting new
permits or the imposition of additional conditions could have a material adverse
effect on our ability to explore and operate the mining  properties  in which we
have an interest.

On June 9, 2005,  we received  permission  from the NDEP to commence  designated
environmental  activities  previously  requested by us.  Subsequent  to the 2006
fiscal year end, we made a cash deposit of $243,204 to cover future  reclamation
costs as  required  by the NDEP for the Relief  Canyon  Mine.  We are now moving
forward with the  permitting  process  that will allow us to perform  additional
exploration, development and mining operations. The Red Caps and Crescent Valley
properties currently are not part of any permitting process.  During fiscal 2007
Newgold  plans on filing  the  necessary  permits to allow  initial  exploration
activities to begin at both properties.







                                       22

Legislation has been  introduced in prior sessions of the U.S.  Congress to make
significant  revisions to the U.S.  General Mining Law of 1872 that would affect
our  unpatented  mining  claims on federal  lands,  including  a royalty on gold
production.  It cannot be predicted  whether any of these  proposals will become
law. Any levy of the type proposed would only apply to unpatented  federal lands
and accordingly  could  adversely  affect the  profitability  of portions of any
future gold production from the Relief Canyon mine.

The State of Nevada,  where our mine  properties are located,  adopted the Mined
Land  Reclamation  Act (the  "Nevada  Act") in 1989  which  established  design,
operation,  monitoring and closure  requirements for all mining facilities.  The
Nevada  Act has  increased  the cost of  designing,  operating,  monitoring  and
closing mining facilities and could affect the cost of operating, monitoring and
closing  existing  mine  facilities.  The  State  of  Nevada  also  has  adopted
reclamation regulations pursuant to which reclamation plans must be prepared and
financial  assurances   established  for  existing  facilities.   The  financial
assurances  can be in the form of cash  placed  on  deposit  with  the  State or
reclamation bonds underwritten by insurance  companies.  The State of Nevada has
requested  financial  assurances from or a posting of a bond by us in the amount
of $464,000.  We developed a specific reclamation plan of the Relief Canyon Mine
and began  implementation  of the plan in April 2005. This work was completed in
the  summer of 2005.  As a result of  completing  the work,  the State of Nevada
reduced the financial  assurance amount to $243,204 which we have deposited in a
blocked account with our bank in Sacramento, California. Our ability to commence
full mining operations at the Relief Canyon Mine is now subject to our obtaining
all necessary mining permits.

Environmental Regulations
-------------------------

Legislation and implementation of regulations  adopted or proposed by the United
States  Environmental  Protection  Agency  ("EPA"),  the BLM  and by  comparable
agencies in various states directly and indirectly affect the mining industry in
the United States.  These laws and regulations address the environmental  impact
of mining and mineral processing,  including potential contamination of soil and
water from tailings  discharges and other wastes generated by mining  companies.
In particular,  legislation  such as the Clean Water Act, the Clean Air Act, the
Federal  Resource  Conservation  and Recovery Act  ("RCRA"),  the  Environmental
Response,  Compensation and Liability Act and the National  Environmental Policy
Act require analysis and/or impose effluent  standards,  new source  performance
standards,  air quality  standards and other design or operational  requirements
for various  components  of mining and mineral  processing,  including  gold-ore
mining  and  processing.  Such  statutes  also may  impose  liability  on us for
remediation of waste we have created.

Gold  mining  and  processing  operations  by an  entity  would  generate  large
quantities  of solid  waste  which is subject to  regulation  under the RCRA and
similar  state  laws.  The  majority  of the  waste  which is  produced  by such
operations is  "extraction"  waste that EPA has determined not to regulate under
RCRA's "hazardous waste" program.  Instead,  the EPA is developing a solid waste
regulatory  program specific to mining  operations under the RCRA. Of particular
concern to the mining industry is a proposal by the EPA entitled "Recommendation
for a Regulatory  Program for Mining Waste and Materials Under Subtitle D of the
Resource  Conservation  and Recovery Act" ("Strawman II") which, if implemented,
would create a system of  comprehensive  Federal  regulation  of the entire mine
site.  Many  of  these  requirements  would  be  duplicates  of



                                       23

existing state regulations. Strawman II as currently proposed would regulate not
only mine and mill wastes but also numerous production  facilities and processes
which  could limit  internal  flexibility  in  operating  a mine.  To  implement
Strawman II the EPA must seek additional statutory authority,  which is expected
to be requested in connection with Congress' reauthorization of RCRA.

We also are subject to  regulations  under (i) the  Comprehensive  Environmental
Response, Compensation and Liability Act of 1980 ("CERCLA" or "Superfund") which
regulates and establishes  liability for the release of hazardous substances and
(ii) the Endangered  Species Act ("ESA") which identifies  endangered species of
plants and animals and  regulates  activities to protect these species and their
habitats.  Revisions  to "CERCLA"  and "ESA" are being  considered  by Congress;
however,  the  impact of these  potential  revisions  on us is not clear at this
time.

The Clean Air Act,  as  amended,  mandates  the  establishment  of a Federal air
permitting  program,  identifies a list of hazardous air  pollutants,  including
various metals and cyanide, and establishes new enforcement  authority.  The EPA
has  published  final  regulations  establishing  the minimum  elements of state
operating  permit  programs.  Newgold  will be required to comply with these EPA
standards to extent adopted by the State of Nevada.

In addition,  we are  required to mitigate  long-term  environmental  impacts by
stabilizing, contouring, resloping, and revegetating various portions of a site.
While a portion  of the  required  work was  performed  concurrently  with prior
operations,  completion of the  environmental  mitigation occurs once removal of
all facilities has been completed.  These  reclamation  efforts are conducted in
accordance  with  detailed  plans which have been  reviewed  and approved by the
appropriate regulatory agencies. We have made the necessary cash deposits and we
made provision to cover the estimated  costs of such  reclamation as required by
permit.

We believe that our care and maintenance operation at the Relief Canyon Mine, as
it exists today, is in substantial compliance with federal and state regulations
and that no further significant capital  expenditures for environmental  control
facilities  will be  required  until  production  resumes  at the site.  We also
believe  we are in  substantial  compliance  with the  same  federal  and  state
regulations at the Red Caps and Crescent  Valley  properties as no  exploration,
development or mining activities have yet commenced there.

DESCRIPTION OF PROPERTY

Newgold's   executive  office  is  located  at  400  Capitol  Mall,  Suite  900,
Sacramento, California 95814.

Newgold  owns  78  unpatented   mill  and  mining  claims  covering  1000  acres
representing  the Relief Canyon mining  property  located in the Humboldt  Range
mining district in Nevada. This property also contains various  improvements and
equipment. See "Business - Relief Canyon Mine."










                                       24

Newgold has entered  into a joint  venture to explore and develop the  following
mining properties:

         Approximately  96  unpatented  mining  claims  covering over 1900 acres
         representing  the  Red  Caps  mining  property  located  in the  Battle
         Mountain-Eureka mineral belt in Nevada.

         Approximately  39  unpatented  mining  claims  covering  over 750 acres
         representing  the Crescent Valley mining property located in the Battle
         Mountain-Eureka  mineral belt in Nevada. See "Business-Crescent  Valley
         and Red Caps Mine."


MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

CAUTION ABOUT FORWARD-LOOKING STATEMENTS

This prospectus  includes  "forward-looking"  statements  about future financial
results, future business changes and other events that haven't yet occurred. For
example,   statements   like  we  "expect,"   "anticipate"   or  "believe"   are
forward-looking  statements.  Investors  should be aware that actual results may
differ  materially  from  our  expressed   expectations  because  of  risks  and
uncertainties about the future. We do not undertake to update the information in
this  prospectus  if  any  forward  looking  statement  later  turns  out  to be
inaccurate.  Details about risks  affecting  various aspects of our business are
discussed throughout this prospectus and should be considered carefully.

PLAN OF OPERATION FOR THE NEXT TWELVE MONTHS

Certain key factors that have affected our  financial  and operating  results in
the past will affect our future financial and operating results.  These include,
but are not limited to the following:

     o   Gold prices, and to a lesser extent, silver prices;

     o   Current gold  deposits  under our control at the Relief Canyon Mine are
         estimated by us (based on past  exploration by Newgold and work done by
         others).

     o   Our proposed exploration of properties now include 78 unpatented mining
         claims contained in about 1000 acres of the Relief Canyon Property;  96
         unpatented  mining claims contained in about 1900 acres of the Red Caps
         Property;  and 39 unpatented mining claims contained in about 750 acres
         of the Crescent Valley Property.

     o   Our operating plan is to commence  exploration work on all three mining
         properties  beginning  with the Relief  Canyon  mining  property in the
         summer of 2006. We expect this exploration  program to continue through
         the end of 2006.  We expect to begin  exploration  work at the Red Caps
         and  Crescent  Valley  properties  in the fall of 2006.  By the  fourth
         quarter  of fiscal  2007,  we plan to resume  mining  operation  at the
         Relief  Canyon  mine.  We  anticipate  by the end of fiscal  2007 to be
         realizing  production  revenue from the Relief Canyon mine. Through the
         use of joint ventures,  royalties,  arrangements and  partnerships,  we
         intend to progressively enlarge the scope and scale of our exploration,
         mining and processing  operations,  thereby potentially  increasing our
         chances of  locating  commercially  viable  ore  deposits  which  could
         increase both our

                                       25

         annual  revenues and  ultimately  our net profits.  Our objective is to
         achieve  annual  growth  rates  in  revenue  and  net  profits  for the
         foreseeable future.

     o   We expect to make capital  expenditures in calendar years 2006 and 2007
         of between $2.5 million and $4 million,  including costs related to the
         exploration of the Relief Canyon mining property. We will have to raise
         additional  outside  capital  to  pay  for  these  activities  and  the
         resumption of mine operations and production at the Relief Canyon mine.

     o   Additional funding or the utilization of other venture partners will be
         required to fund mining operations,  exploration, research, development
         and operating  expenses at the Red Caps and Crescent Valley properties.
         In the  past we  have  been  dependent  on  funding  from  the  private
         placement  of our  securities  as well as loans from  related and third
         parties as the sole sources of capital to fund operations.

RESULTS OF OPERATION

We resumed  business  operations after having been inactive from July 2001 until
February 2003. Consequently,  because we are in the process of reinstituting our
business  and mining  operations,  the  results of  operations  for the last two
fiscal years will likely not be indicative of our current and future operations.
The current  management  discussion and analysis should be read from the context
of our recent resumption of our mining business.

Operating Results for the Fiscal Years Ended January 31, 2006 and 2005
----------------------------------------------------------------------

Although we  commenced  efforts to  re-establish  our mining  business  early in
fiscal year 2004, no mining  operations have commenced and no revenues have been
recognized during the fiscal years 2004, 2005 and 2006, respectively. We hope to
be able to commence  generating  revenues from mining operations during the 2007
calendar year. We have granted a 4% net smelting return royalty to a third party
related to the Relief  Canyon  mining  property  which has been  recorded  as an
$800,000 deferred option income.

During the fiscal year ended January 31, 2006 we spent  $132,166 on  reclamation
and  maintenance   expenses  related  to  the  Relief  Canyon  mining  property.
Reclamation and maintenance  expenses expended during the year ended January 31,
2005 were $28,433.  These expenses relate primarily to maintenance and retention
costs required to maintain our mining claims. We incurred  operating expenses of
$674,778  during the year ended  January  31,  2006.  Of this  amount,  $374,001
reflects  officer  compensation  and related  payroll  taxes during the year and
$157,446 reflect fees for outside professional  services. A large portion of the
outside  professional  services reflects legal and accounting work pertaining to
our annual and  quarterly  reporting on Form 10-KSB and  preparation  of an SB-2
registration  statement  occurring  in fiscal  year 2006.  During the year ended
January 31, 2005 we incurred  operating  expenses of $353,972 of which  $220,000
represents  officer  compensation and related payroll taxes,  $33,510 reflecting
payroll  tax  penalties  and  $89,900  reflect  fees  for  outside  professional
services.  It is anticipated that both mining costs and operating  expenses will
increase   significantly  as  we  resume  our  exploration  program  and  mining
operations.





                                       26

We incurred  interest expense of $941,347 during the year ended January 31, 2006
which compares to interest  expenses of $614,672  incurred during the year ended
January  31,  2005.  The amount of loans  outstanding  during  fiscal  year 2006
decreased  by $797,742  compared to fiscal year 2005,  which was  primarily  the
result of the Chief Executive Officer's conversion of a convertible note payable
of  $1,402,742  into  shares  of common  stock in July 2005 and the  convertible
debenture  of  $600,000  funded in January  2006.  The  increase  in  additional
interest  expense  during  fiscal year 2006 was primarily due to the increase in
accretion of warrants issued in October 2004 as a debt discount.

In  conjunction  with the  Convertible  Debenture  issued  January 27, 2006,  we
allocated the proceeds  received  between  convertible  debt and the  detachable
warrants  based upon the  relative  fair market  values on the date the proceeds
were received. Subsequent to the initial recording, the change in the fair value
of the detachable  warrants,  determined under the Black-Scholes  option pricing
formula,  and the change in the fair  value of the  embedded  derivative  in the
conversion feature of the convertible  debentures are recorded as adjustments to
the  liabilities  at  January  31,  2006.  This  resulted  in $37,418 of expense
relating to the change in the fair value of the Company's stock reflected in the
change in the fair value of the warrants and  derivatives  (noted  above) and is
included as other income (expense).

In October 2004, we liquidated our investment in marketable  securities  through
open market  transactions.  Net proceeds  totaled  approximately  $34,100.  This
resulted  in a loss on sale of  $281,063.  There  were no  sales  of  marketable
securities for the comparable period in fiscal year 2006.

Due to the fact that the joint venture with ASDi was a related party transaction
with no independent appraisal as to value, the joint venture was assigned a zero
value for accounting purposes and the $859,522 of securities paid by Newgold was
recorded as a loss for accounting purposes.

Our total net loss for the year ended  January 31, 2006  increased to $2,645,231
compared to a net loss of $ 1,278,140 incurred for the fiscal year ended January
31,  2005.  The larger net loss in fiscal  year 2006  reflects  the  substantial
increase in  operating  expenses as we  reactivate  our mining  activities,  the
increase in interest expense,  the loss recognized from the Crescent Red Caps JV
and a continued lack of revenues recognized during fiscal year 2006.

LIQUIDITY AND CAPITAL RESOURCES

We have incurred significant operating losses since inception which has resulted
in an accumulated  deficit of $19,030,535 as of January 31, 2006. At January 31,
2006,  we had cash and other current  assets of $701,546  compared to $18,730 at
January 31,  2005 and a net working  capital  deficit of  $2,130,847.  Since the
resumption of our business in February  2003, we have been dependent on borrowed
or invested funds in order to finance our ongoing operations.  As of January 31,
2006, we had  outstanding  debentures  and notes payable in the gross  principal
amount of $1,057,634 (net balance of $1,020,291 after $(597,260) of note payable
discount and $637,417 of derivative  liabilities)  which  reflects a decrease of
$797,742  compared to notes payable in the gross principal amount of $1,855,376,
(net  balance of  $1,006,088  after  $849,288 of note  payable  discount)  as of
January 31, 2005.






                                       27

As of  January  31,  2006 we were in  default  on a  promissory  note  due to an
unrelated party in the principal amount $176,500.

In the quarter  ended  April 30, 2005 we raised a total of $575,000  through the
sale of 2,500,000 shares of Newgold restricted stock.

In the quarter ended July 31, 2005 we issued  12,326,231  shares of Common Stock
at a price of $0.15 per share to our chief  executive  officer  according to the
terms of existing  notes  payable to the officer.  The issuance  resulted in the
repayment  of  principal  of  $1,402,742  and  interest  of  $446,193   totaling
$1,848,935.

On January 27,  2006,  we entered  into a Securities  Purchase  Agreement  and a
Convertible Debenture in the principal amount of $1,000,000 and bearing interest
at 8% per annum.  The Debenture  was funded  $600,000 on January 27, 2006 and we
will  receive an  additional  $200,000 on March 14, 2006 upon the filing of this
resale  registration  statement  with  the  SEC and a final  $200,000  upon  the
registration statement being declared effective by the SEC.

By attempting to resume mining  operations,  we will require  approximately  $10
million to $15 million in additional  working capital above the amounts realized
from the  convertible  debenture  to bring  the  Relief  Canyon  Mine  into full
production. It is our intention to pursue several possible funding opportunities
including  the  sale of  additional  securities,  entering  into  joint  venture
arrangements, or the incurring of additional debt.

Due to our  continuing  losses from our  business  operations,  the  independent
auditor's  report dated April 26, 2006,  includes a "going concern"  explanation
relating to the fact that  Newgold's  continuation  is dependent  upon obtaining
additional working capital either through  significantly  increasing revenues or
through  outside  financing.   As  of  January  31,  2006,  Newgold's  principal
commitments  included its obligation to pay ongoing  maintenance  fees on its 78
unpatented mining claims on the Relief Canyon property.

Our  management  believes  that it will  need to  raise  additional  capital  to
continue to develop,  promote and conduct its exploration and mining operations.
Due to our  limited  cash flow,  operating  losses  and  limited  assets,  it is
unlikely that we could obtain financing  through  commercial or banking sources.
Consequently,  we are  dependent on  continuous  cash  infusions  from our major
stockholders or other outside  sources in order to fund our current  operations.
Prior to the transaction with Cornell Capital Partners,  Newgold's president has
paid a substantial  portion of Newgold's  expenses since restarting its business
in February 2003.  Although  Newgold believes that these creditors and investors
will continue to fund Newgold's  expenses based upon their  significant  debt or
equity  interest in Newgold,  there is no  assurance  that such  investors  will
continue to fund Newgold's ongoing operating expenses. If adequate funds are not
otherwise  available,  through public or private  financing as well as borrowing
from other sources, Newgold would not be able to establish or sustain its mining
operations.

Recent Financing Transaction
----------------------------

On January 27,  2006,  we entered  into a  Securities  Purchase  Agreement  (the
"Purchase  Agreement")  and other  agreements  in  connection  with the  private
placement of a convertible debenture,  in the principal amount of $1,000,000 and
bearing  interest  at 8% per annum (the


                                       28

"Debentures").  The  Debenture  will be funded  $600,000  on January  27,  2006,
$200,000  upon the filing of a resale  registration  statement  with the SEC and
$200,000 upon the  registration  statement being declared  effective by the SEC.
The $600,000 Debenture is due and payable on January 27, 2009 while the $200,000
Debenture  is due and  payable on March 9, 2007 and a final  $200,000  Debenture
will be due and payable  within  three (3) years of the  effective  date of this
Registration Statement,  unless they are converted into shares of Newgold Common
Stock or are  repaid  prior to the  expiration  dates.  The  conversion  rate is
adjustable and at any conversion date, will be the lower of $0.2626 per share or
95% of the  Market  Conversion  Price.  Consequently,  the  number  of shares of
Newgold  Common Stock into which the  Debentures  may be converted will never be
less than 3,808,073 shares but could be substantially  more if the average price
of Newgold's Common Stock falls below $0.2626.

In  conjunction  with  the  Purchase  Agreement,  we  entered  into an  Investor
Registration  Rights  Agreement  (the  "Registration  Rights  Agreement").   The
Registration Rights Agreement requires us to register at least 24,050,025 shares
of  our  Common  Stock  to  cover  the  conversion  of the  Debenture  (assuming
conversion prices  substantially below $0.26) and 2,500,000 shares of our Common
Stock  issuable  upon  conversion of warrants  (the  "Warrants")  granted to the
Debenture holder. We are required to keep this Registration  Statement effective
until the Debentures have been fully converted,  repaid,  or becomes due and the
Warrants  have been fully  exercised  or  expire.  Both the  Debentures  and the
Warrants are currently convertible or exercisable, respectively.

In conjunction with the Purchase Agreement, we entered into a Security Agreement
(the "Security Agreement"). The Security Agreement creates a secured interest in
favor of the  Debenture  holder in our mining  interest and assets in the Relief
Canyon Mine  property.  This security  interest was created by  recordation of a
Memorandum of Security  Agreement filed in Pershing  County,  Nevada on February
14,  2006.  Consequently,  should a  default  occur  under  the  Debenture,  the
Debenture  holder  could take over or sell all of our  interests,  business  and
assets associated with the Relief Canyon Mine.

In conjunction with the Purchase  Agreement,  we granted  2,500,000  warrants to
purchase  shares of Newgold  Common Stock,  1,250,000  exercisable  at $0.20 per
share and 1,250,000  exercisable at $0.30 per share. The Warrants have a term of
four years.  The  exercise  price may be reduced if shares of  Newgold's  Common
Stock are sold at a price below the Warrant exercise price.

Lastly, in conjunction with the Purchase Agreement, we entered into a Pledge and
Escrow Agreement whereby up to an additional 24,050,025 shares of Newgold Common
Stock could be issued to the Debenture holder in the event of a default relating
to the  Debenture.  The  precise  amount of shares  that would be required to be
issued to the  Debenture  holder  would  depend on the amount of  principal  and
interest outstanding under the Debenture at the time a default was declared.

Pursuant  to the  Purchase  Agreement,  for so  long  as at  least  $200,000  of
principal  remains  outstanding  under the Debenture,  the Debenture holder will
have approval rights over any major  transaction  (i.e.,  merger,  stock splits,
sale of assets) or any  issuance of common or  preferred  stock by Newgold  with
certain exceptions. The Debenture holder will also have a right of first







                                       29

refusal for a period of 18 months with regard to any  additional  capital sought
to be raised by Newgold.

Off-Balance Sheet Arrangements
------------------------------

During the fiscal quarter ended October 31, 2005,  Newgold did not engage in any
off-balance sheet arrangements as defined in Item 303(c) of the SEC's Regulation
S-B.

