NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2018 AND 2017
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 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. The financial statements are those of Gold King (the accounting acquirer) prior to the merger and include
the activity of Dataram Corporation (the legal acquirer) from the date of the merger. Gold King is a gold and precious metals
exploration company pursuing exploration and development opportunities primarily in Nevada and Wyoming. None of the Company’s
properties contain proven and probable reserves and all of the Company’s activities on all of its properties are exploratory
in nature.
On
July 6, 2016, the Company filed a certificate of amendment to its Articles of Incorporation with the Secretary of State of Nevada
in order to effectuate a reverse stock split of the Company’s issued and outstanding common stock per share on a one for
three basis, effective on July 8, 2016. Subsequently, on May 3, 2017, the Company filed another certificate of amendment to its
Articles of Incorporation, as amended, with the Secretary of State of the State of Nevada in order to effectuate a reverse stock
split of the Company’s issued and outstanding common stock on a one for four basis. All share and per share values of the
Company’s common stock for all periods presented in the accompanying condensed consolidated financial statements are retroactively
restated for the effect of the reverse stock splits.
Recent
developments - Acquisition and Disposition
On
June 13, 2016, Gold King, a private Nevada corporation, entered into an Agreement and Plan of Merger (the “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 (the “Gold King Shareholders”). Upon closing of the
transactions contemplated under the Merger Agreement (the “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.
On
May 23, 2017, the Company closed the Merger with Gold King. The Merger constituted a change of control, the majority of the Board
of Directors changed with the consummation of the Merger. The Company issued shares of common stock to Gold King which represented
approximately 90% of the combined company.
On
July 31, 2017, the Company’s Board of Directors, or Board, reviewed and approved the recommendation of management to consider
strategic options for Dataram Corporation’s legacy business (“Dataram Memory”) including the sale of the legacy
business. Upon board approval, the legacy business activities were re-classed and reported as part of “discontinued operations”
on the condensed consolidated statements of operations and assets and liabilities were reflected on the condensed consolidated
balance sheets as “held for sale”.
On
October 13, 2017, the Company sold the Dataram Memory business for a purchase price of $900,000 (see Note 7).
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation and Liquidity
The
accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America and the rules and regulations of the United States Securities and Exchange
Commission for interim financial information, which includes the unaudited condensed consolidated financial statements and present
the unaudited condensed consolidated financial statements of the Company and its wholly-owned subsidiaries as of October 31, 2018.
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, 2018, which are contained in the Form 10-K filed on July 30, 2018. The unaudited condensed
consolidated balance sheet as of April 30, 2018 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. The results for the interim period are not necessarily indicative of the results to be expected for the
year ending April 30, 2019.
As
reflected in the accompanying unaudited condensed consolidated financial statements, the Company had a net loss and used cash
in its operations of approximately $4.5 million and $3.6 million, respectively, for the six months ended October 31, 2018. Additionally,
the Company had an accumulated deficit of approximately $22.7 million at October 31, 2018. The Company consummated private placements
to several investors for the sale of the Company’s Series B Convertible Preferred Stock (“Series B Preferred Stock”)
and Series C Convertible Preferred Stock (“Series C Preferred Stock”) for aggregate net proceeds of approximately
$10.9 million between July 2016 and October 2016, received net proceeds from sale of the Company’s common stock of approximately
$2.6 million between July 2017 and October 2017 and completed a private placement for the sale of the Company’s Series E
Convertible Preferred Stock (“Series E Preferred Stock”) and warrants for aggregate net proceeds of approximately
$4.9 million in January 2018. There can be no assurance that the Company will be able to raise additional capital or if the terms
will be favorable.
Use
of Estimates and Assumptions
In
preparing the condensed 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 condensed 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, goodwill, stock-based compensation, the fair value of common stock
issued, asset retirement obligation and the valuation of deferred tax assets and liabilities.
Fair
Value of Financial Instruments
The
Company adopted Accounting Standards Codification (“ASC”) 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 accounting principles generally accepted in the United States of America
that 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.
The
carrying amounts reported in the unaudited condensed consolidated balance sheets for cash, prepaid expense and other current assets
– current, accounts payable, and accrued liabilities, approximate their estimated fair values based on the short-term maturity
of these instruments.
