Filing summary
Entity and period: Despite the request metadata naming U.S. Gold Corp., this is Dataram Corporation’s Form 10-Q, for the quarter and six months ended October 31, 2016. Dataram was a memory-products manufacturer and reseller; it had agreed to acquire exploration-stage U.S. Gold Corp., but the merger had not closed as of the report.
Financial performance
| Metric | Three months ended Oct. 31, 2016 | Six months ended Oct. 31, 2016 |
|---|---|---|
| Revenue | $4.68 million, down 23% year over year | $9.59 million, down 28% |
| Gross profit / margin | $0.85 million / 18% | $1.58 million / 16% |
| Operating loss | $216,000 | $1.10 million |
| Net loss | $259,000 | $1.19 million |
| Net loss per common share | $0.07 | $0.40 |
Revenue declines were attributed primarily to average selling prices falling about 36%. Cost of sales rose as a share of revenue, to 82% for the quarter and 84% for the half-year, from 80% and 81%, respectively; management said pricing actions to defend market share pressured margins. The prior-year periods included a $190,000 gain from selling New Jersey state tax benefits, contributing to the difference in reported net results.
For the six months, operating cash flow was positive $291,000, versus use of $274,000 a year earlier. The filing attributes the current-period cash generation in part to a $1.35 million reduction in receivables; net loss was $1.19 million and included $429,000 of stock-based compensation. Investing cash flow was zero. Financing used $285,000, including $788,000 of revolving-credit repayments and $503,000 of preferred-stock proceeds. Cash increased $7,000 to $63,000.
Financial position and material changes
- At October 31, cash was $63,000, current assets $3.00 million, current liabilities $1.73 million, and working capital about $1.26 million. Total assets were $4.44 million and total liabilities $1.80 million.
- The revolving credit balance was $988,000, down from $1.78 million at April 30. The facility has a $3.5 million maximum, is secured by substantially all company assets, and had about $131,000 of additional availability. The rate is Prime plus 3.25% (with a higher rate for over-advances).
- Equity changes included conversion of 282,643 Series B preferred shares into 1,884,286 common shares and issuance of Series D preferred stock for $503,000. Common shares outstanding increased to 3.72 million from 1.64 million; the filing gives effect to a 1-for-3 reverse split.
- Management reported reducing annualized SG&A overhead by about $1 million over the prior 12 months. The statements report six-month SG&A of $2.58 million; the MD&A gives a slightly different figure of $2.584 million.
Outlook, risks and unusual items
- Going concern: The company disclosed substantial doubt about its ability to continue as a going concern, following losses of about $1.19 million in the first six months and about $1.22 million in fiscal 2016. It may need up to $1 million of additional working capital over the next 12 months and may seek debt or equity financing or further reduce overhead. Financing availability and terms are not assured.
- Proposed U.S. Gold acquisition: Closing remained subject to conditions, including shareholder approval and regulatory review; consummation was not assured. The merger agreement was amended in November 2016, including changes to consideration and potential warrants/options. Verify final terms and closing status.
- Customer and input concentration: One customer represented about 40% of quarterly and 33% of six-month revenue. Four customers accounted for 75% of receivables at October 31. DRAM pricing and availability are significant drivers of product costs and selling prices.
- Contingencies: The filing describes consolidated state-court disputes involving former executives and service providers, a Sarbanes-Oxley complaint, and an age-discrimination complaint. The company said potential losses could not be estimated. Operating lease commitments totaled $520,000.
- Other risks: Some receivables are denominated in foreign currencies; the company reported no hedging contracts. No material risk-factor changes were reported from the prior annual filing.
Most important facts to verify
- Confirm the intended issuer: this filing is for Dataram Corporation, not a standalone U.S. Gold Corp. 10-Q.
- Check Dataram’s liquidity, borrowing availability, and ability to obtain the additional working capital management says may be needed.
- Verify the U.S. Gold merger’s final consideration, dilution, approvals, and closing status after the November amendment.
- Assess whether revenue and gross-margin trends, including customer concentration and DRAM price exposure, improved after the reporting period.
- Reconcile the MD&A’s six-month SG&A figure with the statement of operations and review developments in the unresolved legal matters.