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 January 31, 2008
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)
(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 February 29, 2008, there were 8,869,184 shares
outstanding.
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Dataram Corporation and Subsidiaries
Consolidated Balance Sheets
January 31, 2008 and April 30, 2007
(Unaudited)
January 31, 2008 April 30, 2007
Assets
Current Assets:
Cash and cash equivalents $ 18,155,769 $ 14,138,223
Accounts receivable, less allowance
for doubtful accounts and sales returns
of $250,000 at January 31, 2008 and
$300,000 at April 30, 2007 2,629,054 4,717,101
Inventories 1,710,350 2,121,342
Deferred income taxes 1,133,866 1,148,865
Note receivable 0 1,537,500
Other current assets 206,907 230,535
__________ __________
Total current assets 23,835,946 23,893,566
Deferred income taxes 675,450 1,123,000
Property and equipment, at cost:
Machinery and equipment 10,920,555 10,885,465
Leasehold improvements 2,103,688 2,103,688
__________ __________
13,024,243 12,989,153
Less: accumulated depreciation
and amortization 12,436,724 12,205,354
__________ __________
Net property and equipment 587,519 783,799
Other assets 78,771 104,988
__________ __________
$ 25,177,686 $ 25,905,353
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 756,914 $ 1,596,593
Accrued liabilities 734,359 976,533
__________ __________
Total current liabilities 1,491,273 2,573,126
Stockholders' Equity:
Common stock, par value $1.00 per share.
Authorized 54,000,000 shares; issued and
outstanding 8,869,184 at January 31, 2008
and 8,687,755 at April 30, 2007 8,869,184 8,687,755
Additional paid-in capital 6,343,067 5,796,443
Retained earnings 8,474,162 8,848,029
__________ __________
Total stockholders' equity 23,686,413 23,332,227
__________ __________
$ 25,177,686 $ 25,905,353
========== ==========
See accompanying notes to consolidated financial statements.
Dataram Corporation and Subsidiaries
Consolidated Statements of Operations
Three and Nine Months Ended January 31, 2008 and 2007
(Unaudited)
2008 2007
3rd Quarter Nine Months 3rd Quarter Nine Months
Revenues $ 6,675,545 $ 23,848,470 $ 9,366,258 $ 29,573,524
Costs and expenses:
Cost of sales 4,031,565 14,924,604 7,504,751 22,730,327
Engineering and development 313,463 900,544 295,271 921,804
Selling, general and administrative 2,116,578 6,716,735 2,249,734 7,073,088
__________ __________ __________ __________
6,461,606 22,541,883 10,049,756 30,725,219
Earnings (loss) from operations 213,939 1,306,587 (683,498) (1,151,695)
Interest income, net 194,582 597,069 174,957 518,250
Currency gain 38,665 84,113 38,020 102,260
Other income, net 0 0 0 2,265,000
__________ __________ __________ __________
Total other income 233,247 681,182 212,977 2,885,510
Earnings (loss) before income taxes 447,186 1,987,769 (470,521) 1,733,815
Income tax provision (benefit) 214,000 780,000 (173,000) 655,000
__________ __________ __________ __________
Net earnings (loss) $ 233,186 $ 1,207,769 $ (297,521) $ 1,078,815
========== ========== ========== ==========
Net earnings (loss) per share of common stock
Basic $ .03 $ .14 $ (.03) $ .13
========== ========== ========== ==========
Diluted $ .03 $ .14 $ (.03) $ .12
========== ========== ========== ==========
Dividends per common share $ .06 $ .18 $ .06 $ .18
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
Dataram Corporation and Subsidiaries
Consolidated Statements of Cash Flows
Nine Months Ended January 31, 2008 and 2007
(Unaudited)
2008 2007
Cash flows from operating activities:
Net income $ 1,207,769 $ 1,078,815
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 256,001 333,000
Bad debt expense (recovery) (19,490) 22,464
Stock-based compensation expense 231,421 345,877
Loss on sale of property and equipment 707 0
Deferred income tax expense 462,549 491,000
Tax benefit from sale of common shares
under stock option plan (82,000) (66,000)
Changes in assets and liabilities:
Decrease in accounts receivable 2,107,537 561,127
Decrease (increase) in inventories 410,992 (349,385)
Decrease (increase) in other current assets 23,628 (139,145)
Decrease in other assets 26,217 0
Decrease in accounts payable (839,679) (876,839)
Decrease in accrued liabilities (242,174) (28,172)
__________ __________
Net cash provided by operating activities 3,543,478 1,372,742