Goodwill
and other intangible assets
In
accordance with ASC 350-30-65, the Company assesses the impairment of identifiable intangibles whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. Factors the Company considers to be important which could trigger an
impairment review include the following:
|
1.
|
Significant
underperformance relative to expected historical or projected future operating results;
|
|
2.
|
Significant
changes in the manner of use of the acquired assets or the strategy for the overall business; and
|
|
3.
|
Significant
negative industry or economic trends.
|
When
the Company determines that the carrying value of intangibles may not be recoverable based upon the existence of one or more of
the above indicators of impairment and the carrying value of the asset cannot be recovered from projected undiscounted cash flows,
the Company records an impairment charge. The Company measures any impairment based on a projected discounted cash flow method
using a discount rate determined by management to be commensurate with the risk inherent in the current business model. Significant
management judgment is required in determining whether an indicator of impairment exists and in projecting cash flows.
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 ten years.
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. During the year ended April 30, 2018, the Company determined
that the carrying value of Goodwill (see Note 6) exceeded its fair value, which triggered an impairment analysis. The Company
recorded a goodwill impairment expense of $6,094,760 during the year ended April 30, 2018, nonrecurring level 3 fair value measurement.
No impairment of goodwill was recorded during the six months ended October 31, 2018.
Mineral
Rights
Costs
of lease, exploration, 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 are 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.
Share-Based
Compensation
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.
Accounting
for Warrants
The
Company classifies as equity any contracts that (i) require physical settlement or net-share settlement or (ii) gives 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) gives the counterparty a choice of net-cash
settlement or settlement in shares (physical settlement or net-share settlement).
The
Company assessed the classification of its common stock purchase warrants as of the date of each equity offering and determined
that such instruments met the criteria for equity classification, as the settlement terms indicate that the instruments are indexed
to the entity’s underlying stock.
Convertible
Preferred Stock
The
Company accounts for its convertible preferred stock under the provisions of ASC 480, “Distinguishing Liabilities from Equity”,
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.
Convertible
Instruments
The
Company bifurcates conversion options from their host instruments and account 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.
Asset
Retirement Obligations
Asset
retirement obligations (“ARO”), consisting primarily of estimated reclamation costs at the Company’s Copper
King and Keystone 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. Asset retirement
obligations 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 asset retirement obligations annually
or more frequently at interim periods if deemed necessary.
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 related to Accounting for Uncertain Income Tax Positions. 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.
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 IRS and state taxing authorities, generally for three years after they are filed.
The
Tax Cuts and Jobs Act (the “Act”) was enacted in December 2017. Among other things, the Act reduced the U.S. federal
corporate tax rate from 34 percent to 21 percent as of January 1, 2018 and eliminated the alternative minimum tax (“AMT”)
for corporations. Since the deferred tax assets are expected to reverse in a future year, it has been tax effected using the 21%
federal corporate tax rate. As a result of the reduction in the corporate tax rate, the Company decreased its gross deferred tax
assets by approximately $2.1 million which was offset by a corresponding decrease to the valuation allowance as of April 30, 2018,
which had no impact on the Company’s consolidated financial statements for the year ended April 30, 2018. The Company will
continue to analyze the Tax Act to assess its full effects on the Company’s financial results, including disclosures, for
the Company’s fiscal year ending April 30, 2019, but the Company does not expect the Tax Act to have a material impact on
the Company’s unaudited condensed consolidated financial statements.
On
December 22, 2017, the Securities and Exchange Commission issued Staff Accounting Bulletin 118, which allows a measurement period,
not to exceed one year, to finalize the accounting for the income tax effects of the Act. Until the accounting for the income
tax effects of the Act is complete, the reported amounts are based on reasonable estimates, are disclosed as provisional and reflect
any adjustments in subsequent periods as estimates are refined or the accounting of the tax effects are completed.
Recent
Accounting Pronouncements
In
June 2018, the FASB issued ASU 2018-07, “Compensation — Stock Compensation (Topic 718): Improvements to Nonemployee
Share-Based Payment Accounting”, which expands the scope of Topic 718 to include all share-based payment transactions for
acquiring goods and services from nonemployees. ASU 2018-07 specifies that Topic 718 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 our 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 impact on the Company’s unaudited condensed
consolidated financial statements and related disclosures.
Other
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 impact on the financial statements upon adoption. The Company does not discuss recent pronouncements that are
not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.
NOTE
3 — GOING CONCERN
The
accompanying 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. The Company has incurred significant operating
losses since its inception. As of October 31, 2018, the Company had cash of approximately $4.1 million, working capital of approximately
$4.1 million, an accumulated deficit of approximately $22.7 million, and cash used in operating activities of approximately $3.6
million. As a result of the utilization of cash in its operating activities, and the development of its assets, the Company has
incurred losses since it commenced operations. The Company’s primary source of operating funds since inception has been
equity financings. These matters raise substantial doubt about the Company’s ability to continue as a going concern for
the twelve months following the issuance of these financial statements.
