[DATARAM LOGO]
DATARAM CORPORATION
2007 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:
The last fiscal year has been a challenging year for the Company. While we
generated net earnings of $770,000 or $0.09 per share, our revenue and
earnings expectations were not met. Revenues for fiscal 2007 totaled $38.4
million versus $41.8 million for the prior fiscal year. The overall decline
in revenue came primarily from reduced sales to one OEM customer, with which
the Company no longer transacts business. Revenues derived from sales to this
customer were $3.0 million in fiscal 2006, substantially all of which was in
the first quarter of that fiscal year. More importantly, our revenues were
adversely impacted by a decline in average selling prices. The Company's
average selling price per gigabyte declined by approximately 25% in fiscal
2007 compared to the prior year. This decline in selling prices was
especially severe in our fourth quarter, as our average selling prices were
lower by approximately 13 percent from third quarter levels primarily due to
the well-publicized decline in the price of DRAM chips. DRAM chips account
for approximately 75% of our product cost.
In order to better align our expenses with our revenues, we initiated a
reduction in our cost structure in the fourth quarter. We reduced our
workforce by approximately 14 percent, which resulted in a pretax charge of
$320,000 in the fourth quarter that consisted primarily of a provision for
severance payments. The operational efficiencies achieved by this action are
expected to generate approximately $900,000 in annual cost savings.
Slightly more than a year ago, we expanded our sales team and focused our
sales and marketing resources back on the underlying principles that built
our compatible memory business, which comprises 77% of our total business.
Our strategy is to expand our customer base by focusing on creating demand at
the source with value added resellers and end-users. This strategy is
working. In spite of the precipitous decline in selling prices, our revenues
for our compatible memory offerings increased by 1% from the prior fiscal
year. We are confident that we will achieve further success with this model
in the upcoming year. It is more difficult to expand our OEM business because
of the long selling cycle involved. However, we are actively working new
opportunities and look for progress in this area of the business as well.
Despite the significant challenges, we operated profitably and our already
strong financial condition continued to improve. For fiscal 2007, we
achieved:
* Net earnings of $770,000.
* Cash flow generated from operating activities of $1.7 million.
* Dividends paid totaling $2.1 million.
* A current ratio of 9.3, with cash and equivalents increasing to $14.1
million.
As we enter the new fiscal year, we are optimistic that we will see improved
financial performance in fiscal 2008. We believe we have made the changes
necessary to be operationally profitable. Our selling prices remain under
pressure. However, our fiscal 2008 operating margin to date is running ahead
of our plan. Our financial condition is strong and we remain highly liquid.
Our Board of Directors is committed to increasing shareholder value. In May,
2005, the Company's Board of Directors initiated a regular quarterly cash
dividend. Subsequently, the Board of Directors approved a 20% increase to the
quarterly dividend, which now stands at $0.06 per common share. On May 30,
2007, the Board of Directors declared the latest $0.06 per share quarterly
dividend.
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.
July 10, 2007
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 and AMD motherboard based
servers.
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.
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, 2007 2006 2005
_________________________________________________________________
Revenues 100.0% 100.0% 100.0%
Cost of sales 76.6 70.5 75.8
_____ _____ _____
Gross profit 23.4 29.5 24.2
Engineering and development 3.2 2.7 2.0
Selling, general and administrative 25.0 22.0 16.2
_____ _____ _____
Earnings (loss) from operations (4.8) 4.8 6.0
Other income, net 8.0 5.8 0.3
_____ _____ _____
Earnings before income
tax expense (benefit) 3.2 10.6 6.3
Income tax expense (benefit) 1.2 4.0 (3.9)
_____ _____ _____
Net earnings 2.0 6.6 10.2
===== ===== =====
Fiscal 2007 Compared With Fiscal 2006
Revenues for fiscal 2007 were $38.4 million compared to $41.8 million in
fiscal 2006. The decline in revenues came primarily from reduced sales to one
OEM customer, with which the Company no longer transacts business. Revenues
derived from sales to this customer were $3.0 million in fiscal 2006,
substantially all of which was in the first quarter of the fiscal year.
Revenues were also adversely impacted by a decline in average selling prices.
The Company's average selling price per gigabyte declined by approximately
25% in fiscal 2007 compared to the prior year. However, the decrease in
average selling price was offset by higher volume, measured as gigabytes
shipped.
Revenues for the fiscal years ended April 30, 2007 and 2006 by geographic
region were:
Year ended Year ended
April 30, 2007 April 30, 2006
________________ ________________
United States $ 27,583,000 $ 29,321,000
Europe 6,484,000 9,151,000
Other(principally Asia Pacific Region) 4,337,000 3,323,000
________________ ________________
Consolidated $ 38,404,000 $ 41,795,000
================ ================
During the fourth quarter of fiscal 2007, the Company initiated a reduction
of its cost structure. As part of the cost reduction initiative, the Company
reduced its workforce by approximately 14 percent, which resulted in a pretax
severance charge of $320,000. Of this amount $55,000 has been charged to cost
of sales and $265,000 has been charged to selling, general and administrative
expense.
Cost of sales was $29.4 million in fiscal 2007 or 76.6 percent of revenues
compared to $29.5 million or 70.5 percent of revenues in fiscal 2006. Fiscal
2006 cost of sales as a percentage of revenues is considered by management to
be lower than normal and primarily results from higher than expected sales of
certain large capacity memory products, which typically command higher
margins. Management expects that cost of sales as a percentage of revenues
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. Fiscal 2007 cost of sales included royalty expense of
approximately $119,000, or 0.3% of revenues compared to $173,000, or 0.4% of
revenues in fiscal 2006. Management believes it is reasonable to assume that
future royalty expense will be generally in line with fiscal year 2007
royalty expense as a percentage of revenues.
