0001001746-11-000011.txt : 20110728
0001001746-11-000011.hdr.sgml : 20110728
20110728110150
ACCESSION NUMBER: 0001001746-11-000011
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 9
CONFORMED PERIOD OF REPORT: 20110430
FILED AS OF DATE: 20110728
DATE AS OF CHANGE: 20110728
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: DATARAM CORP
CENTRAL INDEX KEY: 0000027093
STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER STORAGE DEVICES [3572]
IRS NUMBER: 221831409
STATE OF INCORPORATION: NJ
FISCAL YEAR END: 0430
FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-08266
FILM NUMBER: 11992310
BUSINESS ADDRESS:
STREET 1: P O BOX 7528
CITY: PRINCETON
STATE: NJ
ZIP: 08543
BUSINESS PHONE: 6097990071
MAIL ADDRESS:
STREET 1: PO BOX 7528
CITY: PRINCETON
STATE: NJ
ZIP: 08543-7528
10-K
1
k102011.txt
10-K FOR THE ANNUAL PERIOD ENDING APRIL 30, 2011
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One) FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended April 30, 2011.
[ ] 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 22-183140
----------------------- ------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
P.O. Box 7528, Princeton, New Jersey 08543-7528
-------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (609) 799-0071
Securities registered pursuant to section 12(b) of the Act:
Title of each class Name of exchange on which registered
Common Stock, $1.00 Par Value NASDAQ Stock Market
Securities registered pursuant to section 12(g) of the Act: NONE
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
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 has submitted
electronically and posted on its corporate Website, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule
405 of Regulation S-T during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files).
Yes [ ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant's
knowledge, in the definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Yes [X] No []
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer or a smaller reporting
company.
See definition of "accelerated filer and large accelerated filer and smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ]
Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell-company (as
defined in Rule 12b-2 of the Act). Yes [ ] No [X]
The aggregate market value of the Common Stock held by non-affiliates
of the registrant calculated on the basis of the closing price as of the
last business day of the registrant's most recently completed second
quarter, October 31, 2010, was $21,760,674.
The number of shares of Common Stock outstanding on July 22, 2011 was
10,703,309 shares.
DOCUMENTS INCORPORATED BY REFERENCE:
(1) Definitive Proxy Statement for Annual Meeting of Shareholders to be
held on September 22, 2011 (the "Definitive Proxy Statement") to be filed
within 120 days of the end of the fiscal year.
(2) 2011 Annual Report to Security Holders
DATARAM CORPORATION
INDEX
Part I Page
Item 1. Business . . . . . . . . . . . . . . . . . . . . 5
Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . 11
Item 1B. Unresolved Staff Comments. . . . . . . . . . . . 14
Item 2. Properties . . . . . . . . . . . . . . . . . . . 14
Item 3. Legal Proceedings . . . . . . . . . . . . . . . 15
Part II
Item 5. Market for Registrant's Common Equity,
Related Stockholder Matters and
Issuer Purchases of Equity Securities. . . . . . 15
Item 6. Selected Financial Data. . . . . . . . . . . . . 15
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operation . . 15
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk . . . . . . . . . . . . . . . 15
Item 8. Financial Statements and Supplementary Data. . . 15
Item 9. Changes In and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . 16
Item 9A. Controls and Procedures . . . . . . . . . . . . 16
Item 9A(T)Controls and Procedures . . . . . . . . . . . . 16
Item 9B. Other Information . . . . . . . . . . . . . . . 17
Part III
Item 10. Directors, Executive Officers, and
Corporate Governance . . . . . . . . . . . . . . 17
Item 11. Executive Compensation . . . . . . . . . . . . . 17
Item 12. Security Ownership of Certain
Beneficial Owners and Management and
Related Stockholder Matters. . . . . . . . . . . 17
Item 13. Certain Relationships and Related
Transactions, and Director Independence. . . . . 18
Item 14. Principal Accounting Fees and Services . . . . . 18
Part IV
Item 15. Exhibits, Financial Statement Schedules. . . . . 18
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . 19
PART I
Item 1. BUSINESS
(a) General development of business.
Dataram Corporation (the "Company") is a developer, manufacturer and
marketer of large capacity memory products primarily used in high
performance network servers and workstations. The Company is also a
developer, manufacturer and marketer of a line of high performance storage
caching products. The Company provides customized memory solutions for
original equipment manufacturers ("OEMs") and compatible memory for leading
brands including Dell, HP, IBM and Sun Microsystems. The Company also
manufactures a line of memory products for Intel and AMD 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 one leased 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 chips
("DRAMs"). The purchase cost of DRAMs is the largest single component 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 DRAMs.
In fiscal 2009, the Company acquired certain assets of Micro Memory
Bank, Inc. ("MMB"), a privately held corporation. MMB is a manufacturer of
legacy to advanced solutions in laptop, desktop and server memory products.
The acquisition expanded the Company's memory product offerings and routes
to market. Its products include memory upgrades for IBM, Sun, HP and Compaq
computer systems. MMB also markets and sells new and refurbished factory
original memory upgrades manufactured by IBM, Sun, HP and Compaq as well as
factory original modules manufactured by Micron, Hynix, Samsung, Elpida and
Nanya, and purchases excess memory inventory from other parties as well.]
Revenues for fiscal 2011 were $46.8 million compared to $44.0 million
in fiscal 2010, a 6.3 percent increase. This increase was primarily the
result of the Company's continued implementation of its revamped sales and
marketing strategy having a positive effect on demand for its products,
coupled with an increase in overall demand for IT infrastructure as the
economy continues its recovery.
Cost of sales was $35.8 million in fiscal 2011 or 76.4 percent of
revenues compared to $32.4 million or 73.6 percent of revenues in fiscal
2010. Current and prior fiscal year's cost of sales as a percent of revenue
is considered by management to be within the Company's normal range.
Fluctuations in cost of sales as a percentage of revenues are not unusual
and can result from many factors, including rapid changes in the price of
DRAMs, or changes in product mix possibly resulting from a large order or
series of orders for a particular product or a change in customer mix.
5
The Company was incorporated in New Jersey in 1967 and made its initial
public offering in 1968. Its common stock, $1 par value (the "Common
Stock") was listed for trading on the American Stock Exchange in 1981.
In 2000 the Company changed its listing to the NASDAQ National Market (now
the NASDAQ Stock Market) where its stock trades under the symbol "DRAM."
The Company's principal executive office is located at 777 Alexander Park,
Princeton, New Jersey 08543, its telephone number is (609) 799-0071, its fax
is (609) 799-6734 and its website is located at http://www.dataram.com.
Proxy Statements, Annual Reports on Form 10-K, Quarterly Reports on Form
10-Q and Current Reports on Form 8-K, and all amendments thereto, are
available on this website free of charge.
(b) Financial information about segments.
The Company operates in one industry segment.
(c) Narrative description of business.
Industry Background
The market for the Company's memory products is principally the buyers
and owners of workstations and network servers and the OEMs that manufacture
workstations, servers and other products that use embedded computers. These
systems have been important to the growth of the Internet.
A workstation, like a PC, is designed to provide computer resources to
individual users. A workstation differs from a PC by providing
substantially greater computational performance, input/output capability and
graphic display. Workstations are nearly always networked. As a result of
this networking capability of both workstations and PCs, the network server
has grown in importance.
Network servers are computer systems on a network which provide
dedicated functions accessible by all workstations and other systems on the
same network. Examples of different types of servers in use today are: file
servers, communication servers, computation servers, database servers, print
servers and storage servers.
The Company designs, produces and markets memory products for
workstations and computer servers sold by Sun, HP, IBM, SGI and Dell.
Additionally, the Company produces and markets memory for Intel and AMD
processor based motherboards for use by OEMs and channel assemblers.
The "open system" philosophy espoused by most of the general computer
industry has played a part in enlarging the market for third party vendors.
Under the "open system" philosophy, manufacturers adhere to industry design
standards, enabling users to "mix and match" hardware and software products
from a variety of vendors so that a system can be configured for the user's
application in the most economical manner with reduced concern for
compatibility and support. Memory products for workstations and servers
have become commodities with substantial competition from OEMs and a number
of independent memory manufacture suppliers.
6
Generally, growth in the memory market closely follows both the growth
in unit shipments of system vendors and the growth of memory requirements
per system.
Management also estimates that in the compatibles market, sales by
system vendors constitute 80% of the memory market. To successfully compete
with system vendors, the Company must continue to respond to customers'
needs in a short time frame. To support customers' needs, the Company has a
dedicated and highly automated manufacturing facility that is designed to
produce and ship customer orders within twenty-four hours or less.
The OEM market is also an important part of the Company's business.
Management believes that increasingly cost conscious OEMs are looking to
independent memory suppliers such as the Company for the low-cost supply of
memory modules.
Products
The Company's principal business is the development, manufacture and
marketing of memory modules which can be added to various enterprise servers
and workstations to upgrade or expand the capabilities of such systems.