__________ __________
Cash flows provided by (used in)
investing activities -
Payment of note receivable 1,537,500 0
Additions to property and equipment (81,761) (318,066)
Proceeds from sales of property and equipment 21,333 0
__________ __________
Net cash provided by (used in) 1,477,072 (318,066)
investing activities __________ __________
Cash flows used in financing activities:
Proceeds from sale of common shares under
stock option plan 496,632 254,495
Tax benefit from sale of common shares
under stock option plan 82,000 66,000
Cash dividends (1,581,636) (1,538,675)
___________ __________
Net cash used in financing activities (1,003,004) (1,218,180)
___________ __________
Net increase (decrease) in
cash and cash equivalents 4,017,546 (163,504)
Cash and cash equivalents at
beginning of period 14,138,223 14,044,398
__________ __________
Cash and cash equivalents at
end of period $ 18,155,769 $ 13,880,894
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 4,774 $ 3,208
Income taxes $ 114,000 $ 205,000
See accompanying notes to consolidated financial statements.
Dataram Corporation and Subsidiaries
Notes to Consolidated Financial Statements January 31, 2008 and 2007
(Unaudited)
(1) Basis of Presentation
The information for the three and nine months ended January 31, 2008 and 2007
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. The April 30, 2007
balance sheet has been derived from those statements.
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. For purposes of calculating diluted net earnings per share for the
three and nine months ended January 31, 2008, and the nine months ended
January 31, 2007, the denominator includes both the weighted average number
of shares of common stock issued and outstanding and also includes the
dilutive effect of stock options outstanding (using the treasury stock
method). For the three-month period ended January 31, 2007 the denominator
does not include the dilutive effect of stock options outstanding because
they would be anti-dilutive.
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 January 31, 2008
Earnings Shares Per share
(numerator) (denominator) amount
_________ ___________ _________
Basic net earnings per share
- -net earnings and weighted
average common shares
outstanding $ 233,186 8,869,184 $ .03
Effect of dilutive securities
- -stock options - 5,507 -
_________ _________ _______
Diluted net earnings per share
- -net earnings weighted
average common shares
outstanding and effect of
stock options $ 233,186 8,874,691 $ .03
========= ========= ======
Three Months ended January 31, 2007
Earnings Shares Per share
(numerator) (denominator) amount
_________ ___________ _________
Basic net loss per share
- -net loss and weighted
average common shares
outstanding $ (297,521) 8,668,964 $ (.03)
Effect of dilutive securities
- -stock options - - -
_________ _________ _______
Diluted net loss per share
- -net loss weighted
average common shares
outstanding and effect of
stock options $ (297,521) 8,668,964 $ (.03)
========= ========= ======
Diluted net earnings per share does not include the effect of options to
purchase 826,725 shares of common stock for the three months ended
January 31, 2008 because they are anti-dilutive.
Nine Months ended January 31, 2008
Earnings Shares Per share
(numerator) (denominator) amount
_________ ___________ _________
Basic net earnings per share
- -net earnings and weighted
average common shares
outstanding $1,207,769 8,810,690 $ .14
Effect of dilutive securities
- -stock options - 39,952 -
_______ _________ ______
Diluted net earnings per share
- -net earnings, weighted
average common shares
outstanding and effect of
stock options $1,207,769 8,850,642 $ .14
========= ========= ======
Nine Months ended January 31, 2007
Earnings Shares Per share
(numerator) (denominator) amount
_________ ___________ _________
Basic net earnings per share
- -net earnings and weighted
average common shares
outstanding $1,078,815 8,549,122 $ .13
Effect of dilutive securities
- -stock options - 250,427 (.01)
_______ _________ ______
Diluted net earnings per share
- -net earnings, weighted
average common shares
outstanding and effect of
stock options $1,078,815 8,799,549 $ .12
======== ========= ======
Diluted net earnings per share does not include the effect of options to
purchase 740,555 shares of common stock for the nine months ended
January 31, 2008 because they are anti-dilutive.
