UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___________to _____________
Commission
file number:
(Exact Name of Registrant as Specified in its Charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
| (Address of Principal Executive Offices) | (Zip Code) |
(Registrant’s Telephone Number, including Area Code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Indicate
by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. ☒
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer ☐ Accelerated filer ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. Common Stock ($0.001 par value): As of September 13, 2021, there were shares outstanding.
U.S. GOLD CORP.
FORM 10-Q
TABLE OF CONTENTS
| 2 |
FORWARD-LOOKING STATEMENTS
Some information contained in or incorporated by reference into this Quarterly Report on Form 10-Q may contain forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995. Such forward-looking statements concern our anticipated results and developments in our operations in future periods, planned exploration and development of our properties, plans related to our business and other matters that may occur in the future. These statements relate to analyses and other information that are based on forecasts of future results, estimates of amounts not yet determinable and assumptions of management. These statements include, but are not limited to, comments regarding:
| ● | our plans to conduct geologic surveys and determine the scope of our drilling program during our fiscal year ended April 30, 2022, | |
| ● | the timing, duration and overall impact of the COVID-19 pandemic on our business and exploration activities, | |
| ● | the impact of public health threats and outbreaks of other highly communicable diseases, | |
| ● | the strength of the world economies, | |
| ● | fluctuations in interest rates and foreign exchange rates, | |
| ● | changes in governmental rules and regulations or actions taken by regulatory authorities, | |
| ● | our ability to maintain compliance with the NASDAQ Capital Market’s (the “NASDAQ”) listing standards, | |
| ● | the conclusions of additional exploration programs and related studies, | |
| ● | expectations and the timing and budget for exploration and future exploration of our properties, | |
| ● | our planned expenditures during our fiscal year ended April 30, 2022 and future periods, | |
| ● | our estimates of the cost of future permitting changes and additional bonding requirements, | |
| ● | future exploration plans and expectations related to our properties, | |
| ● | volatility in the market price of our common stock, | |
| ● | our ability to fund our business with our current cash reserves based on our currently planned activities, | |
| ● | our ability to raise the necessary capital required to continue our business on terms acceptable to us or at all, | |
| ● | our expected cash needs and the availability and plans with respect to future financing, | |
| ● | statements concerning our financial condition, | |
| ● | our anticipation of future environmental and regulatory impacts, | |
| ● | our ability to retain key management and mining personnel necessary to successfully operate and grow our business, | |
| ● | potential conflicts of interest involving members of our Board of Directors (the “Board”) and senior management, | |
| ● | our business and operating strategies, | |
| ● | statements related to operating and legal risks, including potential liability from pending or future litigation, and | |
| ● | other factors detailed in this Quarterly Report on Form 10-Q and from time to time in our annual report, other quarterly reports and periodic reports. |
We use the words “anticipate,” “continue,” “likely,” “estimate,” “expect,” “may,” “could,” “will,” “project,” “should,” “believe” and variations of such words and similar expressions to identify forward-looking statements. Statements that contain these words discuss our future expectations and plans, or state other forward-looking information. Although we believe the expectations and assumptions reflected in those forward-looking statements are reasonable, we cannot assure you that these expectations and assumptions will prove to be correct. Our actual results could differ materially from those expressed or implied in these forward-looking statements as a result of various factors, including the risk factors described in this report and in “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended April 30, 2021.
Many of these factors are beyond our ability to control or predict. Although we believe that the expectations reflected in our forward-looking statements are based on reasonable assumptions, such statements can only be based on facts and factors currently known to us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically addressed under the heading “Risk Factors” below, as well as those discussed elsewhere in this Quarterly Report on Form 10-Q. You should not unduly rely on any of our forward-looking statements. These statements speak only as of the date of this Quarterly Report on Form 10-Q. Except as required by law, we are not obligated to publicly release any revisions to these forward-looking statements to reflect future events or developments. All subsequent written and oral forward-looking statements attributable to us and persons acting on our behalf are qualified in their entirety by the cautionary statements contained in this section and elsewhere in this Quarterly Report on Form 10-Q.
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PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
U.S. GOLD CORP. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
| July 31, | April 30, | |||||||
| 2021 | 2021 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| NON - CURRENT ASSETS: | ||||||||
| Property, net | ||||||||
| Reclamation bond deposit | ||||||||
| Operating lease right-of-use asset, net | - | |||||||
| Mineral rights | ||||||||
| Total non - current assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Operating lease liability, current portion | - | |||||||
| Total current liabilities | ||||||||
| LONG- TERM LIABILITIES | ||||||||
| Asset retirement obligation | ||||||||
| Operating lease liability, less current portion | - | |||||||
| Total long-term liabilities: | ||||||||
| Total liabilities | ||||||||
| Commitments and Contingencies | ||||||||
| STOCKHOLDERS’ EQUITY : | ||||||||
| Preferred stock, $ par value; authorized | ||||||||
| Convertible Series F Preferred stock ($ Par Value; Shares Authorized; issued and outstanding as of July 31, 2021 and April 30, 2021) | ||||||||
| Convertible Series G Preferred stock ($ Par Value; Shares Authorized; issued and outstanding as of July 31, 2021 and April 30, 2021) | ||||||||
| Convertible Series H Preferred stock ($ Par Value; Shares Authorized; issued and outstanding as of July 31, 2021 and April 30, 2021) | ||||||||
| Convertible Series I Preferred stock ($ Par Value; Shares Authorized; issued and outstanding as of July 31, 2021 and April 30, 2021) | ||||||||
| Common stock ($ Par Value; Shares Authorized; and shares issued and outstanding as of July 31, 2021 and April 30, 2021) | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See accompanying notes to unaudited condensed consolidated financial statements.
