| DELAWARE                                                                        |                          | 16-1400479                                             |
|---------------------------------------------------------------------------------|-------------------------------|--------------------------------------------------------|
| (State                of other jurisdiction of incorporation or organization)   |                          | (I.R.S.                Employer Identification Number) |
|                                                                            |                          |                                                   |
| 400                Capitol Mall, Suite 900Sacramento,                California |                          | 95814                                                  |
| (Address                of Principal Executive Offices)                         |                          | Zip                Code                                |
|                                                                            |                          |                                                   |
| Issuer's                telephone number:                                       | (916)                449-3913 |

----

**INDEX**

|                                              |                                                                                                                                                               |  Page |
|---------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
|                                              |                                                                                                                                                               |       |
|  PART I - FINANCIAL              INFORMATION |  3                                                                                                                                                            |
|                                              |                                                                                                                                                               |       |
|                                              |  ITEM 1. FINANCIAL              STATEMENTS                                                                                                          |  3    |
|                                              |                                                                                                                                                               |       |
|                                              |  ITEM                2. MANAGEMENT’S                DISCUSSION AND ANALYSIS OR PLAN OF          OPERATIONS |  22   |
|                                              |                                                                                                                                                               |       |
|                                              |  ITEM              3. CONTROLS              AND PROCEDURES                                                                                          |  33   |
|                                              |                                                                                                                                                               |       |
| PART              II - OTHER INFORMATION          |  35                                                                                                                                                           |
|                                              |                                                                                                                                                               |       |
|                                              |  ITEM              6. EXHIBITS                                                                                                                      |  35   |

----

**PART      I - FINANCIAL INFORMATION**

| **ITEM                1.** | **FINANCIAL                STATEMENTS** |
|----------------------------|-----------------------------------------|

**NEWGOLD,      INC. **

**INDEX      TO UNAUDITED FINANCIAL STATEMENTS**

|   |                                                                                                                                                                                      |  Page |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
|   |                                                                                                                                                                                      |       |
|   |  Condensed Balance Sheet as of July 31,              2006 (Unaudited)                                                                                                                |  4    |
|   |                                                                                                                                                                                      |       |
|   | Condensed                Statements of Operations for                the three months and six months    ended                July 31, 2006 and 2005 (Unaudited)  |  6    |
|   |                                                                                                                                                                                      |       |
|   |  Condensed                Statements of Cash Flows for the six months    ended                July 31, 2006 and 2005 (Unaudited)                                 |  7    |
|   |                                                                                                                                                                                      |       |
|   |  Notes to Unaudited Financial              Statements                                                                                                                                |  11   |

----

**NEWGOLD,      INC.**

**(AN      EXPLORATION STAGE COMPANY)**

**BALANCE      SHEET**

**July      31, 2006**

| **ASSETS**                                                                                                                                                  |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| **Current                assets**                                                                                                                           |   |   |   |
|     Cash                                                                                                                                |   | $                                       160,736 |   |
|      Deposit                                                                                                                       |   |  5,000 |   |
|      Prepaid              expense                                                                                                  |   |  16,000 |   |
|     Travel              advance                                                                                                         |   |  5,714 |   |
|                                                                                                                                                        |   |   |   |
|              Total              current assets                                             |   |  187,450 |   |
|                                                                                                                                                        |   |   |   |
| **Property,                plant and equipment,**net                of accumulated depreciation                                                             |   |   |   |
|      of              $5,507                                                                                                        |   |  45,978 |   |
|                                                                                                                                                        |   |   |   |
| **Other                Assets**                                                                                                                             |   |   |   |
|      Restricted              cash                                                                                                  |   |   |   |
|      Deferred              reclamation costs                                                                                       |   |  243,204 |   |
|                                                                                                                                                        |   |  270,736 |   |
|              Total              other assets                                               |   |   |   |
|                                                                                                                                                        |   |   | 513,940 |   |
|                      **Total              assets** |   | **$** | **747,368** |   |