The
condensed 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
Copper
King Project
The
mineral properties consist of the Copper King gold and copper development project located in the Silver Crown Mining District
of southeast Wyoming (the “Copper King Project”). On July 2, 2014, the Company entered into an Asset Purchase Agreement
whereby the Company acquired certain mining leases and other mineral rights comprising the Copper King project. The purchase price
was (a) cash payment in the amount of $1.5 million and (b) closing shares calculated at 50% of the issued and outstanding shares
of the Company’s common stock and valued at $1.5 million.
In
accordance with ASC 360-10, “Property, Plant, and Equipment”, assets are recognized based on their cost to the acquiring
entity, which generally includes the transaction costs of the asset acquisition. Accordingly, the Company recorded a total cost
of the acquired mineral properties of $3,091,738 which includes the purchase price ($3,000,000) and related transaction cost.
Keystone
Project
The
Company, through its wholly-owned subsidiary, U.S. Gold Acquisition Corp., acquired the mining claims comprising the Keystone
Project on May 27, 2016 from Nevada Gold Ventures, LLC (“Nevada Gold”) and Americas Gold Exploration, Inc. under the
terms of a Purchase and Sale Agreement. At the time of purchase, the Keystone Project consisted of 284 unpatented lode mining
claims situated in Eureka County, Nevada. The purchase price for the Keystone Project consisted of the following: (a) cash payment
in the amount of $250,000, (b) the closing shares which is equivalent to 462,500 shares of the Company’s common stock and
(c) an aggregate of 231,458 five-year options to purchase shares of the Company’s common stock at an exercise price of $3.60
per share.
The
Company valued the common shares at the fair value of $555,000 or $1.20 per common share based on the contemporaneous sale of
its preferred stock in a private placement at $0.10 per common share. The options were valued at $184,968. The options shall vest
over a period of two years whereby 1/24 of the options shall vest and become exercisable each month for the next 24 months. The
options are non-forfeitable and are not subject to obligations or service requirements.
Accordingly,
the Company recorded a total cost of the acquired mineral properties of $1,028,885 which includes the purchase price ($989,968)
and related transaction cost ($38,917). Some of the Keystone Project claims are subject to pre-existing net smelter royalty (“NSR”)
obligations. In addition, under the terms of the Purchase and Sale Agreement, Nevada Gold retained additional NSR rights of 0.5%
with regard to certain claims and 3.5% with regard to certain other claims. Under the terms of the Purchase and Sale Agreement,
the Company may buy down one percent (1%) of the royalty from Nevada Gold at any time through the fifth anniversary of the closing
date for $2,000,000. In addition, the Company may buy down an additional one percent (1%) of the royalty anytime through the eighth
anniversary of the closing date for $5,000,000.
In
August 2017, the Company closed on a transaction under a purchase and sale agreement executed in June 2017 with Nevada Gold and
the Company’s wholly-owned subsidiary, U.S. Gold Acquisition Corporation, a Nevada corporation, pursuant to which Nevada
Gold sold and U.S. Gold Acquisition Corporation purchased all right, title and interest in the Gold Bar North Property, a gold
development project located in Eureka County, Nevada. The purchase price for the Gold Bar North Property was: (a) cash payment
in the amount of $20,479 which was paid in August 2017 and (b) 15,000 shares of common stock of the Company which were issued
in August 2017 valued at $35,850. Mr. David Mathewson, the Company’s Chief Geologist, is a member of Nevada Gold.
As
of the date of these condensed 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.
Mineral
properties consisted of the following:
|
|
October
31, 2018
|
|
|
April
30, 2018
|
|
|
|
(unaudited)
|
|
|
|
|
Copper King project
|
|
$
|
3,091,738
|
|
|
$
|
3,091,738
|
|
Keystone project
|
|
|
1,028,885
|
|
|
|
1,028,885
|
|
Gold Bar North
project
|
|
|
56,329
|
|
|
|
56,329
|
|
Total
|
|
$
|
4,176,952
|
|
|
$
|
4,176,952
|
|
NOTE
5 — PROPERTY
Property
consisted of the following:
|
|
October
31, 2018
|
|
|
April
30, 2018
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Site costs
|
|
$
|
81,885
|
|
|
$
|
-
|
|
Less: accumulated
depreciation
|
|
|
(2,826
|
)
|
|
|
-
|
|
Total
|
|
$
|
79,059
|
|
|
$
|
-
|
|
For
the six months ended October 31, 2018 and 2017, depreciation expense amounted to $2,826 and $0, respectively.
NOTE
6 — ASSET RETIREMENT OBLIGATION
In
conjunction with various permit approvals permitting the Company to undergo exploration activities at the Copper King project
and Keystone project, the Company has recorded an asset retirement obligation based upon the reclamation plans submitted in connection
with the various permits.
