[DATARAM LOGO]
DATARAM CORPORATION
2005 ANNUAL REPORT
Table of Contents
1 Chairman's Letter
2 Management's Discussion and Analysis
of Financial Condition and Results
of Operations
6 Financial Review
20 Selected Financial Data
[PICTURE OF ROBERT TARANTINO]
Chairman's Letter
To Our Shareholders
It is my pleasure to report on our fiscal 2005 performance and our outlook
for the future.
Fiscal 2005 was a year of continued earnings growth for the Company. As a
leading independent provider of advanced memory to OEMs, compatible memory
for network servers and memory for supercomputers, our strategy is to
focus on specialized and high capacity memory and not to try and compete
in the ultra price sensitive commodity sector of the market. The benefits
of this are reflected in our operating results. For fiscal 2005, we
achieved:
Revenue growth of 6% to $65.7 million.
Operating earnings growth of 63% to $3.9 million.
Cash flow generated from operating activities of $3.7 million.
Open market stock repurchases totaling $1.5 million.
Working capital growth of 44% to $19.5 million. A current ratio of 5.9 to
1, with cash and equivalents increasing by 37% to $9.3 million.
The outlook for further performance improvements in fiscal 2006 is
positive. Servers are at the center of corporate networks and the
Internet, and our products enhance server performance. The activities of
Internet users, service providers and large corporations are placing
increasing demands on information technology infrastructure. Today's
network expansion supports rapid growth in data and file transmission,
multimedia content and broadband communications. As a consequence, users
will need more servers with more memory in them.
Year-over year, our selling, general and administrative costs declined by
approximately $1.3 million, or 11%. Additionally, as part of our normal
operational reviews, we implemented a limited staff reduction in the
fourth quarter, which is expected to reduce our expenses in fiscal 2006 by
approximately $1.0 million. This action will further increase our already
considerable operating leverage. We believe that our present
infrastructure is more than sufficient to support continued profitable
growth. In the last two years, we have achieved meaningful year over year
performance improvements and expect the trend to continue.
Our Board of Directors' goal has always been to build shareholder value.
We have in the past, had significant stock repurchase programs and in this
year's fourth quarter the Company repurchased $1.5 million worth of stock.
After reviewing our cash management options, the Board of Directors also
decided to initiate a quarterly cash dividend of $0.05 per share, which
was announced on May 31, 2005. It is the intention of the Board that this
be the first in a series of regular quarterly dividends. We believe this
decision is an important step to building long-term value for our
shareholders.
On behalf of the Company's Board of Directors and management team, I would
like to thank our shareholders for their continued support and our
employees for their hard work and dedication.
In closing, we must mention an event which deeply saddened everyone
connected with the Company, the passing on December 5, 2004 of Richard
Holzman. Dick contributed over 27 years of service to the Company as a
valued member of the Board of Directors. He also served as a member of the
Board's Audit Committee, Compensation and Stock Option Committee and
Nominating Committee. He always graciously gave his wise counsel and
guidance to Dataram's executives. Above all, he exhibited a great deal of
integrity in everything he did. Although Dick will never be forgotten, the
greatest gift we can bestow upon his memory is to continue to sustain the
vibrancy of our organization for the benefit of shareholders. We are
committed to this goal.
July 22, 2005
Robert V. Tarantino
Chairman of the Board of Directors,
President and Chief Executive Officer
Page 1
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
Dataram is a developer, manufacturer and marketer of large capacity memory
products primarily used in high performance network servers and
workstations. The Company provides customized memory solutions for
original equipment manufacturers (OEMs) and compatible memory for leading
brands including Dell, HP, IBM, Silicon Graphics and Sun Microsystems. The
Company also manufactures a line of memory products for Intel motherboard
based servers for sale to OEMs and channel assemblers.
The Company's memory products are sold worldwide to original equipment
manufacturers, distributors, value-added resellers and end users. The
Company has a manufacturing facility in the United States with sales
offices in the United States, Europe and Japan.
The Company is an independent memory manufacturer specializing in high
capacity memory and competes with several other large independent memory
manufacturers as well as the original equipment manufacturers mentioned
above. The primary raw material used in producing memory boards is dynamic
random access memory (DRAM) chips. The purchase cost of DRAM chips
typically represents approximately 75% 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.
Results of Operations
The following table sets forth consolidated operating data expressed as a
percentage of revenues for the periods indicated.
Years Ended April 30, 2005 2004 2003
_________________________________________________________________
Revenues 100.0% 100.0% 100.0%
Cost of sales 75.8 74.7 73.9
_____ _____ _____
Gross profit 24.2 25.3 26.1
Engineering and development 2.0 2.1 2.9
Selling, general and administrative 16.2 19.3 32.1
Restructuring charges - - 7.1
Asset impairment charge - - 21.5
_____ _____ _____
Earnings (loss) from operations 6.0 3.9 (37.5)
Other income (expense), net 0.3 0.2 (0.2)
_____ _____ _____
Earnings (loss) before income
tax expense (benefit) 6.3 4.1 (37.7)
Income tax expense (benefit) (3.9) 0.4 (8.5)
_____ _____ _____
Net earnings (loss) 10.2 3.7 (29.2)
===== ===== =====
Fiscal 2005 Compared With Fiscal 2004
Revenues for fiscal 2005 were $65.7 million compared to $62.0 million in
fiscal 2004. The growth in revenue came primarily from sales to OEMs,
which accounted for approximately 50% of revenue in fiscal 2005, compared
to approximately 36% in fiscal 2004. Revenues from the sale of memory for
the compatibles market declined by approximately 18% in fiscal 2005 from
fiscal 2004. This reduction is primarily attributable to reduced sales
volume of the Company's products for Intel motherboard based servers sold
to channel assemblers. This market has become extremely price sensitive
and the Company has chosen not to compete for certain customers' business
in this market.
Overall volume as measured by gigabytes shipped increased by approximately
8% in fiscal 2005 from fiscal 2004. Average selling price per gigabyte
declined by approximately 2% in fiscal 2005 compared to the prior year.
Revenues for the fiscal years ended April 30, 2005 and 2004 by geographic
region were:
Year ended Year ended
April 30, 2005 April 30, 2004
________________ ________________
United States $ 50,210,000 $ 43,780,000
Europe 8,716,000 10,994,000
Other(principally Asia Pacific Region) 6,758,000 7,210,000
________________ ________________
Consolidated $ 65,684,000 $ 61,984,000
================ ================
Cost of sales was $49.8 million in fiscal 2005 or 75.8 percent of revenue
compared to $46.3 million or 74.7 percent of revenue in fiscal 2004.
