Item 8. FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
|
|
Page
|
Consolidated Financial Statements:
|
|
|
|
|
|
|
Reports of Independent Registered Public Accounting Firms
|
|
31
|
|
|
|
|
|
Consolidated Balance Sheets as of April 30, 2016 and 2015
|
|
33
|
|
|
|
|
|
Consolidated Statements of Operations –
|
|
|
|
Years ended April 30, 2016 and 2015
|
|
34
|
|
|
|
|
|
Consolidated Statements of Stockholders' Equity -
|
|
|
|
Years ended April 30, 2016 and 2015
|
|
35
|
|
|
|
|
|
Consolidated Statements of Cash Flows -
|
|
|
|
Years ended April 30, 2016 and 2015
|
|
36
|
|
|
|
|
|
Notes to Consolidated Financial Statements -
|
|
|
|
Years ended April 30, 2016 and 2015
|
|
37
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Audit Committee of the
Board of Directors and Shareholders
of Dataram Corporation
We have audited the accompanying consolidated
balance sheet of Dataram Corporation and Subsidiaries (the “Company”) as of April 30, 2016, and the related consolidated
statements of operations, stockholders’ equity and cash flows for the year then ended. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with the
standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.
The
Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our
audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion.
An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred
to above present fairly, in all material respects, the consolidated financial position of Dataram Corporation and Subsidiaries,
as of April 30, 2016, and the consolidated results of their operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America.
The accompanying financial statements have
been prepared assuming that the Company will continue as a going concern. As more fully described in Note 2 to the financial statements,
the Company has suffered recurring losses and needs an infusion of capital to continue its operations. These conditions raise substantial
doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are
described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The financial statements of Dataram Corporation
as of and for the year ended April 30, 2015, were audited by other auditors, whose report, dated August 31, 2015 expressed an unmodified
opinion on those financial statements, which contained an explanatory paragraph as to the Company’s ability to continue as
a going concern. As discussed in Note 1 to the financial statements, the Company has adjusted its fiscal 2015 financial statements
to retrospectively apply the reverse stock split to its common stock that occurred subsequent to the year ended April 30, 2016.
The other auditors reported on the financial statements before the retrospective adjustments.
As part of our audit of the financial statements
as and for the year ended April 30, 2016, we also audited the adjustments to the fiscal 2015 financial statements to retroactively
apply the effects of the reverse stock split that occurred subsequent to the year ended April 30, 2016, as described in Note 1.
In our opinion, such adjustments are appropriate and have been properly applied. We were not engaged to audit, review, or apply
any procedures to the financial statements of Dataram Corporation for the year ended April 30, 2015, other than with respect to
the adjustments and, accordingly, we do not express an opinion, or any other form of assurance, on such financial statements as
a whole.
/s/ Marcum LLP
Marcum
llp
New York, NY
July 29, 2016
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
The Board of Directors and Stockholders’ of Dataram Corporation
We have audited, before the effects of the
adjustments to retrospectively apply the change in accounting related to the reverse stock split described in Note 1, the accompanying
consolidated balance sheet of Dataram Corporation and Subsidiaries (the “Company”) as of April 30, 2015, and the related
consolidated statement of operations, changes in stockholders’ equity, and cash flow for the years then ended. These consolidated
financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with the
standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our
audit included consideration of internal control over financial reporting as a basis for designing audit procedures that we considered
appropriate under the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe
that our audit provide a reasonable basis for our opinion.
In our opinion, before the effects of the adjustments
to retrospectively apply the change in accounting related to the reverse stock split described in Note 1, the consolidated financial
statements referred to above present fairly, in all material respects, the consolidated financial position of Dataram Corporation
and Subsidiaries as of April 30, 2015, and the results of their operations and their cash flow for the year then ended, in conformity
with accounting principles generally accepted in the United States of America.
The accompanying
consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in
Note 2 to the consolidated financial statements, these conditions raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities
that might result should the Company be unable to continue as a going concern.
We were not engaged to audit, review or apply
any procedures to the adjustments to retrospectively apply the change in accounting related to the reverse stock split described
in Note 1, accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate
and have been properly applied. Those adjustments were audited by other auditors.
/s/ Anton & Chia, LLP
Newport Beach, California
August 31, 2015
DATARAM CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share and per share
amounts)
|
|
April 30,
2016
|
|
April 30,
2015
|
Assets
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
56
|
|
|
$
|
327
|
|
Accounts receivable, less allowance of $100 and $140, respectively
|
|
|
2,746
|
|
|
|
2,171
|
|
Inventories, net
|
|
|
1,336
|
|
|
|
2,089
|
|
Other current assets
|
|
|
123
|
|
|
|
69
|
|
Total current assets
|
|
|
4,261
|
|
|
|
4,656
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
51
|
|
|
|
121
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
30
|
|
|
|
49
|
|
Capitalized software development costs, net
|
|
|
326
|
|
|
|
366
|
|
Goodwill
|
|
|
1,083
|
|
|
|
1,083
|
|
Total assets
|
|
$
|
5,751
|
|
|
$
|
6,275
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Note payable-revolving credit line
|
|
$
|
1,776
|
|
|
$
|
2,109
|
|
Accounts payable
|
|
|
737
|
|
|
|
880
|
|
Accrued liabilities
|
|
|
159
|
|
|
|
282
|
|
Convertible notes payable
|
|
|
—
|
|
|
|
600
|
|
Convertible notes payable related parties
|
|
|
80
|
|
|
|
108
|
|
Total current liabilities
|
|
|
2,752
|
|
|
|
3,979
|
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
107
|
|
|
|
179
|
|
Total liabilities
|
|
|
2,859
|
|
|
|
4,158
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity:
|
|
|
|
|
|
|
|
|
Authorized 5,000,000 Preferred Shares
|
|
|
|
|
|
|
|
|
Preferred stock series A, par value $.01 per share. Designated 1,300,000 shares; Issued and outstanding shares nil at April 30, 2016 and 626,600 at April 30, 2015
|
|
|
—
|
|
|
|
1,857
|
|
Preferred stock series B, par value $12.20 per share. Designated 400,000 shares; Issued and outstanding shares 331,559 at April 30, 2016 and nil at April 30, 2015, (Liquidation value $4,045)
|
|
|
4,045
|
|
|
|
—
|
|
Common stock, par value $.001 per share Authorized 54,000,000 common shares; par value $0.001, issued and outstanding 1,648,287 at April 30, 2016 and 925,337 at April 30, 2015
|
|
|
2
|
|
|
|
1
|
|
Additional paid-in capital
|
|
|
24,556
|
|
|
|
24,638
|
|
Shares to be issued
|
|
|
—
|
|
|
|
111
|
|
Accumulated deficit
|
|
|
(25,711
|
)
|
|
|
(24,490
|
)
|
Total stockholders' equity
|
|
|
2,892
|
|
|
|
2,117
|
|
Total liabilities and stockholder’s equity
|
|
$
|
5,751
|
|
|
$
|
6,275
|
|
See accompanying notes to consolidated financial statements.
DATARAM CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended April 30, 2016 and 2015
(In thousands, except share and per share
amounts)
|
|
2016
|
|
2015
|
|
|
|
|
|
Revenues
|
|
$
|
25,182
|
|
|
$
|
28,258
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
20,464
|
|
|
|
24,068
|
|
Engineering
|
|
|
191
|
|
|
|
768
|
|
Selling, general and administrative
|
|
|
5,767
|
|
|
|
6,171
|
|
|
|
|
26,422
|
|
|
|
31,007
|
|
Loss from operations
|
|
|
(1,240
|
)
|
|
|
(2,749
|
)
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(199
|
)
|
|
|
(1,001
|
)
|
Foreign currency transactions gains (losses)
|
|
|
9
|
|
|
|
(76
|
)
|
Gain on debt extinguishment
|
|
|
22
|
|
|
|
—
|
|
Total other expenses, net
|
|
|
(168
|
)
|
|
|
(1,077
|
)
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(1,408
|
)
|
|
|
(3,826
|
)
|
|
|
|
|
|
|
|
|
|
Gain on sale of State NOL
|
|
|
190
|
|
|
|
—
|
|
Income tax expense
|
|
|
(3
|
)
|
|
|
(3
|
)
|
Total tax benefit (expense)
|
|
|
187
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,221
|
)
|
|
$
|
(3,829
|
)
|
|
|
|
|
|
|
|
|
|
Dividend – Series A preferred stock
|
|
|
122
|
|
|
|
1,759
|
|
Net loss allocated to common shareholders
|
|
$
|
(1,343
|
)
|
|
$
|
(5,588
|
)
|
|
|
|
|
|
|
|
|
|
Net loss per common share:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(1.07
|
)
|
|
$
|
(6.60
|
)
|
Weighted average common shares outstanding
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
1,255,414
|
|
|
|
846,170
|
|
See accompanying notes to consolidated financial statements
DATARAM CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders’
Equity
Years ended April 30, 2016 and 2015
(In thousands, except share amounts)
|
|
Preferred Stock Series A
|
|
Preferred Stock Series B
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Additional Paid-in Capital
|
|
Shares to be issued
|
|
Accumulated deficit
|
|
Total Stockholders’
equity
|
Balance at May 1, 2014
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
803,504
|
|
|
$
|
1
|
|
|
$
|
22,645
|
|
|
|
—
|
|
|
$
|
(20,661
|
)
|
|
$
|
1,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,829
|
)
|
|
|
(3,829
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
14
|
|
|
|
—
|
|
|
|
—
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value detachable warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
562
|
|
|
|
—
|
|
|
|
—
|
|
|
|
562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial conversion feature of convertible notes payable
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
188
|
|
|
|
—
|
|
|
|
|
|
|
|
188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common shares in connection with sales of preferred series A stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
60,833
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common shares for cash
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
61,000
|
|
|
|
—
|
|
|
|
366
|
|
|
|
—
|
|
|
|
—
|
|
|
|
366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Series A Preferred stock and warrants for cash
|
|
|
626,600
|
|
|
|
1,857
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
974
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash preferred stock divided
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(111
|
)
|
|
|
111
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 30, 2015
|
|
|
626,600
|
|
|
|
1,857
|
|
|
|
—
|
|
|
|
—
|
|
|
|
925,337
|
|
|
|
1
|
|
|
|
24,638
|
|
|
|
111
|
|
|
|
(24,490
|
)
|
|
|
2,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,221
|
)
|
|
|
(1,221
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
79,556
|
|
|
|
—
|
|
|
|
620
|
|
|
|
—
|
|
|
|
—
|
|
|
|
620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common shares for cash
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
166,667
|
|
|
|
—
|
|
|
|
500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares surrendered
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,422
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued for service
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
112,000
|
|
|
|
—
|
|
|
|
126
|
|
|
|
—
|
|
|
|
—
|
|
|
|
126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Series A Preferred Stock and warrants for cash
|
|
|
20,000
|
|
|
|
80
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
20
|
|
|
|
—
|
|
|
|
—
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Series A Preferred Stock converted to common shares
|
|
|
(123,300
|
)
|
|
|
(365
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
205,500
|
|
|
|
1
|
|
|
|
364
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash preferred series A stock dividend
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(122
|
)
|
|
|
122
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued for preferred series A stock dividend
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
46,413
|
|
|
|
—
|
|
|
|
233
|
|
|
|
(233
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange series A preferred stock for series B preferred stock
|
|
|
(523,300
|
)
|
|
|
(1,572
|
)
|
|
|
214,465
|
|
|
|
2,616
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,044
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange common and preferred series A warrants for series B preferred stock
|
|
|
—
|
|
|
|
—
|
|
|
|
66,136
|
|
|
|
807
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(807
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of series B preferred for extinguishment of convertible debt
|
|
|
—
|
|
|
|
—
|
|
|
|
55,083
|
|
|
|
672
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(22
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of series B preferred stock to restricted common shares
|
|
|
—
|
|
|
|
—
|
|
|
|
(4,125
|
)
|
|
|
(50
|
)
|
|
|
27,500
|
|
|
|
—
|
|
|
|
50
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted common shares issued in exchange of stock options
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
87,736
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Balance at April 30, 2016
|
|
|
—
|
|
|
$
|
—
|
|
|
|
331,559
|
|
|
$
|
4,045
|
|
|
|
1,648,287
|
|
|
$
|
2
|
|
|
$
|
24,556
|
|
|
$
|
—
|
|
|
$
|
(25,711
|
)
|
|
$
|
2,892
|
|
See accompanying notes to consolidated financial statements.
