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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 1/31/05 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 7, 2005, there were 8,538,104 shares outstanding.
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Dataram Corporation and Subsidiaries
Consolidated Balance Sheets
January 31, 2005 and April 30, 2004
(Unaudited)
January 31, 2005 April 30, 2004
Assets
Current Assets:
Cash and cash equivalents $ 8,222,297 $ 6,805,957
Trade receivables, less allowance
for doubtful accounts and sales returns
of $315,000 in 2005 and $320,000 in 2004 7,926,703 8,846,605
Inventories 2,579,415 2,536,976
Deferred income taxes 723,000 723,000
Other current assets 179,991 91,766
__________ __________
Total current assets 19,631,406 19,004,304
Property and equipment, at cost:
Land (held for sale) 875,000 875,000
Machinery and equipment 12,227,203 11,933,987
__________ __________
13,102,203 12,808,987
Less: accumulated depreciation
and amortization 10,856,060 9,950,860
__________ __________
Net property and equipment 2,246,143 2,858,127
Other assets 53,815 50,011
__________ __________
$ 21,931,364 $ 21,912,442
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,698,692 $ 3,861,844
Accrued liabilities 606,094 1,646,499
__________ __________
Total current liabilities 2,304,786 5,508,343
Stockholders' Equity:
Common stock, par value $1.00 per share.
Authorized 54,000,000 shares; issued and
outstanding 8,655,554 at January 31, 2005
and 8,526,519 at April 30, 2004 8,655,554 8,526,519
Additional paid in capital 4,929,895 4,676,232
Retained earnings 6,041,129
3,201,348
__________ __________
Total stockholders' equity 19,626,578 16,404,099
__________ __________
$ 21,931,364 $ 21,912,442
========== ==========
See accompanying notes to consolidated financial statements.
Dataram Corporation and Subsidiary
Consolidated Statements of Operations
Three and Nine Months Ended January 31, 2005 and 2004
(Unaudited)
2005 2004
3rd Quarter Nine Months 3rd Quarter Nine Months
Revenues $ 14,430,691 $ 50,544,253 $ 17,130,972 $ 42,035,623
Costs and expenses:
Cost of sales 11,420,244 38,977,019 12,923,357 31,373,409
Engineering and development 316,501 947,320 316,822 962,506
Selling, general and administrative 2,636,465 7,759,657 3,179,991 9,038,404
__________ __________ __________ __________
14,373,210 47,683,996 16,420,170 41,374,319
Earnings from operations 57,481 2,860,257 710,802 661,304
Interest income, net 18,404 52,113 7,079 15,285
Currency gain, net 55,938 49,411 62,208 70,792
Other income, net 25,000 75,000 25,257 66,259
__________ __________ __________ __________
Earnings before income taxes 156,823 3,036,781 805,346 813,640
Income tax provision 10,000 197,000 73,000 73,000
__________ __________ __________ __________
Net earnings $ 146,823 $ 2,839,781 $ 732,346 $ 740,640
========== ========== ========== ==========
Net earnings per share of common stock
Basic $ .02 $ .33 $ .09 $ .09
========== ========== ========== ==========
Diluted $ .02 $ .31 $ .08 $ .08
========== ========== ========== ==========
Weighted average number of common
shares outstanding
Basic 8,621,415 8,594,292 8,497,219 8,497,219
========== ========== ========= =========
Diluted 9,176,071 9,223,316 8,882,312 8,768,729
========== ========== ========= =========
See accompanying notes to consolidated financial statements.
Dataram Corporation and Subsidiaries
Consolidated Statements of Cash Flows
Nine Months Ended January 31, 2005 and 2004
(Unaudited)
2005 2004
Cash flows from operating activities:
Net earnings $ 2,839,781 $ 740,640
Adjustments to reconcile net earnings
to net cash provided by
operating activities:
Depreciation and amortization 937,000 1,409,268
Bad debt expense 14,692 23,913
Changes in assets and liabilities:
(Increase) decrease in trade receivables 905,210 (1,101,499)
Decrease in income tax receivable 0 3,137,983
Increase in inventories (42,439) (707,109)
Increase in other current assets (88,225) (90,177)
Increase in other assets (3,804) (25,885)
Increase (decrease)in accounts payable (2,163,152) 322,445
Decrease in accrued liabilities (1,040,405) (2,094,385)
Increase in deferred income taxes 0 (99,202)
__________ __________
Net cash provided by
operating activities 1,358,658 1,515,992
__________ __________
Cash flows from investing activities:
Additions to property and equipment (337,857) (97,978)
Proceeds from sales of property and equipment 12,841 18,175
__________ __________
Net cash used in investing activities (325,016) (79,803)
Cash flows from financing activities:
Proceeds from sale of common shares under
stock option plan 382,698 0
__________ __________
Net increase in cash and
cash equivalents 1,416,340 1,436,189
Cash and cash equivalents at
beginning of period 6,805,957 2,500,497
__________ __________
Cash and cash equivalents at
end of period $ 8,222,297 $ 3,936,686
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 15,030 $ 15,716
Income taxes $ 416,087 $ 2,250
See accompanying notes to consolidated financial statements.
