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, 2006 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 As of March 2, 2006, there were 8,481,396 shares outstanding of the Company's Common Stock, $1.00 par value. PART I - FINANCIAL INFORMATION Item 1. Financial Statements Dataram Corporation and Subsidiaries Consolidated Balance Sheets January 31, 2006 and April 30, 2005 (Unaudited) January 31, 2006 April 30, 2005 Assets Current assets: Cash and cash equivalents $ 14,979,088 $ 9,281,520 Trade receivables, less allowance for doubtful accounts and sales returns of $300,000 in 2006 and $325,000 in 2005 4,171,068 8,396,757 Inventories 1,873,695 2,368,733 Note receivable 1,537,500 0 Deferred income taxes 1,461,865 3,257,865 Other current assets 147,770 130,212 __________ __________ Total current assets 24,170,986 23,435,087 Deferred income taxes 1,130,000 630,000 Property and equipment, at cost: Land (held for sale) 0 875,000 Machinery and equipment 12,430,422 12,205,586 __________ __________ 12,430,422 13,080,586 Less: accumulated depreciation and amortization 11,665,599 11,052,145 __________ __________ Net property and equipment 764,823 2,028,441 Other assets 104,988 53,815 __________ __________ $ 26,170,797 $ 26,147,343 ========== ========== Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 1,421,648 $ 2,527,594 Accrued liabilities 833,240 1,438,101 __________ __________ Total current liabilities 2,254,888 3,965,695 Stockholders' equity: Common stock, par value $1.00 per share. Authorized 54,000,000 shares; issued and outstanding 8,475,396 at January 31, 2006 and 8,361,500 at April 30, 2005 8,475,396 8,361,500 Additional paid-in capital 4,881,832 4,566,188 Retained earnings 10,558,681 9,253,960 __________ __________ Total stockholders' equity 23,915,909 22,181,648 __________ __________ $ 26,170,797 $ 26,147,343 ========== ========== See accompanying notes to consolidated financial statements. Dataram Corporation and Subsidiaries Consolidated Statements of Earnings Three and Nine Months Ended January 31, 2006 and 2005 (Unaudited) 2006 2005 Three Months Nine Months Three Months Nine Months Revenues $ 9,219,857 $ 33,021,732 $ 14,430,691 $ 50,544,253 Costs and expenses: Cost of sales 6,520,192 23,152,178 11,420,244 38,977,019 Engineering and development 287,076 846,499 316,501 947,320 Selling, general and administrative 2,175,125 6,950,143 2,636,465 7,759,657 __________ __________ __________ __________ 8,982,393 30,948,820 14,373,210 47,683,996 Earnings from operations 237,464 2,072,912 57,481 2,860,257 Interest income 140,576 278,939 18,404 52,113 Currency gain (loss) (25,587) (70,856) 55,938 49,411 Other income 1,915,473 2,041,473 25,000 75,000 __________ __________ __________ __________ Total other income 2,030,462 2,249,556 99,342 176,524 Earnings before income taxes 2,267,926 4,322,468 156,823 3,036,781 Income tax provision 863,000 1,634,000 10,000 197,000 __________ __________ __________ __________ Net earnings $ 1,404,926 $ 2,688,468 $ 146,823 $ 2,839,781 ========== ========== ========== ========== Net earnings per share of common stock: Basic $ .17 $ .32 $ .02 $ .33 ========== ========== ========== ========== Diluted $ .16 $ .30 $ .02 $ .31 ========== ========== ========== ========== Dividends per common share $ .05 $ .15 $ .00 $ .00 ========== ========== ========== ========== See accompanying notes to consolidated financial statements.
Dataram Corporation and Subsidiaries Consolidated Statements of Cash Flows Nine Months Ended January 31, 2006 and 2005 (Unaudited) 2006 2005 Cash flows from operating activities: Net earnings $ 2,688,468 $ 2,839,781 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 630,000 937,000 Bad debt expense (recovery) (86,634) 14,692 Gain on sale of land (1,915,473) 0 Deferred income tax expense 1,296,000 0 Changes in assets and liabilities: Decrease in trade receivables 4,312,323 905,210 Decrease (increase) in inventories 495,038 (42,439) Increase in other current assets (17,558) (88,225) Increase in other assets (51,173) (3,804) Decrease in accounts payable (1,105,946) (2,163,152) Decrease in accrued liabilities (604,861) (1,040,405) __________ __________ Net cash provided by operating activities 5,640,184 1,358,658 __________ __________ Cash flows from investing activities: Additions to property and equipment (241,382) (337,857) Proceeds from sales of property and equipment 1,252,973 12,841 __________ __________ Net cash provided by (used in) investing activities 1,011,591 (325,016) Cash flows from financing activities: Proceeds from sale of common shares under stock option plan(including tax benefits) 539,865 382,698 Purchase and subsequent cancellation of common stock (229,859) 0 Dividends paid (1,264,213) 0 __________ __________ Net cash provided by (used in) financing (954,207) 382,698 activities __________ __________ Net increase in cash and cash equivalents 5,697,568 1,416,340 Cash and cash equivalents at beginning of period 9,281,520 6,805,957 __________ __________ Cash and cash equivalents at end of period $14,979,088 $ 8,222,297 ========== ========== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 20,455 $ 15,030 Income taxes $ 263,000 $ 416,087 See accompanying notes to consolidated financial statements. Notes to Consolidated Financial Statements January 31, 2006 and 2005 (Unaudited) (1) Basis of Presentation The information for the three and nine months ended January 31, 2006 and 2005, 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, 2005 included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission. (2) Summary of Significant Accounting Policies 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, 2006 and January 31, 2005, 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). The following presents a reconciliation of the numerator and denominator used in computing Basic and Diluted net earnings per share for the three and nine month periods for fiscal 2006 and 2005. Three Months ended January 31, 2006 Earnings Shares Per share (numerator) (denominator) amount _________ ___________ _________ Basic net earnings per share - -net earnings and weighted average common shares outstanding $1,404,926 8,472,054 $ .17 Effect of dilutive securities - -stock options - 358,642 .01 _______ _________ ______ Diluted net earnings per share - -net earnings, weighted average common shares outstanding and effect of stock options $1,404,926 8,830,696 $ .16 ======== ========= ====== Three Months ended January 31, 2005 Earnings Shares Per share (numerator) (denominator) amount _________ ___________ _________ Basic net earnings per share - -net earnings and weighted average common shares outstanding $ 146,823 8,621,415 $ .02 Effect of dilutive securities - -stock options - 554,656 - _______ _________ ______ Diluted net earnings per share - -net earnings, weighted average common shares outstanding and effect of stock options $ 146,823 9,176,071 $ .02 ========= ========= ====== Diluted net earnings per share does not include the effect of options to purchase 572,900 shares of common stock for the three months ended January 31, 2006 because they are anti-dilutive. Diluted net earnings per share does not include the effect of options to purchase 444,700 shares of common stock for the three months ended January 31, 2005 because they are anti-dilutive. Nine Months ended January 31, 2006 Earnings Shares Per share (numerator) (denominator) amount _________ ___________ _________ Basic net earnings per share - -net earnings and weighted average common shares outstanding $2,688,468 8,431,481 $ .32 Effect of dilutive securities - -stock options - 393,580 .02 _______ _________ ______ Diluted net earnings per share - -net earnings, weighted average common shares outstanding and effect of stock options $2,688,468 8,825,061 $ .30 ========= ========= ====== Nine Months ended January 31, 2005 Earnings Shares Per share (numerator) (denominator) amount _________ ___________ _________ Basic net earnings per share - -net earnings and weighted average common shares outstanding $2,839,781 8,594,292 $ .33 Effect of dilutive securities - -stock options - 629,024 .02 _______ _________ ______ Diluted net earnings per share - -net earnings, weighted average common shares outstanding and effect of stock options $2,839,781 9,223,316 $ .31 ========= ========= ====== Diluted net earnings per share does not include the effect of options to purchase 572,900 shares of common stock for the nine months ended January 31, 2006 because they are anti-dilutive. Diluted net earnings per share does not include the effect of options to purchase 366,037 shares of common stock for the nine months ended January 31, 2005 because they are anti-dilutive. Dividends On May 31, 2005 the Company's Board of Directors approved the initiation of a common stock quarterly cash dividend program. Cash dividends paid in the three and nine months ended January 31, 2006 were $423,557 and $1,264,213, respectively. No cash dividends were paid during the three and nine months ended January 31, 2005. Each of the cash dividends paid in the current fiscal year were paid at the rate of $0.05 per share. On February 27, 2006, the Board of Directors declared another $0.06 per share cash dividend, payable on March 22, 2006 to shareholders of record as of March 9, 2006. Common Stock Repurchases During the three months ended July 31, 2005 the Company repurchased 51,450 shares of common stock at a cost of $229,859 and zero shares were repurchased in the subsequent six months period ended January 31, 2006. Shares were purchased pursuant to a repurchase authorization announced on December 4, 2002 pursuant to which the Company was authorized to repurchase a total of 500,000 shares of its common stock. As of January 31, 2006, 172,196 shares remain available for repurchase under the plan. This repurchase program does not have an expiration date. 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" and related interpretations. 