Quarterly report pursuant to Section 13 or 15(d)

Stockholders' Equity

v3.20.1
Stockholders' Equity
9 Months Ended
Jan. 31, 2020
Equity [Abstract]  
Stockholders' Equity

NOTE 8 — STOCKHOLDERS’ EQUITY

 

Equity Incentive Plan

 

In August 2017, the Company’s Board of Directors approved the Company’s 2017 Equity Incentive Plan (the “2017 Plan”) including the reservation of 1,650,000 shares of common stock thereunder.

 

On August 6, 2019, the Board of Directors of the Company approved and adopted, subject to stockholder approval, the U.S. Gold Corp. 2020 Stock Incentive Plan (the “2020 Plan”). The 2020 Plan reserves 3,307,104 shares for future issuance to officers, directors, employees and contractors as directed from time to time by the Compensation Committee of the Board of Directors. The Board directed that the 2020 Plan be submitted to the Company’s stockholders for their approval at the 2019 Annual Meeting of Stockholders of the Company (the “Annual Meeting”), which was held on September 18, 2019. The 2020 Plan was approved by a vote of stockholders at the Annual Meeting. With the approval and effectivity of the 2020 Plan, no further grants will be made under the 2017 Plan.

 

Series F Convertible Preferred Stock

 

On June 19, 2019, the Company filed a Certificate of Designations, Preferences and Rights of the Series F Preferred (the “Certificate of Designations”) with the Secretary of State of the State of Nevada amending its articles of incorporation to establish a class of Series F Preferred Stock and the number, relative rights, preferences and limitations thereof. Pursuant to the Certificate of Designations, 1,250 shares of preferred stock have been designated as Series F Preferred Stock, and each of the shares of Series F Preferred Stock initially is convertible, at the election of the holder, into a number of shares of the Company’s common stock equal to the stated value of the Series F Preferred Stock, which is $2,000, subject to specified adjustments, divided by the conversion price, which is $1.14 per share, subject to specified adjustments as further adjusted in the event of stock split, stock dividends, and recapitalization or otherwise (the “Conversion Price”). Based on the initial Conversion Price, approximately 2,193,750 shares of common stock would be issuable upon conversion of all of the Series F Preferred Stock to be sold pursuant to the Purchase Agreement (as defined herein).

 

A holder of Series F Preferred Stock shall have no right to convert any portion of the Preferred Stock to the extent that, after giving effect to such conversion, the holder would beneficially own in excess of 4.99% (or, at the election of a holder after providing 61 days’ prior written notice to the Company, 9.99%) of the number of shares of common stock outstanding immediately after giving effect to the issuance of shares of common stock upon such conversion. Holders of the Series F Preferred Stock shall be entitled to receive dividends when and as declared by the Board of Directors, from time to time, and shall participate on an “as converted” basis with all dividends declared on the Company’s common stock.

 

The Series F Preferred Stock has no redemption provisions. In the event of the Company’s liquidation, the holders of the Series F Preferred Stock would be entitled to receive in cash out of the assets of the Company, after payment of the liquidation preference for any outstanding shares of senior preferred stock, but before any amount is paid to the holders of any of shares of junior stock and pari passu with any parity stock then outstanding, an amount per share equal the greater of (A) the stated value thereof on the date of such payment and (B) the amount per share such holder would receive if such holder converted such Series F Preferred Stock into common stock immediately prior to the date of such payment.

 

Except as required by law or the Company’s Articles of Incorporation, including certain protective provisions in the Certificate of Designations, holders of the Series F Preferred Stock have the same voting rights as holders of common stock, voting together as one class on an as-converted basis based on a conversion price equal to $1.14, subject to beneficial ownership limitations.