Engineering and development costs amounted to $1.2 million in fiscal 2007 and
$1.1 million in fiscal 2006. Management believes levels of expenditures in
both fiscal years are within a normal range and expects that fiscal 2008
expenditures will remain within the same range. The Company maintains its
commitment to the timely introduction of new memory products.
Selling, general and administrative costs were $9.6 million in fiscal 2007
versus $9.2 million in fiscal 2006. This increase in expense is primarily the
result of stock based compensation expense of $440,000 recorded in fiscal
2007 versus nil in fiscal 2006. Additionally, a $265,000 provision for
severance related to the aforementioned reduction in workforce was recorded.
Other income, net for fiscal year 2007 totaled $3.1 million versus $2.4
million in fiscal 2006. Other income in fiscal 2007 included $2.3 million
received from a DRAM manufacturer related to a settlement agreement that the
Company entered into in the second quarter. In fiscal 2007 the Company also
received $712,000 of net interest income and realized approximately $97,000
of foreign currency transaction gains. Fiscal 2006 other income included
approximately $1.9 million of gain from the sale of the Company's undeveloped
land, $455,000 of net interest income and $65,000 of foreign currency
transaction losses.
Income tax expense for fiscal 2007 was $450,000 versus $1.7 million in fiscal
2006. As of April 30, 2007, the Company has a net operating loss ("NOL")
carryforward of approximately $5.1 million, which can be used to offset
future taxable income. In April 2007, after review of its operating results
and operating plans, management concluded that it remains more likely than
not that the Company will utilize all of its NOL carryforwards.
Page 2
Fiscal 2006 Compared With Fiscal 2005
Revenues for fiscal 2006 were $41.8 million compared to $65.7 million in
fiscal 2005. The decline in revenues came primarily from reduced sales to one
OEM customer that was experiencing financial difficulties. Revenues derived
from sales to this customer were $3.0 million in fiscal 2006 compared to
$21.9 million in fiscal 2005. Fiscal 2006 sales to this customer occurred in
the Company's first fiscal quarter ended July 31, 2005. Revenues were also
adversely impacted by a decline in average selling prices. The Company's
average selling price per gigabyte declined by approximately 22% in fiscal
2006 compared to the prior year. This was primarily related to lower average
prices of DRAM chips. The Company's average price paid per DRAM was
approximately 35% lower in fiscal 2006 than fiscal 2005.
Cost of sales was $29.5 million in fiscal 2006 or 70.5 percent of revenues
compared to $49.8 million or 75.8 percent of revenues in fiscal 2005. Fiscal
2006 cost of sales as a percentage of revenues is considered by management to
be lower than normal and primarily resulted from higher than expected sales
of certain large capacity memory products, which typically command higher
margins. Fiscal 2006 cost of sales included royalty expense of approximately
$173,000, or 0.4% of revenues compared to $469,000, or 0.7% of revenues in
fiscal 2005.
Engineering and development costs amounted to $1.1 million in fiscal 2006 and
$1.3 million in fiscal 2005.
Selling, general and administrative costs were $9.2 million in fiscal 2006
versus $10.7 million in fiscal 2005. This reduction in expense was primarily
the result of reduced salary and employee related costs due to reduced
workforce. Approximately $257,000 of the expense reduction was from reduced
levels of depreciation and amortization expenses of certain assets, primarily
leasehold improvements.
Other income, net for fiscal year 2006 totaled $2.4 million versus $202,000
in fiscal 2005. Fiscal 2006 other income included approximately $1.9 million
of gain on the sale of the Company's undeveloped land, $455,000 of net
interest income and $65,000 of foreign currency transaction losses. Fiscal
2005 other income, net consisted primarily of $94,000 of net interest income,
$75,000 of gains on sale of certain assets and $33,000 of foreign currency
transaction gains.
Income tax expense (benefit) for fiscal 2006 was $1.7 million versus ($2.6
million) in fiscal 2005. In April, 2005, management concluded that it was
more likely than not that the Company would utilize all of its 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 carryforwards.
Liquidity and Capital Resources
The Company's cash and working capital position remains strong. Working
capital at the end of fiscal 2007 amounted to $21.3 million, including cash
and cash equivalents of $14.1 million, compared to working capital of $21.4
million, including cash and cash equivalents of $14.0 million at the end of
fiscal 2006. Current assets at the end of fiscal 2007 were 9.3 times current
liabilities compared to 8.9 at the end of fiscal 2006.
Trade receivables at the end of fiscal 2007 were $4.7 million compared to
fiscal 2006 year-end trade receivables of $4.9 million.
The Company generated $1.7 million of cash flows from operating activities
primarily as a result of net earnings of $770,000, increased by the non-cash
deferred tax expense of $269,000, depreciation and amortization expense of
$383,000, reduced by excess tax benefits from sale of common shares under the
Company's stock option plan of $113,000. Net changes in assets and
liabilities decreased cash flows from operating activities by $73,000. Cash
used in investing activities totaled $320,000 and consisted primarily of
additions of property and equipment. Cash used in financing activities
totaled $1.3 million and consisted primarily of dividends paid totaling
approximately $2.1 million, offset by proceeds from stock option exercises of
$651,000.
Capital expenditures were $320,000 in fiscal 2007 compared to $480,000 in
fiscal 2006. Fiscal 2008 capital expenditures are expected to total
approximately $500,000. At the end of fiscal 2007, contractual commitments
for capital purchases were zero.