The
following table summarizes activity in the Company’s ARO:
|
|
October
31, 2018
|
|
|
April
30, 2018
|
|
|
|
(unaudited)
|
|
|
|
|
Balance, beginning of period
|
|
$
|
-
|
|
|
$
|
-
|
|
Addition and changes in
estimates
|
|
|
81,884
|
|
|
|
-
|
|
Accretion expense
|
|
|
2,721
|
|
|
|
-
|
|
Balance, end of period
|
|
$
|
84,605
|
|
|
$
|
-
|
|
NOTE
7 — ACQUISITION AND DISPOSITION
On
May 23, 2017, the Company closed the Merger with Gold King. Pursuant to the terms of the Merger Agreement and as consideration
for the acquisition of Gold King, on the closing date, 2,446,433 shares of the Company’s common stock, par value $0.001
per share, were issued to holders of Gold King’s common stock, Series A Preferred Stock, Series B Preferred Stock and certain
incoming officers. In addition, 45,000.18 shares of the Company’s newly designated Series C Preferred Stock, par value $0.001
per share, convertible into an aggregate of 4,500,180 shares of the Company’s common stock were issued to Copper King LLC,
45,500.18 shares of Series C Preferred Stock were issued to Copper King LLC upon closing, 4,500.01 shares of Series C Preferred
Stock were to be held in escrow pursuant to the terms of an escrow agreement and 4,523,589 shares of the Company’s common
stock and warrants to purchase up to 452,359 shares of the Company’s common stock were issued to the holders of Gold King’s
Series C Preferred Stock. Additionally, 231,458 of the Company’s stock options were issued to the holders of Gold King’s
outstanding stock options issued in connection with the closing of the acquisition of the Keystone Project.
As
a result of the Merger, for financial statement reporting purposes, the business combination between the Company and Gold King
has been treated as a reverse acquisition and recapitalization with Gold King deemed the accounting acquirer and the Company deemed
the accounting acquiree under the acquisition method of accounting in accordance with FASB Accounting Standards Codification (“ASC”)
Section 805-10-55. At the time of the Merger, both the Company and Gold King have their own separate operating segments. Accordingly,
the assets and liabilities and the historical operations that are reflected in the consolidated financial statements after the
Merger are those of the Gold King and are recorded at the historical cost basis of the Company. The acquisition process utilizes
the capital structure of the Company and the assets and liabilities of Gold King which are recorded at historical cost.
The
Company’s assets and liabilities were recorded at their fair values as of the date of the Merger and the results of operations
of the Company are consolidated with results of operations of Gold King starting on the date of the Merger. The Company is deemed
to have issued 1,204,667 shares of common stock which represents the outstanding common stock of the Company prior to the closing
of the Merger. The Company accounted for the value under ASC 805-50-30-2 “Business Combinations” whereby if the consideration
is not in the form of cash, the measurement is based on either the cost which shall be measured based on the fair value of the
consideration given or the fair value of the assets (or net assets) acquired, whichever is more clearly evident and thus more
reliably measurable. The Company deemed that the fair value of the consideration given was $4.70 per share based on the quoted
trading price on the date of the Merger amounting to $5,661,935 which is a more reliable measurement basis. The estimated fair
values of assets acquired and liabilities assumed are provisional and are based on the information that was available as of the
acquisition date to estimate the fair value of assets acquired and liabilities assumed. The Company believes that information
provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed.
As
a result of the reverse merger, the total purchase consideration exceeded the net assets acquired. The Company recorded $6,094,760
of goodwill at the time of the merger. None of the goodwill recognized is expected to be deductible for income tax purposes. The
following table summarizes the consideration paid and the amounts of the assets acquired and liabilities assumed recognized at
the acquisition date:
The
net purchase price paid by the Company was allocated to assets acquired and liabilities assumed on the records of the Company
as follows:
Current assets (including
cash of $255,555)
|
|
$
|
3,063,059
|
|
Other assets
|
|
|
45,984
|
|
Goodwill
|
|
|
6,094,760
|
|
|
|
|
|
|
Liabilities assumed
(including a note payable – credit line of $1,096,504)
|
|
|
(3,541,868
|
)
|
Net purchase price
|
|
$
|
5,661,935
|
|
During
the year ended April 30, 2018, the Company recorded an impairment loss of $6,094,760 as the Company determined that the carrying
value of the goodwill is not recoverable. The Company has determined that if the business combination would have occurred on the
first day of the reporting period there would not have been a material change to the continuing operations of the financial statements
presented.