CRITICAL ACCOUNTING POLICIES

Our discussion and analysis of our financial  condition and results of operation
are based upon our financial statements,  which have been prepared in accordance
with  generally  accepted  accounting  principles  in  the  United  States.  The
preparation of financial  statements  requires  management to make estimates and
disclosures on the date of the financial  statements.  On an on-going  basis, we
evaluate our estimates,  including, but not limited to, those related to revenue
recognition.  We use  authoritative  pronouncements,  historical  experience and
other assumptions as the basis for making judgments. Actual results could differ
from those estimates. We believe that the following critical accounting policies
affect our more  significant  judgments and estimates in the  preparation of our
financial statements.

Exploration Stage Company
-------------------------

Effective  January 1, 1995 (date of  inception),  the Company is  considered  an
exploration  stage Company as defined in SFAS No. 7. The  Company's  exploration
stage activities consist of the development of several mining properties located
in Nevada. Sources of financing for these exploration stage activities have been
primarily debt and equity  financing.  The Company has, at the present time, not
paid any dividends and any dividends  that may be paid in the future will depend
upon the financial requirements of the Company and other relevant factors.

Valuation of long-lived assets
------------------------------

Long-lived assets,  consisting primarily of property and equipment,  patents and
trademarks,  and goodwill,  comprise a significant  portion of our total assets.
Long-lived  assets are reviewed  for  impairment  whenever  events or changes in
circumstances  indicate  that  their  carrying  values  may not be  recoverable.
Recoverability of assets is measured by a comparison of the carrying value of an
asset to the future net cash flows expected to be generated by those assets. The
cash flow projections are based on historical  experience,  management's view of
growth  rates  within  the  industry,   and  the  anticipated   future  economic
environment.

Factors we consider important that could trigger a review for impairment include
the following:

         (a)      significant  underperformance  relative to expected historical
                  or projected future operating results,

         (b)      significant  changes in the manner of our use of the  acquired
                  assets or the strategy of our overall business, and

         (c)      significant negative industry or economic trends.

                                       30

When we  determine  that the  carrying  value of  long-lived  assets and related
goodwill and  enterprise-level  goodwill may not be  recoverable  based upon the
existence of one or more of the above  indicators of impairment,  we measure any
impairment  based on a projected  discounted  cash flow method  using a discount
rate determined by our management to be  commensurate  with the risk inherent in
our current business model.

Deferred Reclamation Costs
--------------------------

In August  2001,  the  Financial  Accounting  Standards  Board  ("FASB")  issued
Statement of Financial  Accounting  Standards ("SFAS") No. 143,  "Accounting for
Asset  Retirement  Obligations,"  which  established a uniform  methodology  for
accounting for estimated  reclamation and abandonment  costs.  The statement was
adopted  February 1, 2003.  The  reclamation  costs will be allocated to expense
over the life of the related  assets and will be adjusted for changes  resulting
from the  passage  of time and  revisions  to either the timing or amount of the
original present value estimate.

Prior to adoption of SFAS No. 143, estimated future reclamation costs were based
principally on legal and regulatory  requirements.  Such costs related to active
mines were accrued and charged over the  expected  operating  lives of the mines
using the units of  production  method  based on proven and  probable  reserves.
Future  remediation  costs for inactive mines were accrued based on management's
best estimate at the end of each period of the undiscounted costs expected to be
incurred at a site.  Such cost estimates  included,  where  applicable,  ongoing
care,  maintenance and monitoring costs.  Changes in estimates at inactive mines
were reflected in earnings in the period an estimate was revised.

Exploration Costs
-----------------

Exploration  costs are  expensed  as  incurred.  All costs  related to  property
acquisitions are capitalized.

Mine Development Costs
----------------------

Mine development  costs consist of all costs associated with bringing mines into
production, to develop new ore bodies and to develop mine areas substantially in
advance  of  current  production.  The  decision  to  develop a mine is based on
assessment of the commercial  viability of the property and the  availability of
financing.  Once the decision to proceed to development is made, development and
other expenditures  relating to the project will be deferred and carried at cost
with the intention that these will be depleted by charges against  earnings from
future mining  operations.  No depreciation will be charged against the property
until  commercial  production  commences.  After a mine  has been  brought  into
commercial production,  any additional work on that property will be expensed as
incurred,  except for large  development  programs,  which will be deferred  and
depleted.

Reclamation Costs
-----------------

Reclamation  costs  and  related  accrued  liabilities,  which  are based on our
interpretation of current environmental and regulatory requirements, are accrued
and expensed, upon determination.


                                       31

Based on current environmental  regulations and known reclamation  requirements,
management  has  included  its  best  estimates  of  these  obligations  in  its
reclamation accruals. However, it is reasonably possible that our best estimates
of our ultimate  reclamation  liabilities could change as a result of changes in
regulations or cost estimates.

Valuation of Derivative Instruments
-----------------------------------

FAS No. 133  "Accounting  for Derivative  Instruments  and Hedging  Activities "
requires bifurcation of embedded derivative instruments and measurement of their
fair value for accounting  purposes.  In determining the appropriate fair value,
the Company uses the Black  Scholes model as a valuation  technique.  Derivative
liabilities  are  adjusted to reflect  fair value at each  period end,  with any
increase or decrease in the fair value being  recorded in results of  operations
as Adjustments  to Fair Value of  Derivatives.  In addition,  the fair values of
freestanding  derivative  instruments  such as warrants  are valued  using Black
Scholes models.

Recent Accounting Pronouncements
--------------------------------

In November 2004, the FASB issued SFAS No.  151,"Inventory  Costs". SFAS No. 151
amends the accounting for abnormal  amounts of idle facility  expense,  freight,
handling costs, and wasted material (spoilage) under the guidance in ARB No. 43,
Chapter 4,"Inventory Pricing".  Paragraph 5 of ARB No. 43, Chapter 4, previously
stated  that ". . .  under  some  circumstances,  items  such  as idle  facility
expense,  excessive  spoilage,  double freight,  and rehandling  costs may be so
abnormal  as to  require  treatment  as  current  period  charges.  . . ."  This
Statement  requires  that those items be recognized  as  current-period  charges
regardless  of whether they meet the  criterion of "so  abnormal."  In addition,
this Statement  requires that  allocation of fixed  production  overheads to the
costs  of  conversion  be  based  on  the  normal  capacity  of  the  production
facilities.  This  statement is effective for inventory  costs  incurred  during
fiscal years beginning after June 15, 2005.  Management does not expect adoption
of SFAS No. 151 to have a material impact on the Company's financial statements.

In  December  2004,  the FASB issued  SFAS No.  152,"Accounting  for Real Estate
Time-Sharing  Transactions".  The FASB issued this  Statement as a result of the
guidance provided in AICPA Statement of Position (SOP) 04-2,"Accounting for Real
Estate  Time-Sharing  Transactions".   SOP  04-2  applies  to  all  real  estate
time-sharing  transactions.  Among other items, the SOP provides guidance on the
recording  of credit  losses and the  treatment of selling  costs,  but does not
change the revenue recognition guidance in SFAS No.  66,"Accounting for Sales of
Real Estate",  for real estate  time-sharing  transactions.  SFAS No. 152 amends
Statement  No. 66 to reference the guidance  provided in SOP 04-2.  SFAS No. 152
also amends SFAS No. 67,  "Accounting for Costs and Initial Rental Operations of
Real Estate Projects",  to state that SOP 04-2 provides the relevant guidance on
accounting  for  incidental  operations  and costs  related  to the sale of real
estate time-sharing transactions.  SFAS No. 152 is effective for years beginning
after June 15, 2005, with restatements of previously issued financial statements
prohibited. This statement is not applicable to the Company.

In  December  2004,  the FASB  issued  SFAS No.  153,"Exchanges  of  Nonmonetary
Assets,"  an  amendment  to  Opinion  No.  29,   "Accounting   for   Nonmonetary
Transactions".  Statement No. 153 eliminates certain differences in the guidance
in Opinion No. 29 as compared to the guidance


                                       32

contained in standards issued by the International  Accounting  Standards Board.
The  amendment  to  Opinion  No. 29  eliminates  the fair  value  exception  for
nonmonetary  exchanges  of  similar  productive  assets and  replaces  it with a
general  exception  for  exchanges  of  nonmonetary  assets  that  do  not  have
commercial  substance.  Such an exchange has commercial  substance if the future
cash flows of the entity are expected to change significantly as a result of the
exchange. SFAS No. 153 is effective for nonmonetary asset exchanges occurring in
periods  beginning  after June 15, 2005.  Earlier  application  is permitted for
nonmonetary  asset exchanges  occurring in periods  beginning after December 16,
2004.  Management  does not expect  adoption  of SFAS No. 153 to have a material
impact on the Company's financial statements.

In December 2004, the FASB issued SFAS No.  123(R),"Share-Based  Payment".  SFAS
123(R) amends SFAS No.  123,"Accountung for Stock-Based  Compensation",  and APB
Opinion  25,"Accounting  for Stock Issued to Employees." SFAS No.123(R) requires
that  the  cost  of  share-based  payment  transactions  (including  those  with
employees and non-employees) be recognized in the financial statements. SFAS No.
123(R)  applies  to all  share-based  payment  transactions  in which an  entity
acquires  goods or services by issuing (or offering to issue) its shares,  share
options,  or other equity  instruments  (except for those held by an ESOP) or by
incurring  liabilities  (1) in amounts  based (even in part) on the price of the
entity's  shares  or  other  equity  instruments,  or (2) that  require  (or may
require)  settlement  by the  issuance  of an  entity's  shares or other  equity
instruments.  This statement is effective (1) for public companies qualifying as
SEC small  business  issuers,  as of the  first  interim  period or fiscal  year
beginning after December 15, 2005, or (2) for all other public companies,  as of
the first interim  period or fiscal year  beginning  after June 15, 2005, or (3)
for all nonpublic entities, as of the first fiscal year beginning after December
15, 2005. Management is currently assessing the effect of SFAS No. 123(R) on the
Company's  financial  statement.  On April 14, 2005, the Securities and Exchange
Commission  amended  the  compliance  dates  to  allow  companies  to  implement
Statement  No. 123R at the  beginning of their next fiscal year,  instead of the
next  reporting  period,  that begins after June 15, 2005,  or Dec. 15, 2005 for
small business issuers.

Effective for reporting  periods  beginning  after April 29, 2004,  the Emerging
Issues Task Force  (EITF)  released  Issue  04-2,  "Whether  Mineral  Rights are
Tangible or Intangible  Assets." The consensus was that mineral rights  acquired
on a business  combination  are  tangible  assets and  should be  recorded  as a
separate  component of property,  plant and equipment  either on the face of the
financial  statements or in the notes. The Company will comply with the Issue in
the future as required.

Effective  for  reporting  periods  beginning  after  March 31,  2004,  the EITF
released Issue No. 04-3, "Mining Assets:  Impairment and Business Combinations."
The EITF reached consensus that an entity should include value beyond proven and
probable  reserves in the value  allocated to mining assets in a purchase  price
allocation  to the  extent a market  participant  would  include  such  value in
determining the fair market value of the asset. The EITF also reached  consensus
that an entity  should  include  the  effects of  anticipated  changes in market
prices of minerals when  determining the fair market value of mining assets in a
purchase  price  equation  in a  manner  consistent  with  expectations  of  the
marketplace.

Effective for reporting  periods  beginning  after  December 15, 2005,  the EITF
released  Issue No.  04-6,  "Accounting  For  Stripping  Costs  Incurred  During
Production In The Mining  Industry."


                                       33

The EITF reached a consensus of accounting  for  "stripping  cost",  the cost of
removing  overburden  (material overlying a mineral deposit that must be removed
prior to mining) and waste materials, during the production phase and determined
that such costs are  considered  variable  production  costs and thus  should be
included  in the cost of  inventory  produced  during  the  period  in which the
stripping costs are incurred. The consensus applies to only entities involved in
finding and removing wasting natural  resources.  As such, this statement is not
applicable to the Company.

In March 2005, the FASB issued FASB  Interpretation  ("FIN") No. 47, "Accounting
for Conditional  Asset  Retirement  Obligations".  FIN No. 47 clarifies that the
term conditional asset retirement  obligation as used in FASB Statement No. 143,
"Accounting for Asset Retirement  Obligations,"  refers to a legal obligation to
perform an asset  retirement  activity  in which the  timing and (or)  method of
settlement  are  conditional on a future event that may or may not be within the
control of the entity.  The obligation to perform the asset retirement  activity
is unconditional even though uncertainty exists about the timing and (or) method
of  settlement.  Uncertainty  about the timing  and/or method of settlement of a
conditional asset retirement  obligation should be factored into the measurement
of the liability when sufficient  information  exists.  This interpretation also
clarifies  when an  entity  would  have  sufficient  information  to  reasonably
estimate  the fair  value  of an  asset  retirement  obligation.  FIN No.  47 is
effective no later than the end of fiscal  years ending after  December 15, 2005
(December 31, 2005 for calendar-year  companies).  Retrospective  application of
interim financial information is permitted but is not required.  Management does
not expect  adoption  of FIN No. 47 to have a material  impact on our  financial
statements.

In May  2005,  the FASB  issued  Statement  of  Financial  Accounting  Standards
("SFAS") No. 154,  "Accounting  Changes and Error  Corrections"  an amendment to
Accounting  Principles  Bulletin Opinion No. 20, "Accounting  Changes" ("APB No.
20"),  and SFAS No.  3,  "Reporting  Accounting  Changes  in  Interim  Financial
Statements".  Though SFAS No. 154 carries  forward the guidance in APB No.20 and
SFAS No.3 with  respect  to  accounting  for  changes in  estimates,  changes in
reporting  entity,  and the correction of errors,  SFAS No. 154  establishes new
standards on accounting for changes in accounting  principles,  whereby all such
changes must be accounted  for by  retrospective  application  to the  financial
statements of prior periods unless it is impracticable to do so. SFAS No. 154 is
effective  for  accounting  changes and error  corrections  made in fiscal years
beginning after December 15, 2005, with early adoption permitted for changes and
corrections  made in years  beginning after May 2005. The Company will implement
SFAS No. 154 in its fiscal year  beginning  February 1, 2006.  We are  currently
evaluating  the impact of this new  standard but believe that it will not have a
material impact on the Company's financial position,  results of operations,  or
cash flows.

In February 2006, the FASB issued SFAS No. 155,  "Accounting  for Certain Hybrid
Financial  Instruments",  which amends SFAS No. 133, "Accounting for Derivatives
Instruments and Hedging Activities" and SFAS No. 140,  "Accounting for Transfers
and Servicing of Financial Assets and  Extinguishment of Liabilities".  SFAS No.
155 amends  SFAS No. 133 to narrow the scope  exception  for  interest-only  and
principal-only   strips  on  debt   instruments  to  include  only  such  strips
representing  rights to receive a specified portion of the contractual  interest
or  principle  cash  flows.  SFAS No.  155  also  amends  SFAS No.  140 to allow
qualifying  special-purpose  entities  to hold a  passive  derivative  financial
instrument  pertaining  to  beneficial  interests



                                       34

that itself is a derivative instrument.  The Company is currently evaluating the
impact this new Standard but believes that it will not have a material impact on
the Company's financial position, results of operations, or cash flows.

In March  2006,  the FASB  issued SFAS No. 156,  "Accounting  for  Servicing  of
Financial  Assets",  which  provides an  approach to simplify  efforts to obtain
hedge-like  (offset)  accounting.  This Statement amends FASB Statement No. 140,
"Accounting for Transfers and Servicing of Financial Assets and  Extinguishments
of  Liabilities",  with  respect to the  accounting  for  separately  recognized
servicing assets and servicing liabilities. The Statement (1) requires an entity
to recognize a servicing asset or servicing liability each time it undertakes an
obligation to service a financial asset by entering into a servicing contract in
certain situations; (2) requires that a separately recognized servicing asset or
servicing  liability be initially  measured at fair value, if  practicable;  (3)
permits  an entity to choose  either the  amortization  method or the fair value
method  for  subsequent  measurement  for each  class of  separately  recognized
servicing  assets or servicing  liabilities;  (4) permits at initial  adoption a
one-time reclassification of available-for-sale securities to trading securities
by  an  entity  with  recognized  servicing  rights,   provided  the  securities
reclassified  offset the  entity's  exposure to changes in the fair value of the
servicing  assets or  liabilities;  and (5) requires  separate  presentation  of
servicing assets and servicing  liabilities  subsequently measured at fair value
in the balance sheet and additional  disclosures  for all separately  recognized
servicing  assets and servicing  liabilities.  SFAS No. 156 is effective for all
separately recognized servicing assets and liabilities as of the beginning of an
entity's fiscal year that begins after September 15, 2006, with earlier adoption
permitted in certain  circumstances.  The Statement also describes the manner in
which it should be initially applied. The Company does not believe that SFAS No.
156 will have a material impact on its financial position, results of operations
or cash flows.

LEGAL PROCEEDINGS

On February 4, 2000, a complaint was filed against Newgold by Sun G. Wong in the
Superior Court of Sacramento  County,  California (Case No.  00AS00690).  In the
complaint,  Mr. Wong claims that he was held liable as a guarantor of Newgold in
a claim  brought by Don  Christianson  in a breach of  contract  action  against
Newgold.  Despite the fact that Newgold settled the action with Mr. Christianson
through the  issuance  of 350,000  shares of Newgold  Common  Stock,  Mr.  Wong,
nevertheless,  paid $60,000 to a third party claiming to hold Mr. Christianson's
judgment pursuant to Mr. Wong's guaranty agreement.  Similarly, Mr. Wong alleges
that he was held liable as a guarantor for a debt of $200,000 owed by Newgold to
Roger Primm with  regard to money  borrowed  by  Newgold.  Mr.  Primm filed suit
against  Newgold  which was settled  through the  issuance of 300,000  shares of
Newgold Common Stock. Nevertheless, Mr. Wong alleges that he remains liable to a
third party claiming to hold Mr.  Primm's  judgment for  approximately  $200,000
pursuant to his guaranty of such debt of Mr.  Primm.  On December 29, 2000,  the
superior  court  entered a default  judgment  against  Newgold  in the amount of
$400,553 with regard to the Christianson  judgment and an additional $212,500 in
regard to the Primm judgment  against Mr. Wong.  Newgold  believes that Mr. Wong
was not obligated to pay any sums pursuant to his guarantees  with regard to the
Christianson and Primm judgments against Newgold. Should Mr. Wong seek to assert
these judgments against Newgold,  Newgold cannot predict the outcome of any such
action or the amount of expenses that would be ultimately





                                       35

incurred in  defending  any such  claims.  Newgold is  currently  negotiating  a
settlement  with Mr.  Wong,  however  there is no assurance  that an  acceptable
settlement will be consummated.

On May 18, 2004 Paul Ngoyi filed a petition for involuntary  bankruptcy  against
Newgold (Case No.  BK-N-0451511).  Mr. Ngoyi claims to be the holder of both the
Christiansen  and Primm  judgments  against  Newgold and is claming that Newgold
cannot pay such judgments  because it is insolvent.  Newgold  maintains that Mr.
Ngoyi's  claims are invalid as the two judgments were  previously  satisfied and
that Newgold is not insolvent.  A pre-trial hearing was held on April 4, 2005 at
which time Newgold prevailed in having Mr. Ngoyi's petition dismissed.  An order
of dismissal was issued May 10, 2005.

MANAGEMENT

The  following  table sets forth  information  about the directors and executive
officers of Newgold  together  with the  principal  positions  and offices  with
Newgold held by each:



---------------------------- ------- ------------------------------------------------------ ------------------------
NAME OF PERSON               AGE     POSITION AND OFFICE PRESENTLY HELD WITH NEWGOLD        DIRECTOR SINCE
---------------------------- ------- ------------------------------------------------------ ------------------------
                                                                                      
A. Scott Dockter               50    Chairman, CEO and President                            1996
---------------------------- ------- ------------------------------------------------------ ------------------------
James W. Kluber                55    Chief Financial Officer and Director                   2000
---------------------------- ------- ------------------------------------------------------ ------------------------


Biographical information for directors and executive officers:
--------------------------------------------------------------

A.  SCOTT  DOCKTER  has been the Chief  Executive  Officer  and  Chairman  since
December 2000,  assuming such positions upon the  resignation of James Cutburth.
Mr. Dockter had  previously  served as Newgold's CEO and President from November
1996 until February 2000 at which time Mr. Cutburth assumed such positions.  Mr.
Dockter has been  self-employed  in the business sector since 1978 and currently
operates  his  business  through  ASD CORP and ASDi  LLC.  He has held a Class A
General  Engineering and Contracting  License for more than 20 years,  operating
his businesses in California,  Nevada and Montana, specializing in earth moving,
mining, pipeline projects, structures, dams, industrial parks and sub divisions.
Mr. Dockter has directed his companies in large landfill operations, underground
concrete  structures  projects,  large  excavations,  reclamation  projects  and
others,  which include state and local municipal projects.  Mr. Dockter has also
been a real  estate  developer,  worked on oil & gas  projects  and has spent 15
years in the mining  industry.  He has personally  owned mines,  operated mines,
constructed mine infrastructures (physical, production and process) and produced
precious  metals.  In January 2002,  Mr.  Dockter  pleaded  guilty to one felony
charge of  environmental  pollution  and was  sentenced to 5 months in a Federal
detention  camp and a $5,000  fine.  The charge  related  to the  release in the
summer 1997 of a hazardous material  (asbestos) at a demolition project owned by
Riverfront  Development  Corporation,  a corporation  founded by Mr.  Dockter of
which he was then the CEO.

JAMES W. KLUBER has been the Chief  Financial  Officer of Newgold since February
2000 and a  director  since  April  2000.  Mr.  Kluber  has  served  as a senior
financial  consultant in a variety of service and technology  environments  with
special focus on high growth  companies  and  restructuring  operations.  He has
successfully  raised  capital for  companies in a variety of

                                       36

markets,  utilizing  public  and  private  equity  as  well as  securitized  and
unsecured  debt  to  accomplish  funding  requirements.  From  December  2001 to
September  2003,  Mr.  Kluber was the CFO and until October 2005 was the interim
CFO of NutraCea a public company involved in the development and distribution of
products  based on the use of  stabilized  rice bran.  Additionally,  he was the
Senior Vice  President  and CFO from 1996 to 1999 for  RealPage,  Inc. a leading
provider of software and services to the real estate industry. From 1993 to 1996
he served as Vice  President of Financial  Operations  for two public  companies
sponsored by Security Capital Group, ProLogis Trust and Archstone Communities.