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 earnings, 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 pro forma 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, ------------------- ------------------- 2006 2005 2006 2005 -------- -------- --------- ---------- Net earnings as reported $1,404,926 $146,823 $2,688,468 $2,839,781 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (129,555) (201,877) (443,546) (552,843) ----------- -------- ---------- ---------- Pro forma net earnings (loss) $ 1,275,371 $(55,054) $2,244,922 $2,286,938 =========== ======== ========== ========== Earnings (loss) per share: Basic - as reported $ 0.17 $ 0.02 $ 0.32 $ 0.33 =========== ======= ========== ========== Basic - pro forma $ 0.15 $ (0.01) $ 0.27 $ 0.27 =========== ======= ========== ========== Diluted - as reported $ 0.16 $ 0.02 $ 0.30 $ 0.31 =========== ======= ========== ========== Diluted - pro forma $ 0.14 $ (0.01) $ 0.25 $ 0.25 =========== ======== ========== ========== 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. (3) 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, 2006 and April 30, 2005 consist of the following categories: January 31, 2006 April 30, 2005 ________________ ______________ Raw material $ 1,145,000 $ 1,136,000 Work in process 160,000 77,000 Finished goods 569,000 1,156,000 ________________ ______________ $ 1,874,000 $ 2,369,000 ================ ============== (4) Note receivable/Other income On July 29, 2002, the Company entered into an agreement to sell its undeveloped land for a price of $3,000,000. The agreement was amended on October 20, 2004. The amendment extended the term of the agreement to September 29, 2005. The agreement was further amended on September 29, 2005. The amendment extended the term of the agreement to March 29, 2006 and the purchase price was amended to $3,150,000. The increase in purchase price was subject to pro rata reduction if a closing occurred prior to March 29, 2006. On December 29, 2005, this sale closed. The purchase price was $3,075,000 of which half, or $1,537,500 was paid in the form of a one-year mortgage which accrues interest at 5% per annum. Of the remainder, $250,000 had been previously paid as deposits and $1,287,500 was received at closing in cash. Prior to the closing, the land had been carried at cost on the Company's balance sheet at a value of $875,000 and was shown as an asset held for sale. (5)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, 2006 and 2005 by geographic region is as follows: Three months ended Nine months ended January 31, 2006 January 31, 2006 ________________ ________________ United States $ 5,825,000 $ 23,152,000 Europe 2,042,000 6,813,000 Other (principally Asia Pacific Region) 1,353,000 3,057,000 ________________ ________________ Consolidated $ 9,220,000 $ 33,022,000 ================ ================ 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 (principally Asia Pacific Region) 1,367,000 4,204,000 ________________ ________________ Consolidated $ 14,431,000 $ 50,544,000 ================ ================ Long-lived assets (which consist of property and equipment) and total assets by geographic region as of January 31, 2006 is as follows: January 31, 2006 Long-lived assets Total assets _________________ ______________ United States $ 871,000 $ 25,880,000 Europe 0 270,000 Other 0 21,000 _________________ ______________ Consolidated $ 871,000 $ 26,171,000 ================= ============== (6) Significant New Accounting Pronouncements In December, 2004, the Financial Accounting Standards Board (FASB) issued 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 instruments 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 expense 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 May 1, 2006. 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 Accounting Research Bulletin (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 are 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. (7) 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. (8) 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. 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 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 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, 2006, cash and equivalents amounted to $15.0 million and working capital amounted to $21.9 million, reflecting a current ratio of 10.7, compared to cash and equivalents of $9.3 million and working capital of $19.5 million and a current ratio of 5.9 as of April 30, 2005. During the first nine months of fiscal year 2006, net cash provided by operating activities totaled approximately $6.0 million. Net earnings in the first nine months of fiscal 2006 was approximately $2.7 million and depreciation expense was $630,000. Trade receivables also decreased by approximately $4.3 million from year-end levels, primarily resulting from reduced quarterly revenues. A deferred income tax provision of $1.3 million also contributed to the cash provided by operating activities. This is a result of the Company's first nine months federal income tax expense being offset by federal net operating loss (NOL) carry-forwards. The cash provided by these sources was partially offset by a decline in accounts payable and accrued liabilities of