Fiscal 2005 cost of sales included royalty expense of approximately
$469,000, or 0.7% of revenue compared to $1,058,000, or 1.7% of revenue in
fiscal 2004. The 2004 royalty expense level was attributable to an
agreement entered into with a company that allowed the Company to use
their patented technology through the date of the agreement. The Company
ceased manufacturing products using this technology in fiscal 2004.
Management expects that cost of sales as a percentage of revenue will
generally be approximately 75%, which is in line with its historical norm.
Fluctuations either up or down of 3% or less in any given period are not
unusual and can result from many factors, some of which are a rapid change
in the price of DRAMs, a change in product mix possibly resulting from a
large order or series of orders for a particular product or a change in
customer mix.
Engineering and development costs amounted to $1.3 million in both fiscal
2005 and fiscal 2004. The Company maintains its commitment to the timely
introduction of new memory products.
Selling, general and administrative costs were $10.7 million in fiscal
2005 versus $12.0 million in fiscal 2004. This reduction in expense is
primarily the result of reduced salary and employee related costs due to
reduced workforce. Additionally, approximately $560,000 of the expense
reduction was from reduced levels of depreciation and amortization
expenses as certain assets were fully depreciated in the prior year. The
balance of expense reduction was primarily the result of reduced salary
and employee related costs due to a lower workforce level.
Other income (expense), net for fiscal year 2005 totaled $202,000 versus
$119,000 in fiscal 2004. Fiscal 2005 other income consisted primarily of
$94,000 of net interest income, $33,000 of foreign currency transaction
gains and $75,000 of gains on sale of certain assets. Fiscal 2004 other
income consisted primarily of $6,000 of net interest income, $47,000 of
foreign currency transaction gains and $66,000 of gains on sale of certain
assets.
Income tax expense (benefit) for fiscal 2005 was ($2.6 million) versus
$252,000 in fiscal 2004. After six successive quarters of profitability
and review of its future operating plans, management concluded in April,
2005, that it is more likely than not that the Company will utilize all of
its
Page 2
net operating loss ("NOL") carry forwards. As a result, fiscal 2005 income
tax benefit includes a reversal of the valuation allowance, totaling
approximately $2.6 million, that the Company had previously placed on its
NOL carry forwards. Fiscal 2004 expense represents a provision for state
income tax expense only as the Company utilized a portion of its NOL carry
forwards to offset any federal tax due and therefore recorded no federal
income tax expense. As of April 30, 2005, the Company has a NOL carry
forward of approximately $10.8 million which can be used to offset future
taxable income.
Fiscal 2004 Compared With Fiscal 2003
Revenues for fiscal 2004 were $62.0 million compared to $53.5 million in
fiscal 2003. The growth in revenue came primarily from sales to OEMs,
which accounted for approximately 36% of revenue in fiscal 2004, compared
to approximately 16% in fiscal 2003. Revenues from the sale of memory for
the compatibles market grew by approximately 5% to approximately $39.7
million in fiscal 2004 from fiscal 2003. Overall volume as measured by
gigabytes shipped increased by approximately 25% in fiscal 2004 from
fiscal 2003. Average selling price per gigabyte declined by approximately
8% in fiscal 2004 compared to the prior year.
Cost of sales was $46.3 million in fiscal 2004 or 74.7 percent of revenue
compared to $39.5 million or 73.9 percent of revenue in fiscal 2003.
Fiscal 2004 cost of sales included royalty expense of approximately
$1,058,000, or 1.7% of revenue compared to $464,000, or 0.8% of revenue in
fiscal 2003. The 2004 increase is attributable to an agreement entered
into with a company that allowed the Company to use their patented
technology through the date of the agreement.
Engineering and development costs amounted to $1.3 million in fiscal 2004
compared to $1.5 million in fiscal 2003. The reduction in cost is
primarily attributable to workforce reductions that occurred in fiscal
2003.
Selling, general and administrative costs were $12.0 million in fiscal
2004 versus $17.2 million in fiscal 2003. The decline in expense is
primarily the result of savings in personnel costs as a result of
restructurings that occurred in the first and fourth quarter of fiscal
2003. These restructurings resulted in workforce reductions of
approximately 24% and 28%, respectively and were recorded as a separate
expense totaling $3.8 million in fiscal 2003. Additionally, in Fiscal
2003, the Company recorded a separate asset impairment charge of
approximately $11.5 million, primarily related to the write-off of its
purchased goodwill, net of the effect of certain foreign exchange
translation gains.
Other income (expense), net for fiscal year 2004 totaled $119,000 versus
($84,000) in fiscal 2003. Fiscal 2004 income consisted primarily of $6,000
of net interest income, $47,000 of foreign currency transaction gains and
$66,000 of gains on sale of certain assets. Fiscal 2003 other expense
consisted of $84,000 of net interest expense.
Income tax expense (benefit) for fiscal 2004 was $252,000 versus ($4.6
million) in fiscal 2003. Fiscal 2004 expense represents a provision for
state income tax expense only as the Company utilized a portion of its
federal NOL carry forwards to offset any federal tax due and therefore
recorded no federal income tax expense.
Liquidity and Capital Resources
The Company's cash and working capital position remains strong. Working
capital at the end of fiscal 2005 amounted to $19.5 million, including
cash and cash equivalents of $9.3 million, compared to working capital of
$13.5 million, including cash and cash equivalents of $6.8 million in
fiscal 2004. Current assets at year end were 5.9 times current liabilities
compared to 3.5 at the end of fiscal 2004.
Inventories at the end of fiscal 2005 were $2.4 million compared to fiscal
2004 year end inventories of $2.5 million. Inventory levels for both years
are within a normal range relative to the Company's revenue levels.
The Company generated $3.7 million of cash flows from operating activities
primarily as a result of net earnings of $6.7 million reduced by the non-
cash deferred tax benefit of $3.2 million. Cash used in investing
activities totaled $303,000 and consisted primarily of capital
expenditures. Cash used in financing activities totaled $938,000 and
consisted primarily of common stock repurchases reduced by proceeds from
stock option exercises of $567,000.
Capital expenditures were $316,000 in fiscal 2005 compared to $160,000 in
fiscal 2004. Capital expenditures in both fiscal years were unusually low.
Fiscal 2006 capital expenditures are expected to be between $500,000 and
$600,000. At the end of fiscal 2005, contractual commitments for capital
purchases were zero.
On June 15, 1999 the Company announced an open market repurchase plan
providing for the repurchase of up to 500,000 shares of the Company's
common stock. On December 4, 2002, the Company announced a second plan
providing for the repurchase of up to an additional 500,000 shares. As of
April 30, 2005, the total number of shares authorized for purchase under
the program is 223,646 shares. The Company repurchased 311,504 shares of
its common stock in fiscal 2005 at a total price of approximately $1.5
million.