|  **LIABILITIES                AND SHAREHOLDERS' DEFICIT**           |   |
|--------------------------------------------------------------------------|--------|
|                                                                     |   |   |   |
| **Current                liabilities**                                   |   |   |   |
| Accounts                payable                                          |   | $ | 612,518 |   |
| Accrued                expenses                                          |   |   | 1,257,293 |   |
| Accrued                reclamation costs                                 |   |   | 270,736 |   |
| Notes                payable due to individuals and officers             |   |   | 432,788 |   |
|                                                                     |   |   |   |   |
| Total                current liabilities                                 |   |   | 2,573,335 |   |
|                                                                     |   |   |   |   |
| **Long-term                liabilities**                                 |   |   |   |   |
| Convertible                debenture and related derivative liabilities, |   |   |   |   |
| net                of unamortized discount of $323,114 and deferred      |   |   |   |   |
| financing                costs of $99,583                                |   |   |                  1,172,859  |   |
| Deferred                revenue                                          |   |   | 800,000 |   |
|                                                                     |   |   |   |   |
| Total                long-term liabilities                               |   |   | 1,972,859  |   |
|                                                                     |   |   |   |   |
| Total                liabilities                                         |   |   | 4,546,194  |   |

----

**NEWGOLD,      INC.**

**(AN      EXPLORATION STAGE COMPANY)**

**BALANCE      SHEET**

**July      31, 2006**

| **Commitments                and contingencies**                                                                                           |   |              |       |
|--------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|------------|
|                                                                                                                                       |   |              |       |
| **Shareholders'                deficit**                                                                                                   |   |              |       |
|      Common              stock, $0.001 par value                                                                  |   |              |       |
|          250,000,000              shares authorized                                           |   |              |       |
|          71,003,159              shares issued and outstanding                                |   |  71,003      |       |
|      Additional              paid in capital                                                                      |   |  16,769,243  |       |
|      Deficit              accumulated during the exploration stage                                                |   |  (20,639,072 | )     |
|                                                                                                                                       |   |              |       |   |
|          Total              shareholders' deficit                                             |   |              | (3,798,826 | ) |
|                                                                                                                                       |   |              |       |   |
|              **Total              liabilities and shareholders' deficit** |   | $                 | 747,368    |   |

