U.S. Gold Corp. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended October 31, 2019. The filing was signed December 16, 2019. U.S. Gold is an exploration-stage company; it reported no revenue and has not established proven or probable mineral reserves.
Financial results and liquidity
| Metric | Three months ended Oct. 31, 2019 | Six months ended Oct. 31, 2019 | Comparable 2018 period |
|---|---|---|---|
| Revenue | $0 | $0 | $0 |
| Operating expenses | $2.23 million | $3.54 million | $3.00 million and $4.48 million, respectively |
| Net loss | $2.23 million | $3.54 million | $3.00 million and $4.48 million, respectively |
| Net loss applicable to common shareholders | $2.23 million | $5.56 million | $3.00 million and $4.48 million, respectively |
| Loss per common share, basic and diluted | $0.10 | $0.26 | $0.17 and $0.25, respectively |
The six-month common-shareholder loss includes a $2.02 million deemed dividend related to Series F preferred stock; it did not change reported net loss. No income tax provision was recorded.
- Cash and liquidity: Cash was $1.92 million at October 31, 2019, down from $2.20 million at April 30. Working capital was $2.13 million, down from $2.65 million. Total assets were $8.98 million and stockholders’ equity was $8.63 million.
- Cash flows, six months: Operating activities used $2.84 million, compared with $3.59 million in 2018. Investing activities provided $159,000, and financing activities provided $2.40 million from preferred stock and warrant issuance. Cash decreased by $278,000.
- Liabilities and debt: Total liabilities were $352,000, including $259,000 current liabilities and a $93,000 asset retirement obligation. No borrowing or debt balance is listed.
Changes versus prior comparable periods
Six-month operating expenses fell about $946,000 year over year, principally because compensation and exploration costs declined; professional fees increased about $298,000. Quarterly expenses fell about $773,000, with lower compensation and exploration costs partly offset by higher professional fees. Six-month net loss improved by about $946,000, while loss applicable to common shareholders increased because of the preferred-stock deemed dividend. Weighted-average shares rose to 21.36 million for the six-month period from 17.75 million in 2018.
Mineral rights increased by $1.99 million to $6.16 million, primarily reflecting the Maggie Creek asset acquired through the September 2019 share exchange. The transaction issued 2.0 million common shares valued at $2.02 million and assumed $126,000 of liabilities.
Business activity, outlook, and risks
- The company reported drilling six reverse-circulation holes and one core hole at Keystone, totaling 13,177 feet. It said hole KEY19-05rc intersected thick, continuous gold mineralization; the filing does not provide assay values in the supplied text. Management said the target would receive follow-up exploration.
- Through the Maggie Creek option, the company may earn up to a 50% interest by completing $4.5 million of exploration and development expenditures over seven years and paying $250,000. The agreement provides a possible additional 20% interest subject to further conditions, including a feasibility study. A company director also serves as a director of the option grantor.
- Management estimated existing cash would fund operations for approximately 10 months and said additional capital would be required 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. Additional financing is not assured and could dilute shareholders; inability to obtain funds could require reduced exploration or changes to the business.
- On November 7, 2019, Nasdaq notified the company that its share price had failed the $1.00 minimum bid requirement. It had until May 5, 2020 to regain compliance, including maintaining a closing bid of at least $1.00 for ten consecutive business days. A reverse split of between 1-for-2 and 1-for-10 had been authorized by shareholders, but the company cautioned that compliance and any price improvement were not assured; delisting could impair liquidity and access to capital.
- The company sold $2.5 million of Series F preferred units in June, reporting approximately $2.4 million net proceeds. The preferred stock is convertible and the associated warrants can lead to significant additional share issuance. The filing states that conversion and exercise of all securities from that offering could result in 6.58 million common shares being issued.
- The company revised its July 31, 2019 equity presentation to reclassify the $2.02 million deemed dividend from additional paid-in capital to accumulated deficit. Management concluded the error was not qualitatively material; total equity and the statements of operations and cash flows were unaffected.
- Management said disclosure controls were effective at October 31, 2019 and that a previously identified material weakness in financial reporting controls was remediated during the quarter. No material pending legal proceedings were reported.
Investor verification priorities
- Confirm current cash burn, financing needs, and progress against the stated approximately 10-month cash runway.
- Review Keystone assay results and subsequent exploration updates; verify the scope, cost, and timing of planned work.
- Track Maggie Creek earn-in spending, payment and feasibility-study conditions, and the related-party connection disclosed in the filing.
- Assess Nasdaq bid-price compliance and any reverse-split action, including implications for liquidity and future financing.
- Reconcile potential dilution from preferred-stock conversions, warrants, incentive awards, and the shares already issued in the Maggie Creek transaction.