On June 21, 2004, the Company entered into a credit facility with a bank,
which provides for up to a $5 million revolving credit line. Advances
under the facility are limited to 75% of eligible receivables, as defined
in the agreement. The agreement provides for LIBOR rate loans and base
rate loans at an interest rate no higher than the bank's base commercial
lending rate. The Company is required to pay a commitment fee equal to 1/4
of one percent per annum on the unused commitment. The agreement contains
certain restrictive covenants, specifically a trailing twelve month
profitability requirement, a current asset to current liabilities ratio, a
total liabilities to tangible net worth ratio and certain other covenants,
as defined in the agreement. The agreement was amended on April 4, 2005.
The effect of the amendment was to increase the limit of the Company's
combined open market stock repurchases and dividend payments to $2.5
million per year from $1.0 million per year without prior waiver. The
Company is in compliance with all covenants of the agreement and there
were no borrowings against the credit line in fiscal 2005. The agreement
expires on June 21, 2006. The Company intends to renew the agreement prior
to the expiration date.
Page 3
Management believes that the Company's cash flows generated from
operations will be sufficient to meet short term liquidity needs as the
Company does not expect any unforeseen demands beyond general operating
requirements for cash. Management further believes that its working
capital together with internally generated funds from its operations and
its bank line of credit are adequate to finance the Company's long term
operating needs and future capital requirements.
On July 29, 2002, the Company entered into an agreement to sell its
undeveloped land for a price of $3.0 million. The agreement was amended on
October 20, 2004. The amendment extended the term of the agreement to
September 29, 2005. The agreement, as amended, provides for closing to
occur no later than September 29, 2005. Additionally, the agreement is
subject to certain contingencies and as such may be terminated prior to
closing. The land is carried at cost on the Company's balance sheet at a
value of $875,000 and is shown as an asset held for sale. The resulting
gain on the sale will be recorded upon consummation of the transaction and
when all contingencies have been satisfied.
Future minimum lease payments under non-cancelable operating leases (with
initial or remaining lease terms in excess of one year) as of April 30,
2005 are as follows:
Operating leases
Year ending April 30: ________________
2006 $ 465,000
2007 48,000
2008 and thereafter 0
________________
$ 513,000
================
At April 30, 2005, the Company had open purchase orders outstanding
totaling $3.7 million, primarily for inventory items to be delivered in
the first quarter of fiscal 2006. These purchase orders are cancelable.
Inflation has not had a significant impact on the Company's revenue and
operations.
New Accounting Pronouncements
In December, 2004, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 123
(revised 2004), "Share-Based Payment" ("SFAS 123R"). SFAS 123R addresses
the accounting for transactions in which an enterprise receives employee
services in exchange for (a) equity instruments of the enterprise or (b)
liabilities that are based on the fair value of the enterprise's equity
instruments or that may be settled by the issuance of such equity
instruments. SFAS 123R supersedes APB No. 25 and requires that such
transactions be accounted for using a fair-value based method. SFAS 123R
requires companies to recognize an expense for compensation cost related
to share-based payment arrangements, including stock options and employee
stock purchase plans. The Company is required to implement the proposed
standard no later than May 1, 2006. The Company is currently evaluating
option valuation methodologies and assumptions related to its stock
compensation plans.
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs, an
amendment of ARB No. 43, Chapter 4". SFAS 151, amends ARB 43, Chapter 4,
to clarify that abnormal amounts of idle facility expense, freight,
handling costs, and wasted material (spoilage) should be recognized as
current-period charges. In addition, this Statement requires that
allocation of fixed production overheads to the cost of conversion be
based on the normal capacity of the production facilities. The provisions
of this Statement shall be effective for the Company beginning May 1,
2006. The Company does not believe that this statement will have a
material effect on the Company's consolidated financial statements.
Critical Accounting Policies
In December 2001, the Securities and Exchange Commission ("SEC") published
a Commission Statement in the form of Financial Reporting Release No. 60
which requested that all registrants discuss their most "critical
accounting policies" in management's discussion and analysis of financial
condition and results of operations. The SEC has defined critical
accounting policies as those that are both important to the portrayal of a
company's financial condition and results, and that require management's
most difficult, subjective or complex judgments, often as a result of the
need to make estimates about the effect of matters that are inherently
uncertain. While the Company's significant accounting policies are
summarized in Note 1 to the consolidated financial statements included in
this Annual Report, it believes the following accounting policies to be
critical:
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 in accordance with SFAS No. 48, "Revenue
Recognition When Right of Return Exists". Estimated warranty costs are
accrued by management upon product shipment based on an estimate of future
warranty claims.
Income Taxes-The Company utilizes the asset and liability method of
accounting for income taxes in accordance with the provisions of SFAS No.
109, "Accounting for Income Taxes". Under the asset and liability method
of SFAS No. 109, deferred tax assets and liabilities are recognized for
the
estimated future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. A valuation allowance is provided when it
is more likely than not that some portion or all of the deferred tax
assets will not be realized. At April 30, 2005, the Company considered
certain tax planning strategies in its assessment as to the recoverability
of its tax assets. Deferred tax assets and liabilities are measured using
enacted tax rates in effect for the year in which those temporary
differences are expected to be recovered or settled. Under
Page 4
SFAS No. 109, the effect on deferred tax assets and liabilities of a
change in tax rates is recognized in earnings in the period that the tax
rate changes.
Use of Estimates- The preparation of financial statements in conformity
with
accounting principles generally accepted in the United States of America
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 the allowance for
doubtful accounts and sales returns, the deferred tax asset valuation
allowance and other operating allowances and accruals. Actual results
could differ from those estimates.
Quantitative and Qualitative Disclosure About Market Risk
The Company does not invest in market risk sensitive instruments. The
Company's investments during the past fiscal year have consisted of
overnight deposits with banks. The average principal sum invested was
approximately $7.7 million and the weighted average effective interest
rate for these investments was approximately 1.5%. The Company's rate of
return on its investment portfolio changes with short-term interest rates,
although such changes will not affect the value of its portfolio. The
Company's objective in connection with its investment strategy is to
maintain the security of its cash reserves without taking market risk with
principal.
The Company purchases and sells primarily in U.S. dollars. The Company
sells in foreign currency (primarily Euros) to a limited number of
customers and as such incurs some foreign currency risk. At any given
time, approximately 5 to 10 percent of the Company's accounts receivable
are denominated in currencies other than U.S. dollars. At present, the
Company does not purchase forward contracts as hedging instruments, but
could do so as circumstances warrant.
Common Stock Information
The Common Stock of the Company is traded on the NASDAQ National Market
with the symbol "DRAM". The following table sets forth, for the periods
indicated, the high and low prices for the Common Stock.
2005 2004
___________________ __________________
High Low High Low
___________________ __________________
First Quarter $10.39 $ 6.40 $ 3.98 $ 2.42
Second Quarter 7.63 5.42 4.79 3.41
Third Quarter 7.10 5.27 7.12 3.75
Fourth Quarter 6.34 3.91 9.34 4.96
At April 30, 2005 there were approximately 7,000 shareholders.