DATARAM CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended April 30, 2016 and 2015
(In thousands)
|
|
2016
|
|
2015
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,221
|
)
|
|
$
|
(3,829
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
131
|
|
|
|
127
|
|
Bad debt expense
|
|
|
166
|
|
|
|
50
|
|
Stock-based compensation expense
|
|
|
746
|
|
|
|
14
|
|
Amortization of deferred gain in sale leaseback
|
|
|
(72
|
)
|
|
|
(71
|
)
|
Gain on debt extinguishment
|
|
|
(22
|
)
|
|
|
|
|
Amortization of debt discount
|
|
|
—
|
|
|
|
750
|
|
Changes in assets and liabilities
|
|
|
|
|
|
|
|
|
(Increase) decrease in accounts receivable
|
|
|
(741
|
)
|
|
|
1,442
|
|
Decrease in inventories
|
|
|
753
|
|
|
|
202
|
|
Increase in other current assets
|
|
|
(54
|
)
|
|
|
(62
|
)
|
Decrease in other assets
|
|
|
19
|
|
|
|
1
|
|
Decrease in accounts payable
|
|
|
(71
|
)
|
|
|
(558
|
)
|
Decrease in accrued liabilities
|
|
|
(123
|
)
|
|
|
(647
|
)
|
Net cash used in operating activities
|
|
|
(489
|
)
|
|
|
(2,581
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Additions to property and equipment
|
|
|
(21
|
)
|
|
|
(29
|
)
|
Software development costs
|
|
|
—
|
|
|
|
(365
|
)
|
Net cash used in investing activities
|
|
|
(21
|
)
|
|
|
(394
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Net repayments under revolving credit line
|
|
|
(333
|
)
|
|
|
(861
|
)
|
Proceeds from issuance of notes and warrants
|
|
|
—
|
|
|
|
750
|
|
Repayment of convertible notes
|
|
|
(28
|
)
|
|
|
(42
|
)
|
Proceeds from sales of preferred shares
|
|
|
100
|
|
|
|
2,832
|
|
Proceeds from sale of common stock
|
|
|
500
|
|
|
|
365
|
|
Net cash provided by financing activities
|
|
|
239
|
|
|
|
3,044
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(271
|
)
|
|
|
69
|
|
Cash at beginning of the year
|
|
|
327
|
|
|
|
258
|
|
Cash at end of the year
|
|
$
|
56
|
|
|
$
|
327
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid in the period for :
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
199
|
|
|
$
|
251
|
|
Taxes
|
|
$
|
3
|
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Debt discount on convertible notes payable
|
|
$
|
—
|
|
|
$
|
750
|
|
Non-cash preferred stock dividends
|
|
$
|
122
|
|
|
$
|
1,759
|
|
Issuance of common stock for accrued dividend on Series A preferred stock
|
|
$
|
233
|
|
|
$
|
—
|
|
Issuance of preferred B preferred stock for extinguishment of convertible
|
|
$
|
600
|
|
|
$
|
—
|
|
Exchange common warrant for series B preferred stock
|
|
$
|
807
|
|
|
$
|
—
|
|
Exchange of series A preferred stock for series B preferred stock
|
|
$
|
1,572
|
|
|
$
|
—
|
|
Exchange of B preferred stock for accrued interest
|
|
$
|
72
|
|
|
$
|
—
|
|
Conversion of series B preferred stock into common stock
|
|
$
|
50
|
|
|
$
|
—
|
|
Conversion of series A preferred stock into common stock
|
|
$
|
365
|
|
|
$
|
—
|
|
See accompanying notes to consolidated
financial statements.
Dataram Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. Organization and Nature of Business
Since 1967, Dataram Corporation
(“Dataram” or the “Company”) has been an independent manufacturer and reseller of memory products and provider
of performance solutions. The Company provides customized memory solutions for original equipment manufacturers (OEMs) and compatible
memory for leading brands including Cisco, Dell, Fujitsu, HP, IBM, Lenovo and Oracle as well as a line of memory products for Intel
and AMD motherboard based servers. Dataram manufactures its memory in-house to meet three key criteria - quality, compatibility,
and selection - and tests its memory for performance and original equipment manufacturer (OEM) compatibility as part of the production
process. With memory designed for over 50,000 systems and with products that range from energy-efficient DDR4 modules to
legacy SDR offerings. The Company is a CMTL Premier Participant and ISO 9001 (2008 Certified). Its products are fully compliant
with JEDEC Specifications.
Dataram’s customers
include an international network of distributors, resellers, retailers, OEM customers and end users.
Dataram competes with several
other large independent memory manufacturers and the OEMs noted above. The primary raw material used in producing memory
boards is dynamic random access memory (DRAM) chips. The purchase cost of DRAMs is the largest single component of the total cost
of a finished memory board. Consequently, average selling prices for computer memory boards are significantly dependent on the
pricing and availability of DRAM chips.
On July 6, 2016, the Company
filed a certificate of amendment to its Articles of Incorporation with the Secretary of State of the State of Nevada in order to
effectuate a reverse stock split of the Company’s issued and outstanding common stock, par value $0.001 per share on a one
(1) for three (3) basis, effective on July 8, 2016 (the “Reverse Stock Split”). The accompanying consolidated financial
statements and notes thereto give retrospective effect of the Reverse Stock Split for all periods presented.
Note 2. Liquidity, Going Concern and Management
Plans
The
Company's consolidated financial statements are prepared using the accrual method of accounting in accordance with accounting principles
generally accepted in the United States of America (“U.S. GAAP”) and have been prepared assuming that the Company will
continue as a going concern, which contemplates the realization of assets and the settlement of liabilities in the normal course
of business. For the fiscal years ended April 30, 2016 and 2015, the Company incurred losses in the amounts of approximately $1,221,000
and $3,829,000, respectively.
The
Company raised approximately $600,000 from financing activities in the fiscal year 2016. (See note 3) The Company also exchanged
notes payable and accrued interest payable of approximately $672,000 for equity in fiscal 2016. (See note 4) While the Company
has made significant operational changes in the last year which has reduced its cash burn, there still remains substantial doubt
about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments
relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that
might be necessary in the event the Company cannot continue in existence.
If
current and projected revenue growth does not meet estimates, the Company may need to raise additional capital through debt and/or
equity transactions and reduce certain overhead costs. The Company cannot provide assurance that financing will close or be available
to it on favorable terms.
Note 3. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The consolidated financial
statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S.
GAAP”) and include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions
and balances have been eliminated in consolidation.
Cash Equivalents
The Company did not have
cash equivalents at the year ended April 30, 2016 or 2015.
Concentrations of Credit Risk
Financial instruments that
potentially subject the Company to concentrations of credit risk consist primarily of cash and accounts receivable. The Company
maintains its cash in financial institutions. To the extent that such deposits exceed the maximum insurance levels, they are uninsured.
The Company performs ongoing evaluations of its customers’ financial condition, as well as general economic conditions and,
generally, requires no collateral from its customers. At April 30, 2016 and 2015, amounts due from one customer totaled approximately
15% and 16%, respectively, of accounts receivable.
In fiscal years ended April 30, 2016 the Company had sales to two customers that were over 10% of revenues.
One customer totaled approximately 20% of revenues and another customer totaled approximately 15% of revenues. In fiscal year ended
April 30, 2015, the Company had sales to two customers that were 10% of revenues or greater. One customer totaled approximately
20% of revenues and another customer totaled approximately 10% of revenues.
Accounts Receivable
Accounts receivable
are stated at cost less allowances for doubtful accounts which reflects the Company’s estimate of balances that will not
be collected and sales returns. The allowances are based on the history of past write-offs, and returns, the aging of balances,
collections experience and current credit conditions. Additions include provisions for doubtful accounts and deductions include
customer write-offs.
Accounts receivable consist of the following:
|
|
April
30,
2016
|
|
April
30,
2015
|
Trade receivables
|
|
$
|
2,656,000
|
|
|
$
|
2,151,000
|
|
VAT receivable
|
|
|
190,000
|
|
|
|
160,000
|
|
Allowance for doubtful accounts and sales returns
|
|
|
(100,000
|
)
|
|
|
(140,000
|
)
|
|
|
$
|
2,746,000
|
|
|
$
|
2,171,000
|
|
Inventories
Inventories are stated
at the lower of cost or market and include the cost of material, labor and manufacturing overhead. Cost is determined on the first-in,
first-out basis. The Company provides inventory allowances to write down inventory to its estimated net realizable value when conditions
indicate that the selling price could be less than cost due to physical deterioration, obsolescence, changes in price levels, or
other causes, which it includes as a component of cost of revenues. Additionally, the Company provides allowances for excess and
slow-moving inventory on hand that are not expected to be sold to reduce the carrying amount of slow-moving inventory to its estimated
net realizable value. The allowances for slow-moving inventory are based upon estimates about future demand from our customers
and market conditions.
