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 7/31/07
____________
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. [X] Yes [ ] No
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer or a non-accelerated filer. See definitions of
"accelerated filer and large accelerated filer" in Rule 12b of the Exchange
Act. (Check One):
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X]
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. Common Stock ($1.00 par
value): As of August 31, 2007, there were 8,781,788 shares outstanding.
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Dataram Corporation and Subsidiaries
Consolidated Balance Sheets
July 31, 2007 and April 30, 2007
(Unaudited)
July 31, 2007 April 30, 2007
Assets
Current Assets:
Cash and cash equivalents $ 15,661,126 $ 14,138,223
Trade receivables, less allowance
for doubtful accounts and sales returns
of $300,000 4,567,389 4,717,101
Inventories 2,292,374 2,121,342
Deferred income taxes 1,148,865 1,148,865
Note receivable 0 1,537,500
Other current assets 427,600 230,535
__________ __________
Total current assets 24,097,354 23,893,566
Deferred income taxes 958,000 1,123,000
Property and equipment, at cost:
Machinery and equipment 10,838,795 10,885,465
Leasehold improvements 2,103,688 2,103,688
__________ __________
12,942,483 12,989,153
Less: accumulated depreciation
and amortization 12,276,724 12,205,354
__________ __________
Net property and equipment 665,759 783,799
Other assets 81,546 104,988
__________ __________
$ 25,802,659 $ 25,905,353
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,488,614 $ 1,596,593
Accrued liabilities 735,003 976,533
__________ __________
Total current liabilities 2,223,617 2,573,126
Stockholders' Equity:
Common stock, par value $1.00 per share.
Authorized 54,000,000 shares; issued and
outstanding 8,769,888 at July 31, 2007
and 8,687,755 at April 30, 2007 8,769,888 8,687,755
Additional paid-in capital 6,077,568 5,796,443
Retained earnings 8,731,586 8,848,029
__________ __________
Total stockholders' equity 23,579,042 23,332,227
__________ __________
$ 25,802,659 $ 25,905,353
========== ==========
See accompanying notes to consolidated financial statements.
Dataram Corporation and Subsidiaries
Consolidated Statements of Operations
Three Months Ended July 31, 2007 and 2006
(Unaudited)
2007 2006
Revenues $ 8,616,887 $ 9,305,254
Costs and expenses:
Cost of sales 5,579,342 6,900,201
Engineering and development 301,438 306,856
Selling, general and administrative 2,314,669 2,441,108
__________ __________
8,195,449 9,648,165
__________ __________
Earnings (loss) from operations 421,438 (342,911)
Other income
Interest income, net 201,371 174,133
Currency gain 17,834 62,033
` __________ __________
Total other income 219,205 236,166
__________ __________
Earnings (loss) before income taxes 640,643 (106,745)
Income tax expense (benefit) 235,000 (37,000)
__________ __________
Net earnings (loss) $ 405,643 $ (69,745)
========== ==========
Net earnings (loss) per share of common stock
Basic $ .05 $ (.01)
========== ==========
Diluted $ .05 $ (.01)
========== ==========
Dividends per common share $ .06 $ .06
========== ==========
See accompanying notes to consolidated financial statements.
Dataram Corporation and Subsidiaries
Consolidated Statements of Cash Flows
Three Months Ended July 31, 2007 and 2006
(Unaudited)
2007 2006
Cash flows from operating activities:
Net earnings (loss) $ 405,643 $ (69,745)
Adjustments to reconcile net earnings (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 96,000 111,000
Bad debt expense 4,766 12,045
Stock-based compensation expense 93,259 133,963
Loss on sale of property and equipment 707 0
Deferred income tax expense (benefit) 165,000 (26,000)
Excess tax benefits from sale of
common shares under stock option plan (39,000) 0
Changes in assets and liabilities:
Decrease in trade receivables 144,947 210,661
Increase in inventories (171,032) (1,347,771)
Increase in other current assets (197,065) (290,695)
Decrease in other assets 23,442 0
Increase (decrease) in accounts payable (107,979) 756,826
Decrease in accrued liabilities (241,530) (33,987)
__________ __________
Net cash provided by (used in)
operating activities 177,158 (543,703)
___________ __________
Cash flows from investing activities:
Payment of note receivable 1,537,500 0
Additions to property and equipment 0 (125,186)
Proceeds from sale of property and equipment 21,333 0
___________ __________
Net cash provided by (used in)
investing activities 1,558,833 (125,186)
___________ __________
Cash flows from financing activities:
Net proceeds from sale of common shares under
stock option plan 269,999 13,875
Excess tax benefits from sale of common
shares under stock option plan 39,000 0
Dividends paid (522,087) (509,603)
___________ __________
Net cash used in financing activities (213,088) (495,728)
___________ __________
Net increase (decrease) in cash and
cash equivalents 1,522,903 (1,164,617)
Cash and cash equivalents at
beginning of period 14,138,223 14,044,398
__________ __________
Cash and cash equivalents at
end of period $ 15,661,126 $ 12,879,781
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 1,597 $ 0
========== ==========
Income taxes $ 0 $ 40,000
========== ==========
See accompanying notes to consolidated financial statements.