On May 31, 2005 the Board of Directors approved a $0.05 per share
quarterly dividend payable on June 29, 2005 to shareholders of record as
of June 15, 2005. The Directors' intention is that this dividend is the
first in a series of regular $0.05 per share quarterly dividends.
Page 5
DATARAM CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
April 30, 2005 and 2004
(In thousands, except share and per share amounts)
2005 2004
______ ______
Assets
Current assets:
Cash and cash equivalents $ 9,281 $ 6,806
Trade receivables, less allowance for
doubtful accounts and sales returns
of $325 in 2005 and $320 in 2004 8,397 8,846
Inventories:
Raw materials 1,136 1,302
Work in process 77 102
Finished goods 1,156 1,133
______ ______
2,369 2,537
Deferred income taxes 3,258 723
Other current assets 130 92
______ ______
Total current assets 23,435 19,004
Deferred income taxes 630 -
Property and equipment:
Land (held for sale) 875 875
Machinery and equipment 12,205 11,934
______ ______
13,080 12,809
Less accumulated depreciation
and amortization 11,052 9,951
______ ______
Net property and equipment 2,028 2,858
Other assets 54 50
______ ______
$26,147 $21,912
====== ======
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable 2,528 3,862
Accrued liabilities 1,438 1,646
______ ______
Total current liabilities 3,966 5,508
Stockholders' equity:
Common stock, par value $1.00 per share.
Authorized 54,000,000 shares; issued
and outstanding 8,361,500 in 2005
and 8,526,519 in 2004 8,361 8,527
Additional paid-in capital 4,566 4,676
Retained earnings 9,254 3,201
______ ______
Total stockholders' equity 22,181 16,404
______ ______
Commitments and contingencies
$26,147 $21,912
====== ======
See accompanying notes to consolidated financial statements.
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DATARAM CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended April 30, 2005, 2004 and 2003
(In thousands, except per share amounts)
2005 2004 2003
_______ _______ _______
Revenues $ 65,684 $ 61,984 $ 53,529
Costs and expenses:
Cost of sales 49,816 46,311 39,529
Engineering and development 1,300 1,284 1,539
Selling, general and administrative 10,653 11,985 17,204
Restructuring charges - - 3,805
Asset impairment charge - - 11,535
_______ _______ _______
61,769 59,580 73,612
_______ _______ _______
Earnings (loss) from operations 3,915 2,404 (20,083)
Other income (expense):
Interest income 115 23 34
Interest expense (21) (17) (118)
Currency gain 33 47 -
Other income 75 66 -
_______ _______ _______
202 119 (84)
_______ _______ _______
Earnings(loss)before income tax
expense (benefit) 4,117 2,523 (20,167)
Income tax expense (benefit) (2,598) 252 (4,563)
_______ _______ _______
Net earnings (loss) $ 6,715 $ 2,271 $(15,604)
======= ======= =======
Net earnings(loss) per common share:
Basic $ 0.78 $ 0.27 $ (1.84)
Diluted $ 0.74 $ 0.25 $ (1.84)
======= ======= =======
See accompanying notes to consolidated financial statements.
Page 7
DATARAM CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended April 30, 2005, 2004 and 2003
(In thousands)
2005 2004 2003
______ _____ ______
Cash flows from operating activities:
Net earnings (loss) $ 6,715 $ 2,271 $(15,604)
Adjustments to reconcile net earnings
(loss)to net cash provided by
operating activities:
Asset impairment charge - - 11,535
Non-cash restructuring charges - - 1,003
Depreciation and amortization 1,133 1,847 3,925
Bad debt expense 38 7 152
Deferred income tax
benefit (3,165) - (1,294)
Changes in assets and liabilities:
Decrease (increase) in trade
and other receivables 411 (2,561) 5,033
Decrease in inventories 168 318 2,580
Decrease (increase) in income
tax receivable - 3,138 (2,438)
(Increase) decrease in
other current assets (38) 19 345
(Increase) decrease in
other assets (4) (26) 384
Increase (decrease) in
accounts payable (1,334) 654 (3,490)
Increase (decrease) in
accrued liabilities (208) (1,332) 1,290
_____ _____ _____
Net cash provided by
operating activities 3,716 4,335 3,421
_____ _____ _____
Cash flows from investing activities:
Additions to property and
equipment (316) (160) (673)
Proceeds from sale of property and
equipment 13 19 -
_____ _____ _____
Net cash used in investing activities (303) (141) (673)
_____ _____ _____
Cash flows from financing activities:
Repayments under revolving
line of credit - - (3,800)
Purchase and subsequent cancellation
of shares of common stock (1,505) - (524)
Proceeds from sale of common shares
under stock option plan (including
tax benefits) 567 112 420
_____ _____ _____
Net cash provided by (used in)
financing activities (938) 112 (3,904)
_____ _____ _____
Net increase (decrease) in cash and
cash equivalents 2,475 4,306 (1,156)
Cash and cash equivalents at
beginning of year 6,806 2,500 3,656
_____ _____ _____
Cash and cash equivalents at end
of year $ 9,281 $ 6,806 $ 2,500
===== ===== =====
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 18 $ 16 $ 125
Income taxes $ 476 $ 2 $ 92
===== ===== =====
See accompanying notes to consolidated financial statements.
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DATARAM CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity and Comprehensive Income(loss)
Years ended April 30, 2005, 2004 and 2003
(In thousands, except share amounts)
Accumulated Total
Additional other stock-
Common paid-in Retained comprehens- holders'
stock capital earnings ive income equity
(loss)
______ ________ ________ ________ ________
Balance at April 30, 2002 $ 8,494 $ 4,405 $ 16,830 $ 99 $ 29,828
Issuance of 166,200 shares
under stock option plans,
including income tax
benefit of $25 166 254 - - 420
Purchase and subsequent
cancellation of
162,600 shares (163) (65) (296) - (524)
Comprehensive Income:
Foreign exchange translation
adjustment, net of tax - - - (99) (99)
Net loss - - (15,604) - (15,604)
_______
Total comprehensive loss (15,703)
______ _______ _______ _______ _______
Balance at April 30, 2003 $ 8,497 $ 4,594 $ 930 $ - $14,021
Issuance of 29,300 shares
under stock option plans,
including income tax
benefit of $7 30 82 - - 112
Net Income - - 2,271 - 2,271
______ _______ _______ _______ _______
Balance at April 30, 2004 $ 8,527 $ 4,676 $ 3,201 $ - $16,404
Issuance of 146,485 shares
under stock option plans,
including income tax
benefit of $122 146 421 - - 567
Purchase and subsequent
cancellation of
311,504 shares (312) (531) (662) - (1,505)
Net Income - - 6,715 - 6,715
______ _______ _______ _______ _______
Balance at April 30, 2005 $ 8,361 $ 4,566 $ 9,254 $ - $22,181
====== ======= ======= ======= =======
See accompanying notes to consolidated financial statements.
