Business context and reporting period
Filing identity: The supplied filing is for Dataram Corporation and its subsidiaries, not U.S. Gold Corp. It is a Form 10-Q for the quarter and nine months ended January 31, 2013; interim results are unaudited.
Dataram develops, manufactures and sells memory products and storage-caching products. It identifies one business segment. The filing states that share and per-share data reflect a subsequent 1-for-6 reverse stock split.
Financial performance and condition
| Metric | Three months ended Jan. 31, 2013 | Three months ended Jan. 31, 2012 | Nine months ended Jan. 31, 2013 | Nine months ended Jan. 31, 2012 |
|---|---|---|---|---|
| Revenue | $6.44 million | $8.42 million | $21.40 million | $29.10 million |
| Gross profit / margin | $1.51 million / 23.5% | $1.67 million / 19.8% | $4.39 million / 20.5% | $7.09 million / 24.4% |
| Operating loss | $0.71 million | $4.05 million | $2.77 million | $5.84 million |
| Net loss | $0.78 million | $4.18 million | $3.01 million | $6.22 million |
| Loss per share | $0.44 | $2.34 | $1.68 | $3.52 |
At January 31, 2013, cash was $759,346, working capital was approximately $2.95 million and the current ratio was 1.9, versus $3.27 million, $6.69 million and 4.0, respectively, at April 30, 2012. Total assets were $9.10 million and stockholders’ equity was $4.58 million. Current revolving-credit borrowings were $1.47 million; amounts due to the related-party lender were $400,000 current and $1.37 million long term.
For the nine months, operating cash use was $2.67 million, investing cash use was $824,471 and financing cash provided was $975,769. Cash declined by $2.52 million. The company reported approximately $314,000 of additional availability under its asset-based credit facility at January 31.
Changes versus the prior comparable period
- Revenue declined 23.5% in the quarter and 26.5% year to date. Management attributed the decline primarily to lower average selling prices as DRAM chip prices fell approximately 39% year over year.
- Quarterly gross margin improved, while the nine-month gross margin declined. Cost of sales was 77% of quarterly revenue and 79% of nine-month revenue, compared with 80% and 76% in the prior-year periods.
- Operating and net losses narrowed substantially, partly because the prior-year periods included a $2.39 million impairment of capitalized XcelaSAN software. Lower selling, general and administrative expense also contributed, including reduced XcelaSAN marketing costs and lower employee-related costs in the memory business.
- Nine-month operating cash use increased from $1.08 million to $2.67 million, while cash fell from $3.27 million at fiscal year-end to $759,346.
Outlook, risks and unusual items
Management said short-term liquidity needs were satisfied, citing proceeds from a patent sale, repayment of a Shoreline note and borrowing capacity. It cautioned that revenues may not meet projections and said long-term liquidity depends on achieving profitable operations and positive operating cash flow, raising capital, or obtaining other financing; success is not assured. No quantified revenue or earnings guidance is provided.
The company had advanced $750,000 to Shoreline Memory under a convertible note. After quarter-end, Shoreline repaid $250,000; Dataram reported an agreement in principle to terminate the broader relationship, with a further $225,000 payment expected at closing and the remaining $275,000 proposed to be repaid by July 31, 2013 under a 6% note. The company said it would seek to expand its relationship with AMD; management could not estimate fiscal 2013 revenue from its commercial agreements.
Liquidity and operating risks include volatile DRAM prices, demand changes, competition and limited remaining credit availability. The revolving facility is secured by substantially all assets, has a 9.25% minimum rate and includes covenants and borrowing-base limits. The related-party loan bears 10% interest and requires scheduled principal payments. Dataram was under a Nasdaq delisting notice; following shareholder approval, the board effected a 1-for-6 reverse split on March 15, 2013. The filing says continued trading above $1 for ten consecutive days was required for compliance and a hearing was scheduled for March 28, 2013.
A former landlord sued over restoration costs and unpaid rent after a facility lease expired. The company disputed the restoration claim and said any payment was not expected to materially affect its financial condition. The filing reported no other material commitments beyond disclosed operating leases.
Important facts for investors to verify
- Confirm the issuer: this document is Dataram Corporation’s filing, despite the request metadata naming U.S. Gold Corp.
- Track cash use, working capital and actual borrowing availability under the revolving facility, including covenant compliance.
- Verify collection and final terms of the Shoreline repayments and termination; the additional payment and amended note were described as proposed or subject to closing.
- Monitor Nasdaq listing compliance after the reverse split and the outcome of the scheduled hearing.
- Assess whether revenue and margins stabilize amid DRAM price changes, and whether AMD and other agreements produce meaningful sales.
- Review the landlord litigation’s outcome and the company’s ability to fund long-term obligations without profitable operations or new capital.