| 4 |
U.S. GOLD CORP. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
| For the Three Months | For the Three Months | |||||||
| Ended | Ended | |||||||
| July 31, 2021 | July 31, 2020 | |||||||
| Net revenues | $ | $ | ||||||
| Operating expenses: | ||||||||
| Compensation and related taxes - general and administrative | ||||||||
| Exploration costs | ||||||||
| Professional and consulting fees | ||||||||
| General and administrative expenses | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Loss before provision for income taxes | ( | ) | ( | ) | ||||
| Provision for income taxes | - | - | ||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Net loss per common share, basic and diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted average common shares outstanding - basic and diluted | ||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
| 5 |
U.S. GOLD CORP. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED JULY 31, 2021 AND 2020
| Preferred Stock - Series F | Preferred Stock - Series G | Preferred Stock - Series H | Preferred Stock - Series I | Common Stock | Additional | Total | ||||||||||||||||||||||||||||||||||||||||||||||
| $0.001 Par Value | $0.001 Par Value | $0.001 Par Value | $0.001 Par Value | $0.001 Par Value | Paid-in | Accumulated | Stockholders’ | |||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||||||||||||||||||||
| Balance, April 30, 2021 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for prepaid services | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation in connection with restricted common stock award grants and restricted common stock unit grants | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance, July 31, 2021 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock - Series F | Preferred Stock - Series G | Preferred Stock - Series H | Preferred Stock - Series I | Common Stock | Additional | Total | ||||||||||||||||||||||||||||||||||||||||||||||
| $0.001 Par Value | $0.001 Par Value | $0.001 Par Value | $0.001 Par Value | $0.001 Par Value | Paid-in | Accumulated | Stockholders’ | |||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||||||||||||||||||||
| Balance, April 30, 2020 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||||||||||||
| Conversion of preferred stock into common stock | - | ( | ) | - | - | - | ( | ) | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Stock options granted for services | - | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation in connection with restricted common stock award grants and restricted common stock unit grants | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance, July 31, 2020 | $ | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
| 6 |
U.S. GOLD CORP. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Three Months | For the Three Months | |||||||
| Ended | Ended | |||||||
| July 31, 2021 | July 31, 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | ||||||||
| Accretion | ||||||||
| Amortization of right-of-use asset | - | |||||||
| Stock based compensation | ||||||||
| Amortization of prepaid stock based expenses | - | |||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Reclamation bond deposit | ( | ) | ( | ) | ||||
| Accounts payable and accrued liabilities | ||||||||
| Accounts payable - related parties | - | |||||||
| Operating lease liability | ( | ) | - | |||||
| NET CASH USED IN OPERATING ACTIVITIES | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of property and equipment | ( | ) | - | |||||
| NET CASH USED IN INVESTING ACTIVITIES | ( | ) | - | |||||
| NET DECREASE IN CASH | ( | ) | ( | ) | ||||
| CASH - beginning of year | ||||||||
| CASH - end of period | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Cash paid for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES: | ||||||||
| Issuance of common stock for prepaid services | $ | $ | ||||||
| Issuance of common stock in connection with conversion of preferred stock | $ | $ | ||||||
See accompanying notes to unaudited condensed consolidated financial statements.
| 7 |
U.S. GOLD CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2021
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Organization
U.S. Gold Corp., formerly known as Dataram Corporation (the “Company”), was originally incorporated in the State of New Jersey in 1967 and was subsequently re-incorporated under the laws of the State of Nevada in 2016. Effective June 26, 2017, the Company changed its name to U.S. Gold Corp. from Dataram Corporation.
On June 13, 2016, Gold King Corp. (“Gold King”), a private Nevada corporation, entered into an Agreement and Plan of Merger (the “Gold King Merger Agreement”) with the Company, the Company’s wholly-owned subsidiary Dataram Acquisition Sub, Inc., a Nevada corporation (“Acquisition Sub”), and all of the principal shareholders of Gold King. Upon closing of the transactions contemplated under the Gold King Merger Agreement (the “Gold King Merger”), Gold King merged with and into Acquisition Sub with Gold King as the surviving corporation and became a wholly-owned subsidiary of the Company. The Gold King Merger was treated as a reverse acquisition and recapitalization, and the business of Gold King became the business of the Company. The financial statements are those of Gold King (the accounting acquirer) prior to the merger and include the activity of the Company (the legal acquirer) from the date of the Gold King Merger. Gold King is a gold and precious metals exploration company pursuing exploration and development opportunities primarily in Nevada and Wyoming. The Company has a wholly owned subsidiary, U.S. Gold Acquisition Corporation, formerly Dataram Acquisition Sub, Inc. (“U.S. Gold Acquisition”), a Nevada corporation which was formed in April 2016.
On
May 23, 2017, the Company closed the Gold King Merger with Gold King. The Gold King Merger constituted a change of control and the majority
of the board of directors changed with the consummation of the Gold King Merger. The Company issued shares of common stock to Gold King
which represented approximately
On September 10, 2019, the Company, 2637262 Ontario Inc., a corporation incorporated under the laws of the Province of Ontario (“NumberCo”), and all of the shareholders of NumberCo (the “NumberCo Shareholders”), entered into a Share Exchange Agreement (the “Share Exchange Agreement”), pursuant to which, among other things, the Company agreed to issue to the NumberCo Shareholders shares of the Company’s common stock in exchange for all of the issued and outstanding shares of NumberCo, with NumberCo becoming a wholly-owned subsidiary of the Company.
On
March 17, 2020, the board of directors (the “Board”) of the Company approved a
On August 10, 2020, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Gold King Acquisition Corp. (“Acquisition Corp.”), a wholly owned subsidiary of the Company, Northern Panther Resources Corporation (“Northern Panther” or “NPRC”) and the Stockholder Representative named therein, pursuant to which Acquisition Corp. merged with and into NPRC, with NPRC surviving as a wholly-owned subsidiary of the Company.
None of the Company’s properties contain proven and probable reserves and all of the Company’s activities are exploratory in nature.
Unless the context otherwise requires, all references herein to the “Company” refer to U.S. Gold Corp. and its consolidated subsidiaries.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation and principles of consolidation
The accompanying interim unaudited condensed consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), the instructions to Form 10-Q, and the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) for interim financial information, which includes the unaudited condensed consolidated financial statements and presents the unaudited condensed consolidated financial statements of the Company and its wholly-owned subsidiaries as of July 31, 2021. All intercompany transactions and balances have been eliminated. The accounting policies and procedures used in the preparation of these unaudited condensed consolidated financial statements have been derived from the audited financial statements of the Company for the year ended April 30, 2021, which are contained in the Form 10-K filed on July 29, 2021. The unaudited condensed consolidated balance sheet as of July 31, 2021 was derived from those financial statements. It is management’s opinion that all material adjustments (consisting of normal recurring adjustments) have been made, which are necessary for a fair financial statement presentation. Operating results during the three months ended July 31, 2021 are not necessarily indicative of the results to be expected for the year ending April 30, 2022.
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U.S. GOLD CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2021
Use of Estimates and Assumptions
In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated balance sheet, and revenues and expenses for the period then ended. Actual results may differ significantly from those estimates. Significant estimates made by management include, but are not limited to, valuation of mineral rights, stock-based compensation, the fair value of common and preferred stock, valuation of warrants, asset retirement obligations and the valuation of deferred tax assets and liabilities.
Fair Value Measurements
The Company has adopted Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements and Disclosures” (“ASC 820”), for assets and liabilities measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied in accordance with U.S. GAAP, which requires the use of fair value measurements, establishes a framework for measuring fair value and expands disclosure about such fair value measurements.
ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.