When vendors produce computer systems adhering to open system industry
standards, the development effort for the Company and other independent
memory manufacturers is straightforward and allows for the use of many
standard components. The Company is also continuing to develop its
XcelaSAN(r) product line. XcelaSAN is a unique intelligent Storage Area
Network ("SAN") optimization solution designed to deliver substantive
application performance improvement to applications such as Oracle, SQL and
VMware. XcelaSAN augments existing storage systems by transparently applying
intelligent caching algorithms that serve the most active block-level data
from high-speed storage, creating an intelligent, virtual solid state SAN,
allowing organizations to dramatically increase the performance of their
business-critical applications without the costly hardware upgrades or over-
provisioning of storage typically found in current solutions for increased
performance. The Company has made and is continuing to make significant
investments in research and development in XcelaSAN. The product has been
released for sale and the Company expects to realize revenues from sale of
the product in its fiscal year ending April 30, 2012. The Company plans to
invest in ongoing development of the product for future releases.
Distribution
The Company sells its memory products to OEM's, distributors, value-
added resellers and larger end-users. The Company has sales and/or
marketing support offices in New Jersey, Denmark, the United Kingdom,
Germany and Japan.
Product Warranty and Service
Management believes that the Company's reputation for the reliability
of its memory products and the confidence of prospective purchasers in the
Company's ability to provide service over the life of the product are
important factors in making sales. As a consequence, the Company adopted
7
many years ago a Lifetime Warranty program for its memory products. The
economic useful life of the computer systems to which the Company's memory
modules are attached is almost always substantially less than the physical
useful life of the Company's memory products. Thus, memory products are
unlikely to "wear out." The Company's experience is that less than 1% of
all the products it sells are returned under the Lifetime Warranty.
Working Capital Requirements
On July 27, 2010, the Company entered into an agreement with a
financial institution for secured debt financing of up to $5.0 million. We
have also entered into an agreement with a vendor, which is wholly owned by
an executive officer of the Company and who is also employed by the Company
as the General Manager of the Company's MMB division, to consign up $3.0
million of certain inventory into our manufacturing facilities. In addition,
May 11, 2011, the Company and certain investors entered into a securities
purchase agreement (the "Purchase Agreement") in connection with the
Offering, pursuant to which the Company agreed to sell an aggregate of
1,775,000 shares of its common stock and warrants to purchase a total of
1,331,250 shares of its common stock to such investors for aggregate gross
proceeds, before deducting fees to the Placement Agent and other estimated
offering expenses payable by the Company, of approximately $3.34 million.
Management believes that the Company's cash flows generated from operations
together with cash generated through these agreements will be sufficient to
meet the Company's liquidity needs through April 30, 2012.
The memory product business is heavily dependent upon the price of
DRAMs. Producers of DRAM are required to invest substantial capital
resources to produce their end product. Their marginal cost is low as a
percentage of the total cost of the product. As a result, the world-wide
market for DRAMs has swung in the past from period to period from oversupply
to shortage. During periods of substantial oversupply, the Company has seen
falling prices for DRAMs and wide availability of DRAMs allowing the Company
to have minimum inventories to meet the needs of customers. During periods
of shortage, DRAMs are allocated to customers and the Company must invest
heavily in inventory in order to continue to be assured of the supply of
DRAMs from vendors. At the present time, the market for DRAMs is balanced,
but with spot shortages of certain DRAM configurations.
Memory Product Complexity
DRAM memory products for workstations and enterprise servers have, for
many years, been undergoing a process of simplification with a corresponding
decline in profit margins for current generation memory products as
competitors' entry into the market becomes easier. Memory products for prior
generations of workstations and servers are sold with higher margins as few
competitors continue to supply memory for those computers.
Engineering
The Company's ability to compete successfully depends upon its ability
to identify new memory needs of its customers. To achieve this goal, the
Company's engineering group continually monitors computer system vendors'
new product developments, and the Company evaluates and tests major
8
components as they become available. The Company designs prototype memory
modules and subjects them to reliability testing procedures. During its
fiscal year ended April 30, 2011, the Company incurred costs of $1,033,000
for engineering, $998,000 in fiscal 2010 and $1,219,000 in fiscal 2009.
Research and Development
Research and development expense in fiscal 2011 was $1,894,000 versus
$4,265,000 in fiscal 2010 and $1,531,000 in fiscal 2009. In the current
fiscal year, the Company has continued to implement its strategy to
introduce new and complementary products into its offerings portfolio. The
Company is currently focusing on the development of its XcelaSAN product.
The Company has been developing computer software for its XcelaSAN storage
caching product line. On November 4, 2010, the Company determined that
technological feasibility of the product was established and development
costs subsequent to that date have been capitalized. In fiscal 2011 the
Company capitalized $1.5 million of development costs. Prior to November 4,
2010, the Company expensed all development costs.
Raw Materials
The Company purchases industry standard DRAMs. The Company also
purchases finished modules from the DRAM manufacturers. In either case, the
cost of DRAM chips is the largest single component of the total cost of
memory products. Fluctuations in the availability or prices of DRAMs can
have a significant impact on the Company's profit.
The Company has created close relationships with a number of primary
suppliers while qualifying and developing alternate sources as a back up.
The qualification program consists of extensive evaluation of process
capabilities, on-time delivery performance and financial stability of each
supplier. Alternative sources are qualified to normally assure supply in
the event of a problem with the primary source or to handle surges in demand.
Manufacturing
The Company assembles its memory boards at its manufacturing facility
in Pennsylvania.
Backlog
The Company expects that all backlog on hand will be filled during the
current fiscal year and most in a matter of days. The Company's backlog at
April 30, 2011 was $245,000, at April 30, 2010 it was $1,185,000 and at
April 30, 2009 it was $936,000.
Seasonality
The Company's business can be seasonal with December and January being
the slowest months.
9
Competition
The intensely competitive computer industry is characterized by rapid
technological change and constant pricing pressures. These characteristics
are equally applicable to the third party memory market, where pricing is a
major consideration in the buying decision. The Company competes with HP,
Sun, IBM, and Dell, as well as with a number of third party memory
suppliers, including Kingston Technology.
Although many of the Company's competitors possess significantly
greater financial, marketing and technological resources, the Company
competes favorably based on the buying criteria of price/performance, time-
to-market, product quality, reliability, service/support, breadth of product
line and compatibility with computer system vendors' technology. The
Company's objective is to continue to remain strong in all of these areas
with particular focus on price/performance and time-to-market, which
management believes are two of the more important criteria in the selection
of third party memory product suppliers. Market research and analysis
capability by the Company is necessary to ensure timely information on new
products and technologies coming from the computer system vendors and from
the overall memory market. The Company must continue low cost, high volume
production while remaining flexible to satisfy the time-to-market
requirement.
The Company believes that its 44-year reputation for providing quality
products is an important factor to its customers when making a purchase
decision. To strengthen this reputation, the Company has a comprehensive
lifetime warranty program which provides customers with added confidence in
buying from the Company. See "Business-Product Warranty and Service."
Patents, Trademarks and Licenses
The Company believes that its success depends primarily upon the price
and performance of its products rather than on ownership of copyrights or
patents.
Sale of memory products for systems that use proprietary memory design
can from time to time give rise to claims of copyright or patent
infringement. In most such instances the Company has either obtained the
opinion of patent counsel that its products do not violate such patents or
copyrights or obtained a license from the original equipment manufacturer.
To the best of the Company's knowledge and belief, no Company product
infringes any valid copyright or patent. However, because of rapid
technological development in the computer industry with concurrent extensive
patent coverage and the rapid rate of issuance of new patents, questions of
infringement may continue to arise in the future. If such patents or
copyrights are perfected in the future, the Company believes, based upon
industry practice, that any necessary licenses would be obtainable upon the
payment of reasonable royalties.
10
Employees
As of April 30, 2011, the Company had 91 full-time employees. The
Company believes it has satisfactory relationships with its employees. None
of the Company's employees are covered by a collective bargaining agreement.
Environmental
Compliance with federal, state and local provisions which have been
enacted or adopted to regulate the protection of the environment does not
have a material effect upon the capital expenditures, earnings and
competitive position of the Company. The Company does not expect to make
any material expenditures for environmental control facilities in either
the current fiscal year (fiscal 2012) or the succeeding fiscal year (fiscal
2013).
(d) Financial information about geographic area sales.
REVENUES (000's)
Export
Fiscal U.S. Europe Other* Consolidated
------ ----- ------ ------ ------------
2011 $37,400 $6,481 $2,966 $46,847
2010 $35,566 $4,484 $3,970 $44,020
2009 $19,088 $4,793 $2,016 $25,897
PERCENTAGES
Export
Fiscal U.S. Europe Other* Consolidated
------ ----- ------ ------ ------------
2011 79.9% 13.8% 6.3% 100.0%
2010 80.8% 10.2% 9.0% 100.0%
2009 73.7% 18.5% 7.8% 100.0%
*Principally Asia Pacific Region
Item 1A. RISK FACTORS
WE MAY NEED TO OBTAIN ADDITIONAL WORKING CAPITAL FOR CONTINUED RESEARCH
AND DEVELOPMENT. The development of the XcelaSAN product line has required
and will continue to require substantial capital investment. The Company
believes that it has obtained sufficient financing for the continued
development of the products. There can be no assurance, however, that such
financing will be sufficient for the Company's purposes or that additional
sources of financing will be available if needed. If we require and are
unable to raise additional funds, we may need to delay, scale-back or
eliminate some or all of our research and product development programs
and/or license third parties to develop and commercialize products or
technologies that we would otherwise seek to develop and commercialize
ourselves.
