SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/ X / Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended 10/31/05 or
/ / Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the transition period from to
Commission file number 1-8266
DATARAM CORPORATION
_____________________________________________________________________________
(Exact name of registrant as specified in its charter)
New Jersey 22-1831409
_______________________________ _____________________________________
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
P.O. Box 7528, Princeton, NJ 08543
_____________________________________________________________________________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (609) 799-0071
_____________________________________________________________________________
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
_______ _______
Indicate by check mark whether the registrant is an accelerated filer.
Yes No X
_______ _______
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
Yes No X
_______ _______
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the last practicable date. Common Stock ($1.00 par
value): As of November 30, 2005, there were 8,465,146 shares outstanding.
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Dataram Corporation and Subsidiaries
Consolidated Balance Sheets
October 31, 2005 and April 30, 2005
(Unaudited)
October 31, 2005 April 30, 2005
Assets
Current Assets:
Cash and cash equivalents $ 12,709,575 $ 9,281,520
Trade receivables, less allowance
for doubtful accounts and sales returns
of $315,000 at October 31, 2005 and
$325,000 at April 30,2005 5,052,080 8,396,757
Inventories 1,979,995 2,368,733
Deferred income taxes 2,191,865 3,257,865
Other current assets 329,928 130,212
__________ __________
Total current assets 22,263,443 23,435,087
Deferred income taxes 1,130,000 630,000
Property and equipment, at cost:
Land (held for sale) 875,000 875,000
Machinery and equipment 12,380,807 12,205,586
__________ __________
13,255,807 13,080,586
Less: accumulated depreciation
and amortization 11,472,145 11,052,145
__________ __________
Net property and equipment 1,783,662 2,028,441
Other assets 60,131 53,815
__________ __________
$ 25,237,236 $ 26,147,343
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,404,230 $ 2,527,594
Accrued liabilities 932,623 1,438,101
__________ __________
Total current liabilities 2,336,853 3,965,695
Stockholders' Equity:
Common stock, par value $1.00 per share.
Authorized 54,000,000 shares; issued and
outstanding 8,465,146 at October 31, 2005
and 8,361,500 at April 30, 2005 8,465,146 8,361,500
Additional paid-in capital 4,857,925 4,566,188
Retained earnings 9,577,312 9,253,960
__________ __________
Total stockholders' equity 22,900,383 22,181,648
__________ __________
$ 25,237,236 $ 26,147,343
========== ==========
See accompanying notes to consolidated financial statements.
Dataram Corporation and Subsidiaries
Consolidated Statements of Operations
Three and Six Months Ended October 31, 2005 and 2004
(Unaudited)
2005 2004
2nd Quarter Six Months 2nd Quarter Six Months
Revenues $ 9,857,725 $ 23,801,875 $ 20,322,130 $ 36,113,562
Costs and expenses:
Cost of sales 6,886,120 16,631,986 15,815,873 27,556,775
Engineering and development 292,933 559,423 312,046 630,819
Selling, general and administrative 2,282,113 4,775,018 2,574,689 5,123,192
__________ __________ __________ __________
9,461,166 21,966,427 18,702,608 33,310,786
Earnings from operations 396,559 1,835,448 1,619,522 2,802,776
Interest income, net 72,592 138,363 18,699 33,709
Currency loss, net (4,811) (45,269) (6,269) (6,527)
Other income 101,000 126,000 0 50,000
__________ __________ __________ __________
Total other income 168,781 219,094 12,430 77,182
Earnings before income taxes 565,340 2,054,542 1,631,952 2,879,958
Income tax provision 213,000 771,000 106,000 187,000
__________ __________ __________ __________
Net earnings $ 352,340 $ 1,283,542 $ 1,525,952 $ 2,692,958
========== ========== ========== ==========
Net earnings per share of common stock
Basic $ .04 $ .15 $ .18 $ .31
========== ========== ========== ==========
Diluted $ .04 $ .15 $ .17 $ .29
========== ========== ========== ==========
Dividends per common share $ .05 $ .10 $ .00 $ .00
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
Dataram Corporation and Subsidiaries
Consolidated Statements of Cash Flows
Six Months Ended October 31, 2005 and 2004