----

**NEWGOLD,      INC.**

**(AN      EXPLORATION STAGE COMPANY)**

**STATEMENTS      OF OPERATIONS**

**For      the Six and Three Months Ended July 31, 2006 and 2005**

**and      for the Period from January 1, 1995 to July 31, 2006**

|                                                 |                                                                                                                                                                                                                           |                                                                                                                                                                                                   |                                                                                                                                                                                                   |                                                                                                                                                                                                               |                                                                                                                                                                                                                                                   |                                      |                           |                         | For                the Period |
|------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------|--------------------------------|------------------------------|-------------------------------|
|                                                 |                                                                                                                                                                                                                           |                                                                                                                                                                                                   |                                                                                                                                                                                                   |                                                                                                                                                                                                               | For                the Six Months Ended                                                                                                                                                                                                                | For                the Three Months Ended | From                January 1, |
|                                                 |                                                                                                                                                                                                                           |                                                                                                                                                                                                   |                                                                                                                                                                                                   |                                                                                                                                                                                                               | July                31,                                                                                                                                                                                                                                | July                31,                   | 1995                to July    |
|                                                 |                                                                                                                                                                                                                           |                                                                                                                                                                                                   |                                                                                                                                                                                                   |                                                                                                                                                                                                               | 2006                                                                                                                                                                                                                                                   | 2005                                      | 2006                           | 2005                         | 31,                2006       |
| **Net                Sales**                         | $                                 -                  | $                             -                  | $                             -                  | $                               -                  | $                                     -                  |
|                                                 |                                                                                                                                                                                                                           |                                                                                                                                                                                                   |                                                                                                                                                                                                   |                                                                                                                                                                                                               |                                                                                                                                                                                                                                                   |                                      |                           |                         |                          |
| **Exploration                and maintenance costs** | 172,130                                                                                                                                                                                                                   | 139,700                                                                                                                                                                                           | 102,620                                                                                                                                                                                           | 110,700                                                                                                                                                                                                       | 474,961                                                                                                                                                                                                                                           |
|                                                 |                                                                                                                                                                                                                           |                                                                                                                                                                                                   |                                                                                                                                                                                                   |                                                                                                                                                                                                               |                                                                                                                                                                                                                                                   |                                      |                           |                         |                          |
| **Gross                loss**                        | (172,130)                                                                                                                                                                                                                      | (139,700)                                                                                                                                                                                              | (102,620)                                                                                                                                                                                              | (110,700)                                                                                                                                                                                                          | (474,961)                                                                                                                                                                                                                                              |
| **Operating                expenses**                | (543,093)                                                                                                                                                                                                                      | (384,571)                                                                                                                                                                                              | (295,365)                                                                                                                                                                                              | (181,692)                                                                                                                                                                                                          | (14,455,102)                                                                                                                                                                                                                                           |
|                                                 |                                                                                                                                                                                                                           |                                                                                                                                                                                                   |                                                                                                                                                                                                   |                                                                                                                                                                                                               |                                                                                                                                                                                                                                                   |                                      |                           |                         |                          |
| **Loss                from operations**              | (715,223)                                                                                                                                                                                                                      | (524,271)                                                                                                                                                                                              | (397,985)                                                                                                                                                                                              | (292,392)                                                                                                                                                                                                          | (14,930,062)                                                                                                                                                                                                                                           |
|                                                 |                                                                                                                                                                                                                           |                                                                                                                                                                                                   |                                                                                                                                                                                                   |                                                                                                                                                                                                               |                                                                                                                                                                                                                                                   |                                      |                           |                         |                          |
| **Other                (expense)**                   |                                                                                                                                                                                                                           |                                                                                                                                                                                                   |                                                                                                                                                                                                   |                                                                                                                                                                                                               |                                                                                                                                                                                                                                                   |
|                                                 | Interest                income                                                                                                                                                                                                 |                                                                                                                                                                                                   |                                                                                                                                                                                                   |                                                                                                                                                                                                               |                                                                                                                                                                                                                                                   |                                      |                           | 72,687                  |
|                                                 | Dividend                income                                                                                                                                                                                                 |                                                                                                                                                                                                   |                                                                                                                                                                                                   |                                                                                                                                                                                                               |                                                                                                                                                                                                                                                   |                                      |                           | 30,188                  |
|                                                 | Other                income                                                                                                                                                                                                    |                                                                                                                                                                                                   |                                                                                                                                                                                                   |                                                                                                                                                                                                               |                                                                                                                                                                                                                                                   |                                      |                           | 6,565                   |
|                                                 | Adjustments                to fair value of derivatives                                                                                                                                                                        | (661,824)                                                                                                                                                                                              |                                                                                                                                                                                                   | (                370,977)                                                                                                                                                                                          |                                                                                                                                                                                                                                                   | (699,242)                                 |
|                                                 | Interest                expense                                                                                                                                                                                                | (231,492)                                                                                                                                                                                              | (727,061)                                                                                                                                                                                              | (145,502)                                                                                                                                                                                                          | (370,237)                                                                                                                                                                                                                                              | (2,640,529)                               |
|                                                 | Loss                from joint venture                                                                                                                                                                                         |                                                                                                                                                                                                   |                                                                                                                                                                                                   |                                                                                                                                                                                                               |                                                                                                                                                                                                                                                   |                                      | (859,522)                      |
|                                                 | Loss                on sale of marketable securities                                                                                                                                                                           |                                                                                                                                                                                                   |                                                                                                                                                                                                   |                                                                                                                                                                                                               |                                                                                                                                                                                                                                                   | (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 income (expense)                                                                                                                                                            | (893,316)                                                                                                                                                                                              | (727,061)                                                                                                                                                                                                          | (516,479)                                                                                                                                                                                                                                              | (370,237)                                 | (4,767,217)                    |
|                                                 |                                                                                                                                                                                                                           |                                                                                                                                                                                                   |                                                                                                                                                                                                   |                                                                                                                                                                                                               |                                                                                                                                                                                                                                                   |                                      |                           |                         |                          |
| **Net                loss**                          |                                                                                                                                                                                                                           | **($1,608,539)**                                                                                                                                                                                       | **($1,251,332)**                                                                                                                                                                                       | **($914,464)**                                                                                                                                                                                                     | **($662,629)**                                                                                                                                                                                                                                         | **($19,697,279)**                         |
|                                                 |                                                                                                                                                                                                                           |                                                                                                                                                                                                   |                                                                                                                                                                                                   |                                                                                                                                                                                                               |                                                                                                                                                                                                                                                   |                                      |
| **Basic                and diluted loss per share**  | **($0.02)**                                                                                                                                                                                                                    | **($0.02)**                                                                                                                                                                                            | **($0.01)**                                                                                                                                                                                            | **($0.01)**                                                                                                                                                                                                        |                                                                                                                                                                                                                                                   |
|                                                 |                                                                                                                                                                                                                           |                                                                                                                                                                                                   |                                                                                                                                                                                                   |                                                                                                                                                                                                               |                                                                                                                                                                                                                                                   |                                      |
| **Basic                and diluted weighted-**       |                                                                                                                                                                                                                           |                                                                                                                                                                                                   |                                                                                                                                                                                                   |                                                                                                                                                                                                               |                                                                                                                                                                                                                                                   |
|                                                 | **average                shares**                                                                                                                                                                                              |                                                                                                                                                                                                   |                                                                                                                                                                                                   |                                                                                                                                                                                                               |                                                                                                                                                                                                                                                   |                                      |
|                                                 | **outstanding**                                                                                                                                                                                                                | **68,922,690  **                                                                                                                                                                             | **50,191,822  **                                                                                                                                                                             | **69,464,614  **                                                                                                                                                                                         | **50,911,822  **                                                                                                                                                                                                                             |                                      |

