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Dataram Corp. Reports Operating Results (10-Q)

March 13, 2009 | About:
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Dataram Corp. (DRAM) filed Quarterly Report for the period ended 2009-01-31.

Dataram Corp. is a worldwide leader in the design and manufacture of high capacity reliable and innovative memory solutions. With over thirty nine years of experience Dataram provides customized memory solutions for OEMs and compatible memory for leading brands including HP Dell IBM SGI Sun Microsystems and Intel. Dataram provides a full line of compatible memory products for leading manufacturers including HP memory upgrades IBM server memory SGI memory upgrades Sun memory upgrades Dell server memory Intel and AMD Opteron memory . Dataram engineers many groundbreaking memory upgrades that double capacity and are not available from the manufacturers. Dataram Corp. has a market cap of $11.4 million; its shares were traded at around $1.28 with and P/S ratio of 0.3.

Highlight of Business Operations:

During the first nine months of fiscal year 2009, net cash used in operating

activities totaled approximately $1,998,000. Net loss in the nine-month

period was approximately $2,022,000. Deferred income taxes increased by

$1,328,000 and accounts payable decreased by $1,140,000. Cash used in

operating activities was partially offset by a decrease in accounts

receivable of approximately $1,283,000 and by a decrease in inventory of

approximately $344,000. Depreciation expense of approximately $263,000 and

non-cash stock-based expense of approximately $515,000 were also recorded.



Research and development expense in fiscal 2009's third quarter and nine

months were $574,000 and $1,041,000, respectively, versus nil in the same

prior year periods. In the current fiscal year, the Company has implemented

a strategy to introduce new and complementary products into its offerings

portfolio. The Company is currently focusing on the development of certain

high performance storage products. As part of that strategy, in January,

2009, the Company entered into a software purchase and license agreement

with another company whereby the Company has the exclusive right to purchase

specified software for a price of $900,000 plus a contingent payment of

$100,000. Third quarter research and development expense includes $300,000

of expense related to a payment for the software purchase and license. The

software and the storage product, which incorporates the software is

currently under development and is not deemed saleable at the present time.

Should the Company elect to continue with the development project, the

Company must make two additional $300,000 payments no later than six and

twelve months, respectively from the date of the agreement, at which point

the Company will own the software.



Selling, general and administrative (S,G&A) expense in fiscal 2009's third

quarter and nine months increased by $522,000 and $1,605,000 respectively,

from the comparable prior year periods. Current year third quarter expense

includes $180,000 of severance expense for a terminated employee.

Additionally, the Company's bad debt and sales returns and allowance expense

is approximately $96,000 higher in this year's third quarter when compared

to the prior year third quarter. This is primarily due to management's

assessment of the increased inherent risk in carrying accounts receivable in

the current economic environment. Stock based compensation expense is

approximately $72,000 higher in the third quarter of this fiscal year when

compared to the comparable prior year period. The balance of the year over

year third quarter increase consists primarily of increased sales and

marketing expenditures totaling approximately $174,000. Nine month S,G&A

expense includes a charge of approximately $716,000 related to a retirement

agreement entered into with the Company's former chief executive officer.

Of this amount, approximately $660,000 relates to payments defined in the

agreement and the balance consists primarily of legal fees incurred by the

Company associated with this matter. Stock-based compensation expense is

recorded as a component of S,G&A expense and totaled $138,000 and $394,000,

respectively, in the third quarter and nine months, compared to $66,000 and

$231,000 in the comparable prior year periods.



Other income, net for the third quarter and nine months totaled $92,000 and

$217,000, respectively, for fiscal 2009 and $233,000 and $681,000, for the

same respective periods in fiscal 2008. Other income in fiscal 2009's third

quarter consisted primarily of $86,000 of net interest income received.

Additionally, other income included $5,000 of foreign currency gain,

primarily as a result of the EURO strengthening relative to the US dollar.

Fiscal 2009's nine months other income consisted primarily of $276,000 of

net interest income received and $57,000 of foreign currency loss, primarily

as a result of the EURO weakening relative to the US dollar. Other income in

fiscal 2008's third quarter consisted primarily of $195,000 of net interest

income. Additionally, there was $39,000 of foreign currency gain, primarily

as a result of the EURO strengthening relative to the US dollar. Other

income in fiscal 2008's nine months consisted primarily of $597,000 of net

interest income. Additionally, there was $84,000 of foreign currency gain,

primarily as a result of the EURO strengthening relative to the US dollar.



Income tax expense (benefit) for the third quarter and nine months of fiscal

2009 was a benefit of $657,000 and $1,290,000 respectively, versus expense

of $214,000 and $780,000 for the same prior year periods. The Company's

effective tax rate for financial reporting purposes in fiscal 2009 is

approximately 38.8%. However, the Company has Federal NOL carry-forwards

totaling approximately $1.6 million and therefore will continue to make cash

payments for income taxes at an approximate rate of 8.0% of pretax earnings

until it utilizes all of its NOL carry-forwards.



Stock Option Expense - In December 2004, SFAS No. 123 (revised 2004),

"Share-Based Payment"("SFAS 123(R)") was issued. SFAS 123(R) revises

SFAS 123 and supersedes APB No. 25, "Accounting for Stock Issued to

Employees" ("APB 25"). SFAS 123, as originally issued in 1995, established

as preferable a fair value-based method of accounting for share-based

payment transactions with employees. However, SFAS 123 as amended permitted

entities the option of continuing to apply the intrinsic value method under

APB 25 that the Company had been using, as long as the footnotes to the

financial statements disclosed what net income would have been had the

preferable fair value-based method been used. SFAS 123(R) requires that the

compensation cost relating to all share-based payment transactions,

including employee stock options, be recognized in the historical financial

statements. That cost is measured based on the fair value of the equity or

liability instrument issued and amortized over the related service period.

The Company adopted the guidance in SFAS 123(R) effective May 1, 2006.

As such, the accompanying consolidated statement of operations for fiscal

2009's third quarter and nine months ended January 31, 2009 includes

approximately $138,000 and $394,000, of compensation expense, respectively,

in the selling, general and administrative expense line item related to the

fair value of options granted to employees and directors under the Company's

stock-based employee compensation plans which is being amortized over the

service period in the consolidated financial statements, as required by

SFAS 123(R). These awards have been classified as equity instruments, and as

such, a corresponding increase of approximately, $394,000 has been reflected

in additional paid-in capital in the accompanying consolidated balance sheet

as of January 31, 2009. Fiscal 2008's third quarter and nine months ended

January 31, 2008 includes approximately $66,000 and $231,000 of compensation

expense, respectively in the selling, general and administrative expense

line 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 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.



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