UNITED STATES
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 October 31, 2007
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 7258, Princeton, NJ 08543
______________________________________________________________________________
(Address of principal executive offices) (Zip Code)
(609) 799-0071
______________________________________________________________________________
(Registrant's telephone number, including area code)
(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 December 7, 2007, there were 8,869,184 shares
outstanding.
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Dataram Corporation and Subsidiaries
Consolidated Balance Sheets
October 31, 2007 and April 30, 2007
(Unaudited)
October 31, 2007 April 30, 2007
Assets
Current Assets:
Cash and cash equivalents $ 16,926,363 $ 14,138,223
Accounts receivable, less allowance
for doubtful accounts and sales returns
of $300,000 4,376,372 4,717,101
Inventories 1,742,775 2,121,342
Deferred income taxes 1,148,865 1,148,865
Note receivable 0 1,537,500
Other current assets 428,673 230,535
__________ __________
Total current assets 24,623,048 23,893,566
Deferred income taxes 707,000 1,123,000
Property and equipment, at cost:
Machinery and equipment 10,861,537 10,885,465
Leasehold improvements 2,103,688 2,103,688
__________ __________
12,965,225 12,989,153
Less: accumulated depreciation
and amortization 12,372,724 12,205,354
__________ __________
Net property and equipment 592,501 783,799
Other assets 78,771 104,988
__________ __________
$ 26,001,320 $ 25,905,353
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,318,816 $ 1,596,593
Accrued liabilities 770,652 976,533
__________ __________
Total current liabilities 2,089,468 2,573,126
Stockholders' Equity:
Common stock, par value $1.00 per share.
Authorized 54,000,000 shares; issued and
outstanding 8,846,384 at October 31, 2007
and 8,687,755 at April 30, 2007 8,846,384 8,687,755
Additional paid-in capital 6,292,431 5,796,443
Retained earnings 8,773,037 8,848,029
__________ __________
Total stockholders' equity 23,911,852 23,332,227
__________ __________
$ 26,001,320 $ 25,905,353
========== ==========
See accompanying notes to consolidated financial statements.
Dataram Corporation and Subsidiaries
Consolidated Statements of Earnings
Three and Six Months Ended October 31, 2007 and 2006
(Unaudited)
2007 2006
2nd Quarter Six Months 2nd Quarter Six Months
Revenues $ 8,556,038 $ 17,172,925 $ 10,902,012 $ 20,207,266
Costs and expenses:
Cost of sales 5,313,697 10,893,039 8,325,375 15,225,576
Engineering and development 285,643 587,081 319,677 626,533
Selling, general and administrative 2,285,578 4,600,247 2,382,246 4,823,354
__________ __________ __________ __________
7,884,918 16,080,367 11,027,298 20,675,463
Earnings (loss) from operations 671,120 1,092,558 (125,286) (468,197)
Other income
Interest income, net 201,116 402,487 169,160 343,293
Currency gain 27,614 45,448 2,207 64,240
Other income, net 0 0 2,265,000 2,265,000
__________ __________ __________ __________
Total other income 228,730 447,935 2,436,367 2,672,533
Earnings before income taxes 899,850 1,540,493 2,311,081 2,204,336
Income tax expense 331,000 566,000 865,000 828,000
__________ __________ __________ __________
Net earnings $ 568,850 $ 974,493 $ 1,446,081 $ 1,376,336
========== ========== ========== ==========
Net earnings per share of common stock
Basic $ .06 $ .11 $ .17 $ .16
========== ========== ========== ==========
Diluted $ .06 $ .11 $ .16 $ .16
========== ========== ========== ==========
Dividends per common share $ .06 $ .12 $ .06 $ .12
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
Dataram Corporation and Subsidiaries
Consolidated Statements of Cash Flows
Six Months Ended October 31, 2007 and 2006
(Unaudited)
2007 2006
Cash flows from operating activities:
Net earnings $ 974,493 $ 1,376,336
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization 192,000 222,000
Bad debt expense 36,125 16,905
Stock-based compensation expense 165,988 251,243
Loss on sale of property and equipment 707 0
Deferred income tax expense 416,000 646,000
Excess tax benefits from sale of
common shares under stock option plan (74,000) (66,000)
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 304,605 (706,782)
Decrease (increase) in inventories 378,567 (1,921,623)
Increase in other current assets (198,138) (168,715)
Decrease in other assets 26,217 0
Increase (decrease) in accounts payable (277,777) 922,124
Decrease in accrued liabilities (205,881) (31,823)
__________ __________
Net cash provided by operating activities 1,738,906 539,665
