Notes to Condensed Consolidated Financial Statements
January 31, 2017 and 2016
(Unaudited)
Note 1: Basis of Presentation and Summary of Significant
Accounting Policies
Organization and Nature of Business
Dataram Corporation (“Dataram” or the “Company”)
is 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
OEM compatibility as part of the production process. The Company has memory designed for over 50,000 systems and 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 a global network
of distributors, resellers, retailers, OEM customers and end users.
Dataram competes with several large independent memory
manufacturers and OEMs. 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.
Liquidity and Going Concern
The Company's condensed consolidated
financial statements are prepared using the accrual method of accounting in accordance with accounting principles generally accepted
in the United States of America (“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 year ended April 30, 2016, the Company incurred losses of approximately $1,221,000. The Company also incurred losses of
approximately $1,687,000 for the nine months ended January 31, 2017.
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 further
reduce certain overhead costs. The Company may require up to $1,000,000 of additional working capital over the next twelve months
to support operations. The Company cannot provide assurance that it will obtain any required financing or such financing will be
available to it on favorable terms.
Based on the above, there
is substantial doubt about the Company’s ability to continue as a going concern. The condensed 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.
Basis of Presentation
The condensed consolidated financial statements have
been prepared in accordance with GAAP for interim financial statements and with Form 10-Q and Article 10 of Regulation S-X of the
United States Securities and Exchange Commission (“SEC”). Accordingly, they do not contain all information and footnotes
required by GAAP for annual financial statements. The condensed consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. In the opinion
of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all the adjustments
necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of January 31, 2017
and the results of operations and cash flows for the periods presented. The results of operations for the three and nine months
ended January 31, 2017 are not necessarily indicative of the operating results for the full fiscal year or for any future period.
These condensed consolidated financial statements should
be read in conjunction with the consolidated financial statements and related notes thereto included in the Company’s Annual
Report on Form 10-K for the year ended April 30, 2016. The Company’s accounting policies are described in the Notes to Consolidated
Financial Statements in its Annual Report on Form 10-K for the year ended April 30, 2016, and updated, as necessary, in this Quarterly
Report on Form 10-Q.
On July 6, 2016, the Company filed a certificate of
amendment to its Articles of Incorporation with the Nevada Secretary of State 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 accompanying condensed consolidated financial statements and notes thereto give retrospective effect of the reverse
stock split for all periods presented.
Use of Estimates
The preparation of financial statements in conformity
with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, including
deferred tax asset valuation allowances and certain other reserves and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses during the reporting period. 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 allowance for doubtful accounts
and sales returns, reserve for inventory obsolescence, deferred income tax asset and related valuation allowance
,
fair value
of certain financial instruments, impairment assessment of carrying value of goodwill and other intangible assets and other operating
allowances and accruals. Actual results could differ from those estimates.
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. Such amounts were not material for the three and nine months ended January 31,
2017 and 2016.
Net Loss per Share
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 three and nine months ended January 31, 2017 and 2016 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 Series B and Series D preferred shares as their
effect would be anti-dilutive.
Anti-dilutive securities consisted of the following
at January 31:
|
|
2017
|
|
|
2016
|
|
Common stock equivalent of convertible notes – related parties
|
|
|
9,070
|
|
|
|
9,070
|
|
Series A preferred shares
|
|
|
—
|
|
|
|
|
|
Series B preferred shares
|
|
|
—
|
|
|
|
2,230,390
|
|
Series D preferred shares
|
|
|
369,853
|
|
|
|
—
|
|
Warrants
|
|
|
133,667
|
|
|
|
237,625
|
|
Stock options
|
|
|
2,778
|
|
|
|
2,778
|
|
Total
|
|
|
515,368
|
|
|
|
2,479,863
|
|
Recently Issued Accounting Pronouncements
In January 2017, the Financial Accounting Standard
Board (the “FASB”) issued Accounting Standards Update (ASU) 2017-04: “Intangibles — Goodwill and Other
(Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”), which removes Step 2 from the goodwill
impairment test. It is effective for annual and interim periods beginning after December 15, 2019. Early adoption
is permitted for interim or annual goodwill impairment test performed with a measurement date after January 1, 2017. The Company
is currently evaluating the impact of this accounting standard on its condensed consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01 “Business
Combinations (Topic 805): Clarifying the Definition of a Business”, which clarifies the definition of a business to assist
entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The
standard introduces a screen for determining when assets acquired are not a business and clarifies that a business must include,
at a minimum, an input and a substantive process that contribute to an output to be considered a business. This standard is effective
for fiscal years beginning after December 15, 2017, including interim periods within that reporting period. The Company is
currently evaluating the impact of this accounting standard on its condensed consolidated financial statements.