 

On June 19, 2019, the Company sold, under the terms of a securities purchase agreement (the “Purchase Agreement”), 1,250 Series F Preferred units for an aggregate purchase price of $2,500,000, or $2,000 per unit. Each unit consisted of one (1) share of 0% Series F Preferred Stock and 878 Class X Warrants on a registered basis and 1,755 Class A Warrants on an unregistered basis. The Company sold a total of 1,250 shares of Series F Preferred Stock, 2,193,750 Class A Warrants and 1,097,500 Class X Warrants under the Purchase Agreement. Each share of Series F Preferred Stock, at the option of the holder at any time, may be converted into the number of shares of common stock of the Company determined by dividing the $2,000 (the stated value per share of the Series F Preferred Stock) by a conversion price of $1.14 per share (approximately 2,193,750 shares of common stock), subject to adjustment. Each Class X Warrant is exercisable to acquire one share of the Company’s common stock and one Class Y Warrant at an exercise price of $1.14, for a period of six (6) months from the date of issuance. Each Class Y Warrant is exercisable to acquire one share of the Company’s common stock at an exercise price of $1.14 per share, commencing six (6) months from the date of issuance (the “Initial Exercise Date”) and will expire on a date that is the five (5) year anniversary of the Initial Exercise Date. Each Class A Warrant is exercisable to acquire one share of the Company’s common stock at an exercise price of $1.14 per share, commencing six (6) months from the date of issuance and will expire on a date that is the five (5) year anniversary of the date of issuance. In aggregate, if all of the shares of common stock are issued on conversion of the Series F Preferred Stock and exercise of the Class A, Class X and Class Y warrants, the Company would issue a total of 6,582,500 shares of common stock. The warrant holders may elect to exercise the warrants via cashless exercise if there is no effective registration statement registering the warrants pursuant to the terms of each respective warrant certificate. The offering pursuant to which the Series F Preferred units were sold closed on June 20, 2019, subject to the satisfaction of customary closing conditions.

 

The fair value of the Series F Preferred Stock and warrants if converted on the date of issuance was greater than the value allocated to the Series F Preferred Stock and warrants. As a result, the Company recorded a BCF of approximately $2.0 million that the Company recognized as deemed dividend to the preferred stockholders and accordingly, an adjustment to net loss to arrive at net loss available to common stockholders and a corresponding increase in additional paid in capital upon issuance of the Series F Preferred Stock and warrants. The Company accounted for the deemed dividend resulting from the issuance of Series F Preferred Stock and warrants using the relative fair value method (see Note 2).

 

The Purchase Agreement includes customary representations, warranties and covenants by the Company and provides for indemnification of the purchasers against certain liabilities, including liabilities incurred as a result of or relating to any breach of the representations, warranties, covenants or agreements made by the Company in the Purchase Agreement. The Company assessed the classification of these common stock purchase warrants and determined that such instruments met the criteria for equity classification under the guidance in ASC 815.

 

During the three months ended July 31, 2019, the Company issued an aggregate of 1,080,707 shares of the Company’s common stock in exchange for the conversion of 616 shares of the Company’s Series F Preferred Stock.

 

During the three months ended October 31, 2019, the Company issued an aggregate of 638,596 shares of the Company’s common stock in exchange for the conversion of 364 shares of the Company’s Series F Preferred Stock.

 

Common Stock Issued for Accrued Services

 

On May 6, 2019, the Company paid an accrued service liability to its former Chief Geologist in the amount of $12,500 by issuing 10,684 shares of common stock at a price of $1.17 per share of common stock based on the quoted trading price on the date of grant. In connection with this issuance, the Company reduced accrued salaries by $12,500 during the nine months ended January 31, 2020.

 

On November 26, 2019, the Company paid an accrued service liability to its Chief Financial Officer in the amount of $14,403 and stock-based accounting fees of $3,881 by issuing 22,767 shares of restricted common stock at a price of $0.80 per share of common stock based on the quoted trading price on the date of grant. In connection with this issuance, the Company reduced accrued expenses by $14,403 and recorded stock-based accounting fees of $3,881 during the quarter ended January 31, 2020. The restricted common shares issued to this officer were fully vested at the date of issuance.

 

Common Stock Issued for Salaries

 

Between May 2019 and June 2019, the Company issued an aggregate of 21,534 shares of common stock to satisfy a stock payable to its former Chief Geologist for services rendered between May 2019 and June 2019. The shares were valued at $25,000 using a share price ranging from $1.03 to $1.33 on the dates of grant.

