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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 1/31/04 or
/ / Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the transition period from to
Commission file number 1-8266
DATARAM CORPORATION
___________________________________________________________________________
(Exact name of registrant as specified in its charter)
New Jersey 22-1831409
__________________________________ _____________________________________
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
P.O. Box 7528, Princeton, NJ 08543
____________________________________________________________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (609) 799-0071
___________________________________________________________________________
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
_____ _____
Indicate by check mark whether the registrant is an accelerated filer.
Yes No X
_____ _____
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the last practicable date. Common Stock ($1.00 par
value): As of March 8, 2004, there were 8,501,544 shares outstanding.
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Dataram Corporation and Subsidiaries
Consolidated Balance Sheets
January 31, 2004 and April 30, 2003
(Unaudited)
January 31, 2004 April 30, 2003
Assets
Current Assets:
Cash and cash equivalents $ 3,936,686 $ 2,500,497
Trade receivables, less allowance
for doubtful accounts and sales returns
of $320,000 7,369,645 6,292,059
Income tax receivable 0 3,137,983
Inventories 3,561,969 2,854,860
Deferred income taxes 822,202 723,000
Other current assets 200,897 110,720
__________ __________
Total current assets 15,891,399 15,619,119
Property and equipment, at cost:
Land (held for sale) 875,000 875,000
Machinery and equipment 12,054,851 12,576,271
__________ __________
12,929,851 13,451,271
Less: accumulated depreciation
and amortization 9,695,226 8,887,181
__________
__________
Net property and equipment 3,234,625 4,564,090
Other assets 50,011 24,126
__________ __________
$ 19,176,035 $ 20,207,335
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 3,529,891 $ 3,207,446
Accrued liabilities 883,873 2,978,258
__________ __________
Total current liabilities 4,413,764 6,185,704
Stockholders' Equity:
Common stock, par value $1.00 per share.
Authorized 54,000,000 shares; issued and
outstanding 8,497,219 at January 31, 2004
and April 30, 2003 8,497,219 8,497,219
Additional paid in capital 4,593,851 4,593,851
Retained earnings 1,671,201 930,561
__________ __________
Total stockholders' equity 14,762,271 14,021,631
__________ __________
$ 19,176,035 $ 20,207,335
========== ==========
See accompanying notes to consolidated financial statements.
Dataram Corporation and Subsidiary
Consolidated Statements of Operations
Three and Nine Months Ended January 31, 2004 and 2003
(Unaudited)
2004 2003
3rd Quarter Nine Months 3rd Quarter Nine Months
Revenues $ 17,130,972 $ 42,035,623 $ 12,757,992 $ 41,009,492
Costs and expenses:
Cost of sales 12,923,357 31,373,409 9,285,697 29,795,530
Engineering and development 316,822 962,506 374,941 1,156,442
Selling, general and administrative 3,179,991 9,038,404 4,341,588 13,147,878
Restructuring charges 0 0 0 740,000
__________ __________ __________ __________
16,420,170 41,374,319 14,002,226 44,839,850
Earnings (loss) from operations 710,802 661,304 (1,244,234) (3,830,358)
Interest income (expense), net 7,079 15,285 (1,857) (55,678)
Foreign currency transaction gains 62,208 70,792 0 0
Other income (expense), net 25,257 66,259 0 0
__________ __________ __________ __________
Earnings (loss) before income taxes 805,346 813,640 (1,246,091) (3,886,036)
Income tax provision (benefit) 73,000 73,000 (453,000) (1,017,000)
__________ __________ __________ __________
Net earnings (loss) $ 732,346 $ 740,640 $ (793,091) $ (2,869,036)
========== ========== ========== ==========
Net earnings (loss) per share of common stock
Basic $ .09 $ .09 $ (.09) $ (.34)
========== ========== ========== ==========
Diluted $ .08 $ .08 $ (.09) $ (.34)
========== ========== ========== ==========
Weighted average number of common
shares outstanding
Basic 8,497,219 8,497,219 8,509,611 8,498,980
========== ========== ========= =========
Diluted 8,882,312 8,768,729 8,509,611 8,498,980
========== ========== ========= =========
See accompanying notes to consolidated financial statements.