Dataram Corporation and Subsidiaries
Notes to Consolidated Financial Statements
July 31, 2007 and 2006
(Unaudited)
(1) Basis of Presentation
The information for the three months ended July 31, 2007 and 2006, 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, 2007 included in the Company's 2007 Annual Report on Form 10-K
filed with the Securities and Exchange Commission.
(2) Summary of Significant Accounting Policies
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.
Net Earnings (Loss) Per Share
Net earnings (loss) 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. The calculation of diluted earnings per share for the
quarter ended July 31, 2007 includes both the weighted average numbers of
shares and the dilutive effect of stock options outstanding (using the
treasury stock method). For purposes of calculating basic earnings per share
for the three months ended July 31, 2006, the denominator excludes the
dilutive effect of stock options outstanding as their effect would be anti-
dilutive.
The following presents a reconciliation of the numerator and denominator used
in computing Basic and Diluted net earnings (loss) per share for fiscal 2008
and 2007:
Three Months ended July 31, 2007
Earnings Shares Per share
(numerator) (denominator) amount
_________ ___________ _________
Basic net earnings per share
- -net earnings, weighted
average common shares
outstanding $ 405,643 8,738,105 $ .05
Effect of dilutive securities
- -stock options - 140,205 .00
_______ _________ ______
Diluted net earnings per share
- -net earnings, weighted
average common shares
outstanding and effect of
stock options $ 405,643 8,878,310 $ .05
======== ========= ======
Three Months ended July 31, 2006
Earnings Shares Per share
(numerator) (denominator) amount
_________ ___________ _________
Basic net earnings (loss) per share
- -net earnings (loss) and weighted
average common shares
outstanding $ (69,745) 8,490,347 $ (.01)
Effect of dilutive securities
- -stock options - - -
_______ _________ ______
Diluted net earnings (loss) per share
- -net earnings (loss) and weighted
average common shares
outstanding $ (69,745) 8,490,347 $ (.01)
========= ========= ======
Diluted net earnings per share does not include the effect of options to
purchase 592,200 shares of common stock for the three months ended July 31,
2007 because they are anti-dilutive.
Diluted net earnings per share does not include the effect of all options to
purchase shares of common stock for the three months ended July 31, 2006
because they are anti-dilutive.
Dividends
The Company pays a dividend on its common stock, currently $0.06 per share
per quarter. Cash dividends, paid in the three months ended July 31, 2007
were $522,087. Cash dividends paid in the three months ended July 31, 2006
were $509,603. On August 22, 2007, the Board of Directors declared a $0.06
per share quarterly dividend. The dividend will be payable on September 19,
2007, to shareholders of record as of September 5, 2007.
Common Stock Repurchases
On December 4, 2002 the Company's Board of Directors authorized a stock
repurchase plan pursuant to which the Company was authorized to repurchase a
total of 500,000 shares of its common stock. During the three months ended
July 31, 2007 and 2006, the Company did not repurchase any shares of its
common stock. As of July 31, 2007, 172,196 shares remain available for
repurchase under the plan. This repurchase program does not have an expiration
date.
Stock-Based Compensation
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. 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.
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.
New shares of the Company's common stock are issued upon exercise of stock
options.
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 the three months ended July 31, 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 will be 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 fiscal 2008's three months ended July 31, 2007 are $93,000 and $59,000
lower. Fiscal 2007's three months ended July 31, 2006 earnings before taxes
and net earnings were $134,000 and $87,000 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 $.01 and $.01, respectively, for the three months ended July 31,
2007 and three months ended July 31, 2006. 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 four years. These stock option grants have been classified as
equity instruments, and as such, a corresponding increase of $93,000 has been
reflected in additional paid-in capital in the accompanying balance sheet as
of July 31, 2007.
