U.S. GOLD CORP. annual report, FY2018

Business context and reporting period

U.S. Gold Corp. filed this Form 10-K for the fiscal year ended April 30, 2018; the filing does not cover calendar 2017 Q4. Following its May 2017 reverse acquisition of Gold King and change of name from Dataram Corporation, the company focused on mineral exploration in Nevada and Wyoming. Its principal projects are Copper King and Keystone, with Gold Bar North acquired in August 2017. The company has no producing mines or proven and probable reserves.

Financial performance and position

• At April 30, 2018, cash was $7.65 million, working capital $7.99 million, total assets $12.99 million and total liabilities $286,081. The balance sheet reported no debt; the legacy memory-business credit facility was assumed by its buyer.
• FY2018 investing cash inflow was $306,000, reflecting net proceeds from the memory-business sale offset by mineral-rights acquisition costs. Financing included approximately $2.59 million net from common stock and $4.92 million net from Series E preferred stock and warrants.
• The disposed memory business contributed $7.89 million revenue and $1.23 million gross profit from the post-merger period presented, but a $5.83 million total discontinued-operations loss. The filing reports no continuing-business margins because it has no revenue.
• Copper King’s December 2017 technical report estimated 59.75 million tons of measured and indicated resources and 15.62 million tons inferred at a 0.015 oz AuEq/ton cutoff. These are resource estimates, not reserves. Keystone had no technical report or resource estimate disclosed.

Material changes versus the prior comparable period

• Operating expenses approximately doubled, increasing by $4.12 million, with higher compensation, exploration (particularly Keystone), professional fees and general and administrative costs. Compensation included bonuses, added staff and approximately $700,000 severance for former officers.
• Net loss rose by approximately $9.51 million, reflecting higher continuing expenses, discontinued operations and a $6.09 million goodwill impairment. The impairment fully wrote off goodwill recorded in the reverse acquisition.
• Cash increased by $826,000, while operating cash use more than doubled. Equity financing provided the primary source of liquidity.
• The company sold the Dataram memory business in October 2017 for $900,000 gross consideration; net proceeds were $326,404 and the reported gain was $94,485. It paid a $251,316 distribution to former memory-business shareholders in January 2018.

Outlook, risks and unusual items

• Management estimated up to $2.5 million would be needed for planned FY2019 exploration and development. It anticipated further capital raising, with no assurance financing would be available on acceptable terms. Management stated cash and spending controls alleviated substantial doubt about continuing operations for at least 12 months from the financial-statement issuance date.
• FY2019 plans included geographic surveys and determining the scope of drilling. At Keystone, the company filed an Environmental Assessment in Q1 2018 and expected a Finding of No Significant Impact by Q3 2018; approval of the Plan of Operations could expand permitted disturbance to 200 acres. These were expectations, not confirmed outcomes.
• Material risks include continued losses and financing dependence, exploration and resource uncertainty, volatile gold and copper prices, permitting and reclamation-bond requirements, environmental exposure, claim-title risks, potential dilution, and limited stock liquidity. Management disclosed that it had no insurance for potential environmental risks.
• Management found disclosure controls and internal control over financial reporting ineffective at April 30, 2018, citing inadequate risk assessment and monitoring and a lack of written control documentation. Remediation was underway; management planned to complete its assessment during FY2019 Q2. The auditor did not provide an ICFR opinion.
• The financial statements received an unqualified independent audit opinion. The $1.58 million Series E beneficial conversion feature was recorded as a deemed dividend, increasing the loss attributable to common shareholders; the preferred financing also included warrants for 1.25 million shares.

Important facts for investors to verify

• Current cash runway, actual FY2019 exploration spending and whether additional financing was raised, including its dilution and terms.
• Current permitting status and results of planned Keystone and Copper King work; confirm that resource estimates have not been mistaken for economically mineable reserves.
• Resolution of the disclosed material weaknesses and effectiveness of subsequent internal-control remediation.
• Outstanding and potentially issuable shares, including preferred-stock conversions, warrants, options and service-related equity awards.
• Current project ownership, royalty obligations and required claim-maintenance payments, particularly Keystone’s NSRs and annual BLM fees.