Inventories consist of the following:
|
|
April
30,
2016
|
|
April
30,
2015
|
Raw materials
|
|
$
|
955,000
|
|
|
$
|
1,125,000
|
|
Work in progress
|
|
|
5,000
|
|
|
|
2,000
|
|
Finished goods
|
|
|
566,000
|
|
|
|
1,176,000
|
|
Allowance for excess and slow moving
|
|
|
(190,000
|
)
|
|
|
(214,000
|
)
|
|
|
$
|
1,336,000
|
|
|
$
|
2,089,000
|
|
Property and Equipment
Equipment consisting of
office furniture, computer, machinery and equipment is recorded at cost. Repairs and maintenance costs are expensed as incurred.
Depreciation for office furniture, computer, machinery and equipment is computed under the straight-line method over the estimated
useful lives which range from two to five years. Leasehold improvements are depreciated under the straight line method over their
estimated useful lives or the remaining lease period, whichever is shorter. When property or equipment is retired or otherwise
disposed of, related costs and accumulated depreciation and amortization are removed from the accounts. Depreciation and amortization
expense related to property and equipment for the fiscal years ended April 30, 2016 and 2015 totaled $92,000 and $127,000, respectively.
Repair and maintenance costs are charged to operations as incurred.
As of April 30, 2016 and
2015 fixed assets and accumulated amortization balances:
|
|
2016
|
|
2015
|
Equipment
|
|
$
|
502,000
|
|
|
$
|
480,000
|
|
Leasehold improvement
|
|
|
608,000
|
|
|
|
608,000
|
|
|
|
|
1,110,000
|
|
|
|
1,088,000
|
|
Less: Accumulated depreciation and amortization
|
|
|
(1,059,000
|
)
|
|
|
(967,000
|
)
|
|
|
|
|
|
|
|
|
|
Net property and equipment
|
|
$
|
51,000
|
|
|
$
|
121,000
|
|
Long-Lived Assets:
Long-lived assets, such
as property and equipment and capitalized software are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison
of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the
carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which
the carrying amount of the asset exceeds the estimated fair value of the asset. Assets to be disposed of would be separately presented
in the consolidated balance sheets and reported at the lower of the carrying amount or fair value less cost to sell, and no longer
depreciated. The Company considers various valuation factors, principally undiscounted cash flows, to assess the fair values of
long-lived assets.
Intangible Assets Capitalized Software
Software costs incurred in the research, design and development of software for sale to others as a separate
product or embedded in a product and sold as part of the product as a whole are charged to expense until technological feasibility
is established and amortized on a straight-line basis over seven years, beginning when the products are offered for sale or the
enhancements are integrated into the products. Management is required to use its judgment in determining whether capitalized software
costs meet the criteria for immediate expense or capitalization, in accordance with U.S. GAAP. The unamortized capitalized costs
of a computer software product are compared to the net realizable value of that product and any excess is written off. The Company
began to amortize the capitalized software in the second quarter of the fiscal year ended April 30, 2016. In the fiscal year ended
April 30, 2016 the company recorded approximately $39,000 of amortization. The company will amortize the capitalized software on
a straight line basis over the next nineteen quarters.
The Company’s proprietary
software solutions operate in a fast changing industry that may generate unknown methods of detecting and monitoring disturbances
that could render our technology inferior, resulting in the Company’s results of operations being materially adversely affected.
The Company does, however, closely monitor trends and changes in technologies and customer demand that could adversely impact its
competitiveness and overall success. It is reasonably possible that those estimates of anticipated future gross revenues, the remaining
estimated economic life of the product, or both will be reduced significantly in the near term due to competitive pressures. As
a result, the carrying amount of the capitalized software costs for the Company’s products may be reduced materially in the
near term. Costs incurred for product enhancements are charged to expense.
Goodwill
Goodwill represents the excess of the purchase price over the estimated fair
value of identifiable net assets acquired in an acquisition. Goodwill is not amortized but rather is reviewed annually for impairment,
or whenever events or circumstances indicate that the carrying value may not be recoverable. The Company initially performs a qualitative
assessment of goodwill which considers macro-economic conditions, industry and market trends, and the current and projected financial
performance of the reporting unit. No further analysis is required if it is determined that there is a less than 50 percent likelihood
that the carrying value is greater than the fair value. The Company completed a quantitative assessment and determined that there
was no impairment of goodwill as of April 30, 2016.
Fair Value of Financial Instruments:
U.S. GAAP requires disclosing
the fair value of financial instruments to the extent practicable for financial instruments which are recognized or unrecognized
in the balance sheet. The fair value of the financial instruments disclosed herein is not necessarily representative of the amount
that could be realized or settled, nor does the fair value amount consider the tax consequences of realization or settlement.
In assessing the fair value
of financial instruments, the Company uses a variety of methods and assumptions, which are based on estimates of market conditions
and risks existing at the time. For certain instruments, including cash, accounts receivable, accounts payable, and accrued expenses,
and debt the fair value was estimated that the carrying amount approximated fair value because of the short maturities of these
instruments. All debt is based on current rates at which the Company could borrow funds with similar remaining maturities and approximates
fair value.
Fair value measurements
and disclosures establish a hierarchy that prioritizes fair value measurements based on the type of inputs used for the various
valuation techniques (market approach, income approach and cost approach). The levels of hierarchy are described below:
|
•
|
Level 1: Observable inputs such as quoted market prices in active markets for identical assets or liabilities.
|
|
•
|
Level 2: Inputs other than quoted market prices that are observable for the asset or liability, either directly or indirectly; these include quoted prices for similar assets or liabilities in active markets, such as interest rates and yield curves that are observable at commonly-quoted intervals.
|
|
•
|
Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions, as there is little, if any, related market activity.
|
The Company’s assessment of the significance
of a particular input to the fair value measurement requires judgment, and may affect the valuation of assets and liabilities and
their placement within the fair value hierarchy.
Revenue Recognition
Revenue is recognized when
title passes upon shipment of goods to customers. The Company’s revenue earning activities involve delivering or producing
goods. The following criteria are met before revenue is recognized: persuasive evidence of an arrangement exists, shipment has
occurred, selling price is fixed or determinable and collection is reasonably assured. The Company does experience a minimal level
of sales returns and allowances for which the Company accrues a reserve at the time of sale. Estimated warranty costs are accrued
by management upon product shipment based on an estimate of future warranty claims.
Engineering and Research and Development
Research and development
costs are expensed as incurred, including Company-sponsored research and development and costs of patents and other intellectual
property that have no alternative future use when acquired and in which we had an uncertainty of receiving future economic benefits.
Advertising
Advertising is expensed
as incurred and amounted to $43,000 and $89,000 in the fiscal years ended April 30, 2016 and 2015, respectively.
Income Taxes
The Company accounts for
income taxes by recording a deferred tax asset or liability for the recognition of future deductible or taxable amounts and operating
loss and tax credit carry forwards. Deferred tax expense or benefit is recognized as a result of timing differences between the
recognition of assets and liabilities for financial reporting and tax purposes during the year. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. Deferred tax assets are recognized for deductible temporary differences and operating loss
and tax credit carry forwards. A valuation allowance is established, when necessary, to reduce that deferred tax asset if it is
more likely than not that the related tax benefits will not be realized.
The Company follows
the guidance of accounting for uncertainty in income taxes. This guidance did not result in a material adjustment to the Company’s
liability for unrecognized income tax benefits. As of April 30, 2016, the Company currently was not and is not engaged in an income
tax examination by any tax authority. The Company recognizes interest and penalties on unpaid taxes in its income tax expense.
No interest or penalties were recognized during the Company’s fiscal years ended April 30, 2016 and 2015. The Company files
income tax returns in the United States and in various states. The Company’s significant tax jurisdictions are the U.S. Federal,
New Jersey, Pennsylvania and California. The tax years subsequent to 2011 remain open to examination by the taxing authorities.
Net Income (Loss) Per Share
Basic
net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding
during the period. Diluted net income (loss) per share is calculated in a manner consistent with basic net income (loss) per share
except that the weighted average number of common shares outstanding also includes the dilutive effect of stock options outstanding
(using the treasury stock method).
Basic
net loss per share is computed by dividing the net loss available to common stock holders by the weighted average number of shares
of common stock issued and outstanding during the period. The calculation of diluted loss per share for the fiscal year ended April
30, 2016 and April 30, 2015 includes only the weighted average number of shares of common stock outstanding. The denominator excludes
the dilutive effect of common shares issuable upon exercise or conversion of stock options, warrants, convertible notes and Series
A and Series B preferred shares as their effect would be anti-dilutive.
Anti-dilutive securities consisted of the following
at April 30:
|
|
2016
|
|
2015
|
Convertible notes
|
|
|
—
|
|
|
|
80,000
|
|
Convertible notes – related parties
|
|
|
9,070
|
|
|
|
17,007
|
|
Series A preferred shares
|
|
|
—
|
|
|
|
522,167
|
|
Series B preferred shares
|
|
|
2,210,390
|
|
|
|
—
|
|
Warrants
|
|
|
207,625
|
|
|
|
1,102,758
|
|
Common shares reserved for series A preferred share dividends
|
|
|
—
|
|
|
|
17,517
|
|
Stock options
|
|
|
—
|
|
|
|
41,915
|
|
Total
|
|
|
2,427,085
|
|
|
|
1,781,364
|
|
Product Warranty
The majority of the Company’s
products are intended for single use; therefore, the Company requires limited product warranty accruals. The Company accrues estimated
product warranty costs at the time of sale and any additional amounts are recorded when such costs are probable and can be reasonably
estimated, such amounts in fiscal year ended April 30, 2016 and 2015 were not material.
|
|
Balance
|
|
|
Charges to
|
|
|
|
|
|
Balance
|
|
|
|
Beginning
|
|
|
Costs and
|
|
|
|
|
|
End
|
|
|
|
of Year
|
|
|
Expenses
|
|
|
Deductions
|
|
|
of Year
|
|
Year Ended April 30, 2016
|
|
$
|
10,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30, 2015
|
|
$
|
69,000
|
|
|
$
|
11,000
|
|
|
$
|
(70,000
|
)
|
|
$
|
10,000
|
|
Use of Estimates
The preparation of financial
statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, and disclosure of contingent liabilities at the date of the financial statements, and the reported amounts
of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates and assumptions
are reviewed periodically and the effects of revisions are reflected in the consolidated financial statements in the period they
are determined to be necessary. Some of the more significant estimates made by management include the allowance for doubtful accounts
and sales returns, inventory reserve, stock based compensation, deferred income tax asset valuation allowance and other operating
allowances and accruals.
Stock-Based Compensation – Stock options
The Company
accounts for stock-based awards issued to employees, officers and directors pursuant to Accounting Standard Codification No.
718 - “Stock Based Compensation”. Such awards primarily consist of options to purchase shares of common stock. The fair value of
stock-based awards is determined on the grant date using a valuation model. The fair value is recognized as compensation
expense, net of estimated forfeitures, on a straight line basis over the service period which is normally the vesting
period.