----

|                                                                       |               |                     |                                                                                       |                | **NEWGOLD,                INC.**                  |
|----------------------------------------------------------------------------|--------------------|--------------------------|--------------------------------------------------------------------------------------------|---------------------|---------------------------------------------------|
|                                                                       |               |                     |                                                                                       |                | **(AN                EXPLORATION STAGE COMPANY)** |
|                                                                       |               |                     |                                                                                       |                | **STATEMENTS                OF CASH FLOWS**       |
|                                                                       |               |                     | **For                the Six Months Ended July 31, 2006 and 2005**                         |
|                                                                       |               |                     | **and                for the Period from January 1, 1995 to July 31,                2006** |
|                                                                       |               |                     |                                                                                       |                |                                              |   |   |
|                                                                       |               |                     |                                                                                       |                |                                              |   |   For                the PeriodFrom                January 1,1995                to July31,                2006 |
|                                                                       |               |                     |                                                                                       |                |                                              |   |
|                                                                       |               |                     | For                the Six Months Ended July 31,                                           |                |
|                                                                       |               |                     | 2006                                                                                       |                | 2005                                              |   |
|                                                                       |               |                     |                                                                                       |                |                                              |   |   |
| **Cash                flows from operating activities**                    |               |                     |                                                                                       |                |                                              |   |   |
| Net                loss                                                    |               |                     | ($1,608,539)                                                                               |                | ($1,251,332)                                      |   | ($19,697,279) |
| Adjustments                to reconcile net loss to net cash               |               |                     |                                                                                       |                |                                              |   |   |
| used                in operating activities                                |               |                     |                                                                                       |                |                                              |   |   |
| Accretion                of warrants issued as a debt discount             |               | -              |                                                                                       | 585,006   |                                              | 1,274,263                  |
| Accretion                of beneficial conversion                          |               | -              |                                                                                       | 69,320    |                                              | 107,468   |
| Accretion                of debt discount                                  |               |  71,830   |                                                                                       | -         |                                              | 74,570   |
| Adjustments                to fair value of derivatives                    |               | 661,824        |                                                                                       | -         |                                              | 699,241   |
| Loss                from joint venture                                     |               | -              |                                                                                       | -         |                                              | 859,522   |
| Loss                on sale of marketable securities                       |               |                     | -                                                                                |                | -                                       |   | 281,063                  |
| Depreciation                and amortization                               |               |                     | 23,424                                                                           |                | -                                       |   | 147,581                  |
| Loss                on disposal of property, plant and equipment           |               | -              |                                                                                       | -         |                                              | 334,927                  |
| Impairment                in value of property, plant and equipment        | -        |                     | -                                                                                |                | 807,266                                      |
| Loss                on disposal of bond                                    |               |                     | -                                                                                |                | -                                       |   | 21,000                  |
| Impairment                in value of Relief Canyon Mine                   |               | -              |                                                                                       | -         |                                              | 3,311,672                  |
| Impairment                in value of joint investments                    |               | -              |                                                                                       | -         |                                              | 490,000                  |
| Bad                debt                                                    |               |                     | -                                                                                |                | -                                       |   | 40,374                  |
| Assigned                value of stock and warrants exchanged for services | 68,020   |                     | 15,690                                                                           |                | 620,968                                      |