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 April 30, 2007, the total number of shares authorized for
purchase under the program is 172,196 shares. In fiscal 2007, the Company did
not repurchase any shares of its common stock. In fiscal 2006, the Company
repurchased 51,450 shares of its common stock at a total price of
approximately $230,000.
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 were 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 fee equal to
one-eighth 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 agreement was scheduled to expire on June 21,
2006. On June 20, 2006, the agreement was amended. The effect of the
amendment was to extend the expiration date of the agreement to August
15, 2008 and remove the eligible accounts receivable limitation on
advances under the facility. The amendment also modified the total
liabilities to tangible net worth ratio covenant. The Company is in
compliance with all covenants of the agreement and there were no
borrowings against the credit line in fiscal 2007.
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.
Page 3
On December 29, 2005, the Company closed on an agreement entered into in
fiscal 2003 to sell its undeveloped land. The purchase price was $3,075,000
of which half, or $1,537,500, was paid in the form of a note, that accrued
interest, payable monthly at 5% per annum for a period of one year and 7.5%
per annum thereafter. The note was secured by a mortgage. Of the remainder,
$250,000 had been previously paid as deposits and $1,253,000, which was net
of closing costs, was received in cash at closing. The note receivable is
treated as a non-cash transaction in the 2006 Consolidated Statements of Cash
Flows. Subsequent to the end of fiscal 2007, the note was paid in full and
the mortgage released.
Contractual Obligations
Future minimum lease payments under non-cancelable operating leases (with
initial or remaining lease terms in excess of one year) as of April 30, 2007
are as follows:
Operating leases
Year ending April 30: ________________
2008 $ 490,000
2009 403,000
2010 411,000
2011 365,000
2012 34,000
Thereafter 0
________________
$ 1,703,000
================
Purchases
At April 30, 2007, the Company had open purchase orders outstanding totaling
$2.2 million primarily for inventory items to be delivered in the first
quarter of fiscal 2008. These purchase orders are cancelable.
Inflation
Inflation has not had a significant impact on the Company's revenues and
operations.
New Accounting Pronouncements
In November 2004, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 151, "Inventory Costs, an amendment of ARB No. 43, Chapter 4"
("SFAS No. 151"). SFAS No. 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 were effective for
the Company beginning May 1, 2006, and had no material effect on the
Company's consolidated financial statements and cash flows for fiscal 2007.
In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109
(FIN 48), which clarifies the accounting for uncertainty in tax positions.
This Interpretation requires that we recognize in our financial statements,
the impact of a tax position, if that position is more likely than not to be
sustained on audit, based on the technical merits of the position. The
provisions of FIN 48 are effective for the Company beginning with the first
quarter of fiscal 2008, with the cumulative effect, if any, upon adoption of
FIN48 to be recorded as an adjustment to opening retained earnings. The
Company does not expect that the adoption of FIN 48 will have a material
effect on its consolidated financial statements.
In September 2006, the SEC released Staff Accounting Bulletin No. 108,
"Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements" (SAB 108). SAB 108
provides interpretive guidance on the SEC's views regarding the process of
quantifying materiality of financial statement misstatements. SAB 108 is
effective for fiscal years ending after November 15, 2006, and early
application for the first interim period of the same fiscal year is
encouraged. The application of SAB 108 in fiscal 2007 did not have a
material effect on our financial results.
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements"
(SFAS No. 157). The purpose of SFAS No. 157 is to define fair value,
establish a framework for measuring fair value, and enhance disclosures about
fair value measurements. The measurement and disclosure requirements are
effective for the Company beginning in the first quarter of fiscal year 2008.
The Company does not believe that application of SFAS No. 157 will have a
material effect on its consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities" (SFAS No. 159). SFAS No. 159
permits companies to choose to measure certain financial instruments and
certain other items at fair value. The standard requires that unrealized
gains and losses on items for which the fair value option has been elected be
reported in earnings. SFAS No. 159 is effective for the Company beginning in
the first quarter of fiscal year 2008, although earlier adoption is
permitted. The Company does not believe that application of SFAS No. 159 will
have a material effect on its 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, management
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.
Page 4
Stock Option Expense - In December 2004, SFAS No. 123 (revised 2004), "Share-
Based Payment" ("SFAS 123(R)") was issued. SFAS 123(R) revises SFAS 123 and
supersedes APB No. 25, "Accounting for Stock Issued to Employees" ("APB 25").
SFAS 123, as originally issued in 1995, established as preferable a fair
value-based method of accounting for share-based payment transactions with
employees. However, SFAS 123 as amended permitted entities the option of
continuing to apply the intrinsic value method under APB 25 that the Company
had been using, as long as the footnotes to the financial statements
disclosed what net income would have been had the preferable fair value-based
method been used. SFAS 123(R) requires that the compensation cost relating to
all share-based payment transactions, including employee stock options, be
recognized in the historical financial statements. That cost is measured
based on the fair value of the equity or liability instrument issued and
amortized over the related service period. The Company adopted the guidance
in SFAS 123(R) effective May 1, 2006. As such, the accompanying consolidated
statement of operations for the fiscal year ended April 30, 2007 includes
approximately $440,000 of compensation expense in the selling, general and
administrative expense line item related to the fair value of options granted
to employees and directors under the Company's stock-based employee
compensation plans which is being amortized over the service period in the
financial statements, as required by SFAS 123(R). These awards have been
classified as equity instruments, and as such, a corresponding increase of
$440,000 has been reflected in additional paid-in capital in the accompanying
balance sheet as of April 30, 2007. The fair value of each stock option
granted is estimated on the date of grant using the Black-Scholes option
pricing model with the following assumptions: Expected life is based on the
Company's historical experience of option exercises relative to option
contractual lives; Expected volatility is based on the historical volatility
of the Company's share price; Expected dividend yield assumes the current
dividend rate remains unchanged; Risk free interest rate approximates United
States government debt rates at the time of option grants.