Page 9
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
(1) Significant Accounting Policies
Description of Business
Dataram Corporation is a worldwide provider of server and workstation
memory. The Company offers a specialized line of gigabyte-class memory for
entry to enterprise-level servers and workstations as well as customized
memory solutions for original equipment manufacturers.
Principles of Consolidation
The consolidated financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of
America and include the accounts of the Company and its wholly-owned
subsidiaries. All significant intercompany transactions and balances have
been eliminated.
Until the closure of the Company's manufacturing operations in Denmark in
the fourth quarter of fiscal 2003, the financial statements of its foreign
subsidiaries were translated using the local currency as their functional
currency. That is, assets and liabilities of the foreign subsidiaries were
translated using the exchange rates in effect at the date of the balance
sheet while the results of operations of those foreign subsidiaries were
translated using the average exchange rates in effect for each year.
Differences arising upon translation were then included as part of
accumulated other comprehensive income (loss) in the Consolidated
Statements of Stockholders' Equity and Comprehensive Income (loss). The
closure of the operations in Denmark required the reversal of the balance
in the cumulative foreign currency translation account in accumulated
other comprehensive income (loss) since this event represented a
substantial liquidation of those operations and such amount is included in
the computation of the overall loss on the transaction (see note 2).
Subsequently, the Company's foreign subsidiaries' act only as sales
offices which are deemed to be essentially branches of the US company and
the functional currency of these sales offices is considered to be the US
dollar. Accordingly, from the date of this change, any amounts denominated
in a currency other than the US dollar are being recorded at the balance
sheet rate of exchange and gains and losses arising from changes in
foreign currency rates for those assets and liabilities are being reported
in the consolidated statements of operations.
Cash and Cash Equivalents
Cash and cash equivalents consist of unrestricted cash, money market
accounts and commercial paper purchased with original maturities of three
months or less.
Inventory
Inventories are stated at the lower of cost or market, with cost
determined by the first-in, first-out method.
Property and Equipment
Property and equipment is recorded at cost. Depreciation is generally
computed on the straight-line basis. Depreciation and amortization rates
are based on the estimated useful lives or lease terms for capital leases,
whichever is shorter, which range from three to five years for machinery
and equipment. When property or equipment is retired or otherwise disposed
of, related costs and accumulated depreciation are removed from the
accounts.
Repair and maintenance costs are charged to operations as incurred.
Goodwill and Acquired Intangible Assets
In accordance with Statement of Financial Accounting Standards (SFAS) No.
142, "Goodwill and Other Intangible Assets", goodwill and intangible
assets with indefinite useful lives are no longer amortized, but instead
tested for impairment at least annually in accordance with the provisions
of SFAS No. 142. SFAS No. 142 also requires that intangible assets with
finite useful lives be amortized over their respective estimated useful
lives to their estimated residual values, and reviewed for impairment
periodically.
On April 28, 2003, the Company restructured its worldwide operations. As
part of the restructuring, the Company closed its production facility in
Aarhus, Denmark. As a consequence of this action, the Company concluded
that the estimated fair value of its acquired business had no remaining
value and the Company wrote-off its purchased goodwill of approximately
$11.1 million (see note 2).
Long-Lived Assets
Long-lived assets consist of property, plant and equipment. SFAS No. 144
provides a single accounting model for long-lived assets to be disposed
of. SFAS No.144 also changes the criteria for classifying an asset as held
for sale, broadens the scope of businesses to be disposed of that qualify
for reporting as discontinued operations and changes the timing of
recognizing losses on such operations.
In accordance with SFAS No. 144, long-lived assets, such as property,
plant and equipment, 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
balance sheet and reported at the lower of the carrying amount or fair
value less cost to sell, and no longer depreciated.
The Company reviews long-lived assets for impairment whenever events or
changes in business circumstances occur that indicate that the carrying
amount of the assets may not be recoverable. Impairments are recognized
when the expected future undiscounted cash flows derived from such assets
are less than their carrying value. For such cases, losses are recognized
for the difference between the fair value and the carrying amount. The
Company considers various valuation factors, principally discounted cash
flows, to assess the fair values of long-lived assets.
Page 10
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 in accordance with SFAS No. 48, "Revenue Recognition When Right of
Return Exists".
Product Development and Related Engineering
The Company expenses product development and related engineering costs as
incurred. Engineering effort is directed to the development of new or
improved products as well as ongoing support for existing products.
Income Taxes
The Company utilizes the asset and liability method of accounting for
income taxes in accordance with the provisions of SFAS No. 109,
"Accounting for Income Taxes". Under the asset and liability method of
SFAS No. 109, deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to differences between
assets and liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates in effect for the
year in which those temporary differences are expected to be recovered or
settled. Under SFAS No. 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in earnings in the
period that the tax rate changes.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentration of credit risk consist primarily of cash and cash
equivalents and accounts receivable. The Company maintains its cash and
cash equivalents in financial institutions and brokerage accounts. 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.
In fiscal 2005, sales to one customer accounted for approximately 33% of
revenues and 32% of accounts receivable at April 30, 2005. In fiscal 2004,
sales to one customer accounted for approximately 22% of revenues. In
fiscal 2003 no customer generated revenues of 10% or greater.
Net Earnings/(Loss) Per Share
Net Earnings/(Loss) Per Share is presented in accordance with SFAS No.
128, "Earnings Per Share". Basic net earnings/(loss) per share is
calculated by dividing net earnings/(loss) by the weighted average number
of common shares outstanding during the period. Diluted net earnings per
share in fiscal 2005 and 2004 was calculated in a manner consistent with
basic net earnings 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). During fiscal 2003,
the Company excluded the dilutive effect of options to purchase 1,515,350
shares of common stock in the calculation of diluted net loss per share
because they were anti-dilutive. As such, the numerator and denominator
used in computing basic and diluted net loss per share were equal.
The following presents a reconciliation of the numerator and denominator
used in computing Basic and Diluted net earnings per share for fiscal 2005
and 2004.
