U.S. Gold Corp. — Form 10-Q Summary
Reporting period: Quarter and six months ended October 31, 2018 (fiscal 2019 second quarter); filed December 14, 2018. U.S. Gold is an exploration-stage gold and precious-metals company focused primarily on projects in Nevada and Wyoming. It reported no proven or probable reserves and generated no revenue.
Financial results and liquidity
| Metric | Three months ended Oct. 31, 2018 | Three months ended Oct. 31, 2017 | Six months ended Oct. 31, 2018 | Six months ended Oct. 31, 2017 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Operating expenses | $3.00 million | $1.67 million | $4.48 million | $4.88 million |
| Loss from continuing operations | $3.00 million | $1.67 million | $4.48 million | $4.88 million |
| Net loss | $3.00 million | $1.43 million | $4.48 million | $10.71 million |
| Basic and diluted net loss per share | $0.17 | $0.11 | $0.25 | $0.97 |
With no revenue, gross margin and operating margin are not meaningful. The company used $3.59 million in operating cash in the six months, versus $4.29 million in the prior-year period. Investing and financing cash flows were both zero in the current period; cash declined from $7.65 million at April 30 to $4.05 million at October 31.
At October 31, cash was $4.05 million, working capital was $4.08 million, total assets were $9.43 million, and stockholders’ equity was $9.10 million. Total liabilities were $333,233, including $248,628 of current liabilities and an $84,605 asset retirement obligation. The balance sheet reports no debt outstanding. Mineral rights were $4.18 million.
Changes versus the prior comparable period
- Quarterly operating expenses rose about $1.33 million year over year, primarily from higher exploration costs; quarterly exploration expense was $1.26 million versus $536,396. Quarterly compensation expense also rose to $925,436 from $261,444.
- Six-month operating expenses decreased about $397,000. Lower compensation and professional fees more than offset a $462,000 increase in exploration expense, which management attributed to increased exploration activity.
- Six-month net loss improved from $10.71 million to $4.48 million, chiefly because the prior-year result included discontinued-operation losses and a $6.09 million goodwill impairment. Continuing-operations loss narrowed modestly. In the quarter, net loss increased from $1.43 million to $3.00 million; the prior-year quarter included gains from discontinued operations.
- Working capital declined $3.92 million from April 30, 2018, mainly reflecting cash use. No cash was raised through financing activities during the six-month period.
Outlook, risks, and notable items
- Funding and going concern: The financial-statement note says recurring losses and operating cash use raise substantial doubt about the company’s ability to continue as a going concern for the twelve months following issuance. MD&A also says management believes cash and plans to raise capital alleviate that doubt for at least twelve months. Management says additional capital is needed; financing may not be available on acceptable terms. Without it, the company may reduce exploration, change strategy, or cease operations. Equity financing could dilute shareholders.
- Potential financing: On November 2, 2018, the company established an at-the-market program for up to $1 million of common stock, with a 3% sales commission. It had raised no money under the program as of the filing date.
- Exploration and contingencies: Projects remain exploratory, with no established commercial feasibility or proven and probable reserves. The company expenses exploration costs as incurred. Copper King and Keystone reclamation obligations were recorded at $84,605; Copper King leases carry future minimum payments of $11,600.
- Equity compensation: The company issued 1,000,000 shares to officers, directors, and employees for services, with 50% vesting at issuance and 50% after one year; reported fair value was $990,000. Stock-based compensation was $1.04 million for the six months.
- Controls and governance: Management concluded disclosure controls were not effective as of October 31, 2018, citing limited resources and personnel. Remediation included engaging an outside financial consultant and beginning documentation of the control environment. The principal financial and accounting officer changed on November 1, 2018.
- Other: The filing provides no operating or financial guidance. Management estimated annual legal and accounting compliance costs of $200,000–$250,000. No legal proceedings were reported, and the company reported no material changes to its previously disclosed risk factors.
Important facts for investors to verify
- How management reconciles the going-concern warning in the financial-statement note with the more reassuring liquidity statement in MD&A, and the basis for its twelve-month funding assessment.
- Whether the $1 million ATM program has subsequently raised proceeds, and the expected timing, amount, and dilution effects of any additional financing.
- The exploration timetable, planned spending, project milestones, and any updated reserve or feasibility work for Copper King, Keystone, and Gold Bar North.
- The share-count and compensation disclosures: the balance sheet distinguishes issued and outstanding shares, while the filing also reports a 1,000,000-share award and 500,000 restricted-stock equivalents.
- Progress in remediating ineffective disclosure controls and any subsequent changes in financial-reporting personnel or procedures.