On November 17, 2016,
the FASB issued Accounting Standards Update (ASU) 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, providing specific
guidance on the cash flow classification and presentation of changes in restricted cash and restricted cash equivalents.
The amendments in ASU 2016-18 require that a statement of cash flows explain the change during the period in the total of cash,
cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents (collectively “CASH”).
Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash
equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the SCF. The amendments in ASU 2016-18
are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those
fiscal years. Early adoption is permitted, including adoption in an interim period.
The Company is currently evaluating
the impact of this accounting standard on its condensed consolidated financial statements.
In October 2016, the FASB issued ASU 2016-17, “Consolidation
(Topic 810): Interests held through Related Parties that are under Common Control,” (“ASU 2016-17”) which alters
how a decision maker considers indirect interests in a variable interest entity (VIE) held through an entity under common control
and simplifies that analysis to require consideration of only an entity’s proportionate indirect interest in a VIE held through
a common control party. The Company is currently evaluating the effect that ASU 2016-17 will have on the Company’s condensed
consolidated financial statements.
On August 26, 2016, the
FASB issued Accounting Standards Update (ASU) 2016-15, Classification of Certain Cash Receipts and Cash Payments, seeking to eliminate
diversity in practice related to how certain cash receipts and cash payments are presented and classified in the statement of cash
flows. The amendments in ASU 2016-15 address eight specific cash flow issues and apply to all entities, including both business
entities and not-for-profit entities that are required to present a statement of cash flows under FASB Accounting Standards Codification
(FASB ASC) 230, Statement of Cash Flows. The amendments in ASU 2016-15 are effective for public business entities for fiscal years
beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption
in an interim period.
The Company is currently evaluating the impact of this accounting standard on its condensed consolidated
financial statements.
Note 2: Related Party Transactions
The Company purchased inventories for resale from Sheerr
Memory, LLC (“Sheerr Memory”). Sheerr Memory’s owner (“Mr. Sheerr”) was employed by the Company as
an advisor until August 31, 2016. In the nine months ended January 31, 2017 the Company purchased approximately $40,000 of inventories.
In the three and nine months ended January 31, 2016, the Company purchased approximately $42,000 of inventories and $331,000 of
inventories, respectively, from Sheerr Memory. Accounts payable of nil and approximately $11,000 in the Company’s condensed
consolidated balance sheets as of January 31, 2017 and April 30, 2016 respectively, was payable to Sheerr Memory. Sheerr Memory
offers the Company trade terms of net 30 days and all invoices were settled in the normal course of business. No interest was paid.
The Company purchased inventories for resale from Keystone
Memory Group (“Keystone Memory”). Keystone Memory’s owner is a relative of Mr. Sheerr. In the nine month period
ended January 31, 2017 the Company purchased approximately $501,000 of inventories. For the three and nine months ended January
31, 2016, the Company purchased approximately $309,000 of inventories and $967,000 of inventories, respectively, from Keystone
Memory. Accounts payable of nil and approximately $190,000 in the Company’s condensed consolidated balance sheets as of January
31, 2017 and April 30, 2016 respectively was payable to Keystone Memory. Keystone Memory offers the Company trade terms of net
due and all invoices are settled in the normal course of business. No interest was paid.