(Unaudited)
2005 2004
Cash flows from operating activities:
Net income $ 1,283,542 $ 2,692,958
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 420,000 613,000
Bad debt expense 9,207 7,646
Deferred income tax expense 777,870 0
Changes in assets and liabilities:
Decrease (increase)in trade receivables 3,335,470 (3,398,115)
Decrease (increase) in inventories 176,868 (501,149)
Increase in other current assets (199,716) (132,876)
Increase in other assets (6,316) (3,804)
(Decrease) increase in accounts payable (1,123,364) 1,460,660
Decrease in accrued liabilities (505,478) (946,319)
__________ __________
Net cash provided by (used in) operating
operating activities 4,168,083 (207,999)
___________ __________
Cash flows used in investing activities:
Additions to property and equipment (175,221) (238,985)
Proceeds from sale of property and equipment 0 12,841
___________ __________
Net cash used in investing activities (175,221) (226,144)
Cash flows from financing activities:
Proceeds from sale of common shares under
stock option plan 505,708 327,568
Purchase and subsequent cancellation of
shares of common stock (229,859) 0
Cash dividends (840,656) 0
___________ __________
Net cash provided by (used in)
financing activities (564,807) 327,568
___________ __________
Net increase(decrease)in cash and cash equivalents 3,428,055 (106,575)
Cash and cash equivalents at
beginning of period 9,281,520 6,805,957
__________ __________
Cash and cash equivalents at
end of period $ 12,709,575 $ 6,699,382
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 17,053 $ 8,676
Income taxes $ 228,000 $ 341,000
See accompanying notes to consolidated financial statements.
Dataram Corporation and Subsidiaries
Notes to Consolidated Financial Statements
October 31, 2005 and 2004
(Unaudited)
(1) Basis of Presentation
The information for the three and six months ended October 31, 2005 and 2004,
is unaudited but includes all adjustments (consisting only of normal recurring
adjustments) which, in the opinion of management, are necessary to state
fairly the financial information set forth therein in accordance with
accounting principles generally accepted in the United States of America. The
interim results are not necessarily indicative of results to be expected for
the full fiscal year. These financial statements should be read in conjunction
with the audited financial statements for the year ended April 30, 2005
included in the Company's Annual Report on Form 10-K filed with the Securities
and Exchange Commission.
Net Earnings Per Share
Net earnings per share is presented in accordance with Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings Per Share". Basic net earnings
per share is computed by dividing the net earnings by the weighted average
number of shares of common stock issued and outstanding during the period. For
purposes of calculating diluted net earnings per share for the three and six
months ended October 31, 2005, and October 31, 2004, the denominator includes
both the weighted average number of shares of common stock issued and
outstanding and also includes the dilutive effect of stock options outstanding
(using the treasury stock method).
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.
Three Months ended October 31, 2005
Earnings Shares Per share
(numerator) (denominator) amount
_________ ___________ _________
Basic net earnings per share
- -net earnings and weighted
average common shares
outstanding $ 352,340 8,441,111 $ .04
Effect of dilutive securities
- -stock options - 499,999 -
_______ _________ ______
Diluted net earnings per share
- -net earnings, weighted
average common shares
outstanding and effect of
stock options $ 352,340 8,941,110 $ .04
======== ========= ======
Three Months ended October 31, 2004
Earnings Shares Per share
(numerator) (denominator) amount
_________ ___________ _________
Basic net earnings per share
- -net earnings and weighted
average common shares
outstanding $1,525,952 8,599,070 $ .18
Effect of dilutive securities
- -stock options - 617,227 .01
_______ _________ ______
Diluted net earnings per share
- -net earnings, weighted
average common shares
outstanding and effect of
stock options $1,525,952 9,216,297 $ .17
========= ========= ======
Diluted net earnings per share does not include the effect of options to
purchase 495,417 shares of common stock for the three months ended October 31,
2005 because they are anti-dilutive.