approximately $1.7 million primarily as result of a reduction in raw material related purchases. Net cash provided by investing activities of approximately $634,000 for the nine months ended January 31, 2006, consists of the sale of the Company's undeveloped land which had been recorded on the Company's balance sheet at cost, or $875,000, offset by capital expenditures substantially related to the acquisition of production testing equipment of $241,000. Net cash used in financing activities of approximately $954,000 for the nine months ended January 31, 2006, consists of approximately $1.3 million cash dividend payments and open market purchases of the Company's common stock totaling approximately $230,000, offset by approximately $540,000 of cash received from stock option exercises. 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 eighth of one percent per annum on the unused commitment. The agreement contains certain restrictive covenants, specifically a trailing twelve month profitability requirement, a current asset 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 Company is in compliance with all covenants of the agreement and there have been no borrowings against the credit line through January 31, 2006. The agreement expires on June 21, 2006. The Company intends to renew the agreement prior to the expiration date. Management believes that the Company's 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, 2005 are as follows: Operating leases Year ending April 30: ________________ 2006 $ 465,000 2007 48,000 2008 and thereafter 0 ______________ Total minimum lease payments $ 513,000 ============== On January 11, 2006 the Company entered into a new lease of its existing manufacturing and office space in Ivyland, Pennsylvania. The landlord is G.S. Developers, which is unaffiliated with the Company, the Company's officers and the Company's directors. This lease is for a five-year term commencing February 1, 2006. On January 13, 2006 the Company entered into an Addendum to a lease of its existing office space in West Windsor, New Jersey dated September 19, 2000. The landlord is WPD, L.L.C., which is unaffiliated with the Company, the Company's officers and the Company's directors. This Addendum renews the Company's lease for a five-year term commencing July 1, 2006 for a reduced area (15,200 sq. ft. versus 24,050 sq. ft.) and was entered into in lieu of exercising an existing option for the entire space. Additional future minimum lease payments under these noncancellable operating leases as of January 31, 2006 are as follows: Operating leases Year ending April 30: ________________ 2006 $ 52,000 2007 354,000 2008 389,000 2009 397,000 2010 404,000 Thereafter 394,000 ______________ Total minimum lease payments $ 1,990,000 ============== The Company has no other material commitments. 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 was further amended on September 29, 2005. The amendment extended the term of the agreement to March 29, 2006 and the purchase price was amended to $3.15 million. The increase in purchase price was subject to pro rata reduction if a closing occurred prior to March 29, 2006. On December 29, 2005, this sale closed. The purchase price was $3.075 million of which half, or $1.538 million, was paid in the form of a one-year mortgage which accrues interest at 5% per annum. Of the remainder, $250,000 had been previously paid as deposits and $1.288 million was received at closing in cash. Prior to the closing, the land had been carried at cost on the Company's balance sheet at a value of $875,000 and was shown as an asset held for sale. On December 4, 2002, the Company announced an open market repurchase plan providing for the repurchase of up to 500,000 shares of the Company's common stock. As of January 31, 2006, the total number of remaining shares authorized for purchase under the program is 172,196 shares. The Company purchased 51,450 shares during the first quarter of fiscal 2006 at a total cost of approximately $230,000. There were no shares purchased during the second and third quarter of fiscal 2006. Results of Operations Revenues for the three month period ended January 31, 2006 were $9,220,000 compared to revenues of $14,431,000 for the comparable prior year period. Fiscal 2006 nine month revenues totaled $33,022,000 versus nine month revenues of $50,544,000 in the prior year. The decrease in revenues is primarily attributable to a decrease in shipments to one OEM customer. Last year's fiscal third quarter and nine months included $4,061,000 and $18,156,000, respectively, of revenues from shipments to that customer compared to $13,000 and $3,050,000 for the comparable current year periods. Additionally, primarily as a result of declining DRAM prices, the Company's selling prices in fiscal 2006's third quarter and nine months decreased by approximately 21% and 17%, respectively, from the comparable prior year periods. Revenues for the three and nine month periods ended January 31, 2006 and 2005 by geographic region were: Three months ended Nine months ended