 

Common Stock Issued, Restricted Stock Awards, and RSUs Granted for Services

 

On September 30, 2018, the Company issued an aggregate of 1,000,000 shares of restricted stock to officers, directors, employees and consultants 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 of restricted stock had a fair value of $990,000 and will be expensed over the vesting period. Additionally, on November 10, 2017, 12,000 shares of restricted stock that vest two years from issue date were issued to a director, and on February 20, 2018, 150,000 shares of restricted stock that vest ratably over 12 months were issued to a consultant, bringing the total of restricted shares issued to 1,162,000. During the three months ended July 31, 2019, the Company intended to cancel an aggregate of 85,000 unvested shares of the Company’s common stock due to termination of employee relationships; however, during the quarter ended October 31, 2019, prior to cancelation of the shares, and after consultations with these former employees and Company counsel, the Company changed its position relative to the 85,000 shares and declared them vested. As a result of the vesting, the Company recognized operating expenses of $84,150.

 

On September 18, 2019, the Compensation Committee of the Board of Directors awarded Edward Karr, the Company’s Chief Executive Officer, President and Director, 200,000 performance-based restricted stock units (“RSUs”), David Rector, the Company’s Chief Operating Officer, 75,000 performance-based RSUs and an employee of the Company 50,000 performance-based RSUs pursuant to respective restricted stock unit award agreements. The RSUs will vest upon the earlier to occur of (i) a Change in Control (as defined in the 2020 Plan), or (ii) a material discovery of a mineral deposit, as determined by the Compensation Committee of the Board of Directors in its sole discretion. The total 325,000 RSUs had a fair value of $334,750 or $1.03 per share based on the quoted trading price on the date of grant and will be expensed upon the occurrence of the vesting term.

 

Additionally, on September 18, 2019, the Compensation Committee of the Board of Directors awarded five directors of the Company an aggregate of 250,000 shares of restricted stock pursuant to respective restricted stock award agreements. The shares of restricted stock vested immediately on the date of grant. The total 250,000 shares of restricted stock had a fair value of $257,500 or $1.03 per share based on the quoted trading price on the date of grant, which was expensed immediately.

 

On November 26, 2019, the Company issued 21,000 shares of restricted common stock to a consultant for investor relations-related services renderedThe 21,000 shares of common stock had a fair value of $18,297, or $0.87 per share, based on the quoted trading price on the date of grant, which was fully vested and expensed immediately.

 

On November 26, 2019, the Company issued 37,037 shares of restricted stock to a consultant for services to be rendered. The shares vest over a six-month period. The 37,037 shares of restricted stock had a fair value of $29,848, or $0.81 per share, based on quoted trading price on the date of grant and will be expensed over the vesting period.

 

On January 14, 2020, the Compensation Committee of the Board of Directors awarded an aggregate of 477,778 restricted common shares to Edward Karr, the Company’s Chief Executive Officer, and David Rector, the Company’s Chief Operating Officer as 2019 Executive Bonus Awards. The total 477,778 restricted common shares stock had a fair value of $396,520, or $0.83 per share, based on the quoted trading price on the date of grant, which was fully vested and expensed immediately.

 

On January 6, 2020, the Compensation Committee of the Board of Directors awarded four directors of the Company an aggregate of 18,750 shares of restricted stock pursuant to respective restricted stock award agreements. The shares of restricted stock vested immediately on the date of grant. The total 18,750 shares of restricted stock had a fair value of $17,438, or $0.93 per share, based on the quoted trading price on the date of grant, which was fully vested and expensed immediately.

 

A total of $27,596 and $473,375, and $138,322 and $751,486, was expensed for the three and nine months ended January 31, 2020 and 2019, respectively. A balance of $354,649 remains to be expensed over future vesting periods.

 

Common Stock Issued Pursuant to Share Exchange Agreement

 

On September 10, 2019, the Company, NumberCo and the NumberCo Shareholders, entered into the Share Exchange Agreement, pursuant to which, among other things, the Company agreed to issue to the NumberCo Shareholders 2,000,000 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. The 2,000,000 shares issued to the NumberCo Shareholders were valued at $2,020,000, or $1.01 per share, the fair value of the Company’s common stock based on the quoted trading price on the date of the Share Exchange Agreement (see Note 4).