----

|   |   |   |                                                                                       |   | **NEWGOLD,                INC.**                  |
|--------|--------|--------|--------------------------------------------------------------------------------------------|--------|---------------------------------------------------|
|   |   |   |                                                                                       |   | **(AN                EXPLORATION STAGE COMPANY)** |
|   |   |   |                                                                                       |   | **STATEMENTS                OF CASH FLOWS**       |
|   |   |   | **For                the Six Months Ended July 31, 2006 and 2005**                         |
|   |   |   | **and                for the Period from January 1, 1995 to July 31,                2006** |
|   |   |   |                                                                                       |   |                                              |   |   |

|                                                                   |              |   |                                |   |                         |
|------------------------------------------------------------------------|-------------------|--------|-------------------------------------|--------|------------------------------|
| Assigned                value of stock options issued for compensation | 2,057   |   | -                         |   | 2,057                   |
| Gain                on write off of note payable                       |              |   | -                         |   | -                  |   | (7,000)  |
| Judgment                loss accrued                                   |              |   |                  -   |   | -                  |   | 250,000                  |
| (Increase)                decrease in                                  |              |   |                                |   |                         |   |   |
| Restricted                cash                                         |              |   | -                         |   | -                  |   | (243,204)  |
| Travel                advance                                          |              |   | (4,392)                             |   | (657)                        |   | (1,714)  |
| Deposits                                                               |              |   | (5,000)                             |   | -                       |   | (500)  |
| Deferred                reclamation costs                              |              |   | -                         |   | -                       |   | (194,742)  |
| Prepaid                expenses                                        |              |   | (16,000)                            |   | -                       |   | (18,900)  |
| Reclamation                bonds                                       |              |   | -                         |   | -                       |   | 185,000                  |
| Other                assets                                            |              |   | -                         |   | -                       |   | (1,600)  |
| Increase                (decrease) in                                  |              |   |                                |   |                         |   |   |
| Accounts                payable                                        |              |   | (185,715)                           |   | 18,160                  |   | 331,558                  |
| Accrued                expenses                                        |              |   |  50,135              |   | (442,784)                    |   | 2,013,709                  |
|                                                                   |              |   |                                |   |                         |   |   |
| Net                cash used by operating activities                   |              |   | (942,356)                           |   | (1,006,597)                  |   | (8,312,700)  |
|                                                                   |              |   |                                |   |                         |   |   |
| **Cash                flows from investing activities**                |              |   |                                |   |                         |   |   |
| Proceeds                from sale of marketable securities             |              |   | -                         |   | -                  |   | 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)  |