Year ended April 30, 2005
Earnings Shares Per share
(numerator) (denominator) amount
_________ ___________ _________
Basic net earnings per share
- -net earnings and weighted
average common shares
outstanding $ 6,715 8,571,000 $ .78
Effect of dilutive securities
- -stock options - 541,000
_______ _________ ______
Diluted net earnings per share
- -net earnings, weighted
average common shares
outstanding and effect of
stock options $ 6,715 9,112,000 $ .74
======= ========= ======
Year ended April 30, 2004
Earnings Shares Per share
(numerator) (denominator) amount
_________ ___________ _________
Basic net earnings per share
- -net earnings and weighted
average common shares
outstanding $ 2,271 8,502,000 $ .27
Effect of dilutive securities
- -stock options - 405,000
_______ _________ ______
Diluted net earnings per share
- -net earnings, weighted
average common shares
outstanding and effect of
stock options $ 2,271 8,907,000 $ .25
======= ========= ======
Diluted net earnings (loss) per common share does not include the effect
of options to purchase 443,700 shares of common stock for the year ended
April 30, 2005 because they are anti-dilutive.
Diluted net earnings (loss) per common share does not include the effect
of options to purchase 463,080 shares of common stock for the year ended
April 30, 2004 because they are anti-dilutive.
Page 11
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 cost at the time of sale and
any additional amounts are recorded when such cost are probable and can be
reasonably estimated.
Balance Charges to Balance
Beginning Costs and End
of Year Expenses Deductions of Year
_________ _________ __________ ________
Year Ended
April 30, 2005 $ 54 9 (9) $ 54
Year Ended
April 30, 2004 $ 54 26 (26) $ 54
Year Ended
April 30, 2003 $ 54 23 (23) $ 54
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities 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. Actual
results could differ from those estimates.
Fair Value of Financial Instruments
The fair value of financial instruments is determined by reference to
market data and other valuation techniques as appropriate. The Company
believes that there is no material difference between the fair value and
the reported amounts of financial instruments in the consolidated balance
sheets.
Stock Based Compensation
At April 30, 2005, the Company has stock-based employee and director
compensation plans, which are described more fully in Note 5. The Company
accounts for those plans under the recognition and measurement principles
of APB Opinion No. 25, "Accounting for Stock Issued to Employees," and
related Interpretations. No stock-based compensation cost is reflected in
net income for stock options, as all options granted under those plans
had an exercise price equal to the market value of the underlying common
stock on the date of the grant.
The following table illustrates the effect on net earnings (loss) and
earnings (loss) per share if the Company had applied the fair value
recognition provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123") to stock-based employee compensation:
Years ended April 30
--------------------------
2005 2004 2003
-------- -------- --------
Net earnings (loss), as reported $ 6,715 $ 2,271 $(15,604)
Deduct: Total stock-based
employee compensation expense
determined under the fair value
method for all awards, net of tax (97) (784) (885)
-------- -------- --------
Pro forma net earnings (loss) $ 6,618 $ 1,487 $(16,489)
-------- -------- --------
Basic and diluted net earnings
(loss) per common share:
Basic:
As reported $ .78 $ .27 $ (1.84)
Pro forma under SFAS 123 .77 .17 (1.94)
Diluted:
As reported $ .74 $ .25 $ (1.84)
Pro forma under SFAS 123 .73 .17 (1.94)
The 2005 expense includes a pro forma tax benefit from the reversal of the
valuation allowance on certain pro forma net operating losses from
previous years.
Page 12
The fair value of each stock option granted during the year is estimated
on the date of grant using the Black-Scholes option pricing model with
the following assumptions:
2005 2004 2003
------- ------- -------
Expected life (years) 7.5 7.5 7.5
Expected volatility 52% 57% 72%
Expected dividend yield - - -
Risk-free interest rate 3.0% 3.0% 5.0%
Weighted average fair value of options
granted during the year $ 3.22 $ 2.50 $ 2.19
(2) Restructuring of Operations
During the fourth quarter of fiscal 2003, the Company announced a
restructuring of its operations. As part of this restructuring, the
Company closed its production facility in Aarhus, Denmark, which was
acquired as part of an acquisition of a business in 2001. The Company
consolidated all manufacturing into its facility located in Bucks County,
Pennsylvania. As a result, the Company reduced its workforce by
approximately 28 percent and incurred a consolidated pretax charge of
approximately $3,800 in the fourth quarter of fiscal 2003, which consisted
primarily of additional depreciation and amortization of fixed assets in
Denmark, a provision for leasehold impairment, a write down of inventory
and severance payments. Additionally, the Company wrote-off its purchased
goodwill from the 2001 acquisition of $11,144. Of these amounts, $300 was
charged to cost of sales, with the balance recorded as restructuring
charges of $3,065 million and asset impairment charges of $11,535, which
is net of the effect of certain foreign exchange translation gains.
Additional restructuring charges, primarily related to severance costs, of
$740 were recorded in June, 2002 and were paid in fiscal 2003. The Company
entered into lease termination agreements totaling approximately $1,000
and had severance obligations totaling approximately $850. The lease
termination and severance obligations were paid in fiscal 2004.
(3) Long-Term Debt
On June 21, 2004, the Company entered into a two year credit facility with
a bank, which provides for up to a $5,000 revolving credit line. Advances
under the facility are limited to 75% of eligible receivables, as defined
in the agreement. The agreement provides for LIBOR rate loans and base
rate loans at an interest rate no higher than the bank's base commercial
lending rate. The Company is required to pay a commitment fee equal to 1/4
of one percent per annum on the unused commitment. The agreement contains
certain restrictive covenants, specifically a trailing twelve month
profitability requirement, a current asset to current liabilities ratio, a
total liabilities to tangible net worth ratio and certain other covenants,
as defined in the agreement which the Company was in compliance with at
April 30, 2005. The agreement was amended on April 4, 2005. The effect of
the amendment was to increase the limit of the Company's combined open
market stock repurchases and dividend payments to $2,500 per year from
$1,000 per year without prior waiver. During fiscal 2005, there were no
borrowings under the credit facility. The Company is in compliance with
all covenants of the agreement and there were no borrowings against the
credit line in fiscal 2005.
