Filing identity and reporting period
Important discrepancy: The request identifies U.S. Gold Corp., but the supplied filing is for Dataram Corporation (Form 10-Q, filed March 16, 2012). It reports the quarter and nine months ended January 31, 2012; the filing does not concern U.S. Gold Corp.
Dataram develops and sells memory products for servers and workstations and markets storage-caching products. The interim financial statements are unaudited.
Financial performance
| Metric | Three months ended Jan. 31, 2012 | Three months ended Jan. 31, 2011 | Nine months ended Jan. 31, 2012 | Nine months ended Jan. 31, 2011 |
|---|---|---|---|---|
| Revenue | $8.42 million | $11.87 million | $29.10 million | $35.57 million |
| Gross profit | $1.67 million | $2.90 million | $7.09 million | $8.44 million |
| Operating loss | $(4.05) million | $(0.65) million | $(5.84) million | $(3.45) million |
| Net loss | $(4.18) million | $(0.84) million | $(6.22) million | $(3.79) million |
| Basic and diluted loss per share | $(0.39) | $(0.09) | $(0.59) | $(0.43) |
Gross margin was approximately 19.8% for the quarter, versus 24.4% a year earlier; for nine months it was approximately 24.3%, versus 23.7%. The filing attributes weaker quarterly margin partly to purchasing more raw materials on the spot market while reducing inventory.
Cash flow, liquidity, and debt
- For the nine months, operating cash use was $1.08 million and investing cash use was $1.34 million; financing provided $2.81 million. Cash rose to $739,000 at January 31, 2012, from $345,000 at April 30, 2011.
- Working capital was approximately $3.65 million and the current ratio was 2.1, compared with $3.13 million and 1.4 at April 30, 2011.
- At January 31, current revolving-credit borrowings were $1.47 million. The company had borrowed the full $2.00 million available under a secured related-party loan from executive David Sheerr, bearing 10% interest; principal payments were scheduled to begin July 15, 2012.
- Only approximately $13,000 of additional borrowing was available under the bank facility at January 31. The company was in default of its tangible-net-worth covenant; the bank waived the default. A March 2, 2012 amendment reduced the facility limit from $5.0 million to $3.5 million and reset the covenant.
Material changes and unusual items
- Revenue fell approximately 29% in the quarter and 18% for the nine-month period. Management cited lower average selling prices following an approximately 35% year-over-year decline in DRAM chip purchase prices.
- The quarter included a $2.39 million impairment charge that wrote off capitalized XcelaSAN software development costs. The product generated approximately $8,000 of revenue in the quarter, significantly below expectations; management said substantial marketing resources were needed but not readily available.
- Inventory declined to $3.32 million from $5.46 million at April 30, 2011; accounts receivable declined to $2.76 million from $4.63 million. Accounts payable also fell, by $2.24 million in the nine-month cash-flow reconciliation.
- The May 2011 registered direct offering raised approximately $3.00 million net through issuance of 1.775 million shares and warrants for 1.331 million shares, creating potential dilution.
- On March 9, 2012, the company received an offer to sell a patent portfolio. Management said proceeds, if the sale closes, could reduce debt and support more regular inventory purchasing; closing was uncertain and subject to final documentation.
Outlook, risks, and contingencies
Management said short-term liquidity needs had been satisfied based on offering proceeds, projected operating cash flows, and anticipated patent-sale proceeds, but cautioned that the patent transaction might not close and revenues might fall short of projections. Long-term liquidity depends on achieving profitable operations and positive cash flow. The company was seeking additional financing. Key stated risks include economic conditions, memory-chip prices and availability, demand for memory and storage products, and competition. No specific earnings or revenue guidance was provided.
A former facility landlord sued over restoration costs and unpaid rent. Dataram disputed the restoration claim and said any payment was not expected to materially affect its financial condition. The filing reports no material change in risk factors from the most recent Form 10-K.
Investor verification points
- Confirm the intended issuer: the supplied filing is Dataram Corporation, not U.S. Gold Corp.
- Verify whether the patent sale closed and what net proceeds, if any, were received.
- Review updated borrowing availability, covenant compliance, and repayment terms for the bank and related-party facilities.
- Assess whether revenue, margins, and cash generation improved after the DRAM price decline and XcelaSAN impairment.
- Check the outcome and potential financial exposure of the landlord lawsuit, and account for dilution from the offering shares and warrants.