11
WE MAY HAVE TO SUBSTANTIALLY INCREASE OUR WORKING CAPITAL REQUIREMENTS
IN THE EVENT OF DRAM ALLOCATIONS. Over the past 20 years, availability of
DRAMs has swung back and forth from oversupply to shortage. In times of
shortage, we have been forced to invest substantial working capital
resources in building and maintaining inventory. At such times we have
bought DRAMs in excess of our customers' needs in order to ensure future
allocations from DRAM manufacturers. In the event of a shortage, we may not
be able to obtain sufficient DRAMs to meet customers' needs in the short
term, and we may have to invest substantial working capital resources in
order to meet long-term customer needs.
WE COULD SUFFER LOSSES IF DRAM PRICES DECLINE SUBSTANTIALLY. We are at
times required to maintain substantial inventories during periods of
shortage and allocation. Thereafter, during periods of increasing
availability of DRAMs and rapidly declining prices, we have been forced to
write down inventory. There can be no assurance that we will not suffer
losses in the future based upon high inventories and declining DRAM prices.
OUR PRODUCTS MAY VIOLATE OTHERS' PATENTS. Certain of our products are
designed to be used with proprietary computer systems built by various OEM
manufacturers. We often have to comply with the OEM's proprietary designs
which may be patented, now or at some time in the future. OEMs have, at
times, claimed that we have violated their patent rights by adapting our
products to meet the requirements of their systems. It is our policy to, in
unclear cases, either obtain an opinion of patent counsel prior to
marketing, or obtain a license from the patent holder. We are presently
licensed by Sun Microsystems and Silicon Graphics to sell memory products
for certain of their products. However, there can be no assurance that
product designs will not be created in the future which will, in fact, be
patented and which patent holders will require the payment of substantial
royalties as a condition for our continued presence in the segment of the
market covered by the patent or they may not give us a license. Nor can
there be any assurance that our existing products do not violate one or more
existing patents.
WE MAY LOSE AN IMPORTANT CUSTOMER. During fiscal 2011, the largest ten
customers accounted for approximately 38% of the Company's revenues and one
customer accounted for 11% of the Company's revenues. There can be no
assurance that one or more of these customers will not cease or materially
decrease their business with the Company in the future and that our
financial performance will not be adversely affected thereby.
SALES DIRECTLY TO OEM'S AND CONTRACT MANUFACTURERS CAN MAKE OUR
REVENUES, EARNINGS, BACKLOG AND INVENTORY LEVELS UNEVEN. Revenue and
earnings from OEM sales may become uneven as order sizes are typically large
and often a completed order cannot be shipped until released by the OEM,
e.g., to meet a "just in time" inventory requirement. This may occur at or
near the end of an accounting period. In such case, revenues and earnings
could decline for the period and inventory and backlog could increase.
WE FACE COMPETITION FROM OEMs. In the compatibles market we sell our
products at a lower price than OEMs. Customers will often pay some premium
for the "name brand" product when buying additional memory and OEMs seek to
12
exploit this tendency by having a high profit margin on memory products.
However, individual OEMs can change their policy and price memory products
competitively. While we believe that with our manufacturing efficiency and
low overhead we still would be able to compete favorably with OEMs, in such
an event profit margins and earnings would be adversely affected. Also,
OEMs could choose to use "free memory" as a promotional device in which case
our ability to compete would be severely impaired.
WE FACE COMPETITION FROM DRAM MANUFACTURERS. DRAM manufacturers not
only sell their product as discreet devices, but also as finished memory
modules. They primarily sell these modules directly to OEMs and large
distributors and as such compete with us. There can be no assurance that
DRAM manufacturers will not expand their market and customer base, and our
profit margins and earnings could be adversely affected.
THE MARKET FOR OUR PRODUCTS MAY NARROW OVER TIME. The principal market
for our memory products consists of the manufacturers, buyers and owners of
workstations and enterprise servers, classes of machines lying between large
mainframe computers and personal computers. Personal computers are
increasing in their power and sophistication and, as a result, are now
filling some of the computational needs traditionally filled by
workstations. The competition for the supply of after-market memory products
in the PC industry is very competitive and to the extent we compete in this
market we can be expected to have lower profit margins. There can be no
assurance that this trend will not continue in the future, and that our
financial performance will not be adversely affected.
A PORTION OF OUR OPERATIONS IS DESIGNED TO MEET THE NEEDS OF THE VERY
COMPETITIVE INTEL AND AMD PROCESSOR-BASED MOTHERBOARD MARKET. In addition
to selling server memory systems, we develop, manufacture and market a
variety of memory products for motherboards that are Intel or AMD processor
based. Many of these products are sold to OEMs and incorporated into
computers and other equipment. This is an intensely competitive market with
high volumes but lower margins.
WE MAY MAKE UNPROFITABLE ACQUISITIONS. The Company is actively looking
at acquiring complementary products and related intellectual property. The
possibility exists that an acquisition will be made at some time in the
future. Uncertainty surrounds all acquisitions and it is possible that a
particular acquisition may not result in a benefit to shareholders,
particularly in the short-term. In addition, there can be no assurance that
the business of MMB acquired by the Company will remain a profitable
operating unit of the Company or that savings from having a larger
consolidated business operation will continue.
THE INVESTMENTS WE MAKE IN RESEARCH AND DEVELOPMENT MAY NOT LEAD TO
PROFITABLE NEW PRODUCTS. The Company has implemented a strategy to
introduce new and complementary products into its offerings portfolio, and
expects to spend substantial sums of money on research and development of
such possible new products. Specifically, the Company has made and
continues to make considerable investments in research and development of
the XcelaSAN product line. There can be no assurance, however, that these
research and development expenditures will result in the identification or
exploitation of any products that can be profitably sold by the Company.
13
WE MAY BE ADVERSELY AFFECTED BY EXCHANGE RATE FLUCTUATIONS. A portion
of our accounts receivable and a portion of our expenses are denominated in
foreign currencies. These proportions change over time. As a result, the
Company's revenues and expenses may be adversely affected, from time to
time, by changes in the relationship of the dollar to various foreign
currencies on foreign exchange markets. The Company does not currently
hedge its foreign currency risks.
WE MAY INCUR INTANGIBLE ASSET AND GOODWILL IMPAIRMENT CHARGES WHICH
COULD HARM OUR PROFITABILITY. We periodically review the carrying values of
our intangible assets and goodwill to determine whether such carrying values
exceed the fair market value. Our goodwill is subject to an annual review
for goodwill impairment. If impairment testing indicates that the carrying
value exceeds its fair value, the intangible assets or goodwill is deemed
impaired. Accordingly, an impairment charge would be recognized in the
period identified, which could reduce our profitability.
OUR STOCK HAS LIMITED LIQUIDITY. Although our stock is publicly
traded, it has been observed that this market is "thin." As a result, the
common stock may trade at a discount to what would be its value if the stock
enjoyed greater liquidity.
WE ARE SUBJECT TO THE NEW JERSEY SHAREHOLDERS PROTECTION ACT. This
statute has the effect of prohibiting any "business combination" - a very
broadly defined term - with any "interested shareholder" unless the
transaction is approved by the Board of Directors at a time before the
interested shareholder had acquired a 10% ownership interest. This
prohibition of "business combinations" is for five years after the
shareholder became an "interested shareholder" and continues after that time
period subject to certain exceptions. A practical consequence of this
statute is that a hostile acquisition of our company is unlikely to occur
and hostile transactions which might be of benefit to our shareholders are
unlikely to occur.
Item 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
Item 2. PROPERTIES
The Company occupies 11,056 square feet of space for administrative,
sales, research and development and manufacturing support in Princeton, New
Jersey under a lease expiring on September 1, 2016.
The Company leases 17,500 square feet of assembly plant and office
space in Montgomery County, Pennsylvania. The lease expires on March 31,
2016.
The Company also leases research and development facilities in
Bellevue, WA and marketing facilities in Denmark, Germany, and Japan.
14
Item 3. LEGAL PROCEEDINGS
None.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
Incorporated by reference herein is the information set forth in the
Company's 2011 Annual Report to Security Holders under the caption "Common
Stock Information" and the information from the Definitive Proxy
Statement under the caption "Equity Plan Compensation Information." No
shares were sold other than pursuant to a registered offering during fiscal
2011. In the fourth quarter of fiscal 2011, the Company purchased no shares
of its common stock.
Item 6. SELECTED FINANCIAL DATA
Incorporated by reference herein is the information set forth in the
2011 Annual Report to Security Holders under the caption "Selected Financial
Data".
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
Incorporated by reference herein is the information set forth in the
2011 Annual Report to Security Holders under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operation".
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Incorporated by reference herein is the information set forth in the
2011 Annual Report to Security Holders under the caption "Quantitative and
Qualitative Disclosure about Market Risk".
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements and Schedule Page in
Annual
Report*
Consolidated Financial Statements:
Consolidated Balance Sheets as of April 30, 2011 and 2010. . . 16
Consolidated Statements of Operations - Years ended
April 30, 2011, 2010 and 2009 . . . . . . . . . . . . . . 17
15
Consolidated Statements of Cash Flows -
Years ended April 30, 2011, 2010 and 2009 . . . . . . . . 18
Consolidated Statements of Stockholders' Equity -
Years ended April 30, 2011, 2010 and 2009 . . . . . . . . 20
Notes to Consolidated Financial Statements -
Years ended April 30, 2011, 2010 and 2009 . . . . . . . . 21
Report of Independent Registered Public Accounting
Firm on Consolidated Financial Statements . . . . . . . . 38
All schedules are omitted as the required information is not
applicable or because the required information is included in the
consolidated financial statements or notes thereto.