Notes to Consolidated Financial Statements
January 31, 2005 and 2004
(Unaudited)
Basis of Presentation
The information for the three and nine months ended January 31, 2005 and 2004,
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, 2004
included in the Company's Annual Report on Form 10-K filed with the Securities
and Exchange Commission.
Earnings Per Common Share
Basic earnings per share is computed by dividing the net earnings 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,
2005 and 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.
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.
The following table illustrates the effect on net earnings and earnings 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,
----------------------- ----------------------
2005 2004 2005 2004
-------- -------- -------- --------
Net earnings as reported $ 146,823 $ 732,346 $ 2,839,781 $ 740,640
Deduct: Total stock-based
employee compensation expense
determined under fair value
based method for all awards,
net of related tax effects (201,877) (222,263) (552,843) (588,854)
----------- ----------- ----------- -
- ----------
Pro forma net earnings (loss) $ (55,054) $ 510,083 $ 2,286,938 $ 151,786
========== ========== =========== =========
Earnings (loss) per share:
Basic - as reported $ 0.02 $ 0.09 $ 0.33 $ 0.09
========== ========== =========== =========
Basic - pro forma $ (0.01) $ 0.06 $ 0.27 $ 0.02
========== ========== =========== =========
Diluted - as reported $ 0.02 $ 0.08 $ 0.31 $ 0.08
========== ========== =========== =========
Diluted - pro forma $ (0.01) $ 0.06 $ 0.25 $ 0.02
========== ========== =========== =========
Cash and cash equivalents
Cash and cash equivalents consist of unrestricted cash, money market accounts
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, 2005 and April
30, 2004 consist of the following categories:
January 31, 2005 April 30, 2004
________________ ______________
Raw material $ 1,564,000 $ 1,302,000
Work in process 68,000 102,000
Finished goods 947,000 1,133,000
________________ ______________
$ 2,579,000 $ 2,537,000
================ ==============
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. Revenues for the
three and nine month periods ended January 31, 2005 and 2004 by geographic
region is as follows:
Three months ended Nine months ended
January 31, 2005 January 31, 2005
________________ ________________
United States $ 10,906,000 $ 39,520,000
Europe 2,158,000 6,820,000
Other (prinicipally Asia Pacific Region) 1,367,000 4,204,000
________________ ________________
Consolidated $ 14,431,000 $ 50,544,000
================ ================
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
================ ================
Long-lived assets (which consist of property and equipment) and total assets
by geographic region as of January 31, 2005 and April 30, 2004 are as follows:
January 31, 2005
Long-lived assets Total assets
_________________ ______________
United States $ 2,246,000 $ 21,606,000
Europe 0 295,000
Other 0 30,000
_________________ ______________
Consolidated $ 2,246,000 $ 21,931,000
================= ==============
April 30, 2004
_________________ ______________
United States $ 2,811,000 $ 20,963,000
Europe 47,000 949,000
Other 0 0
_________________ ______________
Consolidated $ 2,858,000 $ 21,912,000
================= ==============
Significant New Accounting Pronouncements
In December, 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 123 (revised 2004),
"Share-Based Payment" ("SFAS 123R"). SFAS 123R addresses the accounting for
transactions in which an enterprise receives employee services in exchange for
(a) equity instrumnets of the enterprise or (b) liabilities that are based on
the fair value of the enterprise's equity instruments or that may be settled
by the issuance of such equity instruments. SFAS 123R supersedes APB No. 25
and requires that such transactions be accounted for using a fair-value based
method. SFAS 123R requires companies to recognize an expenses for compensation
cost related to share-based payment arrangements, including stock options and
employee stock purchase plans. The Company is required to implement the
proposed standard no later than August 1, 2005. The Company is currently
evaluating option valuation methodologies and assumptions related to its stock
compensation plans.