These inputs are prioritized below:
| Level 1: | Observable inputs such as quoted market prices in active markets for identical assets or liabilities. |
| Level 2: | Observable market-based inputs or unobservable inputs that are corroborated by market data. |
| Level 3: | Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions. |
The Company analyzes all financial instruments with features of both liabilities and equity under the Financial Accounting Standard Board’s (“FASB”) accounting standard for such instruments. Under this standard, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
At July 31, 2021 and April 30, 2021, the Company had no financial instruments or liabilities accounted for at fair value on a recurring basis or nonrecurring basis.
Prepaid expenses and other current assets
Prepaid
expenses and other current assets of $
Property
Property is carried at cost. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition. Depreciation is calculated on a straight-line basis over the estimated useful life of the assets, generally years.
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U.S. GOLD CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2021
Impairment of long-lived assets
The
Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the
assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted
future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s
estimated fair value and its book value. The Company did
Mineral Rights
Costs of leasing, exploring, carrying and retaining unproven mineral lease properties are expensed as incurred. The Company expenses all mineral exploration costs as incurred as it is still in the exploration stage. If the Company identifies proven and probable reserves in its investigation of its properties and upon development of a plan for operating a mine, it would enter the development stage and capitalize future costs until production is established.
When a property reaches the production stage, the related capitalized costs will be amortized on a units-of-production basis over the proven and probable reserves following the commencement of production. The Company assesses the carrying costs of the capitalized mineral properties for impairment under ASC 360-10, “Impairment of Long-Lived Assets”, and evaluates its carrying value under ASC 930-360, “Extractive Activities—Mining”, annually. An impairment is recognized when the sum of the expected undiscounted future cash flows is less than the carrying amount of the mineral properties. Impairment losses, if any, are measured as the excess of the carrying amount of the mineral properties over its estimated fair value.
To date, the Company has not established the commercial feasibility of any exploration prospects; therefore, all exploration costs are being expensed.
ASC 930-805, “Extractive Activities—Mining: Business Combinations” (“ASC 930-805”), states that mineral rights consist of the legal right to explore, extract, and retain at least a portion of the benefits from mineral deposits. Mining assets include mineral rights.
Acquired mineral rights are considered tangible assets under ASC 930-805. ASC 930-805 requires that mineral rights be recognized at fair value as of the acquisition date. As a result, the direct costs to acquire mineral rights are initially capitalized as tangible assets. Mineral rights include costs associated with acquiring patented and unpatented mining claims.
ASC 930-805 provides that in measuring the fair value of mineral assets, an acquirer should take into account both:
● The value beyond proven and probable reserves (“VBPP”) to the extent that a market participant would include VBPP in determining the fair value of the assets.
● The effects of anticipated fluctuations in the future market price of minerals in a manner that is consistent with the expectations of market participants.
Leases to explore for or use of natural resources are outside the scope of ASU 2016-02, “Leases”.
Share-based compensation is accounted for based on the requirements of ASC 718, “Compensation—Stock Compensation” (“ASC 718”), which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). ASC 718 also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award. Pursuant to ASC 505, “Equity—Equity Based Payments to Non-Employees” (“ASC 505-50”), for share-based payments to consultants and other third parties, compensation expense is determined at the measurement date, which is the grant date. Until the measurement date is reached, the total amount of compensation expense remains uncertain.
ASU 2018-07 applies to all share-based payment transactions in which the grantor acquires goods and services to be used or consumed in its own operations by issuing share-based payment awards. ASU 2018-07 also clarifies that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under ASC 606. ASU 2018-07 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted, but no earlier than adoption of ASC 606. The Company chose to early adopt ASU 2018-07 in July 2018. The adoption of this standard did not have a material effect on the Company’s consolidated financial statements and related disclosures.
| 10 |
U.S. GOLD CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2021
Accounting for Warrants
Warrants are accounted for in accordance with the applicable accounting guidance provided in ASC 815, “Derivatives and Hedging” (“ASC 815”) as either derivative liabilities or as equity instruments, depending on the specific terms of the agreements. The Company classifies as equity any contracts that (i) require physical settlement or net-share settlement or (ii) give the Company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). The Company classifies as assets or liabilities any contracts that (i) require net-cash settlement (including a requirement to net-cash settle the contract if an event occurs and if that event is outside the control of the Company) or (ii) give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). Instruments that are classified as liabilities are recorded at fair value at each reporting period, with any change in fair value recognized as a component of change in fair value of derivative liabilities in the consolidated statements of operations.
The Company assessed the classification of its outstanding common stock purchase warrants as of the date of issuance and determined that such instruments met the criteria for equity classification under the guidance in ASU 2017-11 “Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Feature”. The Company has no outstanding warrants that contain a “down round” feature under Topic 815 of ASU 2017-11.
Convertible Preferred Stock
The Company accounts for its convertible preferred stock under the provisions of ASC 480, “Distinguishing Liabilities from Equity” (“ASC 480”), which sets forth the standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. ASC 480 requires an issuer to classify a financial instrument that is within the scope of ASC 480 as a liability if such financial instrument embodies an unconditional obligation to redeem the instrument at a specified date and/or upon an event certain to occur. During the periods ended July 31, 2021 and April 30, 2021, the Company’s convertible preferred shares were accounted for as equity, with no liability recorded. There was no outstanding preferred stock as of July 31, 2021.
Convertible Instruments
The Company bifurcates conversion options from their host instruments and accounts for them as free-standing derivative financial instruments according to certain criteria. The criteria includes circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. An exception to this rule when the host instrument is deemed to be conventional as that term is described under applicable U.S. GAAP.
When the Company has determined that the embedded conversion options should not be bifurcated from their host instruments, the Company records, when necessary, a beneficial conversion feature (“BCF”) related to the issuance of convertible debt and equity instruments that have conversion features at fixed rates that are in-the-money when issued, and the fair value of warrants issued in connection with those instruments. The BCF for the convertible instruments is recognized and measured by allocating a portion of the proceeds to warrants, based on their relative fair value, and as a reduction to the carrying amount of the convertible instrument equal to the intrinsic value of the conversion feature. The discounts recorded in connection with the BCF and warrant valuation are recognized (a) for convertible debt as interest expense over the term of the debt, using the effective interest method or (b) for convertible preferred stock as dividends at the time the stock first becomes convertible.
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U.S. GOLD CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2021
Remediation and Asset Retirement Obligation
Asset retirement obligations (“ARO”), consisting primarily of estimated reclamation costs at the Company’s CK Gold, Keystone and Maggie Creek properties, are recognized in the period incurred and when a reasonable estimate can be made, and recorded as liabilities at fair value. Such obligations, which are initially estimated based on discounted cash flow estimates, are accreted to full value over time through charges to accretion expense. Corresponding asset retirement costs are capitalized as part of the carrying amount of the related long-lived asset and depreciated over the asset’s remaining useful life. AROs are periodically adjusted to reflect changes in the estimated present value resulting from revisions to the estimated timing or amount of reclamation and closure costs. The Company reviews and evaluates its AROs annually or more frequently at interim periods if deemed necessary.