*Incorporated herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
Item 9A. CONTROLS AND PROCEDURES
Not Applicable.
Item 9A(T). CONTROLS AND PROCEDURES
The Chief Executive Officer and Chief Financial Officer of the Company have
evaluated the effectiveness of our disclosure controls and procedures as
required by Exchange Act Rule 13a-15(b) 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 control over
financial reporting during the quarter ended April 30, 2011 that have
materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate
internal control over financial reporting for the Company. Internal control
over financial reporting is a process to provide reasonable assurance
regarding the reliability of our financial reporting for external purposes
in accordance with accounting principles generally accepted in the United
States of America. Internal control over financial reporting includes
maintaining records that in reasonable detail accurately and fairly reflect
16
our transactions; providing reasonable assurance that transactions are
recorded as necessary for preparation of our financial statements; providing
reasonable assurance that receipts and expenditures of Company assets are
made in accordance with management authorization; and providing reasonable
assurance that unauthorized acquisition, use or disposition of Company
assets that could have a material effect on our financial statements would
be prevented or detected on a timely basis. Because of its inherent
limitations, internal control over financial reporting is not intended to
provide absolute assurance that a misstatement of our financial statements
would be prevented or detected.
Management has conducted an evaluation of the effectiveness of our internal
control over financial reporting based on the framework in Internal
Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this evaluation,
management concluded that the Company's internal control over financial
reporting was effective as of April 30, 2011. This Annual Report does not
include an attestation report of the Company's independent registered public
accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by the Company's
independent registered public accounting firm.
Item 9B. OTHER INFORMATION
None.
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Incorporated by reference herein is the information set forth in the
Definitive Proxy Statement under the captions "Executive Officers of the
Company", "Nominees for Director" and "Section 16 Compliance." The
Company's "Code of Ethics", within the meaning of Item 406 of Registered
S-K, is posted on the Company's web site at www.dataram.com
Item 11. EXECUTIVE COMPENSATION
Incorporated by reference herein is the information set forth in the
Definitive Proxy Statement under the caption "Executive Compensation."
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Incorporated by reference herein is the information set forth in the
Definitive Proxy Statement under the captions "Security Ownership of Certain
Beneficial Owners and Management" and "Equity Plan Compensation Information."
17
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
Incorporated by reference herein is the information set forth in the
Definitive Proxy Statement under the captions "Executive Compensation,"
"Board of Directors" And "Related Party Transactions."
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Incorporated by reference herein is the information set forth in the
Definitive Proxy Statement under the caption "Principal Accountant Fees and
Services."
PART IV
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
The following documents are filed as part of this report:
1. Financial Statements incorporated by
reference into Part II of this Report.
2. The documents identified in the Exhibit Index which
appears on page 20.
18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
DATARAM CORPORATION
(Registrant)
Date: July 28, 2011 By: /s/ JOHN H. FREEMAN
------------------------------------
John H. Freeman, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
Date: July 28, 2011 By: /s/ THOMAS A. MAJEWSKI
------------------------------------
Thomas A. Majewski, Chairman of the
Board of Directors
Date: July 28, 2011 By: /s/ JOHN H. FREEMAN
------------------------------------
John H. Freeman, President
Chief Executive Officer and
Director
Date: July 28, 2010 By: /s/ ROGER C. CADY
------------------------------------
Roger C. Cady, Director
Date: July 28, 2011 By: /s/ ROSE ANN GIORDANO
------------------------------------
Rose Ann Giordano, Director
Date: July 28, 2011 By: /s/ MARK E. MADDOCKS
------------------------------------
Mark E. Maddocks
Vice President, Finance
(Principal Financial & Accounting Officer)
19
EXHIBIT INDEX
3(a) Restated Certificate of Incorporation. Incorporated by reference
from Exhibits to an Annual Report on Form 10-K for the year ended
April 30, 2008, filed with the Securities and Exchange Commission, SEC
file number 001-08266, on July 25, 2008.
3(b) By-Laws. Incorporated by reference from Exhibits to an Annual Report
on Form 10-K for the year ended April 30, 2008, filed with the
Securities and Exchange Commission, SEC file number 001-08266, on July
25, 2008.
4(a) Specimen certificate for shares of common stock. Incorporated by
reference from Exhibits to a registration statement on Form S-3 filed
with the Securities and Exchange Commission, SEC file number 333-
173212, on March 31, 2011.
4(b) Form of Indenture. Incorporated by reference from Exhibits to a
registration statement on Form S-3 filed with the Securities and
Exchange Commission, SEC file number 333-173212, on March 31, 2011.
4(c) Form of Debt Security (included in Exhibit 4(b)). Incorporated by
reference from Exhibits to a registration statement on Form S-3 filed
with the Securities and Exchange Commission, SEC file number 333-
173212, on March 31, 2011.
4(d) Form of Common Stock Purchase Warrant. Incorporated by reference from
Exhibits to a Current Report on Form 8-K with the Securities and
Exchange Commission, SEC file number 001-08266, filed on May 12, 2011.
10(a) 2001 Stock Option Plan.* Incorporated by reference from Exhibits to a
Definitive Proxy Statement for an Annual Meeting of Shareholders held
on September 12, 2001, filed with the Securities and Exchange
Commission, SEC file number 001-08266, on July 26, 2001.
10(b) Savings and Investment Retirement Plan, January 1, 2001 Restatement.*
Incorporated by reference from Exhibits to an Annual Report
on Form 10-K for the year ended April 30, 2003, filed with the
Securities and Exchange Commission, SEC file number 001-08266, on July
29, 2003.
10(c) Lease Agreement dated as of April 4, 2011, between Hillier Properties,
L.L.C., and Dataram Corporation.
10(d) Asset Purchase Agreement, dated March 20, 2009, by and among Dataram
Corporation, Micro Memory Bank, Inc. and Mr. David Sheerr.
Incorporated by reference from Exhibits to a Current Report on
Form 8-K/A with the Securities and Exchange Commission, SEC file
number 001-08266, filed on May 26, 2009.
10(e) Lease Agreement, dated December 31, 2000, between Nappen & Associates
and Micro Memory Bank, Inc. and assigned to Dataram Corporation.
Incorporated by reference from Exhibits to an Annual Report
on Form 10-K for the year ended April 30, 2009, filed with the
Securities and Exchange Commission, SEC file number 001-08266, on July
28, 2009.
20
10(f) Lease Renewal Agreement, dated February 13, 2006, between Nappen &
Associates and Micro Memory Bank, Inc. and assigned to Dataram
Corporation. Incorporated by reference from Exhibits to an
Annual Report on Form 10-K for the year ended April 30, 2009, filed
with the Securities and Exchange Commission, SEC file number 001-
08266, on July 28, 2009.
10(g) Lease Renewal Agreement, dated February 10, 2011, between Nappen &
Associates and Dataram Corporation.
10(h) Employment Agreement of Jeffrey H. Duncan dated as of February 1,
2005.* Incorporated by reference from Exhibits to an Annual Report on
Form 10-K for the year ended April 30, 2005, filed with the Securities
and Exchange Commission, SEC file number 001-08266, on July 28, 2005.
10(i) Employment Agreement of Mark E. Maddocks dated as of February 1, 2005.*
Incorporated by reference from Exhibits to an Annual Report on
Form 10-K for the year ended April 30, 2005, filed with the Securities
and Exchange Commission, SEC file number 001-08266, July 28, 2005.
10(j) Employment Agreement of David Sheerr dated as of March 31, 2009.*
Incorporated by reference from Exhibits to an Annual Report on
Form 10-K for the year ended April 30, 2010, filed with the Securities
and Exchange Commission, SEC file number 001-08266, July 29, 2010.
10(k) Product Consignment And Sale Agreement, dated as of July 27, 2010,
Between Sheerr Memory, Inc. and Dataram Corporation. Incorporated by
reference from Exhibits to a Current Report on Form 8-K filed with
the Securities and Exchange Commission, SEC file number 001-08266,
on July 29, 2010.
10(l) Loan and Security Agreement, dated as of July 27, 2010, between
Crestmark Capital Lending LLC and Dataram Corporation. Incorporated by
reference from Exhibits to a Current Report on Form 8-K filed with the
Securities and Exchange Commission, SEC file number 001-08266, on
July 29, 2010.
10(m) Schedule to Loan and Security Agreement, dated as of July 27, 2010,
between Crestmark Capital Lending LLC and Dataram Corporation.
Incorporated by reference from Exhibits to a Current Report on
Form 8-K filed with the Securities and Exchange Commission,
SEC file number 001-08266, on July 29, 2010.
10(n) Promissory Note, dated as of July 27, 2010, from Dataram Corporation
to Crestmark Capital Lending LLC. Incorporated by reference from
Exhibits to a Current Report on Form 8-K filed with the
Securities and Exchange Commission, SEC file number 001-08266, on
July 29, 2010.
10(o) Placement Agency Agreement, dated as of May 11, 2011, by and between
Dataram Corporation and Aegis Capital. Incorporated by reference from
Exhibits to a Current Report on Form 8-K with the Securities and
Exchange Commission, SEC file number 001-08266, filed on May 12, 2011.