Diluted net earnings per share does not include the effect of options to
purchase 446,461 shares of common stock for the three months ended October 31,
2004 because they are anti-dilutive.
Six Months ended October 31, 2005
Earnings Shares Per share
(numerator) (denominator) amount
_________ ___________ _________
Basic net earnings per share
- -net earnings and weighted
average common shares
outstanding $1,283,542 8,411,194 $ .15
Effect of dilutive securities
- -stock options - 418,202 -
_______ _________ ______
Diluted net earnings per share
- -net earnings, weighted
average common shares
outstanding and effect of
stock options $1,283,542 8,829,396 $ .15
======== ========= ======
Six Months ended October 31, 2004
Earnings Shares Per share
(numerator) (denominator) amount
_________ ___________ _________
Basic net earnings per share
- -net earnings and weighted
average common shares
outstanding $2,692,958 8,580,730 $ .31
Effect of dilutive securities
- -stock options - 683,956 .02
_______ _________ ______
Diluted net earnings per share
- -net earnings, weighted
average common shares
outstanding and effect of
stock options $2,692,958 9,264,686 $ .29
========= ========= ======
Diluted net earnings per share does not include the effect of options to
purchase 589,452 shares of common stock for the six months ended October 31,
2005 because they are anti-dilutive.
Diluted net earnings per share does not include the effect of options to
purchase 409,705 shares of common stock for the six months ended October 31,
2004 because they are anti-dilutive.
Dividends
On May 31, 2005 the Company's Board of Directors approved the initiation of a
common stock quarterly cash dividend program. Cash dividends paid in the three
and six months ended October 31, 2005 were $420,847 and $840,656,
respectively. No cash dividends were paid during the three and six months
ended October 31, 2004. Each of the cash dividends paid in the current fiscal
year were paid at the rate of $0.05 per share. On November 16, 2005, the Board
of Directors declared another $0.05 per share cash dividend, payable on
December 14, 2005 to shareholders of record as of November 30, 2005.
Common Stock Repurchases
During the three months ended July 31, 2005 the Company repurchased 51,450
shares of common stock at a cost of $229,859 and zero shares were repurchased
in the three months period ending October 31, 2005. Shares were purchased
pursuant to a repurchase authorization announced on December 4, 2002 pursuant
to which the Company was authorized to repurchase a total of 500,000 shares of
its common stock. As of October 31, 2005, 172,196 shares remain available for
repurchase under the plan. This repurchase program does not have an
expiration date.
Stock Based Compensation
As permitted by SFAS No. 123, "Accounting for Stock Based Compensation", the
Company accounts for stock-based compensation arrangements in accordance with
provisions of Accounting Principles Board (APB) Opinion No. 25 "Accounting for
Stock Issued to Employees" and related interpretations. Compensation expense
for stock options issued to employees is based on the difference on the date
of grant, between the fair value of the Company's stock and the exercise price
of the option. No stock-based employee compensation cost is reflected in net
earnings, as all options granted under those plans had exercise prices equal
to the market value of the underlying common stock at the date of grant.
The following table illustrates the pro forma effect on net earnings and
earnings per share if the Company had applied the fair value recognition
provisions of SFAS No. 123 to stock based compensation:
Three Months Ended Six Months Ended
October 31, October 31,
--------------------- ---------------------
2005 2004 2005 2004
-------- -------- -------- --------
Net earnings as reported $ 352,340 $ 1,525,952 $ 1,283,542 $2,692,958
Deduct: Total stock-based
employee compensation expense
determined under fair value
based method for all awards,
net of related tax effects (142,051) (205,398) (313,991) (350,966)
-------- -------- -------- --------
Pro forma net earnings $ 210,289 $1,320,554 $ 969,551 $2,341,992
========= ========= ========== =========
Earnings per share:
Basic - as reported $ 0.04 $ 0.18 $ 0.15 $ 0.31
========= ========= ========== =========
Basic - pro forma $ 0.03 $ 0.15 $ 0.12 $ 0.27
========= ========= ========== =========
Diluted - as reported $ 0.04 $ 0.17 $ 0.15 $ 0.29
========= ========= ========== =========
Diluted - pro forma $ 0.02 $ 0.14 $ 0.11 $ 0.25
========= ========= ========== =========
(2) Cash and cash equivalents
Cash and cash equivalents consist of unrestricted cash, money market funds and
commercial paper with original maturities of three months or less.
