Business context and reporting period
Filing identity mismatch: The supplied filing is for Dataram Corporation, not U.S. Gold Corp. It covers the unaudited quarter ended July 31, 2013 (Dataram fiscal 2014 first quarter), compared with the quarter ended July 31, 2012. Dataram develops and sells memory products and storage-caching products; results are sensitive to DRAM prices and availability.
Financial results and liquidity
| Metric | Quarter ended July 31, 2013 | Prior-year quarter |
|---|---|---|
| Revenue | $7.37 million | $8.00 million |
| Gross profit / margin | $1.56 million / 21% | $1.69 million / 21% |
| Operating loss | $797,000 | $866,000 |
| Net loss | $882,000 | $976,000 |
| Net loss per share | $0.50 | $0.55 |
| Cash used in operations | $583,000 | $2.43 million |
Cash was $108,000 at July 31, down from $324,000 at April 30, 2013. Working capital was approximately $1.69 million and the current ratio was 1.4, versus $2.56 million and 1.7 at April 30. Revolver borrowings were $2.34 million; the related-party note balance was approximately $1.57 million, including current and long-term portions. Interest expense was $84,000. The filing reports no income tax expense.
Changes, outlook and risks
- Revenue fell about 8% year over year. Management attributed this to a roughly 31% decline in average selling prices, partially offset by an approximately 11% increase in volume. Cost of sales remained 79% of revenue.
- Reported net loss included a $275,000 reserve for a defaulted Shoreline note and approximately $110,000 in severance costs. Management estimated the quarter’s loss would have been about $497,000 without these charges. Cost reductions were expected to provide approximately $900,000 of annualized savings.
- Going concern: The filing says substantial doubt exists about the company’s ability to continue as a going concern. Management said available cash and borrowing capacity were expected to last into fiscal 2014’s second quarter and planned to seek additional bank financing and/or equity or debt capital. No financing commitment or assurance was disclosed.
- The company was in default of its senior lender’s tangible-net-worth covenant; the loan was callable and only about $7,000 of additional borrowing availability remained. The lender held substantially all assets as collateral. The related-party note also gives the lender-related party approval rights over a change in senior lender, which management said may constrain refinancing.
- Shoreline defaulted on its $275,000 note; the balance was fully reserved and litigation/collection efforts were described. In separate landlord litigation, a court ordered removal and restoration of leased premises or payment of related costs; reconsideration was pending. The company said additional liability was not then estimable beyond a recorded $52,000 security-deposit amount.
- Management cited DRAM-price instability and pursued AMD-branded memory and RAMDisk products, distribution expansion, diversification, partnerships and other strategic opportunities; success was not assured.
Most important facts to verify
- Confirm the intended issuer: this filing is for Dataram Corporation, not U.S. Gold Corp.
- Check the status and terms of covenant-default remedies, the callable revolver, and the company’s actual remaining borrowing capacity.
- Verify whether planned financing was obtained and whether cash needs and going-concern risks changed after the reporting date.
- Check Shoreline note recovery and the outcomes of the Shoreline and landlord litigation.
- Assess whether cost savings and AMD-related sales developed as management expected, given DRAM pricing and margin pressures.