Dataram Corporation and Subsidiaries
Consolidated Statements of Cash Flows
Nine Months Ended January 31, 2004 and 2003
(Unaudited)
2004 2003
Cash flows from operating activities:
Net income (loss) $ 740,640 $ (2,869,036)
Adjustments to reconcile net income (loss)
to net cash provided by
operating activities:
Depreciation and amortization 1,409,268 3,007,003
Bad debt expense 23,913 91,359
(Increase) decrease in deferred income taxes (99,202) 75,000
Changes in assets and liabilities:
(Increase) decrease in trade receivables (1,101,499) 5,865,564
Decrease (increase)in income tax receivable 3,137,983 (440,000)
(Increase) decrease in inventories (707,109) 2,699,709
Increase in other current assets (90,177) (317,844)
Increase in other assets (25,885) (149,000)
Increase (decrease)in accounts payable 322,445 (3,969,730)
Decrease in accrued liabilities (2,094,385) (441,543)
__________ __________
Net cash provided by
operating activities 1,515,992 3,551,482
__________ __________
Cash flows used in investing activities-
Additions to property and equipment (97,978) (638,600)
Proceeds from sales of property and equipment 18,175 0
__________ __________
Net cash used in investing activities (79,803) (638,600)
Cash flows from financing activities:
Payments under revolving credit line 0 (3,800,000)
Proceeds from sale of common shares under
stock option plan, (including tax benefits) 0 403,375
Purchase and subsequent cancellation
of common stock 0 (488,443)
__________ __________
Net cash used in financing 0 (3,885,068)
activities __________ __________
Effect of foreign currency translation
on cash and cash equivalents 0 412,578
__________ __________
Net increase (decrease) in cash and
cash equivalents 1,436,189 (559,608)
Cash and cash equivalents at
beginning of period 2,500,497 3,656,150
__________ __________
Cash and cash equivalents at
end of period $ 3,936,686 $ 3,096,542
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 15,716 $ 115,827
Income taxes $ 2,250 $ 88,200
See accompanying notes to consolidated financial statements.
Notes to Consolidated Financial Statements
January 31, 2004 and 2003
(Unaudited)
Basis of Presentation
The information for the three and nine months ended January 31, 2004 and 2003,
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, 2003
included in the Company's Annual Report on Form 10-K filed with the Securities
and Exchange Commission.
Comprehensive Income (loss)
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income ("SFAS No. 130") requires that items defined as other comprehensive
income, such as unrealized investment gains and losses and translation gains
and losses, be seperately classified in the consolidated financial statements
and that the accumulated balance of other comprehensive income (loss) be
reported separately from retained earnings and additional paid in capital in
the equity section of the consolidated balance sheet. Comprehensive income for
the three and nine months ended January 31, 2004 was the same as the reported
net income. Comprehensive loss for the three and nine months ended January 31,
2003 was ($587,000) and ($2,277,000) respectively.
Earnings Per Common Share
Basic earnings per share is computed by dividing the net income (loss)
available to common stockholders by the weighted average number of shares of
common stock issued and outstanding during the periods. For purposes of
calculating diluted earnings per share for the third quarter and nine months
ended January 31, 2004, the denominator includes both the weighted average
number of shares of common stock outstanding and the number of dilutive common
stock equivalents. The number of dilutive common stock equivalents includes
the effect of non-qualified stock options calculated using the treasury stock
method. For purposes of calculating diluted loss per share for the three and
nine months ended January 31, 2003, the denominator excludes the number of
dilutive common stock equivalents which were 173,448 and 264,011,
respectively, as their affect would be anti-dilutive.
