Business Context and Reporting Period
Company: Dataram Corporation (filing as registrant; target is U.S. Gold Corp.)
Filing Date: June 13, 2016
Event: Entry into a Material Definitive Agreement (Merger Agreement).
Transaction Overview: Dataram Corporation entered into an agreement to merge with U.S. Gold Corp., an exploration-stage company. Upon closing, U.S. Gold will merge into a Dataram subsidiary and become the surviving entity. The transaction pivots Dataram from its existing computer memory and software business to mineral exploration, specifically the Copper King Project (Wyoming) and the Keystone Project (Nevada).
Key Financial Metrics and Transaction Terms
Merger Consideration (Share Issuance):
- Total Shares Issuable: Up to approximately 123,604,695 shares of Dataram Common Stock (including Series C Preferred Stock conversion).
- Series A Preferred Holders: 60,000,000 shares.
- Series B Preferred Holders: 5,600,150 shares.
- U.S. Gold Financing Participants: Up to 45,454,545 shares.
- Keystone Project Acquisition: 5,550,000 shares.
- Management Shares: 4,950,000 shares.
- Placement Agent: 4,000,000 to 7,000,000 shares plus warrants for up to 750,000 shares.
- Pre-Merger Dataram Stockholders: Anticipated to own between 8.6% and 11.0% of outstanding Common Stock.
- Escrow: 15% of Merger Consideration (excluding Management Shares) held in escrow for 12 months to secure indemnification obligations.
- Revenue: $0 (No income-producing activities).
- Net Loss: $7,117 for the year ended December 31, 2015.
- Capital Requirements: Estimates up to $500,000 for the first year of Keystone exploration, up to $2,000,000 for the second year, and up to $500,000 annually for Copper King maintenance.
- Measured & Indicated: 59,750,000 tons at 0.015 oz Au/ton and 0.187% Cu.
- Inferred: 15,620,000 tons at 0.011 oz Au/ton and 0.200% Cu.
- Subject to Net Smelter Return (NSR) royalties ranging from 0.5% to 3.5% held by various parties (Nevada Gold, Wolfpack Gold, Orion Royalty).
- Buy-down options available for 1% of royalty at $2,000,000 (within 5 years) and an additional 1% at $5,000,000 (within 8 years).
Material Changes and Conditions
Strategic Shift: The Company intends to divest its existing pre-Merger assets (computer memory and software) to focus entirely on mineral exploration. Proceeds from such divestiture would benefit pre-Merger stockholders.
Closing Conditions: The Merger is subject to several material conditions, including:
- Shareholder approval for the issuance of Merger Consideration and increase in authorized stock.
- U.S. Gold securing at least $3 million in net proceeds from a financing.
- U.S. Gold closing the acquisition of the Keystone Project mining claims.
- Receipt of a fairness opinion.
- Declaration of a special dividend right for pre-Merger stockholders regarding potential asset divestiture proceeds.
Outlook, Risks, and Contingencies
Outlook: U.S. Gold is an early-stage exploration company with no history of profitable operations. Future success depends entirely on the discovery of commercially exploitable deposits and the ability to secure additional financing.
Key Risks:
- Delisting Risk: If NASDAQ determines the transaction results in a change of control, Dataram may be required to re-apply for listing. Failure to do so could result in delisting.
- Speculative Nature: Exploration is inherently risky; there is no assurance that gold or copper deposits will be found in commercially viable quantities.
- Financing Needs: The company lacks sufficient capital to fund planned exploration and will require additional funding.
- Regulatory and Environmental: Operations are subject to extensive environmental regulations, permitting delays, and potential liability for pollution. The company currently carries no property or casualty insurance.
- Title Risks: Keystone Project claims are unpatented and subject to title challenges; no title insurance is held.
- Commodity Price Volatility: Project viability is heavily dependent on gold and copper prices.
Investor Verification Checklist
- Shareholder Approval: Verify if the required majority shareholder votes for the merger and stock authorization have been obtained.
- Financing Status: Confirm if U.S. Gold has successfully closed the required $3 million financing.
- Keystone Acquisition: Verify the closing of the Keystone Project acquisition and the status of associated royalty obligations.
- NASDAQ Compliance: Monitor for any NASDAQ rulings regarding "change of control" that could trigger a delisting or re-listing requirement.
- Asset Divestiture: Track the Company's decision on whether to divest existing computer memory/software assets and the mechanism for distributing proceeds to pre-Merger shareholders.
- Resource Validation: Review the June 20, 2012 Technical Report for the Copper King Project to understand the basis of the resource estimates.