Recent Accounting Pronouncements
In May 2014, the FASB issued a new financial accounting standard which outlines a single comprehensive model
for entities to use in accounting for revenue arising from contracts with customers and supersedes current revenue recognition
guidance. The accounting standard is effective for annual reporting periods (including interim reporting periods within those periods)
beginning after December 15, 2017. Early adoption is permitted as of annual reporting periods beginning after December 15,
2016, including interim reporting periods within that reporting period. We are currently evaluating the impact of this accounting
standard on our consolidated financial statements.
In April 2015, the FASB
issued ASU No. 2015-03(ASU 2015-03), Interest — Imputation of Interest (Subtopic 835-30): Simplifying the Presentation
of Debt Issuance Costs. This standard amends the existing guidance to require that debt issuance costs be presented in the balance
sheet as a deduction from the carrying amount of the related debt liability instead of as a deferred charge. ASU 2015-03 is effective
on a retrospective basis for annual and interim reporting periods beginning after December 15, 2015, but early adoption is
permitted. The Company has early adopted this standard by classifying debt issuance cost as part of the debt and its impact on
its consolidated financial statements and related disclosures was immaterial statements and related disclosures was immaterial.
In May 2015 In May of 2015,
the FASB issued ASU 2015-07, Fair Value Measurement, to remove the requirement to categorize within the fair value hierarchy all
investments for which fair value is measured using the net asset value per share practical expedient. The amendments also remove
the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset
value per share practical expedient. The ASU is effective for annual periods, and interim periods within those annual periods,
beginning after December 15, 2015. Early adoption is permitted. The adoption of this standard is not expected to have a material
impact on the Company’s consolidated financial position and results of operations.
In September 2015, the
FASB issued ASU No. 2015-16, “Business Combinations (Topic 805), Simplifying the Accounting for Measurement-Period Adjustments”.
The update requires that the acquirer in a business combination recognize adjustments to provisional amounts that are identified
during the measurement period in the reporting period in which the adjustment amounts are determined (not retrospectively as with
prior guidance). Additionally, the acquirer must record in the same period’s financial statements the effect on earnings
of changes in depreciation, amortization or other income effects as a result of the change to the provisional amounts, calculated
as if the accounting had been completed at the time of acquisition. The acquiring entity is required to disclose, on the face of
the financial statements or in the footnotes to the financial statements, the portion of the amount recorded in current period
earnings, by financial statement line item, that would have been recorded in previous reporting periods if the adjustment to the
provisional amounts had been recognized as of the acquisition date. The guidance in ASU No. 2015-16 is effective for fiscal
years beginning after December 15, 2015, including interim periods within those fiscal years. Earlier application is permitted
for financial statements that have not been issued. The adoption of this standard is not expected to have a material impact on
the Company’s consolidated financial position and results of operations.
In November 2015, the FASB
has issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, which changes how deferred
taxes are classified on organizations’ balance sheets. The ASU eliminates the current requirement for organizations to present
deferred tax liabilities and assets as current and noncurrent in a classified balance sheet. Instead, organizations will be required
to classify all deferred tax assets and liabilities as noncurrent. The amendments apply to all organizations that present a classified
balance sheet. For public companies, the amendments are effective for financial statements issued for annual periods beginning
after December 15, 2016, and interim periods within those annual periods. For private companies, not-for-profit organizations,
and employee benefit plans, the amendments are effective for financial statements issued for annual periods beginning after December 15,
2017, and interim periods within annual periods beginning after December 15, 2018. The adoption of this standard is not expected
to have a material impact on the Company’s consolidated financial position and results of operations.
The FASB issued ASU 2016-02,
Leases (Topic 842). ASU 2016-02 requires that a lessee recognize the assets and liabilities that arise from operating leases. A
lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use
asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee
is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities.
In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented
using a modified retrospective approach. Public business entities should apply the amendments in ASU 2016-02 for fiscal years beginning
after December 15, 2018, including interim periods within those fiscal years (i.e., January 1, 2019, for a calendar year entity).
Early application is permitted for all public business entities and all nonpublic business entities upon issuance. The adoption
of this standard is not expected to have a material impact on the Company’s consolidated financial position and results of
operations.
In March 2016, the FASB
issued ASU No. 2016-09 (“ASU 2016-09”), “Compensation—Stock Compensation (Topic 718): Improvements to Employee
Share-Based Payment Accounting.” ASU 2016-09 will affect all entities that issue share-based payment awards to their employees
and is effective for annual periods beginning after December 15, 2016 for public entities. The areas for simplification in ASU
2016-09 involve several aspects of the accounting for share-based payment transactions, including the income tax consequences,
classification of awards as either equity or liabilities, and classification on the statement of cash flows. The Company is currently
evaluating the effect that ASU 2016-09 will have on the Company’s consolidated financial position and results of operations.
In April 2016, the FASB
issued ASU No. 2016-10 (“ASU 2016-10”), “Revenue from Contracts with Customers (Topic 606): Identifying Performance
Obligations and Licensing.” ASU 2016-10 will affect all entities that enter into contracts with customers to transfer goods
or services (that are an output of the entity’s ordinary activities) in exchange for consideration. The amendments
in this update affect the guidance in ASU 2014-09 which is not yet effective, the amendments in this update clarify the following
two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related
principles for those areas. The effective date and transition requirements for the amendments in this update are the same as the
effective date and transition requirements for ASU 2014-09. The Company is currently evaluating the effect that ASU 2016-10 will
have on the Company’s consolidated financial position and results of operations.
In May 2016, the FASB issued
ASU No. 2016-12 (“ASU 2016-12”), “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements
and Practical Expedients.” ASU 2016-12 will affect all entities that enter into contracts with customers to transfer goods
or services (that are an output of the entity’s ordinary activities) in exchange for consideration. The amendments
in this update affect the guidance in ASU 2014-09 which is not yet effective, the amendments in this update affect narrow aspects
of Topic 606 including among others: assessing collectability criterion, noncash consideration, and presentation of sales taxes
and other similar taxes collected from customers. The effective date and transition requirements for the amendments in this update
are the same as the effective date and transition requirements for ASU 2014-09. The Company is currently evaluating the effect
that ASU 2016-12 will have on the Company’s consolidated financial position and results of operations.
Note 4. Financing Agreements
As of October 31,
2013, the Company entered into an agreement with David Sheerr, a related party, to leaseback the equipment and furniture that was
sold to Mr. Sheerr on October 31, 2013. The lease is for a term of 60 months and the Company is obligated to pay approximately
$7,500 per month for the term of the lease. The Company has an option to extend the lease for an additional two year period. The
transactions described have been accounted for as a sale-leaseback transaction. Accordingly, the Company recognized a gain on the
sale of assets of approximately $139,000, which is the amount of the gain on sale in excess of present value of the future lease
payments and will recognize the remaining approximately $322,000 in proportion to the related gross rental charged to expense over
the term of the lease, 60 months. The current portion of $72,000 deferred gain is reflected in accrued liabilities and the long
term portion of $179,000 is reflected in other liabilities long term in the consolidated balance sheet as of April 30, 2015.
The current portion of $72,000 deferred gain is reflected in accrued liabilities and the long term portion of $107,000 is reflected
in other liabilities long term in the consolidated balance sheet as of April 30, 2016.
The Company has entered
into a financing agreement (the “Financing Agreement”) with Rosenthal & Rosenthal, Inc. The Financing Agreement
provides for a revolving loan with a maximum borrowing capacity of $3,500,000. The loans under the Financing Agreement mature on
November 30, 2016 unless such Financing Agreement is either earlier terminated or renewed. Loans outstanding under the Financing
Agreement bear interest at a rate of the Prime Rate (as defined in the Financing Agreement) plus 3.25% (the “Effective Rate”)
or on Over-advances (as defined in the Financing Agreement), if any, at a rate of the Effective Rate plus 3%. The Financing Agreement
contains other financial and restrictive covenants, including, among others, covenants limiting our ability to incur indebtedness,
guarantee obligations, sell assets, make loans, enter into mergers and acquisition transactions and declare or make dividends.
Borrowings under the Financing Agreement are collateralized by substantially all the assets of the Company. On April 29, 2014,
the Company entered into an amendment (the "Amendment") to the Financing Agreement. The Amendment provides for advances
against inventory balances based on prescribed formulas of raw materials and finished goods. The maximum borrowing capacity remains
at $3,500,000.
Borrowings at April 30, 2016 and April 30, 2015 totaled approximately $1,776,000 and $2,109,000 respectively
there is no additional availability as of April 30, 2016.
The weighted average interest
rate on amounts borrowed under these agreements at April 30, 2016 and 2015 was 8.5% and 8.5%, respectively. The average dollar
amounts borrowed under these agreements for the fiscal years ended April 30, 2016 and 2015 were approximately $2,348,000 and $3,091,000,
respectively.
Note 5. Securities Purchase Agreement
Bridge Notes and Bridge Warrants
On July 15, 2014,
the Company entered into the purchase agreement governing the issuance of $750,000 aggregate principal amount of Bridge Notes and
Bridge Warrants. The Bridge Notes and Bridge Warrants were issued on July 15, 2014. The Company issued $600,000 aggregate
principal amount of the Bridge Notes to certain institutional investors and $150,000 aggregate principal amount of the Bridge Notes
to certain members of management. The initial conversion price for institutional investors was $7.50 per share (which was subsequently
reduced; see below), and the initial conversion price for management was equal to the closing price of the Company’s common
stock on the closing date of the Purchase Agreement, $8.82. The Bridge Notes were secured obligations of the Company and bear interest
at a rate of 8% per year. The Bridge Warrants are exercisable for five years after the closing date of the Purchase Agreement,
or July 15, 2019. For each $1,000 of principal amount of Bridge Notes, the holder received 400 Bridge Warrants to purchase
an aggregate of 300,000 shares of common stock. Each holder is entitled to exercise one-third of all Bridge Warrants received at
an exercise price of $9.00, one-third of all Bridge Warrants received at an exercise price of $10.50, and one-third of all Bridge
Warrants received at an exercise price that is equal to the closing price on the closing date of the Purchase Agreement, $8.82.
As noted below, (Note 6) on January 15, 2016 the Company entered into an agreement with the institutional
bridge note holders and certain members of management who held warrants issued with the above Convertible Notes Payable whereby
the warrants would be exchanged for shares of Series B Preferred Stock. 255,000 of the outstanding warrants were exchanged for
19,125 shares of Series B Preferred Stock. The exchange was accounted for as an equity-for-equity exchange, with no gain or loss
recorded. The issuance date value of the exchanged warrants of $233,300 was reallocated to Series B Preferred Stock and Additional
Paid in Capital.