21
10(p) Form of Securities Purchase Agreement, dated as of May 11, 2011, by
and between Dataram Corporation and each of the purchasers identified
on the signature pages thereto. Incorporated by reference from
Exhibits to a Current Report on Form 8-K with the Securities and
Exchange Commission, SEC file number 001-08266, filed on May 12, 2011.
13(a) 2011 Annual Report to Shareholders
14(a) Code of Ethics. Incorporated by reference from Exhibits to a Current
Report on Form 8-K filed with the Securities and Exchange Commission,
SEC file number 001-08266, on June 20, 2005.
23(a) Consent of J.H. Cohn LLP, Independent Registered Public Accounting
Firm.
31(a) Rule 13a-14(a) Certification of John H. Freeman
31(b) Rule 13a-14(a) Certification of Mark E. Maddocks
32(a) Section 1350 Certification of John H. Freeman (Furnished not Filed)
32(b) Section 1350 Certification of Mark E. Maddocks (Furnished not Filed
*Management Contract or Compensatory Plan or Arrangement
22
EX-10
2
le412011.txt
LEASE AGREEMENT FOR THE PRINCETON FACILITY
A LEASE AGREEMENT (hereinafter " the Lease" ) dated April 4, 2011
between:
HILLIER PROPERTIES, L.L.C., whose office is 190 Witherspoon Street,
Princeton, New Jersey 08540 (" Landlord" ),
and
Dataram Corporation, whose address under this lease will be 777 Alexander
Park, Princeton, New Jersey 08543 (" Tenant" ).
WITNESSETH, that the Landlord hereby leases to Tenant and Tenant hereby
leases from Landlord the " Leased Premises" being
a. 9,228 square feet of rentable space (the usable space being less
than 9,228 square feet) located on the first floor of the building known as
777 Alexander Park.
b. 1,828 square feet of rentable space (the usable space being less
than 1,828 square feet) located on the first floor of the building known as
777 Alexander Park.
The Leased spaces are known as Unit Nos. 100 and 103 in Building 200 of
the Alexander Park Buildings 100 and 200 Condominium and are more
particularly shown on the sketch attached hereto as Exhibit A.
The term of this Lease shall be sixty-two (62) months commencing on
July 1, 2011 and ending on September 1, 2016. If the commencement date is
extended, the Lease termination date will be on that date which is sixty-two
(62) months after the commencement date. The Leased Premises shall be used
only as offices for conduct of Tenant's business and/or any other use
permitted in the zone in which the property is located.
This Lease includes the Tenant's non-exclusive right to use, without
additional charge, the parking area together with other Alexander Park
tenants.
Normal hours of operation are 8:15 a.m. to 6:15 p.m. Monday through
Friday, however, Tenant shall have access 24 hours a day, seven days a week.
No machines or machinery of any kind shall be placed or operated so as
to disturb other Tenants. The Tenant shall not and will not do or permit to
be done or brought upon the premises anything which shall be deemed extra
hazardous on account of fire risk or create any environmental violations.
1. BASE MONTHLY RENT
1.1 Base Rent Per Month for 9,228 square foot area:
First 2 Months $0
Month 3 to 26 $13,457.50
Months 27 to 62 $14,226.50
Base Rent Per Month for 1,828 square foot area:
First 6 Months $0
Months 7 to 26 $2,665.83
Months 27 to 62 $2,818.17
1.2 The base annual rent shall be payable monthly in advance on the
first day of each month, commencing with the first month that the rent
payments are not $0. Rent shall be payable at Landlord's address as above
specified or such other place as the Landlord may in writing designate. The
Tenant also agrees to pay as rent all items referred to herein as additional
rent.
2. EXTRAS AND PASS-THROUGH
2.1 The Tenant shall pay for the cost of electricity for the Leased
Premises as an item of additional rent. The Tenant's electrical cost shall
be 36% of each monthly electrical bill for the 777 Alexander Road building,
except that if less than 95% of the rentable area of the building is
occupied, then the monthly electric charges shall be adjusted on a
commercially reasonable basis to reflect a 95% rentable area occupancy.
2.2 The Tenant agrees to pay as additional rent an amount equal to 36%
of any increase in the " pass-through" expenses, with the base year for
measuring the additional cost being 2011, except that if less than 95% of
the rentable area of the building is occupied, then the monthly " pass
through" charges shall be adjusted on a commercially reasonable basis to
reflect a 95% rentable area occupancy. For this purpose, " pass-through"
items will be limited to operating expenses, including but not limited to
condominium fees; garbage removal costs; insurance paid by Landlord; repairs
(except those repairs which are Landlord's responsibility as contained in
Paragraph 8.3 of this Lease Agreement) and maintenance; recycling charges;
sewer charges; property taxes; land lease charges; water fees; supplies;
janitorial services for the common areas and for the Leased Premises; snow
removal; landscaping costs; and property management fees. Pass-through
expenses shall relate only to those expenses allocable to Building 200 of
the Alexander Park Buildings 100 and 200 Condominium and shall not include
any portion of pass-through expenses, such as landscaping, snow plowing,
property management fees and Association fees to Alexander Park Master
Association, Inc. allocated to Building 100 of said Condominium. Such sums
shall be due and payable in monthly installments commencing January 1, 2012,
in such estimated amounts as the Landlord shall determine until the actual
sum is known. Landlord agrees to provide to Tenant by November 15 of each
year a proposed budget for the pass-through expenses for the upcoming year
to justify Landlord's estimated amount of the increase in the pass-through
expenses. Underpayments for the year shall be due within 30 days of when
billed. Overpayments for the year shall be applied to the estimated
payments for the next year. The lateness of the Landlord in advising the
Tenant of the amount of any of these pass-through expenses shall not relieve
the Tenant from its obligation to pay the increased charges, and upon the
Landlord's notice of the additional rent due for these items, the Tenant
shall pay the amount due.
3. BROKERAGE
Landlord represents to Tenant that the listing broker is Mercer Oak
Realty. Tenant represent that Commercial Property Network, Inc. is the only
broker that offered the property to Tenant. Landlord will be responsible
for all brokerage commissions due to Mercer Oak Realty and to Commercial
Property Network, Inc.
4. POSSESSION
The Tenant shall be entitled to possession hereunder as of July 1, 2011
provided this lease is signed on or before April 15, 2011. Tenant shall be
permitted access to the premises prior to the commencement date to install
telecommunication systems, furniture or other equipment, provided that said
installations do not interfere with Landlord's renovations to the premises.
Landlord shall permit such access after receiving two (2) days written
notice from Tenant.
5. INSURANCE
5.1 Tenant shall obtain and keep in full force and effect during the
Term at its own cost and expense and in the following amounts or such
greater amounts as Landlord or any mortgagee of Landlord may reasonably
request: (i) public Liability Insurance, such insurance to afford protection
in an amount not less than $2,000,000, for personal injury or death, and
$1,000,000 for damage to property, protecting Landlord and Tenant as
insureds against any and all claims for personal injury, death, or property
damage occurring in, upon, adjacent to or connected with the Leased Premises
or any part thereof; and (ii) insurance against loss or damage by fire, and
such other risks and hazards as are insurable under present and future
standard forms of fire and extended coverage insurance policies, to Tenant's
property for the full insurable value thereof, protecting Landlord, any
mortgagee of Landlord, and Tenant as insureds as their respective interests
may appear. Additional insureds to be listed on the policies are J. Robert
Hillier, Hillier Properties, L.L.C.
5.2 Tenant will secure and maintain in effect worker's compensation
insurance covering all of the employees of the Tenant.
5.3 The insurance required by paragraphs 5.1 and 5.2 is to be written in
form and substance satisfactory to Landlord by a good and solvent insurance
company of recognized standing, admitted to do business in the State of New
Jersey, which shall be reasonably satisfactory to Landlord. Tenant shall
procure, maintain, and place such insurance and pay all premiums and charges
therefor, and upon failure to do so Landlord may, but shall not be obligated
to, procure, maintain, and place such insurance or make such payments, and
in such event, Tenant agrees to pay the amount thereof to the Landlord on
demand and said sums shall be in each instance collectible as additional
rent on the first day of the month following the date of payment by
Landlord. Tenant shall cause to be included in all such insurance policies
a provision to the effect that the same shall be non-cancelable nor
materially changed except upon 20 days prior written notice to Landlord.
Before the Tenant may enter into possession hereunder, the original
insurance policies or appropriate certificates shall be deposited with
Landlord together with evidence of due payment of premiums thereon. Any
renewals, replacements, or endorsements thereto shall also be deposited with
Landlord to make certain that said insurance shall be in full force and
effect during the Term.
5.4 Landlord, after notifying Tenant in writing stating its reasons,
shall have the right, at its discretion, to reasonably increase, alter,
modify, amend, add to, or replace the insurance requirements for Tenant set
forth in this Lease, provided that Landlord shall only have the right to
request additional insurance if such insurance is required by landlords of
comparable buildings in the area of the Building.