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.
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 and commercial paper, which matures within ninety days.
The average principal sum invested was approximately $13.4 million and the
weighted average effective interest rate for these investments was
approximately 4.7%. 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.
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 fiscal year ended April 30, 2007 that have
materially affected, or are reasonably likely to materially affect, our
internal controls over financial reporting.
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.
2007 2006
___________________ __________________
High Low High Low
___________________ __________________
First Quarter $ 5.94 $ 4.61 $ 7.00 $ 3.90
Second Quarter 5.07 4.01 7.58 6.05
Third Quarter 4.80 4.04 6.75 4.65
Fourth Quarter 4.78 4.03 6.10 4.68
At April 30, 2007, there were approximately 7,000 shareholders.
The Company pays a dividend on its common stock, currently $0.06 per share
per quarter. On May 30, 2007, the Board of Directors approved a $0.06 per
share quarterly dividend payable on June 27, 2007 to shareholders of record
as of June 13, 2007.
Page 5
DATARAM CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
April 30, 2007 and 2006
(In thousands, except share and per share amounts)
2007 2006
______ ______
Assets
Current assets:
Cash and cash equivalents $14,138 $14,044
Trade receivables, less allowance for
doubtful accounts and sales returns
of $300 in 2007 and 2006 4,717 4,893
Inventories:
Raw materials 1,497 1,506
Work in process 42 63
Finished goods 582 620
______ ______
2,121 2,189
Deferred income taxes 1,149 1,365
Note receivable 1,537 1,537
Other current assets 231 80
______ ______
Total current assets 23,893 24,108
Deferred income taxes 1,123 1,176
Property and equipment:
Machinery and equipment 10,886 10,641
Leasehold improvements 2,103 2,028
______ ______
12,989 12,669
Less accumulated depreciation
and amortization 12,205 11,822
______ ______
Net property and equipment 784 847
Other assets 105 105
______ ______
$25,905 $26,236
====== ======
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,597 $ 2,057
Accrued liabilities 976 653
______ ______
Total current liabilities 2,573 2,710
Commitments and contingencies
Stockholders' equity:
Common stock, par value $1.00 per share.
Authorized 54,000,000 shares; issued
and outstanding 8,687,755 in 2007
and 8,487,396 in 2006 8,688 8,487
Additional paid-in capital 5,796 4,906
Retained earnings 8,848 10,133
______ ______
Total stockholders' equity 23,332 23,526
______ ______
$25,905 $26,236
====== ======
See accompanying notes to consolidated financial statements.
Page 6
DATARAM CORPORATION AND SUBSIDIARIES
Consolidated Statements of Earnings
Years ended April 30, 2007, 2006 and 2005
(In thousands, except per share amounts)
2007 2006 2005
_______ _______ _______
Revenues $ 38,404 $ 41,795 $ 65,684
Costs and expenses:
Cost of sales 29,410 29,458 49,816
Engineering and development 1,243 1,136 1,300
Selling, general and administrative 9,605 9,194 10,653
_______ _______ _______
40,258 39,788 61,769
_______ _______ _______
Earnings (loss) from operations (1,854) 2,007 3,915
Other income (expense):
Interest income 717 467 115
Interest expense (5) (12) (21)
Currency gain (loss) 97 (65) 33
Other income 2,265 2,041 75
_______ _______ _______
3,074 2,431 202
_______ _______ _______
Earnings before income tax
expense (benefit) 1,220 4,438 4,117
Income tax expense (benefit) 450 1,666 (2,598)
_______ _______ _______
Net earnings $ 770 $ 2,772 $ 6,715
======= ======= =======
Net earnings per common share:
Basic $ 0.09 $ 0.33 $ 0.78
======= ======= =======
Diluted $ 0.09 $ 0.31 $ 0.74
======= ======= =======
See accompanying notes to consolidated financial statements.
Page 7
DATARAM CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended April 30, 2007, 2006 and 2005
(In thousands)
2007 2006 2005
______ _____ ______
Cash flows from operating activities:
Net earnings $ 770 $ 2,772 $ 6,715
Adjustments to reconcile net earnings
to net cash provided by
operating activities:
Depreciation and amortization 383 787 1,133
Bad debt expense (recovery) 29 (67) 38
Stock-based compensation expense 440 - -
Gain on sale of land - (1,916) -
Deferred income tax expense
(benefit) 269 1,347 (3,165)
Excess tax benefits from sale of
common shares under stock
option plan (113) 117 122
Changes in assets and liabilities:
Decrease in trade
and other receivables 146 3,571 411
Decrease in inventories 67 180 168
Decrease (increase) in
other current assets (150) 50 (38)
Increase in other assets - (51) (4)
Decrease in accounts payable (460) (471) (1,334)
Increase (decrease) in
accrued liabilities 324 (785) (208)
_____ _____ _____
Net cash provided by
operating activities 1,705 5,534 3,838
_____ _____ _____
Cash flows from investing activities:
Additions to property and
equipment (320) (480) (316)
Proceeds from sale of property and
equipment - 1,253 13
_____ _____ _____
Net cash provided by (used in)
investing activities (320) 773 (303)
_____ _____ _____
Cash flows from financing activities:
Purchase and subsequent cancellation
of shares of common stock - (230) (1,505)
Proceeds from sale of common shares
under stock option
plan (including tax benefits) 651 459 445
Excess tax benefits from sale of
common shares under stock
option plan 113 - -
Dividends paid (2,055) (1,773) -
_____ _____ _____
Net cash used in financing activities (1,291) (1,544) (1,060)
_____ _____ _____
Net increase in cash and cash
equivalents 94 4,763 2,475
Cash and cash equivalents at
beginning of year 14,044 9,281 6,806
_____ _____ _____
Cash and cash equivalents at end
of year $ 14,138 $ 14,044 $ 9,281
===== ===== =====
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 5 $ 22 $ 18
===== ===== =====
Income taxes $ 205 $ 328 $ 476
===== ===== =====
See accompanying notes to consolidated financial statements.