The  current  Directors  will  serve  and hold  office  until  the  next  annual
stockholders'  meeting  or until  their  respective  successors  have  been duly
elected and qualified.  Newgold's  executive officers are appointed by the Board
of Directors and serve at the discretion of the Board.

FAMILY RELATIONSHIPS

There are no family relationships between any director or executive officer.

BOARD MEETINGS AND COMMITTEES

Our Board of Directors  held six meetings  during the fiscal year ended  January
31, 2006 and acted by unanimous written consent on two occasions. The Board does
not currently have an Audit, Executive or Compensation Committee. At the current
time,  the entire  Board of  Directors  acts as Newgold's  audit  committee.  In
addition, we do not have an audit committee financial expert because it does not
currently have a designated audit committee. We have only two directors, both of
whom are also officers of Newgold.  We plan to appoint  additional  directors to
our Board and appoint an independent audit committee during the current year.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities  Exchange Act of 1934, as amended,  requires our
executive officers and directors, and persons who own more than 10% of Newgold's
Common  Stock to file reports of ownership on Form 3 and changes in ownership on
Form 4 with the Securities and Exchange  Commission (the "SEC").  Such executive
officers,  directors  and 10%  stockholders  are also  required  by SEC rules to
furnish us with copies of all Section  16(a) forms they file.  Based solely upon
its review of copies of such forms received by it, or on written representations
from  certain  reporting  persons that no other  filings were  required for such
persons,  Newgold believes that,  during the fiscal year ended January 31, 2006,
its  executive  officers and directors  and 10%  stockholders  complied with all
applicable Section 16(a) filing requirements except as follows:

Mr. Dockter sold 6,316,414  shares of Newgold Common Stock on September 1, 2005.
He did not file a Form 4 regarding this disposition until September 16, 2005.

Mr.  Dockter,  through an  affiliated  entity,  acquired  2.5 million  shares of
Newgold  Common  Stock and  options to purchase  2.5  million  shares of Newgold
Common Stock on January 25,  2006.  He did not file a Form 4 timely but reported
this transaction on a Form 5 which was timely filed on February 14, 2006.


                                       37

Mr. Dockter,  through an affiliated  entity,  sold 1.6 million shares of Newgold
Common  Stock  on  March  28,  2006.  He did not  file a Form 4  regarding  this
disposition until May 17, 2006.

EXECUTIVE COMPENSATION

The following table sets forth the  compensation of our chief executive  officer
during the last three complete fiscal years and each officer who received annual
compensation in excess of $100,000 during the last completed fiscal year.

                           SUMMARY COMPENSATION TABLE

                 For Years Ended January 31, 2006, 2005 and 2004



                                       Annual Compensation                          Long Term Compensation
                             ---------------------------------------    --------------------------------------------
                                                                                   Awards                  Payout
                                                                        ------------------------------     ----------
                                                                           Restricted     Securities
                                                      Other Annual           Stock        Underlying         LTIP      All Other
                      Fiscal     Salary      Bonus    Compensation          Award(s)       Options          Payout    Compensation
                       Year                   ($)         ($)                 ($)             (#)            ($)          ($)
                      ------ -------------- ------- ----------------    -------------- ---------------    ---------- --------------
                                                                                             
Scott Dockter (CEO)    2006     $180,000      -0-         -0-                   -0-            -0-            -0-         -0-
                       2005     $ 60,000      -0-         -0-                   -0-            -0-            -0-         -0-
                       2004     $ 60,000(1)   -0-         -0-                   -0-            -0-            -0-         -0-

James Kluber(2) (CFO)  2006     $160,000      -0-         -0-                   -0-            -0-            -0-        6,000(3)
                       2005     $140,000      -0-         -0-                   -0-            -0-            -0-        6,000(3)
                       2004     $140,000      -0-         -0-                   -0-            -0-            -0-        6,000(3)


         ---------------------------
         (1)  Of the amounts  shown,  the following  amounts have been deferred:
              2006 - $75,000;  2004 - $24,000.  The deferred amount for 2004 was
              converted to a convertible note payable on October 1, 2004.
         (2)  Of the amounts  shown,  the following  amounts have been deferred:
              2006 - $11,057;  2005 -  $93,500;  2004 -  $89,000.  The  deferred
              amount for 2004 was  converted  to a  convertible  note payable on
              October 1, 2004.
         (3)  Amount reflects a home office allowance

STOCK OPTION PLAN

We do not have a formal  stock option plan  currently in place.  Options to date
have  been  granted  on  an  individual  basis  pursuant  to  individual  option
agreements.  We expect to adopt a formal  stock  option plan during this current
fiscal year.

Options/SAR Grants in Last Fiscal Year
--------------------------------------





                                       38

The following  table sets forth certain  information  with respect to options or
SAR grants of Common Stock during the fiscal year ended  January 31, 2006 to the
Named Executive Officers.



------------------------- ------------------------- ----------------------- ------------------ ----------------------
                                                                                   
Name                      Number of Securities      Percent of Total        Exercise or Base   Expiration Date
                          Underlying Options        Options Granted to      Price
                          Granted                   Employees at January    ($ Per Share)
                                                    31, 2006
------------------------- ------------------------- ----------------------- ------------------ ----------------------
None
------------------------- ------------------------- ----------------------- ------------------ ----------------------


Aggregated Option/SAR Exercises Year-End Table.
-----------------------------------------------

During the fiscal  year ended  January  31,  2006,  none of the Named  Executive
Officers had exercised any options/SARs  issued by Newgold.  The following table
sets forth  information  regarding the stock options held as of January 31, 2006
by the Named Executive Officers.



----------------------------- ------------------------------------------- -------------------------------------------
Name                          Number of Securities Underlying             Value of Unexercised
                              Unexercised Options at                      In-the-Money Options at
                              January 31, 2006                            January 31, 2006
----------------------------- --------------------- --------------------- -------------------- ----------------------
                                     Exercisable         Unexercisable          Exercisable          Unexercisable
----------------------------- --------------------- --------------------- -------------------- ----------------------
                                                                                   
None
----------------------------- --------------------- --------------------- -------------------- ----------------------


EMPLOYMENT AGREEMENTS

On February  1, 2006,  we entered  into an  employment  agreement  with A. Scott
Dockter to serve as our chief executive  officer for Newgold,  Inc.  Pursuant to
the  agreement,  Mr.  Dockter will  receive an annual  salary of $180,000 and an
automobile expense allowance of $1,000 per month. In addition,  Mr. Dockter will
be eligible to participate in any discretionary bonuses or employee stock option
plans which may be adopted in the future. The employment agreement has a term of
three years.

On February  1, 2006,  we entered  into an  employment  agreement  with James W.
Kluber to serve as our chief financial officer of Newgold,  Inc. Pursuant to the
agreement,  Mr.  Kluber will receive an annual  salary of $160,000 and an office
expense allowance of $500 per month. In addition, Mr. Kluber will be eligible to
participate in any future  discretionary  bonuses or employee stock option plans
which may be adopted in the future. The employment agreement has a term of three
years.

EMPLOYEE PENSION, PROFIT SHARING OR OTHER RETIREMENT PLANS

We do not  have a  defined  benefit  pension  plan or  profit  sharing  or other
retirement plan.

COMPENSATION OF DIRECTORS

Our  directors  are also  officers of Newgold and do not receive any  additional
compensation for their services as members of the Board of Directors.

                                       39

We intend to appoint  additional  directors  in the future who may or may not be
employees.  For the non-employee directors, we may seek stockholder approval for
a "Director  Option  Plan" which would serve as the  compensation  plan for such
directors.  No specific plan had been developed as of the end of the last fiscal
year.

CODE OF ETHICS

We have  adopted  a Code of  Ethics  that  applies  to the  principal  executive
officer,  principal  accounting  officer or  controller,  or persons  performing
similar functions.

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

Newgold's  bylaws  provide that it will  indemnify  its officers and  directors,
employees and agents and former officers, directors, employees and agents unless
their  conduct  is  finally  adjudged  as  grossly  negligent  or to be  willful
misconduct.  This indemnification includes expenses (including attorneys' fees),
judgments,  fines,  and  amounts  paid in  settlement  actually  and  reasonably
incurred  by  these  individuals  in  connection  with  such  action,  suit,  or
proceeding,   including  any  appeal  thereof,  subject  to  the  qualifications
contained in Delaware law as it now exists. Expenses (including attorneys' fees)
incurred in defending a civil or criminal  action,  suit, or proceeding  will be
paid by Newgold in advance of the final  disposition  of such action,  suit,  or
proceeding  upon  receipt  of an  undertaking  by or on behalf of the  director,
officer,  employee or agent to repay such amount,  unless it shall ultimately be
determined that he or she is entitled to be indemnified by Newgold as authorized
in the bylaws. This  indemnification will continue as to a person who has ceased
to be a director,  officer,  employee or agent,  and will  benefit  their heirs,
executors,  and  administrators.  These  indemnification  rights  are not deemed
exclusive of any other rights to which any such person may otherwise be entitled
apart from the bylaws.  Delaware law generally provides that a corporation shall
have the power to  indemnify  persons  if they  acted in good  faith in a manner
reasonably  believed  to be in, or not  opposed  to, the best  interests  of the
corporation  and,  with respect to any  criminal  action or  proceeding,  had no
reasonable  cause to believe  the conduct  was  unlawful.  In the event any such
person is judged liable for negligence or misconduct,  this indemnification will
apply only if approved by the court in which the action was  pending.  Any other
indemnification shall be made only after the determination by Newgold's Board of
Directors   (excluding  any  directors  who  were  party  to  such  action),  by
independent  legal  counsel  in a  written  opinion,  or by a  majority  vote of
stockholders  (excluding  any  stockholders  who were parties to such action) to
provide such indemnification.

Insofar as indemnification  for liabilities  arising under the Securities Act of
1933 (the  "1933Act")  may be permitted to directors,  officers and  controlling
persons of Newgold pursuant to the foregoing provisions,  or otherwise,  Newgold
has been advised that in the opinion of the Securities  and Exchange  Commission
such  indemnification  is against public policy as expressed in the 1933 Act and
is, therefore, enforceable.

SECURITY  OWNERSHIP  OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT  AND RELATED
STOCKHOLDER MATTERS

The  following  table sets forth the number of shares of Newgold's  Common Stock
beneficially  owned  as of May 15,  2006  by,  (i) each  executive  officer  and
director of Newgold;  (ii) all

                                       40

executive officers and directors of Newgold as a group; and (iii) owners of more
than 5% of Newgold's Common Stock.



   --------------------------------------- ----------------------- ------------------------ -------------------
   NAME AND ADDRESS OF BENEFICIAL OWNER           POSITION            NUMBER OF SHARES           PERCENT
                                                                     BENEFICIALLY OWNED
   --------------------------------------- ----------------------- ------------------------ -------------------
   OFFICERS AND DIRECTORS
   --------------------------------------- ----------------------- ------------------------ -------------------
                                                                                   
   A. Scott Dockter                           Chairman and CEO          21,421,306(1)              27%
   400 Capitol Mall, Suite 900
   Sacramento, CA  95814
   --------------------------------------- ----------------------- ------------------------ -------------------
   James Kluber                             CFO, Executive Vice          1,395,007(2)               2%
   327 Copperstone Trail                       President, and
   Coppell, TX  75019                            Secretary
   --------------------------------------- ----------------------- ------------------------ -------------------
   All officers and  directors as a group                                22,816,313                29%
   ( 2 individuals)
   --------------------------------------- ----------------------- ------------------------ -------------------
   STOCKHOLDERS OWNING 5% OR MORE
   --------------------------------------- ----------------------- ------------------------ -------------------
   City Natural Resources                                               5,000,000 (3)              7.1%
   High Yield Trust
   Mansfield House
   1 Southhampton Street
   London , England WC2R OLR
   --------------------------------------- ----------------------- ------------------------ -------------------


     (1) Amount  includes   12,157,909  shares  issuable  under  stock  warrants
         exercisable within 60 days of May 15, 2006.

     (2) Amount  represents  1,395,007  shares  issuable  under  stock  warrants
         exercisable  within 60 days of May 15,  2006.  Amount  excludes  shares
         issuable  pursuant to a  convertible  promissory  note in the principal
         amount of $209,251.

     (3) Amount  includes   2,500,000   shares  issuable  under  stock  warrants
         exercisable within 60 days of January 31, 2006.

EQUITY COMPENSATION PLAN INFORMATION



                                                                                 
------------------------------- ---------------------------- ---------------------------- ----------------------------
Plan Category                   Number of securities to be   Weighted-average exercise    Number of securities
                                issued  upon  exercise  of   price of  outstanding        remaining available for
                                outstanding options,         options, warrants and right  future  issuance under
                                warrants and rights                                       equity compensation
                                                                                          plans (excluding securities
                                                                                          reflected in column
                                                                                          (a))

                                (a)                          (b)                          (c)
------------------------------- ---------------------------- ---------------------------- ----------------------------
Equity    compensation   plans
approved by security holders                N/A
------------------------------- ---------------------------- ---------------------------- ----------------------------
Equity  compensation plans not
approved by security holders                N/A
------------------------------- ---------------------------- ---------------------------- ----------------------------
Total                                       N/A
------------------------------- ---------------------------- ---------------------------- ----------------------------


                                       41

CERTAIN RELATIONSHIPS AND RELATED TRANSACTION

During the 2006 fiscal year, the president of Newgold, Scott Dockter, had loaned
Newgold an aggregate of $5,000. In July 2005 a convertible  promissory note with
a balance of $1,402,742 and additional  accrued  interest of $446,193 due to Mr.
Dockter was converted  into  12,326,231  shares of Newgold  common stock.  As of
January 31, 2006,  Mr. Dockter had loaned Newgold a total of $24,845 and accrued
interest of $32,023.  In addition to the outstanding  note payable,  Mr. Dockter
has been issued Warrants to purchase up to 12,157,909 shares of Newgold's Common
Stock at exercise prices ranging from $0.15/share to $0.40/share.

On January 25,  2006,  Newgold  entered into a joint  venture with ASDi,  LLC to
develop two Nevada mining  properties known as the Red Caps Project and Crescent
Valley  Project.  The Red Caps consists of  approximately  96 unpatented  mining
claims covering 1900 acres and the Crescent Valley consists of  approximately 39
unpatented  mining claims  covering 750 acres.  The Red Caps and Crescent Valley
mining claims are currently owned by ASDi, LLC, which is owned and managed by A.
Scott Dockter,  Chairman and CEO of Newgold.  The joint venture will be operated
through a newly formed Nevada  limited  liability  company  called  Crescent Red
Caps, LLC. The terms of the joint venture provide for ASDi to contribute the Red
Caps and  Crescent  Valley  mining  claims to the LLC in  exchange  for  Newgold
issuing 2.5 million  shares of its Common Stock to ASDi.  Newgold will initially
own a 22.22%  interest  in the LLC and ASDi  will  hold a  77.78%  interest.  By
expending up to  $1,350,000  on each project over the next three years,  Newgold
can  increase  its  interest in the LLC to 66.66%.  Thereafter,  Newgold has the
right to purchase the  remaining  interest in the LLC held by ASDi at a price to
be determined by the results of the exploration work conducted.  Newgold will be
the Manager of the LLC.

Should a transaction,  proposed  transaction,  or series of transactions involve
one of our  officers  or  directors  or a related  entity or an  affiliate  of a
related entity, or holders of stock  representing 5% or more of the voting power
(a "related entity") of our then outstanding voting stock, the transactions must
be approved by the unanimous  consent of our board of directors.  In the event a
member of the board of  directors is a related  party,  that member will abstain
from the vote.

DESCRIPTION OF SECURITIES

We are authorized to issue 250,000,000  shares of Common Stock,  $.001 par value
per share. We are not authorized to issue any preferred stock consisting. We had
68,104,072  shares  of  our  Common  Stock  and no  shares  of  preferred  stock
outstanding as of January 31, 2006.

COMMON STOCK

The  holders  of  outstanding  shares of Common  Stock are  entitled  to receive
dividends out of assets or funds legally  available for the payment of dividends
at such times and in such amounts as the board from time to time may  determine.
The Common  Stock is not  entitled to  pre-emptive  rights and is not subject to
conversion or  redemption.  Upon  liquidation,  dissolution or winding up of our
business,  the assets legally  available for  distribution to  stockholders  are
distributable  ratably  among the holders of the Common  Stock after  payment of
liquidation preferences, if any,

                                       42

on any outstanding preferred or Common Stock or other claims of creditors.  Each
outstanding  share of Common  Stock is duly and validly  issued,  fully paid and
non-assessable.

The holders of Newgold Common Stock are entitled to one vote for each share held
on all  matters  submitted  to a vote of  Newgold  stockholders.  Under  certain
circumstances,  California  law permits the holders of Newgold  Common  Stock to
assert  their right to cumulate  their votes for the election of  directors,  in
which case holders of less than a majority of the outstanding  shares of Newgold
Common Stock could elect one or more of Newgold's directors.  Holders of Newgold
Common Stock have no preemptive, subscription, or redemption rights.

TRANSFER AGENT

Transfer  Online,  Inc.,  Portland  Oregon,  serves as a transfer  agent for the
shares of Newgold Common Stock.

SELLING SECURITY HOLDERS

The table below lists the selling  stockholders and other information  regarding
the   beneficial   ownership  of  the  Common  Stock  by  each  of  the  selling
stockholders.  The first column lists the name of each selling stockholder.  The
second column lists the number of shares of Common Stock  beneficially  owned by
each  selling  stockholder  as of January 31,  2006.  The third column lists the
number of shares of Common Stock that may be resold under this  prospectus.  The
fourth and fifth columns list the number of shares of Common Stock owned and the
percentage of Common Stock owned after the resale of the Common Stock registered
under  this  prospectus.  The  total  number  of  shares  of  our  Common  Stock
outstanding  as of January  31, 2006 was  68,104,072.  Beneficial  ownership  is
determined  in  accordance  with  the  rules  of  the  Securities  and  Exchange
Commission,  and  includes  voting and  investment  power  with  respect to such
shares.  Shares  of Common  Stock  issuable  upon  conversion  of a  convertible
debenture  and shares of Common  Stock  subject to options or warrants  that are
currently  exercisable or exercisable  within 60 days after January 31, 2006 are
deemed to be  beneficially  owned by the person  holding  such  options  for the
purpose of computing the percentage ownership of such person but are not treated
as  outstanding  for the purpose of computing  the  percentage  ownership of any
other stockholder.



                                              COMMON SHARES             COMMON SHARES                  COMMON SHARES
                                            BENEFICIALLY OWNED         OFFERED BY THIS               BENEFICIALLY OWNED
NAME OF SELLING STOCKHOLDER                 PRIOR TO OFFERING            PROSPECTUS                    AFTER OFFERING
--------------------------------------    -----------------------    --------------------     --------------- -- --------------
                                                                                                  NUMBER          PERCENTAGE
                                                                                              ---------------    --------------
                                                                                                     
Cornell Capital Partners, LP                   26,550,025(1)             26,550,025                ----                *
City Natural Resources High Yield
Trust(2)                                        5,000,000(2)              5,000,000                ----                *
A. Scott Dockter                               21,421,306(3)              2,000,000             19,421,306            24%
                                          -----------------------    --------------------     ---------------    --------------
                                                52,971,331               33,550,025             19,421,306             *
                                          =======================    ====================     ===============    ==============


  * Represents holdings of less than one percent

                                       43

(1)  Estimated  maximum number of shares of common  issuable upon  conversion of
     Convertible  Debentures  (24,050,025 shares)  beneficially owned by Cornell
     Capital Partners,  and 2,500,000 shares of common stock underlying warrants
     immediately  exercisable.  Yorkville Advisors, LLC, which is the investment
     advisor  and  general  partner  of  Cornell  Capital  Partners,   has  sole
     dispositive,  investment  and voting power for all the shares.  Pursuant to
     the Convertible Debenture,  Cornell Capital Partners will not own more than
     4.9% of our then  outstanding  common  stock at any time.  The  address for
     Cornell Capital  Partners,  is 101 Hudson Street,  Suite 3700, Jersey City,
     New Jersey 07303.

(2)  Securities  beneficially  owned by City Natural Resources High Yield Trust,
     represent  2,500,000  shares of common stock and 2,500,000 shares of common
     stock underlying  warrants  immediately  exercisable.  The address for City
     Natural  Resources  High Yield Trust is  Mansfield  House,  1  Southhampton
     Trust, London, England WC2 ROLR

(3)  Securities beneficially owned by Scott Dockter,  represent 9,263,397 shares
     of common stock and 12,157,909  shares of common stock underlying  warrants
     immediately exercisable. The address for Scott Dockter is 400 Capitol Mall,
     Ste.900, Sacramento, CA 95814

PLAN OF DISTRIBUTION

Each of the selling stockholders, and any of their donees, pledgees, transferees
or other  successors-in-interest  selling  shares  of  Newgold  Common  Stock or
interests  in shares of Newgold  Common  Stock  received  after the date of this
prospectus  from  a  selling   stockholder  as  a  gift,   pledge,   partnership
distribution  or other  transfer,  may,  from time to time,  sell,  transfer  or
otherwise  dispose of any or all of their shares of Common Stock or interests in
shares of Common  Stock on any stock  exchange,  market or trading  facility  on
which the shares are traded or in private  transactions.  These dispositions may
be at fixed prices,  at prevailing  market prices at the time of sale, at prices
related to the prevailing market price, at varying prices determined at the time
of sale, or at negotiated  prices. A selling  stockholder will act independently
of Newgold in making  decisions  with respect to the timing,  manner and size of
each sale.