5.5 Landlord shall not be liable to Tenant for any loss or damage to any
trade fixture or tangible personal property caused by the negligence or
other fault of Landlord or of its respective agents, employees, licensees,
or assignees. This release shall apply to the extent loss or damage to any
trade fixture or tangible property is covered by insurance, regardless of
whether such insurance is payable to or protects Landlord or Tenant, or
both. Nothing herein shall be construed to impose any other or greater
liability upon Landlord than would have existed in the absence of this
provision. This release shall be in effect only so long as the applicable
insurance policies contain a clause to the effect that this release shall
not affect the right of the insured to recover under such policies. Such
clauses shall be obtained by the parties whenever possible. The release in
favor of Landlord contained herein is in addition to and not in substitution
for or in diminution of the hold harmless and indemnification provisions
hereof.
6. DEFAULT PROVISIONS
6.1 Any other provisions in this Lease notwithstanding, if (i) Tenant
fails to pay any rent or other sum of money due hereunder within five (5)
business days of its due date; or (ii) even if rent is current, Tenant
either fails to initially use and occupy the Leased Premises for a period of
45 days or subsequently vacates the Leased Premises for a period of 45 days;
or (iii) Tenant fails to observe or perform any of the other Tenant
covenants or agreements herein contained, other than a default involving the
payment of money, and such failure continues after written notice for more
than thirty (30) days and such additional time, if any, as is reasonably
necessary to cure such failure, provided that Tenant has diligently
commenced to cure and is continuing to prosecute said cure to completion; or
(iv) Tenant is in default under subparagraph 6.3; or (v) Tenant makes any
assignment for the benefit of creditors; or (vi) Tenant commits an act of
bankruptcy (and does not cure same within thirty (30) days after committing
such act of bankruptcy) or files a petition or commences any proceeding
under any bankruptcy or insolvency law; or (vii) a petition is filed or any
proceeding is commenced against Tenant under any bankruptcy or insolvency
law and such petition or proceeding is not dismissed within sixty (60) days;
or (viii) Tenant is adjudicated a bankrupt; or (ix) Tenant by any act
indicates its consent to, approval of or acquiescence in, or a court
approves, a petition filed or proceeding commenced against Tenant under any
bankruptcy or insolvency law; or (x) a receiver or other official is
appointed for Tenant or for a substantial part of Tenant's assets or for
Tenant's interest in this Lease; or (xi) any attachment or execution against
a substantial part of Tenant's assets or of Tenant's interests in this Lease
remains unstayed or undismissed for a period of more than twenty (20) days;
or (xii) a substantial part of Tenant's assets or of Tenant's interest in
this Lease is taken by legal process in any action against Tenant; and
Landlord may, if the Landlord so elects, at any time thereafter, terminate
this Lease and the tenancy created hereby, by giving ten (10) days written
notice of such election to Tenant and/or Landlord may reenter the Leased
Premises, by summary proceedings or otherwise, and may remove Tenant and all
other persons and property from the Leased Premises, and may store such
property from the Leased Premises, and may store such property in a public
warehouse or elsewhere (at the cost of or the account of Tenant) with or
without resort to legal process and without Landlord being deemed guilty of
trespass or conversion or becoming liable for any loss or damage occasioned
thereby or otherwise being liable to prosecution therefor.
6.2 In the event that the relation of the Landlord and Tenant may cease
or terminate by reason of the termination of this Lease by Landlord or by
reason of the re-entry of the Landlord under the terms and covenants
contained in this Lease or by reason of the summary dispossess or ejectment
of the Tenant by summary proceedings, or otherwise, or after the abandonment
of the Leased Premises by the Tenant, the Tenant shall remain liable and
shall pay in monthly payments the base monthly rent and additional rent
which accrues subsequent to the cessation or termination of the relationship
of Landlord-Tenant, and the Tenant shall pay as damages for the breach of
the covenants contained in this Lease the difference between the base
monthly rent and additional rent reserved and the rent collected and
received, if any, by the Landlord during the remainder of the unexpired
Term, such difference or deficiency between the base monthly rent and the
additional rent reserved and the rent collected, if any, shall become due
and payable in monthly payments during the remainder of the unexpired Term,
as the amounts of such difference or deficiency shall from time to time be
ascertained. In the event the Landlord relets the Leased Premises during
any such unexpired period of the Tenant's lease, for rent in excess of that
due under the within Lease, Landlord need not credit such excess rent
against any unpaid base monthly rent or additional rent owed by the Tenant.
In addition, Tenant shall indemnify Landlord during the remaining period
before this Lease would otherwise expire against all loss or damage suffered
by reason of such default, cessation or termination, including but not
limited to, all costs for salaries, fees, commissions, and expenses of
reletting as well as all reasonable attorney's and other professional fees,
expenses and costs incurred by Landlord in pursuit of its remedies hereunder.
6.3 Landlord shall have all rights and remedies now or hereafter
existing at law with respect to the enforcement of Tenant's obligations
hereunder and the recovery of the Leased Premises, including without
limitation, those set forth in N.J.S.A.2A:18-53, as amended, and all
amendments, modifications, and substitutions thereof hereafter enacted. No
right or remedy herein conferred upon or reserved to Landlord shall be
exclusive of any other right or remedy, but shall be cumulative and in
addition to all other rights and remedies given hereunder or now or
hereafter existing at law. Landlord shall be entitled to injunctive relief
in case of the violation, or attempted violation, of any covenant,
agreement, condition, or provision of this Lease, or to a decree compelling
performance of any covenant, agreement, condition, or provision of this
Lease.
6.4 Nothing herein contained shall limit or prejudice the right of
Landlord by reason of such default to exercise any or all rights or remedies
available to Landlord by reason of such default or to prove and obtain in
proceedings under any bankruptcy or insolvency laws, an amount equal to the
maximum allowed by any law in effect at the time when, and governing the
proceedings in which, the damages are to be proven, whether or not the
amount be greater, equal to, or less than the amount of the loss of damage
referred to above.
7. ASSIGNING AND UNDERLETTING
7.1 Tenant shall not assign this Lease, in whole in part, nor sublet all
or any part of the Leased Premises, nor license concessions or lease
departments therein, without first obtaining the written consent of Landlord
which consent shall not unreasonably be withheld or delayed. This
prohibition includes any subletting or assignment which would otherwise
occur by operation of law, merger, consolidation, reorganization, transfer
or other change of Tenant's corporate or proprietary structure, or an
assignment, subletting to or by a receiver or trustee in any federal or
state bankruptcy, insolvency, or other proceedings. Consent by Landlord to
any assignment or subletting shall not constitute a waiver of any obligation
of the Tenant to Landlord (it being understood that Tenant shall remain
liable notwithstanding any assignment or subletting) nor shall consent by
the Landlord constitute a waiver of the requirement for such consent to any
subsequent assignment or subletting.
7.2 Notwithstanding subparagraph 7.1 above, if this Lease is assigned to
any person or entity pursuant to the provisions of the Bankruptcy Code, 11
U.S.C. Section 101, et seq. (the " Bankruptcy Code" ), any and all monies or
other considerations payable or otherwise to be delivered in connection with
such assignment shall be paid or delivered to Landlord and shall be and
remain the exclusive property of Landlord or of the estate of Landlord
within the meaning of the Bankruptcy Code. Any and all monies or other
considerations constituting Landlord's property under the preceding sentence
not paid or delivered to Landlord shall be held in trust for the benefit of
Landlord and be promptly paid or delivered to Landlord.
7.3 If at any time after the execution of this Lease any part or all
of the corporate shares shall be transferred by sale, assignment, bequest,
inheritance, operation of law or other disposition (including such a
transfer to or by a receiver or trustee in federal or state bankruptcy,
insolvency, or other proceedings) so as to result in a change in the present
control of said corporation by the person or persons now owning a majority
(>50%) of said corporate shares, Tenant shall give Landlord notice of such
event within fifteen (15) days from the date or such transfer.
Notwithstanding the other provisions of this paragraph 7.3 the Landlord
shall not have the right to terminate this Lease under the provisions of the
prior sentence if at the time Landlord is notified of the change in the
corporate control, the Tenant is current in its payment of all sums due the
Landlord, the security deposit is intact, and no other notices of default
given by the Landlord remain uncured. If the foregoing sentence is not
satisfied and whether or not Tenant has given such notice, Landlord may
elect to terminate this Lease, within fifteen (15) days after the date of
the notice, by giving Tenant notice of such election, in which event this
Lease and the rights and obligations of the parties hereunder, shall cease
as of a date set forth in such notice which date shall not be less than
sixty (60) days after the date of such notice. In the event of any such
termination, all rent shall be adjusted as of the date of such termination.
7.4 The acceptance by Landlord of the payment of rent following any
assignment or other transfer prohibited by this paragraph shall not be
deemed to be a consent by Landlord to any such assignment or other transfer
nor shall the same be deemed to be a waiver of any rights or remedy of
Landlord hereunder.
7.5 In the event that Landlord consents to a subletting of the Leased
Premises, or any assignment of this Lease by Tenant, Landlord shall be
entitled to recapture and receive payment from Tenant of any profit realized
by Tenant from assignment of the Lease or subletting of the Leased Premises
at a rent greater than the rent reserved hereunder. Tenant shall pay any
such profit to Landlord promptly upon its receipt by Tenant, whether it is
received in monthly or other periodic payments or in a lump sum. For
purposes of this subparagraph, " profit" shall refer to the difference
between: (i) all payments made by a subtenant or assignee to Tenant as rent
or otherwise under or in connection with said assignment or sublease; and
(ii) the costs and expenses paid by Tenant in connection with said
assignment or sublease including the base monthly rent and additional rent
payable hereunder with respect to the assigned or sublet space and the
reasonable brokerage, legal, and alteration expenses, if any, incurred in
connection with said assignment or sublease, calculated as if amortized over
the Lease Term. Promptly after the commencement of any such assignment or
sublease, Tenant shall deliver to Landlord a statement of the expenses
incurred in connection with the assignment or subletting and payments of the
profit in connection therewith shall be made monthly as additional rent
hereunder.