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs, an amendment
of ARB No. 43, Chapter 4. SFAS 151, amends ARB 43, Chapter 4, to clarify that
abnormal amounts of idle facility expense, freight, handling costs, and wasted
material (spoilage) should be recognized as current-period charges. In
addition, this Statement requires that allocation of fixed production
overheads to the cost of conversion be based on the normal capacity of the
production facilities. The provisions of this Statement shall be effective
for the Company beginning May 1, 2006. The Company does not believe that this
statement will have a material effect on the Company's 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. In the third
quarter and nine months ended January 31, 2005, sales to one customer
accounted for approximately 28% and 36% of revenues, respectively. For the
comparable prior year periods, sales to the same customer accounted for
approximately 21% and 15% of revenues, respectively. The same customer
accounted for approximately 36% of accounts receivable at January 31, 2005.
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 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, Hewlett-Packard, IBM, Silicon Graphics and Sun
Microsystems. The Company also manufactures a line of memory products for AMD
and Intel motherboard based servers for sale to OEMs and channel assemblers.
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, 2005 cash and cash equivalents amounted to $8.2 million and
working capital amounted to $17.3 million, reflecting a current ratio of 8.5
compared to cash and cash equivalents of $6.8 million and working capital of
$13.5 million and a current ratio of 3.5 as of April 30, 2004.
During the first nine months of fiscal year 2005, net cash provided by
operating activities was $1,359,000. Net earnings for the first nine months of
this fiscal year was approximately $2,840,000. Year to date depreciation was
$937,000, and accounts receivable decreased by approximately $905,000 from
year-end levels. This decrease was mainly the result of the decrease in
shipping levels in January. Partially offsetting these increases of cash was a
decrease in accounts payable of approximately $2,163,000 from year-end levels
which is primarily attributable to reduced levels of raw material purchases.
Accrued liabilities also decreased by approximately $1,040,000 from year-end
levels. This decrease was primarily due to a non-recurring royalty payment
made in the first quarter of the current fiscal year which was accrued in the
prior fiscal year totalling approximately $660,000.
Net cash used in investing activities of approximately $325,000 for the
nine months ended Janaury 31, 2005, primarily consists of capital expenditures
substantially related to the acquisition of production testing equipment.
Net cash provided from financing activities of approximately $383,000 for
the nine months ended January 31, 2005, relates to the exercise of stock
options.
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, 2005,
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 2005, but has resumed share repurchasing in the fourth
quarter of the current fiscal year. Through March 7, 2005, the Company has
repurchased 117,450 shares at a total cost of approximately $578,000.
On June 21, 2004 the Company entered into a Loan Agreement with a Bank
which lasts until June 21, 2006. The Company has not as of this date borrowed
any money under this Agreement. Pursuant to the Agreement, the Company can
borrow up to 75% of qualified accounts receivables (generally consisting of
U.S. and Canadian accounts receivable less than 90 days old) up to a maximum
amount of $5,000,000. At the election of the Company, the interest rate is
the bank's prime rate or LIBOR plus 2.5%. As security for any loans made
under this Agreement, the Company has given a security interest in all of its
personal property, including its accounts. Without the consent of the bank,
the Company may not pay dividends nor expend more than $1,000,000 a year in
repurchasing its common stock. The Company pays an annual commitment fee of
..25% on the unused line.
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 was amended on
October 20, 2004. The amendment extended the term of the agreement to
September 29, 2005. The agreement, as amended, provides for closing to occur
no later than September 29, 2005. 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 consummation 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, 2004
are as follows:
Operating leases
Year ending April 30: ________________
2005 $ 531,000
2006 463,000
2007 48,000
Thereafter 0
Total minimum lease payments $ 1,042,000
The Company has no other material commitments.