Inventory valuation
Inventories are valued at the lower of cost or market, with costs determined
by the first-in, first-out method. Inventories at October 31, 2005 and April
30, 2005 consist of the following categories:
October 31, 2005 April 30, 2005
________________ ______________
Raw materials $ 1,159,000 $ 1,136,000
Work in process 80,000 77,000
Finished goods 741,000 1,156,000
________________ ______________
$ 1,980,000 $ 2,369,000
================ ==============
(3) Financial information by geographic location
The Company operates in one business segment and 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 six month periods ended October 31, 2005 and 2004 by geographic
region is as follows:
Three months ended Six months ended
October 31, 2005 October 31, 2005
________________ ________________
United States $ 6,601,000 $ 17,327,000
Europe 2,140,000 4,771,000
Other (principally Asia Pacific Region) 1,117,000 1,704,000
________________ ________________
Consolidated $ 9,858,000 $ 23,802,000
================ ================
Three months ended Six months ended
October 31, 2004 October 31, 2004
________________ ________________
United States $ 16,300,000 $ 28,614,000
Europe 2,553,000
4,662,000
Other (principally Asia Pacific Region) 1,469,000 2,838,000
________________ ________________
Consolidated $ 20,322,000 $ 36,114,000
================ ================
Long-lived assets consist of property and equipment. Long-lived assets and
total assets by geographic region as of October 31, 2005 are as follows:
October 31, 2005
Long-lived assets Total assets
_________________ ______________
United States $ 1,784,000 $ 24,926,000
Europe 0 291,000
Other 0 20,000
_________________ ______________
Consolidated $ 1,784,000 $ 25,237,000
================= ==============
(4) Significant New Accounting Pronouncements
In December, 2004, the Financial Accounting Standards Board (FASB) issued 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 Accounting Research Bulletin (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 are 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.
(5) Concentration of credit risk
Financial instruments that potentially subject the Company to concentration of
credit risk consist primarily of cash and cash equivalents. 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.
(6) 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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results
of Operations contains forward looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and section 21E of the
Securities and Exchange Act of 1934, as amended. The information provided in
this interim report may include forward-looking statements relating to future
events, such as the development of new products, pricing and availability of
raw materials or the future financial performance of the Company. Actual
results may differ from such projections and are subject to certain risks
including, without limitation, risks arising from: changes in the price of
memory chips, changes in the demand for memory systems for workstations and
servers, increased competition in the memory systems industry, delays in
developing and commercializing new products and other factors described in the
Company's most recent Annual Report on Form 10-K filed with the Securities and
Exchange Commission which can be reviewed at http://www.sec.gov.
Executive Overview
Dataram Corporation 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, Hewlett-Packard, IBM, Silicon Graphics and Sun
Microsystems. The Company also manufactures a line of memory products for AMD
and Intel motherboard based servers for sale to OEMs and channel assemblers.
The Company's memory products are sold worldwide to OEMs, 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 OEMs 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.
Liquidity and Capital Resources
The Company's cash and working capital position remain strong. As of October
31, 2005, cash and equivalents amounted to $12.7 million and working capital
amounted to $19.9 million, reflecting a current ratio of 9.5, compared to cash
and equivalents of $9.3 million and working capital of $19.5 million and a
current ratio of 5.9 as of April 30, 2005.
During the first six months of fiscal year 2006, net cash provided by
operating activities totaled approximately $4.2 million. Net income in the
first six months of fiscal 2006 was approximately $1.3 million and
depreciation expense was $420,000. Trade receivables also decreased by
approximately $3.3 million from year-end levels, primarily resulting from
reduced sequential quarterly revenues. A decrease in the deferred income tax
asset of $778,000 also contributed to the cash provided by operations. This
decrease was because the Company's first six months federal income tax expense
is offset by federal net operating loss (NOL) carry-forwards. The cash
provided by these sources was partially offset by a decline in accounts
payable and accrued liabilities of approximately $1.6 million primarily as
result of a reduction of material related purchases.