On November 17, 2014 the
Company closed the sale of 600,000 shares of its Series A Stock, which resulted in the reduction of the conversion price of the
Bridge Notes held by the institutional investors to $6.00 from $7.50, to equal the conversion price of the Series A Preferred Stock
On January 15, 2016 the
Company entered into an agreement with the institutional bridge note holders to exchange their entire balance (principal and accrued
and unpaid interest) of Bridge Notes originally issued on July 14, 2014 through the issuance of 55,083 shares of Series B Preferred
Stock, having a value of $649,967. The carrying value of principal and accrued interest extinguished was $672,000 resulting in
a gain on extinguishment of $22,033 (see note 6).
The pricing model
the Company used for determining fair values of the Bridge Warrants is the Black-Scholes Pricing Model. The model uses market-sourced
inputs such as interest rates, dividend yields, market prices and volatilities. The risk-free interest rate used of 1.26% is based
on the rate of U.S Treasury zero-coupon issues with a remaining term equal to the expected life of the Bridge Warrants. Expected
dividend yield assumes the current dividend rate of zero. Expected volatility of approximately 100% was calculated using the daily
closing price over a five-year period of the Company’s Common Stock.
The value of the Bridge
Warrants was derived and used as a basis to allocate the proceeds received between the Bridge Warrants and Bridge Notes. The proportionate
value ascribed to the Bridge Warrants amounted to approximately $562,000 and was reflected as a discount on notes payable. Further
the Company estimated a value of beneficial conversion feature of approximately $188,000 (limited to the amount of proceeds allocated
to the notes payable) and reflected such as an additional discount on the bridge notes. The discount on notes payable has been
fully amortized using straight line amortization. This resulted in a non-cash interest charge of approximately $750,000 in the
fiscal year ended April 30, 2015.
Series A preferred shares
On November 12,
2014, the Company completed a private placement of 600,000 shares of its Series A Preferred Stock (“Series A Stock”)
together with Warrants to purchase shares of its common stock (“Preferred Warrant”) at a price of $5.00 per share,
in accordance with the Series A Preferred Stock Purchase Agreement dated October 20, 2014 (the “Purchase Agreement”).
The net proceeds to the Company from the sale of the Series A Stock and Preferred Warrant, after deducting the estimated offering
expenses incurred by the Company were approximately $2,700,000. At any time from November 17, 2014, the date of Closing, and prior
to October 20, 2019 (the “Put/Call Exercise Period”), the investors may exercise a right to purchase and require
the Company to sell up to an additional 700,000 shares of Series A Stock. If the investors have not exercised this right during
the Put/Call Exercise Period, the Company may exercise a right to cause and require the investors to purchase up to an additional
700,000 shares of Series A Stock, for an aggregate purchase price of $3,500,000. Holders of the Series A Stock shall initially
have the right to convert such shares of Series A Stock into the number of authorized but previously unissued shares of the Company’s
common stock obtained by dividing the stated value of each share of Series A ($5.00) by $6.00. For each share of Series A Stock,
the investors will receive 2.5 Preferred Warrants to purchase the Company’s common stock at an exercise price of $7.50 per
share. The Preferred Warrants are exercisable immediately for a period of five years from the date of closing. The exercise price
of the Preferred Warrants is subject to adjustments in the case of stock splits, stock dividends, combinations of shares and similar
recapitalization transactions. The exercisability of the Preferred Warrants may be limited if upon exercise, the warrant holder
or any of its affiliates would beneficially own more than 4.99% of the Company’s Common Stock. The Holders of the Series
A Stock will receive preferential cumulative dividends at the rate of 8% per annum (equivalent to a fixed annual payment of $0.40
per share). The dividends are payable in shares of common stock and shall be valued at the weighted average price of the Company’s
common stock over the ten (10) consecutive trading days ended on the second trading day immediately before the payment date.
The
Company also issued 60,833 common shares and 30,000 warrants for common shares in exchange for professional services and
fees related to the sale of the Series A Stock. The fair value of the warrants is recorded as a simultaneous increase and
decrease to additional paid in capital and is therefore not presented on the consolidated statement of stockholders’
equity. The fair value of the common shares is presented as a charge to Additional Paid in Capital “APIC”,
with
a corresponding increase to common stock related to the par value of the shares issued. The proceeds from the
private placement were allocated between the Series A Stock, warrants and the put/call feature based upon their relative fair
values. The fair value of the preferred stock was determined utilizing the ‘as converted’ method as the prominent
feature driving the value of the instrument was deemed to be underlying value of the common stock to which the instrument
was convertible into.
Fair value of the warrants
was determined using the Black-Scholes Pricing Model. The model uses market-sourced inputs such as interest rates, dividend yields,
market prices and volatilities. The risk-free interest rate used of 1.64% is based on the rate of U.S Treasury zero-coupon issues
with a remaining term equal to the expected life of the Warrants. Expected dividend yield assumes the current dividend rate of
zero. Expected volatility of approximately 93% was calculated using the daily closing price over a five year period of the Company’s
Common Stock, the warrants have a strike price of $7.50.
Fair value of the put and
call was determined using the Black-Scholes Pricing Model. The model uses market-sourced inputs such as interest rates, dividend
yields, market prices and volatilities. The risk-free interest rate used of 1.64% is based on the rate of U.S Treasury zero-coupon
issues with a remaining term equal to the expected life of the Put/Call. Expected dividend yield assumes the contracted rate of
8%. Expected volatility of approximately 93% was calculated using the daily closing price over a five year period of the Company’s
Common Stock.
On February 2, 2015,
the Company completed a private placement of 26,600 shares of its Series A Stock together with Preferred Warrants to purchase shares
of its common stock at a price of $5.00 per share, in accordance with the Purchase Agreement. The net proceeds to the Company from
the sale of the Series A Stock and Preferred Warrant were approximately $133,000. The proceeds from the private placement were
allocated between the Series A Stock and the warrants based upon their relative fair values. The fair value of the preferred stock
was determined utilizing the ‘as converted’ method as the prominent feature driving the value of the instrument was
deemed to be underlying value of the common stock to which the instrument was convertible into.
Fair value of the warrants
was determined using the Black-Scholes Pricing Model. The model uses market-sourced inputs such as interest rates, dividend yields,
market prices and volatilities. The risk-free interest rate used of 1.19% is based on the rate of U.S Treasury zero-coupon issues
with a remaining term equal to the expected life of the Warrants. Expected dividend yield assumes the current dividend rate of
zero. Expected volatility of approximately 90.5% was calculated using the daily closing price over a five year period of the Company’s
Common Stock. The warrants have a strike price of $7.50 and are exercisable for a period of 5 years.
In accordance with the
Series A Purchase Stock Purchase Agreement, on October 30, 2015, investors in the Series A Preferred Stock exercised a right to
purchase 20,000 shares of Series A Preferred Stock and warrants; gross proceeds of the transaction was $100,000.
In fiscal year ended
April 30, 2016, holders of Series A Preferred Stock converted 123,300 Series A Preferred shares into 205,500 of Common Stock. The
converted value for each Series A Preferred Share is approximately $2.96 which resulted in approximately $365,000 reduction to
the Series A Preferred Stock and a $365,000 offsetting increase to Additional Paid in Capital in the April 30, 2016 consolidated
balance sheet.
Dividends recorded in the
year ended April 30, 2016 and April 30, 2015 were approximately $122,000 and $111,000 respectively. The Board of Directors authorized
accumulated dividends from the date of Series A Preferred Stock issuance to be paid in the form of Common Stock. This resulted
in the issuance of 46,413 Common Shares and a reduction of accumulated dividends of approximately $233,000 and offsetting increase
of approximately $233,000 in Additional Paid in Capital in the accompanying condensed balance sheet. The preferential cumulative
dividends accrued at the rate of 8% per annum. The dividends payable were paid in shares of common stock and were valued at the
volume weighted average price of the Company’s common stock over the ten (10) consecutive trading days ended on the second
trading day immediately before the dividend payment date.
Series B preferred shares
During the fiscal
year ended April 30, 2016, the holders of Series B Preferred Stock converted 4,125 Series B Preferred shares into 27,500 shares
of Common Stock. The converted value for each Series B Preferred Share is approximately $12.20 or $50,325 and resulted in an offsetting
increase to Additional Paid in Capital in the April 30, 2016 consolidated balance sheet.
Common Stock
On February 2, 2015, the
Company issued and sold an aggregate of 61,000 restricted shares of its common stock at a price of $6.00 per share and five-year
warrants to purchase an additional 105,333 shares with an exercise price of $7.50 per share, of which 16,667 shares were purchased
by David A Moylan the Company’s CEO. The net proceeds to the Company from the sale of the restricted common stock and warrants
(exclusive of any exercise thereof) were approximately $365,000.
Fair value of the warrants
was determined using the Black-Scholes Pricing Model. The model uses market-sourced inputs such as interest rates, dividend yields,
market prices and volatilities. The risk-free interest rate used of 1.19% is based on the rate of U.S Treasury zero-coupon issues
with a remaining term equal to the expected life of the Warrants. Expected dividend yield assumes the current dividend rate of
zero. Expected volatility of approximately 90.5% was calculated using the daily closing price over a five year period of the Company’s
Common Stock. The warrants have a strike price of $7.50 and are exercisable for a period of 5 years. The warrants have been recognized
through a simultaneous increase and decrease to APIC for approximately $215,000 and therefore not presented on the consolidated
statement of stockholders’ equity.
On July 31, 2015,
the Company entered into separate securities purchase agreements with five (5) accredited investors for the issuance and sale of
an aggregate of 166,667 shares of its common stock at a per share price of $3.00 or an aggregate purchase price of approximately
$500,000.
Note 6. Equity Exchange transactions
On January 15, 2016, Dataram
Corporation entered into separate exchange agreements with holders of:
|
(i)
|
the Company’s outstanding shares of Series A Preferred Stock and Series A Warrants to purchase
shares of the Company’s Common Stock issued in connection with the Series A Preferred Stock originally issued on November
17, 2014, February 2, 2015 and October 30, 2015, and
|
|
(ii)
|
the Company’s outstanding institutionally held subordinated secured convertible Bridge Notes
and Bridge Warrants held by institutions and employee investors to purchase shares of Common Stock issued in connection with the
sale of the Bridge Notes on July 15, 2014 pursuant to Subordinated Secured Convertible Bridge Note and Warrant Purchase Agreements
(the “Bridge Purchase Agreements”), and
|
|
(iii)
|
warrants to purchase Common Stock issued pursuant to the Company’s prospectus supplement
dated September 18, 2013 (the “Registered Warrants” and together with the Series A Preferred Stock, the Series A Warrants,
Bridge Notes and the Bridge Warrants, the “Exchange Securities”).
|
Pursuant to the Exchange
Agreements, the Holders exchanged the Exchange Securities for an aggregate of 335,684 shares of the Company’s newly designated
Series B Convertible Preferred Stock (the “Preferred Stock”).
