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Dataram Corp. Reports Operating Results (10-Q)

December 14, 2009 | About:
10qk

10qk

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Dataram Corp. (DRAM) filed Quarterly Report for the period ended 2009-10-31.

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 $29.36 million; its shares were traded at around $3.31 with and P/S ratio of 1.13.

Highlight of Business Operations:

During the first six months of fiscal 2010, net cash used in operating

activities totaled approximately $7,408,000. Net loss in the period was

approximately $2,594,000. Inventories increased by approximately $3,387,000.

In the first six months ended October 31, 2009, the MMB business unit

described in Note 2 increased their inventory levels by approximately

$1,900,000 to properly support normal sales levels. At April 30, 2009, the

MMB business unit inventory totaled approximately $170,000. Inventory was

maintained at an unsustainably low level during the first month subsequent

to the acquisition as part of the Company's transition and integration plan.

The balance of the inventories increase was primarily the result of

management's decision to purchase inventories at favorable pricing levels.

Accounts receivable increased by approximately $1,665,000, primarily as a

result of increased revenues. Deferred income taxes increased by

$1,690,000 and accrued liabilities decreased by approximately $65,000.

Cash used in operating activities was partially offset by an increase in

accounts payable of approximately $1,111,000. Depreciation and

amortization expense of approximately $604,000 and non-cash stock-based

expense of approximately $380,000 were also recorded.



Revenues for the three month period ended October 31, 2009 were $10,673,000

compared to revenues of $7,059,000 for the comparable prior year period. The

recently acquired MMB business unit described in Note 2 generated revenues

of approximately $3,587,000 in 2010's fiscal second quarter and nil in the

comparable prior year period. Revenues for the first six months of the

current fiscal year were $19,863,000 compared to revenues of $14,622,000 for

the comparable prior year period. The MMB business unit generated revenues

of approximately $6,499,000 in fiscal 2010's first six months and nil in the

comparable prior year period.



Research and development expense in fiscal 2010's second quarter and six

months were $1,621,000 and $2,495,000, respectively, versus $254,000 and

$466,000 in the same prior year periods. In the first quarter of the prior

fiscal year, the Company 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 (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.

Fiscal 2010's research and development expense includes $600,000 of expense

related to the Agreement, of which $300,000 was expensed in the first

fiscal quarter and $300,000 was expensed in the second fiscal quarter. The

Company now owns the software. The software and the storage product, which

incorporates the software, are currently under development and are not

deemed saleable at the present time. We expect to make further investments

in this area.



Selling, general and administrative (S,G&A) expense in fiscal 2010's second

quarter and six months increased by $1,002,000 and $867,000 respectively,

from the comparable prior year periods. The acquired MMB business unit's

S,G&A expense recorded in fiscal 2010's second quarter and six months was

approximately $572,000 and $1,180,000, respectively, versus nil in the

comparable prior year periods. The prior fiscal year's first quarter

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

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

Stock-based compensation expense is recorded as a component of S,G&A

expense and totaled approximately $225,000 and $380,000, respectively,

versus $130,000 and $256,000, respectively, for the comparable prior year

periods. The Company recorded second quarter and year to date marketing

and sales expense related to our new storage products of approximately

$260,000 and $358,000 respectively, versus nil in the comparable prior year

periods. These expenses are mainly related to the acquisition of sales and

sales engineers for the storage products.



Other income (expense), net for the second quarter and six months totaled

$12,000 of expense and $22,000 income, respectively, for fiscal 2010 and

income of $16,000 and $125,000, for the same respective periods in fiscal

2009. Other expense in fiscal 2010's second quarter consisted primarily of

$19,000 of foreign currency transaction losses, primarily as a result of the

EURO weakening relative to the US dollar. There was also approximately

$10,000 of other income recorded related to a gain on an asset disposal.

Six month other income of $22,000 consisted primarily of $7,000 of net

interest income and $5,000 of foreign currency transaction gains, primarily

as a result of the EURO strengthening relative to the US dollar, and the

aforementioned gain on asset disposal. Other income in fiscal 2009's second

quarter consisted primarily of $79,000 of net interest income received,

offset by $63,000 of foreign currency loss, primarily as a result of the

EURO weakening relative to the US dollar. Fiscal 2009's six months other

income consisted primarily of $188,000 of net interest income received and

$63,000 of foreign currency loss, primarily as a result of the EURO

weakening relative to the US dollar.



Income tax benefit for the second quarter and six months of fiscal 2010 was

a benefit of $1,042,000 and $1,670,000, respectively, versus benefit of

$248,000 and $633,000 for the same prior year periods. The Company's

effective tax rate for financial reporting purposes in fiscal 2010 is

approximately 39.2%. The Company has Federal and State net operating loss

(NOL) carry-forwards of approximately $5.6 million and $4.0 million,

respectively. These can be used to offset future taxable income and expire

between 2023 and 2029 for Federal tax purposes and 2016 and 2029 for state

tax purposes.



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