___________ __________
Cash flows from investing activities:
Payment of note receivable 1,537,500 0
Additions to property and equipment (22,742) (266,600)
Proceeds from sale of property and equipment 21,333 0
___________ __________
Net cash provided by (used in)
investing activities 1,536,091 (266,600)
___________ __________
Cash flows from financing activities:
Net proceeds from sale of common shares under
stock option plan 488,629 203,963
Excess tax benefits from sale of common
shares under stock option plan 74,000 66,000
Dividends paid (1,049,486) (1,024,139)
___________ __________
Net cash used in financing activities (486,857) (754,176)
___________ __________
Net increase (decrease) in cash and
cash equivalents 2,788,140 (481,111)
Cash and cash equivalents at
beginning of period 14,138,223 14,044,398
__________ __________
Cash and cash equivalents at
end of period $ 16,926,363 $ 13,563,287
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 3,194 $ 0
========== ==========
Income taxes $ 114,000 $ 180,000
========== ==========
See accompanying notes to consolidated financial statements.
Dataram Corporation and Subsidiaries
Notes to Consolidated Financial Statements
October 31, 2007 and 2006
(Unaudited)
(1) Basis of Presentation
The information for the three and six months ended October 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 Per Share
Net earnings per share is presented in accordance with Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings Per Share". Basic net
earnings per share is computed by dividing the net earnings by the weighted
average number of shares of common stock issued and outstanding during the
period. The calculation of diluted earnings per share for the three and six
months ended October 31, 2007 and October 31, 2006 includes both the weighted
average numbers of shares and the dilutive effect of stock options
outstanding (using the treasury stock method).
The following presents a reconciliation of the numerator and denominator used
in computing Basic and Diluted net earnings per share for fiscal 2008 and
2007:
Three Months ended October 31, 2007
Earnings Shares Per share
(numerator) (denominator) amount
_________ ___________ _________
Basic net earnings per share
- -net earnings and weighted
average common shares
outstanding $ 568,850 8,824,782 $ .06
Effect of dilutive securities
- -stock options - 40,710 -
_______ _________ ______
Diluted net earnings per share
- -net earnings, weighted
average common shares
outstanding and effect of
stock options $ 568,850 8,865,492 $ .06
======== ========= ======
Three Months ended October 31, 2006
Earnings Shares Per share
(numerator) (denominator) amount
_________ ___________ _________
Basic net earnings per share
- -net earnings and weighted
average common shares
outstanding $1,446,081 8,575,596 $ .17
Effect of dilutive securities
- -stock options - 229,125 (.01)
_______ _________ ______
Diluted net earnings per share
- -net earnings, weighted
average common shares
outstanding and effect of
stock options $1,446,081 8,804,721 $ .16
========= ========= ======
Diluted net earnings per share does not include the effect of options to
purchase 775,366 shares of common stock for the three months ended
October 31, 2007 because they are anti-dilutive.
Diluted net earnings per share does not include the effect of options to
purchase 543,535 shares of common stock for the three months ended
October 31, 2006 because they are anti-dilutive.
Six Months ended October 31, 2007
Earnings Shares Per share
(numerator) (denominator) amount
_________ ___________ _________
Basic net earnings per share
- -net earnings and weighted
average common shares
outstanding $ 974,493 8,781,443 $ .11
Effect of dilutive securities
- -stock options - 68,943 -
_______ _________ ______
Diluted net earnings per share
- -net earnings, weighted
average common shares
outstanding and effect of
stock options $ 974,493 8,850,386 $ .11
======== ========= ======
Six Months ended October 31, 2006
Earnings Shares Per share
(numerator) (denominator) amount
_________ ___________ _________
Basic net earnings per share
- -net earnings and weighted
average common shares
outstanding $1,376,336 8,533,485 $ .16
Effect of dilutive securities
- -stock options - 272,555 -
_______ _________ ______
Diluted net earnings per share
- -net earnings, weighted
average common shares
outstanding and effect of
stock options $1,376,336 8,806,040 $ .16
========= ========= ======
Diluted net earnings per share does not include the effect of options to
purchase 776,996 shares of common stock for the six months ended
October 31, 2007 because they are anti-dilutive.