 

Stock Options

 

A summary of the Company’s outstanding stock options as of January 31, 2020 and changes during the nine-month period then ended are presented below:

 

    Number of
Options
    Weighted
Average
Exercise
Price
    Weighted
Average
Remaining
Contractual
Life
(Years)
 
Balance at April 30, 2019     1,456,458     $ 1.80       3.29  
Granted     50,000       0.81       9.82  
Exercised                  
Forfeited     (506,458 )     2.44        
Canceled                  
Balance at January 31, 2020     1,000,000     $ 1.43       3.11  
                         
Options exercisable at end of period     741,666     $ 1.46          
Options expected to vest     258,334     $ 1.34          
Weighted average fair value of options granted during the period           $          

 

As of January 31, 2020, the aggregate intrinsic value of options outstanding and exercisable was $0.

 

On November 26, 2019, the Company granted 50,000 options to purchase the Company’s common stock to the Company’s Chief Financial Officer. The options have a term of 10 years from the date of grant and are exercisable at an exercise price of $0.81. The options vest over 24 months at 2,083 options per month. The Company accounted for the 50,000 options by using a Black-Scholes option pricing model with the following assumptions: stock price of $0.81 per share (based on the quoted trading price on the dates of grant), volatility of 72%, expected term of 10 years, and a risk-free interest rate of 1.74%.

 

Stock-based compensation for stock options has been recorded in the unaudited condensed consolidated statements of operations and totaled $40,357 and $292,422 for the three months ended January 31, 2020 and 2019, respectively, and $144,785 and $304,119 for the nine months ended January 31, 2020 and 2019, respectively. A balance of $265,313 remains to be expensed over future vesting periods.

 

Warrants

 

In relation to the issuance of the Series F Convertible Preferred Shares, the Company issued 2,193,750 Class A Warrants and 1,097,500 Class X Warrants. The fair value of the warrants was $2,022,712, as measured on the date of the issuance with a Black-Scholes pricing model using the assumptions noted in the following table:

 

    Warrants Issued During the
Nine Months Ended
January 31, 2020
 
Expected volatility     46% - 74 %
Stock price on date of grant   $ 1.14  
Exercise price   $ 1.14  
Expected dividends     -  
Expected term (in years)     0.5 - 5  
Risk-free rate     1.77% - 2.11 %
Expected forfeiture rate     0 %

 

Each Class A Warrant is exercisable to acquire one share of the Company’s common stock at an exercise price of $1.14 per share, commencing six (6) months from the date of issuance and will expire on a date that is the five (5) year anniversary of the date of issuance. Each Class X Warrant was exercisable to acquire one share of the Company’s common stock and one Class Y Warrant at an exercise price of $1.14, for a period of six (6) months from the date of issuance. Each Class Y Warrant is exercisable to acquire one share of the Company’s common stock at an exercise price of $1.14 per share, commencing on the Initial Exercise Date and will expire on a date that is the five (5) year anniversary of the Initial Exercise Date.

 

A summary of the Company’s outstanding warrants to purchase shares of common stock as of January 31, 2020 and changes during the nine-month period then ended are presented below:

 

    Number of Warrants     Weighted Average
Exercise
Price
    Weighted Average Remaining Contractual
Life
(Years)
 
Warrants with no Class designation:                        
Balance at April 30, 2019     1,702,359     $ 3.12       2.25  
Granted                  
Exercised                  
Forfeited                  
Canceled                  
Balance at January 31, 2020     1,702,359       3.12       1.49  
Class A Warrants:                        
Balance at April 30, 2019                  
Granted     2,193,750       1.14       5.00  
Exercised                  
Forfeited                  
Canceled                  
Balance at January 31, 2020     2,193,750       1.14       4.46  
Class X Warrants:                        
Balance at April 30, 2019                  
Granted     1,097,500       1.14       0.50  
Exercised                  
Forfeited, with no financial effect     (1,097,500 )     1.14        
Canceled                  
Balance at January 31, 2020     -       -       -  

 

Class Y Warrants:                  
Balance at April 30, 2019                  
Granted                  
Exercised                  
Forfeited                  
Canceled                  
Balance at January 31, 2020                  
Warrant Outstanding at January 31, 2020     3,896,109     $ 2.01       3.17  
                         
Warrants exercisable at end of period     3,896,109     $ 2.01          
Weighted average fair value of warrants granted during the period           $ 0.52          

 

As of January 31, 2020, the aggregate intrinsic value of warrants outstanding and exercisable was $0.