Diluted net earnings per share does not include the effect of options to
purchase 572,119 shares of common stock for the nine months ended
January 31, 2007 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 nine months ended
January 31, 2008 were $532,151 and $1,581,636, respectively. Cash dividends
paid in the three and nine months ended January 31, 2007 were $514,536 and
$1,538,675, respectively. On February 19, 2008, the Board of Directors
declared a $0.06 per share quarterly dividend. The dividend is payable on
March 14, 2008, to shareholders of record as of February 29, 2008.
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 the nine months ended
January 31, 2008 and 2007, the Company did not repurchase any shares of its
common stock. As of January 31, 2008, 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 nine month periods ended January 31, 2008 and 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, the Company's current fiscal year's third
quarter and nine months selling, general and administrative expense includes
$66,000 and $231,000, respectively, of stock-based compensation expense,
compared to $95,000 and $346,000 in the comparable prior year 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 $231,000 has been
reflected in additional paid-in capital in the accompanying balance sheet as
of January 31, 2008.
A summary of option activity under the plans for the nine months ended
January 31, 2008 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 (292,464) $2.81 - $ 240,000
Expired (134,602) $5.51 - -
_________
Balance
January 31, 2008 916,000 $5.69 3.86 $ 24,000
=========
Exercisable
January 31, 2008 741,000 $6.14 3.48 $ 24,000
=========
(1)These amounts represent the difference between the exercise price and
$3.26, the closing price of Dataram common stock on January 31, 2008 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 third quarter and
nine months ended January 31, 2008 was $8,000 and $497,000, respectively,
including tax benefits. No options completed vesting during the third
quarter ended January 31, 2008. As of January 31, 2008, there was $251,000
of total unrecognized compensation costs related to stock options. These
costs are expected to be recognized over a weighted average period of 1.3
years. At January 31, 2008, an aggregate of 1,135,102 shares were authorized
for future grant under the Company's stock option plans.
(2) 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:
January 31, 2008 April 30, 2007
________________ ______________
Trade receivables $ 2,831,000 $ 4,989,000
VAT receivable 48,000 14,000
Other 0 14,000
Allowance for doubtful accounts
and sales returns (250,000) (300,000)
________________ ______________
$ 2,629,000 $ 4,717,000
================ ==============
(4) Inventory valuation
Inventories are valued at the lower of cost or market, with costs determined
by the first-in, first-out method. Inventories at January 31, 2008 and
April 30, 2007 consist of the following categories:
January 31, 2008 April 30, 2007
________________ ______________
Raw materials $ 1,432,000 $ 1,497,000
Work in process 14,000 42,000
Finished goods 264,000 582,000
________________ ______________
$ 1,710,000 $ 2,121,000
================ ==============
(5) 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 $3,075,000
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 nine month periods ended January 31, 2008 and 2007 by geographic
region are as follows:
Three months ended Nine months ended
January 31, 2008 January 31, 2008
________________ ________________
United States $ 4,839,000 $ 17,078,000
Europe 1,234,000 4,726,000
Other (principally Asia Pacific Region) 603,000 2,044,000
________________ ________________
Consolidated $ 6,676,000 $ 23,848,000
================ ================
Three months ended Nine months ended
January 31, 2007 January 31, 2007
________________ ________________
United States $ 6,822,000 $ 21,064,000
Europe 1,863,000 5,850,000
Other (principally Asia Pacific Region) 681,000 2,660,000
________________ ________________
Consolidated $ 9,366,000 $ 29,574,000
================ ================
Long-lived assets consist of property and equipment. Long-lived assets and
total assets by geographic region as of January 31, 2008 are as follows:
Long-lived assets Total assets
_________________ ______________
United States $ 588,000 $ 25,073,000
Europe 0 91,000
Other 0 14,000
_________________ ______________
Consolidated $ 588,000 $ 25,178,000
================= ==============
(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 the Company recognize in its 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.