Page 8
DATARAM CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended April 30, 2007, 2006 and 2005
(In thousands, except share amounts)
Total
Additional stock-
Common paid-in Retained holders'
stock capital earnings equity
______ ________ ________ ________
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 earnings - - 6,715 6,715
______ _______ ______ _______
Balance at April 30, 2005 8,361 4,566 9,254 22,181
Issuance of 177,346 shares
under stock option plans,
including income tax
benefit of $117 177 399 - 576
Purchase and subsequent
cancellation of
51,450 shares (51) (59) (120) (230)
Net earnings - - 2,772 2,772
Dividends paid (1) - - (1,773) (1,773)
______ _______ _______ _______
Balance at April 30, 2006 8,487 4,906 10,133 23,526
Issuance of 200,359 shares
under stock option plans,
including income tax
benefit of $113 201 450 - 651
Net earnings - - 770 770
Stock-based compensation expense - 440 - 440
Dividends paid (2) - - (2,055) (2,055)
______ _______ _______ _______
Balance at April 30, 2007 $ 8,688 $ 5,796 $ 8,848 $23,332
====== ======= ======= =======
(1) Dividends paid in the fiscal year ended April 30, 2006 totaled $0.21
per common share and were paid at the rate of $0.05 per common share
in each of the first three fiscal quarters of the year and $0.06 per
common share in the fourth quarter of the fiscal year.
(2) Dividends paid in the fiscal year ended April 30, 2007 totaled $0.24
per common share and were paid quarterly at the rate of $0.06 per
common share.
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.
The Company has certain foreign subsidiaries which act only as sales offices
and which are deemed to be essentially branches of the US company. The
functional currency of these sales offices is considered to be the US dollar.
Accordingly, 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 earnings.
Cash and Cash Equivalents
Cash and cash equivalents consist of unrestricted cash, money market accounts
and commercial paper purchased with maturities of three months or less when
acquired.
Inventories
Inventories, consisting of materials, labor and manufacturing overhead, are
stated at the lower of cost or market, with cost determined by the first-in,
first-out method.
Note Receivable
On December 29, 2005, the Company closed on an agreement entered into in
fiscal 2003 to sell its undeveloped land. The purchase price was $3,075 of
which half, or $1,537, was paid in the form of a note, that accrued interest,
payable monthly at 5% per annum for a period of one year and 7.5% per annum
thereafter. The note was secured by a mortgage. Of the remainder, $250 had
been previously paid as deposits and $1,253, which was net of closing costs,
was received in cash at closing. The note receivable is treated as a non-cash
transaction in the 2006 Consolidated Statements of Cash Flows. Subsequent to
the end of fiscal 2007, the note was paid in full and the mortgage released.
Property and Equipment
Property and equipment is recorded at cost. Depreciation is computed on the
straight-line basis. Depreciation and amortization rates are based on the
estimated useful lives, which range from three to five years for machinery
and equipment and five to six years for leasehold improvements. When property
or equipment is retired or otherwise disposed of, related costs and
accumulated depreciation and amortization are removed from the accounts.
Repair and maintenance costs are charged to operations as incurred.
Long-Lived Assets
Long-lived assets consist of property, plant and equipment. Statement of
Financial Accounting Standards ("SFAS") No. 144, "Accounting for the
Impairment and Disposal of Long-Lived Assets" 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 considers various valuation factors, principally undiscounted
cash flows, to assess the fair values of long-lived assets.
Revenue Recognition
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.
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
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.
Page 10
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. At April 30, 2007, amounts due from one customer totaled
approximately 16% of accounts receivable.
In fiscal 2007, the Company had no sales to any one customer that accounted
for 10% or more of revenues. In fiscal 2006, sales to one customer accounted
for approximately 11% of revenues and in fiscal 2005, sales to a different
customer accounted for approximately 33% of revenues.
Net Earnings Per Share
Net Earnings Per Share is presented in accordance with SFAS No. 128,
"Earnings Per Share". Basic net earnings per share is calculated by dividing
net earnings by the weighted average number of common shares outstanding
during the period. Diluted net earnings per share 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).
The following presents a reconciliation of the numerator and denominator used
in computing basic and diluted net earnings per share.
Year ended April 30, 2007
Earnings Shares Per share
(numerator) (denominator) amount
_________ ___________ _________
Basic net earnings per share
- -net earnings and weighted
average common shares
outstanding $ 770 8,572,000 $ .09
Effect of dilutive securities
- -stock options - 232,000 -
_______ _________ ______
Diluted net earnings per share
- -net earnings, weighted
average common shares
outstanding and effect of
stock options $ 770 8,804,000 $ .09
======= ========= ======
Year ended April 30, 2006
Earnings Shares Per share
(numerator) (denominator) amount
_________ ___________ _________
Basic net earnings per share
- -net earnings and weighted
average common shares
outstanding $ 2,772 8,447,000 $ .33
Effect of dilutive securities
- -stock options - 374,000 -
_______ _________ ______
Diluted net earnings per share
- -net earnings, weighted
average common shares
outstanding and effect of
stock options $ 2,772 8,821,000 $ .31
======= ========= ======
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
======= ========= ======
Diluted net earnings per common share does not include the effect of options
to purchase 555,938 shares of common stock for the year ended April 30, 2007
because they are anti-dilutive.