Net cash used in investing activities of approximately $175,000 for the six
months ended October 31, 2005, consists of capital expenditures substantially
related to the acquisition of production testing equipment.
Net cash used in financing activities of approximately $565,000 for the six
months ended October 31, 2005, consists of approximately $841,000 cash
dividend payments and open market purchases of the Company's common stock
totaling approximately $230,000, offset by approximately $506,000 of cash
received from stock option exercises.
On December 4, 2002, the Company announced an open market repurchase plan
providing for the repurchase of up to 500,000 shares of the Company's common
stock. As of October 31, 2005, the total number of remaining shares authorized
for purchase under the program is 172,196 shares. The Company purchased 51,450
shares during the first quarter of fiscal 2006 at a total cost of
approximately $230,000. There were no shares purchased during the second
quarter of fiscal 2006.
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 one quarter 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 have been no borrowings against the
credit line through October 31, 2005. The agreement expires on June 21, 2006.
The Company intends to renew the agreement prior to the expiration date.
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 was further amended on September 29, 2005.
The amendment extended the term of the agreement to March 29, 2006 and the
purchase price was amended to $3,150,000. The increase in purchase price is
subject to pro rata reduction if a closing occurs prior to March 29, 2006.
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 noncancellable 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
______________
Total minimum lease payments $ 513,000
==============
The Company has no other material commitments.
Results of Operations
Revenues for the three month period ending October 31, 2005 were $9,858,000
compared to revenues of $20,322,000 for the comparable prior year period.
Fiscal 2006 six month revenues totaled $23,802,000 versus six month revenues
of $36,114,000 in the prior year. The decrease in revenues is primarily
attributable to a decrease in shipments to one OEM customer. Last year's
fiscal second quarter and six months included approximately $8.4 million and
$14.1 million, respectively of revenues from shipments to that customer. In
the second quarter of the current fiscal year, the Company derived no revenues
from shipments to that customer. Revenues for the first six months of the
current fiscal year included approximately $3.2 million of revenues derived
from shipments to that customer. This customer has been undergoing a
restructuring of their business including reducing their procurement costs for
goods and services. Consequently, the Company only competes for their business
on a selective basis making it uncertain whether the Company will be receiving
or accepting new orders from this customer in the near future.
Revenues for the three and six month periods ended October 31, 2005 and 2004
by geographic region is as follows:
Three months ended Six months ended
October 31, 2005 October 31, 2005
________________ ________________
United States $ 6,601,000 $ 17,327,000
Europe 2,140,000 4,771,000
Other (principally Asia Pacific Region) 1,117,000 1,704,000
________________ ________________
Consolidated $ 9,858,000 $ 23,802,000
================ ================
Three months ended Six months ended
October 31, 2004 October 31, 2004
________________ ________________
United States $ 16,300,000 $ 28,614,000
Europe 2,553,000 4,662,000
Other (principally Asia Pacific Region) 1,469,000 2,838,000
________________ ________________
Consolidated $ 20,322,000 $ 36,114,000
================ ================
Cost of sales for the second quarter and six months were 70% of revenues,
versus 78% and 76% for the same respective prior year periods. Gross margins
have been higher than the Company's historical norm of 25% and reflect a
higher than normal shipment percentage of larger capacity memory. Large
capacity memory usually command higher gross margins. 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 quarter are not unusual and can result from many
factors, some of which are a rapid change in the price of DRAMs, or 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 in fiscal 2006's second quarter and six
months were $293,000 and $559,000, respectively, versus $312,000 and $631,000
for the same respective prior year periods. The Company intends to maintain
its commitment to the timely introduction of new memory products as new
computers are introduced.