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
gives the Company the irrevocable option to carry many financial assets and
liabilities at fair values, with changes in fair value recognized in earnings.
SFAS No. 159 is effective for the Company beginning May 1, 2008, although
early adoption is permitted. We are currently assessing the potential impact
that electing fair value measurement would have on our financial statements
and have not determined what election we will make.
(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 Corporation is a developer, manufacturer and marketer of large
capacity memory products primarily used in high performance network servers
and workstations. The Company provides customized memory solutions for
original equipment manufacturers (OEMs) and compatible memory for leading
brands including Dell, HP, IBM, Silicon Graphics and Sun Microsystems. The
Company also manufactures a line of memory products for AMD and Intel
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 computer memory boards is dynamic random access memory
(DRAM) chips and typically represents between 50% and 90% (depending on the
capacity of the memory board) of the total product cost. Consequently,
average selling prices for computer memory boards are significantly dependent
on the pricing and availability of DRAM chips.
Liquidity and Capital Resources
The Company's cash and working capital position remain strong. As of
January 31, 2008, cash and equivalents amounted to $18.2 million and working
capital amounted to $22.3 million, reflecting a current ratio of 16.0,
compared to cash and 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 nine months of fiscal year 2008, net cash provided by
operating activities totaled approximately $3.5 million. Net income in the
first nine months of fiscal 2008 was approximately $1.2 million. Accounts
receivable decreased by approximately $2.1 million as a result of lower
sequential quarterly revenues. Deferred income taxes also decreased by
$463,000. This decrease, which was due to the Company's first nine months
federal income tax expense, was offset by federal net operating loss (NOL)
carry-forwards. Depreciation and amortization expense in the first nine
months of fiscal 2008 was $256,000. Inventories decreased by $411,000,
primarily as a result of the decline in DRAM costs. Non-cash stock-based
compensation expense of approximately $231,000 was recorded. The positive
effect on cash and cash equivalents from these factors was partially offset
by a decrease in accounts payable of approximately $840,000 as well as a
decrease in accrued liabilities of approximately $242,000, primarily as a
result of payment of accrued severance.
Net cash provided by investing activities was approximately $1.5 million for
the nine months ended January 31, 2008. This was primarily the result of the
payment in full of the note receivable.
Net cash used in financing activities of approximately $1.0 million for the
nine months ended January 31, 2008, consists of approximately $1.6 million
cash dividend payments, offset by approximately $497,000 of cash received
from stock option exercises including tax benefit of $82,000.
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 are limited to 75% of eligible receivables, as defined in the
agreement. The agreement provides for LIBOR rate loans and base rate loans
at an interest rate no higher than the bank's base commercial lending rate.
The Company is required to pay a commitment fee equal to one quarter of one
percent per annum on the unused commitment. The agreement contains certain
restrictive covenants, specifically a trailing twelve month profitability
requirement, a current assets 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 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 and 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 January 31, 2008 were $6,676,000
compared to revenues of $9,366,000 for the comparable prior year period, a
decrease of approximately 29%. Fiscal 2008 nine-month revenues totaled
$23,848,000 versus nine-month revenues of $29,574,000 in the prior year, a
decrease of approximately 19%. 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 changes in the purchase cost of
specific DRAMs over time are not necessarily uniform or even move in the same
direction, the Company's purchase cost per DRAMs declined, on average, by
approximately 38% during the first nine 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 nine month periods ended January 31, 2008 and 2007
by geographic region are as follows:
Three months ended Nine months ended
January 31, 2008 January 31, 2008
________________ ________________
United States $ 4,839,000 $ 17,078,000
Europe 1,234,000 4,726,000
Other (principally Asia Pacific Region) 603,000 2,044,000
________________ ________________
Consolidated $ 6,676,000 $ 23,848,000
================ ================
Three months ended Nine months ended
January 31, 2007 January 31, 2007
________________ ________________
United States $ 6,822,000 $ 21,064,000
Europe 1,863,000 5,850,000
Other (principally Asia Pacific Region) 681,000 2,660,000
________________ ________________
Consolidated $ 9,366,000 $ 29,574,000
================ ================
Cost of sales for the third quarter and nine months were 60% and 63% of
revenues, respectively, versus 80% and 77% for the same respective prior year
periods. There are three primary factors which have contributed to the
percentage decline. First, the Company's general pricing strategy has been
to reduce its selling prices by approximately the same amount as the cost
savings realized from lower DRAM prices. This has had the effect of
increasing the realized gross margin percentage. Secondly, in fiscal 2008
there has been 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. Thirdly, year over year nine-month cost of sales also includes
a savings of approximately $525,000 as a result of a reduction in workforce
and other manufacturing costs initiated in the fourth quarter of the prior
fiscal year.
