U.S. Gold Corp. — Form 10-Q Summary
Reporting period: Three months ended July 31, 2020 (the company’s fiscal first quarter of 2021). The filing was signed September 11, 2020. U.S. Gold is an exploration-stage company with projects in Wyoming, Nevada and, following a subsequent acquisition, Idaho. It had no proven or probable reserves and no operating revenue.
Financial performance and position
| Metric | Quarter ended July 31, 2020 | Comparable 2019 period / prior balance-sheet date |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $957,120 | $1,308,599 |
| Net loss | $957,120 | $1,308,599 |
| Loss per common share, basic and diluted | $0.33 | $1.65 |
| Cash used in operating activities | $1,012,910 | $1,059,677 |
| Cash | $1,737,047 | $2,749,957 at April 30, 2020 |
| Working capital | $2,124,527 | $3,023,907 at April 30, 2020 |
| Total assets | $9,015,120 | $9,834,233 at April 30, 2020 |
| Total liabilities | $392,759 | $326,232 at April 30, 2020 |
There was no revenue, so revenue-based margins are not meaningful. The filing reports no debt balance; liabilities consisted principally of accounts payable and a $172,452 asset-retirement obligation. Cash declined by approximately $1.0 million in the quarter, with no financing proceeds. Mineral rights were carried at $6.16 million.
Changes versus the prior comparable period
- Operating expenses fell about $351,000, with decreases in compensation, exploration costs, professional fees and general and administrative expenses. Management attributed lower exploration costs to reduced activity and lower professional fees largely to reduced investor-relations and consulting costs.
- Net loss narrowed by about $351,000. The prior-year quarter also included a $2,022,712 deemed dividend related to Series F preferred stock; consequently, prior-year loss applicable to common shareholders was $3,331,311, versus $957,120 in 2020.
- Operating cash use was about $47,000 lower year over year. Unlike the 2019 quarter, the 2020 quarter had no financing proceeds; the prior-year period raised approximately $2.4 million through preferred stock and warrants.
Outlook, risks and notable events
- Liquidity and going concern: At July 31, cash was approximately $1.7 million and management estimated it would fund operations for 6–9 months. The filing states these conditions raised substantial doubt about the company’s ability to continue as a going concern for the following 12 months. After quarter-end, the August 11 merger and concurrent equity placement added approximately $7.9 million of net proceeds. Management then believed, but could not assure, that resources would support operations and long-term exploration for at least 12 months.
- Acquisition and financing: The company acquired Northern Panther Resources Corporation, including the Challis Gold Project, in a transaction accounted for as an asset acquisition. The filing reports total consideration of approximately $12.6 million, including common shares and common-share equivalents. A concurrent private placement raised approximately $5.53 million through Series I preferred stock and warrants. The acquisition also added $2.5 million cash and Challis mineral rights valued at approximately $10.25 million.
- Exploration plans: The company continued interpreting its 2019 Keystone drilling results and began internal analysis of Maggie Creek. It announced proposed 2020 Keystone exploration plans, subject to refinement and obtaining budget, and intended to advance the CK Gold Project from a preliminary economic assessment toward a preliminary feasibility study. No firm exploration budget or guaranteed schedule is provided.
- COVID-19: Travel restrictions, contractor access and supply disruptions could delay drilling and technical work, impede fundraising and adversely affect operations. The company stated there was no assurance that material exploration activities could take place in 2020.
- Other risks and controls: Additional capital may be needed; future equity financing could dilute shareholders and debt financing could impose restrictive covenants. Disclosure controls were deemed ineffective, with a material weakness arising from limited personnel and inadequate segregation of duties. Management said remediation efforts were delayed to conserve cash.
- Equity dilution: Merger consideration included common shares and Series H preferred stock expected to convert subject to shareholder approval and Nasdaq exchange limits. Series I preferred stock and five-year warrants were also issued after quarter-end. Merger-related common shares are restricted and subject to leak-out limits.
Key facts for investors to verify
- Current cash, spending rate and whether the post-quarter financing provides the runway management anticipated.
- Progress, timing, budget and results for Keystone, Maggie Creek, CK Gold and Challis exploration and study programs.
- Shareholder approval and conversion terms for Series H preferred stock, along with the dilution implications of Series I preferred stock, warrants and merger shares.
- COVID-19 effects on contractor access, exploration schedules and the company’s ability to raise additional capital.
- Whether management addresses the disclosed ineffective controls and material weakness.
- Future permitting, reclamation bonding and other project obligations; the filing reports a $172,452 asset-retirement obligation and future Maggie Creek earn-in commitments.