U.S. Gold Corp. — Form 10-Q Summary
Reporting period: Three months ended July 31, 2019 (fiscal first quarter); comparative period is the three months ended July 31, 2018. The filing was signed September 13, 2019. U.S. Gold is an exploration-stage company with gold and copper projects and no proven or probable reserves.
Key financial results and position
| Metric | Q1 FY2020 | Comparable period / prior balance date |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $1.309 million | $1.482 million |
| Net loss | $1.309 million | $1.482 million |
| Net loss applicable to common shareholders | $3.331 million, including a $2.023 million deemed preferred-stock dividend | $1.482 million |
| Basic and diluted loss per share | $0.17 | $0.08 |
| Cash and cash equivalents | $3.539 million | $2.197 million at April 30, 2019 |
| Working capital | $3.874 million | $2.650 million at April 30, 2019 |
| Total liabilities | $0.384 million | $0.249 million at April 30, 2019 |
Operating cash use was $1.060 million, compared with $1.452 million in the prior-year quarter. Financing provided $2.401 million net from the Series F preferred-stock and warrant offering; cash increased $1.342 million during the quarter. The company reported no revenue and no income-tax provision. No borrowings or interest expense were reported; liabilities consisted primarily of payables and a $90,886 asset retirement obligation. Gross margin is not meaningful with no revenue.
Changes and financing
- Operating expenses fell about $174,000 year over year. Exploration expense declined about $310,000 and compensation declined about $15,000, partly offset by professional fees up about $103,000 and general and administrative expense up about $48,000.
- On June 20, 2019, the company closed a $2.5 million Series F preferred-stock and warrant offering, receiving approximately $2.4 million net. The preferred shares convert at an initial $1.14 per common share, subject to adjustment. The offering generated a $2.023 million deemed dividend that increased the loss attributable to common shareholders but did not increase reported net loss.
- By July 31, 616 of the 1,250 preferred shares had converted into 1,080,707 common shares; 634 preferred shares remained outstanding. The offering’s preferred shares and warrants could result in substantial further share issuance if converted or exercised. Shares outstanding were 20,888,550 at July 31 and 23,322,442 as of September 13.
Outlook, risks and other material matters
- Management reported substantial doubt about the company’s ability to continue as a going concern for the twelve months following issuance of the financial statements. It expects continuing losses and says additional capital is required; future financing is not assured. Failure to obtain funding could force reductions in exploration, changes to the business plan, or cessation of operations.
- The company commenced its 2019 Keystone Project drilling program on July 30, planning nine reverse-circulation holes and one core hole, approximately 20,000 feet in total. Management described its quarter focus as Keystone exploration planning and drilling, technical work, and financing. No production or revenue guidance was provided.
- After quarter-end, on September 10, the company agreed to acquire NumberCo for 2 million common shares. NumberCo’s subsidiary has an option to earn up to a 50% interest in a Nevada property by spending $4.5 million on exploration and development over seven years and paying $250,000; an additional 20% interest may be earned subject to further conditions. Accounting for the transaction was still under evaluation in the filing.
- Disclosure controls and procedures were determined to be ineffective as of July 31, 2019. Management reported no material change in internal control over financial reporting during the quarter.
- The company disclosed that its audit committee did not meet Nasdaq’s three-independent-member requirement. It must cure the deficiency within the applicable period—by December 27, 2019 if its next annual meeting occurs before then, or otherwise by the earlier of that meeting or June 30, 2020—or its common stock could be subject to delisting.
- No material pending legal proceedings were reported. The company cited exploration, permitting, reclamation-cost, financing, dilution, and other operating and regulatory risks. It expected annual legal and accounting compliance costs of $200,000–$250,000.
Important facts for investors to verify
- Cash usage, planned exploration spending, and financing needs against the going-concern warning.
- Conversion and exercise terms, potential dilution, and the remaining Series F shares and warrants.
- Progress, results, and budget for the Keystone drilling program; the filing reports no proven or probable reserves.
- Completion, accounting treatment, and funding obligations associated with the NumberCo transaction and earn-in option.
- Whether the company remedied the audit committee independence deficiency within Nasdaq’s cure period and addressed ineffective disclosure controls.