In
June 2017, subsequent to the Merger, the Company decided to discontinue its memory product business. The Company sold the Dataram
Memory business on October 13, 2017 for a purchase price of $900,000. The Company will focus its activities on its gold and precious
metal exploration business. During the year ended April 30, 2018, the Company has received net proceeds from the sale of Dataram
Memory business of $326,404 after payment of fees related to the sale such as legal and commission expenses and other liabilities
assumed.
During
the year ended April 30, 2018, the Company recognized a gain on extinguishment of liabilities of $248,684 which is included in
the loss from discontinued operations as the Company has settled the distribution payable to the former Dataram Memory shareholders
at an amount less than the liability originally recorded at the time of acquisition. Additionally, during the year ended April
30, 2018, the Company recognized gain from sale of discontinued operations of $94,485 related to the sale of the Dataram Memory
business on October 13, 2017.
Credit
Facility
The
Company had a financing agreement (the “Financing Agreement”) with Rosenthal & Rosenthal, Inc. that provides for
a revolving loan with a maximum borrowing capacity of $3,500,000. The Financing Agreement renewal date was August 31, 2017 and
will renew from year to year unless such Financing Agreement is terminated as set forth in the loan agreement. The amount outstanding
under the Financing Agreement bore interest at a rate of the Prime Rate (as defined in the Financing Agreement) plus 3.25% (the
“Effective Rate”) or on Over-advances (as defined in the Financing Agreement), if any, at a rate of the Effective
Rate plus 3%. The Financing Agreement contained other financial and restrictive covenants, including, among others, covenants
limiting the Company’s ability to incur indebtedness, guarantee obligations, sell assets, make loans, enter into mergers
and acquisition transactions and declare or make dividends. Borrowings under the Financing Agreement are collateralized by substantially
all the assets of the Company. The Financing Agreement provided for advances against eligible accounts receivable and inventory
balances based on prescribed formulas of raw materials and finished goods. On October 13, 2017, upon the sale of the Dataram Memory
business, the buyer assumed the obligation under this Financing Agreement, therefore, liabilities related to this financing agreement
was $0 as of April 30, 2018.
The
following table sets forth for the year ended April 30, 2018, indicated selected financial data of the Company’s discontinued
operations of its memory product business from the date of merger to April 30, 2018.
|
|
April
30, 2018
|
|
Revenues
|
|
$
|
7,885,310
|
|
Cost of sales
|
|
|
6,653,363
|
|
Gross profit
|
|
|
1,231,947
|
|
Operating and other non-operating expenses
(including impairment charge of 6,094,760)
|
|
|
(7,406,271
|
)
|
Gain from extinguishment
of liabilities
|
|
|
248,684
|
|
Loss from discontinued operations
|
|
|
(5,925,640
|
)
|
Gain from sale
of discontinued operations
|
|
|
94,485
|
|
|
|
|
|
|
Total loss from
discontinued operations
|
|
$
|
(5,831,155
|
)
|
The
following table sets forth for the year ended April 30, 2018, indicated selected financial data of the Company’s gain from
sale of the Dataram Memory business.
Total consideration
|
|
$
|
900,000
|
|
Direct legal and sales commission expenses
related to the sale
|
|
|
(201,510
|
)
|
Dataram’s accrued expenses to
be deducted from the sales proceeds
|
|
|
(174,880
|
)
|
Total carrying
value of Dataram Memory business on date of sale *
|
|
|
(429,125
|
)
|
Net gain from
sale of Dataram Memory business
|
|
$
|
94,485
|
|
Current assets
|
|
$
|
3,271,426
|
|
Other assets
|
|
|
33,320
|
|
Current liabilities
|
|
|
(2,866,660
|
)
|
Liabilities –
long term
|
|
|
(8,961
|
)
|
* Total carrying
value of Dataram Memory business on date of sale
|
|
$
|
429,125
|
|
NOTE
8 — RELATED PARTY TRANSACTIONS
Accounts
payable to related party as of October 31, 2018 and April 30, 2018 was $2,431, and $2,431 respectively and was reflected as accounts
payable – related party in the accompanying unaudited condensed consolidated balance sheets. The related party is the managing
partner of Copper King LLC who was a principal stockholder of Gold King.
NOTE
9 — STOCKHOLDERS’ EQUITY
2017
Equity Incentive Plan
In
August 2017, the Company’s Board of Directors approved the Company’s 2017 Equity Incentive Plan (the “Plan”)
including the reservation of 1,650,000 shares of common stock thereunder.