As noted in (i)
above the Company entered into an agreement with investors who held Preferred Series A Preferred Stock and warrants issued with
the series A preferred stock. The 523,300 outstanding Series A shares were exchanged for 214,465 Series B Preferred Stock. The
exchange was accounted for as an equity-for-equity exchange, with no gain or loss recorded. The issuance date value of the exchanged
Preferred Series A Stock of approximately, $1,572,000 was reallocated to Series B Preferred Stock and Additional Paid in Capital.
Additionally, the 1,616,500 outstanding Preferred Series A warrants were exchanged for 40,413 shares of Series B Preferred Stock.
The exchange was accounted for as an equity-for-equity exchange, with no gain or loss recorded. The issuance date value of the
exchanged warrants of $493,060 was reallocated to Series B Preferred Stock and Additional Paid in Capital.
As noted in (ii)
above the Company entered into an agreement with the institutional bridge note holders and certain members of management who held
warrants issued with the above Convertible Notes Payable whereby the warrants would be exchanged for shares of Series B Preferred
Stock. 255,000 of the outstanding warrants were exchanged for 19,125 shares of Series B Preferred Stock. The exchange was accounted
for as an equity-for-equity exchange, with no gain or loss recorded. The issuance date value of the exchanged warrants of $233,300
was reallocated to Series B Preferred Stock and Additional Paid in Capital.
As noted in (iii)
above the Company entered into an agreement with investors who held warrants issued with the above Common Stock issue dated September
18, 2013. The 87,967 outstanding warrants were exchanged for 6,598 shares of Series B Preferred Stock. The exchange was accounted
for as an equity-for-equity exchange, with no gain or loss recorded. The issuance date value of the exchanged warrants of $80,500
was reallocated to Series B Preferred Stock and Additional Paid in Capital.
As contemplated by the
Exchange Agreements and as approved by the Company’s Board of Directors on January 21, 2016, the Company filed with the Secretary
of State of the State of Nevada, a Certificate of Designation of Preferences, Rights and Limitations of 0% Series B Convertible
Preferred Stock (the “Series B Certificate of Designations”). Pursuant to the Series B Certificate of Designations,
the Company designated 400,000 shares of its blank check preferred stock as Series B Preferred Stock. Each share of Series B Preferred
Stock has a stated value of $12.20 per share. In the event of a liquidation, dissolution or winding up of the Company, each share
of Series B Preferred Stock will be entitled to a per share preferential payment equal to the par value. All shares of capital
stock of the Company will be junior in rank to Series B Preferred Stock with respect to the preferences as to dividends, distributions
and payments upon the liquidation, dissolution and winding-up of the Company. The Holders will be entitled to receive dividends
if and when declared by the Company’s Board of Directors. In addition, the Series B Preferred Stock shall participate on
an “as converted” basis, with all dividends declared on the common stock.
Subject to certain limitations
as set forth below, each holder may convert the shares of Series B Preferred Stock into such number of shares of common stock based
on a conversion ratio, the numerator of which shall be the Base Amount (defined hereafter) and denominator of which shall be the
Conversion Price (defined hereafter). “Base Amount” is defined, as of the applicable date of determination, the sum
of (1) the aggregate stated value of the Series B Preferred Stock to be converted, plus (2) the accrued and unpaid dividends on
Series B Preferred Stock. The “Conversion Price” of the Series B Preferred Stock is initially $1.83.
The Company is prohibited
from effecting the conversion of Series B Preferred Stock to the extent that, as a result of such conversion, the holder would
beneficially own more than 4.99%, in the aggregate, of the issued and outstanding shares of the Company’s common stock calculated
immediately after giving effect to the issuance of shares of Common Stock upon the conversion of the Series B Preferred Stock (the
“Maximum Percentage”). A holder may increase or decrease the Maximum Percentage by providing written notice to the
Company; provided, that in no event shall the Maximum Percentage exceed 9.99%. If and until it is determined that the Company is
required to obtain the approval of its shareholders for the issuance of the Series B Preferred Stock in accordance with NASDAQ
Capital Market Rules (“Shareholder Approval”, then the Company, until it has obtained Shareholder Approval, may not
issue upon conversion of the Series B Preferred Stock, such number of shares of Common Stock, which, when aggregated with all other
shares of Common Stock issued upon conversion of all Series B Preferred Stock, would exceed 19.99% of the shares of Common Stock
issued and outstanding as of the initial issuance date of the Series B Preferred Stock.
On April 30, 2016 the Company
has 1,648,287 shares of common stock issued and outstanding and 331,559 shares of Series B Preferred Stock outstanding convertible
into an aggregate of 2,210,390 shares of Common Stock, without giving effect to any Beneficial Ownership Limitation or Exchange
Blocker.
Note 7. Related Party Transactions
During the fiscal years
ended April 30, 2016 and 2015, the Company purchased inventories for resale totaling approximately $381,000 and $1,348,000, respectively,
from Sheerr Memory, LLC (“Sheerr Memory”). Sheerr Memory’s owner (“Mr. Sheerr”) is employed by the
Company as an advisor. Approximately $11,000 and $15,000 of accounts payable in the Company’s consolidated balance sheets
as of April 30, 2016 and April 30, 2015, respectively, is payable to Sheerr Memory. Sheerr Memory offers the Company trade terms
of net 30 days and all invoices are settled in the normal course of business. No interest is paid. The Company has made approximately
$19,000 in purchases from Sheerr Memory subsequent to April 30, 2016 and management anticipates that the Company will continue
to do so, although the Company has no obligation to do so.
During the fiscal years
ended April 30, 2016 and 2015, the Company purchased inventories for resale totaling approximately $1,181,000 and $1,150,000, respectively,
from Keystone Memory Group (“Keystone Memory”). Keystone Memory’s owner is a relative of Mr. Sheerr. Approximately
$190,000 of accounts payable in the Company’s consolidated balance sheets as of April 30, 2016 is payable to Keystone Memory.
At April 30, 2015 approximately $32,000 of accounts payable was due Keystone Memory. Keystone Memory offers the Company trade terms
of immediately due and all invoices are settled in the normal course of business. No interest is paid. The Company has made approximately
$290,000 in purchases from Keystone Memory subsequent to April 30, 2016 and management anticipates that the Company will continue
to do so, although the Company has no obligation to do so.
On October 31, 2013, the
Company entered into an agreement with Mr. Sheerr to leaseback the equipment and furniture that was sold to Mr. Sheerr on October
31, 2013 for $500,000. The lease is for a term of 60 months and the Company is obligated to pay approximately $7,500 per month
for the term of the lease. The Company has an option to extend the lease for an additional two year period. The transactions described
have been accounted for as a sale-leaseback transaction. Accordingly, the Company recognized a gain on the sale of assets of approximately
$103,000, which is the amount of the gain on sale in excess of present value of the future lease payments and will recognize the
remaining deferred gain of approximately $358,000 in proportion to the related gross rental charged to expense over the term of
the lease, 60 months. The current portion of $72,000 deferred gain was reflected in accrued liabilities and the long-term portion
of $179,000 is reflected in other liabilities – long-term in the condensed consolidated balance sheet as of April 30, 2015.
As of April 30, 2016, the current portion of $72,000 deferred gain is reflected in accrued liabilities and the long-term portion
of $107,000 is reflected in other liabilities – long-term in the consolidated balance sheet as of April 30, 2016.
Note 8. Income Taxes
Income tax expense for the years ended April 30 consists of
the following:
|
|
2016
|
|
2015
|
Current:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
—
|
|
|
$
|
—
|
|
State
|
|
|
(187,000
|
)
|
|
|
3,000
|
|
|
|
|
(187,000
|
)
|
|
|
3,000
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
—
|
|
|
|
—
|
|
State
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
—
|
|
Total income tax expense
|
|
$
|
(187,000
|
)
|
|
$
|
3,000
|
|
The Company’s income tax expense for
the fiscal year ended April 30, 2016 include a gain recorded on the sale of state net operating losses of approximately $190,000
and tax expense of approximately $3,000 that consists of state minimum tax payments. For the fiscal year ended April 30, 2015 tax
expense of approximately $3,000 that consists of state minimum tax payments.
Income tax expense differs from “expected”
tax expense (computed by applying the applicable U.S. statutory Federal income tax rate to earnings before income taxes) as follows:
|
|
2016
|
|
2015
|
Federal income tax at statutory rates
|
|
$
|
(479,000
|
)
|
|
$
|
(1,301,000
|
)
|
State income taxes (net of federal income tax benefit)
|
|
|
81,000
|
|
|
|
(28,000
|
)
|
Impact of change in state rate
|
|
|
(69,000
|
)
|
|
|
|
|
Other
|
|
|
(46,000
|
)
|
|
|
257,000
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense (benefit) before provision for valuation allowance
|
|
|
(513,000
|
)
|
|
|
(1,072,000
|
)
|
Changes in valuation allowance
|
|
|
326,000
|
|
|
|
1,075,000
|
|
Total income tax expense
|
|
$
|
(187,000
|
)
|
|
$
|
3,000
|
|
The tax effect of temporary differences
that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:
|
|
2016
|
|
2015
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Compensated absences and severance, principally due to accruals for financial reporting purposes
|
|
$
|
3,000
|
|
|
$
|
3,000
|
|
Stock-based compensation expense
|
|
|
1,438,000
|
|
|
|
1,151,000
|
|
Accounts receivable, principally due to allowance for doubtful accounts and sales returns
|
|
|
36,000
|
|
|
|
49,000
|
|
Property and equipment, principally due to differences in depreciation
|
|
|
208,000
|
|
|
|
216,000
|
|
Intangible assets
|
|
|
3,000
|
|
|
|
53,000
|
|
Inventories
|
|
|
104,000
|
|
|
|
54,000
|
|
Net operating losses
|
|
|
10,691,000
|
|
|
|
10,609,000
|
|
Alternative minimum tax
|
|
|
438,000
|
|
|
|
438,000
|
|
Capitalized R & D cost
|
|
|
116,000
|
|
|
|
128,000
|
|
Other
|
|
|
13,000
|
|
|
|
23,000
|
|
Net deferred tax assets
|
|
|
13,050,000
|
|
|
|
12,724,000
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(13,050,000
|
)
|
|
|
(12,724,000
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
—
|
|
|
$
|
—
|
|
The valuation allowance
increased by $326,000 and $1,075,000 for the fiscal years ended April 30, 2016 and 2015, respectively. Management believes sufficient
uncertainty exists regarding the realization of the deferred tax asset items and that a valuation allowance is required. Management
considers projected future taxable income and tax planning strategies in making this assessment. The amount of deferred tax assets
considered realizable could materially change in the future if estimates of future taxable income change.