Diluted net earnings per share does not include the effect of options to
purchase 618,300 shares of common stock for the six months ended
October 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 and six months ended
October 31, 2007 were $527,399 and $1,049,486, respectively. Cash dividends
paid in the three and six months ended October 31, 2006 were $514,536 and
$1,024,139, respectively. On November 15, 2007, the Board of Directors
declared a $0.06 per share quarterly dividend. The dividend will be payable
on December 14, 2007, to shareholders of record as of November 30, 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. For fiscal 2008 and fiscal 2007
six months ended October 31, 2007 and 2006, the Company did not repurchase
any shares of its common stock. As of October 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 and six months ended October 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, the Company's earnings before taxes and
net earnings for fiscal 2008's three and six months ended October 31, 2007
are $73,000 and $47,000 lower, and $166,000 and $106,000 lower, respectively,
than if the Company had continued to account for stock-based compensation
under APB 25. This resulted in a decrease in the Company's reported basic
and diluted net earnings per share of $.01 for the three months and six ended
October 31, 2007. Fiscal 2007's earnings before taxes and net earnings for
the three and six months ended October 31, 2006 were $117,000 and $73,000
lower, respectively, and $251,000 and $157,000 lower, respectively, than if
the Company had continued to account for stock-based compensation under
APB 25. This resulted in a decrease in the Company's reported basic and
diluted net earnings per share of $.01 for the three months ended
October 31, 2006, and $.02 for the six months ended October 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. The Company measures 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 $166,000 has been reflected in additional paid-in
capital in the accompanying balance sheet as of October 31, 2007.
A summary of option activity under the plans for the six months ended
October 31, 2007 is as follows:
Weighted average Weighted average Aggregate
exercise price remaining contractual intrinsic
Shares life value(1)
__________ ________________ _____________________ __________
Balance
April 30, 2007 1,208,066 $5.24 3.22 $ 675,000
Granted(2) 135,000 $3.33 - -
Exercised (158,629) $2.81 - 163,000
Expired (134,602) $5.51 - -
Balance
October 31, 2007 1,049,835 $5.33 3.59 $73,000
Exercisable
October 31, 2007 874,835 $5.63 3.17 $73,000
(1)These amounts represent the difference between the exercise price and
$3.21, the closing price of Dataram common stock on October 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.
(2) The fair value of the stock options granted during the current fiscal
year is $1.81 and was estimated on the date of grant using the Black-Scholes
option pricing model with the following assumptions: expected life of 5 years;
expected volatility of 110%; expected dividend yield of 7.2%; expected
forfeiture rate of 5%; and a risk-free interest rate of 5.0%.
Total cash received from the exercise of options in the second quarter and
six months ended October 31, 2007 was $219,000 and $489,000, respectively,
including tax benefits. 147,950 options completed vesting during the second
quarter ended October 31, 2007. As of October 31, 2007, there was $319,000
of total unrecognized compensation costs related to stock options. These
costs are expected to be recognized over a weighted average period of
1.5 years. At October 31, 2007, an aggregate of 1,135,102 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) Accounts Receivable
Accounts receivable consists of the following categories:
October 31, 2007 April 30, 2007
________________ ______________
Trade receivables $ 4,366,000 $ 4,989,000
VAT receivable 310,000 14,000
Other 0 14,000
Allowance for doubtful accounts
and sales returns (300,000) (300,000)
________________ ______________
$ 4,376,000 $ 4,717,000
================ ==============
(4) Inventories
Inventories are valued at the lower of cost or market, with costs determined
by the first-in, first-out method. Inventories at October 31, 2007 and
April 30, 2007 consist of the following categories:
October 31, 2007 April 30, 2007
________________ ______________
Raw materials $ 1,354,000 $ 1,497,000
Work in process 31,000 42,000
Finished goods 358,000 582,000
________________ ______________
$ 1,743,000 $ 2,121,000
================ ==============
(5) 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.