Page 13
(4) Income Taxes
Income tax expense(benefit)for the years ended April 30 consists of the
following:
2005 2004 2003
_____ _____ _____
Current:
Federal $ 82 $ 47 $ (3,307)
Foreign - - 37
State 169 205 1
_____ _____ _____
251 252 (3,269)
_____ _____ _____
Deferred:
Federal (2,849) - (1,247)
Foreign - - -
State - - (47)
_____ _____ _____
(2,849) - (1,294)
_____ _____ _____
Total income tax expense (benefit) $(2,598) $ 252 $(4,563)
===== ===== =====
The actual income tax expense (benefit) differs from "expected" tax
expense (benefit) (computed by applying the U. S. corporate tax rate of
35% to earnings before income taxes) as follows:
2005 2004 2003
_____ _____ _____
Computed "expected" tax
expense(benefit) $ 1,441 $ 883 $(7,058)
State income taxes(net
of Federal income tax
benefit) 112 150 (30)
Difference in federal
graduated rates (41) - 202
Foreign taxes - - 37
Change in valuation
allowance (2,569) - 2,504
Utilization of net operating
Losses (1,217) (1,191) -
Alternative minimum tax - 232 -
Other (324) 178 (218)
_____ _____ _____
$(2,598) $ 252 $(4,563)
===== ===== =====
Page 14
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are
presented below:
2005 2004
____ ____
Deferred tax assets:
Compensated absences, principally due
to accrual for financial reporting
purposes $ 155 $ 94
Accounts receivable, principally due
to allowance for doubtful accounts
and sales returns 120 119
Property and equipment, principally
due to differences in depreciation 61 142
Inventory 200 143
Foreign tax credit 53 -
Domestic net operating losses 3,689 4,944
Alternative minimum tax 273 217
____ ____
Total gross deferred tax assets 4,551 5,659
_____ _____
Less valuation allowance - (3,777)
_____ _____
Net deferred tax asset 4,551 1,882
_____ _____
Deferred tax liabilities:
Investment in wholly-owned subsidiary,
principally due to unremitted
earnings of DISC (663) (663)
Other - (496)
____ ____
Total gross deferred tax liabilities (663) (1,159)
____ ____
Net deferred tax assets $ 3,888 $ 723
==== ====
During fiscal 2005, the Company recognized deferred tax assets since
management now believes that it is more likely than not that such assets
will be realized through future taxable income or certain tax planning
strategies. The Company has U.S. net operating loss carry forwards of
approximately $10,849, which can be used to offset income through 2023.
Page 15
(5) Stock Option Plans
The Company has a 1992 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 allowed
granting of up to 2,850,000 shares, adjusted for stock splits, of the
Company's common stock at an option price to be no less than the fair
market value of the stock on the date such options are granted. Under
option agreements granted under the plan, the holder of the option may
purchase 20% of the common stock with respect to which the option has been
granted on or after the first anniversary of the date of the grant and an
additional 20% of such shares on or after each of the four succeeding
anniversary dates. At April 30, 2005, 806,410 of the outstanding options
are exercisable. No further options may be granted under this plan.
The Company also has 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 1,800,000 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 range
from one to four years. At April 30, 2005, 165,225 of the outstanding
options are exercisable.
The status of the plans for the three years ended April 30,
2005, is as follows:
Options Outstanding
________________________________________________
Exercise price Weighted average
Shares per share exercise price
_________ ______________ ________________
Balance April 30, 2002 1,443,050 $ 1.708-24.250 $ 4.785
Granted 156,800 2.990-3.830 3.017
Exercised (156,000) 1.708-2.375 2.349
Cancelled (108,500) 2.990-24.250 7.440
_________ ____________ ___________
Balance April 30, 2003 1,335,350 1.708-24.250 4.646
Granted 130,000 4.090 4.090
Exercised (29,300) 2.990-3.604 3.573
Cancelled (69,850) 2.990-24.250 7.641
_________ ____________ ___________
Balance April 30, 2004 1,366,200 1.708-24.250 4.463
Granted 120,500 6.500-6.750 6.729
Exercised (153,450) 1.708-7.980 3.474
Cancelled (78,400) 2.990-24.250 10.539
_________ ____________ ___________
Balance April 30, 2005 1,254,850 $ 1.708-24.250 $ 4.422
========= ============ ==========
The Company also granted non-qualified options to acquire 150,000 shares
of common stock to certain employees. These options are exercisable at a
price of $9.875 per share, which represents the fair value at the date of
grant and expire ten years after the date of grant. Of each option, 20%
are exercisable on or after the first anniversary of the date of the grant
and an additional 20% on or after each of the four succeeding anniversary
dates. During fiscal year 2003, 50,000 of these shares were cancelled. At
April 30, 2005, 80,000 of the outstanding options are exercisable.
The Company also periodically grants nonqualified stock options to non-
employee directors of the Company. These options are granted for the
purpose of retaining the services of directors who are not employees of
the Company and to provide additional incentive for such directors to work
to further the best interests of the Company and its shareholders. The
options granted to these non-employee directors are exercisable at a price
representing the fair value at the date of grant, and expire ten years
after date of grant. Of each option, 100% are exercisable one year after
the date of grant. At April 30, 2005, 112,000 of the outstanding options
are exercisable.
Page 16
The status of the non-employee director options for the three years ended
April 30, 2005, is as follows:
Options Outstanding
________________________________________________
Exercise price Weighted average
Shares per share exercise price
_________ ______________ ________________
Balance April 30, 2002 204,750 $ 2.313-7.980 $ 3.822
Granted 40,000 2.990 2.990
Exercised (10,000) 2.813 2.813
Cancelled (154,750) 2.813 2.813
________ ____________ ____________
Balance April 30, 2003 80,000 2.990-7.980 5.485
Granted 40,000 4.090 4.090
Exercised - - -
Cancelled - - -
________ ____________ ____________
Balance April 30, 2004 120,000 2.990-7.980 5.020
Granted 40,000 6.750 6.750
Exercised (16,000) 2.990-4.090 3.540
Cancelled - - -
________ ____________ ____________
Balance April 30, 2005 144,000 $ 2.990-7.980 $ 5.665
======== ============ ============
The following table summarizes information about stock options outstanding
at April 30, 2005:
Options outstanding Options exercisable
___________________________________ ____________________________
Number Weighted Number
out- average Weighted exercis- Weighted
Range of standing remaining average able at average
exercise at April contractual exercise April 30, exercise
price 30, 2005 life price 2005 price
____________ _________ _________ ________ _________ ________
$1.708- 2.813 632,300 2.21 $ 2.66 632,300 $ 2.66
2.990- 3.604 257,500 5.25 3.24 203,600 3.30
4.090- 7.980 470,950 6.34 6.27 217,675 6.51
9.875-11.380 102,100 5.92 9.88 81,260 9.88
24.250 36,000 5.25 24.25 28,800 24.25
____________ _________ __________ _______ _________ _______
$1.708-24.250 1,498,850 4.35 $ 4.91 1,163,635 $ 4.53
============ ========= ========== ======= ========= =======
Page 17
(6) Accrued Liabilities
Accrued liabilities consist of the following at April 30:
2005 2004
-------- --------
Severance costs (1) $ 438 $ -
Payroll, including vacation 296 344
Taxes 163 136
Royalties (See note 7) 80 755
Commissions 135 125
Other 326 286
-------- --------
$ 1,438 $ 1,646
======== ========
(1) To be paid in fiscal 2006.
(7) Commitments
Leases
The Company and its subsidiaries occupy various facilities and operate
various equipment under operating lease arrangements. Rent charged to
operations pursuant to such operating leases amounted to approximately
$840 in 2005, $692 in 2004 and $1,552 in 2003.