Stock Based Compensation
As permitted by SFAS No. 123, "Accounting for Stock Based Compensation", the
Company accounts for stock-based compensation arrangements in accordance with
provisions of Accounting Principles Board ("APB") Opinion No. 25 "Accounting
for Stock Issued to Employees". Compensation expense for stock options issued
to employees is based on the difference on the date of grant, between the fair
value of the Company's stock and the exercise price of the option. No stock-
based employee compensation cost is reflected in net income (loss), as all
options granted under those plans had exercise prices equal to the market
value of the underlying common stock at the date of grant.
In December 2002, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure, an amendment of FASB Statement No. 123." SFAS No. 148 amends SFAS
No. 123, "Accounting for Stock-Based Compensation," to provide alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, SFAS No. 148
amends the disclosure requirements of SFAS No. 123 to require prominent
disclosure in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. The provisions of SFAS No. 148 are effective for
fiscal years ending after December 15, 2002 and the interim disclosure
provisions are effective for interim periods beginning after December 15,
2002. The Company continues to apply the intrinsic-value based method to
account for stock options.
The following table illustrates the effect on net earnings (loss) and earnings
(loss) per share if the Company had applied the fair value recognition
provisions of SFAS No. 123 to stock based compensation:
Three Months Ended Nine Months Ended
January 31, January 31,
------------------- --------------------
2004 2003 2004 2003
-------- -------- -------- --------
Net earnings (loss) as reported $ 732,346 $ (793,091) $ 740,640 $(2,869,036)
Deduct: Total stock-based
employee compensation expense
determined under fair value
based method for all awards,
net of related tax effects (222,263) (151,106) (588,854) (510,382)
--------- ---------- --------- ----------
Pro forma net earnings (loss) $ 510,083 $ (944,197) $ 151,786 $(3,379,418)
========= ========== ========= ==========
Earnings (loss) per share:
Basic - as reported $ 0.09 $ (0.09) $ 0.09 $ (0.34)
========= ========== ========= ==========
Basic - pro forma $ 0.06 $ (0.11) $ 0.02 $ (0.40)
========= ======== ========= ==========
Diluted - as reported $ 0.08 $ (0.09) $ 0.08 $ (0.34)
========= ======== ========= ==========
Diluted - pro forma $ 0.06 $ (0.11) $ 0.02 $ (0.40)
========= ======== ========= ==========
Restructuring charges
In fiscal 2003's first quarter, the Company initiated a restructuring of its
operations. The Company recorded a restructuring charge of $740,000 in the
quarter ended July 31, 2002 which primarily related to severance payments. All
of the severance payments were paid during fiscal year 2003.
During the fourth quarter of fiscal 2003, the Company announced an additional
restructuring of its operations. As part of this restructuring, the Company
ceased production of memory for the PC market and closed its production
facility in Aarhus, Denmark. As part of the restructuring, the Company entered
into lease termination agreements totaling approximately $1,000,000 which were
paid in the first quarter of fiscal 2004. The Company also incurred severance
payments obligations totaling approximately $850,000. As of January 31, 2004,
all of the severance payments were paid.
Cash and cash equivalents
Cash and cash equivalents consist of unrestricted cash, money market preferred
stock and commercial paper with original maturities of three months or less.