Foreign Currency Transactions
The reporting and functional currency of the Company is the U.S. dollar. Transactions denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing on the transaction dates. Assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the balance sheet date with any transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency included in the results of operations as incurred. Translation adjustments, and transaction gains or losses, have not had, and are not expected to have, a material effect on the results of operations of the Company and are included in general and administrative expenses.
Leases
On January 1, 2019, the Company adopted ASC Topic 842, Leases (Topic 842), the Company has elected the ‘package of practical expedients’, which permit it not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. In addition, the Company elected not to apply ASC Topic 842 to arrangements with lease terms of 12 month or less. Operating lease right of use assets (“ROU”) assets represents the right to use the leased asset for the lease term and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most leases do not provide an implicit rate, the Company use an incremental borrowing rate based on the information available at the adoption date in determining the present value of future payments. Lease expense for minimum lease payments is amortized on a straight-line basis over the lease term and is included in general and administrative expenses in the statements of operations.
Income Taxes
The Company accounts for income taxes pursuant to the provision of ASC 740-10, “Accounting for Income Taxes” (“ASC 740-10”), which requires, among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred asset will not be realized.
The Company follows the provision of ASC 740-10, “Accounting for Uncertain Income Tax Positions” (“ASC 740-10”). When tax returns are filed, there may be uncertainty about the merits of positions taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions.
Tax positions that meet the more likely than not recognition threshold are measured at the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefit associated with tax positions taken that exceed the amount measured as described above should be reflected as a liability for uncertain tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company believes its tax positions are all more likely than not to be upheld upon examination. As such, the Company has not recorded a liability for uncertain tax benefits or for any related interest and penalties.
The Company has adopted ASC 740-10-25, “Definition of Settlement”, which provides guidance on how an entity should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits and provides that a tax position can be effectively settled upon the completion and examination by a taxing authority without being legally extinguished. For tax positions considered effectively settled, an entity would recognize the full amount of tax benefit, even if the tax position is not considered more likely than not to be sustained based solely on the basis of its technical merits and the statute of limitations remains open. The federal and state income tax returns of the Company are subject to examination by the Internal Revenue Service and state taxing authorities, generally for three years after they are filed.
| 12 |
U.S. GOLD CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2021
Recent Accounting Pronouncements
Accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material effect on the financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an effect on or are unrelated to its financial condition, results of operations, cash flows or disclosures.
In August 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging Contracts in Entity’s Own Equity (Subtopic 815-40), which eliminates the beneficial conversion and cash conversion accounting models for convertible instruments, amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions, and modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted EPS calculation. The standard is effective for annual periods beginning after December 15, 2021, and interim periods within those reporting periods. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those reporting periods. The standard can be adopted under the modified retrospective method or the full retrospective method. The Company expects that this guidance will not have a material impact on the Company’s condensed consolidated financial statements.
In October 2020, the FASB issued ASU 2020-09, Debt (Topic 470) - Amendments to SEC Paragraphs Pursuant to SEC Release No. 33-10762, or ASU 2020-09, to reflect the SEC’s amended disclosure rules for guaranteed debt securities offerings. The final rule amends the disclosure requirements in SEC Regulation S-X, Rule 3-10, which require entities to separately present financial statements for subsidiary issuers and guarantors of registered debt securities unless certain exceptions are met. The amended rule allows entities to provide summarized financial information of the parent company and its issuers and guarantors on a combined basis either in a note to the financial statements or as part of management’s discussion and analysis. ASU 2020-09 is effective for filings on or after January 4, 2021, with early adoption permitted. The adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements.
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt–Modifications and Extinguishments (Subtopic 470-50), Compensation–Stock Compensation (Topic 718), and Derivatives and Hedging–Contracts in Entity’s Own Equity (Subtopic 815-40). This ASU reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. This ASU provides guidance for a modification or an exchange of a freestanding equity-classified written call option that is not within the scope of another Topic. It specifically addresses: (1) how an entity should treat a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange; (2) how an entity should measure the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange; and (3) how an entity should recognize the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange. This ASU will be effective for all entities for fiscal years beginning after December 15, 2021. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the amendments. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the effect the adoption of this ASU will have on the condensed consolidated financial statements.
NOTE 3 — GOING CONCERN
The
accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course of business. As of July 31, 2021, the Company had cash
of approximately $
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U.S. GOLD CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2021
The unaudited consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset amounts or the classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
NOTE 4 — MINERAL RIGHTS
As of the date of these consolidated financial statements, the Company has not established any proven or probable reserves on its mineral properties and has incurred only acquisition costs and exploration costs.
As of the dates presented, mineral properties consisted of the following:
| July 31, 2021 | April 30, 2021 | |||||||
| CK Gold Project | $ | $ | ||||||
| Keystone Project | ||||||||
| Maggie Creek Project | ||||||||
| Challis Gold Project | ||||||||
| Total | $ | $ | ||||||
NOTE 5 — PROPERTY AND EQUIPMENT
As of the dates presented, property consisted of the following:
| July 31, 2021 | April 30, 2021 | |||||||
| Site costs | $ | $ | ||||||
| Computer equipment | ||||||||
| Vehicle | ||||||||
| Total | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
For
the three months ended July 30, 2021 and 2020, depreciation expense amounted to $
NOTE 6 — ASSET RETIREMENT OBLIGATION
In conjunction with various permit approvals permitting the Company to undergo exploration activities at the CK Gold, Keystone and Maggie Creek projects, the Company has recorded an ARO based upon the reclamation plans submitted in connection with the various permits. The following table summarizes activity in the Company’s ARO for the periods presented:
| July 31, 2021 | April 30, 2021 | |||||||
| Balance, beginning of period | $ | $ | ||||||
| Addition and changes in estimates | - | |||||||
| Accretion expense | ||||||||
| Balance, end of period | $ | $ | ||||||
For
the three months ended July 31, 2021 and 2020, accretion expense amounted to $
| 14 |
U.S. GOLD CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2021
NOTE 7 – OPERATING LEASE RIGHT-OF-USE ASSETS AND OPERATING LEASE LIABILITIES
On
May 1, 2021, the Company entered into a lease agreement for its lease facility in Cheyenne, Wyoming.
