Filing summary
Entity and period: The supplied filing is Dataram Corporation’s Form 10-Q, not a filing for U.S. Gold Corp. It covers the three months ended July 31, 2014 (Dataram fiscal first quarter), compared with the three months ended July 31, 2013. The interim financial statements are unaudited.
Key financial results
| Metric | Q1 ended July 31, 2014 | Prior-year quarter | Change |
|---|---|---|---|
| Revenue | $7.725 million | $7.367 million | Up about 4.9% |
| Gross profit / margin | $1.249 million / 16.2% | $1.562 million / 21.2% | Margin down about 5 percentage points |
| Operating loss | $561,000 | $797,000 | Loss narrowed |
| Net loss | $760,000 | $882,000 | Loss narrowed |
| Basic and diluted loss per share | $0.32 | $0.50 | Improved |
| Cash used in operating activities | $166,000 | $583,000 | Use of cash decreased |
Revenue rose as sales volume increased approximately 29%, partly offset by average selling prices declining approximately 7%. Cost of sales rose to 84% of revenue from 79%; management cited DRAM pricing and availability, product mix, and customer mix as factors affecting margins.
Financial position and liquidity
- At July 31, 2014, cash was $135,000, working capital was approximately $743,000, and the current ratio was 1.2:1. At April 30, 2014, cash was $258,000 and working capital was approximately $882,000.
- Revolver borrowings were $2.424 million, with only about $60,000 of additional availability under the $3.5 million facility. The facility is secured by substantially all company assets and includes restrictive covenants.
- The company issued $750,000 of secured convertible bridge notes in July, bearing 8% interest and maturing October 15, 2014, with a holder option to extend three months. The notes are convertible; attached warrants and conversion features produced $750,000 of discounts and approximately $133,000 of noncash interest expense in the quarter.
- Cash decreased by $122,000 during the quarter. Investing cash use of $142,000 primarily reflected capitalized software development; financing cash flow was positive $186,000, including bridge-note proceeds and $546,000 of revolver repayments.
Material changes, outlook, and risks
- Engineering expense fell to $166,000 from $319,000, in part because $142,000 of storage-caching software development costs was capitalized after technological feasibility was established on May 1, 2014. Selling, general and administrative expense declined to $1.644 million from $2.040 million; the prior-year quarter included a $275,000 note-receivable reserve and about $30,000 of severance expense.
- Management said available cash and borrowing capacity were expected to last into the fiscal quarter ending January 31, 2015. It stated that continued operations depend on additional working capital and future financing or profitable operations, and that substantial doubt exists about the company’s ability to continue as a going concern.
- Management described a proposed Series A preferred-stock financing, subject to stockholder approval at the October 15, 2014 annual meeting. The notes describe 1.0 million shares at $5 per share, while MD&A describes 1.2 million shares at that price; both sections refer to a minimum initial purchase of 400,000 shares and conversion at 2.5 common shares per preferred share. The filing says approval and closing are not assured.
- On September 11, 2014, Nasdaq notified the company that it did not expect the company to cure its shareholder-equity deficiency by the September 24 deadline. The company planned to request a hearing; the request would stay delisting pending the hearing and decision.
- Other risks include dependence on financing, uncertain profitability, DRAM cost and availability, foreign-currency exposure, and related-party inventory purchases. A landlord settlement requires three $75,000 payments and forfeiture of a $52,000 security deposit; by September 10, 2014, one $75,000 payment had been made.
Investor verification points
- Confirm the issuer identity: this filing is for Dataram Corporation, not U.S. Gold Corp.
- Reconcile the inconsistent proposed preferred-stock amount (1.0 million versus 1.2 million shares) and verify stockholder approval, financing proceeds, and closing terms.
- Verify the bridge notes’ maturity or extension, conversion and warrant terms, and the company’s ability to refinance or repay them.
- Track liquidity, revolver availability and covenant compliance, operating cash use, and progress toward the stated January 2015 cash runway.
- Confirm the Nasdaq hearing outcome and the status and remaining payments of the landlord settlement.