(6) Financial information by geographic location
The Company operates in one business segment and develops, manufactures and
markets a variety of memory systems for use with network servers and
workstations which are manufactured by various companies. Revenues for the
three and six month periods ended October 31, 2007 and 2006 by geographic
region are as follows:
Three months ended Six months ended
October 31, 2007 October 31, 2007
________________ ________________
United States $ 5,850,000 $ 12,239,000
Europe 1,970,000 3,492,000
Other (principally Asia Pacific Region) 736,000 1,442,000
________________ ________________
Consolidated $ 8,556,000 $ 17,173,000
================ ================
Three months ended Six months ended
October 31, 2006 October 31, 2006
________________ ________________
United States $ 7,933,000 $ 14,241,000
Europe 1,816,000 3,987,000
Other (principally Asia Pacific Region) 1,153,000 1,979,000
________________ ________________
Consolidated $ 10,902,000 $ 20,207,000
================ ================
Long-lived assets consist of property and equipment. Long-lived assets and
total assets by geographic region as of October 31, 2007 are as follows:
October 31, 2007
Long-lived assets Total assets
_________________ ______________
United States $ 593,000 $ 25,788,000
Europe 0 207,000
Other 0 6,000
_________________ ______________
Consolidated $ 593,000 $ 26,001,000
================= ==============
(7) 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.
(8) 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 October
31, 2007, cash and cash equivalents amounted to $16.9 million and working
capital amounted to $22.5 million, reflecting a current ratio of 11.8,
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 six months of fiscal year 2008, net cash provided by
operating activities totaled approximately $1.7 million. Net income in the
first six months of fiscal 2008 was approximately $1.0 million. Deferred
income taxes also decreased by $416,000. This decrease which was due to the
Company's first six months federal income tax expense, was offset by federal
net operating loss (NOL) carry-forwards. Depreciation expense in the first
six month's of fiscal 2008 was $192,000. Trade receivable decreased by
approximately $305,000 and inventory decreased by approximately $379,000.
Inventory decreased as result of a decrease of raw material purchases
necessitated by recent changes in the DRAM marketplace. Non-cash stock-based
compensation expense of approximately $166,000 was also recorded in the
fiscal 2008's first six months. The positive effect on cash balances of
these activities was partially offset by a decrease of a $278,000 in accounts
payable. Accrued liabilities also decreased by approximately $206,000,
primarily the result of payment of accrued severance. Other current assets
also increased by approximately $198,000, primarily as a result of an
increase in prepaid income taxes and other expenses related to annual
maintenance contracts and annual insurance deposits.
Net cash provided by investing activities was approximately $1.5 million for
the six months ended October 31, 2007. This was primarily the result of the
payment in full of the note receivable.
Net cash used in financing activities totaled approximately $487,000 for the
six months ended October 31, 2007, and consisted of approximately $1.0
million of cash dividend payments, offset by approximately $563,000 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 October 31, 2007 were $8,556,000
compared to revenues of $10,902,000 for the comparable prior year period,
a decrease of approximately 22%. Fiscal 2008 six-month revenues totaled
$17,173,000 versus six-month revenues of $20,207,000 in the prior year, a
decrease of approximately 15%. 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 cost of DRAMs declined, on average, by approximately 50%
during the first six months of the fiscal year. Consequently, the Company's
selling prices were lower for similar products when compared on a year over
year basis.