During
the three months ended July 31, 2021, lease expenses of $
Right-of- use assets are summarized below:
July 31, 2021 | April 30, 2021 | |||||||
| Operating lease | $ | $ | ||||||
Operating Lease liabilities are summarized below:
July 31, 2021 | April 30, 2021 | |||||||
| Operating lease, current portion | $ | $ | ||||||
| Operating lease, long term portion | - | |||||||
| Total lease liability | $ | $ | ||||||
The
weighted average remaining lease term for the operating lease is
The following table includes supplemental cash and non-cash information related to the Company’s lease:
| Three Months Ended July 31, | ||||||||
| 2021 | 2020 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities | ||||||||
| Operating cash flows from operating lease | $ | $ | ||||||
| Lease assets obtained in exchange for new operating lease liabilities | $ | $ | ||||||
Minimum lease payments under non-cancelable operating leases at July 31, 2021 are as follows:
| Year ended April 30, 2022 | ||||
| Year ended April 30, 2023 | ||||
| Total | $ | |||
| Less: imputed interest | ( | ) | ||
| Total present value of lease liability | $ |
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U.S. GOLD CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2021
NOTE 8 — RELATED PARTY TRANSACTIONS
On
April 16, 2019, the Company entered into a one-year consulting agreement with a director of the Company for providing services related
to investor and strategic introduction to potential industry partners. In consideration for these services, the consultant was paid $
On
March 19, 2021, the Company and Edward Karr, the Company’s former Executive Chairman, agreed by mutual understanding, that Mr.
Karr’s employment as an officer and employee, and his service as a member of the board of directors, of the Company was terminated,
effective March 19, 2021. In connection with Mr. Karr’s departure, the Company entered into a General Release and Severance Agreement
with Mr. Karr, as amended, pursuant to which Mr. Karr provided certain transition services to the Company through the Separation Date.
Pursuant to the Separation Agreement, Mr. Karr is entitled to receive any equity awards granted to Mr. Karr by the Company. Additionally,
on March 19, 2021, the Company entered into a one-year agreement (“March 2021 Agreement”) for general corporate advisory
services to be provided by Mr. Karr for an annual fee of $
NOTE 9 — STOCKHOLDERS’ EQUITY
As of July 31, 2021, authorized capital stock consisted of shares of common stock, par value $ per share, and shares of “blank check” preferred stock, par value $ per share, of which shares are designated as Series A Convertible Preferred Stock, shares are designated as Series B Convertible Preferred Stock, shares are designated as Series C Convertible Preferred Stock, shares are designated as Series D Convertible Preferred Stock, shares are designated as Series E Convertible Preferred Stock, shares are designated as Series F Preferred Stock, shares are designated as Series G Preferred Stock, shares are designated as Series H Preferred Stock, and shares are designated as Series I Preferred Stock. The Company’s Board has the authority, without further action by the stockholders, to issue shares of preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions granted to or imposed upon the preferred stock.
Common Stock Issued, Restricted Stock Awards, and RSU’s Granted for Services
On
June 1, 2021, the Company granted RSU’s to a consultant for consulting services rendered. The RSU’s had a fair
value of $
On
June 9, 2021, the Company issued shares of common stock to a consultant in connection with an investor relations agreement for
services to be rendered from April 2021 to April 2022. The shares of common stock had a fair value of $
On
July 19, 2021, the Company granted RSU’s to an employee pursuant to his employment agreement. The RSU’s had
a fair value of $
Total stock compensation expense for awards issued for services of $ and $ was expensed for the three months ended July 31, 2021 and 2020, respectively. A balance of $ remains to be expensed over future vesting periods related to unvested restricted stock units issued for services.
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U.S. GOLD CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2021
Equity Incentive Plan
In August 2017, the Board approved the Company’s 2017 Plan including the reservation of shares of common stock thereunder.
On August 6, 2019, the Board approved and adopted, subject to stockholder approval, the 2020 Plan. The 2020 Plan reserves shares for future issuance to officers, directors, employees and contractors as directed from time to time by the Compensation Committee of the Board. The 2020 Plan was approved by a vote of stockholders at the 2019 annual meeting. With the approval and effectivity of the 2020 Plan, no further grants will be made under the 2017 Plan. On August 31, 2020, the Board approved and adopted, subject to stockholder approval, an amendment (the “2020 Plan Amendment”) to the 2020 Plan. The 2020 Plan Amendment increased the number of shares of common stock available for issuance pursuant to awards under the 2020 Plan by an additional , to a total of shares of the Company’s common stock. The 2020 Plan Amendment was approved by the Company’s stockholders on November 9, 2020.
Stock options
| Number of Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (Years) | ||||||||||
| Balance at April 30, 2021 | $ | |||||||||||
| Granted | — | |||||||||||
| Exercised | — | |||||||||||
| Forfeited | — | |||||||||||
| Cancelled | — | |||||||||||
| Balance at July 31, 2021 | ||||||||||||
| Options exercisable at end of period | $ | |||||||||||
| Options expected to vest | $ | |||||||||||
| Weighted average fair value of options granted during the period | $ | |||||||||||
At July 31, 2021 and April 30, 2021, the aggregate intrinsic value of options outstanding and exercisable were de minimis for each period.
Stock-based compensation for stock options recorded in the unaudited consolidated statements of operations totaled $ and $ for the three months ended July 31, 2021 and 2020, respectively. There were no unvested options remaining.
Stock Warrants
A summary of the Company’s outstanding warrants to purchase shares of common stock as of July 31, 2021 and changes during the period ended as presented below:
| 17 |
U.S. GOLD CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2021
| Number of Warrants | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (Years) | ||||||||||
| Warrants with no Class designation: | ||||||||||||
| Balance at April 30, 2021 | $ | |||||||||||
| Granted | — | |||||||||||
| Exercised | — | |||||||||||
| Forfeited | ( | ) | — | |||||||||
| Canceled | — | |||||||||||
| Balance at July 31, 2021 | ||||||||||||
| Class A Warrants: | ||||||||||||
| Balance at April 30, 2021 | ||||||||||||
| Granted | — | |||||||||||
| Exercised | — | |||||||||||
| Forfeited | — | |||||||||||
| Canceled | — | |||||||||||
| Balance at July 31, 2021 | ||||||||||||
| Total Warrants Outstanding at July 31, 2021 | $ | |||||||||||
| Warrants exercisable at end of period | $ | |||||||||||
| Weighted average fair value of warrants granted during the period | $ | |||||||||||
As of July 31, 2021, the aggregate intrinsic value of warrants outstanding and exercisable was $.