Inventory valuation
Inventories are valued at the lower of cost or market, with costs determined
by the first-in, first-out method. Inventories at January 31, 2004 and April
30, 2003 consist of the following categories:
January 31, 2004 April 30, 2003
________________ ______________
Raw material $ 1,718,000 $ 1,972,000
Work in process 347,000 39,000
Finished goods 1,497,000 844,000
________________ ______________
$ 3,562,000 $ 2,855,000
================ ==============
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. The Company
manufactures all of its products in the United States and its sales to foreign
countries are export sales. Revenues for the three and nine month periods
ended January 31, 2004 and 2003 by geographic region is as follows:
Three months ended Nine months ended
January 31, 2004 January 31, 2004
________________ ________________
United States $ 11,932,000 $ 28,363,000
Europe 3,241,000 8,626,000
Other (prinicipally Asia Pacific Region) 1,958,000 5,047,000
________________ ________________
Consolidated $ 17,131,000 $ 42,036,000
================ ================
Three months ended Nine months ended
January 31, 2003 January 31, 2003
________________ ________________
United States $ 5,900,000 $ 22,955,000
Europe 4,262,000 12,077,000
Other (prinicipally Asia Pacific Region) 2,596,000 5,977,000
________________ ________________
Consolidated $ 12,758,000 $ 41,009,000
================ ================
Long-lived assets (which consist of property and equipment) and total assets
by geographic region as of January 31, 2004 is as follows:
January 31, 2004
Long-lived assets Total assets
_________________ ______________
United States $ 3,050,000 $ 18,418,000
Europe 185,000 744,000
Other 0 14,000
_________________ ______________
Consolidated $ 3,235,000 $ 19,176,000
================= ==============
Significant New Accounting Pronouncements
In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),
Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.
FIN 46 requires certain variable interest entities to be consolidated by the
primary beneficiary of the entity if the equity investors in the entity do not
have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties.
In December 2003, the FASB issued FIN 46R (revised December 2003),
"Consolidation of Variable Interest Entities," which addresses how a business
enterprise should evaluate whether it has a controlling financial interest in
an equity through means other than voting rights and accordingly should
consolidate the entity. FIN 46R replaces FIN 46. The Company will be required
to adopt the accounting requirements of FIN 46R for the Company's fiscal
fourth quarter ended April 30, 2004. The Company does not currently expect the
adoption of FIN 46R to have a material impact on its consolidated financial
statements.
Concentration of credit risk
Financial instruments that potentially subject the Company to concentration of
credit risk consist primarily of cash and cash equivalents. The Company
maintains its cash and cash equivalents in financial institutions and
brokerage accounts. To the extent that such deposits exceed the maximum
insurance levels, they are uninsured. The Company performs ongoing evaluations
of its customers' financial condition, as well as general economic conditions
and, generally, requires no collateral from its customers.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results
of Operations contains forward looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and section 21E of the
Securities and Exchange Act of 1934, as amended. The information provided in
this interim report may include forward-looking statements relating to future
events, such as the development of new products, the commencement of
production 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,
Hewlett-Packard (including Compaq), IBM, Silicon Graphics and Sun
Microsystems. The Company also manufactures a line of memory products for
Intel motherboard based servers.
The Company's memory products are sold worldwide to original equipment
manufacturers, 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 original equipment manufacturers mentioned above.
The primary raw material used in producing memory boards is dynamic random
access memory (DRAM) chips. The purchase cost of DRAM chips typically
represents approximately 75% of the total cost of a finished memory board.
Consequently, average selling prices for computer memory boards are
significantly dependent on the pricing and availability of DRAM chips.
Liquidity and Capital Resources
The Company's cash and working capital position remain strong. As of January
31, 2004 cash and equivalents amounted to $3.9 million and working capital
amounted to $11.5 million, reflecting a current ratio of 3.6 compared to cash
and equivalents of $2.5 million and working capital of $9.4 million and a
current ratio of 2.5 as of April 30, 2003.
On June 15, 1999 the Company announced an open market repurchase plan
providing for the repurchase of up to 500,000 shares of the Company's common
stock. On December 4, 2002, the Company announced a second plan providing for
the repurchase of up to an additional 500,000 shares. As of January 31, 2004,
the total number of shares authorized for purchase under the program is
535,150 shares. The Company did not purchase any shares during the first nine
months of Fiscal 2004.
As a result of the restructuring initiated in April 2003, the Company entered
into lease termination agreements totaling approximately $1 million and had
severance obligations totaling approximately $850,000 as of April 30, 2003.