8. CONDITION OF PREMISES AND REPAIRS
8.1 Subject to the provisions of paragraph 8.1.1, Tenant accepts the
Leased Premises in its present condition and without any representations on
the part of the Landlord or its agents as to the present or future condition
of the premises. The Landlord makes no warranties, express or implied,
relating to the conditions in or about the Leased Premises.
8.l.1 Landlord will provide the space together with changes to which the
parties have agreed and as shown on the floor plan, which is attached hereto
as Exhibits B.
a. As to the 1,828 square foot area (Unit 103), the Landlord
will clean the carpets and paint the walls. At such time, either before or
after commencement of this Lease Agreement as Tenant determines in its sole
discretion, Landlord shall at Tenant's sole cost and expense perform the
work shown on Exhibit B attached hereto within the later of (1) thirty (30)
days after receiving written notice from Tenant requesting the work or (2)
thirty (30) days after a building permit is issued for the work, if one is
required. Landlord's failure to complete the work within the aforesaid time
period shall not be a default, as long as the work shall be completed within
fifty (50) days after (1) or (2) above, as applicable.
b. As to the 9,228 square foot area, the four offices on the
front right will be expanded to create approximately three more feet of
depth. The Boardroom designs are shown in the plan. The offices adjacent
to the Boardroom will be removed as per the plan. The balance of the space
and carpet will remain.
c. All systems in both spaces will be provided in good working
order.
d. The lobby will be repainted.
e. Landlord represents that performance of any work referred
to in this Paragraph 8.1.1 does not require the consent from any other
party, including that of the Condominium Board of Trustees.
8.2 Tenant shall take good care of the Leased Premises, fixtures, and
appurtenances and suffer no waste or injury; make all minor repairs (which
shall be defined as costing less than $500.00 and which are not included as
Landlord repairs as set forth in Paragraph 8.3 of this Lease Agreement) to
the Leased Premises, keeping the premises generally in good repair, order,
and condition and, at the end of the term, surrender the same to Landlord
broom clean. The Tenants agrees to replace at the Tenant's expense any and
all glass which may become broken in and on the demised premises caused by
the act, neglect, or default of the Tenant or its agents.
8.3 Landlord will deliver the premises to Tenant with the HVAC in good
working condition. Landlord shall make all structural repairs and all major
repairs and replacements to the electrical, windows, plumbing and HVAC
system (except as provided below) when repairs and replacements become
necessary due to conditions not caused by the acts, omissions, or negligence
of Tenant, in order to keep the premises in good repair and in tenantable
condition, including repairs to pipes and conduits running through the
Leased Premises which serve other parts of the building. Landlord shall be
responsible for making structural repairs to the exterior of the building,
including the roof.
8.4 In the case of the intentional destruction or any intentional damage
of any kind whatsoever to the Leased Premises caused by the Tenant, or
Tenant's agents, employees, or client/customers, Tenant shall repair the
damage, or replace or restore any destroyed or damaged parts of the Leased
Premises, as speedily as possible, at Tenant's own cost and expense.
9. COMPLIANCE WITH LAW
Tenant shall promptly execute and comply with all statutes, ordinances,
land use and building codes, rules, orders, regulations and requirements of
the Federal, State and Municipal Government and of any and all of their
Departments and Bureaus applicable to the Leased Premises, for the
correction, prevention and abatement of nuisances, violations or other
grievances, in, upon or connected with said premises during said term; and
shall also promptly comply with and execute all rules, orders, and
regulations of the Board of Health, the Board of Fire Underwriters, the
Zoning Board of Adjustment, or any other similar body.
10. LIABILITY CLAUSE
10.1 The Landlord, or its agents, shall not be liable for any injury,
loss, claims or damage to any person or property occurring in or about the
Leased Premises unless arising out of or in connection with any act,
neglect, or default of Landlord, its agents, invitees, employees,
contractors, and licensees. Tenant shall save Landlord harmless and
indemnify it from any injury, loss, claim or damage, to any person or
property anywhere occasioned by any act, neglect or default of Tenant.
10.2 Landlord, or its agents, shall not be liable for any injury or
damage to persons or property occurring by reason of any existing or future
condition or latent defect in the Leased Premises unless arising out of or
in connection with any act, neglect, or default of Landlord, its agents,
invitees, employees, contractors, and licensees, including, but not limited
to, injury or damage resulting from falling plaster, steam, gas,
electricity, water, rain or snow, which may leak from any part of the
building or from pipes, appliances or plumbing work of the same, or from
any other place, or by dampness or any other cause of whatsoever nature,
nor shall Landlord, or its agents, be liable for any such damage caused by
other Tenants or persons in the building, or for interference with the light
or other incorporeal hereditaments, or caused by operations in construction
of any public or quasi-public work.
10.3 Notwithstanding anything to the contrary provided in this lease, it
is expressly understood and agreed that there shall be no personal liability
whatsoever on the part of the Landlord or any successor in interest of
Landlord (or on the part of the officers, directors, and shareholders of any
corporation, of the members of any limited liability company, firm,
partnership, or joint venture which may be the Landlord, or of any successor
in interest of the Landlord at any time or from time to time) with respect
to any of the terms, covenants, conditions, and provisions of this lease,
and Tenant shall look solely to the equity of Landlord or such successor in
interest in the fee estate of Landlord in the Building or to a right of set-
off hereby granted for the satisfaction of each and every remedy of Tenant
in the event of any breach of Landlord or by any such successor in interest
of any of the terms, covenants, conditions, and provisions of this Lease to
be performed by Landlord, such exculpation of corporate and/or personal
liability to be absolute and without any exception whatsoever.
11. ALTERATIONS AND IMPROVEMENTS
11.1 Tenant shall make no alterations, additions or improvements to the
Leased Premises without the written consent of Landlord, which consent shall
not be unreasonably withheld or delayed. All alterations, additions, and
improvements shall belong to the Landlord, provided, however, the Tenant
shall have the right to remove from said premises the trade fixtures
installed by the Tenant provided that the same are removed prior to the
expiration of the within Lease. Tenant shall be responsible for repairing
any damage caused by the removal of installed trade fixtures.
11.2 If any mechanics' or other liens shall be created or filed against
the premises by reason of labor performed or materials furnished for Tenant,
Tenant shall, within thirty (30) days thereafter, at Tenant's own cost and
expense, cause such lien(s) to be satisfied and discharged of record,
together with any Notices of Intention that may have been filed. Failure to
do so shall entitle Landlord to resort to such remedies as are provided
herein in the case of any default of this lease, in addition to such as are
permitted by law.
12. DAMAGE TO THE PREMISES
If the Leased Premises shall be partially damaged or rendered
untenantable by fire or other causes, without being due to the fault or
neglect of Tenant, Tenant's servants, employees, agents or licensees, the
Leased Premises so damaged or rendered untenantable shall be repaired
promptly and within a reasonable time, by and at the expense of Landlord and
the rent from the time of such damage or untenantability until such repairs
shall be completed shall be apportioned according to the part of the Leased
Premises which is reasonably useable by Tenant; in such event, any rent paid
in advance shall be apportioned and refunded. If such partial damage or
untenantability is due to the fault or negligence of Tenant, Tenant's
servants, employees, agents or licensees, the damaged premises shall be
repaired promptly and within a reasonable time by Landlord, but there shall
be no apportionment or abatement of rent. In the event of the Leased
Premises being so badly damaged that they cannot be repaired within ninety
days, then Landlord shall so notify Tenant within 15 days after the damage
and the term hereby created shall, at the option of the Landlord or the
Tenant, cease and the Tenant shall surrender the Leased Premises and all of
the Tenant's interest therein to the Landlord and shall be liable for rent
only to the time of the surrender, and the Landlord may re-enter and
repossess the Leased Premises.
13. INSPECTION OF PREMISES; KEYS
Landlord and its agents shall have the right to inspect the Leased
Premises at reasonable hours after twenty-four (24) hour advance notice for
the purpose of examining the same or making such repairs or alterations
therein as may be necessary for the safety and preservation thereof. The
aforesaid provision shall not be deemed to be a covenant by Landlord nor be
construed to create an obligation on the part of Landlord to make such
inspection or repairs. Landlord shall retain a passkey to the premises,
including keys to any individual room locks, and the Tenant may only change
the locks with the prior consent of the Landlord and the delivery of a
duplicate key to the Landlord.
14. SHOWING PREMISES
The Landlord and its agents may during the last six months of the Lease
show the premises to persons wishing to lease or at any time to persons
wishing to purchase the same upon advance notice of twenty-four (24) hours
to Tenant.
15. LANDLORD IMPROVEMENTS
The Leased premises are leased as is with no obligation of the Landlord
to perform any landlord work except as provided in paragraph 8.1.1.