Net loss per share of common stock is calculated in accordance with ASC 260, “Earnings Per Share”. Basic loss per share is computed by dividing net loss available to common stockholder, by the weighted average number of shares of common stock outstanding during the period. The following were excluded from the computation of diluted shares outstanding as they would have had an anti-dilutive impact on the Company’s net loss. In periods where the Company has a net loss, all dilutive securities are excluded.
| July 31, 2021 | July 31, 2020 | |||||||
| Common stock equivalents: | ||||||||
| Restricted stock units | ||||||||
| Stock options | ||||||||
| Stock warrants | ||||||||
| Total | ||||||||
NOTE 11 — COMMITMENTS AND CONTINGENCIES
Mining Leases
The CK Gold property position consists of two State of Wyoming Metallic and Non-metallic Rocks and Minerals Mining Leases. These leases were assigned to the Company in July 2014 through the acquisition of the CK Gold Project. Leases to explore for or use of natural resources are outside the scope of ASU 2016-02 “Leases”. There are no lease contracts for office space or other Company expenses which qualify for treatment as capital assets under ASU 2016-02.
The
Company’s rights to the CK Gold Project arise under two State of Wyoming mineral leases; 1) State of Wyoming Mining Lease No. 0-40828,
consisting of
Lease
0-40828 was renewed in for a second -year term and Lease 0-40858 was renewed for its second -year term in . Each lease requires an annual payment of $
| FOB Mine Value per Ton | Percentage Royalty | |||
| $ | % | |||
| $ | % | |||
| $ | % | |||
| $ | % | |||
| 18 |
U.S. GOLD CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2021
The future minimum lease payments at July 31, 2021 under these mining leases are as follows, each payment to be made in the fourth quarter of the respective fiscal years:
| Fiscal 2022 | $ | |||
| Fiscal 2023 | ||||
| Fiscal 2024 | ||||
| $ |
The
Company may renew each lease for a third ten-year term, which will require one annual payment of $
Maggie Creek option:
The Maggie Creek option agreement grants the Company the exclusive right and option to earn-in and acquire up to 50% undivided interest in a property called Maggie Creek, located in Eureka County, Nevada by completing the Initial Earn-in over a seven-year period, as amended:
| First agreement year | $ | |||
| Second agreement year | ||||
| Third agreement year | ||||
| Fourth agreement year | ||||
| Fifth agreement year | ||||
| Sixth agreement year | ||||
| Seventh agreement year | ||||
| $ |
Once
the Initial Earn-in has been met, the Company is required to pay an additional $
NPRC option:
Pursuant to the Merger, the Company acquired from NPRC a mineral property called Challis Gold located in Idaho pursuant to an option agreement dated in February 2020 which was later amended in June 2020.
The annual advance minimum royalty payments at April 30, 2021 under the option agreement are as follows, each payment to be made in the beginning on the first anniversary of the effective date of this option agreement and continuing until the tenth anniversary:
| Fiscal 2022 | $ | |||
| Fiscal 2023 | ||||
| Fiscal 2024 | ||||
| Fiscal 2025 | ||||
| Fiscal 2026 and thereafter | ||||
| $ |
Legal Matters
From time to time the Company may be involved in claims and legal actions that arise in the ordinary course of business. To the Company’s knowledge, there are no material pending legal proceedings to which the Company is a party or of which any of the Company’s property is the subject.
NOTE 12 — SUBSEQUENT EVENTS
Exploration Access and Option to Lease Agreement
On
August 25, 2021 (“Effective Date”), the Company entered into an Exploration Access and Option to Lease Agreement (the “Agreement”)
with a private-party landowner (the “Landowner”) whereby the Landowner granted the Company an option (the “Option”)
to lease and right of way on a property located in Laramie County, Wyoming. The Company may exercise the Option for five years (“Option
Term”) from the Effective Date. During the Option, the Landowner granted non-exclusive rights (the “Exploration Access Rights”)
to the Company to use the surface of the property for an annual exploration and access right payment of $
| 19 |
U.S. GOLD CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2021
At
any time during the Option Term, the Company may exercise the Option by providing a written notice to the Landowner and the Company shall
pay a one-time right of way payment of $
In
consideration for the option rights, lease rights and right of way rights under this Agreement, the Company agreed to grant the Landowner
shares of the Company’s common stock worth $
At any time during the Option Term, the Company may terminate this Agreement by providing a written notice to the Landowner. Upon termination, the Landowner is entitled to retain any payments already made and the Company shall have no further obligation after the date of termination. The Agreement, including the Option and the Exploration Access Rights, may be extended for a period of five years upon written notice from the Company. In the absence of such notice, the Agreement shall automatically terminate at the end of the Option Term.
| 20 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The interim unaudited condensed consolidated financial statements included herein have been prepared by U.S. Gold Corp. (the “Company”, “we”, “us”, or “our”) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “Commission”). Certain information and footnote disclosure normally included in interim unaudited consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which are duplicate to the disclosures in the audited consolidated financial statement have been omitted pursuant to such rules and regulations, although we believe that the disclosures are adequate to make the information presented not misleading. These interim unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto in the Form 10-K for the year ended April 30, 2021 filed with the Commission.
In the opinion of management, all adjustments have been made consisting of normal recurring adjustments and consolidating entries, necessary to present fairly the unaudited interim condensed consolidated financial position of us and our subsidiaries as of July 31, 2021, the results of our unaudited interim condensed consolidated statements of operations and changes in stockholders’ equity for the three months ended July 31, 2021 and 2020, and our unaudited interim condensed consolidated cash flows for the three months ended July 31, 2021 and 2020. The results of unaudited interim condensed consolidated operations for the interim periods are not necessarily indicative of the results for the full year.
The preparation of interim unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
Forward-Looking Statements
In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. See “Forward-Looking Statements.” Our results and the timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including the risk factors described in this report and in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended April 30, 2021.
Overview
U.S. Gold Corp., formerly known as Dataram Corporation (the “Company”), was originally incorporated in the State of New Jersey in 1967 and was subsequently re-incorporated under the laws of the State of Nevada in 2016. Effective June 26, 2017, the Company changed its legal name to U.S. Gold Corp. from Dataram Corporation. On May 23, 2017, the Company merged with Gold King Corp. (“Gold King”), in a transaction treated as a reverse acquisition and recapitalization, and the business of Gold King became the business of the Company. We are a gold and precious metals exploration company pursuing exploration and development properties. We own certain mining leases and other mineral rights comprising the CK Gold Project in Wyoming, the Keystone and Maggie Creek Projects in Nevada and the Challis Gold project in Idaho. None of our properties contain proven and probable reserves under SEC Industry Guide 7, and all of our activities on all of our properties are exploratory in nature.
On March 17, 2020, we filed a certificate of amendment to our Articles of Incorporation with the Secretary of State of Nevada in order to effectuate a reverse stock split of our issued and outstanding common stock per share on a one-for-ten basis, effective as of 5:00 p.m. (Eastern Time) on March 19, 2020. All share and per share values of our common stock for all periods presented in the accompanying consolidated financial statements are retroactively restated for the effect of the reverse stock splits.