Selling, general and administrative costs in fiscal 2005's second quarter and
six months increased to 23% and 20% of revenues, respectively versus 13% and
14% for the same prior year periods. The percentage of sales is greater in
Fiscal 2006's second quarter and six months primarily as a result of lower
revenues. Second quarter and six month total expenses decreased by $293,000
and $348,000 from the comparable prior year periods. The reduction of total
expenses is primarily the result of decreased salary and employee related cost
due to employee attrition. Depreciation expense also decreased from the prior
year.
Other income (expense), net for the second quarter and six months totaled
$169,000 and $219,000, respectively, for fiscal 2006 and $12,000 and $77,000
for the same respective periods in fiscal 2005. Other income in fiscal 2006's
second quarter consisted primarily of $100,000 scheduled non-refundable
payment related to the pending sale of the Company's land and interest income
net of interest expense of $73,000. Other income in fiscal 2006's six months
consisted primarily of $125,000 scheduled non-refundable payments related to
the pending sale of the Company's land and interest income net of interest
expense of $138,000. Offsetting fiscal 2006 six month other income was $45,000
of foreign currency loss, primarily as a result of the US dollar strengthening
relative to the EURO. Other income in fiscal 2005's second quarter and six
months consisted of interest income and a scheduled non-refundable payment of
$50,000 related to the pending sale of the Company's land received in the
second quarter of last fiscal year.
Income tax expense for the second quarter and six months of fiscal 2006 was
$213,000 and $771,000 respectively, verses $106,000 and $187,000 for the same
prior year periods. The Company's effective tax rate for financial reporting
purposes in fiscal 2006 is approximately 37.5%. However, the Company has
federal NOL carryforwards totaling approximately $10.8 million and therefore
will continue to make cash payments for income taxes at an approximate rate of
6.5% of pretax earnings until it utilizes all of its NOL carryforwards. During
last fiscal year's second quarter and six months the Company accrued 6.5% for
state income taxes only as it had, at that time, a valuation allowance on its
deferred income taxes. The Company reversed the valuation allowance in the
fourth quarter of fiscal 2005.
Critical Accounting Policies
During December 2001, the Securities and Exchange Commission (SEC) published a
Commission Statement in the form of Financial Reporting Release No. 60 which
encouraged 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 the Company's Form 10-K for the
fiscal year ended April 30, 2005, the Company 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. The Company considers 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 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company does not invest in market risk sensitive instruments. The
Company's investments consist of overnight deposits with banks and commercial
paper that matures within ninety days. 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.
ITEM 4. CONTROLS AND PROCEDURES
The Chief Executive Officer and Chief Financial Officer have evaluated the
effectiveness of our disclosure controls and procedures as required by
Exchange Act Rule 13a-15(e) as of the end of the period covered by this
report. Based on that evaluation, the Chief Executive Officer and Chief
Financial Officer have concluded that these disclosure controls and procedures
are effective. There were no changes in our internal controls over financial
reporting during the quarter ended October 31, 2005 that have materially
affected, or are reasonably likely to materially affect, our internal controls
over financial reporting.
PART II: OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On September 13, 2005, Dataram held its Annual Meeting of Shareholders. At
that meeting, the Shareholders elected Directors for an annual term and
ratified the selection of accountants. The results of that voting are as
follows:
1. Election of Directors. The votes were received as follows:
FOR WITHHELD
Robert V. Tarantino 7,297,714 247,621
Roger C. Cady 7,437,933 107,402
Thomas A. Majewski 7,416,333 129,002
Bernard L. Riley 7,435,453 109,882
2. Ratification of accountants:
FOR AGAINST ABSTAIN
7,498,755 41,976 4,604
ITEM 6. EXHIBITS
A. Exhibits
31(a) Rule 13a-14(a) Certification of Robert V. Tarantino.
31(b) Rule 13a-14(a) Certification of Mark E. Maddocks
32(a) Section 1350 Certification of Robert V. Tarantino (furnished not
filed)
32(b) Section 1350 Certification of Mark E. Maddocks (furnished not
filed)
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATARAM CORPORATION
MARK E. MADDOCKS
Date: December 8, 2005 By: ________________________
Mark E. Maddocks
Vice President, Finance
(Principal Financial Officer)