Engineering and development costs in fiscal 2008's third quarter and nine
months were $313,000 and $901,000, respectively, versus $295,000 and $922,000
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 third quarter
and nine months decreased by $133,000 and $356,000, respectively, from the
comparable prior year periods. Included in the current fiscal year's third
quarter and nine months expense are $66,000 and $231,000, respectively, of
stock-based compensation expense, compared to $95,000 and $346,000 in the
comparable prior year periods. Excluding stock-based compensation expense,
selling, general and administrative expenses declined by approximately
$104,000 and $241,000, respectively, versus the same prior year periods.
This was primarily the result of workforce and other cost reductions
initiated at the end of the prior fiscal year.
Other income, net for the third quarter and nine months totaled $233,000 and
$681,000, respectively, for fiscal 2008 and $213,000 and $2.9 million, for
the same respective periods in fiscal 2007. Other income in fiscal 2008's
third quarter consisted primarily of $195,000 of net interest income received
in the current quarter. Additionally, other income included $39,000 of
foreign currency gain, primarily as a result of the EURO strengthening
relative to the US dollar. Fiscal 2008's nine months consisted primarily of
$597,000 of net interest income received and $84,000 of foreign currency
gain, primarily as a result of the EURO strengthening relative to the US
dollar. Other income in fiscal 2007's third quarter consisted primarily of
$175,000 interest income. Additionally, there was $38,000 of foreign
currency gain, primarily as a result of the EURO strengthening relative to
the US dollar. Other income for fiscal 2007's nine months consisted
primarily of $2.3 million received from a DRAM manufacturer related to a
settlement agreement that the Company entered into in the second quarter.
Additionally, there was $518,000 of interest income and $102,000 foreign
currency gain, primarily as a result of the EURO strengthening relative to
the US dollar.
Income tax expense for the third quarter and nine months of fiscal 2008 was
$214,000 and $780,000 respectively, versus a benefit of ($173,000) and
$655,000 of expense for the same prior year periods. The Company's effective
tax rate for financial reporting purposes in fiscal 2008 is approximately
39%. However, the Company has federal NOL carry-forwards totaling
approximately $4.7 million and therefore will continue to make cash payments
for income taxes at an approximate rate of 10% 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. The accompanying
consolidated statements of operations for the third quarter and nine months
ended January 31, 2008 includes approximately $66,000 and $231,000,
respectively, of compensation expense in selling, general and administrative
expense 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, $231,000
has been reflected in additional paid-in capital in the accompanying
consolidated balance sheet as of January 31, 2008. The third quarter and
nine months ended January 31, 2007 includes approximately $95,000 and
$346,000, respectively, of compensation expense, in selling, general and
administrative expense and as such, a corresponding increase of approximately
$346,000 has been reflected in additional paid-in capital in the accompanying
consolidated balance sheet as of January 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 and nine month period ended January 31, 2008 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
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: March 3, 2008 By:_______________________
Mark E. Maddocks
Vice President, Finance
(Principal Financial Officer)