Summary of Activities for the Three Months Ended July 31, 2021
During the three-months ended July 31, 2021, we focused primarily on moving our CK Gold Project in Wyoming towards a Pre-Feasibility study (PFS), planning the 2021 field season on our CK Gold Project, executing an exploration drill program on our Maggie Creek Project, working on the permitting process on our Challis Gold Project and strengthening our management team.
| 21 |
An overview of certain significant events follows:
| ● | On May 4, 2021, we announced plans to commence a Summer 2021 field season at our CK Gold Project. The program has been planned to fill any remaining gaps identified in the coming PFS which would lead to a Feasibility Study for the CK Gold Project, expected toward the end of 2021 or early 2022.
| |
| ● | On May 19, 2021, we received Bureau of Land Management (BLM) approval for an additional 50 acres of disturbance under our effective Plan of Operations (POO) for Keystone. We advanced the required reclamation bond. We also announced potential interest in the Keystone project from various industry partners for potential joint venture opportunities. Preliminary discussions regarding a potential joint venture on the property remain ongoing. |
| ● | On May 26, 2021, we announced that we contracted with a third-party to complete the permitting process for a Plan of Operations for drilling in the historic resource area of our Challis Gold Project. | |
| ● | On June 30, 2021, we announced the successful completion of our Maggie Creek 2021 contractual exploration program, drilling 2 holes for a total of 4,440 feet (1,353 meters). With these 2 holes, we satisfied our 2021 contractual exploration commitments at Maggie Creek and plan to review the results for future potential exploration programs. |
Recent Developments
Appointment of Vice President - Exploration and Technical Services
On July 19, 2021, Kevin Francis was appointed as our Vice President – Exploration and Technical Services, effective as of July 19, 2021.
COVID-19 Developments
In December 2019, a novel strain of coronavirus, COVID-19, was reported to have surfaced in Wuhan, China and has reached multiple other countries, resulting in government-imposed quarantines, travel restrictions and other public health safety measures in China and other countries. On March 12, 2020, the WHO declared COVID-19 to be a global pandemic, and the COVID-19 pandemic has resulted in significant financial market volatility and uncertainty. The ongoing COVID-19 pandemic has and may continue to adversely impact our business, as our operations are based in and rely on third parties located in areas affected by the pandemic.
We, or our people, investors, contractors or stakeholders, have been prevented from free cross-border travel or normal attendance to activities in conducting our business at trade shows, presentations, meetings or other activities meant to promote or execute our business strategy and transactions. We have been prevented from receiving goods or services from contractors. Decisions beyond our control, such as canceled events, restricted travel, barriers to entry or other factors have affected or may affect our ability to accomplish drilling programs, technical analysis of completed exploration actions, equity raising activities, and other needs that would normally be accomplished without such limitations. Furthermore, our exploration activities rely heavily on outside contracts and importation of specialized equipment. The COVID-19 pandemic has caused disruptions in travel and accessing our exploration properties with contractors. Although travel restrictions have been lifted at certain locations, there can be no assurance that travel and property access will resume fully in the near future.
Moreover, the COVID-19 pandemic has made and continues to make indeterminable adverse effects on general commercial activity and the world economy, and our business and results of operations could be adversely affected to the extent that COVID-19 or any other epidemic harms the global economy generally.
We do not yet know the full extent of potential delays or impact on our business, our relationship with our business partners, or the global economy as a whole. However, any one or a combination of these events could have an adverse effect on our other business operations. A continuation or worsening of the levels of market disruption and volatility seen in the recent past could have an adverse effect on our ability to access capital, on our business, results of operations and financial condition, and on the market price of our common stock.
Results of Operations
Three months ended July 31, 2021 compared to the three months ended July 31, 2020:
Net Revenues
We are an exploration stage company with no operations, and we generated no revenues for the three months ended July 31, 2021 and 2020.
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Operating Expenses
Total operating expenses for the three months ended July 31, 2021 as compared to the three months ended July 31, 2020, were approximately $3,550,000 and $957,000, respectively. The approximate $2,593,000 increase in operating expenses for the three months ended July 31, 2021 as compared to the three months ended July 31, 2020, is comprised of (i) an increase in compensation of approximately $196,000 primarily due to increase in compensation related to stock-based compensation from restricted stock unit grants to our two officers and one employee and the hiring of additional executive management in August 2020 and September 2020 (ii) an increase of approximately $1,757,000 increase in exploration expenses on our mineral properties due to an increase in exploration activities in our CK Gold property and also at our Maggie Creek property, (iii) an increase in professional and consulting fees of approximately $525,000 primarily due to increases in stock-based consulting fees of approximately $107,000 and general strategic, investor relations and permitting consulting services of $517,000, offset by decrease in legal fees of $86,000 and director fees of $13,000 (iv) an increase in general and administrative expenses of approximately $114,000 due primarily to increases related to insurance, travel, and advertising expenses.
Loss from Operations
We reported loss from operations of approximately $3,550,000 and $957,000 for the three months ended July 31, 2021 and 2020, respectively.
Net Loss
We reported a net loss of approximately $3.5 million for the three months ended July 31, 2021 as compared to a net loss of $957,000 for the three months ended July 31, 2020.
Liquidity and Capital Resources
The following table summarizes total current assets, liabilities and working capital at July 31, 2021 compared to April 30, 2021, and the increase between those periods:
| July 31, 2021 | April 30, 2021 | Increase (decrease) | ||||||||||
| Current Assets | $ | 11,607,061 | $ | 14,075,765 | $ | (2,468,704 | ) | |||||
| Current Liabilities | $ | 1,332,143 | $ | 619,038 | $ | 713,105 | ||||||
| Working Capital | $ | 10,274,918 | $ | 13,456,727 | $ | (3,181,809 | ) | |||||
As of July 31, 2021, we had working capital of $10,274,918, as compared to working capital of $13,456,727 as of April 30, 2021, a decrease of $3,181,809.
We are obligated to file annual, quarterly and current reports with the Commission pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In addition, the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) and the rules subsequently implemented by the Commission and the Public Company Accounting Oversight Board have imposed various requirements on public companies, including requiring changes in corporate governance practices. We expect these rules and regulations to increase our legal and financial compliance costs and to make some activities of ours more time-consuming and costlier. We expect to spend between $175,000 and $225,000 in legal and accounting expenses annually to comply with our reporting obligations and Sarbanes-Oxley. These costs could affect profitability and our results of operations.
Our unaudited condensed consolidated financial statements are prepared using the accrual method of accounting in accordance with U.S. GAAP and have been prepared assuming that we will continue as a going concern, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. For the three months ended July 31, 2021 and 2020, we incurred losses in the amounts of approximately $3.5 million and $957,000, respectively. As of July 31, 2021, we had cash of approximately $10.8 million, working capital of approximately $10.3 million, and an accumulated deficit of approximately $47.5 million. As a result of the utilization of cash in its operating activities, and the development of its assets, we have incurred losses since we commenced operations. Our primary source of operating funds since inception has been equity financings. As of July 31, 2021, we had sufficient cash to fund its operations for approximately 6 to 9 months and expected that we will be required to raise additional funds to fund our operations thereafter. These matters raise substantial doubt about our ability to continue as a going concern for the twelve months following the issuance of these financial statements.