Each of the  selling  stockholders  may  use  any  one or more of the  following
methods when selling shares:

         o    ordinary  brokerage  transactions  and  transactions  in which the
              broker-dealer solicits purchasers;

         o    block trades in which the  broker-dealer  will attempt to sell the
              shares as agent but may position and resell a portion of the block
              as principal to facilitate the transaction;

         o    purchases  by a  broker-dealer  as  principal  and  resale  by the
              broker-dealer for its account;

         o    an  exchange  distribution  in  accordance  with the  rules of the
              applicable exchange;

         o    privately negotiated transactions;

         o    settlement  of short  sales  entered  into  after the date of this
              prospectus;

                                       44

         o    broker-dealers  may agree with the selling  stockholders to sell a
              specified number of such shares at a stipulated price per share;

         o    a combination of any such methods of sale;

         o    through  the  writing or  settlement  of options or other  hedging
              transactions, whether through an options exchange or otherwise; or

         o    any other method permitted pursuant to applicable law.

Broker-dealers  engaged  by the  selling  stockholders  may  arrange  for  other
brokers-dealers to participate in sales.  Broker-dealers may receive commissions
or discounts from the selling  stockholders  (or, if any  broker-dealer  acts as
agent  for the  purchaser  of  shares,  from the  purchaser)  in  amounts  to be
negotiated.  Each  selling  stockholder  does not expect these  commissions  and
discounts  relating to its sales of shares to exceed what are  customary  in the
types of transactions involved.

In  connection  with the sale of our  Common  Stock or  interests  therein,  the
selling  stockholders may enter into hedging transactions with broker-dealers or
other  financial  institutions,  which may in turn  engage in short sales of the
Common Stock in the course of hedging the  positions  they  assume.  The selling
stockholders  may also sell shares of our Common  Stock short and deliver  these
securities  to close out their  short  positions,  or loan or pledge  the Common
Stock to  broker-dealers  that in turn may sell these  securities.  The  selling
stockholders   may  also  enter  into   options  or  other   transactions   with
broker-dealers  or other  financial  institutions or the creation of one or more
derivative  securities which require the delivery to such broker-dealer or other
financial  institution of shares offered by this  prospectus,  which shares such
broker-dealer  or  other  financial  institution  may  resell  pursuant  to this
prospectus (as supplemented or amended to reflect such transaction).

The selling  stockholders and any  broker-dealers or agents that are involved in
selling the shares may be deemed to be "underwriters"  within the meaning of the
Securities Act of 1933 (the "Securities  Act") in connection with such sales. In
such event, any commissions  received by such  broker-dealers  or agents and any
profit  on the  resale  of the  shares  purchased  by them may be  deemed  to be
underwriting  commissions  or discounts  under the  Securities  Act.  Discounts,
concessions,  commissions  and similar  selling  expenses,  if any,  that can be
attributed  to the sale of securities  will be paid by the selling  stockholders
and/or the purchasers.  Each selling  stockholder  has informed  Newgold that it
does not have any agreement or understanding,  directly or indirectly,  with any
person to distribute the Common Stock.

Newgold is required to pay certain fees and expenses  incurred by it incident to
the  registration  of the shares.  Newgold has agreed to  indemnify  the selling
stockholders against certain losses, claims, damages and liabilities,  including
liabilities under the Securities Act.

Because  selling  stockholders  may be deemed to be  "underwriters"  within  the
meaning of the Securities  Act, they will be subject to the prospectus  delivery
requirements of the Securities Act. In addition,  any securities covered by this
prospectus  which qualify for sale pursuant to Rule 144 under the Securities Act
may be sold under Rule 144 rather than under this prospectus. Each

                                       45

selling  stockholder  has  advised  us that  they  have  not  entered  into  any
agreements, understandings or arrangements with any underwriter or broker-dealer
regarding the sale of the shares. There is no underwriter or coordinating broker
acting  in  connection  with the  proposed  sale of the  shares  by the  selling
stockholders.

We agreed to keep this prospectus effective until the earlier of (i) January 27,
2009 (ii) the date on which the shares may be resold by the selling stockholders
pursuant to Rule 144(k)  under the  Securities  Act or any other rule of similar
effect or (iii) all of the shares have been sold  pursuant to the  prospectus or
Rule 144 under the  Securities  Act or any other  rule of  similar  effect.  The
resale  shares  will be sold only  through  registered  or  licensed  brokers or
dealers if required under  applicable  state  securities  laws. In addition,  in
certain  states,  the  resale  shares  may not be sold  unless  they  have  been
registered or qualified for sale in the  applicable  state or an exemption  from
the registration or qualification requirement is available and is complied with.

Under  applicable  rules and  regulations  under the Securities  Exchange Act of
1934, as amended (the "Exchange Act"), any person engaged in the distribution of
the  shares  may not  simultaneously  engage in market  making  activities  with
respect  to our  Common  Stock for a period of two  business  days  prior to the
commencement of the distribution.  In addition, the selling stockholders will be
subject  to  applicable  provisions  of the  Exchange  Act  and  the  rules  and
regulations  thereunder,  including  Regulation M, which may limit the timing of
purchases and sales of shares of our Common Stock by the selling stockholders or
any other  person.  We will  make  copies of this  prospectus  available  to the
selling  stockholders  and have  informed  them of the need to deliver a copy of
this prospectus to each purchaser at or prior to the time of the sale.

DISCLOSURE  OF  COMMISSION   POSITION  OF  INDEMNIFICATION  FOR  SECURITIES  ACT
LIABILITIES

Our Bylaws,  subject to the  provisions  of Delaware  Corporation  Law,  contain
provisions   which  allow  the  corporation  to  indemnify  any  person  against
liabilities  and  other  expenses   incurred  as  the  result  of  defending  or
administering  any pending or anticipated legal issue in connection with service
to us if it is determined  that person acted in good faith and in a manner which
he reasonably  believed was in the best interest of the corporation.  Insofar as
indemnification  for liabilities arising under the Securities Act of 1933 may be
permitted to our  directors,  officers  and  controlling  persons,  we have been
advised  that in the opinion of the  Securities  and Exchange  Commission,  such
indemnification  is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.

LEGAL MATTERS

The validity of the shares  offered under this  registration  statement is being
passed  upon  by  Weintraub   Genshlea  Chediak  Law  Corporation,   Sacramento,
California.

EXPERTS

Our financial  statements  for the fiscal years ending January 31, 2005 and 2006
included in this  prospectus  have been so included in reliance on the report of
Singer Lewak Greenbaum & Goldstein LLP independent  registered public accounting
firm, given on that firm's authority as experts in auditing and accounting.


                                       46

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the SEC a  registration  statement  on Form SB-2 (File Number
333-132218)  under the  Securities  Act of 1933  regarding  the shares of Common
Stock offered  hereby.  This  prospectus does not contain all of the information
found in the registration statement,  portions of which are omitted as permitted
under the rules and regulations of the SEC. For further information regarding us
and the securities offered by this prospectus,  please refer to the registration
statement,  including  its  exhibits  and  schedules.  Statements  made  in this
prospectus concerning the contents of any contract,  agreement or other document
filed as an exhibit to the registration  statement are summaries of the terms of
those  documents.  The  registration  statement of which this prospectus forms a
part,  including its exhibits and schedules,  may be inspected and copied at the
public reference room maintained by the SEC at 100 F Street,  N.E.,  Washington,
D.C. 20549. You may obtain  information on the operation of the public reference
room by calling the SEC at 1-800-SEC-0330.

The SEC maintains a web site on the Internet at  www.sec.gov.  Our  registration
statement and other  information  that we file with the SEC are available at the
SEC's website.

We intend to make available to our stockholders  annual reports (on Form 10-KSB)
containing  our audited  consolidated  financial  statements  and make available
quarterly reports (on Form 10-QSB) containing our unaudited interim consolidated
financial  information for the first three fiscal quarters of each of our fiscal
years.

         If you are a stockholder, you may request a copy of these filings at no
cost by contacting us at:

                                  NEWGOLD, INC.
                           400 CAPITOL MALL, SUITE 900
                              SACRAMENTO, CA 95814
                               (916) 449-3913 (O)
                               (916) 449-8259 (F)



                                       47

                          ITEM 7. FINANCIAL STATEMENTS


                                  NEWGOLD, INC.
                              FINANCIAL STATEMENTS
                               FOR THE YEARS ENDED
                            JANUARY 31, 2006 AND 2005

INDEX TO FINANCIAL STATEMENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                     F-1

         Balance Sheet                                                      F-2

         Statements of Operations                                           F-4

         Statements of Comprehensive Loss                                   F-5

         Statements of Shareholders' Deficit                                F-6

         Statements of Cash Flows                                           F-10

         Notes to Financial Statements                                      F-14






































             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders
Newgold, Inc.

We have audited the balance sheet of Newgold, Inc. (a exploration stage company)
(the  "Company")  as  of  January  31,  2006,  and  the  related  statements  of
operations,  comprehensive loss,  shareholders' deficit, and cash flows for each
of the two years in the  period  ended  January  31,  2006 and the  period  from
January  1,  1995 to  January  31,  2006.  These  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.  We  believe  that  our  audits  provided  a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of Newgold, Inc. as of January 31,
2006,  and the results of its  operations and its cash flows for each of the two
years in the period ended January 31, 2006,  and the period from January 1, 1995
to January 31, 2006 in conformity with accounting  principles generally accepted
in the United States of America.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 2 to the
financial statements,  the Company has incurred a net loss of $2,645,231 and had
negative cash flow from operations of $899,807. In addition,  the Company had an
accumulated deficit of $19,030,535 and a shareholders'  deficit of $2,960,365 at
January 31, 2006.  These  factors,  among others,  as discussed in Note 2 to the
financial  statements,  raise  substantial  doubt about the Company's ability to
continue as a going concern.  Management's  plans in regard to these matters are
also  described  in  Note  2.  The  financial  statements  do  not  include  any
adjustments that might result from the outcome of this uncertainty.


SINGER LEWAK GREENBAUM & GOLDSTEIN LLP

Los Angeles, California
April 26, 2006













                                       F-1

                                                                   NEWGOLD, INC.
                                                  (AN EXPLORATION STAGE COMPANY)
                                                                   BALANCE SHEET
                                                                JANUARY 31, 2006
--------------------------------------------------------------------------------

                                     ASSETS

CURRENT ASSETS
     Cash                                                         $     700,224
     Travel advance                                                       1,322
                                                                 ---------------

              Total current assets                                      701,546

PROPERTY, PLANT AND EQUIPMENT                                            19,199

OTHER ASSETS
     Restricted cash                                                    243,204
     Deferred reclamation costs                                         270,736
                                                                 ---------------

              Total other assets                                        513,940
                                                                 ---------------

                  TOTAL ASSETS                                    $   1,234,685
                                                                 ===============

--------------------------------------------------------------------------------


                      LIABILITIES AND SHAREHOLDERS' DEFICIT

CURRENT LIABILITIES
     Accounts payable                                             $     798,233
     Accrued expenses                                                 1,305,790
     Accrued reclamation costs                                          270,736
     Notes payable due to individuals and officers                      457,634
                                                                 ---------------

         Total current liabilities                                    2,832,393
                                                                 ---------------

LONG-TERM LIABILITIES
     Convertible debenture and related derivative liabilities,
         net of unamortized discount of $597,260 and deferred
         financing costs of $77,500                                     562,657
     Deferred revenue                                                   800,000
                                                                 ---------------

         Total long-term liabilities                                  1,362,657

              Total liabilities                                       4,195,050



                                       F-2
    The accompanying notes are an integral part of these financial statements



COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' DEFICIT
     Common stock, $0.001 par value
         250,000,000 shares authorized
         68,104,072 shares issued and outstanding                        68,104
     Additional paid in capital                                      16,002,066
     Deficit accumulated during the exploration stage               (19,030,535)
                                                                 ---------------

              Total shareholders' deficit                            (2,960,365)
                                                                 ---------------

                  TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT     $   1,234,685
                                                                 ===============









































                                       F-3
    The accompanying notes are an integral part of these financial statements


                                                                   NEWGOLD, INC.
                                                  (AN EXPLORATION STAGE COMPANY)
                                                        STATEMENTS OF OPERATIONS
                                   FOR THE YEARS ENDED JANUARY 31, 2006 AND 2005
                     AND FOR THE PERIOD FROM JANUARY 1, 1995 TO JANUARY 31, 2006
--------------------------------------------------------------------------------




                                                                                                For the Period
                                                            For the Years Ended January 31,     From January 1,
                                                          ----------------------------------    1995 to January
                                                                2006               2005         31, 2006
                                                          ---------------    ---------------    ---------------
                                                                                       
NET SALES                                                  $           -      $           -      $           -


COST OF GOODS SOLD                                               132,166             28,433            302,831
                                                          ---------------    ---------------    ---------------

GROSS (LOSS)                                                    (132,166)           (28,433)          (302,831)

OPERATING EXPENSES                                              (674,778)          (353,972)       (13,912,008)
                                                          ---------------    ---------------    ---------------

LOSS FROM OPERATIONS                                            (806,944)          (382,405)       (14,214,839)
                                                          ---------------    ---------------    ---------------

OTHER INCOME (EXPENSE)
     Interest income                                                                                    72,687
         Dividend income                                               -                  -             30,188
     Other income                                                      -                  -              6,565
     Adjustments to fair value of derivatives                    (37,418)                 -            (37,418)
     Interest expense                                           (941,347)          (614,672)        (2,409,037)
     Loss from joint venture                                    (859,522)                             (859,522)
     Loss on sale of marketable securities                             -           (281,063)          (281,063)
     Bad debt expense                                                  -                  -            (40,374)
     Loss on disposal of plant, property
        and equipment                                                  -                  -           (334,927)
     Loss on disposal of bond                                          -                  -            (21,000)
                                                          ---------------    ---------------    ---------------

         Total other expense                                  (1,838,287)          (895,735)        (3,873,901)
                                                          ---------------    ---------------    ---------------

NET LOSS                                                   $  (2,645,231)     $  (1,278,140)     $ (18,088,740)
                                                          ===============    ===============    ===============

BASIC AND DILUTED LOSS PER SHARE                           $       (0.05)     $       (0.03)
                                                          ===============    ===============

BASIC AND DILUTED WEIGHTED-AVERAGE
  SHARES OUTSTANDING                                          56,755,520         47,644,745
                                                          ===============    ===============




                                       F-4
    The accompanying notes are an integral part of these financial statements

                                                                   NEWGOLD, INC.
                                                  (AN EXPLORATION STAGE COMPANY)
                                                STATEMENTS OF COMPREHENSIVE LOSS
                                   FOR THE YEARS ENDED JANUARY 31, 2006 AND 2005
                     AND FOR THE PERIOD FROM JANUARY 1, 1995 TO JANUARY 31, 2006
--------------------------------------------------------------------------------



                                                                                                For the Period
                                                            For the Years Ended January 31,     From January 1,
                                                          ----------------------------------    1995 to January
                                                                2006               2005         31, 2006
                                                          ---------------    ---------------    ---------------
                                                                                       

NET LOSS                                                   $  (2,645,231)     $  (1,278,140)     $ (18,088,740)

OTHER COMPREHENSIVE LOSS
     Unrealized loss from
     marketable securities                                             -                  -           (204,820)

SALE OF SECURITIES WITH PREVIOUS UNREALIZED
  HOLDING LOSS                                                         -            204,820            204,820
                                                          ---------------    ---------------    ---------------

COMPREHENSIVE LOSS                                         $  (2,645,231)     $  (1,073,320)     $ (18,088,740)
                                                          ===============    ===============    ===============






























                                       F-5
    The accompanying notes are an integral part of these financial statements

                                                                   NEWGOLD, INC.
                                                  (AN EXPLORATION STAGE COMPANY)
                                             STATEMENTS OF SHAREHOLDERS' DEFICIT
                                   FOR THE YEARS ENDED JANUARY 31, 2006 AND 2005
                     AND FOR THE PERIOD FROM JANUARY 1, 1995 TO JANUARY 31, 2006
--------------------------------------------------------------------------------


                                                         Common Stock         Additional    Other Com-
                                                   -------------------------   Paid in      prehensive                  Accumulated
                                                      Shares       Amount      Capital        (Loss)        Deficit        Total
                                                   ------------ ------------ ------------- ------------- ------------- -------------

                                                                                                     
Balance December 31, 1994                            6,768,358  $     6,768             -             -  $   (636,084) $   (629,316)

Net loss                                                                                                     (233,877)     (233,877)
                                                   ------------ ------------ ------------- ------------- ------------- -------------

Balance December 31, 1995                            6,768,358        6,768             -             -      (869,961)     (863,193)

Shares issued to creditors and shareholders
  of Warehouse Auto Centers, Inc.                      305,709          306       305,403             -      (305,709)            -
Shares issued to investors and underwriters          5,135,130        5,135     4,701,835                                 4,706,970
Shares issued to purchase Washington Gulch           3,800,000        3,800       177,200                                   181,000
Shares issued in exchange for net profits interest   1,431,642        1,432       440,605                                   442,067
Shares issued to others                                 21,000          221       220,779                                   221,000
Shares issued to Repadre                               100,000          100        99,900                                   100,000
Shares issued to repurchase 50% interest
  in Relief Canyon                                   1,000,000        1,000       999,000                                 1,000,000
Net loss for the period January 1, 1996
  to January 31, 1997                                                                                      (1,803,784)   (1,803,784)
                                                   ------------ ------------ ------------- ------------- ------------- -------------

Balance January 31, 1997                            18,761,839       18,762     6,944,722             -    (2,979,454)    3,984,030

Shares issued to Warehouse Auto Centers, Inc.
  shareholders subsequently cancelled                  (25,242)         (25)      (25,217)                                  (25,242)
Shares issued to others                                 12,500           13         4,987                                     5,000
Additional shares issued to investors and
  underwriters for delay in share trading              513,514          513       204,487                                   205,000

















                                       F-6
    The accompanying notes are an integral part of these financial statements

                                                                   NEWGOLD, INC.
                                                  (AN EXPLORATION STAGE COMPANY)
                                             STATEMENTS OF SHAREHOLDERS' DEFICIT
                                   FOR THE YEARS ENDED JANUARY 31, 2006 AND 2005
                     AND FOR THE PERIOD FROM JANUARY 1, 1995 TO JANUARY 31, 2006
--------------------------------------------------------------------------------


                                                                                                     
Shares issued to Repadre                               200,000          200       199,800                                   200,000
Net loss                                                                                                   (5,883,309)   (5,883,309)
                                                   ------------ ------------ ------------- ------------- ------------- -------------

Balance January 31, 1998                            19,462,611       19,463     7,328,779             -    (8,862,763)   (1,514,521)

Shares issued in exchange for rent                      15,000           15         5,985                                     6,000
Shares issued to IBK                                 5,616,977        5,617       542,383                                   548,000
Shares issued in exchange for property                 150,000          150        55,350                                    55,000
Net loss                                                                                                     (753,219)     (753,219)
                                                   ------------ ------------ ------------- ------------- ------------- -------------

Balance January 31, 1999                            25,244,588       25,245     7,932,497             -    (9,615,982)   (1,658,240)

Three-for-two stock split                           12,672,441       12,671       (12,671)                                        -
Shares issued in exchange for debt conversion        3,205,674        3,206     1,279,065                                 1,282,271
Net loss                                                                                                     (919,735)     (919,735)
                                                   ------------ ------------ ------------- ------------- ------------- -------------

Balance January 31, 2000                            41,122,703       41,122     9,198,891             -   (10,535,717)   (1,295,704)

Shares issued for cash                               1,796,000        1,796       663,204                                   665,000
Additional shares issued for delay in registration     239,200          239          (239)                                        -
Shares issued for offering costs                       120,000          120       (60,120)                                  (60,000)
Shares issued for legal settlement                   1,000,000        1,000       649,000                                   650,000
Shares issued for services                              78,271           78        69,922                                    70,000
Net loss                                                                                                   (2,382,723)   (2,382,723)
                                                   ------------ ------------ ------------- ------------- ------------- -------------

Balance January 31, 2001                            44,356,174       44,356    10,520,657             -   (12,918,440)   (2,353,427)

Shares issued for cash                               2,500,000        2,500       147,500                                   150,000
Warrants issued with debt                                                          20,000                                    20,000
















                                       F-7
    The accompanying notes are an integral part of these financial statements

                                                                   NEWGOLD, INC.
                                                  (AN EXPLORATION STAGE COMPANY)
                                             STATEMENTS OF SHAREHOLDERS' DEFICIT
                                   FOR THE YEARS ENDED JANUARY 31, 2006 AND 2005
                     AND FOR THE PERIOD FROM JANUARY 1, 1995 TO JANUARY 31, 2006
--------------------------------------------------------------------------------


                                                                                                     
Net loss                                                                                                   (1,502,366)   (1,502,366)
                                                   ------------ ------------ ------------- ------------- ------------- -------------

Balance January 31, 2002                            46,856,174       46,856    10,688,157             -   (14,420,806)   (3,685,793)

Shares issued upon exercise of warrants                550,000          550        54,450                                    55,000
Offering costs                                                                     (1,467)                                   (1,467)
Warrants issued with debt                                                          13,574                                    13,574
Net loss                                                                                                     (215,533)     (215,533)
                                                   ------------ ------------ ------------- ------------- ------------- -------------

Balance January 31, 2003                            47,406,174       47,406    10,754,714             -   (14,636,339)   (3,834,219)

Shares issued upon exercise of warrants                200,000          200        19,800                                    20,000
Warrants issued with debt                                                          63,918                                    63,918
Other comprehensive loss                                                                       (204,820)                   (204,820)
Net loss                                                                                                     (470,823)     (470,823)
                                                   ------------ ------------ ------------- ------------- ------------- -------------

Balance January 31, 2004                            47,606,174       47,606    10,838,432      (204,820)  (15,107,162)   (4,425,944)