Diluted net earnings per common share does not include the effect of options
to purchase 391,880 shares of common stock for the year ended April 30, 2006
because they are anti-dilutive.
Diluted net earnings 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.
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 costs 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, 2007 $ 54 4 (4) $ 54
Year Ended
April 30, 2006 $ 54 19 (19) $ 54
Year Ended
April 30, 2005 $ 54 9 (9) $ 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, 2007, the Company has stock-based employee and director
compensation plans, which are described more fully in Note 4. New shares of
the Company's common stock are issued upon exercise of stock options.
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 implemented SFAS
123R effective May 1, 2006. To calculate the excess tax benefits available as
of the date of adoption for use in offsetting future tax shortfalls, the
Company followed the alternative transition method discussed in Financial
Accounting Standards Board Staff Position No. 123(R)-3.
Prior to May 1, 2006, as permitted under SFAS No. 123, "Accounting for Stock-
Based Compensation," ("SFAS 123"), compensation cost for stock options was
recognized using the intrinsic value method described in APB No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"). Effective May 1, 2006,
the Company adopted the fair value recognition provisions of SFAS No. 123(R),
"Share-Based Payment," ("SFAS 123R") and Securities and Exchange Commission
Staff Accounting Bulletin No. 107. Under SFAS 123R, the fair value of options
granted is amortized over the related service period. SFAS 123R was adopted
using the modified prospective transition method; therefore, prior periods
have not been restated. Compensation expense recognized in Fiscal 2007,
includes compensation cost for all share-based payments granted prior to, but
not yet vested as of May 1, 2006, based on the grant date fair value
estimated in accordance with the original provisions of SFAS 123.
Compensation cost for any share-based payments granted subsequent to May 1,
2006 are based on the grant date fair value estimated in accordance with the
provisions of SFAS 123R.
As a result of adopting SFAS 123R, our earnings before taxes and net earnings
for the fiscal year ended April 30, 2007 are $440 and $258 lower,
respectively, than if we had continued to account for stock-based
compensation under APB 25. This resulted in a decrease in our reported basic
and diluted net earnings per share of $.03. Compensation expense is
recognized in the selling, general and administrative expenses line item of
the accompanying consolidated statements of operations on a ratable basis
over the vesting periods. We measure the fair value of stock options using
the Black-Scholes option pricing model based upon the market price of the
underlying common stock as of the date of grant, reduced by the present value
of estimated future dividends, using an expected quarterly dividend rate of
$0.06 and risk-free interest rates ranging from 3.0% to 5.0%. Stock options
are amortized over their applicable vesting period, which generally ranges
from one to five years. These stock option grants have been classified as
equity instruments, and as such, a corresponding increase of $440 has been
reflected in additional paid-in capital in the accompanying balance sheet as
of April 30, 2007. There were no capitalized stock-based compensation costs
at April 30, 2006.
Prior to the adoption of SFAS 123R, benefits of tax deductions in excess of
recognized compensation costs were reported as operating cash flows. SFAS
123R requires excess tax benefits to be reported as a financing cash inflow.
The Company had $113 of excess tax benefits in Fiscal 2007. The Company had
$117 of excess tax benefits in Fiscal 2006.
Page 12
A summary of option activity under the plans for the fiscal year ended April
30, 2007 is as follows:
Weighted Weighted average Aggregate
average remaining intrinsic
Shares exercise price contractual life value(1)
__________ __________ __________ __________
Balance
April 30, 2006 1,299,375 $4.78 3.65 $2,252
Granted 143,300 $4.70 - -
Exercised (200,359) $2.68 - $ 363
Cancelled (34,250) $6.65 - -
Balance
April 30, 2007 1,208,066 $5.24 3.22 $ 675
Exercisable
April 30, 2007 1,008,616 $5.34 2.78 $ 672
(1) These amounts represent the difference between the exercise price and
$4.22, the closing price of Dataram common stock on April 30, 2007 as
reported on the NASDAQ Stock Market, for all in-the-money options
outstanding. For exercised options, intrinsic value represents the difference
between the exercise price and the closing price of Dataram common stock on
the date of exercise.
Total cash received from the exercise of options in fiscal 2007 was $538.
During fiscal 2007, 146,100 options completed vesting. As of April 30, 2007,
there was $243 of total unrecognized compensation costs related to stock
options. These costs are expected to be recognized over a weighted average
period of one year. At April 30, 2007, an aggregate of 1,135,300 shares were
authorized for future grant under the Company's stock option plans.
The following table illustrates the pro forma effect on net earnings and
earnings per share for fiscal years 2006 and 2005 if the Company had applied
the fair value recognition provisions of SFAS 123R to stock-based employee
compensation:
Years ended April 30
2006 2005
----------- -----------
Net earnings as reported $ 2,772 $ 6,715
Deduct: Total stock-based
employee compensation expense
determined under fair value
method for all awards,
net of tax (517) (97)
----------- -----------
Pro forma net earnings $ 2,255 $ 6,618
=========== ===========
Basic and diluted net earnings
per common share:
Basic:
As reported $ .33 $ .78
=========== ===========
Pro forma under SFAS 123R $ .27 $ .77
=========== ===========
Diluted:
As reported $ .31 $ .74
=========== ===========
Pro forma under SFAS 123R $ .26 $ .73
=========== ===========
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 13
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:
2007 2006(1) 2005(1)
------- ------- -------
Expected life (years) 4.0 4.0 7.5
Expected volatility 67% 63% 52%
Expected dividend yield 5.1% - -
Risk-free interest rate 5.0% 5.0% 3.0%
Weighted average fair value of options
granted during the year $ 2.00 $ 3.18 $ 3.22
(1) Estimated values and assumptions used in the calculation of fair
value prior to the adoption of SFAS 123R.