On
January 1st of each year during the term of the Plan (the “Calculation Date”), the aggregate number of shares of Common
Stock that are available for issuance shall automatically be increased by such number of shares as is equal to the number of shares
sufficient to cause the Share Limit (as defined in the Plan) to equal twenty percent (20%) of the issued and outstanding Common
Stock of the Company at such time, provided, however, that if on any Calculation Date the number of shares equal twenty percent
(20%) of our total issued and outstanding Common Stock is less than the number of shares of Common Stock available for issuance
under the Plan, no change will be made to the aggregate number of shares of Common Stock issuable under the Plan for that year
(such that the aggregate number of shares of Common Stock available for issuance under the Plan will never decrease).
Common
Stock
In
May 2017, in connection with the Merger (see Note 7), the Company issued 37,879 shares of the Company’s common stock having
a fair value of $100,000 to the Chief Geologist for services rendered to the Company from June 2016 to January 2017 pursuant to
his employment agreement with the Company’s wholly-owned subsidiary Gold King (see Note 11). Consequently, the Company
reduced accrued salaries by $100,000 as of July 31, 2017.
In
July 2017, the Company sold 179,211 shares of its common stock at $2.79 per common share for proceeds of approximately $500,000.
Between
May 2017 and July 2017, the Company issued 3,682,000 shares of the Company’s common stock in exchange for the conversion
of 36,820 shares of the Company’s Series C Preferred Stock.
Common
stock issued for services
During
the six months ended October 31, 2018, the Company issued 61,110 shares of the Company’s common stock to the Chief Geologist
for services rendered to the Company from April 2018 to September 2018 pursuant to his employment agreement (see Note 11).
The Company valued these common shares at the fair value of $75,000 or $1.06 - $1.36 per common share based on the quoted trading
prices on the date of grants and reduced accrued salaries by $12,500.
On
September 30, 2018,
the Company issued an aggregate of 1,000,000
shares of the Company’s common stock to officers, directors and employees for services rendered. The shares vest 50% on
the date of issuance and 50% on the one-year anniversary of the date of issuance. The 1,000,000 shares had a fair value of
$990,000 and will be expensed over the vesting period.
During
the six months ended October 31, 2018, the Company has recorded $774,664 to the condensed consolidated statements of operations
relating to common stock issued for services. As of October 31, 2018, the company has deferred compensation of $435,011.
Stock
Options
A
summary of the Company’s outstanding stock options as of October 31, 2018 and changes during the period then ended are presented
below:
|
|
Number
of
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
|
Balance at April 30, 2018
|
|
|
1,531,458
|
|
|
$
|
1.79
|
|
|
|
4.43
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Cancelled
|
|
|
(50,000
|
)
|
|
|
1.47
|
|
|
|
—
|
|
Balance at October 31, 2018
|
|
|
1,481,458
|
|
|
|
1.80
|
|
|
|
3.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable
at end of period
|
|
|
606,458
|
|
|
$
|
2.28
|
|
|
|
|
|
Options expected
to vest
|
|
|
875,000
|
|
|
$
|
1.47
|
|
|
|
|
|
Weighted average fair value of
options granted during the period
|
|
|
|
|
|
$
|
—
|
|
|
|
|
|
At
October 31, 2018, the aggregate intrinsic value of options outstanding and exercisable was $0 and $0, respectively.
At
April 30, 2018, the aggregate intrinsic value of options outstanding and exercisable was $1,000 and $0, respectively.
Stock-based
compensation for stock options has been recorded in the unaudited condensed consolidated statements of operations and totaled
$132,848 for the six months ended October 31, 2018 and $0 for six months ended October 31, 2017. As of October 31, 2018, the remaining
balance of unamortized expense is $751,447 and is expected to be amortized over a weighted average period of 2.11 years.
Stock
Warrants
A
summary of the Company’s outstanding stock warrants as of October 31, 2018 and changes during the period then ended are
presented below:
|
|
Number
of
Warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
|
Balance at April 30, 2018
|
|
|
1,702,359
|
|
|
$
|
3.12
|
|
|
|
3.25
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Cancelled
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Balance at October 31, 2018
|
|
|
1,702,359
|
|
|
$
|
3.12
|
|
|
|
2.74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants exercisable
at end of period
|
|
|
1,702,359
|
|
|
$
|
3.12
|
|
|
|
|
|
Weighted average
fair value of warrants granted during the period
|
|
|
|
|
|
$
|
—
|
|
|
|
|
|
All
warrants as of October 31, 2018 are fully vested.
At
October 31, 2018, the aggregate intrinsic value of warrants outstanding and exercisable was $0 and $0, respectively.
At
October 30, 2018, the aggregate intrinsic value of warrants outstanding and exercisable was $0 and $0, respectively.
