U.S. Gold Corp. — Form 10-Q Summary
Business context and reporting period
Unaudited quarter ended July 31, 2017. The May 23, 2017 merger with Gold King was accounted for as a reverse acquisition, with Gold King as the accounting acquirer; the company changed its name from Dataram Corporation to U.S. Gold Corp. in June. The company is now focused on gold and precious-metals exploration, primarily in Nevada and Wyoming. It has no proven or probable reserves, and its properties remain in the exploration stage.
Financial results and liquidity
| Metric | Three months ended July 31, 2017 | Prior-year period |
|---|---|---|
| Continuing-operations revenue | $0 | $0 |
| Operating expenses | $3.21 million | $1.34 million |
| Loss from continuing operations | $3.21 million | $1.34 million |
| Discontinued-operations loss | $6.07 million | $0 |
| Net loss | $9.28 million | $1.34 million |
| Basic and diluted loss per share | $1.00 | $1.56 |
| Cash used in operating activities | $2.97 million | $0.40 million |
Discontinued memory-business results from the merger date through July 31 included $4.36 million revenue, $3.41 million cost of sales and $949,604 gross profit, a gross margin of approximately 21.8%. Its $6.07 million loss included a $6.09 million goodwill impairment.
At July 31, cash was $4.35 million, total current assets $8.67 million, total assets $12.88 million, total liabilities $4.64 million and stockholders’ equity $8.23 million. The company reported no debt in continuing liabilities; the memory business held for sale included approximately $1.09 million outstanding on a revolving credit facility, secured by substantially all company assets. The facility’s stated maximum borrowing capacity was $3.5 million. Operating cash outflow was partly offset by $500,004 in common-stock proceeds. No investing cash flow was reported for the quarter.
Material changes versus the prior period
- Operating expenses rose by approximately $1.87 million. Management attributed the increase mainly to compensation, including about $718,000 of severance and change-in-control costs, and increased exploration spending at Keystone.
- Net loss increased by approximately $7.94 million, primarily reflecting the $6.09 million goodwill impairment and the inclusion of the legacy memory business as discontinued operations after the merger.
- Cash declined by $2.47 million during the quarter. Common shares outstanding increased to 12,035,816 at July 31 from 6,932,059 at April 30, reflecting the merger, preferred-stock conversions, service issuances and a cash share sale.
- Management approved a plan to pursue strategic options, including a sale of Dataram Memory within 12 months. At July 31, held-for-sale assets were $3.59 million and related liabilities were $3.63 million.
The prior-year comparison is not fully comparable: the current period includes Gold King’s operations before the merger and Dataram’s operations only from the merger date, while the comparative period reflects Gold King’s historical results.
Outlook, risks and unusual items
- Management said it expected current cash and spending controls to support operations for at least one year from the financial-statement issuance date, while noting it anticipated raising additional capital and could not assure that financing would be available or on favorable terms.
- The company’s exploration prospects have no established proven or probable reserves, and exploration costs are expensed as incurred. Commercial feasibility has not been established.
- The $6.09 million goodwill impairment followed the decision to market Dataram Memory assets; acquisition-date fair values and purchase-price allocation remained provisional and could change.
- In August, the company acquired the Gold Bar North property for $20,479 cash and 15,000 shares. Subsequent August issuances included shares for employee, director and consultant services; the filing also reports approval of a 2017 equity incentive plan reserving 1.65 million shares.
- Management concluded disclosure controls and procedures were not effective as of July 31 because of limited resources and employees. The filing reported two consolidated lawsuits stemming from a former CEO dispute and no material changes to the risk factors in the prior Form 10-K.
Important facts for investors to verify
- Cash runway, ongoing exploration spending and the company’s ability to raise additional capital.
- Status and terms of any sale of Dataram Memory, including disposition of its credit-line borrowing and held-for-sale liabilities.
- Potential changes to the provisional merger purchase-price allocation and valuation of goodwill and other acquired assets.
- Share-count dilution from preferred-stock conversions, warrants, options, incentive-plan shares and service-related issuances.
- Progress on mineral exploration and whether any property establishes proven or probable reserves or commercial feasibility.
- Remediation of ineffective disclosure controls and the outcome of the disclosed lawsuits.