Expected life is based on the Company's historical experience of option
exercises relative to option contractual lives. Expected volatility is based
on the historical volatility of the Company's share price. Expected dividend
yield assumes the current dividend rate remains unchanged. Risk free interest
rate approximates United States government debt rates at the time of option
grants.
(2) Long-Term Debt
On June 21, 2004, the Company entered into a credit facility with a bank,
which provides for up to a $5,000 revolving credit line. Advances under
the facility were 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 fee equal to one-eighth 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 $2,500 per year from $1,000 per year without prior waiver.
The agreement was scheduled to expire on June 21, 2006. On June 20, 2006,
the agreement was amended. The effect of the amendment was to extend the
expiration date of the agreement to August 15, 2008 and remove the
eligible accounts receivable limitation on advances under the facility.
The amendment also modified the total liabilities to tangible net worth
ratio covenant. The Company is in compliance with all covenants of the
agreement and there were no borrowings against the credit line in fiscal
2007.
(3) Income Taxes
Income tax expense (benefit) for the years ended April 30 consists of the
following:
2007 2006 2005
_____ _____ _____
Current:
Federal $ 113 $ 117 $ 82
State 68 202 169
_____ _____ _____
181 319 251
_____ _____ _____
Deferred:
Federal 274 1,238 (2,849)
State (5) 109 -
_____ _____ _____
269 1,347 (2,849)
_____ _____ _____
Total income tax expense (benefit) $ 450 $ 1,666 $(2,598)
===== ===== =====
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:
2007 2006 2005
_____ _____ _____
Computed "expected" tax
expense $ 427 $ 1,553 $ 1,441
State income taxes(net
of Federal income tax
benefit) 41 147 112
Change in valuation
allowance - - (2,569)
Utilization of net operating
losses - - (1,217)
Other (18) (34) (365)
_____ _____ _____
$ 450 $ 1,666 $ (2,598)
===== ===== =====
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:
2007 2006
____ ____
Deferred tax assets:
Compensated absences, principally due
to accrual for financial reporting
purposes $ 111 $ 114
Stock-based compensation expense 163 -
Accounts receivable, principally due
to allowance for doubtful accounts
and sales returns 111 111
Property and equipment, principally
due to differences in depreciation 37 123
Inventories 100 111
Foreign tax credit 53 53
Domestic net operating losses 1,692 1,640
Alternative minimum tax 382 389
_____ _____
Gross deferred tax assets 2,649 2,541
Deferred tax liabilities:
Installment sale obligation, principally
due to note receivable (377) -
_____ _____
Gross deferred tax liabilities (377) -
_____ _____
Net deferred tax assets $ 2,272 $ 2,541
===== =====
During fiscal 2005, the Company reversed the valuation allowance it had
previously placed on its deferred tax assets since management concluded 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 carryforwards of approximately $5,083 which can be used to
offset income through 2023. The tax benefit of net operating loss
carryforwards utilized in each of the three years ended April 30, 2007 is as
follows:
Federal State Total
2007 $1,056 $ - $1,056
2006 $1,901 $109 $2,010
2005 $1,199 $104 $1,303
Page 15
(4) 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, 2007,
455,741 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 five years. At
April 30, 2007, 396,875 of the outstanding options are exercisable.
The status of the plans for the three years ended April 30,
2007, is as follows:
Options Outstanding
________________________________________________
Exercise price Weighted average
Shares per share exercise price
_________ ______________ ___________
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
Granted 147,600 5.140-6.630 6.125
Exercised (180,475) 1.708-4.833 2.923
Cancelled (94,600) 2.990-7.980 5.835
_________ ____________ ____________
Balance April 30, 2006 1,127,375 1.708-24.250 4.767
Granted 103,300 4.700 4.700
Exercised (200,359) 2.313-4.090 2.684
Cancelled (18,250) 2.313-10.000 6.026
_________ ____________ ____________
Balance April 30, 2007 1,012,066 $ 2.813-24.250 $ 5.150
========= ============ ==========
The Company 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 either five or ten years after date
of grant. Of each option, 100% are exercisable one year after the date of
grant. At April 30, 2007, 156,000 of the outstanding options are exercisable.
Page 16
The status of the non-employee director options for the three
years ended April 30, 2007, is as follows:
Options Outstanding
________________________________________________
Exercise price Weighted average
Shares per share exercise price
_________ _____________ ____________
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
Granted 44,000 6.420-6.630 6.573
Exercised (16,000) 2.990-4.090 3.540
Cancelled - - -
________ ____________ ____________
Balance April 30, 2006 172,000 2.990-7.980 6.095
Granted 40,000 4.700 4.700
Exercised - - -
Cancelled (16,000) 6.750-7.980 7.365
________ ____________ ____________
Balance April 30, 2007 196,000 $ 2.990-7.980 $ 5.965
======== ============ ============
(5) Accrued Liabilities
Accrued liabilities consist of the following at April 30:
2007 2006
-------- --------
Payroll, including vacation $ 300 $ 303
Severance costs 310 106
Commissions 180 84
Other 186 160
-------- --------
$ 976 $ 653
======== ========
(6) 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 $725 in 2007, $769 in 2006 and $840 in 2005.