Shares issued for cash                                 671,667          672       100,078                                   100,750
Offering costs                                                                   (124,337)                                 (124,337)
Warrants issued with common stock                                                 124,337                                   124,337
Warrants issued with debt                                                       1,284,234                                 1,284,234
Sale of marketable securities                                                                   204,820                     204,820
Net loss                                                                                                   (1,278,140)   (1,278,140)
                                                   ------------ ------------ ------------- ------------- ------------- -------------

Balance January 31, 2005                            48,277,841       48,278    12,222,744             -   (16,385,302)   (4,114,280)



















                                       F-8
    The accompanying notes are an integral part of these financial statements

                                                                   NEWGOLD, INC.
                                                  (AN EXPLORATION STAGE COMPANY)
                                             STATEMENTS OF SHAREHOLDERS' DEFICIT
                                   FOR THE YEARS ENDED JANUARY 31, 2006 AND 2005
                     AND FOR THE PERIOD FROM JANUARY 1, 1995 TO JANUARY 31, 2006
--------------------------------------------------------------------------------


                                                                                                     
Shares issued for cash                               5,000,000        5,000     1,070,000                                 1,075,000
Shares issued in exchange for
  debt conversion                                   12,326,231       12,326     1,836,609                                 1,848,935
Shares issued to purchase 22%
  interest in Crescent Red Caps LLC                  2,500,000        2,500       497,500                                   500,000

Warrants issued with investment in joint
venture                                                                           359,523                                   359,523
Warrants issued for services                                                       15,690                                    15,690
Sale of marketable securities
Net loss for the period February
  1, 2005 to January 31, 2006                                                                              (2,645,231)   (2,645,231)
                                                   ------------ ------------ ------------- ------------- ------------- -------------
Balance, January 31, 2006                           68,104,072  $    68,104  $ 16,002,066             -  $(19,030,535) $ (2,960,365)
                                                   ============ ============ ============= ============= ============= =============


































                                       F-9
    The accompanying notes are an integral part of these financial statements

                                                                   NEWGOLD, INC.
                                                  (AN EXPLORATION STAGE COMPANY)
                                                        STATEMENTS OF CASH FLOWS
                                   FOR THE YEARS ENDED JANUARY 31, 2006 AND 2005
                     AND FOR THE PERIOD FROM JANUARY 1, 1995 TO JANUARY 31, 2006
--------------------------------------------------------------------------------



                                                                                                               For the Period
                                                                           For the Years Ended January 31,     From January 1,
                                                                          --------------------------------     1995 to January
                                                                               2006             2005              31, 2006
                                                                          ---------------  --------------- -- -----------------
                                                                                                     
CASH FLOWS FROM OPERATING ACTIVITIES
   Net loss                                                                  ($2,645,231)     ($1,278,140)        ($18,088,740)
   Adjustments to reconcile net loss to net cash
      used in operating activities
         Accretion of warrants issued as a debt discount                         777,642          443,682            1,274,257
         Accretion of beneficial conversion                                       71,645           35,823              107,468
         Accretion of debt discount                                                2,740                -                2,740
         Adjustments to  fair value of derivatives                                37,417                -               37,417
         Loss from joint venture                                                 859,522                -              859,522
         Loss on sale of marketable securities                                         -          281,063              281,063
         Depreciation and amortization                                                 -                -              124,157
         Loss on disposal of property, plant and equipment                             -                -              334,927
         Impairment in value of property, plant and equipment                          -                -              807,266
         Loss on disposal of bond                                                      -                -               21,000
         Impairment in value of Relief Canyon Mine                                     -                -            3,311,672
         Impairment in value of joint  investments                                     -                -              490,000
         Bad debt                                                                      -                -               40,374


























                                       F-10
    The accompanying notes are an integral part of these financial statements

                                                                   NEWGOLD, INC.
                                                  (AN EXPLORATION STAGE COMPANY)
                                                        STATEMENTS OF CASH FLOWS
                                   FOR THE YEARS ENDED JANUARY 31, 2006 AND 2005
                     AND FOR THE PERIOD FROM JANUARY 1, 1995 TO JANUARY 31, 2006
--------------------------------------------------------------------------------



                                                                                                     
         Assigned value of stock and warrants exchanged for services              15,690                -              552,948
         Gain on write off of note payable                                                              -               (7,000)
         Judgment loss accrued                                                                                         250,000
         (Increase) decrease in
           Restricted cash                                                      (243,204)                             (243,204)
            Employee receivable                                                      678            2,000                2,678
            Deposits                                                                               45,000                4,500
            Deferred reclamation costs                                           243,210                -            (194,742)
            Prepaid expenses                                                           -                -              (2,900)
            Reclamation bonds                                                          -                -              185,000
            Other assets                                                               -                -              (1,600)
         Increase (decrease) in
            Accounts payable                                                     229,955           28,082             517,273
            Accrued expenses                                                    (249,871)          89,289           1,963,574
                                                                          ---------------  --------------- -- -----------------

               Net cash used by operating activities                            (899,807)        (353,201)         (7,370,344)
                                                                          ---------------  --------------- -- -----------------

CASH FLOWS FROM INVESTING ACTIVITIES
   Proceeds from sale of marketable securities                                         -           34,124               34,124
   Investment in marketable securities                                                 -                -             (315,188)
   Advances from shareholder                                                           -                -                7,436
   Contribution from joint venture partner                                             -                -              775,000
   Purchase of joint venture partner interest                                          -                -             (900,000)
   Capital expenditures                                                          (19,199)               -           (2,970,706)






















                                       F-11
    The accompanying notes are an integral part of these financial statements

                                                                   NEWGOLD, INC.
                                                  (AN EXPLORATION STAGE COMPANY)
                                                        STATEMENTS OF CASH FLOWS
                                   FOR THE YEARS ENDED JANUARY 31, 2006 AND 2005
                     AND FOR THE PERIOD FROM JANUARY 1, 1995 TO JANUARY 31, 2006
--------------------------------------------------------------------------------



                                                                                                     
   Proceeds from disposal of property, plant and equipment                                              -              278,783
   Investments in joint ventures                                                       -                -             (490,000)
   Note receivable                                                                     -                -             (268,333)
   Repayment of note receivable                                                        -                -              268,333

               Net cash used by investing activities                             (19,199)         (34,124)          (3,580,551)
                                                                          ---------------  --------------- -- -----------------

CASH FLOWS FROM FINANCING ACTIVITIES
   Proceeds from the issuance of common stock                                  1,075,000          100,750            7,559,253
   Proceeds from notes payable                                                   527,500          251,043            5,554,548
   Principal repayments of notes payable                                               -          (21,953)          (2,037,706)
   Repayment of advances to affiliate                                                  -                -             (231,663)
   Deferred revenue                                                                    -                -              800,000

               Net cash provided by financing activities                       1,602,500          329,840           11,644,432
                                                                          ---------------  --------------- -- -----------------

                  Net increase in cash                                           683,494           10,763              693,537

CASH, BEGINNING OF YEAR                                                           16,730            5,967                6,687
                                                                          ---------------  --------------- -- -----------------

CASH, END OF YEAR                                                         $      700,224   $       16,730     $        700,224
                                                                          ===============  =============== == =================























                                       F-12
    The accompanying notes are an integral part of these financial statements


SUPPLEMENTAL CASH FLOW INFORMATION FOR THE YEARS ENDED JANUARY 31, 2006 AND 2005
AND JANUARY 1, 1995 THROUGH JANUARY 31, 2006 AS FOLLOWS:



                                                                                                               For the Period
                                                                           For the Years Ended January 31,     From January 1,
                                                                          --------------------------------     1995 to January
                                                                               2006             2005              31, 2006
                                                                          ---------------  --------------- -- -----------------
                                                                                                     

Cash paid for interest                                                     $           -    $           -      $        161,107
Cash paid for income taxes                                                 $           -    $           -      $             -

Non Cash Investing and Financing Activities:
   Conversion of related party note payable to common
      stock,including interest payable of $446,193                         $    1,848,935   $           -      $      1,848,935







































                                      F-13
    The accompanying notes are an integral part of these financial statements

NOTE 1 - ORGANIZATION AND LINE OF BUSINESS

NEWGOLD, Inc. ("the Company") has been in the business of acquiring,  exploring,
developing,  and  producing  gold  properties.  The  Company  had rights to mine
properties  in Nevada and Montana.  Its primary  focus was on the Relief  Canyon
Mine located near  Lovelock,  Nevada,  where it has  performed  development  and
exploratory  drilling  and was in the  process  of  obtaining  permits  to allow
operation of the Relief Canyon Mine. In December  1997,  the Company  placed the
Relief Canyon Mine on care and  maintenance  status.  The Company also conducted
exploration at its Washington Gulch Mine property in Montana.

In February 2000 the Company  began to implement an entirely new business  model
of investing in Internet  companies.  Due to the deterioration of the investment
market for these types of companies  later in 2000,  the Company  abandoned this
investment  strategy.  From  mid-2001  until the  beginning  of 2003 Newgold was
essentially  inactive,  only continuing with some of the care and maintenance at
Relief Canyon, as provided for by a non-affiliate  company owned by the Chairman
and CEO of Newgold.

The Company has embarked on a business strategy whereby it will invest in and/or
manage  gold  mining and other  mineral  producing  properties.  Currently,  the
Company's  principal  assets include various mineral leases  associated with the
Relief  Canyon mine located near  Lovelock,  Nevada along with various  items of
mining  equipment  located  at that  site as well as a 22%  interest  in a joint
venture covering two separate  leasehold  interests  covering over 2700 acres in
Lander County,  Nevada. The Company's business will be to acquire,  explore and,
if warranted,  develop various mining properties located in the state of Nevada.
The Company plans to carryout comprehensive exploration and development programs
and when appropriate, begin mining activities on its properties. The Company may
fund and conduct these  activities  itself,  or it may  outsource  some of these
activities  through the use of various  joint  venture,  royalty or  partnership
arrangements pursuant to which other companies would agree to finance,  carryout
the  exploration  and  development  programs,  or perform  mining  operations on
Newgold's  mining  properties.  The  Company's  current plan may not require the
hiring of significant  amounts of mining employees  depending upon the level, if
any, of the mining and exploration activities outsourced to other entities.

Merger
------
In  November  1996,  Newgold,  Inc.  of Nevada  (Old  Newgold)  was merged  into
Warehouse Auto Centers, Inc. (WAC), a public company, which had previously filed
an involuntary petition under Chapter 11 of the United States Bankruptcy Code in
the  United  States  Bankruptcy  Court  for the  Western  District  of New York.
Pursuant to the plan of reorganization  and merger (the Plan), (i) WAC which was
the surviving  corporation for legal purposes,  changed its name to Newgold Inc.
(the Company),  (ii) the  outstanding  shares of Old Newgold were converted into
the right to receive an aggregate of 12,000,000  shares or approximately  69% of
the post merger outstanding common stock of the Company,  (iii) each outstanding
share of WAC was  converted  into the right to receive  1/65 share of the common
stock of the Company,  for an aggregate of 51,034  shares or less than 1% of the
post merger  outstanding  common  stock,  (iv)  unsecured  trade debts and other
unsecured  pre-petition  liabilities  were paid in full via the  issuance of one
share of the Company's  stock,  for each $42 of debt, for an aggregate of 63,374
shares or less than 1% of the post merger outstanding common stock, and (v) post
petition  creditors  received  1 share  of stock  for  each $1 of  debt,  for an
aggregate of 191,301 shares or approximately  1% of the post merger  outstanding
common  stock.  The Plan also  required an  amendment to the  Company's  capital
structure  to increase  the number of shares  authorized  to  50,000,000  and to
reduce the corresponding par value to $.001.

                                      F-14

In connection  with the Plan, the Company raised  $4,707,000 of cash through the
issuance of convertible debtor  certificates.  Shortly after confirmation of the
Plan,  the debtor  certificates  were  exchanged for 5,135,130  shares of common
stock (including  428,130 shares issued in lieu of paying cash for underwriter's
fees)  representing  approximately  29% of the post  merger  outstanding  common
stock.  An  additional  bonus of  513,514  shares was  issued to  investors  and
underwriters  during the year ended  January 31, 1998 for delay in the effective
date of the Company's stock trading.

For accounting  purposes,  Old Newgold has been treated as the acquirer (reverse
acquisition). Accordingly, the historical financial statements prior to November
21, 1996 are those of Old Newgold.  There were no assets or liabilities acquired
in this transaction and there is no impact on the statement of operations.

NOTE 2 - GOING CONCERN

These financial  statements have been prepared on a going concern basis.  During
the years ended January 31, 2006 and 2005 and the period from January 1, 1995 to
January 31,  2006,  Newgold  incurred  net losses of  approximately  $2,645,231,
$1,278,140  and  $18,088,740,  respectively.  In  addition,  Newgold had a total
shareholders'  deficit of  $2,960,365  and was in the  exploration  stage  since
inception and through  January 31, 2006. The Company's  ability to continue as a
going concern is dependent upon its ability to generate profitable operations in
the future and/or to obtain the necessary  financing to meet its obligations and
repay its  liabilities  arising from normal  business  operations when they come
due. The outcome of these matters cannot be predicted with any certainty at this
time.  Since  inception,  the Company has satisfied its capital needs by issuing
equity securities.

Management  plans to continue to provide for its capital  needs  during the year
ended January 31, 2006 by issuing equity securities or incurring additional debt
financing,  with the proceeds to be used to  re-establish  mining  operations at
Relief Canyon as well as improve its working capital  position.  These financial
statements do not include any adjustments to the amounts and  classification  of
assets and  liabilities  that may be  necessary  should the Company be unable to
continue as a going concern.

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Exploration Stage Company
-------------------------
Effective  January 1, 1995 (date of  inception),  the Company is  considered  an
exploration  stage Company as defined in SFAS No. 7. The  Company's  exploration
stage activities consist of the development of several mining properties located
in Nevada. Sources of financing for these exploration stage activities have been
primarily debt and equity  financing.  The Company has, at the present time, not
paid any dividends and any dividends  that may be paid in the future will depend
upon the financial requirements of the Company and other relevant factors.

Cash and Cash Equivalents
-------------------------
For the purpose of the  statements  of cash flows,  the  Company  considers  all
highly liquid investments  purchased with original maturities of three months or
less to be cash equivalents.

Restricted Cash
---------------
Restricted  cash  represents a  certificate  of deposit with Wells Fargo Bank to
serve as  collateral  for a  reclamation  bond  with the  Nevada  Department  of
Environmental Protection at the Relief Canyon Mine.

                                      F-15

Marketable Securities Available for Sale
----------------------------------------
Investments  in  equity   securities   are  classified  as   available-for-sale.
Securities  classified as available for sale are marked to market at each period
end.  Changes in value on such  securities  are recorded as a component of Other
comprehensive  income  (loss).  If  declines  in value  are  deemed  other  than
temporary, losses are reflected in Net income (loss).

Property and Equipment
----------------------
Depreciation,  depletion and amortization of mining properties, mine development
costs  and  major  plant   facilities  will  be  computed   principally  by  the
units-of-production  method based on estimated proven and probable ore reserves.
Proven and probable ore reserves reflect  estimated  quantities of ore which can
be  economically  recovered  in the future  from known  mineral  deposits.  Such
estimates are based on current and projected  costs and prices.  Other equipment
is depreciated  using the  straight-line  method  principally over the estimated
useful life of seven years.

Deferred Reclamation Costs
--------------------------
In August  2001,  the  Financial  Accounting  Standards  Board  ("FASB")  issued
Statement of Financial  Accounting  Standards ("SFAS") No. 143,  "Accounting for
Asset  Retirement  Obligations,"  which  established a uniform  methodology  for
accounting for estimated  reclamation and abandonment  costs.  The statement was
adopted  February 1, 2003.  The  reclamation  costs will be allocated to expense
over the life of the related  assets and will be adjusted for changes  resulting
from the  passage  of time and  revisions  to either the timing or amount of the
original present value estimate.

Prior to adoption of SFAS No. 143, estimated future reclamation costs were based
principally on legal and regulatory  requirements.  Such costs related to active
mines were accrued and charged over the  expected  operating  lives of the mines
using the UOP method based on proven and probable  reserves.  Future remediation
costs for inactive mines were accrued based on management's best estimate at the
end of each period of the undiscounted  costs expected to be incurred at a site.
Such cost estimates included,  where applicable,  ongoing care,  maintenance and
monitoring  costs.  Changes in  estimates  at inactive  mines were  reflected in
earnings in the period an estimate was revised.

Exploration Costs
-----------------
Exploration  costs are  expensed  as  incurred.  All costs  related to  property
acquisitions are capitalized.

Mine Development Costs
----------------------
Mine development  costs consist of all costs associated with bringing mines into
production, to develop new ore bodies and to develop mine areas substantially in
advance  of  current  production.  The  decision  to  develop a mine is based on
assessment of the commercial  viability of the property and the  availability of
financing.  Once the decision to proceed to development is made, development and
other expenditures  relating to the project will be deferred and carried at cost
with the intention that these will be depleted by charges against  earnings from
future mining  operations.  No depreciation will be charged against the property
until  commercial  production  commences.  After a mine  has been  brought  into
commercial production,  any additional work on that property will be expensed as
incurred,  except for large  development  programs,  which will be deferred  and
depleted.

                                      F-16

Financing Costs
---------------
Financing  costs,  including  interest,  are  capitalized  when they  arise from
indebtedness  incurred to finance  development  and  construction  activities on
properties  that are not yet subject to  depreciation  or  depletion.  Financing
costs  are  charged  against  earnings  from the  time  that  mining  operations
commence.  Capitalization is based upon the actual interest on debt specifically
incurred or on the average borrowing rate for all other debt except where shares
are issued to fund the cost of the project.

Depreciation, Depletion and Amortization
----------------------------------------
Assets other than mining properties and mineral rights are depreciated using the
straight-line method over their estimated useful lives.  Capitalized development
costs are amortized on the units of  production  method  considering  proven and
probable  reserves.  Depreciation  and  depletion  rates are subject to periodic
review to ensure that asset costs are amortized over their useful lives.

Impairment
----------
Mining  projects and properties are reviewed for impairment  whenever  events or
changes in  circumstances  indicate that the carrying amount of these assets may
not be recoverable.  If estimated  future cash flows expected to result from the
use of the mining project or property and its eventual disposition are less than
the carrying amount, impairment is recognized based on the estimated fair market
value of the mining  project or property.  Fair value  generally is based on the
present  value of  estimated  future net cash flows for each  mining  project or
property,  calculated using estimates of proven and probable  minable  reserves,
geological resources,  future prices,  operating costs, capital requirements and
reclamation  costs. A provision for impairment in valuation of development costs
and  property,  plant and  equipment  amounted  to  $800,000  for the year ended
January 31, 2002 and was charged to operating  expense.  After these adjustments
all development costs and property,  plant and equipment have been fully written
off.

Management's   estimates   of  future  cash  flows  are  subject  to  risks  and
uncertainties.  Therefore,  it is  reasonably  possible that changes could occur
which may affect  the  recoverability  of the  Company's  investment  in mineral
properties.

Risks Associated with Gold Mining
---------------------------------
The  business  of gold  mining is subject to certain  types of risks,  including
environmental  hazards,  industrial  accidents,  and theft.  Prior to suspending
operations,  the Company carried  insurance against certain property damage loss
(including business interruption) and comprehensive general liability insurance.
While the Company maintained insurance consistent with industry practice,  it is
not possible to insure against all risks associated with the mining business, or
prudent to assume that  insurance  will continue to be available at a reasonable
cost. The Company has not obtained  environmental  liability  insurance  because
such coverage is not considered by management to be cost effective.  The Company
currently  carries no  insurance  on any of its  properties  due to the  current
status of the mine and the Company's current financial condition.

Reclamation Costs
-----------------
Reclamation  costs  and  related  accrued  liabilities,  which  are based on the
Company's  interpretation of current environmental and regulatory  requirements,
are accrued and expensed, upon determination.

Based on current environmental  regulations and known reclamation  requirements,
management  has  included  its  best  estimates  of  these  obligations  in  its
reclamation accruals. However, it is reasonably possible that the Company's best
estimates of its ultimate  reclamation  liabilities  could change as a result of
changes in regulations or cost estimates.



                                      F-17

Valuation of Derivative Instruments
-----------------------------------
FAS No. 133  "Accounting  for Derivative  Instruments  and Hedging  Activities "
requires bifurcation of embedded derivative instruments and measurement of their
fair value for accounting  purposes.  In determining the appropriate fair value,
the Company uses the Black  Scholes model as a valuation  technique.  Derivative
liabilities  are  adjusted to reflect  fair value at each  period end,  with any
increase or decrease in the fair value being  recorded in results of  operations
as Adjustments  to Fair Value of  Derivatives.  In addition,  the fair values of
freestanding  derivative  instruments  such as warrants  are valued  using Black
Scholes models.

Revenue Recognition
-------------------
Revenues will be recognized when deliveries of gold are made,  title and risk of
loss passes to the buyer and  collectibility  is  reasonably  assured.  Deferred
revenue represents non-refundable cash received in exchange for royalties on net
smelter returns on the Relief Canyon Mine. Deferred revenue will be amortized to
earnings based on estimated production in accordance with the royalty agreement.

Fair Value of Financial Instruments
-----------------------------------
The  Company's  financial  instruments  include  cash and cash  equivalents  and
accounts payable - trade.  The carrying amounts for these financial  instruments
approximate fair value due to their short maturities.

Comprehensive Income
--------------------
The  Company  utilizes  SFAS No. 130,  "Reporting  Comprehensive  Income."  This
statement  establishes  standards  for  reporting  comprehensive  income and its
components in a financial  statement.  Comprehensive  income as defined includes
all  changes in equity (net  assets)  during a period  from  non-owner  sources.
Examples of items to be included in  comprehensive  income,  which are  excluded
from net income,  include  foreign  currency  translation  adjustments,  minimum
pension   liability   adjustments,   and   unrealized   gains   and   losses  on
available-for-sale  marketable securities.  Comprehensive income is presented in
the Company's  financial  statements  since the Company did have unrealized gain
(loss) of from changes in equity from available-for-sale marketable securities.