The Company has Federal
and state net operating loss carry-forwards of approximately $30,400,000 and $7,900,000, respectively. These can be used to offset
future taxable income and expire between 2023 and 2036 for Federal tax purposes and 2016 and 2036 for state tax purposes.
Note 9. Stock-based compensation
Option Plans
The Company had
a 2001 incentive and non-statutory stock option plan for the purpose of permitting certain key employees to acquire equity in the
Company and to promote the growth and profitability of the Company by attracting and retaining key employees. In general, the plan
allows granting of up to 100,000 shares of the Company’s Common Stock at an option price to be no less than the fair market
value of the Company’s Common Stock on the date such options are granted. Currently, options granted under the plan vest
ratably on the annual anniversary date of the grants. Vesting periods for options currently granted under the plan ranged from
one to five years. No further options may be granted under this plan. The Company also has a 2011 incentive and non-statutory stock
option plan for the purpose of permitting certain key employees and consultants to acquire equity in the Company and to promote
the growth and profitability of the Company by attracting and retaining key employees. No executive officer or director of the
Company is eligible to receive options under the 2011 plan. In general, the plan allows granting of up to 11,111 shares of the
Company’s Common Stock at an option price to be no less than the fair market value of the Company’s Common Stock on
the date such options are granted. Options granted under the plan vest ratably on the annual anniversary date of the grants. All
shares have been granted under this plan.
The Company has
a 2014 Equity Incentive Plan (the “Plan”), and reserves under the plan for issuance 83,333 shares of common stock.
There are approximately 14,333 shares available for future grant.
The Board of
Directors has exclusive authority to determine which officers, employees, and directors who provide services to the Company will
be entitled to receive a benefit under the Plan and to administer awards under the Plan to those eligible individuals. The Board
retains the authority to appoint a Compensation Committee at any time, consisting of one or more Board members, to determine awards
under the Plan. The Compensation Committee will determine, among things, the selection of those individuals to be granted awards
under the Plan among those individuals eligible for participation, the level of participation of each participant, when and how
each award under the plan will be granted, and what type or combination of types of awards will be granted.
The Plan provides
for the granting of qualified and non-qualified stock options Incentive stock options may be granted only to participants who meet
the definition of “employees” under Section 3401(c) of the Code and bonus shares.
Stock options
provide the recipient with the right to purchase shares of common stock at a price not less than their fair market value on the
date of the grant. The stock option price is payable in cash, by tendering previously acquired shares of common stock having an
aggregate fair market value at the time of exercise equal to the option price, by cashless (broker-assisted) exercise, or any other
method approved by the Board. No stock option may be exercised more than 10 years from the date of grant.
Stock
options granted under the Plan may be stock options that are intended to qualify as incentive stock options within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”). Incentive stock options may be granted
only to participants who meet the definition of “employees” under Section 3401(c) of the Code. In addition, in
order to qualify for incentive stock option treatment, in the case of options granted to a holder of 10% or more of the company’s
common stock, the stock option price may not be less than 110% of the fair market value of the stock on the date the stock option
is granted
.
Stock Appreciation Rights
Stock Appreciation
Rights- A Stock Appreciation Right (“SAR”) provides the recipient with the right to receive from us an amount, determined
by the Board and expressed as a percentage (not exceeding 100%), of the difference between the base price established for the appreciation
rights and the market value of the common stock on the date the rights are exercised. Appreciation rights can be tandem (i.e.,
granted with option rights to provide an alternative to the exercise of the option rights) or free-standing. Tandem appreciation
rights may only be exercised at a time when the related option right is exercisable and the spread is positive, and requires that
the related option right be surrendered for cancellation. Free-standing appreciation rights must have a base price per right that
is not less than the fair market value of the common stock on the grant date, must specify the period of continuous employment
that is necessary before such appreciation rights become exercisable and may not be exercisable more than 10 years from the grant
date.
Bonus Shares
Bonus Shares-
Bonus Shares are an award to an eligible person of shares for services to be rendered or for past services already rendered to
the Company. The Board will determine the number of shares to be awarded to the eligible individual, in accordance with any restrictions
thereon. These restrictions may be based upon completion of a specified number of years of service with the Company or upon satisfaction
of performance goals based on performance factors. Payment for the Bonus Shares may be made in the form of cash, whole shares,
or a combination thereof, based on the fair market value of the shares on the date of payment, as determined in the sole discretion
of the Board.
The status of these plans
for the years ended April 30, 2016 and April 30, 2015 is as follows:
|
|
Shares
|
|
|
Weighted
average
exercise
price
|
|
|
Weighted
average
remaining
contractual life
|
|
|
Aggregate
intrinsic
value (1)
|
|
Balance April 30, 2014
|
|
|
81,859
|
|
|
$
|
36.81
|
|
|
|
4.46
|
|
|
$
|
6,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Expired
|
|
|
(39,944
|
)
|
|
$
|
48.72
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance May 1, 2015
|
|
|
41,915
|
|
|
$
|
25.44
|
|
|
|
3.59
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
79,556
|
|
|
$
|
4.89
|
|
|
|
—
|
|
|
|
—
|
|
Expired
|
|
|
(12,444
|
)
|
|
$
|
38.13
|
|
|
|
—
|
|
|
|
—
|
|
Exchanged / cancelled
|
|
|
(109,027
|
)
|
|
$
|
9.03
|
|
|
|
—
|
|
|
|
—
|
|
Balance April 30, 2016
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
(1)
|
This amount represents the difference between the exercise price and $1.86, the closing price of Dataram common stock on April
30, 2016 as reported on the NASDAQ Stock Market, for all in-the-money options outstanding and all the in-the-money shares exercisable
|
In fiscal year ended April
30, 2016, the Company granted stock options to purchase 79,556 shares of common stock to certain employees, officers and board
of directors of the Company. The Company’s consolidated statements of operations for fiscal 2016, includes approximately
$746,000 of stock-based compensation expense. In the fiscal year ended April 30, 2015, the Company did not grant any stock options.
For fiscal year ended April 30, 2015 the Company recorded approximately $14,000 of stock-based compensation expense.
On January 19, 2016, the
Company entered into exchange agreements (the “Option Exchange Agreements”) (Note 6) with certain of its employees
pursuant to which such employees agreed to return options to purchase an aggregate of up to 109,027 shares of common stock in consideration
for restricted stock grants (the “Restricted Stock Grants”) in the aggregate amount of 87,736 shares of Common Stock
pursuant to the Company’s 2011 Equity Incentive Plan and 2014 Equity Incentive Plan, as amended. The Restricted Stock Grants
are vested in full upon issuance. The Company recorded an additional one time stock based compensation expense of approximately
$122,000 as a result of the stock option exchange agreements. As of April 30, 2016, there was no unearned compensation costs related
to stock options remaining.
The fair value of each
stock option granted during fiscal year ended April 30, 2016 was estimated on the date of grant using the Black-Scholes option
pricing model using the following assumptions:
|
Fiscal
Year Ended
April 30, 2016
|
Expected term (years)
|
2.5-3.0
|
Expected volatility
|
79%-80%
|
Dividend yield
|
0
|
Risk-free interest rate
|
.90% -1.01%
|
Weighted average per share grant date fair value
|
$2.34 - $3.09
|
The expected life represents
the period that the Company’s stock-based awards are expected to be outstanding and was calculated using the simplified method
pursuant to ASC 825. Expected volatility is based on the historical volatility of the Company’s Common Stock using the daily
closing price of the Company’s Common Stock, pursuant to Staff Accounting Bulletin No. 107. Expected dividend
yield assumes the current dividend rate remains unchanged. Expected forfeiture rate is based on the Company’s historical
experience. The risk-free interest rate is based on the rate of U.S Treasury zero-coupon issues with a remaining term equal to
the expected life of the option grants.
The Company calculated
stock-based compensation expense using a 5% forefiture rate.
Warrants
On January 15, 2016, the
Company entered into separate exchange agreements with various warrant holders, refer to (“Note 6”) Equity Exchange
transactions.
At April 30, 2016, the
Company had 207,625 warrants outstanding with exercise prices between $7.50 and $40.68. At April 30, 2015, the Company had 1,102,758
warrants outstanding with exercise prices between $6.00 and $40.68. A summary of warrant activity for the Fiscal year ended April
30, 2016 and 2015 is as follows:
|
|
Shares
|
|
|
Weighted
average
exercise
price
|
|
|
Weighted
average
remaining
contractual life years
|
|
|
Aggregate
intrinsic
value (1)
|
|
Balance May 1, 2014
|
|
|
161,925
|
|
|
$
|
24.27
|
|
|
|
3.34
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
|
|
|
940,833
|
|
|
$
|
7.88
|
|
|
|
|
|
|
|
—
|
|
Exchanged
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Balance April 30, 2015
|
|
|
1,102,758
|
|
|
$
|
10.56
|
|
|
|
4.12
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
|
|
|
16,667
|
|
|
$
|
7.50
|
|
|
|
|
|
|
|
—
|
|
Exchanged
|
|
|
(881,800
|
)
|
|
$
|
8.10
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(30,000
|
)
|
|
$
|
7.50
|
|
|
|
|
|
|
|
|
|
Balance April 30, 2016
|
|
|
207,625
|
|
|
$
|
19.74
|
|
|
|
1.24
|
|
|
|
—
|
|
|
(1)
|
This amount represents the difference between the conversion price and $1.86, the closing price of Dataram common stock on
April 30, 2016 as reported on the NASDAQ Stock Market, for all in-the-money warrants outstanding.
|
Note 10. Accrued Liabilities
Accrued liabilities consist
of the following at April 30:
|
|
2016
|
|
2015
|
Payroll, including vacation
|
|
$
|
17,000
|
|
|
$
|
27,000
|
|
Commissions
|
|
|
25,000
|
|
|
|
10,000
|
|
Deferred gain on equipment sale
|
|
|
72,000
|
|
|
|
72,000
|
|
Accounting and audit
|
|
|
25,000
|
|
|
|
53,000
|
|
Other
|
|
|
20,000
|
|
|
|
120,000
|
|
|
|
$
|
159,000
|
|
|
$
|
282,000
|
|
Note 11. Commitments and contingencies
Leases
The Company occupies various
facilities and operates equipment under operating lease arrangements. Rent charged to operations pursuant to such operating leases
amounted to approximately $316,000 in 2016 and $432,000 in 2015.
Future minimum lease payments
under non-cancelable operating leases (with initial or remaining lease terms in excess of one year) as of April 30, 2016 are as
follows:
|
|
Non-Related
|
|
|
Related
|
|
|
|
|
|
|
Party
|
|
|
Party
|
|
|
Total
|
|
Year ending April 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
162,000
|
|
|
|
90,000
|
|
|
|
252,000
|
|
2018
|
|
|
84,000
|
|
|
|
90,000
|
|
|
|
174,000
|
|
2019
|
|
|
85,000
|
|
|
|
45,000
|
|
|
|
130,000
|
|
2020
|
|
|
86,000
|
|
|
|
—
|
|
|
|
86,000
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
417,000
|
|
|
$
|
225,000
|
|
|
$
|
642,000
|
|
Purchases
At April 30, 2016, the
Company had open purchase orders outstanding totaling $270,000 for inventory items to be delivered in the first three months of
the fiscal year ending April 30, 2017. These purchase orders are cancelable.