Future minimum lease payments under non-cancelable operating leases (with
initial or remaining lease terms in excess of one year) as of April 30, 2007
are as follows:
Operating
Leases
________________
Year ending April 30:
2008 $ 490
2009 403
2010 411
2011 365
2012 34
Thereafter 0
________________
$ 1,703
================
Purchases
At April 30, 2007, the Company had open purchase orders outstanding totaling
$2,184, primarily for inventory items to be delivered in the first quarter of
fiscal 2008. These purchase orders are cancelable.
Page 17
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.
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.
(7) 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 $236, $250 and $268 in 2007, 2006 and
2005, respectively.
(8) 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 2007, 2006 and 2005 by geographic region is as
follows:
United Europe Other* Consolidated
States
_______ _______ ______ ____________
April 30, 2007
Revenues $ 27,583 $ 6,484 $ 4,337 $ 38,404
Total assets $ 25,428 $ 464 $ 13 $ 25,905
Long lived assets $ 784 $ 0 $ 0 $ 784
April 30, 2006
Revenues $ 29,321 $ 9,151 $ 3,323 $ 41,795
Total assets $ 25,761 $ 447 $ 28 $ 26,236
Long lived assets $ 847 $ 0 $ 0 $ 847
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
*Principally Asia Pacific Region
(9) Quarterly Financial Data (Unaudited)
Quarter Ended
____________________________________________
Fiscal 2007 July 31 October 31 January 31 April 30
___________ _______ __________ __________ ________
Revenues $ 9,305 $10,902 $ 9,366 $ 8,831
Gross profit 2,405 2,577 1,862 2,151
Net earnings (loss) (70) 1,446 (298) (309)
Net earnings (loss) per
diluted common and common
equivalent share (.01) .16 (.03) (.04)
Quarter Ended
____________________________________________
Fiscal 2006 July 31 October 31 January 31 April 30
___________ _______ __________ __________ ________
Revenues $13,944 $ 9,858 $ 9,220 $ 8,773
Gross profit 4,198 2,972 2,700 2,466
Net earnings 931 353 1,405 83
Net earnings (loss) per
diluted common and common
equivalent share .11 .04 .16 .01
Earnings per share is calculated independently for each quarter and therefore
may not equal the total for the year.
Page 18
REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS
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, 2007 and 2006, and the related
consolidated statements of earnings, stockholders' equity and cash flows for
the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our 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, 2007 and 2006, and their results
of operations and cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States of America.
As discussed in Note 1 to the consolidated financial statements, the company
changed the manner in which it accounts for share-based compensation in fiscal
2007.
/s/ J.H. Cohn LLP
Lawrenceville, New Jersey
July 3, 2007
The Board of Directors and Stockholders
Dataram Corporation:
We have audited the accompanying consolidated statements of earnings,
stockholders' equity, and cash flows of Dataram Corporation and subsidiaries
for the year 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
audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of Dataram Corporation and subsidiaries for the year ended April 30,
2005, in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
Short Hills, New Jersey
July 8, 2005
Page 19
Selected Financial Data
(Not covered by Independent Registered Public Accounting Firms' Reports)
(In thousands, except per share amounts)
Years Ended April 30, 2007 2006 2005 2004 2003
______________________ ____ ____ ____ ____ ____
Revenues $ 38,404 $ 41,795 $ 65,684 $ 61,984 $ 53,529
Net earnings (loss) 770 2,772 6,715 2,271 (15,604)
Basic earnings (loss)
per share .09 .33 .78 .27 (1.84)
Diluted earnings (loss)
per share .09 .31 .74 .25 (1.84)
Current assets 23,893 24,108 23,435 19,004 15,619
Total assets 25,905 26,236 26,147 21,912 20,207
Current liabilities 2,573 2,710 3,966 5,508 6,186
Total stockholders'
equity 23,332 23,526 22,181 16,404 14,021
Cash dividends paid 2,055 1,773 - - -
Performance Graph
(Not covered by Independent Registered Public Accounting Firms' Reports)
COMPARISON OF THE FIVE-YEAR CUMULATIVE TOTAL RETURN*
AMONG DATARAM CORPORATION, THE S&P 500 INDEX AND A PEER GROUP
[The chart is a three-line graph of dollars versus dates having the following
data points:
4/02 4/03 4/04 4/05 4/06 4/07
____ ____ ____ ____ ____ ____
Dataram 100 34 95 58 82 63
Peer Group** 100 111 112 135 213 187
S&P 500 100 87 107 113 131 151
*$100 invested on 4/30/02 in stock or index including reinvestment of
dividends. Fiscal year ending April 30.
**Standard Industrial Code Peer Group includes the following companies:
Ciprico, Inc.; Dataram Corp.; Dot Hill Systems Corp.; Iomega Corp.; Komag
Inc.; Lasercard Corp.; MTI Technology Corp.; Netlist, Inc.; Network Engines,
Inc.; Overland Storage, Inc.; Stec, Inc.; and Western Digital Corp.
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
Rose Ann Giordano*
President, Thomis Partners
John H. Freeman*
Independent Consultant
*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
Tony Pawlik
Vice President of Sales
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
J.H. COHN LLP
Lawrenceville, NJ
General Counsel
Dillon, Bitar & Luther, L.L.C.
Morristown, NJ
Transfer Agent and Registrar
American Stock Transfer and Trust Company
10150 Mallard Creek Drive
Suite 307
Charlotte, NC 28262
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 Thursday, September 27,
2007, 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
End of Document