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 approximately $72,000 deferred gain was reflected in accrued liabilities and the long-term portion of approximately $54,000
is reflected in other liabilities – long-term in the condensed consolidated balance sheet as of January 31, 2017. As of April
30, 2016, the current portion of $72,000 deferred gain is reflected in accrued liabilities and the long-term portion of approximately
$107,000 is reflected in other liabilities – long-term in the condensed consolidated balance sheet as of April 30, 2016.
Note 3: Note Payable – Revolving Credit Line
The Company’s financing agreement (the “Financing
Agreement”) with Rosenthal & Rosenthal, Inc. provides for a revolving loan with a maximum borrowing capacity of $3,500,000.
The Financing Agreement renewal date was August 31, 2016 and will renew from year to year unless such Financing Agreement is terminated
as set forth in the loan agreement. The amount outstanding under the Financing Agreement bears 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 the Company’s 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. The Financing Agreement provides for advances against
eligible accounts receivable and inventory balances based on prescribed formulas of raw materials and finished goods. There was
approximately $10,000 of additional availability as of January 31, 2017.
Note 4: Stockholder’s Equity
Series B preferred shares
For the nine months ended January 31, 2017, holders
of Series B Preferred Stock (the “Series B Preferred Stock”) converted 331,559 shares of Series B Preferred Stock into
2,210,392 shares of common stock. The converted value for each share Series B Preferred Stock is approximately $12.20 or an aggregate
of $4,045,007. As of January 31, 2017, all shares of Series B Preferred Stock outstanding have been converted in common stock.
Series D preferred shares
On August 3, 2016, the Company entered into separate
securities purchase agreements with accredited investors for the issuance and sale of the Company’s newly designated 0% Series
D Convertible Preferred Stock (the “Series D Preferred Stock”) which are convertible into shares of the Company’s
common stock, par value $0.001 per share. The Series D Preferred Stock is governed by a Certificate of Designations, Preferences
and Rights of the 0% Series D Convertible Preferred Stock. Each share of Series D Preferred Stock was sold at a per share purchase
price of $136.00 and converts into 100 shares of common stock, subject to adjustment for dividends and stock splits. On August
5, 2016, the Company closed the private placement and sold 3,699 shares of Series D Preferred Stock convertible into an aggregate
of approximately 369,900 shares of common stock with gross proceeds to the Company of $503,000.
Bonus Shares
Bonus shares (the “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
of Directors of 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.
Between May 1, 2016 and January 31, 2017 the Company
awarded 188,333 restricted shares of the Company’s common stock to employees, executive officers and directors. The Company’s
condensed consolidated statements of operations for the nine months ended January 31, 2017 includes approximately $429,000 of stock-based
compensation expense.
Warrants
At January 31, 2017 the Company had 133,667 warrants
outstanding with exercise prices between $7.50 and $10.50. A summary of warrant activity for the nine months ended January 31,
2017 is as follows:
|
|
Shares
|
|
|
Weighted
average
exercise
price
|
|
|
Weighted
average
remaining
contractual life years
|
|
|
Aggregate
intrinsic
value (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance May 1, 2016
|
|
|
207,625
|
|
|
$
|
19.74
|
|
|
|
1.24
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Expired
|
|
|
(73,958
|
)
|
|
$
|
40.68
|
|
|
|
|
|
|
|
|
|
Balance January 31, 2017
|
|
|
133,667
|
|
|
$
|
8.15
|
|
|
|
1.82
|
|
|
|
—
|
|
|
(1)
|
This amount represents the difference between the exercise price and $1.43, the closing price of
Dataram common stock on January 31, 2017 as reported on the NASDAQ Stock Market, for all in-the-money warrants outstanding.