We have based this estimate on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. Our future capital requirements will depend on many factors, including potential acquisitions, changes in exploration programs and related studies and other operating strategies. In addition, we continue to assess the impact of the COVID-19 pandemic, which may adversely affect our ability to obtain additional future capital. To the extent we require additional funding, we cannot be certain that additional funding will be available on acceptable terms, or at all. To the extent we raise additional funds by issuing equity securities, our stockholders may experience significant dilution. Any debt financing, if available, may involve restrictive covenants that impact our ability to conduct business. If unable to raise additional capital when required or on acceptable terms, we may have to delay, scale back or discontinue the exploration activities or programs.
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Cash Used in Operating Activities
Net cash used in operating activities totaled $2.9 million and $1.0 million for the three months ended July 31, 2021 and 2020, respectively. Net cash used in operating activities during the three months ended July 31, 2021 primarily increase due to increase in net loss, increase in stock-based compensation expenses and increase in net changes in accounts payable and accrued liabilities as compared to the three months ended July 31, 2020. Net loss for the three months ended July 31, 2021 and 2020 totaled approximately $3.5 million and $957,000, respectively. Additionally, we expensed approximately $324,000 in stock-based compensation for shares and restricted common stock units issued to employees and consultants during the three months ended July 31, 2021 compared to approximately $71,000 during the three months ended July 31, 2020. Net changes of approximately $340,000 in operating assets and liabilities are primarily due to net increases in prepaid expenses and other assets of approximately $237,000, reclamation of bond deposits of approximately $114,000, and increase of approximately $695,000 in accounts payable to trade vendors.
Cash Provided by Investing Activities
Net cash used in investing activities totaled approximately $3,800 for the three months ended July 31, 2021, as compared to $0 primarily due to purchase of property and equipment.
Off-Balance Sheet Arrangements
As of July 31, 2021, we did not have, and do not have any present plans to implement, any off-balance sheet arrangements.
Recently Issued Accounting Pronouncements
See Note 2, Summary of Significant Accounting Policies, to the unaudited condensed consolidated financial statements for a summary of recently issued accounting pronouncements.
Critical Accounting Policies
There have been no changes to our critical accounting policies during the three months ended July 31, 2021. Critical accounting policies and the significant accounting estimates made in according with such policies are regularly discussed with the Audit Committee of the Company’s board of directors. Those policies are discussed under “Critical Accounting Policies” in our “Management’s Discussion and Analysis of the Financial Condition and Results of Operations” included in Item 7, as well as Note 2 to our consolidated financial statements thereto, included in our Annual Report on Form 10-K, filed with the Commission on July 29, 2021.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, we are not required to include disclosure under this item.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
At the end of the period covered by this Quarterly Report, an evaluation was carried out under the supervision of, and with the participation of, the Company’s management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a–15(e) and Rule 15d–15(e) of the Exchange Act). Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that as of the end of the period covered by this Quarterly Report, the Company’s disclosure controls and procedures were not effective in ensuring that information required to be disclosed by the Company in its reports that it files or submits to the SEC under the Exchange Act, is recorded, processed, summarized and reported within the time period specified in applicable rules and forms.
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While present in the Company’s design of internal controls, the Company’s internal controls over financial reporting and disclosure are not written; however, the operation of many controls are in place and are applied on a consistent basis. Company personnel perform controls standard to: 1) approve all Company expenditures, 2) approve and sign contractual obligations, 3) reconcile bank accounts and other general ledger accounts, and 4) many other similar rudimentary controls applied as best practice. However, management has concluded that due to the Company’s small size and limited personnel available to perform control functions, the Company is precluded from applying adequate segregation of duties in financial transactions. These are material weaknesses common to companies of similar size and staffing in the Company’s industry. The Company expects these material weakness conditions to continue for the foreseeable future, or until significant Company growth results in additional personnel to perform financial functions.
Changes in Internal Control Over Financial Reporting
During the three months ended July 31, 2021, management determined that the delay of its program for compliance with the Sarbanes-Oxley Act of 2002 and the 2013 COSO Framework continued to be necessary to conserve cash in the Company’s current financial condition. There have been no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting; however, management has determined that for the sake of transparency and conservancy, it cannot state that internal controls over financial reporting are effective at this time.
PART II: OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
From time to time we may be involved in claims and legal actions that arise in the ordinary course of business. To our knowledge, there are no material pending legal proceedings to which we are a party or of which any of our property is the subject.
Item 1A. RISK FACTORS.
As a smaller reporting company, we are not required to include disclosure under this item.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Other than set forth below, there were no sales of unregistered securities during the quarter ended July 31, 2021 that were not previously reported on a Current Report on Form 8-K.
On June 9, 2021, the Company issued 25,000 shares of common stock to a consultant in connection with an investor relations agreement for services to be rendered from April 2021 to April 2022. The 25,000 shares of common stock had a fair value of $258,500, or $10.34 per share, based on the quoted trading price on the date of grant, to be amortized over the term of the consulting agreement. The issuance of the shares of common stock to the directors was not registered under the Securities Act of 1933, as amended (the “Securities Act”), or the securities laws of any state, and the shares of the common stock were issued in reliance on the exemption from registration under the Securities Act pursuant to Section 4(a)(2) of the Securities Act.
Item 3. DEFAULTS UPON SENIOR SECURITIES.
None.
Item 4. MINE SAFETY DISCLOSURES
Pursuant to Section 1503(a) of the Dodd-Frank Act, issuers that are operators, or that have a subsidiary that is an operator, of a coal or other mine in the United States are required to disclose specified information about mine health and safety in their periodic reports. These reporting requirements are based on the safety and health requirements applicable to mines under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”) which is administered by the U.S. Department of Labor’s Mine Safety and Health Administration (“MSHA”). During the three months ended July 31, 2021, the Company and its properties or operations were not subject to regulation by MSHA under the Mine Act and thus no disclosure is required under Section 1503(a) of the Dodd-Frank Act.
Item 5. OTHER INFORMATION.
None.
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Item 6. EXHIBITS.
EXHIBIT INDEX
| 101.INS | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
* Furnished herewith
(1) Management Contract or Compensatory Plan or Arrangement
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| U.S. GOLD CORP. | ||
| Date: September 13, 2021 | By: | /s/ George M. Bee |
| George M. Bee | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: September 13, 2021 | By: | /s/ Eric Alexander |
Eric Alexander Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) | ||
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