Business context and reporting period
U.S. Gold Corp. is an exploration-stage gold and precious-metals company focused primarily on projects in Nevada and Wyoming. This Form 10-Q covers the three and nine months ended January 31, 2019 (fiscal third quarter and year to date), with comparisons to the periods ended January 31, 2018. The company reported no revenue and stated that it had no proven or probable mineral reserves; its properties remain exploratory.
Financial results and liquidity
| Metric | Three months ended Jan. 31, 2019 | Nine months ended Jan. 31, 2019 | Comparable 2018 period |
|---|---|---|---|
| Revenue | $0 | $0 | $0 |
| Operating expenses | $1.64 million | $6.12 million | $1.77 million and $6.65 million, respectively |
| Net loss | $2.07 million | $6.56 million | $1.77 million and $12.48 million, respectively |
| Net loss per share | $0.11 | $0.36 | $0.12 and $1.03, respectively |
At January 31, 2019, cash was $3.19 million, current assets were $3.41 million, current liabilities were $242,359, and working capital was approximately $3.17 million. Total assets were $8.01 million, total liabilities $329,098, and stockholders’ equity $7.68 million. The balance sheet shows no conventional borrowing; long-term liabilities include an $86,739 asset retirement obligation. Mineral rights were carried at $4.18 million.
For the nine months, operating cash use was $4.63 million, versus $6.26 million in 2018; investing cash flow was zero, and financing provided $178,872, net of issuance costs. Cash declined from $7.65 million at April 30, 2018 to $3.19 million. The company sold 235,071 shares through its $1 million at-the-market (ATM) program during the quarter, raising $178,872 net. It reported no cash paid for interest or income taxes.
Changes versus the prior comparable period
Nine-month operating expenses declined by approximately $530,000, principally due to lower compensation, professional fees, and general and administrative expenses, partly offset by approximately $267,000 more exploration spending. The nine-month net loss improved largely because the 2018 comparison included discontinued operations and a $6.09 million goodwill impairment; the company recorded no such impairment in the current period. In the current nine-month period, the company recorded a $438,145 income tax provision after establishing a valuation allowance against previously recognized deferred tax assets.
Quarterly operating expenses declined by approximately $133,000 year over year, mainly reflecting lower exploration and general and administrative costs. Quarterly net loss nevertheless increased to $2.07 million from $1.77 million. Common shares issued and outstanding increased during the period; the filing reports 18,600,763 outstanding at January 31, 2019, and 19,310,009 at March 18, 2019.
Outlook, management commentary, and risks
Keystone received federal approval of its Plan of Operations in September 2018 and state approval in October; the company began its autumn drilling program in November. The 2018 program comprised 15 widely spaced reverse-circulation holes totaling 25,310 feet. Management reported widespread anomalous gold and pathfinder metals and said its 2019 focus would be identifying structures and feeder zones. The filing refers readers to an external drill-results table but does not provide a clear set of assay values in the supplied text. Results announced in March 2019 are subsequent to the reporting period.
At Copper King, a Datamine model incorporating historical and company drilling indicated the deposit remains open to the southwest and southeast. The company said it was reviewing the model to develop future exploration plans. A previously reported preliminary economic assessment estimated pre-tax NPV of $178.5 million and IRR of 33.1%, using $1,275/oz gold and $2.80/lb copper; it predates the additional 2018 step-out mineralization and excludes zinc and silver values. These estimates are not evidence of proven or probable reserves.
The filing’s going-concern disclosures warrant attention: the notes say accumulated losses, cash use, and reliance on equity financing raise substantial doubt about the company’s ability to continue as a going concern for the following 12 months. The MD&A later states that cash, spending controls, and plans to raise capital alleviate that doubt through at least the next 12 months. Management also says additional capital is required and gives no assurance it can be raised on acceptable terms. Failure to raise funds could curtail exploration or require changes to the business; equity financing could dilute shareholders.
Disclosure controls and procedures were deemed ineffective as of January 31, 2019, which management attributed to limited resources and staffing. The company described remediation efforts, including outside financial-control assistance and documentation of its control environment. No material changes to the risk factors in the prior Form 10-K were reported. No legal proceedings were reported.
Other notable items include $1.23 million of stock-based compensation and salary or exploration costs settled with shares during the nine months, as well as an $86,739 asset retirement obligation recorded for reclamation. Subsequent events included 155,951 shares issued for investor-relations services, 12,626 shares issued for employee services, and $45,932 net raised through additional ATM sales in March 2019.
Important facts for investors to verify
- Reconcile the financial statements with MD&A: the statements report nine-month operating loss of $6.12 million and quarterly operating loss of $1.64 million, while MD&A cites approximately $4.5 million and $3.0 million, respectively.
- Reconcile reported current liabilities and working capital: the balance sheet shows current liabilities of $242,359, while the MD&A table shows $239,559; the reported working-capital figure also does not exactly match the balance-sheet arithmetic.
- Review the full Keystone assay table and subsequent results, and assess whether exploration results support the company’s interpretations; the supplied filing text does not give clear assay values.
- Assess cash runway, planned exploration spending, ATM capacity remaining, and the company’s ability to obtain further financing, including potential dilution.
- Consider the going-concern disclosure alongside management’s more optimistic MD&A statement, and monitor remediation of ineffective disclosure controls.
- Distinguish the historic Copper King PEA assumptions and estimates from current project economics; the company has not established proven or probable reserves.