Legal Proceedings
Effective as of the close
of business on December 17, 2014, the Company terminated its agreement with MPP Associates, Inc., pursuant to which Marc P. Palker
had been providing CFO services to the Company. On April 8, 2015, MPP Associates, Inc. and Mr. Palker filed a complaint, styled
MPP Associates, Inc. and Marc Palker v. Dataram Corporation, Jon Isaac, David Moylan, Michael Markulec and Richard Butler, in the
Superior Court of the State of New Jersey, Essex County, Docket No. ESX-L-002413-15.
Effective as of the close
of business on January 22, 2015, the Company terminated the employment agreement with John H. Freeman, its former Chief Executive
Officer. On April 9, 2015, styled John Freeman v. Dataram Corporation, David A. Moylan, Jon Isaac, and John Does 1-5, in the Superior
Court of the State of New Jersey, Essex County, Docket No. ESX-L-002471-15.
Similarly,
on April 10, 2015, the Company filed an action against Mr. Freeman, Mr. Palker and MPP Associates, Inc., styled as Dataram Corporation
v. John Freeman, Marc Palker and MPP Associates, Inc., in the Superior Court of the State of New Jersey, Mercer County, Docket
No. ESX-L-000886-15.
The aforementioned three
State Court actions described have been consolidated in Essex County.
On
March 9, 2015, Marc Palker filed a complaint against the Company with the U.S. Department of Labor, Occupational Safety and Health
Administration, alleging a violation of the Sarbanes-Oxley Act of 2002.
On
June 26, 2015, Alethea Douglas, a former employee, filed a complaint against the Company with the U.S. Equal Employment Opportunity
Commission, alleging a claim for age discrimination in connection with the termination of her employment effective May 20, 2015.
A range of loss, if any,
on the aforementioned matters cannot be estimated at this point in time.
Note 12. Employee Benefit Plan
The Company has a defined
contribution plan (the “Plan”) which is available to all qualified employees. Employees may elect to contribute a portion
of their compensation to the Plan, subject to certain limitations. The Company contributes a percentage of the employee’s
contribution, subject to a maximum of 4.5 percent. The Company’s matching contributions aggregated approximately $99,000
and $151,000 in 2016 and 2015 respectively.
Note 13. Geographic Location Information
The Company operates in
one business segment and develops, manufactures and markets a variety of memory systems for use with servers and workstations which
are manufactured by various companies. Revenues, total assets and long lived assets for 2016 and 2015 by geographic region is as
follows:
|
|
United
|
|
|
|
|
|
|
|
|
States
|
|
Europe
|
|
Other*
|
|
Consolidated
|
April 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
19,713,000
|
|
|
$
|
4,405,000
|
|
|
$
|
1,064,000
|
|
|
$
|
25,182,000
|
|
Total assets
|
|
$
|
5,743,000
|
|
|
$
|
8,000
|
|
|
$
|
0
|
|
|
$
|
5,751,000
|
|
Long lived assets
|
|
$
|
1,490,000
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
1,490,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
23,285,000
|
|
|
$
|
3,785,000
|
|
|
$
|
1,188,000
|
|
|
$
|
28,258,000
|
|
Total assets
|
|
$
|
6,269,000
|
|
|
$
|
6,000
|
|
|
$
|
0
|
|
|
$
|
6,275,000
|
|
Long lived assets
|
|
$
|
1,498,000
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
1,498,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*Principally Asia Pacific Region
Note 14. Subsequent Events
Entry into a Material Definitive Agreement
On June 13, 2016, Dataram
Corporation, a Nevada corporation ("we" or the "Company") entered into an Agreement and Plan of Merger (the
"Merger Agreement") with its wholly owned subsidiary, Dataram Acquisition Sub, Inc., a Nevada corporation (“Acquisition
Sub”), U.S. Gold Corp., a Nevada corporation ("U.S. Gold") an exploration state company that owns certain mining
leases and other mineral rights comprising the Copper King gold and copper development project located in the Silver Crown Ming
District of southeast Wyoming (the “Copper King Project”) and Copper King, LLC, a principal stockholder of U.S. Gold
(“Copper King”). The closing of the Merger is subject to customary closing conditions, including, among other things:
|
·
|
the approval of the Company’s shareholders holding a majority
of the Company’s outstanding voting capital to issue the Merger Consideration (as defined below) pursuant to the continued
listing standards of The NASDAQ Stock Market LLC;
|
|
·
|
the approval of the Company’s shareholders holding a majority
of the Company’s outstanding voting capital to increase the number of shares of authorized Common Stock;
|
|
·
|
the closing by U.S. Gold of a financing pursuant to which it receives
at least $3 million in net proceeds from the sale of its securities (the “U.S. Gold Financing”);
|
|
·
|
the closing by U.S. Gold of the acquisition of certain mining claims
related to a gold development project in Eureka County, Nevada (the “Keystone Project”);
|
|
·
|
the receipt by the Company of a fairness opinion with respect to
the Merger and the Merger Consideration; and
|
|
·
|
the Company’s Board of Directors shall have declared, as a
special dividend, a right entitling each stockholder as of a record date (which shall be no less than five business days prior
to the closing of the Merger) to a proportionate ownership interest, record or beneficial, equal to their ownership interest in
the Company, of certain pre-Merger Company assets or the proceeds therefrom, as, when and if the Company’s Board of Directors
elects to divest such assets within 18 months from the closing of the Merger.
|
Pursuant to the terms and
conditions of the Merger Agreement, at the closing of the Merger, the holders of U.S. Gold’s common stock, Series A Preferred
Stock and Series B Preferred Stock will be converted into the right to receive shares of the Company’s Common Stock or, at
the election of any U.S. Gold stockholder, shares of the Company’s newly designated 0% Series C Convertible Preferred Stock,
par value $0.001 per share (the “Series C Preferred Stock), which are convertible into shares of Common Stock (collectively,
the “Merger Consideration”). The Merger Consideration shall be allocated as follows and is presented below in terms
of Common Stock:
|
·
|
Twenty Million (20,000,000) shares of Common Stock shall be issued
to the holders of U.S. Gold’s Series A Preferred Stock;
|
|
·
|
One Million Eight Hundred Sixty Six Thousand Seven Hundred and Seventeen
(1,866,717) shares of Common Stock shall be issued to the holders of U.S. Gold’s Series B Preferred Stock;
|
|
·
|
Up to Fifteen Million One Hundred and Fifty One Thousand Five Hundred
and Fifteen (15,151,515) shares of Common Stock shall be issued to holders of U.S. Gold’s common stock issued in connection
with the U.S. Gold Financing;
|
|
·
|
One Million Eight Hundred and Fifty Thousand (1,850,000) shares of
Common Stock shall be issued to the holders of U.S. Gold’s common stock issued in connection with the closing of the acquisition
of the Keystone Project; and
|
|
·
|
One Million Six Hundred and Fifty Thousand (1,650,000) shares of
Common Stock shall be issued to certain incoming officers and consultants pursuant to a shareholder approved equity incentive plan
of the Company.
|
On July 6, 2016, the Company
filed a certificate of amendment to its Articles of Incorporation with the Secretary of State of the State of Nevada in order to
effectuate a reverse split of the Company’s issued and outstanding common stock on a 1 for 3 basis, which was effective with
the State of Nevada on July 8, 2016 and with The NASDQ Stock Market at the open of trading on July 11, 2016. All per share amounts
are reflective of the reverse split.
On July 29, 2016, the Company,
Acquisition Sub, U.S. Gold and Copper King, amended and restated the Merger Agreement (the “Amended and Restated Merger Agreement”)
in order to:
|
·
|
Reflect the reverse split of the Company’s issued and outstanding common stock on a 1 for
3 basis, which was effective on July 11, 2016; and
|
|
·
|
Adjust certain aspects of the Merger Consideration and Management Consideration as follows, presented
on a post reverse split and “as converted” basis:
|
|
·
|
Twenty Two Million Three Hundred and Thirty Three Thousand Three Hundred and Thirty Four (22,333,334)
shares of common stock shall be issued to the holders of U.S. Gold’s Series A Preferred Stock;
|
|
·
|
One Million Eight Hundred Sixty Six Thousand Seven Hundred and Seventeen (1,866,717) shares of
common stock shall be issued to the holders of U.S. Gold’s Series B Preferred Stock the receipt of which shall be conditioned
on the receipt of a one year lockup agreement;
|
|
·
|
Up to Sixteen Million Six Hundred and Sixty Six Thousand Six Hundred and Sixty Seven (16,666,667)
shares of common stock shall be issued to holders of U.S. Gold’s Series C Preferred Stock issued in connection with the U.S.
Gold Financing;
|
|
·
|
Warrants to purchase such number of shares of common stock as shall equal the quotient of (i) 10%
of the total dollar amount raised in the U.S. Gold Financing divided by (ii) three (3) shall be issued to the placement agent in
the U.S. Gold Financing;
|
|
·
|
One Million Eight Hundred and Fifty Thousand (1,850,000) shares of common stock shall be issued
to the holders of U.S. Gold’s common stock issued in connection with the closing of the Keystone Acquisition (as defined
in the Amended and Restated Merger Agreement) the receipt of which shall be conditioned on the receipt of a two year lockup agreement;
and
|
|
·
|
One Million five Hundred and Eighty Three Thousand Three Hundred
and Thirty Three (1,583,333) shares of common stock shall be issued to certain incoming officers and consultants pursuant to a
shareholder approved equity incentive plan of the Company
|
Restricted Common Share Bonus Awards to
Employees, Executive Officers and Directors
Between May 1, 2016 and
July 29, 2016 the Company awarded approximately 188,280 restricted shares of the Company’s Common Stock to employees, Executive
Officers and Directors. The approximate value of these grants is $429,000.
Series B Preferred Stock converted to Common
Shares
The holders of 232,623
Series B Preferred Stock have converted into approximately 1,550,820 restricted shares of Common Stock since the end of the reporting
period to the close of business on July 27, 2016.
On July 6, 2016, the Company
filed a certificate of amendment to its Articles of Incorporation with the Secretary of State of the State of Nevada in order to
effectuate a reverse stock split of the Company’s issued and outstanding common stock on a 1 for 3 basis, effective with
the State of Nevada on July 8, 2016 in order to regain compliance with NASDAQ’s minimum bid price requirement. The reverse
stock split was effective with The NASDAQ Capital Market on July 11, 2016.