The lease termination obligations were paid in the first quarter of fiscal
2004. The severance obligations totally approximaterly $850,000 were paid by
January 31, 2004.
Management believes that the Company's operating cash flows will be sufficient
to meet short term liquidity needs as the Company does not expect any
unforeseen demands beyond general operating requirements. Management further
believes that its working capital together with internally generated funds
from its operations are adequate to finance the Company's long term operating
needs and future capital requirements.
On July 29, 2002, the Company entered into an agreement to sell its
undeveloped land for a price of $3.0 million. The agreement provides for
closing to occur no later than 30 months from the date of the contract.
Additionally, the agreement is subject to certain contingencies and as such
may be terminated prior to closing. The land is carried at cost on the
Company's balance sheet at a value of $875,000 and is shown as an asset held
for sale. The resulting gain on the sale will be recorded upon consumation of
the transaction and when all contingencies have been satisfied.
Future minimum lease payments under noncancellable operating leases (with
initial or remaining lease terms in excess of one year) as of April 30, 2003
are as follows:
Operating leases
Year ending April 30: ________________
2004 $ 552,000
2005 572,000
2006 486,000
2007 48,000
Thereafter 0
Total minimum lease payments $ 1,658,000
The Company has no other material commitments.
Results of Operations
Revenues for the three month period ending January 31, 2004 were $17,131,000
compared to revenues of $12,758,000 for the comparable prior year period.
Fiscal 2004 nine month revenues totaled $42,036,000 versus nine month revenues
of $41,009,000 in the prior year. The improved revenue reflects the
continuation of a trend of an improving order rate which the Company began to
experience in the latter part of this year's second quarter which is
reflective of an improving economic environment for companies in the
information technology industry. The Company is experiencing growth in sales
of its memory products to its OEM customers as well as to its compatibles
customers. Volume, measured as gigabytes shipped, increased 55% for the third
quarter of fiscal 2004 as compared to the same prior year period. Nine month
volume, measured as gigabytes shipped, increased 12% in fiscal 2004 as
compared to the same prior year period. Average selling price per gigabyte
declined by approximately 14% in fiscal 2004's third quarter compared to the
prior year period. The decrease in average selling price was the result of
product mix. Average selling prices for the Company's products in this year's
first nine months have declined by approximately 8% from the comparable prior
year period. Revenues for the three and nine month periods ended January 31,
2004 and 2003 by geographic region were:
Three months ended Nine months ended
January 31, 2004 January 31, 2004
________________ ________________
United States $ 11,932,000 $ 28,363,000
Europe 3,241,000 8,626,000
Other (prinicipally Asia Pacific Region) 1,958,000 5,047,000
________________ ________________
Consolidated $ 17,131,000 $ 42,036,000
================ ================
Three months ended Nine months ended
January 31, 2003 January 31, 2003
________________ ________________
United States $ 5,900,000 $ 22,955,000
Europe 4,262,000 12,077,000
Other (prinicipally Asia Pacific Region) 2,596,000 5,977,000
________________ ________________
Consolidated $ 12,758,000 $ 41,009,000
================ ================
Cost of sales for the third quarter and nine months were 75% of revenues,
versus 73% for the same prior year periods. Management expects that cost of
sales as a percentage of revenue will generally be approximately 75%, which is
in line with its historical norm. Fluctuations either up or down of 3% or less
in any given quarter are not unusual and can result from many factors, some of
which are a rapid change in the price of DRAMs, a change in product mix
possibly resulting from a large order or series of orders for a particular
product or a change in customer mix.
Engineering and development costs in fiscal 2004's third quarter and nine
months were $317,000 and $963,000, respectively, versus $375,000 and
$1,156,000 for the same prior year periods. The decrease in expense is
primarily attributable to the reduced number of employees as a result of the
restructurings implemented in the prior fiscal year. The Company intends to
maintain its commitment to the timely introduction of new memory products as
new computers are introduced.