Revenues for the three and six month periods ended October 31, 2007 and 2006 by
geographic region are as follows:
Three months ended Six months ended
October 31, 2007 October 31, 2007
________________ ________________
United States $ 5,850,000 $ 12,239,000
Europe 1,970,000 3,492,000
Other (principally Asia Pacific Region) 736,000 1,442,000
________________ ________________
Consolidated $ 8,556,000 $ 17,173,000
================ ================
Three months ended Six months ended
October 31, 2006 October 31, 2006
________________ ________________
United States $ 7,933,000 $ 14,241,000
Europe 1,816,000 3,987,000
Other (principally Asia Pacific Region) 1,153,000 1,979,000
________________ ________________
Consolidated $ 10,902,000 $ 20,207,000
================ ================
Cost of sales for the second quarter and six months were 62% and 63% of
revenues, respectively, versus 76% and 75% for the same respective prior
year periods. The increase in gross margin during fiscal 2008 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 $295,000 as a
result of a reduction of workforce and other factory expenses, which was
initiated in the fourth quarter of the prior fiscal year.
Engineering and development expense in fiscal 2008's second quarter and six
months were $286,000 and $587,000, respectively, versus $320,000 and $627,000
for the same respective prior year periods. The Company intends to maintain
its commitment to the timely introduction of new memory products as new
computers are introduced.
Selling, general and administrative expense in fiscal 2008's second quarter
and six months decreased by $97,000 and $223,000, respectively, from the
comparable prior year periods. Included in the current fiscal year's second
quarter and six months expense is $73,000 and $166,000, respectively, of
stock-based compensation expense, compared to $117,000 and $251,000 in the
comparable prior year periods. Excluding the stock-based compensation
expense, selling, general and administrative expenses declined by
approximately $52,000 and $138,000, respectively, versus the same prior year
periods. 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 second quarter and six months totaled $229,000 and
$448,000, respectively, for fiscal 2008 and $2.4 million and $2.7 million,
for the same respective periods in fiscal 2007. Other income in fiscal
2008's second quarter consisted primarily of $201,000 of net interest income
received in the current quarter. Additionally, other income included $28,000
of foreign currency gain, primarily as a result of the EURO strengthening
relative to the US dollar. Fiscal 2008's six months consisted primarily of
$402,000 of net interest income received and $45,000 of foreign currency
gain, primarily as a result of the EURO strengthening relative to the US
dollar. Other income in fiscal 2007's second quarter consisted primarily
of $2.3 million received from a DRAM manufacturer related to a settlement
agreement that the Company entered into in the quarter. Other income in
fiscal 2007's six months consisted primarily of the aforementioned $2.3
million dollar settlement and $343,000 of net interest income. Additionally,
there was $64,000 of foreign currency gain, primarily as a result of the
EURO strengthening relative to the US dollar.
Income tax expense for the second quarter and six months of fiscal 2008 was
$331,000 and $566,000 respectively, verses $865,000 and $828,000 for the same
prior year periods. 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's second quarter and six months
ended October 31, 2007 includes, approximately $73,000 and $166,000, 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, $166,000 has been reflected in additional paid-in capital in
the accompanying consolidated balance sheet as of October 31, 2007. Fiscal
2007's second quarter and six months ended October 31, 2006 includes,
approximately $117,000 and $251,000, of compensation expense, respectively in
the selling, general and administrative expense line and as such, a
corresponding increase of approximately, $251,000 has been reflected in
additional paid-in capital in the accompanying consolidated balance sheet as
of October 31, 2006. 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 and six month period ended October 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 A VOTE OF SECURITY HOLDERS
On September 27, 2007, Dataram held its Annual Meeting of Shareholders. At
that meeting, the Shareholders elected Directors for an annual term and
ratified the selection of accountants. The results of that voting are as
follows:
1. Election of Directors. The votes were received as follows:
BROKERS'
FOR WITHHELD NONVOTES
Robert V. Tarantino 7,988,385 163,628 0
Roger C. Cady 7,983,522 168,491 0
Thomas A. Majewski 7,987,835 164,178 0
Bernard L. Riley 7,995,858 156,155 0
Rose Ann Giordano 7,990,168 161,845 0
John H. Freeman 8,000,308 151,705 0
2. Ratification of accountants:
BROKERS'
FOR AGAINST ABSTAIN NONVOTES
8,079,894 42,535 29,584 0
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: December 10, 2007 By:
__________________________
Mark E. Maddocks
Vice President, Finance
(Principal Financial Officer)
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