Future minimum lease payments under non-cancelable operating leases (with
initial or remaining lease terms in excess of one year) as of April 30,
2005 are as follows:
Operating
Year ending April 30: Leases
-------
2006 $ 465
2007 48
2008 and thereafter -
-------
Total minimum lease payments $ 513
=======
At April 30, 2005, the Company had open purchase orders outstanding
totaling $3,661 primarily for inventory items to be delivered in the first
quarter of fiscal 2006. These purchase orders are cancelable.
License Agreements
The Company has entered into certain licensing agreements with varying
terms and conditions. The Company is obligated to pay royalties on certain
of these agreements. In fiscal 2004, an agreement was reached with another
company to use their patented technology through the date of the
agreement. Royalties totaling $660 were accrued in fiscal 2004 and paid in
fiscal 2005. The Company ceased using this technology in fiscal 2004.
Legal Proceedings
The Company is not involved in any claim or legal action, which in the
opinion of management, would have a material effect on the Company's
consolidated financial position, results of operations or liquidity.
(8) 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 6 percent of the employee's eligible compensation, based
on the employee's years of service. The Company's matching contributions
aggregated approximately $268, $273 and $258 in 2005, 2004 and 2003,
respectively.
Page 18
(9) Revenues by Geographic Location
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 and total assets for 2005, 2004 and 2003 by geographic region is
as follows:
United Europe Other Consolidated
States
_______ _______ ______ ____________
April 30, 2005
Revenues $ 50,210 $ 8,716 $ 6,758 $ 65,684
Total assets $ 25,866 $ 281 $ 0 $ 26,147
Long lived assets $ 2,028 $ 0 $ 0 $ 2,028
April 30, 2004
Revenues $ 43,780 $ 10,994 $ 7,210 $ 61,984
Total assets $ 20,963 $ 949 $ 0 $ 21,912
Long lived assets $ 2,811 $ 47 $ 0 $ 2,858
April 30, 2003
Revenues $ 29,495 $ 13,180 $10,854 $ 53,529
Total assets $ 15,398 $ 4,809 $ 0 $ 20,207
Long lived assets $ 4,473 $ 91 $ 0 $ 4,564
(10) Quarterly Financial Data (Unaudited)
Quarter Ended
____________________________________________
Fiscal 2005 July 31 October 31 January 31 April 30
___________ _______ __________ __________ ________
Revenues $15,791 $20,322 $14,431 $15,140
Gross profit 4,051 4,506 3,010 4,301
Net earnings 1,167 1,526 147 3,875
Net earnings per diluted
common and common equivalent
share .13 .17 .02 .44
Quarter Ended
____________________________________________
Fiscal 2004 July 31 October 31 January 31 April 30
___________ _______ __________ __________ ________
Revenues $12,267 $12,638 $17,131 $19,948
Gross profit 3,449 3,006 4,208 5,010
Net earnings(loss) 171 (162) 732 1,530
Net earnings(loss)per diluted
common and common equivalent
share .02 (.02) .08 .17
Earnings (loss) per share is calculated independently for each quarter and
therefore may not equal the total for the year.
Page 19
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Dataram Corporation:
We have audited the accompanying consolidated balance sheets of Dataram
Corporation and subsidiaries as of April 30, 2005 and 2004, and the
related consolidated statements of operations, stockholders' equity and
comprehensive income (loss), and cash flows for each of the years in the
three-year period ended April 30, 2005. 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 audits.
We conducted our audits 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.
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 audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Dataram Corporation and subsidiaries as of April 30, 2005 and 2004, and
the results of their operations and their cash flows for each of the years
in the three-year period ended April 30, 2005, in conformity with U.S.
generally accepted accounting principles.
KPMG LLP
Short Hills, New Jersey
July 8, 2005
Selected Financial Data
(Not covered by independent auditors' report)
(In thousands, except per share amounts)
Years Ended April 30, 2005 2004 2003 2002 2001
______________________ ____ ____ ____ ____ ____
Revenues $ 65,684 $ 61,984 $ 53,529 $ 81,190 $130,577
Net earnings (loss) 6,715 2,271 (15,604) (8,101) 8,595
Basic earnings (loss)
per share .78 .27 (1.84) (.95) 1.01
Diluted earnings (loss)
per share .74 .25 (1.84) (.95) .88
Current assets 23,435 19,004 15,619 21,800 34,690
Total assets 26,147 21,912 20,207 42,562 65,281
Current liabilities 3,966 5,508 6,186 8,287 14,157
Long-term debt - - - 3,800 10,000
Total stockholders'
equity 22,181 16,404 14,021 29,828 38,043
Cash dividends (1) - - - - -
(1) On May 31, 2005 the Board of Directors approved a $0.05 per share
quarterly dividend payable on June 29, 2005 to shareholders of record as
of June 15, 2005. The Directors' intention is that this dividend is the
first in a series of regular $0.05 per share quarterly dividends.
Page 20
DIRECTORS AND CORPORATE OFFICERS
Directors
Robert V. Tarantino
Chairman of the Board of Directors,
President and Chief Executive Officer
of Dataram Corporation
Thomas A. Majewski*
Principal, Walden Inc.
Bernard L. Riley*
Private Investor
Roger C. Cady*
Principal, Arcadia Associates
*Member of audit committee
Corporate Officers
Robert V. Tarantino
President and Chief Executive Officer
Mark E. Maddocks
Vice President, Finance and
Chief Financial Officer
Jeffrey H. Duncan
Vice President of Manufacturing
and Engineering
Anthony M. Lougee
Controller
Thomas J. Bitar
Secretary
Member, Dillon, Bitar & Luther, L.L.C.
Corporate Headquarters
Dataram Corporation
186 Princeton Road (Route 571)
West Windsor, NJ 08550
609-799-0071
Auditors
KPMG LLP
Short Hills, NJ
General Counsel
Dillon, Bitar & Luther, L.L.C.
Morristown, NJ
Transfer Agent and Registrar
Wachovia Bank
Customer Information Center
1525 West W.T. Harris Boulevard
Building 3C3
Charlotte, NC 28288
Stock Listing
Dataram's common stock is listed on
the NASDAQ with the trading symbol DRAM.
Annual Meeting
The annual meeting of shareholders
will be held on Tuesday, September 13,
2005, at 2:00 p.m. at Dataram's
corporate headquarters at:
186 Princeton Road (Route 571)
West Windsor, NJ 08550
Form 10-K
A copy of the Company's annual report
on Form 10-K filed with the Securities
& Exchange Commission is available
without charge to shareholders.
Address requests to:
Vice President, Finance
Dataram Corporation
186 Princeton Road (Route 571)
West Windsor, NJ 08550
Corporate Headquarters
Dataram Corporation
186 Princeton Road (Route 571)
West Windsor, NJ 08550
Toll Free: 800-DATARAM
Phone: 609-799-0071
Fax: 609-799-6734
www.dataram.com