|
Note 5: Commitments and Contingencies
Leases
Future minimum lease payments under non-cancelable
operating leases (with initial or remaining lease terms in excess of one year) as of January 31, 2017 are as follows:
|
|
Total
|
|
Year ending April 30:
|
|
|
|
|
2017 (Remaining)
|
|
|
70,000
|
|
2018
|
|
|
283,000
|
|
2019
|
|
|
130,000
|
|
2020
|
|
|
86,000
|
|
Total
|
|
$
|
569,000
|
|
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,
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,
Mr. Freeman filed a complaint,
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.,
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 6: Financial Information by Geographic Location
The Company currently operates in one business segment
that develops, manufactures and markets a variety of memory systems for use with network servers and workstations which are manufactured
by various companies. Revenues for the three and nine months ended January 31, 2017 and 2016 by geographic region are as follows:
|
|
Three months
ended
January 31,
2017
|
|
|
Nine months
ended
January 31,
2017
|
|
United States
|
|
$
|
2,363,000
|
|
|
$
|
9,057,000
|
|
Europe
|
|
|
756,000
|
|
|
|
2,739,000
|
|
Other (principally Asia Pacific Region)
|
|
|
373,000
|
|
|
|
1,290,000
|
|
Consolidated
|
|
$
|
3,492,000
|
|
|
$
|
13,086,000
|
|
|
|
Three months
ended
January 31,
2016
|
|
|
Nine months
ended
January 31,
2016
|
|
United States
|
|
$
|
5,039,000
|
|
|
$
|
16,260,000
|
|
Europe
|
|
|
1,396,000
|
|
|
|
3,391,000
|
|
Other (principally Asia Pacific Region)
|
|
|
168,000
|
|
|
|
341,000
|
|
Consolidated
|
|
$
|
6,603,000
|
|
|
$
|
19,992,000
|
|
Note 7: Concentration 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 January 31, 2017 amounts due from three customers totaled approximately 29%, 28% and 11%, of accounts receivable.
At April 30, 2016, amounts due from one customer totaled approximately 15%.
For the three months ended January 31, 2017 the Company
had sales to two customers that totaled over 10% of revenues. These shipments were approximately 28% and 17% of revenues. For the
nine months ended January 31, 2017, sales to two customers totaled approximately 32% and 10% of revenues. For the three months
ended January 31, 2016, sales to two customers were approximately 28% and 14% of total revenues. For the nine months ended January
31, 2016, the Company had sales to two customers that totaled approximately 21% and 14% of total revenues.
Note 8: Entry into a Material Definitive Agreement
On June 13, 2016, the Company entered into an Agreement
and Plan of Merger (the “Merger Agreement”) with its wholly owned subsidiary, Dataram Acquisition Sub, Inc. (“Acquisition
Sub”), a Nevada corporation, U.S. Gold Corp., a Nevada corporation and exploration stage company that owns certain mining
leases and other mineral rights comprising the Copper King gold and copper development project located in the Silver Crown Mining
District of southeast Wyoming and the Keystone Project located in Eureka county, Nevada, and Copper King, LLC (“Copper King”), a principal stockholder of U.S. Gold Corp (the
“Merger”). The closing of the Merger is subject to conditions
as defined in the Merger Agreement.
Pursuant to the terms and conditions of
the Merger Agreement, at the closing of the Merger, U.S. Gold Corp.’s outstanding common stock and 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
Corp. stockholder, shares of the Company’s newly designated 0% Series C Convertible Preferred Stock, par value $0.001
per share, which are convertible into shares of common stock (the “Merger Consideration”). The Merger
Consideration shall be allocated as defined in the Merger Agreement.
On July 29, 2016, the Company, Acquisition Sub, U.S.
Gold Corp. and Copper King, amended and restated the Merger Agreement to reflect the reverse split of the Company’s issued
and outstanding common stock and to adjust certain aspects of the Merger Consideration and management consideration as defined
in the Merger Agreement, as amended.