NOTE
10 — NET LOSS PER COMMON SHARE
Net
loss per common share 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.
|
|
October
31, 2018
|
|
|
April
30, 2018
|
|
Common stock equivalents:
|
|
|
|
|
|
|
|
|
Restricted Stock
|
|
|
500,000
|
|
|
|
-
|
|
Stock options
|
|
|
1,481,458
|
|
|
|
1,531,458
|
|
Stock warrants
|
|
|
1,702,359
|
|
|
|
1,702,359
|
|
Total
|
|
|
3,683,817
|
|
|
|
3,233,817
|
|
NOTE
11 — COMMITMENTS AND CONTINGENCIES
Mining
Leases
The
Copper King 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 Copper King project.
The
Company’s rights to the Copper King Project arise under two State of Wyoming mineral leases:
1)
State of Wyoming Mining Lease No. 0-40828 consisting of 640 acres.
2)
State of Wyoming Mining Lease No. 0-40858 consisting of 480 acres.
Lease
0-40828 was renewed in February 2013 for a second ten-year term and Lease 0-40858 was renewed for its second ten-year term in
February 2014. Each lease requires an annual payment of $2.00 per acre. In connection with the Wyoming Mining Leases, the following
production royalties must be paid to the State of Wyoming, although once the project is in operation, the Board of Land Commissioners
has the authority to reduce the royalty payable to the State:
FOB Mine Value per Ton
|
|
Percentage
Royalty
|
|
$00.00 to $50.00
|
|
|
5
|
%
|
$50.01 to $100.00
|
|
|
7
|
%
|
$100.01 to $150.00
|
|
|
9
|
%
|
$150.01 and up
|
|
|
10
|
%
|
The
future minimum lease payments under these mining leases are as follows:
2019 (remainder of year)
|
|
$
|
1,680
|
|
2020
|
|
|
2,240
|
|
2021
|
|
|
2,240
|
|
2022
|
|
|
2,240
|
|
2023
|
|
|
2,240
|
|
Thereafter
|
|
|
960
|
|
|
|
$
|
11,600
|
|
The
Company may renew the lease for a third ten-year term which will require an annual payment of $3.00 per acre and then $4.00 per
acre thereafter.
Executive
Employment Agreements
On
October 29, 2018, the Company and Mr. Karr executed an employment agreement (the “Karr Employment Agreement”). The
material terms of the Karr Employment Agreement include: (i) an annual base salary of $250,000; (ii) eligibility to earn an annual
incentive bonus of up to 100% of Mr. Karr’s base salary, payable in cash or stock at Mr. Karr’s discretion; (iii)
eligibility to participate in any long term incentive plan adopted by the Company; and (iv) eligibility to participate in any
Company employee benefit plans. Mr. Karr is also subject to non-solicitation and confidentiality provisions set forth in the Karr
Employment Agreement.
On
October 29, 2018, the Company and Mr. Rector executed an employment agreement (the “Rector Employment Agreement”).
The material terms of the Rector Employment Agreement include: (i) an annual base salary of $180,000; (ii) eligibility to earn
an annual incentive bonus of up to 100% of Mr. Rector’s base salary, payable in cash or stock at Mr. Rector’s discretion;
(iii) eligibility to participate in any long term incentive plan adopted by the Company; and (iv) eligibility to participate in
any Company employee benefit plans. Mr. Rector is also subject to non-solicitation and confidentiality provisions set forth in
the Rector Employment Agreement.
On
June 27, 2016, the Company entered into an employment agreement with its Chief Geologist, Mr. David Mathewson. The initial term
of the agreement is for one year, with automatic renewals for successive one year terms unless terminated by written notice at
least 30 days prior to the expiration of the term by either party. Mr. Mathewson is to receive a base salary of $200,000 per year.
The base salary shall be payable as follows: (a) 25% of the base salary shall be payable in equal monthly cash installments and
(b) the remaining 75% of the base salary shall be payable in equal monthly installments in the form of common stock of the Company.
Each installment of common stock shall be issued on the first business day of the months and shall be valued at the market price
on the trading day immediately prior to the date of issuance. Market price is the closing bid price on the principal securities
exchange or trading market. Mr. Mathewson shall be entitled to receive bonus to be paid in cash, stock, or a combination thereof
and equity awards.
Separation
Agreements
On
June 8, 2017, the Company and David A. Moylan, the Company’s former President and Chief Executive Officer, entered into
a separation agreement. Mr. Moylan resigned as Chairman of the Board of Directors and as the President and Chief Executive Officer
of the Company on May 23, 2017 in connection with the closing of the transactions contemplated by the Merger Agreement and Merger
(see Note 7).