----

|   |   |   |                                                                                       |   | **NEWGOLD,                INC.**                  |
|--------|--------|--------|--------------------------------------------------------------------------------------------|--------|---------------------------------------------------|
|   |   |   |                                                                                       |   | **(AN                EXPLORATION STAGE COMPANY)** |
|   |   |   |                                                                                       |   | **STATEMENTS                OF CASH FLOWS**       |
|   |   |   | **For                the Six Months Ended July 31, 2006 and 2005**                         |
|   |   |   | **and                for the Period from January 1, 1995 to July 31,                2006** |
|   |   |   |                                                                                       |   |                                              |   |   |

|                                                                   |          |     |          |          |                          |              |                          |
|------------------------------------------------------------------------|---------------|----------|---------------|---------------|-------------------------------|-------------------|-------------------------------|
| Capital                expenditures                                    |          |     | (32,287)      |          | -                   |              | (3,002,993)              |
| 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                   |          | (32,287) |          | -   |                          | (3,612,838)  |

|                                                      |   |                |                                     |                  |                                    |                             |                                |
|-----------------------------------------------------------|--------|---------------------|------------------------------------------|-----------------------|-----------------------------------------|----------------------------------|-------------------------------------|
| **Cash                flows from financing activities**   |   |                |                                     |                  |                                    |                             |                                |
| Proceeds                from the issuance of common stock |   | 100,000   |                                     | 2,423,935   |                                    | 7,659,253              |
| Proceeds                from notes payable                |   |                | 360,000                        |                  | -                             |                             | 5,914,548                 |
| Principal                repayments of notes payable      |   |                | (24,845)                                 |                  | (1,402,742)                             |                             | (2,062,551)                    |
| Repayment                of advances to affiliate         |   |                | -                              |                  | -                             |                             | (231,663)                      |
| Deferred                revenue                           |   |                | -                              |                  | -                             |                             | 800,000                        |
|                                                      |   |                |                                     |                  |                                    |                             |                                |
| Net                cash provided by financing activities  |   | 435,155   |                                     | 1,021,193   |                                    | 12,079,587                  |
|                                                      |   |                |                                     |                  |                                    |                             |                                |
| Net                increase (decrease) in cash            |   |                | (539,488)                                |                  | 14,596                        |                             | 154,049                        |
|                                                      |   |                |                                     |                  |                                    |                             |                                |
| **Cash,                beginning of year**                |   |                | 700,224                        |                  | 16,730                        |                             | **6,687                 **     |
|                                                      |   |                |                                     |                  |                                    |                             |                                |
| **Cash,                end of year**                      |   |                | **$                160,736  ** |                  | **$                31,326  ** |                             | **$                160,736  ** |

----

| **NEWGOLD,                INC.**                                                                                                                        |
|---------------------------------------------------------------------------------------------------------------------------------------------------------|
| **(AN                EXPLORATION STAGE COMPANY)**                                                                                                       |
| **STATEMENTS                OF CASH FLOWS**                                                                                                             |
| **For                the Six Months Ended July 31, 2006 and 2005**                                                                                      |
| **and                for the Period from January 1, 1995 to July 31,                2006**                                                              |
|                                                                                                                                                    |
| **Supplemental                cash flow information for the six months ended July 31, 2006 and                2005 and                January 1, 1995** |
| **through                July 31, 2006 as follows:**                                                                                                    |   |   |   |   |   |   |   |
|                                                                                                                                                    |   |   |   |   |   |   | For                the Period |
|                                                                                                                                                    |   |   |   |   |   |   | From                January 1, |
|                                                                                                                                                    |   |   | For                the Six Months Ended July 31, |   | 1995                to July 31, |
|                                                                                                                                                    |   |   | 2006 |   | 2005 |   | 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 commonstock,including                interest payable of $446,193                            |   | $                                                    -   |   | $                                                  -   |   | $                                     1,848,935   |
| Conversion                of convertible debenture to common stock                                                                                      |   | $                         600,000   |   | $                                                  -   |   | $                                        600,000   |
|                                                                                                                                                    |   |   |   |   |   |   |   |