A summary of option activity under the plans for the three months ended
July 31, 2007 is as follows:
Weighted average Weighted average Aggregate
exercise price remaining contractual intrinsic
Shares life value*
__________ ________________ _____________________ __________
Balance
April 30, 2007 1,208,066 $5.24 3.22 $ 675,000
Granted - - - -
Exercised (82,133) $2.81 - 113,000
Expired (22,500) $5.45 - -
Balance
July 31, 2007 1,103,433 $5.41 3.14 $468,000
Exercisable
July 31, 2007 910,358 $5.56 2.70 $468,000
* These amounts represent the difference between the exercise price and
$4.04, the closing price of Dataram common stock on July 31, 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 the first quarter ended
July 31, 2007 was $270,000, including tax benefits. No options completed
vesting during the first quarter ended July 31, 2007. As of July 31, 2007,
there was $148,000 of total unrecognized compensation costs related to stock
options. These costs are expected to be recognized over a weighted average
period of nine months. At July 31, 2007, an aggregate of 1,157,800 shares
were authorized for future grant under the Company's stock option plans.
Cash and Cash Equivalents
Cash and cash equivalents consist of unrestricted cash, money market funds
and commercial paper with purchased maturities of three months or less when
acquired.
(3) Inventories
Inventories are valued at the lower of cost or market, with costs determined
by the first-in, first-out method. Inventories at July 31, 2007 and
April 30, 2007 consist of the following categories:
July 31, 2007 April 30, 2007
________________ ______________
Raw materials $ 1,676,000 $ 1,497,000
Work in process 91,000 42,000
Finished goods 525,000 582,000
________________ ______________
$ 2,292,000 $ 2,121,000
================ ==============
(4) Note Receivable/Other Income
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 was paid in full
and the mortgage released in the Company's fiscal quarter ended July 31, 2007.
(5) 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 months ended July 31, 2007 and 2006 by geographic region are as follows:
Three months ended Three months ended
July 31, 2007 July 31, 2006
________________ ________________
United States $ 6,389,000 $ 6,308,000
Europe 1,522,000 2,171,000
Other (principally Asia Pacific Region) 706,000 826,000
________________ ________________
Consolidated $ 8,617,000 $ 9,305,000
================ ================
Long-lived assets consist of property and equipment. Long-lived assets and
total assets by geographic region as of July 31, 2007 are as follows:
July 31, 2007
Long-lived assets Total assets
_________________ ______________
United States $ 666,000 $ 25,376,000
Europe 0 409,000
Other 0 18,000
_________________ ______________
Consolidated $ 666,000 $ 25,803,000
================= ==============
(6) Significant New Accounting Pronouncements
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 were effective for the Company beginning May 1, 2007.
The adoption of FIN 48 had no material effect on the Company's 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 had no effect on the Company's
consolidated financial statements.
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. As permitted under the standard, the Company
adopted the provisions of SFAS No. 157 in its current fiscal year beginning
May 1, 2007. The adoption of SFAS No. 157 had no material effect on the
Company's consolidated financial statements.
(7) Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration
of credit risk consist primarily of cash and cash equivalents and trade
receivables. 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. In regard
to trade receivables, the Company performs ongoing evaluations of its
customers' financial condition, as well as general economic conditions and,
generally, requires no collateral from its customers.
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 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 modules 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 July 31,
2007, cash and cash equivalents amounted to $15.7 million and working capital
amounted to $21.9 million, reflecting a current ratio of 10.8, compared to
cash and cash equivalents of $14.1 million and working capital of $21.3
million and a current ratio of 9.3 as of April 30, 2007.
During the first fiscal quarter ended July 31, 2007, net cash provided by
operating activities totaled approximately $177,000. Net income in the
period was approximately $406,000 and trade receivables decreased by
approximately $145,000. Deferred income taxes decreased by $165,000 and
depreciation expense recorded in the quarter was $96,000. Non-cash
stock-based compensation expense of approximately $93,000 was also recorded
in the quarter. The cash provided by operating activities was offset by a
decrease in accrued liabilities of approximately $242,000. The decrease in
accrued liabilities was primarily the result payment of accrued severance
pay. Other current assets increased by approximated $197,000, primarily as a
result of an increase in prepaid expenses for to annual maintenance contracts
on machinery and equipment and deposits for general insurances. Inventories
increased and accounts payable decreased by $171,000 and $108,000,
respectively.
Net cash provided by investing activities of approximately $1.6 million for
the quarter ended July 31, 2007. This was primarily the result of the
payment in full of the note receivable.
Net cash used in financing activities totaled approximately $213,000 for the
three months ended July 31, 2007, and consisted of approximately $522,000 of
cash dividend payments, offset by approximately $270,000 of cash received
from stock option exercises, including tax benefits.
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 have been no borrowings against the credit line.
Management believes that the Company's existing cash along with 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.
Future minimum lease payments under noncancellable 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
______________
Total minimum lease payments $ 1,703,000
==============
The Company has no other material commitments.