Results of Operations
Revenues for the three month period ending January 31, 2005 were
$14,431,000 compared to revenues of $17,131,000 for the comparable prior year
period. Fiscal 2005 nine month revenues totaled $50,544,000 versus nine month
revenues of $42,036,000 in the prior year. Volume measured as gigabytes
shipped decreased 15% for the third quarter of fiscal 2005 as compared to the
same prior year quarter. The decrease in volume in the third quarter was
primarily the result of a lack of large project opportunities. Nine month
volume increased 23% in fiscal 2005 as compared to the same prior year period
as the first six months of the current fiscal year had significant volume
increases from large project opportunities. Average selling price per gigabyte
was primarily unchanged in fiscal 2005's third quarter compared to the prior
year period. Average selling prices for the Company's products in this year's
first nine months have declined by approximately 3% from the comparable prior
year period. The decrease in average selling price was the result of product
mix. Revenues for the three and nine month periods ended January 31, 2005 and
2004 by geographic region were:
Three months ended Nine months ended
January 31, 2005 January 31, 2005
________________ ________________
United States $ 10,906,000 $ 39,520,000
Europe 2,158,000
6,820,000
Other (prinicipally Asia Pacific Region) 1,367,000
4,204,000
________________ ________________
Consolidated $ 14,431,000 $ 50,544,000
================ ================
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
================ ================
Cost of sales for the third quarter and nine months of the current fiscal year
were 79% and 77% of revenues, respectively, versus 75% for the same prior year
periods. Gross margins for memory sales to OEM customers, which are generally
lower than compatible memory product margins, were approximately 18% in the
third quarter in the current fiscal year. This percentage was lower than
normal because of lower factory utilization due to reduced sales volume.
Engineering and development costs in fiscal 2005's third quarter and nine
months were $317,000 and $947,000, respectively, versus $317,000 and $963,000
for the same 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 costs in fiscal 2005's third quarter
and nine months was 18% and 15% of revenues, respectively versus 19% and 22%
for the same prior year periods. Third quarter and nine month total
expenditures decreased by $544,000 and $1,278,000 from the comparable prior
year periods. This reduction in expense is primarily the result of reduced
salary and employee related costs due to reduced workforce. Additionally,
depreciation and amortization expense included in selling, general and
administrative costs for the third quarter and nine months of the current
fiscal year is lower by $131,000 and $334,000, respectively from the
comparable prior year periods.
Other income (expense), net for the third quarter and nine months totaled
$99,000 and $177,000, respectively, for fiscal 2005 and $94,000 and $152,000
for the same respective periods in fiscal 2004. Other income in fiscal 2005's
third quarter consisted primarily of foreign currency gains of $56,000 and a
$25,000 scheduled non-refundable payment released from escrow related to the
pending sale of the Company's land. Other income in fiscal 2005's nine months
consisted primarily of foreign currency gains of $49,000 and $52,000 of
interest income, and $75,000 total payments related to the Company's pending
land sale. Other income (expense), net in fiscal 2004's nine months consisted
of foreign currency gains of $71,000 and $50,000 related to the Company's
pending land sale. The Company also recorded approximately $15,000 in interest
income in the prior year period. The Company had no interest expense in the
third quarter and nine months of fiscal 2005 as it had no debt.
Income tax provision for fiscal 2005's third quarter and nine months was
$10,000 and $197,000 versus $73,000 and nil in the comparable prior year
periods. Fiscal 2005's income tax provision is primarily a provision for state
tax only as the Company has a net operating loss carry forward of
approximately $14.0 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, 2004, 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. Charges for sales returns and other allowances are recognized as a
deduction from revenue on an accrual basis. The accrual for sales returns and
other allowances is based on the Company's history. Historically, sales
returns have not been material.
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.
The Company must assess the likelihood that the gross deferred tax assets, net
will be recovered from future taxable income and to the extent that we judge
that recovery is not more likely than not, we have established a valuation
allowance. Significant management judgement is required in determining this
valuation allowance. We have recorded a valuation allowance of approximately
$3,777,000 as of April 30, 2004. The valuation allowance is based on our
estimates of taxable income and the period over which the net deferred tax
assets will be recoverable. Conversely, if certain future events cause
management to conclude that it is more likely than not that we will recognize
all or a portion of the net deferred tax assets, for which a valuation
allowance has been recorded, we would record the estimated net realizable
value of the net deferred tax asset at that time and would then recognize
income tax expense at a rate equal to our combined Federal and State effective
tax rate of approximately 37%. The Company's continued profitability may
result in an adjustment to the valuation allowance.
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 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 (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 may 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 changes that
have materially affected, or are reasonably likely to materially affect, the
registrant's internal control over financial reporting.
PART II: OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On December 5, 2004, Mr. Richard Holzman, a member of the Company's Board
of Directors, passed away. Mr. Holzman also served as a member of the Board of
Director's Audit Committee, Compensation and Stock Option Committee and
Nominating Committee. Mr. Holzman had been a Director since 1978.
ITEM 6. EXHIBITS
A. Exhibits
31(a) Rule 13a-14a(a) Certification of Robert V. Tarantino.
31(b) Rule 13a-14a(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 10, 2005 By: ______________________________
Mark E. Maddocks
Vice President, Finance
(Principal Financial Officer)