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**NEWGOLD,      INC.**

**(AN      EXPLORATION STAGE COMPANY)**

**NOTES      TO FINANCIAL STATEMENTS **

**For      the three Months Ended July 31, 2006**

**(Unaudited)**

**NOTE      1 - ORGANIZATION AND LINE OF BUSINESS**

**NOTE      2 - GOING CONCERN**

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**NOTE      3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

Exploration      Stage Company

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|     | 2006       | 2005       |
|----------|------------|------------|
| Warrants | 21,274,583 | 13,224,583 |
| Options  | 1,350,000  | -          |

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**NOTE      4 - PROPERTY AND EQUIPMENT**

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|                                | Buildings | Machinery&Equipment | DevelopmentCosts | CapitalizedInterest | Total    |
|-------------------------------------|-----------|-------------------------|------------------|---------------------|----------|
| Relief                  Canyon Mine | $215,510  | $277,307                | $261,742         | $45,441             | $800,000 |

**NOTE      5 - NOTES PAYABLE TO RELATED PARTIES AND INDIVIDUALS **

**NOTE      6 - CONVERTIBLE DEBENTURE**

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| · | 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.                                                                                                                                                                                         |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | 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 July 31, 2006. |

| · | $(661,824)                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). |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Accreted                interest of $71,830 as of July 31,                2006.                                                                                                                                                                                                  |

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| Derivative                liabilities        | $                   1,195,556  |
|----------------------------------------------|----------------------------------------------------|
| Convertible                debenture         | 400,000                                       |
| Unamortized                discount          | (323,114)                                          |
| Deferred                financing costs, net | (99,583)                                           |
| Total                convertible debt        |                                               |
| and                financing costs           | $   1,172,859                  |

**NOTE      7 - COMMITMENTS AND CONTINGENCIES**

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**NOTE      8 - SHAREHOLDERS' DEFICIT**

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|                                             | Numberof                    Share | Weighted-AverageExercisePrice                                                                                                                                 |
|--------------------------------------------------|-----------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Outstanding,                    January 31, 2006 | 20,774,583              | $                                        0.25   |
| Granted                                          | 500,000                 | $                                        0.40   |
| Outstanding,                    July 31, 2006    | 21,274,583              | $                                        0.25   |
| Exercisable,                    July 31, 2006    | 21,274,583              | $                                        0.25   |

*Share-Based      Payment *
* *

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|                                                                                                                  |                        |                                                     |                                                                               |   |    |
|-----------------------------------------------------------------------------------------------------------------------|-----------------------------|--------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------|--------|--------------|
|                                                                                                                  |                        | **Weighted                Ave.**                                                                 | **Aggregate**                                                                           |
|                                                                                                                  | #**of Shares**              | **Exercise                Price**                                                                | **Intrinsic                Value**                                                      |
|                                                                                                                  |                        |                                                                                             |                                                                                    |
|         Outstanding                as                of January 31, 2006 |   0     | $            -             |                                                                                    |
|                 Granted               |  1,350,000   | $       0.35                                        |                  16,000                                                       |
|                 Exercised             | 0                 | $                           0   |                                                                                    |
|                 Cancelled             | 0                 | $                           0   |                                                                                    |
|                                                                                                                  |                        |                                                                                             |                                                                                    |
|         Outstanding                as                of July 31, 2006    | 1,350,000         | $       0.35                                        | $                    16,000                                    |
|                                                                                                                  |                        |                                                                                             |                                                                                    |
|                                                                                                                  |                        |                                                                                             |                                                                                    |
|         Exercisable                as                of July 31, 2006    | 337,500           | $       0.35                                        | $                          -0-   |