Results of Operations
Revenues for the three-month period ended July 31, 2007 were $8,617,000
compared to revenues of $9,305,000 for the comparable prior year period, a
decrease of approximately 7%. As previously stated, the Company's selling
prices are significantly dependent on the pricing and availability of DRAM
chips. The Company's products utilize DRAMS of varying capacities,
organizations and package types. While the change in the purchase cost of
specific DRAMs over time are not necessarily uniform or even move in the same
direction, the Company's average purchase cost per DRAM declined by
approximately 38% in the first quarter of the current fiscal year from the
prior comparable period. Consequently, the Company's selling prices were
lower for similar products when compared on a year over year basis. The
Company's average selling price per memory module declined by approximately
18% in the first quarter of the current fiscal year compared to last fiscal
year's first quarter. The decrease in average selling price was partially
offset by increased volume as the number of modules sold increased by
approximately 12%.
Revenues for the three-month periods ended July 31, 2007 and 2006 by
geographic region were:
Three months ended Three months ended
July 31, 2007 July 31, 2006
________________ ________________
United States $ 6,389,000 $ 6,308,000
Europe 1,522,000 2,171,000
Other (principally Asia Pacific Region) 706,000 826,000
________________ _______________
Consolidated $ 8,617,000 $ 9,305,000
================ ================
Cost of sales for the first quarter fiscal 2007 were 65% of revenues, versus
74% for the same prior year period. The increase in gross margin during
fiscal 2008's first quarter was primarily the result of a shift in sales to
larger capacity memory modules, which typically command higher margins. As
the price of the Company's higher capacity products have come down as a
result of lower DRAM costs, they have become a more affordable option for
customers with memory intensive applications. Cost of sales also decreased
by approximately $128,000 as a result of a reduction of workforce and other
factory expenses, which was initiated in the fourth quarter of the prior
fiscal year. Management expects that cost of sales as a percent 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 are considered normal by management 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 2008's first quarter were
$301,000, versus $307,000 for the same prior year period. 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 the first quarter ended
July 31, 2007 decreased by $126,000 from the comparable prior year period.
Included in the current fiscal year's first quarter expense is $93,000 of
stock option compensation expense compared to $134,000 in the prior year's
first quarter. Excluding the stock option compensation expense, selling,
general and administrative expenses declined by approximately $85,000 in
fiscal 2008's first quarter from the comparable prior year period. This was
primarily the result of the workforce and other cost reductions initiated at
the end of the prior fiscal year.
Other income, net for the first quarter fiscal 2008 totaled $219,000 income,
versus $236,000 income for the same prior year period. Other income in
fiscal 2008's first quarter consisted primarily of $201,000 of net interest
income received in the current quarter. Additionally, the current quarter
other income included $18,000 of foreign currency gain, primarily as a result
of the EURO strengthening relative to the US dollar. Fiscal 2007's first
quarter other income, net totaled $236,000 and consisted of approximately
$174,000 of interest income and $62,000 of foreign currency gain, primarily
as a result of the EURO strengthening relative to the US dollar.
Income tax expense (benefit) for the first quarter of fiscal 2008 was
$235,000 expense compared to $37,000 benefit for the same prior year period.
The Company's effective tax rate for financial reporting purposes in fiscal
2008 is approximately 34.7%. However, the Company has federal NOL
carry-forwards totaling approximately $5.1 million and therefore will
continue to make cash payments for income taxes at an approximate rate of
8.0% of pretax earnings until it utilizes all of its NOL carry-forwards.
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, 2007, 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.
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 2008 and
fiscal 2007 first quarter ending July 31 includes, approximately $93,000 and
$134,000 of compensation expense, respectively, 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
approximately, $93,000 has been reflected in additional paid-in capital in
the accompanying consolidated balance sheet as of July 31, 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES 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, which 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.
Dataram's management acting under the supervision of the Audit Committee is
responsible for establishing and maintaining adequate internal controls and
procedures to permit accurate financial reporting. Under the supervision and
with the participation of our management, including the Chief Executive
Officer and Chief Financial Officer, we have evaluated the effectiveness of
our disclosure controls and procedures pursuant to 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 control over financial reporting during the
quarter ended July 31, 2007 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
ITEM 4T. CONTROLS AND PROCEDURES.
Not applicable.
PART II: OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
None.
Item 1A. RISK FACTORS.
No material changes from Annual Report on Form 10-K.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
No reportable event.
Item 3. DEFAULTS UPON SENIOR SECURITIES.
No reportable event.
Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.
No reportable event.
Item 5. OTHER INFORMATION.
No reportable event.
Item 6. EXHIBITS.
Exhibit No. Description
__________ ___________
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: September 4, 2007 By:
_________________________
Mark E. Maddocks
Vice President, Finance
(Principal Financial Officer)
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