Under
the terms of the separation agreement, Mr. Moylan received a severance payment of an aggregate of $494,227. The separation agreement
became effective eight days following execution. Such severance payment is the sole and exclusive payment by the Company and is
in lieu of any and all payments or obligations, including any separation payments under prior agreements between Mr. Moylan and
the Company. Also as set forth in the separation agreement, Mr. Moylan will, until terminated by the Company’s Board of
Directors at its sole option with two weeks’ notice, serve as the President and Chief Executive Officer of Dataram Memory
for a monthly fee of $19,667, payable 90% in common stock of the Company and 10% in cash and provide general consulting and support
services to the Company. Mr. Moylan no longer serves in any capacity with the Company or its subsidiaries effective October 31,
2017.
On
June 6, 2017, Anthony Lougee resigned as Chief Financial Officer of the Company pursuant to a Change in Control and Severance
Agreement by and between the Company and Mr. Lougee dated July 31, 2015. Mr. Lougee’s decision to resign did not result
from any disagreement with the Company, the Company’s management or the Board of Directors. On June 8, 2017, the Company
entered into a separation agreement with Mr. Lougee. Under the terms of the separation agreement, Mr. Lougee received a severance
payment of an aggregate of $221,718. The separation agreement became effective eight days following execution. Such severance
payment is the sole and exclusive payment by the Company and is in lieu of any and all payments or obligations, including any
separation payments under prior agreements between Mr. Lougee and the Company, including the severance agreement.
Subsequent
to the Merger, on June 8, 2017, the Company reappointed Mr. Lougee to serve as our Chief Financial Officer and as the Chief Financial
Officer of Dataram Memory and entered into an amended and restated offer letter agreement which was accepted. Mr. Lougee’s
compensation remained the same as his compensation immediately prior to his resignation: a base salary of $144,000 with additional
monthly cash payments of $2,500 through the earliest to occur of (i) his resignation or removal as Chief Financial Officer of
the Company or of Dataram Memory or (ii) November 23, 2017. He received a monthly award of 500 shares of restricted common stock.
Mr. Lougee’s employment was on an at-will basis and may be terminated without notice at any time by Mr. Lougee or the Board
of Directors. The employment agreement canceled and superseded the severance agreement, the offer letter agreement by and between
the Company and Mr. Lougee dated July 31, 2015 and the incentive agreement by and between the Company and Mr. Lougee dated February
7, 2017. Effective October 17, 2017, Mr. Lougee resigned as the Company’s Chief Financial Officer.
NOTE
12 — SUBSEQUENT EVENTS
On
November 1, 2018 Robert DelAversano resigned from his position as Principal Financial and Accounting Officer of the Company to
pursue other opportunities. Mr. DelAversano served as the Principal Financial and Accounting Officer pursuant to a consulting
agreement between the Company and Brio Financial Group, where Mr. DelAversano serves as Director of Financial Reporting &
Taxation.
On
November 1, 2018 the Company appointed Jonathan Tegge, age 29, as its Principal Financial and Accounting Officer. Mr. Tegge will
serve as the Principal Financial and Accounting Officer pursuant to a consulting agreement between the Company and Brio Financial
Group, where Mr. Tegge serves as an Associate of Financial Reporting.
Effective
November 1, 2018, the Board of Directors of the Company authorized and approved the amendment and restatement of the Bylaws of
Corporation to:
(i)
change the reference of the name of the Corporation to U.S. Gold Corp. (formerly, Dataram Corporation);
(ii)
provide for the representation of securities of the Corporation in the form of certificated or uncertificated securities;
(iii)
reduce the quorum requirement for shareholder meetings from shareholders representing a majority of the shares entitled to vote
to the minimum required by Nasdaq Stock Market Rule 5620(c) of one-third (33-1/3%) of the issued shares of the Corporation’s
common voting stock; and
(iv)
make such other grammatical corrections as management of the Corporation may determine be reasonably necessary.
On
November 2, 2018, the Company entered into an At-the-Market Offering Agreement (the “ATM Agreement”) with H.C. Wainwright
& Co., LLC (“Wainwright”) as sales manager. Under the terms of the ATM Agreement, the Company will be entitled
to sell, at its sole discretion and from time to time as it may choose, common shares in the capital of the Company (“Shares”)
through Wainwright, with such sales having an aggregate gross sales value of up to $1,000,000 (the “Offering”). The
ATM Agreement will remain in full force and effect until the ATM Agreement is terminated. As of the date of this filing the Company
has not raised any money through the ATM Agreement.
Subject
to the terms and conditions of the ATM Agreement, Wainwright will use its commercially reasonable efforts to sell the Shares from
time to time, based upon the Company’s instructions. The Company has provided Wainwright with customary indemnification
rights, and Wainwright will be entitled to a commission at a fixed commission rate equal to 3.0% of the gross proceeds per Share
sold.