On September 14, 2016, the Company, Acquisition Sub,
U.S. Gold Corp. and Copper King, amended and restated the Merger Agreement, as amended, to adjust certain aspects of the Merger
Consideration and revise other covenants of the Merger Agreement, as amended (the “Second Amended and Restated Agreement”).
The Second Amended and Restated Agreement among other
things:
|
·
|
Increased the number of shares issuable to holders of U.S. Gold’s Series C Preferred Stock issued in connection with U.S. Gold’s private placement to 18,181,817 from 16,666,667 shares and increase the maximum number of warrants to purchase the Company’s common stock issuable to the placement agent in the Financing to 400,000 warrants from 250,000 warrants;
|
|
·
|
Reduced the number of Escrow Shares (as defined in the Merger Agreement) to be delivered and held in escrow to secure any claims that may arise with respect to the representations, warranties, covenants or indemnification obligations of Copper King LLC to 10% of the Company Stockholder Consideration (as defined in the Merger Agreement) from 15%;
|
|
·
|
Removed the delivery of a new preliminary economic report showing a lower economic value for the Copper King Project than the previously delivered preliminary economic report as a trigger for the release of any Escrow Shares (as defined in the Merger Agreement);
|
|
·
|
Included a covenant for the delivery by U.S. Gold of a
new economic report within one year of the closing of the merger;
|
|
·
|
Included the requirement for the Company to register the Merger Consideration on a Form S-4;
|
|
·
|
Included a covenant that certain officers and directors of the Company shall be issued an aggregate of 820,000 shares of restricted stock pursuant to a shareholder approved equity incentive plan, subject to the execution of a two year lockup agreement; and
|
|
·
|
Revised the maximum number of shares the Company shall have outstanding at the closing of the merger, on a fully diluted basis, to 4,559,178 shares of common stock.
|
On November 28, 2016, the Company, Acquisition Sub,
U.S. Gold Corp. and Copper King, amended and restated the Merger Agreement, as amended, to adjust certain aspects of the Merger
Consideration and revise other covenants of the Merger Agreement, as amended (the “Third Amended and Restated Agreement”).
The Third Amended and Restated Agreement among other
things:
|
·
|
Increased the Merger Consideration for U.S. Gold holders of record, in the aggregate and on an “as converted” and fully diluted basis, to 48,616,089 shares of common stock and equivalents from 46,241,868 shares of common stock and equivalents. This includes:
|
|
o
|
Reducing the number of shares issuable to holders of U.S. Gold’s Series C Preferred Stock issued in connection with U.S. Gold’s private placement to 18,094,362 from 18,181,817;
|
|
o
|
Increasing the maximum number of warrants to purchase the Company’s common stock issuable to the placement agent in the Financing to 1,809,436 five-year cashless warrants from 400,000 warrants;
|
|
o
|
Adding a provision to issue 925,833 five-year options which vest 1/24 each month over the 2 years from the original date of issue to the holders of options issued in connection with the closing of the Keystone Acquisition (as defined in the Merger Agreement);
|
|
·
|
Eliminated a covenant that certain officers and directors of the Company be issued an aggregate of 820,000 shares of restricted stock pursuant to a shareholder approved equity incentive plan, subject to the execution of a two year lockup agreement; and
|
|
·
|
Revised the maximum number of shares the Company shall have outstanding at the closing of the merger, on a fully diluted basis, to 4,945,182 shares of common stock.
|
Note 9: Subsequent events
On February 1, 2017 the Company granted 32,000 shares
of restricted common stock to the directors of the Company. The Company will record approximately $47,000 of stock based compensation
related to these grants.
On February 1, 2017 the Company declared a Preferred
Series D dividend of approximately 3,699 Preferred Series D shares. Each share of Series D Preferred Stock converts into 100 shares
of common stock, subject to adjustment for dividends and stock splits.
Between February 1, 2017 and the filing of this
report, the holders of Series D Preferred Stock converted 7,397 Series D Preferred shares into 739,706 shares of common
stock. There are no shares of Series D Preferred Stock outstanding as of February 21, 2017.