|                                 |   |            |   | **Options                  outstanding** |   | **Options                  exercisable** |
|--------------------------------------|--------|-----------------|--------|------------------------------------------|--------|------------------------------------------|
|                                 |   |            |   | **Weighted                  average**    |   | **Weighted**                             |   |   |   | **Weighted** |
| **Range                  of**        |   |            |   | **remaining**                            |   | **average**                              |   |   |   | **average** |
| **exercise**                         |   | **Number**      |   | **contractual**                          |   | **exercise**                             |   | **Number** |   | **exercise** |
| **prices**                           |   | **outstanding** |   | **life                  (years)**        |   | **price**                                |   | **exercisable** |   | **price** |
|                                 |   |            |   |                                     |   |                                     |   |   |   |   |
| $0.15                  — $0.30 |   | 100,000         |   | 3.0                                      |   | $0.16                                    |   | 25,000 |   | $0.16 |
| $0.31                  — $0.45 |   | 1,000,000       |   | 3.0                                      |   | $0.34                                    |   | 250,000 |   | $0.34 |
| $0.46                  — $0.60 |   | 250,000         |   | 3.0                                      |   | $0.50                                    |   | 62,500 |   | $0.50 |
|                                 |   | 1,350,000       |   | 3.0                                      |   | $0.35                                    |   | 337,500 |   | $0.35 |

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**NOTE      9 - RELATED PARTY TRANSACTIONS**

**NOTE      10 - SUBSEQUENT EVENTS**

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| **ITEM                2.** | **MANAGEMENT’S                DISCUSSION AND ANALYSIS OR PLAN OF **OPERATIONS**** |
|----------------------------|-----------------------------------------------------------------------------------------|

**Caution      About Forward-Looking Statements**

**Plan      of Operation for the Next Twelve Months**

| ·   | Gold                prices, and to a lesser extent, silver prices; |
|--------------------|--------------------------------------------------------------------|

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

| ·   | Our                proposed exploration of properties now include 146 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. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Our                operating plan is to commence exploration work on all three mining                properties beginning with the Relief Canyon mining property in the                fall of                2006. We expect this exploration program to continue through the                end of                2006. We also expect to begin exploration work at the Red Caps and                Crescent Valley properties in the fall of 2006. By the end of the                fourth                quarter of fiscal 2007, we plan to resume mining operation at the                Relief                Canyon mine and we anticipate realizing production revenue from the                Relief                Canyon mine shortly thereafter. Through the sale of additional securities                and / or the use of joint ventures, royalties, arrangements and                partnerships, we intend to progressively enlarge the scope and scale                of                our exploration, mining and processing operations, thereby potentially                increasing our chances of locating commercially viable ore deposits                which                could increase both our annual revenues and ultimately our net profits.                Our objective is to achieve annual growth rates in revenue and net                profits                for the foreseeable future. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| ·   | 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. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | 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**

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**Liquidity      and Capital Resources **

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**Factors      Affecting Future Operating Results**

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**Critical      Accounting Policies**

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

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

|  | (c) | significant                negative industry or economic                trends. |
|--|-----|---------------------------------------------------------------------------------|

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*.*

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| **ITEM                3.** | **CONTROLS                AND PROCEDURES** |
|----------------------------|--------------------------------------------|

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**PART      II - OTHER INFORMATION**

**ITEM      2. REGISTERED SALES OF EQUITY SECURITIES**
**      AND USE OF PROCEEDS**

**Sales      of Registered Securities During the Quarter**

| **ITEM                6.** | **EXHIBITS**** ** |
|----------------------------|------------------------|

|  | 31.1 | Certification                of CEO pursuant to Section 302 of the Sarbanes-Oxley  Act                of 2002. |
|--|------|---------------------------------------------------------------------------------------------------------------------|

|  | 31.2 | Certification                of CFO pursuant to Section 302 of the Sarbanes-Oxley  Act                of 2002. |
|--|------|---------------------------------------------------------------------------------------------------------------------|

|  | 32. | Certification                by CEO and CFO pursuant to Section 906 of the Sarbanes- Oxley                Act of 2002 |
|--|-----|----------------------------------------------------------------------------------------------------------------------------|

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