Income Taxes
------------
The Company accounts for income taxes under the liability method, which requires
the  recognition of deferred tax assets and  liabilities for the expected future
tax  consequences of events that have been included in the financial  statements
or tax returns. Under this method,  deferred income taxes are recognized for the
tax consequences in future years of differences  between the tax bases of assets
and liabilities and their financial  reporting  amounts at each period end based
on enacted tax laws and statutory  tax rates  applicable to the periods in which
the differences are expected to affect taxable income.  Valuation allowances are
established,  when  necessary,  to reduce  deferred  tax  assets  to the  amount
expected to be realized.

As of January 31, 2005,  the deferred tax assets  related to the  Company's  net
operating  loss  carry-forwards  are fully  reserved.  Due to the  provisions of
Internal  Revenue Code  Section 338, the Company may not have any net  operating
loss  carry-forwards  available  to offset  financial  statement  or tax  return
taxable income in future periods as a result of a change in control involving 50
percentage  points  or more of the  issued  and  outstanding  securities  of the
Company.

Estimates
---------
The preparation of financial  statements  requires  management to make estimates
and assumptions  that affect the reported  amounts of assets and liabilities and
disclosure of  contingent  assets and

                                      F-18

liabilities at the date of the financial  statements and the reported amounts of
revenue and expenses  during the reporting  period.  Actual results could differ
from those estimates.

Loss Per Share
--------------
The Company utilizes SFAS No. 128, "Earnings per Share." Basic loss per share is
computed  by   dividing   loss   available   to  common   shareholders   by  the
weighted-average number of common shares outstanding.  Diluted loss per share is
computed  similar  to basic  loss per  share  except  that  the  denominator  is
increased to include the number of additional common shares that would have been
outstanding if the potential common shares had been issued and if the additional
common  shares were  dilutive.  Common  equivalent  shares are excluded from the
computation if their effect is anti-dilutive.

The following  common stock  equivalents  were excluded from the  calculation of
diluted loss per share since their effect would have been anti-dilutive:

                                               2006                    2005
                                         ---------------       ---------------
                  Warrants                   20,774,583            11,724,583

Concentrations of Credit Risk
-----------------------------
Financial instruments which potentially subject the Company to concentrations of
credit risk consist of cash and cash  equivalents.  The Company  places its cash
and cash equivalents with high credit, quality financial institutions. At times,
such cash and cash equivalents may be in excess of the Federal Deposit Insurance
Corporation  insurance  limit of $100,000.  The Company has not  experienced any
losses in such accounts and believes it is not exposed to any significant credit
risk on cash and cash equivalents.

Recent Accounting Pronouncements
--------------------------------
In November 2004, the FASB issued SFAS No.  151,"Inventory  Costs". SFAS No. 151
amends the accounting for abnormal  amounts of idle facility  expense,  freight,
handling costs, and wasted material (spoilage) under the guidance in ARB No. 43,
Chapter 4,"Inventory Pricing".  Paragraph 5 of ARB No. 43, Chapter 4, previously
stated that "...under some circumstances,  items such as idle facility expense,
excessive spoilage,  double freight,  and rehandling costs may be so abnormal as
to require treatment as current period charges...." This Statement requires that
those items be recognized as current-period  charges  regardless of whether they
meet the criterion of "so abnormal." In addition,  this Statement  requires that
allocation of fixed production  overheads to the costs of conversion be based on
the normal  capacity of the production  facilities.  This statement is effective
for inventory  costs incurred during fiscal years beginning after June 15, 2005.
Management does not expect adoption of SFAS No. 151 to have a material impact on
the Company's financial  statements.

In  December  2004,  the FASB issued  SFAS No.  152,"Accounting  for Real Estate
Time-Sharing  Transactions".  The FASB issued this  Statement as a result of the
guidance provided in AICPA Statement of Position (SOP) 04-2,"Accounting for Real
Estate  Time-Sharing  Transactions".   SOP  04-2  applies  to  all  real  estate
time-sharing  transactions.  Among other items, the SOP provides guidance on the
recording  of credit  losses and the  treatment of selling  costs,  but does not
change the revenue recognition guidance in SFAS No.  66,"Accounting for Sales of
Real Estate",  for real estate  time-sharing  transactions.  SFAS No. 152 amends
Statement  No. 66 to reference the guidance  provided in SOP 04-2.  SFAS No. 152
also amends SFAS No. 67,  "Accounting for Costs and Initial Rental Operations of
Real Estate Projects",  to state that SOP 04-2 provides the relevant guidance on
accounting  for  incidental  operations  and costs  related  to the sale of real
estate time-sharing transactions.  SFAS No. 152 is effective for years beginning
after June 15,

                                      F-19

2005, with  restatements of previously issued financial  statements  prohibited.
This statement is not applicable to the Company.

In  December  2004,  the FASB  issued  SFAS No.  153,"Exchanges  of  Nonmonetary
Assets,"  an   amendment   to  Opinion  No.   29,"Accounting   for   Nonmonetary
Transactions".  Statement No. 153 eliminates certain differences in the guidance
in Opinion No. 29 as compared to the guidance  contained in standards  issued by
the  International  Accounting  Standards Board. The amendment to Opinion No. 29
eliminates  the fair  value  exception  for  nonmonetary  exchanges  of  similar
productive  assets and  replaces it with a general  exception  for  exchanges of
nonmonetary assets that do not have commercial  substance.  Such an exchange has
commercial  substance  if the future  cash flows of the entity are  expected  to
change significantly as a result of the exchange.  SFAS No. 153 is effective for
nonmonetary asset exchanges  occurring in periods beginning after June 15, 2005.
Earlier  application is permitted for nonmonetary  asset exchanges  occurring in
periods  beginning after December 16, 2004.  Management does not expect adoption
of SFAS No. 153 to have a material impact on the Company's financial statements.

In March 2005, the FASB issued FASB  Interpretation  ("FIN") No. 47, "Accounting
for Conditional  Asset  Retirement  Obligations".  FIN No. 47 clarifies that the
term conditional asset retirement  obligation as used in FASB Statement No. 143,
"Accounting for Asset Retirement  Obligations,"  refers to a legal obligation to
perform an asset  retirement  activity  in which the  timing and (or)  method of
settlement  are  conditional on a future event that may or may not be within the
control of the entity.  The obligation to perform the asset retirement  activity
is unconditional even though uncertainty exists about the timing and (or) method
of  settlement.  Uncertainty  about the timing  and/or method of settlement of a
conditional asset retirement  obligation should be factored into the measurement
of the liability when sufficient  information  exists.  This interpretation also
clarifies  when an  entity  would  have  sufficient  information  to  reasonably
estimate  the fair  value  of an  asset  retirement  obligation.  FIN No.  47 is
effective no later than the end of fiscal  years ending after  December 15, 2005
(December 31, 2005 for calendar-year  companies).  Retrospective  application of
interim financial information is permitted but is not required.  Management does
not  expect  adoption  of FIN No.  47 to have a  material  impact  on  Newgold's
financial statements.

In May 2005, the FASB issued  Statement of Accounting  Standards (SFAS) No. 154,
"Accounting Changes and Error Corrections" an amendment to Accounting Principles
Bulletin (APB) Opinion No. 20, "Accounting Changes",  and SFAS No. 3, "Reporting
Accounting Changes in Interim Financial  Statements" though SFAS No. 154 carries
forward the guidance in APB No. 20 and SFAS No. 3 with respect to accounting for
changes in estimates, changes in reporting entity, and the correction of errors.
SFAS No. 154  establishes  new standards on accounting for changes in accounting
principles,  whereby all such  changes must be  accounted  for by  retrospective
application  to  the  financial   statements  of  prior  periods  unless  it  is
impracticable  to do so. SFAS No. 154 is effective  for  accounting  changes and
error  corrections  made in fiscal years beginning after December 15, 2005, with
early adoption  permitted for changes and  corrections  made in years  beginning
after May 2005.

Effective for reporting  periods  beginning  after April 29, 2004,  the Emerging
Issues Task Force  (EITF)  released  Issue  04-2,  "Whether  Mineral  Rights are
Tangible or Intangible  Assets." The consensus was that mineral rights  acquired
on a business  combination  are  tangible  assets and  should be  recorded  as a
separate  component of property,  plant and equipment  either on the face of the
financial  statements or in the notes. The Company will comply with the Issue in
the future as required.

                                      F-20

Effective  for  reporting  periods  beginning  after  March 31,  2004,  the EITF
released Issue No. 04-3, "Mining Assets:  Impairment and Business Combinations."
The EITF reached consensus that an entity should include value beyond proven and
probable  reserves in the value  allocated to mining assets in a purchase  price
allocation  to the  extent a market  participant  would  include  such  value in
determining the fair market value of the asset. The EITF also reached  consensus
that an entity  should  include  the  effects of  anticipated  changes in market
prices of minerals when  determining the fair market value of mining assets in a
purchase  price  equation  in a  manner  consistent  with  expectations  of  the
marketplace.  Effective for reporting periods beginning after December 15, 2005,
the EITF  released  Issue No. 04-6,  "Accounting  For Stripping  Costs  Incurred
During  Production  In The Mining  Industry."  The EITF  reached a consensus  of
accounting  for  "stripping  cost",  the cost of removing  overburden  (material
overlying  a mineral  deposit  that must be removed  prior to mining)  and waste
materials,  during  the  production  phase and  determined  that such  costs are
considered  variable production costs and thus should be included in the cost of
inventory  produced during the period in which the stripping costs are incurred.
The consensus  applies to only entities involved in finding and removing wasting
natural resources. As such, this statement is not applicable to the Company.

In February 2006, the FASB issued SFAS No. 155,  "Accounting  for Certain Hybrid
Financial  Instruments",  which amends SFAS No. 133, "Accounting for Derivatives
Instruments and Hedging Activities" and SFAS No. 140,  "Accounting for Transfers
and Servicing of Financial Assets and  Extinguishment of Liabilities".  SFAS No.
155 amends  SFAS No. 133 to narrow the scope  exception  for  interest-only  and
principal-only   strips  on  debt   instruments  to  include  only  such  strips
representing  rights to receive a specified portion of the contractual  interest
or  principle  cash  flows.  SFAS No.  155  also  amends  SFAS No.  140 to allow
qualifying  special-purpose  entities  to hold a  passive  derivative  financial
instrument  pertaining  to  beneficial  interests  that  itself is a  derivative
instrument. The Company is currently evaluating the impact this new Standard but
believes  that it will not have a  material  impact on the  Company's  financial
position, results of operations, or cash flows.

In March  2006,  the FASB  issued SFAS No. 156,  "Accounting  for  Servicing  of
Financial  Assets"  ("SFAS NO.  156"),  which  provides  an approach to simplify
efforts to obtain  hedge-like  (offset)  accounting.  This Statement amends FASB
Statement No. 140,  "Accounting for Transfers and Servicing of Financial  Assets
and  Extinguishments  of  Liabilities",  with  respect  to  the  accounting  for
separately recognized servicing assets and servicing liabilities.  The Statement
(1)  requires an entity to recognize a servicing  asset or  servicing  liability
each time it undertakes  an obligation to service a financial  asset by entering
into a servicing contract in certain situations;  (2) requires that a separately
recognized  servicing asset or servicing liability be initially measured at fair
value, if practicable;  (3) permits an entity to choose either the  amortization
method or the fair value  method for  subsequent  measurement  for each class of
separately recognized servicing assets or servicing liabilities;  (4) permits at
initial adoption a one-time reclassification of available-for-sale securities to
trading securities by an entity with recognized  servicing rights,  provided the
securities  reclassified  offset the  entity's  exposure  to changes in the fair
value  of the  servicing  assets  or  liabilities;  and  (5)  requires  separate
presentation of servicing assets and servicing liabilities subsequently measured
at fair value in the balance sheet and additional disclosures for all separately
recognized servicing assets and servicing liabilities. SFAS No. 156 is effective
for  all  separately  recognized  servicing  assets  and  liabilities  as of the
beginning of an entity's  fiscal year that begins after September 15, 2006, with
earlier  adoption  permitted  in  certain  circumstances.   The  Statement  also
describes the manner in which it should be initially  applied.  The Company does
not  believe  that SFAS No.  156 will have a  material  impact on its  financial
position, results of operations or cash flows.

                                      F-21

NOTE 4 - MARKETABLE SECURITIES AVAILABLE FOR SALE

At January 31, 2006 and 2005 the Company held no marketable securities available
for sale.  In October 2004 the Company sold all of its  investment in marketable
securities.  This  resulted in net proceeds of $34,124 and a recognized  loss of
sale of $281,063.

NOTE 5 - PROPERTY AND EQUIPMENT

Property and equipment at January 31, 2006 was recorded at $19,199 and consisted
of  additional  monitoring  wells that were  installed at the Relief Canyon Mine
during the year ended January 31, 2006.  The Company had  previously  determined
that the value of its fixed  assets at the Relief  Canyon Mine were  permanently
impaired  and wrote off assets  with a basis of  $800,000.  If the  Company  can
reestablish mining operations at Relief Canyon it is possible that some of these
assets could be utilized in such operations.

A  summary  of  property,  plant and  equipment  previously  written  off was as
follows:



                           `                    Machinery
                                                    &       Development   Capitalized
                                    Buildings   Equipment   Costs          Interest      Total
                                    ---------   ---------   -----------   -----------   --------
                                                                         
          Relief Canyon Mine        $ 215,510   $ 277,307   $   261,742   $  45,441     $800,000


All office furniture and equipment has been fully  depreciated as of January 31,
2006.

NOTE 6 - NOTES PAYABLE TO RELATED PARTIES AND INDIVIDUALS

Unsecured  notes  payable to  individuals  and  related  parties  consist of the
following at January 31, 2006:

Loans from officers:
  Convertible notes payable                                     $ 209,251
      The notes bear interest at 8% per year.
      In October 2004,  the Company  consolidated  the amounts owed to the Chief
      Executive  Officer and the Chief Financial  Officer referred to in Note 10
      (excluding  accrued interest  payable) into new convertible  notes payable
      due  September  30, 2005.  The notes and any  interest  accrued on the new
      notes are  convertible  into common  shares of the Company at a conversion
      price of $0.15 per share.  On July 31,  2005 the Chief  Executive  Officer
      converted  his note  payable  and accrued  interest  payable on all of his
      notes payable into 12,326,231 common shares of Newgold. In connection with
      the loans,  warrants to purchase  5,798,140 and 1,395,007 shares of common
      stock  have  been  issued  to the Chief  Executive  Officer  and the Chief
      Financial Officer, respectively.

  Term notes payable                                            $  24,844
      The notes bear  interest at 8% per year.
      The notes are due October 31, 2006 and January 31, 2007. Newgold is not in
      default  with  respect  to these  loans.  In  connection  with the  loans,
      warrants to purchase 141,540 shares of common stock have been issued.  The
      warrants  have been valued using the  Black-Scholes  option  pricing model
      (see Note 8). The  warrants  were  issued at $0.15 per share and expire in
      five years from the date of issuance.

Loan from individual.                                           $ 176,500
      The note bears interest at 8% per year.

                                      F-22

      The note is currently  due. The Company is in default with respect to this
      loan.

Other non-interest bearing advances                                47,039
                                                               -----------
      Total notes payable to individuals and related parties    $ 457,634
                                                               ===========

Interest  expense was  $941,347,  $614,672  and  $2,409,037  for the years ended
January  31, 2006 and 2005,  and the period from  January 1, 1995 to January 31,
2006, respectively.

NOTE 7 - CONVERTIBLE DEBENTURE

On January 27, 2006,  Newgold entered into a Securities  Purchase Agreement (the
"Purchase  Agreement")  and other  agreements  in  connection  with the  private
placement of a convertible debenture,  in the principal amount of $1,000,000 and
bearing  interest at 8% per annum (the  "Debenture").  The  Debenture was funded
$600,000 on January 27, 2006, with additional fundings due as follows:  $200,000
upon the filing of a resale  registration  statement  with the SEC and  $200,000
upon the  registration  statement  being  declared  effective by the SEC. Of the
$600,000 funded on January 27, 2006,  $77,500 was paid for various loan fees and
closing costs. The Debenture is due and payable on January 27, 2009 unless it is
converted  into  shares  of  Newgold  Common  Stock  or is  repaid  prior to its
expiration  date. The conversion rate is adjustable and at any conversion  date,
will be the lower of $0.2626 per share or 95% of the Market Conversion Price.

In conjunction  with the Purchase  Agreement,  Newgold  entered into an Investor
Registration  Rights  Agreement  (the  "Registration  Rights  Agreement").   The
Registration  Rights Agreement  requires Newgold to register at least 24,050,025
shares of our Common Stock to cover the  conversion of the  Debenture  (assuming
conversion  prices  substantially  below  $0.2626) and  2,500,000  shares of our
Common Stock issuable upon  conversion of warrants (the  "Warrants")  granted to
the Debenture holder.  Newgold is required to keep this  Registration  Statement
effective until the Debenture has been fully converted,  repaid,  or becomes due
and the Warrants have been fully exercised or expire. Both the Debenture and the
Warrants are currently convertible or exercisable, respectively.

In  conjunction  with the Purchase  Agreement,  Newgold  entered into a Security
Agreement (the "Security  Agreement").  The Security Agreement creates a secured
interest in favor of the Debenture  holder in our mining  interest and assets in
the  Relief  Canyon  Mine  property.  This  security  interest  was  created  by
recordation  of a Memorandum  of Security  Agreement  filed in Pershing  County,
Nevada on February  14,  2006.  Consequently,  should a default  occur under the
Debenture,  the Debenture  holder could take over or sell all of our  interests,
business and assets associated with the Relief Canyon Mine.

The  transaction,  to the extent that it is to be satisfied with common stock of
the Company,  would normally be included as equity obligations.  However, in the
instant case,  due to the  indeterminate  number of shares which might be issued
under the embedded  convertible  note debt  conversion  feature,  the Company is
required to record a liability for the fair value of the detachable warrants and
the  embedded   convertible  feature  of  the  note  payable  (included  in  the
liabilities as a "derivative liability").

The accompanying  financial statements comply with current requirements relating
to warrants and embedded conversion features as described in FAS 133, EITF 98-5,
00-19, and 00-27, and APB 14 as follows:

                                      F-23

         o    The Company  allocated the proceeds  received between  convertible
              debt and the  detachable  warrants  based upon the  relative  fair
              market values on the date the proceeds were received.

         o    Subsequent to the initial recording,  the change in the fair value
              of the detachable  warrants,  determined  under the  Black-Scholes
              option  pricing  formula,  and the change in the fair value of the
              embedded  derivative in the conversion  feature of the convertible
              debentures  are  recorded as  adjustments  to the  liabilities  at
              January 31, 2006.

         o    $37,418 of expense relating to the change in the fair value of the
              Company's  stock  reflected in the change in the fair value of the
              warrants and derivatives (noted above) is included as other income
              (expense).

         o    Accreted interest of $2,740 as of January 31, 2006.




        The following table summarizes the various components of the convertible
notes as of January 31, 2006:

                Derivative liabilities                 $      637,417
                Convertible debenture                         600,000
                Unamortized discount                         (597,260)
                Deferred financing costs                      (77,500)
                                                      ----------------
                Total convertible debt
                 and financing costs                   $      562,657
                                                      ================

NOTE 8 - COMMITMENTS AND CONTINGENCIES

Except for the advance royalty and rent payments noted below, the Company is not
obligated  under any  capital  leases or  non-cancelable  operating  lease  with
initial or  remaining  lease terms in excess of one year as of January 31, 2005.
However, minimum annual royalty payments are required to retain the lease rights
to the Company's properties.

Relief Canyon Mine
------------------
The Company purchased the Relief Canyon Mine from J.D. Welsh Associates  (Welsh)
in January  1995.  The mine  consisted of 39 claims and a lease for access to an
additional 800 acres  contiguous to the claims.  During 1997, the Company staked
an additional 402 claims.  Subsequent to January 31, 1998,  the Company  reduced
the total  claims to 50  (approximately  1,000  acres).  The  annual  payment to
maintain  these  claims is $5,000.  As part of the  original  purchase of Relief
Canyon Mine, Welsh assigned the lease from Santa Fe Gold Corporation  (Santa Fe)
to the  Company.  The  lease  granted  Santa Fe the sole  right of  approval  of
transfer  to any  subsequent  owner  of the  Relief  Canyon  Mine.  Santa Fe had
accepted lease and minimum royalty  payments from the Company,  but has declined
to approve the  transfer.  Due to Welsh's  inability  to  transfer  the Santa Fe
lease,  the  original  purchase  price of  $500,000  for Relief  Canyon Mine was
reduced by $50,000 in 1996 to $450,000.

Subsequent to January 31, 1998, the lease was terminated by Santa Fe. Management
believes loss of the Santa Fe lease will have no material  adverse affect on the
remaining  operations  of the mine  operation or the  financial  position of the
Company.

                                      F-24

During 1996, Repadre Capital  Corporation  ("Repadre")  purchased for $500,000 a
net smelter  return  royalty  (Repadre  Royalty).  Repadre was to receive a 1.5%
royalty from  production at each of the Relief Canyon Mine and Mission Mines. In
July 1997,  an  additional  $300,000  was paid by Repadre for an  additional  1%
royalty from the Relief  Canyon Mine.  In October,  1997,  when the Mission Mine
lease was  terminated,  Repadre  exercised  its option to  transfer  the Repadre
Royalty  solely to the Relief Canyon Mine  resulting in a total 4% royalty.  The
total amount  received of $800,000 has been recorded as deferred  revenue in the
accompanying financial statements.