January 31, 2006 January 31, 2006 ________________ ________________ United States $ 5,825,000 $ 23,152,000 Europe 2,042,000 6,813,000 Other (prinicipally Asia Pacific Region) 1,353,000 3,057,000 ________________ ________________ Consolidated $ 9,220,000 $ 33,022,000 ================ ================ 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 ================ ================ Cost of sales for the third quarter and nine months were 71% and 70% of revenues, respectively, versus 79% and 77% for the same prior year periods. Gross margins have been higher than the Company's historical norm of 25% and reflect a higher than normal shipment percentage of larger capacity memory. Large capacity memory usually commands higher gross margins. Also, 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, or 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 2006's third quarter and nine months were $287,000 and $846,000, respectively, versus $317,000 and $947,000 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 2006's third quarter and nine months decreased by $461,000 and $810,000 from the comparable prior year periods. Of these amounts, reduced depreciation and amortization expense account for $69,000 and $207,000, respectively of the three and nine month expense reductions. The balance and majority of the total expense reduction is primarily the result of decreased salary and employee related cost due to employee attrition. Other income (expense), for the third quarter and nine months of fiscal 2006 totaled $2,030,000 and $2,250,000, respectively, compared to $99,000 and $177,000 for the comparable periods in fiscal 2005. Other income in fiscal 2006's third quarter consisted primarily of $1,915,000 related to the sale of the Company's land, and interest income net of interest expense of $141,000. Other income in fiscal 2005's third quarter consisted primarily of foreign currency gains of $56,000 and a $25,000 scheduled non-refundable payments related to the sale of the Company's land. Other income in fiscal 2006's nine months consisted primarily of the aforementioned gain on sale of the land as well as an additional $125,000 of scheduled non-refundable payments related to the land sale received in the first half of the fiscal year. Current year nine month interest income net of interest expense is $279,000. Prior year nine month other income consisted primarily of foreign currency gains of $49,000, $52,000 of net interest income and $75,000 of payments related to the land sale. Income tax expense for the third quarter and nine months of fiscal 2006 were $863,000 and $1,634,000 respectively, verses $10,000 and $197,000 for the same prior year periods. The Company's effective tax rate for financial reporting purposes in fiscal 2006 is approximately 38%. However, the Company has federal NOL carryforwards totaling approximately $10.9 million and therefore will continue to make cash payments for income taxes at an approximate rate of 7% of pretax earnings until it utilizes all of its NOL carryforwards. During last fiscal year's third quarter and nine months the Company accrued 6.5% for state income taxes only as it had, at that time, a valuation allowance on its deferred income taxes. The Company reversed the valuation allowance in the fourth quarter of fiscal 2005. 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, 2005, 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. 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 that 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 The Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures as required by 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 controls over financial reporting during the quarter ended January 31, 2006 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. PART II - OTHER INFORMATION Item 1. Legal Procedings. On February 2, 2006 the United States District Court for the District of Arizona entered an Order of Dismissal dismissing all claims against Dataram Corporation in Lemelson Medical, Education & Research Foundation v. Broadcom Corporation, CV-01-1440 PHX (HRH). Item 1A. Risk Factors. No 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 Vote of Security Holders No reportable event. Item 5. Other Information. During the quarter, the Issuer amended its 2001 Stock Option Plan to conform with Section 409 of the Internal Revenue Code to delete a power that it has never used to grant options at an exercise price below the fair market value of the Company's common stock on the date of grant. Item 6. Exhibits Exhibit No. Description __________ ___________ 10(a) Addendum D to West Windsor Lease (Incorporated by reference to Exhibit 10 to a Current Report on Form 8-K filed on February 14, 2006). 10(b) Ivyland Lease (Incorporated by reference to Exhibit 10 to a Current Report on Form 8-K filed on January 26, 2006). 10(c) Stock Option Plan Amendment No. 1. 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 6, 2006 By:____________________________ Mark E. Maddocks Vice President, Finance (Principal Financial Officer)