U.S. GOLD CORP. quarterly report, Q3 FY2021

Business context and reporting period

U.S. Gold Corp. filed this unaudited Form 10-Q for the fiscal quarter ended January 31, 2021, and the nine months then ended. It is an exploration-stage company with projects in Wyoming, Nevada, and Idaho; it reported no proven or probable mineral reserves and no production revenue.

Management focused on advancing a Preliminary Feasibility Study for the CK Gold Project, exploration work, and the August 2020 acquisition of Northern Panther Resources, which added the Challis Gold Project in Idaho.

Financial results and liquidity

• Costs and margins: Exploration-stage operations generated no revenue, so operating margins are not meaningful. Nine-month operating expenses increased about $4.79 million, mainly from higher exploration activity, compensation and professional/consulting fees.
• Cash flow: Nine-month operating cash use was $6.37 million, versus $3.55 million a year earlier. Investing activities provided $2.46 million, primarily reflecting $2.5 million received with the Northern Panther transaction. Financing activities provided $15.15 million, primarily from equity and warrant transactions.
• Liquidity: At January 31, 2021, cash was $13.99 million, working capital was $14.01 million, and total current liabilities were $572,190. Total liabilities were $766,907, including a $194,717 asset retirement obligation. The balance sheet reports no borrowings; interest paid was zero.
• Assets and equity: Total assets were $31.50 million, including $16.36 million of mineral rights, compared with $9.83 million and $6.16 million, respectively, at April 30, 2020. Accumulated deficit was $41.09 million.

Material changes and unusual items

• Operating expenses and losses increased substantially year over year, reflecting expanded exploration, added executive staffing, stock-based compensation, and acquisition-related legal and advisory work.
• The Northern Panther asset acquisition added the Challis Gold Project, recorded at $10.25 million in mineral rights, and $2.5 million in cash. The company also recorded a $5.53 million deemed dividend associated with Series I preferred stock and warrants, increasing the nine-month loss applicable to common shareholders.
• Equity financing and warrant exercises increased issued common shares from 2.90 million at April 30, 2020 to 5.87 million at January 31, 2021. The filing reports 7,059,223 shares outstanding as of March 16, 2021.
• After quarter-end, the company closed a registered offering on February 1, 2021, selling 914,136 common shares at $10.54 per share and issuing warrants for up to 457,068 shares at $14.50 per share, for approximately $9.6 million gross proceeds before fees and expenses. The filing also reports subsequent warrant exercise proceeds of approximately $1.25 million and collection of a $219,072 tax refund.
• The company did not renew Gold Bar North mineral claims and recorded a $56,329 abandonment expense.

Outlook, risks and contingencies

• Funding and going concern: Management estimated available cash would fund operations for approximately 9 to 12 months from the filing date and expected to need additional financing thereafter. The filing states that these conditions raise substantial doubt about the company’s ability to continue as a going concern for the twelve months following issuance of the financial statements. Future financing is uncertain and could dilute shareholders or impose restrictive terms.
• Exploration and COVID-19: No formal production or financial guidance is provided. The company cautions that COVID-19-related travel, contractor, and supply disruptions may delay exploration and that there is no assurance material exploration activities can take place in 2021.
• Project and permitting risk: The company has not established commercial feasibility or mineral reserves. Exploration plans, permitting, future reclamation and bonding costs, and the ability to fund development remain uncertain. The Maggie Creek option includes up to $4.5 million of staged earn-in payments and a further $250,000 payment to vest a 50% interest.
• Litigation: A shareholder complaint filed in October 2020 alleges omissions in the proxy materials relating to the Northern Panther transaction and financing. The company said it had not been served as of the report date, considers the suit without merit, and intends to defend it.
• Controls: Management concluded disclosure controls were ineffective, citing limited staffing and inadequate segregation of duties. It expected these material weaknesses to continue for the foreseeable future.

Most important facts for investors to verify

• How much of the February offering proceeds remained available after fees, expenses, and subsequent spending, and whether the stated 9–12-month runway remains current.
• Exploration spending, progress and costs for the CK Gold feasibility study, and any effects of COVID-19 or permitting on planned work.
• The status and potential dilution from outstanding warrants, restricted stock units, options, and post-quarter share issuances.
• Developments in the shareholder litigation and the company’s remediation of ineffective disclosure controls.
• Whether future technical work establishes reserves or commercial feasibility; none had been established as of this filing.