Crescent Red Caps Joint Venture
-------------------------------
Newgold is the owner of a 22.22% joint  venture  interest and is the operator of
the Crescent Red Caps Joint Venture  ("Crescent Red Caps"). The remaining 77.78%
interest is held by ASDi LLC, a California limited liability company owned by A.
Scott Dockter,  Chairman and CEO of Newgold.  Additionally,  Newgold,  by making
expenditures over the next three years aggregating $2,700,000,  will end up with
a 66.66%  overall  interest  in the joint  venture.  Newgold  will then have the
opportunity to purchase the remaining joint venture interest held by Mr. Dockter
based on the results of the exploration  work  contemplated by these  additional
expenditures.

The  Company  acquired  its  22.22% in the joint  venture by issuing to ASDi LLC
2,500,000  shares of its  restricted  common  stock and a  warrant  to  purchase
2,500,000 shares of its common stock at a price of $0.40. The warrant has a term
of three  years.  The common  stock was valued at $0.20 per share for a total of
$500,000. The fair market value of the warrants was calculated to be $359,522 as
determined  by the  methodology  described in Note 9. The Company  recorded this
investment  as a loss form the joint  venture  of  $859,522  for the year  ended
January 31, 2006.

The  properties  are  subject  to two leases  which  include  approximately  135
unpatented  mining claims and cover  approximately  2700 acres. All gold, silver
and other mineral production by Crescent Red Caps is subject to a 3% net smelter
return ("NSR") royalty payable to the lessors except for barite which is subject
to a 10% royalty on ore produced from claims covered by the leases.

Litigation
----------
On February 4, 2000, a complaint was filed against the Company by Sun G. Wong in
the Superior Court of Sacramento County, California (Case No. 00AS00690). In the
complaint,  Mr. Wong claims that he was held liable as a guarantor of Newgold in
a claim  brought by Don  Christianson  in a breach of  contract  action  against
Newgold.  Despite the fact that Newgold settled the action with Mr. Christianson
through the  issuance  of 350,000  shares of Newgold  common  stock,  Mr.  Wong,
nevertheless,  paid $60,000 to a third party claiming to hold Mr. Christianson's
judgment pursuant to Mr. Wong's guaranty agreement.  Similarly, Mr. Wong alleges
that he was held liable as a guarantor for a debt of $200,000 owed by Newgold to
Roger Primm with  regard to money  borrowed  by  Newgold.  Mr.  Primm filed suit
against the Company which was settled  through the issuance of 300,000 shares of
Newgold common stock. Nevertheless, Mr. Wong alleges that he remains liable to a
third party claiming to hold Mr. Primm's judgment for up to $200,000 pursuant to
his guaranty of such debt of Mr. Primm.

On December 29, 2000,  the superior  court  entered a default  judgment  against
Newgold in the amount of $400,553 with regard to the  Christianson  judgment and
an additional  $212,500 in regard to the Primm  judgment  against Mr. Wong.  The
Company believes that Mr. Wong was not obligated to pay any sums pursuant to his
guarantees with regard to the Christianson  and Primm judgments  against Newgold
and, as a result,  Mr. Wong should not have any recourse against the Company for
reimbursement.  Should  Mr.  Wong seek to assert  these  judgments  against  the

                                      F-25

Company, the Company cannot predict the outcome of any such action or the amount
of expenses that would be ultimately  incurred in defending any such claims. The
Company is currently negotiating a settlement with Mr. Wong; however there is no
assurance that an acceptable settlement will be consummated.

The Company is involved in various other claims and legal actions arising in the
ordinary  course  of  business.  In the  opinion  of  management,  the  ultimate
dispositions  of these  matters will not have a material  adverse  effect on the
Company's financial position, results or operations or liquidity.

NOTE 9 - SHAREHOLDERS' DEFICIT

The following common stock transactions  occurred during the period from January
1, 1995 to January 31, 2006:

Common Stock
------------
In January 1996  3,800,000  shares were issued for the purchase of rights to the
Washington  Gulch  property.  The site was acquired from a former officer of the
Company.  The property consists of a mill site located in Montana.  The value of
the common  stock  issued on the  property was recorded at the cash value of the
net monetary assets received which amounted to $181,000.

In June, 1996 the Company exchanged  several "net profits  interests" for shares
of common stock of the Company.  A net profit interest is a royalty based on the
profit remaining after recapture of certain  operating,  capital and other costs
as  defined  by  agreement.   Net  profits  interests  sold  for  $442,037  were
repurchased for 1,431,642 shares of common stock.

In October 1996 the Company issued 1,000,000 shares,  valued at $1 per share, to
Casmyn Corp. as partial  consideration  for the repurchase of their 50% interest
in the Relief Canyon Mine.

In November  1996,  the Company sold 100,000  shares in exchange for $100,000 in
cash to Repadre Capital Corporation.

In  November  1996,  Newgold,  Inc.  of Nevada  (Old  Newgold)  was merged  into
Warehouse Auto Centers, Inc. (WAC), a public company, which had previously filed
an involuntary petition under Chapter 11 of the United States Bankruptcy Code in
the  United  States  Bankruptcy  Court  for the  Western  District  of New York.
Pursuant to the plan of reorganization  and merger (the Plan), (i) WAC which was
the surviving corporation for legal purposes,  changed its name to Newgold, Inc.
(the Company),  (ii) the  outstanding  shares of Old Newgold were converted into
the right to receive an aggregate of 12,000,000  shares or approximately  69% of
the post merger outstanding common stock of the Company,  (iii) each outstanding
share of WAC was  converted  into the right to receive  1/65 share of the common
stock of the Company,  for an aggregate of 51,034  shares or less than 1% of the
post merger  outstanding  common  stock,  (iv)  unsecured  trade debts and other
unsecured  pre-petition  liabilities  were paid in full via the  issuance of one
share of the  Company's  stock for each $42 of debt,  for an aggregate of 63,374
shares or less than 1% of the post merger outstanding common stock, and (v) post
petition  1 share of stock  for each $1 of debt,  for an  aggregate  of  191,301
shares or approximately 1% of the post merger outstanding common stock. The Plan
also  required an amendment to the Company's  capital  structure to increase the
number of shares  authorized to 50,000,000 and to reduce the  corresponding  par
value to $.001.

                                      F-26

In connection  with the Plan, the Company raised  $4,707,000 of cash through the
issuance of convertible debtor  certificates.  Shortly after confirmation of the
Plan,  the debtor  certificates  were  exchanged for 5,135,130  shares of common
stock (including  428,130 shares issued in lieu of paying cash for underwriter's
fees)  of  the  Company  representing  approximately  29%  of  the  post  merger
outstanding common stock.

In the  bankruptcy  reorganization  of WAC, all  creditors  were issued stock in
settlement of accounts payable.  During fiscal 1998 post petition  creditors had
the option of receiving cash in lieu of stock.  Five creditors  returned  25,242
shares  to the  Company,  resulting  in a charge  to  stockholders'  deficit  of
$25,242.

In May 1997,  the Company  issued 12,500 shares to a note holder in payment of a
$5,000 note,  which had  originally  been issued in exchange for an agreement to
defer filing a judgment for collection of the $200,000 note.

The Company's stock was approved by NASD for trading on July 7, 1997. On May 27,
1997,  the  investors  in the WAC  bankruptcy  reorganization,  which  had  been
approved by the court on November 21, 1996,  were issued a ten-percent  bonus of
470,700 shares for the delay in trading.  An additional  42,814 shares issued to
the investment  bankers for a total of 513,514  shares.  A total of $205,000 was
credited to stockholders' deficit for the transaction.

In October 1997 Repadre  Capital Corp.  exercised  warrants to purchase  200,000
shares 1997 at $1.00 per share.

The employment  contract for the corporate counsel  stipulated the Company would
pay the rent for a law office.  In March 1998,  the Company issued 15,000 shares
in lieu of cash for six months  rent.  General  and  administrative  expense was
charged $6,000 for the rent.  The corporate  counsel's  office was  subsequently
relocated to the Company's headquarters.

In April 1998, the Company  closed a Regulation S offering for 5,480,000  shares
to raise $548,000 at $.10 per share.  In connection  with this offering  136,977
shares were issued as commission to brokers.

As an alternative to gold mining, the Board of Directors approved an exploration
program for a calcium bentonite mine located in southern California.  In payment
of a purchase  option on the mine, the Company issued 150,000 shares of stock to
the mine owner in May 1998. The Company charged  $55,500 to exploration  expense
for the option.  After  completing the due diligence on the mine  property,  the
Company abandoned development of the mine in August 1998.

On June 8, 1999 the Board of  Directors  approved a  three-for-two  stock split,
effected in the form of a 50% stock dividend,  payable to stockholders of record
on June 10, 1999.

In January 2000 the Board of  Directors,  agreed that  various  creditors of the
Company  would settle their debt through  conversion  of the debt into equity by
issuing  stock at a price of $0.40 per share.  In total,  $1,282,271 of debt was
converted into 3,205,674 shares of stock.  $477,977 or 1,194,943 shares were for
amounts owed to the Chairman of the Company; $328,733 or 821,833 shares were for
amounts owed to two directors and $475,561 or 1,188,898  shares were for amounts
owed to other shareholders.

                                      F-27

In February 2000, the Company closed a private  placement  offering or 1,196,000
shares to raise $598,000 at $.50 per share.  Additionally,  a warrant was issued
with each share to purchase an additional share of common stock at $1 per share.
The warrants expired four years from the original date of closing. In connection
with this  offering  $60,000 were paid as  commission  to brokers in the form of
120,000 shares of common stock and were accounted for as offering costs.  Due to
the  registration  of the shares not being  completed,  as a penalty the Company
issued an additional 239,200 to the investors in August 2000.

In April 2000,  the Company issued 78,271 shares of common stock in exchange for
services  related to an Internet  interview and broadcast  with the Chairman and
Chief Executive Officer of the Company..

In April 2000,  a $200,000  note  payable and a $250,000  judgment  payable were
settled and paid off in full by a shareholder of the company. The total balances
due including interest and legal fees had grown to approximately $650,000 at the
time of settlement.  The shareholder has received an additional 1,000,000 shares
of stock as  reimbursement  for the  payment  of these  amounts on behalf of the
Company.

In October 2000 the Company issued 600,000 shares of common stock to an investor
for $67,000.

In  February  2001 the Company  issued  2,500,000  shares of common  stock to an
investor for $150,000.

In  January  2003  warrants  to  purchase  550,000  shares of common  stock were
exercised at a price of $0.10 per share.  The original  exercise price was $1.00
however the investors and the Company  renegotiated  the exercise price to $0.10
per share.

In  February  2003  warrants  to purchase  200,000  shares of common  stock were
exercised at a price of $0.10 per share.  The original  exercise price was $1.00
however the investor and the Company  renegotiated  the exercise  price to $0.10
per share.

In January 2005 the Company issued 671,667 shares of commons stock at a price of
$0.15 per share to four investors for total proceeds of $100,750.  Additionally,
671,667  warrants  to purchase  common  stock at a price of $0.30 per share were
issued to the  investors.  The  warrants  expire  three  years  from the date of
issuance.

In March 2005 a Special  Meeting  of  Shareholders  of Newgold  was held for the
purpose of amending the Articles of  Incorporation  to affect an increase in the
authorized shares of common stock issuable to 250,000,000 shares. At the meeting
the proposal was approved by the shareholders, with a total of 31,392,611 shares
voting in favor of the  amendment,  411,711  voting  against the  amendment  and
10,207 shares abstained from voting.

In February  2005 Newgold  issued  500,000  shares of common stock at a price of
$0.15 per share to an investor  for total  proceeds  of  $75,000.  Additionally,
500,000  warrants  to purchase  common  stock at a price of $0.30 per share were
issued  to the  investor.  The  warrants  expire  three  years  from the date of
issuance.

In April 2005  Newgold  issued  2,000,000  shares of common  stock at a price of
$0.25 per share to  investors  for total  proceeds  of  $500,000.  Additionally,
1,000,000  warrants to purchase  common stock at a price of $0.50 per share were
issued to the  investors.  The  warrants  expire  three  years  from the date of
issuance.

                                      F-28

In July 2005  Newgold  issued  12,326,231  shares of common  stock at a price of
$0.15  per  share to the  Chief  Executive  Officer  according  to the  terms of
existing notes payable to the officer. The issuance resulted in the repayment of
principal and interest totaling $1,848,935.

In January 2006 Newgold  issued  2,500,000  shares of common stock at a price of
$0.20 per  share to ASDi LLC,  an entity  controlled  and  managed  by the Chief
Executive  Officer in exchange for a 22.22%  interest in a newly formed  entity,
Crescent Red Caps Joint Venture (see Note 8).  Additionally,  2,500,000 warrants
to purchase  common stock at a price of $0.40 per share were issued to ASDi LLC.
The warrants expire three years from the date of issuance.

In January 2006 Newgold  issued  2,500,000  shares of common stock at a price of
$0.20 per share to an investor  for total  proceeds of  $500,000.  Additionally,
2,500,000  warrants to purchase  common stock at a price of $0.40 per share were
issued  to the  investor.  The  warrants  expire  three  years  from the date of
issuance.

Warrants
--------
Newgold  has issued  common  stock  warrants  to  officers of Newgold as part of
certain financing transactions (see Note 6). Newgold has also issued warrants as
part of the issuance of a convertible debt transaction (see Note 7). Newgold has
also issued warrants as part of the issuance of common stock (see this Note 9).

The fair market value of these  warrants  issued  during the years ended January
31, 2006 and 2005 was determined to be $1,365,758 and $1,176,766,  respectively,
and was  calculated  under  the  Black-Scholes  option  pricing  model  with the
following assumptions used:

                                                      2006              2005
                                                  -------------    -------------
                  Expected life                    3 - 4 years      5 years
                  Risk free interest rate          3.77%-4.49%      3.3%-3.71%
                  Volatility                       134%             348%
                  Expected dividend yield          None             None

The fair value of these warrants is being amortized to interest expense over one
and three years, the original life of the loans. Total amortization  expense for
the years ended January 31, 2006 and 2005 and the period from January 1, 1995 to
January  31,  2006  was   approximately   $777,642,   $443,682  and  $1,274,257,
respectively.

The following table presents warrant activity through January 31, 2006:



                                               Number of Shares     Weighted Average
                                                                     Exercise Price
-------------------------------------------   -------------------- --------------------
                                                             
Outstanding at January 31, 2000                                 -   $                -
  Granted                                               3,746,000                 0.55
  Exercised                                                     -                    -
  Canceled or expired                                           -                    -
-------------------------------------------   -------------------- --------------------
Outstanding at January 31, 2001 and 2002                3,746,000                 0.55
  Granted                                                 452,463                 0.15
  Exercised                                              (550,000)               (0.10)
  Canceled or expired                                           -                    -
-------------------------------------------   -------------------- --------------------
Outstanding at January 31, 2003                         3,648,463                 0.43
  Granted                                               1,265,766                 0.15


                                      F-29



                                               Number of Shares     Weighted Average
                                                                     Exercise Price
-------------------------------------------   -------------------- --------------------
                                                             
  Exercised                                              (200,000)               (0.10)
  Canceled or expired                                    (996,000)               (1.00)
-------------------------------------------   -------------------- --------------------
Outstanding at January 31, 2004                         3,718,229                 0.15
  Granted                                               8,006,354                 0.16
  Exercised                                                     -                    -
  Canceled or expired                                           -                    -
-------------------------------------------   -------------------- --------------------
Outstanding at January 31, 2005                        11,724,583                 0.16
  Granted                                               9,050,000                 0.37
  Exercised                                                     -                    -
  Canceled or expired                                           -                    -
-------------------------------------------   -------------------- --------------------
Outstanding at January 31, 2006                        20,774,583   $             0.25
                                              ==================== ====================
Exercisable at January 31, 2006
                                                       20,774,583   $             0.25
Weighted average remaining contractual term             36 months


NOTE 10 - INCOME TAXES

As of January 31, 2006,  the Company had net operating  loss  carry-forwards  of
approximately  $11,145,241  available to reduce future  Federal  taxable  income
which,  if not used,  will expire at various dates through January 31, 2026. Due
to  changes in the  ownership  of the  Company,  the  utilization  of these loss
carry-forwards  may be subject to substantial annual  limitations.  Deferred tax
assets (liabilities) are comprised of the following at January 31, 2006:

        Deferred Tax Assets
            Net Operating Loss Carry-forwards                 $      4,774,409
            Contribution Carryover                                      16,029
            Accrued Interest Payable                                    58,498
            Accrued Payroll                                            237,651
            Accrued Payroll Tax                                        162,720
            AmortizationDiffBook/Tax                                   552,469
            AccruedAccountsPayable                                      88,250
            Capital Loss Difference                                    120,416
            Stock compensation                                           6,722
            Other                                                          272
        Less valuation allowance                                    (5,595,336)
                                                             ------------------
        Total Deferred Tax Assets                                      422,100
                                                             ------------------
        Deferred Tax Liability
            State Taxes                                               (422,100)
                                                             ------------------
        Total Deferred Tax Liabilities                                (422,100)
                                                             ------------------

            NET DEFERRED TAX ASSETS                           $              -
                                                             ==================

The net change in the total  valuation  allowance for the year ended January 31,
2006 was $816,412.  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,  2006 and the  statutory  Federal  income  tax rate,  is
reconciled  to the actual tax benefit  reflected in the  accompanying  financial
statements as follows:

                                      F-30

                                                          2006         2005
                                                       ------------ ------------
        Statutory regular federal income benefit rate       34.00%       34.00%
        State taxes                                          8.84%        8.84%
        Change in valuation allowance                     (42.84)%     (42.84)%
                                                       ------------ ------------
              Total                                          0.00%        0.00%
                                                       ============ ============

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.  Additionally,
the Company has not filed any tax returns since 1996.

NOTE 11 - RELATED PARTY TRANSACTIONS

Loans from officers
-------------------
During  prior  periods,  the Chief  Financial  Officer and  Secretary of Newgold
loaned  Newgold  an  aggregate  of  $209,251.  As of  January  31,  2006 the net
principal  balance  owing to him was $209,251 and accrued  interest  payable was
$22,692. See Note 6.

During the 2006 fiscal year, the President of Newgold, Scott Dockter, had loaned
Newgold an aggregate of $5,000. As of January 31, 2006 the net principal balance
owing to him was $24,844 and accrued interest  payable was $33,023.  See Note 6.
In July 2005 a  convertible  promissory  note with a balance of  $1,402,742  and
additional  accrued  interest of $446,193 due to Mr.  Dockter was converted into
12,326,231  shares of Newgold common stock.  As of January 31, 2005, Mr. Dockter
had loaned  Newgold a total of $24,845  and  accrued  interest  of  $32,023.  In
addition to the outstanding  note payable,  Mr. Dockter has been issued Warrants
to purchase up to 12,157,909 shares of Newgold's Common Stock at exercise prices
ranging from $0.15/share to $0.40/share.

On January 25,  2006,  Newgold  entered into a joint  venture with ASDi,  LLC to
develop two Nevada mining  properties known as the Red Caps Project and Crescent
Valley  Project.  The Red Caps consists of  approximately  96 unpatented  mining
claims covering 1900 acres and the Crescent Valley consists of  approximately 39
unpatented  mining claims  covering 750 acres.  The Red Caps and Crescent Valley
mining claims are currently owned by ASDi, LLC, which is owned and managed by A.
Scott Dockter,  Chairman and CEO of Newgold.  The joint venture will be operated
through a newly formed Nevada  limited  liability  company  called  Crescent Red
Caps, LLC. The terms of the joint venture provide for ASDi to contribute the Red
Caps and  Crescent  Valley  mining  claims to the LLC in  exchange  for  Newgold
issuing 2.5 million shares of its Common Stock to ASDi. Additionally,  2,500,000
warrants to purchase  common  stock at a price of $0.40 per share were issued to
ASDi LLC.  The warrants  expire  three years from the date of issuance.  Newgold
will  initially  own a 22.22%  interest  in the LLC and ASDi  will hold a 77.78%
interest.  By  expending  up to  $1,350,000  on each project over the next three
years,  Newgold can  increase  its  interest  in the LLC to 66.66%.  Thereafter,
Newgold has the right to purchase the remaining interest in the LLC held by ASDi
at a price to be determined by the results of the  exploration  work  conducted.
Newgold will be the Manager of the LLC.

Accrued Payroll and Expenses Owed to Officers
---------------------------------------------
As of January 31, 2006 Newgold owed the Chief Executive  Officer and Chairman of
Newgold $75,000 for back wages.

                                      F-31

As of January 31, 2006 Newgold owed the Chief Financial Officer and Secretary of
Newgold $102,057 for back wages and $2,500 for accrued expenses.

NOTE 12 - SUBSEQUENT EVENTS

In March 2006 Newgold  issued 500,000 shares of common stock at a price of $0.20
per share to an investor for total proceeds of $100,000.  Additionally,  500,000
warrants to purchase  common  stock at a price of $0.40 per share were issued to
the investor. The warrants expire three years from the date of issuance.

In March 2006 $200,000 was funded per the terms of the Debenture  referred to in
Note 6. Of the  $200,000  funded  $20,000  was paid for  various  loan  fees and
closing  costs.  All of the original  terms and  conditions of the Debenture and
related documents remain unchanged.













































                                      F-32

                                     PART II

                     INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 24.      INDEMNIFICATION OF DIRECTORS AND OFFICERS.
              ------------------------------------------

Our  Certificate  of  Incorporation  provides  that no  director  or  officer of
Newgold,  Inc. (the "Company") shall be personally  liable to the Company or its
stockholders  for  monetary  damages  for any breach of  fiduciary  duty by such
person as a director or  officer,  except for (i) breach of  director's  duty of
loyalty to the Company or its  stockholders;  (ii) acts or omissions not in good
faith or which involve  intentional  misconduct  or a knowing  violation of law;
(iii) unlawful payment of dividends or unlawful stock purchase or redemption; or
(iv) any  transaction  from  which the  director  derived an  improper  personal
benefit. Our Bylaws provide, in pertinent part, that the Company shall indemnify
any person made a party to or involved in any civil,  criminal or administrative
action,  suit or  proceeding  by reason of the fact that such person is or was a
director  or officer of the  Company,  or of any  corporation  which such person
served  as such at the  request  of the  Company,  against  expenses  reasonably
incurred by, or imposed on, such person in connection  with, or resulting  from,
the exercise of such action,  suit,  proceeding or appeal  thereon,  except with
respect to matters as to which it is adjudged in such action, suit or proceeding
that such  person was liable to the  Company,  or such  other  corporation,  for
negligence  or  misconduct  in the  performance  of such  person's  duties  as a
director  or officer of the  Company.  The  determination  of the rights of such
indemnification  and the amount thereof may be made, at the option of the person
to be indemnified,  by (i) order of the Court or  administrative  body or agency
having  jurisdiction over the matter for which  indemnification is being sought;
(ii)  resolution  adopted  by  a  majority  of a  quorum  of  our  disinterested
directors; (iii) if there is no such quorum, resolution adopted by a majority of
the committee of stockholders and disinterested  directors of the Company;  (iv)
resolution  adopted by a majority of the quorum of directors entitled to vote at
any  meeting;  or (v) order of any Court having  jurisdiction  over the Company.
Such right of  indemnification  is not  exclusive  of any other right which such
director  or officer may have,  and  without  limiting  the  generality  of such
statement, they are entitled to their respective rights of indemnification under
any bylaws, agreement,  vote of stockholders,  provision of law, or otherwise in
addition to their rights under the Company's Bylaws.