Selling, general and administrative costs in fiscal 2004's third quarter and
nine months decreased to 19% and 21% of revenues, respectively versus 34% and
32% for the same prior year periods. Third quarter and nine month total
expenditures decreased by $1,162,000 and $4,110,000 from the comparable prior
year periods. The reduction of total expenses is primarily the result of the
aforementioned restructurings.
Total other income (expense), net for the third quarter and nine months
totaled $95,000 and $152,000, respectively, for fiscal 2004 and ($2,000) and
($56,000) for the same respective periods in fiscal 2003. Other income in
fiscal 2004's third quarter consisted primarily of foreign currency gains of
$62,000. Other income in fiscal 2004's nine months consisted primarily of
foreign currency gains of $71,000. Fiscal 2003's three and nine months other
income (expense), net consisted of interest expense of ($9,000) and ($84,000)
partially offset by interest income of $7,000 and $28,000. The Company had no
interest expense in the third quarter and nine months of fiscal 2004 as it had
no debt.
Income tax provision (benefit) for fiscal 2004's third quarter and nine months
was $73,000 versus ($453,000) and ($1,017,000) benefit in the comparable prior
year periods. Fiscal 2004's income tax provision is primarily for state income
taxes as the Company has a net operating loss carry forward of approximately
$16.0 million which can be used to offset future taxable income for federal
income tax.
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, 2003, the Company believes the following
accounting policies to be critical:
Revenue Recognition-Revenue is recognized upon shipment of goods to customers.
The Company's revenue earning activities involve delivering or producing
goods, and revenues are considered to be earned when the Company has completed
the process by which it is entitled to such revenues. The following criteria
are used for revenue recognition: persuasive evidence of an arrangement
exists, delivery has occurred, selling price is fixed or determinable and
collection is reasonably assured. Estimated warranty costs are accrued by
management upon product shipment based on an estimate of future warranty
claims.
Income Taxes-The Company utilizes the asset and liability method of accounting
for income taxes in accordance with the provisions of SFAS No. 109,
"Accounting for Income Taxes". Under the asset and liability method of SFAS
No. 109, deferred tax assets and liabilities are recognized for the estimated
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. 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. The Company's
accounting policies are described in Note 1 to the notes to the April 30, 2003
Consolidated Financial Statements filed on the Company's most recent Form 10-K
and there have been no material changes to such policies.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company does not invest in market risk sensitive instruments. The
Company's investments during the past fiscal year have consisted of overnight
deposits with banks. The Company's rate of return on its investment portfolio
changes with short-term interest rates, although such changes will not effect
the value of its portfolio. The Company's objectives 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 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. The Company also incurs expenses in these same currencies,
primarily payroll and facilities costs which hedge these assets. At present,
the Company does not purchase forward contracts as hedging instruments, but
intends to do so as circumstances warrant.
ITEM 4. CONTROLS AND PROCEDURES
During the period covered by this interim report, the Company's chief
executive officer and its chief financial officer have evaluated the
effectiveness of the Company's disclosure controls and procedures and have
determined that they are adequate to insure a fair presentation, in all
material respects, of the financial position, results of operations and
statements of cash flows of the Company and there have been no material
changes to such controls and procedures.
PART II: OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
31(a) Certification of Robert V. Tarantino.
31(b) Certification of Mark E. Maddocks
32(a) Section 906 Certification of Robert V. Tarantino (furnished not filed)
32(b) Section 906 Certification of Mark E. Maddocks (furnished not filed)
B. Reports on Form 8-K
Report filed on February 18, 2004 regarding Company's operating results
for the Third Quarter, Fiscal Year 2004.
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
Date: March 10, 2004 By: MARK E. MADDOCKS
_____________________
Mark E. Maddocks
Vice President, Finance
(Principal Financial Officer)