Filing identity and reporting period
Important metadata mismatch: The supplied filing is for Dataram Corporation, not U.S. Gold Corp. It is an unaudited Form 10-Q for the quarter ended October 31, 2015 (Dataram’s fiscal second quarter of fiscal 2016), with six-month comparisons to October 31, 2014.
Dataram makes and sells memory products and related performance solutions. This filing contains no information about U.S. Gold Corp. or gold mining.
Financial results and liquidity
| Metric | Three months ended Oct. 31, 2015 | Six months ended Oct. 31, 2015 |
|---|---|---|
| Revenue | $6.051 million | $13.388 million |
| Gross profit / margin | $1.203 million / 19.9% | $2.606 million / 19.5% |
| Operating loss | $123,000 | $178,000 |
| Net income (loss) | $20,000 | $(97,000) |
| Net loss allocated to common shareholders | $(39,000) | $(219,000) |
| Net loss per common share, basic and diluted | $(0.01) | $(0.07) |
For the six months, operating cash flow was negative $274,000 (prior year: negative $256,000); investing cash flow was negative $22,000, and financing cash flow was positive $586,000. Cash rose to $617,000 from $327,000 at April 30, 2015. Working capital was approximately $1.48 million and the current ratio was 1.4.
At October 31, total assets were $6.93 million and total liabilities $4.03 million. Current debt included $2.123 million drawn on the revolving line, $600,000 in convertible notes, and $80,000 in related-party convertible notes. The revolver had a $3.5 million maximum capacity but only approximately $18,000 of additional availability. Its stated maturity was November 30, 2016; it is secured by substantially all company assets. The filing reports $687,000 of future minimum operating lease payments.
Changes versus prior comparable periods
- Revenue declined 12% in the quarter and 8% for the six months. Management attributed the reduction primarily to exiting the unprofitable consumer-memory business in fiscal 2015; that discontinued line represented approximately $627,000 and $1.275 million of revenue in the respective prior-year periods.
- Gross margin improved from approximately 14.7% to 19.9% for the quarter and from 15.5% to 19.5% for the six months. Management cited the product exit and lower manufacturing overhead.
- Operating losses narrowed substantially: $123,000 versus $811,000 in the quarter and $178,000 versus $1.372 million for the six months. Six-month engineering expense fell to $100,000 from $317,000, and SG&A to $2.684 million from $3.311 million.
- Six-month net loss improved from $2.267 million to $97,000. Prior-year results included $750,000 of noncash debt-discount amortization; current-quarter net income also benefited from a $190,462 gain on sale of a New Jersey NOL tax benefit.
Outlook, risks, and unusual items
Management stated that substantial doubt remained about Dataram’s ability to continue as a going concern. The company reported recurring operating losses and a $24.6 million accumulated deficit, and said it had no committed or assured additional financing. If revenue growth falls short, management may seek debt or equity financing, defer salaries or other overhead, or negotiate liability settlements; availability and terms of financing are not assured. No numerical revenue or earnings guidance was provided.
- The company received New Jersey approval to transfer state NOL tax benefits and reported receiving approximately $190,000 of proceeds on December 9, 2015, after quarter-end; the gain was recorded in the reported period.
- During the six months, Dataram raised $500,000 from common-stock sales and $100,000 from preferred-stock sales. Preferred holders converted 102,000 Series A shares into 510,000 common shares; preferred dividends were payable in common shares. These transactions and outstanding warrants and options create potential dilution.
- One $80,000 convertible note had an extension to January 15, 2016; the filing also describes a default on a Bridge Note and a waiver from the revolver lender. The remaining convertible notes bear 8% interest and are subordinated to the revolver.
- Several employment-related court, labor, and discrimination matters were disclosed. The company said any potential loss could not be estimated.
- DRAM-chip pricing and availability affect product costs and selling prices. Some receivables are denominated in foreign currencies; the company reported no current use of forward contracts.
Investor verification points
- Confirm the intended issuer: the supplied filing is Dataram Corporation (NASDAQ: DRAM), not U.S. Gold Corp.
- Check subsequent liquidity, financing, revenue performance, and progress toward positive operating cash flow given the going-concern warning and minimal revolver availability.
- Verify the terms, status, maturity, and any further extensions or conversion of the Bridge Notes and other debt, as well as lender covenant compliance.
- Assess dilution from preferred shares, dividends, conversions, warrants, options, and subsequent share issuance.
- Review the NOL-sale accounting and cash receipt timing, and monitor the disclosed legal proceedings and related-party purchases.