Insofar as indemnification  for liabilities  arising under the Securities Act of
1933  (the  "Securities  Act")  may be  permitted  to  directors,  officers  and
controlling  persons  of  Newgold  pursuant  to  the  foregoing  provisions,  or
otherwise,  Newgold has been advised that in the opinion of the  Securities  and
Exchange  Commission such  indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable.

ITEM 25.      OTHER EXPENSES OF ISSUANCE AND DISTRIBUTIONS.
              ---------------------------------------------

The  estimated  expenses of this  offering in  connection  with the issuance and
distribution of the securities being registered, are as follows:

                                      II-1

               Registration Fee                           $      948
               Blue Sky Fees                                     500
               Printing                                        1,000
               Legal Fees and Expenses                        30,000
               Accounting Fees and Expenses                   25,000
               Miscellaneous                                   1,552
                                                         ------------
                        Total                             $   59,000
                                                         ============

ITEM 26.      RECENT SALES OF UNREGISTERED SECURITIES.
              ----------------------------------------

The following  issuances of stock,  warrants,  and other equity  securities were
made without any public solicitation to a limited number of investors or related
individuals  or entities in separately  negotiated  transactions.  Each investor
represented  to us that  the  securities  were  being  acquired  for  investment
purposes only and not with an intention to resell or distribute such securities.
Each of the individuals or entities had access to information about our business
and  financial  condition  and  was  deemed  capable  of  protecting  their  own
interests.  The stock, warrants and other securities were issued pursuant to the
private  placement  exemption  provided by Section  4(2) or Section  4(6) of the
Securities  Act.  These are deemed to be  "restricted  securities" as defined in
Rule 144 under the  Securities  Act and the warrant  certificates  and the stock
certificates bear a legend limiting the resale thereof.

During  Newgold's  current  fiscal year ending  January 31, 2007,  it issued the
following   securities  pursuant  to  exemptions  from  registration  under  the
Securities Act:

         (a) In March 2006 Newgold  issued  500,000  shares of common stock at a
price  of $0.20  per  share to an  investor  for  total  proceeds  of  $100,000.
Additionally,  500,000 warrants to purchase common stock at a price of $0.40 per
share were issued to the investor. The warrants expire three years from the date
of issuance.

         (b) In March 2006  $200,000  was funded per the terms of the  Debenture
referred to in Note 7. Of the $200,000  funded $20,000 was paid for various loan
fees  and  closing  costs.  All of the  original  terms  and  conditions  of the
Debenture and related documents remain unchanged.

During  Newgold's  fiscal year ended  January 31, 2006,  it issued the following
securities pursuant to exemptions from registration under the Securities Act:

         (c) On January 27, 2006,  Newgold  entered  into a Securities  Purchase
Agreement (the "Purchase  Agreement") and a Registration  Rights  Agreement (the
"Registration  Rights  Agreement") in connection  with a private  placement of a
convertible  debenture,  in the  principal  amount  of  $1,000,000  and  bearing
interest  of 8% per  annum  (the  "Debenture").  The  Debenture  will be  funded
$600,000  at the  closing ,  $200,000  upon the filing of a resale  registration
statement  with the  Securities  and Exchange  Commission  and $200,000 upon the
registration  statement  being  declared  effective.  The  Debenture  is due and
payable on January 27, 2009 unless it is converted  into shares of the Company's
common stock or is repaid prior to its expiration date.  Additionally,  pursuant
to the Purchase Agreement,  the investor was issued warrants (the "Warrants") to
purchase an aggregate of 2,500,000 shares of Newgold common

                                      II-2

stock  with  1,250,000  warrants  exercisable  at $0.20 per share and  1,250,000
warrants  exercisable at $0.30 per share. The Warrants have a term of four years
and are immediately exercisable.

         (d) On January  27, 2006  Newgold  issued  2,500,000  shares of commons
stock  at a price of $0.20  per  share to an  investor  for  total  proceeds  of
$500,000.  Additionally,  2,500,000 warrants to purchase common stock at a price
of $0.40 per share were issued to the investor.  The warrants expire three years
from the date of  issuance.  The shares  were  offered and sold  exclusively  to
individuals  residing or entities  formed  outside the United States and are not
deemed to be "U.S.  persons" as that term is defined  under  Regulation  S. Each
investor represented that it is purchasing such shares for its own account. Both
the offer and the sale of the Newgold shares were made outside the United States
and are  deemed to be  "offshore  transactions"  as that term is  defined  under
Regulation  S. The share  certificate  contains  a legend  indicating  that such
shares can only be transferred  in compliance  with the provisions of Regulation
S. In light of the  foregoing,  such sales were deemed exempt from  registration
pursuant  to  Regulation  S of  the  1933  Act.  The  shares  are  deemed  to be
"restricted securities" as defined in Rule 144 under the 1933 Act.

         (e) On January 25,  2006,  Newgold  entered  into a joint  venture with
ASDi, LLC to develop two Nevada mining  properties known as the Red Caps Project
("Red Caps") and Crescent Valley Project ("Crescent  Valley").  The Red Caps and
Crescent  Valley mining claims are currently  owned by ASDi,  LLC which is owned
and managed by A. Scott Dockter,  Chairman and CEO of Newgold. The joint venture
will be operated through a newly formed Nevada limited  liability company called
Crescent  Red Caps,  LLC.  The terms of the joint  venture  provide  for ASDi to
contribute the Red Caps and Crescent Valley mining claims to the LLC in exchange
for Newgold issuing 2.5 million shares of its common stock to ASDi. Newgold will
initially own a 22.22% interest in the LLC and ASDi will hold a 77.78% interest.
By expending up to $1,350,000 on each project over the next three years, Newgold
can  increase  its  interest in the LLC to 66.66%.  Thereafter,  Newgold has the
right to purchase the  remaining  interest in the LLC held by ASDi at a price to
be determined by the results of the exploration work conducted.  Newgold will be
the Manager of the LLC.

         During  Newgold's  fiscal year ended  January 31,  2005,  it issued the
following equity securities  pursuant to exemptions from registration  under the
Securities Act:

         (f) In April 2004,  Newgold  borrowed $9,650 from its President,  Scott
Dockter.  The promissory  note is not  convertible  into stock,  is due on April
30,2005,  and bears  interest  at 8% per year.  In  connection  with the  loans,
warrants to purchase 64,333 shares of Newgold common stock have been issued. The
warrants have been valued using the  Black-Scholes  option  pricing  model.  The
warrants  were  issued at $0.15 per share and expire in five years from the date
of issuance.

                                      II-3

         (g) In July 2004,  Newgold  borrowed  $8,500 from its President,  Scott
Dockter.  The promissory note is not convertible  into stock, is due on July 31,
2005, and bears interest at 8% per year. In connection with the loans,  warrants
to purchase 56,667 shares of Newgold common stock have been issued. The warrants
have been valued using the Black-Scholes option pricing model. The warrants were
issued at $0.15 per share and expire in five years from the date of issuance.

         (h) In October 2004, Newgold borrowed $3,081 from its President,  Scott
Dockter.  The promissory  note is not  convertible  into stock, is due on in one
year and bears  interest  at 8% per year.  In  conjunction  with this loan,  the
President  was issued  warrants to purchase  20,540  shares of Newgold's  common
stock of $0.15 per share.  In addition,  new convertible  promissory  notes were
issued to Scott  Dockter,  Newgold's CEO and James Kluber,  Newgold's CFO in the
principal  amounts of  $1,402,742  and  $209,251,  respectively.  The notes bear
interest at 8% per annum and are due September 30, 2005. In connection  with the
issuance of these  notes,  Newgold  issued  warrants to purchase  5,798,140  and
1,395,007  shares  of  common  stock to its Chief  Executive  Officer  and Chief
Financial Officer, respectively.

         During  Newgold's  fiscal year ended  January 31,  2004,  it issued the
following equity securities  pursuant to exemptions from registration  under the
Securities Act:

         (i) In  February  2003,  one person  exercised  a warrant  to  purchase
200,000 shares of Newgold's common stock. The exercise price was $0.10/share.

ITEM 27.      EXHIBITS
              --------

         EXHIBIT NO.       DESCRIPTION OF EXHIBIT
         -----------       ----------------------
         2.1((4))          Plan of Reorganization and Merger Agreement, dated as
                           of July 23, 1999, between the Registrant and Business
                           Web, Inc.
         2.2(6)            First Amendment to Plan of Reorganization  and Merger
                           Agreement,  dated as of October 31, 1999, between the
                           Registrant and Business Web, Inc.
         2.3(7)            Termination Agreement, dated as of December 27, 1999,
                           between the Registrant and Business Web, Inc.
         3.1(2)            Certificate of Incorporation of the Registrant.
         3.2(1)            Certificate    of   Amendment   to   Certificate   of
                           Incorporation of the Registrant.
         3.3(2)            Bylaws of the Registrant
         4.1(9)            Convertible Debenture
         4.2.1(9)          Form of Warrant - $0.20 exercise price
         4.2.2(9)          Form of Warrant - $0.30 exercise price
         5.1*              Opinion of Counsel
         10.1(3)           Promissory Note between Newgold and A. Scott Dockter,
                           dated  April 2,  1997,  for the  principal  amount of
                           $100,000.
         10.2(3)           Promissory Note between Newgold and A. Scott Dockter,
                           dated April 17,  1997,  for the  principal  amount of
                           $50,000.
         10.3(3)           Promissory Note between Newgold and A. Scott Dockter,
                           dated April 30,  1997,  for the  principal  amount of
                           $20,000.

                                      II-4

         10.4(3)           Promissory Note between Newgold and A. Scott Dockter,
                           dated  May 30,  1997,  for the  principal  amount  of
                           $35,000
         10.5(5)           Promissory Note between Newgold and A. Scott Dockter,
                           dated December 24, 1998, for the principal  amount of
                           $24,000.
         10.6(7)           Warrant  to  Purchase   shares  of  Common  Stock  of
                           Business Web, Inc.
         10.7(9)           Securities  Purchase Agreement dated January 27, 2006
                           by and among Newgold and the investor named therein.
         10.8(9)           Registration  Rights Agreement dated January 27, 2006
                           by and among Newgold and the investor named therein.
         10.9(10)          Joint  Venture   Agreement  dated  January  25,  2006
                           between Newgold, Inc. and ASDi, LLC
         10.10(10)         Crescent Red Caps LLC - Operating Agreement
         10.11(11)         Employment  Agreement  for  A.  Scott  Dockter  dated
                           February 1, 2006
         10.12(11)         Employment   Agreement  for  James  W.  Kluber  dated
                           February 1, 2006
         10.13*            Pledge and Escrow Agreement dated January 27, 2006 by
                           and among Newgold and the investor named therein.
         14(8)             Code of Business Conduct and Ethics.
         23.1              Consent  of Counsel  (incorporated  by  reference  to
                           Exhibit 5.1 of this filing)
         23.2*             Consent of Independent  Registered  Public Accounting
                           Firm

--------------------

*  Filed with this Amendment No. 1 to the SB-2 Registration Statement

(1)  Incorporated by reference to the Registrant's  Annual Report on Form 10-KSB
     for the fiscal  year ended  January  31,  1996 filed with the  omission  on
     January 22, 1997.
(2)  Incorporated  by reference to the  Registrant's  Registration  Statement on
     Form SB-2 (File No.  33-49920)  filed with the  Commission  on October  14,
     1993.
(3)  Incorporated by reference to Registrant's  Annual Report on Form 10-KSB for
     the fiscal year ended  January 31, 1997 filed with the  Commission  on June
     30, 1997.
(4)  Incorporated by reference to Registrant's  Annual Report on Form 10-KSB for
     the fiscal year ended January 31, 1999 filed with the Commission on October
     1, 1999.
(5)  Incorporated by reference to Registrant's  First Amendment to Annual Report
     on Form 10-KSB for the fiscal year ended  January 31, 1999,  filed with the
     Commission on October 20, 1999.
(6)  Incorporated  by  reference  to  Registrant's   Form  8-K  filed  with  the
     Commission  on  November  2,  1999.  (7)   Incorporated   by  reference  to
     Registrant's Annual Report on Form 10-KSB for the fiscal year ended January
     31,
     2000 filed with the Commission on May 17, 2000.
(8)  Incorporated by reference to Registrant's  Annual Report on Form 10-KSB for
     the fiscal year ended January 31, 2005 filed with the  Commission on May 2,
     2005
(9)  Incorporated  by  reference  to  Registrant's   Form  8-K  filed  with  the
     Commission  on  February  2,  2006
(10) Incorporated by reference to Registrant's  Form 8-K/A filed with Commission
     on February 27, 2006.
(11) Incorporated  by reference to Registrant's  Registration  Statement on Form
     SB-2 (File No. 333-132218) filed with the Commission on March 6, 2006.

ITEM 28.      UNDERTAKINGS.

The undersigned registrant hereby undertakes:

(1) To file,  during  any  period  in which it  offers  or sells  securities,  a
post-effective amendment to this registration statement to:

                                      II-5

         (i)  Include  any  prospectus  required  by  Sections  10(a)(3)  of the
Securities Act of 1933 (the "1933 Act");

         (ii) Reflect in the  prospectus  any facts or events  arising after the
effective date of the Registration  Statement (or the most recent post-effective
amendment  thereof)  which,  individually  or  in  the  aggregate,  represent  a
fundamental  change in the information set forth in the Registration  Statement.
Notwithstanding the foregoing,  any increase or decrease in volume of securities
offered (if the total dollar value of  securities  offered would not exceed that
which  was  registered)  and any  deviation  from  the  low or  high  end of the
estimated  maximum  offering  range may be reflected  in the form of  prospectus
filed with the  Commission  pursuant  to Rule 424(b) if, in the  aggregate,  the
changes in volume  and price  represent  no more than 20  percent  change in the
maximum  aggregate  offering price set forth in the "Calculation of Registration
Fee" table in the effective Registration Statement;

         (iii)  Include any  additional  or changed  material  information  with
respect to the plan of distribution not previously disclosed in the registration
statement  or any  material  change  to  such  information  in the  registration
statement.

(2) That, for the purpose of determining  any liability under the 1933 Act, each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein,  and the offering of such securities
at that time shall be deemed to be the bona fide offering thereof.

(3) To remove from  registration by means of a  post-effective  amendment any of
the securities that remain unsold at the end of the offering.

(4) For determining liability of the undersigned small business issuer under the
Securities Act to any purchaser in the initial  distribution  of the securities,
the undersigned  small business issuer  undertakes that in a primary offering of
securities  of  the   undersigned   small  business   issuer  pursuant  to  this
registration  statement,  regardless of the underwriting method used to sell the
securities  to the  purchaser,  if the  securities  are  offered or sold to such
purchaser by means of any of the following communications, the undersigned small
business  issuer will be a seller to the  purchaser  and will be  considered  to
offer or sell such securities to such purchaser:

         (i) Any preliminary  prospectus or prospectus of the undersigned  small
business issuer  relating to the offering  required to be filed pursuant to Rule
424;

         (ii) Any free writing  prospectus  relating to the offering prepared by
or on behalf of the undersigned  small business issuer or used or referred to by
the undersigned small business issuer;

         (iii) The portion of any other free writing prospectus  relating to the
offering  containing  material  information about the undersigned small business
issuer or its  securities  provided  by or on behalf  of the  undersigned  small
business issuer; and

                                      II-6

         (iv) Any other  communication  that is an offer in the offering made by
the undersigned small business issuer to the purchaser.

Insofar as indemnification  for liabilities arising under the Securities Act may
be  permitted  to  directors,  officers  and  controlling  persons  of the small
business issuer pursuant to the foregoing  provisions,  or otherwise,  the small
business  issuer has been  advised  that in the  opinion of the  Securities  and
Exchange  Commission such  indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable.

Each  prospectus  filed  pursuant  to Rule  424(b)  as  part  of a  registration
statement relating to an offering, other than registration statements relying on
Rule 430(B) or other than prospectuses  filed in reliance on Rule 430A, shall be
deemed to be part of and included in the  registration  statement as of the date
it is first used after effectiveness.  Provided; however, that no statement made
in a  registration  statement  or  prospectus  that is part of the  registration
statement  or  made  in  a  document  incorporated  or  deemed  incorporated  by
referenced  into the  registration  statement or prospectus  that is part of the
registration  statement  will, as to a purchaser with a time of contract of sale
prior to such first use,  supersede or modify any statement that was made in the
registration statement or prospectus that was part of the registration statement
or made in any such document immediately prior to such date of first use.





































                                      II-7

                                   SIGNATURES

In  accordance  with  the  requirements  of  the  Securities  Act of  1933,  the
registrant certifies that it has reasonable grounds to believe that it meets all
of the  requirements  of filing on Form SB-2 and  authorized  this  registration
statement  to be  signed  on our  behalf  by the  undersigned,  in the  City  of
Sacramento, State of California on June 9, 2006.


                                  NEWGOLD, INC.
                                  -------------


By: /s/ A. SCOTT DOCKTER
   ----------------------------
Name: A. Scott Dockter
Title: Chief Executive Officer

In accordance with the  requirements of the Securities Act of 1933, this amended
registration statement was signed by the following persons in the capacities and
on the dates stated:


----------------------------- ------------------------------- ------------------
SIGNATURES                    TITLE                           DATE
----------------------------- ------------------------------- ------------------
/s/ A. SCOTT DOCKTER
---------------------
A. Scott Dockter              Chief Executive Officer and     June 9, 2006
                              Director
----------------------------- ------------------------------- ------------------
/s/ James Kluber                                              June 9, 2006
---------------------         Principal Accounting Officer,
James Kluber                  Principal Financial Officer,
                              Secretary and Director
----------------------------- ------------------------------- ------------------























                                      II-8

                                  EXHIBIT INDEX

Exhibit No.       Description of Exhibit
-----------       ----------------------

Exhibit 2.1       Plan of Reorganization and Merger Agreement,  dated as of July
                  23, 1999 between the Registrant and Business Web, Inc.
Exhibit 2.2       First   Amendment  to  Plan  of   Reorganization   and  Merger
                  Agreement,   dated  as  of  October  31,  1999,   between  the
                  Registrant and Business Web, Inc.
Exhibit 2.3       Termination Agreement,  dated as of December 27, 1999, between
                  the Registrant and Business Web, Inc.
Exhibit 3.1       Certificate of Incorporation of the Registrant.
Exhibit 3.2       Certificate of Amendment to Certificate  of  Incorporation  of
                  the Registrant.
Exhibit 3.3       Bylaws of the Registrant
Exhibit 4.1       Convertible Debenture
Exhibit 4.2.1     Form of Warrant - $0.20 exercise price
Exhibit 4.2.2     Form of Warrant - $0.30 exercise price
Exhibit 5.1*      Opinion of Counsel
Exhibit 10.1      Promissory  Note between  Newgold and A. Scott Dockter,  dated
                  April 2, 1997, for the principal amount of $100,000.
Exhibit 10.2      Promissory  Note between  Newgold and A. Scott Dockter,  dated
                  April 17, 1997, for the principal amount of $50,000.
Exhibit 10.3      Promissory  Note between  Newgold and A. Scott Dockter,  dated
                  April 30, 1997, for the principal amount of $20,000.
Exhibit 10.4      Promissory  Note between  Newgold and A. Scott Dockter,  dated
                  May 30, 1997, for the principal amount of $35,000
Exhibit 10.5      Promissory  Note between  Newgold and A. Scott Dockter,  dated
                  December 24, 1998, for the principal amount of $24,000.
Exhibit 10.6      Warrant to Purchase  shares of Common  Stock of Business  Web,
                  Inc.
Exhibit 10.7      Securities  Purchase  Agreement  dated January 27, 2006 by and
                  among Newgold and the investor named therein.
Exhibit 10.8      Registration  Rights  Agreement  dated January 27, 2006 by and
                  among Newgold and the investor named therein.
Exhibit 10.9      Joint  Venture   Agreement  dated  January  25,  2006  between
                  Newgold, Inc. and ASDi, LLC
Exhibit 10.10     Crescent Red Caps LLC - Operating Agreement
Exhibit 10.11     Employment  Agreement for A. Scott  Dockter dated  February 1,
                  2006
Exhibit 10.12     Employment  Agreement  for James W. Kluber  dated  February 1,
                  2006
Exhibit 10.13*    Pledge and Escrow  Agreement  dated  January  27,  2006 by and
                  among Newgold and the investor named therein.
Exhibit 14        Code of Business Conduct and Ethics.
Exhibit 23.1      Consent of Counsel  (incorporated  by reference to Exhibit 5.1
                  of this filing)
Exhibit 23.2*     Consent of Independent Registered Public Accounting Firm
----------------------------------------
*Exhibits included in this Amendment No. 1 to the SB-2 Registration Statement