16. CONDEMNATION
If the whole or any part of the Leased Premises shall be acquired or
condemned by eminent domain for any public or quasipublic use, and if the
condemnation adversely affects the Tenant's use of the premises, then in
that event the term of this Lease shall cease and terminate from the date of
title vested in such proceeding and Tenant shall have no claim against
Landlord for the value of any unexpired term of said Lease. No part of any
condemnation award shall belong to Tenant. Notwithstanding anything
contained in this Section 16 to the contrary, Tenant shall be entitled to
a separate award for its moving expenses incurred as a result of any
condemnation proceeding.
17. SIDEWALKS, HALLS, AND STAIRS
Tenant shall not obstruct the walkways or entrance hall in front of the
entrance to the Leased Premises, nor allow any internal halls or stairways
to be obstructed or encumbered in any manner.
18. REMOVAL OF PROPERTY ON TERMINATION
If Tenant, upon the expiration or termination of this Lease for any
reason, moves out of the premises and fails to remove any equipment or trade
fixtures or other property within ten (10) days after said removal, said
equipment, trade fixtures, and property shall be deemed abandoned by Tenant
and shall become the property of Landlord, but Tenant shall be responsible
for the cost of removing any abandoned property and of repairing any damage
caused by the removal of any trade fixtures which Landlord determines should
be removed.
19. SIGNS
Tenant at Tenant's expense shall have the right to place its name on:
a) All the existing 18" high x 94" long (11.75 sf) double-sided
sign plate which is currently blank, located at the front of the property,
and visible from Alexander Road; and
b) On the glass door which gives access to the Tenant space.
The design of this signage shall be subject to the approval of the Landlord,
and in accordance with Township regulations. The Landlord at Landlord's
expense shall put the Tenant's name and location on the existing Tenant
directory in the Building lobby.
20. MORTGAGE SUBORDINATION
The Tenant agrees that this Lease shall be subject and subordinate at
all times to the lien of any mortgage or mortgages given or to be given by a
recognized lending institution now on record or to be hereafter placed on
the premises without the necessity of any further instrument or act on the
part of the Tenant to effectuate such subordination, and the Tenant hereby
covenants and agrees to execute and deliver upon demand such instrument or
instruments evidencing such subordination of this Lease to the lien of any
such mortgage or mortgages as shall be desired by any mortgagee or proposed
mortgagee, and, to further effectuate this covenant, the Tenant hereby
appoints and constitutes the said Landlord the Tenant's attorney-in-fact
irrevocably to execute and deliver any such instrument or instruments for
and in the name of the Tenant. If any such instrument is presented to
Landlord, Tenant shall have the right to review same prior to providing its
consent. In addition, in the event of any future mortgage placed upon the
property by Landlord during the term of this Lease, Landlord shall obtain a
non-disturbance agreement from such future mortgagee, so that as long as
Tenant is paying the rent and otherwise performing the terms and conditions
of the Lease, Tenant shall be entitled to continue in possession of the
Leased Premises for the term of the Lease and any renewal thereof.
21. INTEREST ON LATE PAYMENTS
If any payment of basic rent or any additional rent which becomes due
and payable under this Lease shall remain unpaid for a period in excess of
six (6) business days after it becomes due, then the Tenant shall be
required to pay interest equal to three (3%) percent per annum above the
Prime Rate published by the Wall Street Journal, as it may vary from time to
time, with a minimum late charge of $25.
22. COLLECTION OF DELINQUENT RENT
In the event that it shall become necessary for Landlord to engage the
services of an attorney or collection agency to collect delinquent rent from
Tenant, Tenant agrees to pay the reasonable attorney's fee, or reasonable
collection agency fee, together with all court costs and disbursements.
Tenant also agrees to pay, as additional rent, all reasonable attorney's
fees and other expenses incurred by the Landlord in enforcing any of the
other obligations under this Lease.
23. NOTICES
All notices required under this Lease shall be in writing and those
notices from Landlord to Tenant shall be personally given or sent by
ordinary mail to Tenant at the Leased Premises, and those notices required
to be given by Tenant to Landlord at 190 Witherspoon Street, Princeton, New
Jersey 08540, or such other place as the Landlord or the Tenant may in
writing designate.
24. SECURITY DEPOSIT
Upon the signing of this Lease by the Tenant, the Tenant shall deposit
with the Landlord the sum of $33,168 by certified check as security for the
performance by the Tenant of all the terms and conditions to be performed by
the Tenant which sum shall be applied or, if not used, returned to the
Tenant at the expiration of the lease term. If any portion of the security
deposit is applied during the Lease term, the Tenant shall replenish the
security deposit so that it equals the amount of the required security
deposit as of the month prior to the application of any portion of the
security deposit. The security deposit shall not be used by the Tenant for
the payment of rent. In the event of the sale of the premises subject to
this agreement, the Landlord shall have the right to transfer the security
to the grantee for the benefit of the Tenant, and upon such transfer, the
Landlord shall be considered released by the Tenant from all liability for
the return of said security.
25. TENANT'S CERTIFICATE
At the request of the Landlord, the Tenant shall sign a certificate
stating that (a) this Lease has not been amended and is in effect, (b) the
Landlord has fully performed all of the Landlord's agreements in this Lease,
(c) the Tenant has no right to the leased space except as stated in this
Lease, (d) the Tenant has paid all rent to date, and (e) the Tenant has not
paid rent for more than one month in advance. The Tenant's certificate
shall also list all the property attached to the leased space owned by the
Tenant.
26. HOLDING OVER BY TENANT
If the Tenant shall remain in the Leased Premises after expiration of
the term of this Lease without having executed a new or renewal Lease, such
holding over shall not constitute a renewal or extension of this Lease and
the Landlord shall, at its option, be entitled to all remedies provided by
law against a Tenant holding over or may elect to treat the holding over as
a tenancy from month to month subject to all terms and conditions of this
Lease, except as to duration, but this shall not preclude the Landlord from
increasing the monthly rental amount during the holdover period, which
increase of rent may be 150% of the rent paid the last month of the expired
lease term. Notwithstanding anything contained in this Section 26 to the
contrary, if the parties are negotiating in good faith with respect to the
rent following the exercise by Tenant of the renewal option set forth in
Section 34 hereof and further if no renewal is consummated and Tenant is
still in possession of the premises after expiration of the term, Landlord
may increase the first month of the holdover period by only one hundred ten
percent (110%) of the base rent.
27. BANKRUPTCY
27.1 In the event that Tenant becomes the subject debtor in a case
pending under the Bankruptcy Code or in any bankruptcy court or division,
Landlord's right to terminate this Lease shall be subject to the rights of
the Trustee in bankruptcy to assume or assign this Lease. To the extent
permitted or allowed by law, the Trustee shall not have the right to assume
or assign this Lease until the Trustee: (i) promptly cures all defaults
under this Lease; (ii) promptly compensates Landlord for monetary damages
incurred as a result of such default; and (iii) provides " adequate
assurance of future performance" which shall mean (in addition to any
other statutory requirements) that all of the following have been satisfied:
(i) in addition to Rent payable under the Lease the Trustee shall establish
with Landlord a Security Deposit equal to three (3) months base monthly
rent; (ii) maintain said Security Deposit in said amount whenever it is
drawn upon by Landlord; (iii) Trustee must agree that Tenant's business
shall be conducted in a first-class manner; (iv) the use of the Leased
Premises cannot change. If all the foregoing are not satisfied, Tenant
shall be deemed not to have provided Landlord with adequate assurance of
future performance of this Lease.
27.2 In addition, if Tenant becomes the subject debtor under the
Bankruptcy Code or in any bankruptcy court or division, any person or entity
to which this Lease is assigned pursuant to the provisions of the Bankruptcy
Code, 11 U.S.C., Section 101 et seq., shall be deemed without further act or
deed to have assumed all of the obligations arising under this Lease on and
after the date of such assignment. Any such assignee shall, upon demand,
execute and deliver to Landlord an instrument confirming such assumption.
28. QUIET POSSESSION
The Landlord covenants that the Tenant on paying the said rent, and
performing the covenants aforesaid, shall and may peacefully and quietly
have, hold and enjoy the said demised premises for the term aforesaid. The
authorization of the permitted use of the Leased Premises for the purposes
set forth herein does not constitute a representation or warranty by
Landlord that any particular use of the Leased Premises is now or shall
continue to be permitted under applicable laws or regulations.
29. BINDING EFFECT; SEVERABILITY
The covenants and agreements herein contained are binding on the
parties hereto and upon their respective successors, heirs, executors,
administrators and assigns. If any of the provisions of this Lease are
determined by a court of competent jurisdiction to be illegal or
unenforceable, the remaining provisions of this Lease shall continue to be
effective.
30. WAIVERS
No delay or forbearance by Landlord in exercising any right or remedy
hereunder or in undertaking or performing any act or matter which is not
expressly required to be undertaken by Landlord shall be construed,
respectively, to be a waiver of Landlord's rights or to represent any
agreement by Landlord to undertake or perform such act or matter
thereafter.
31. WAIVER OF JURY TRIAL
It is mutually agreed by and between Landlord and Tenant that the
respective parties shall and they hereby do waive trial by jury in any
action, proceeding or counterclaim brought by either of the parties against
the other on any matter whatsoever arising out of or in any way connected
with this lease, the relationship of Landlord and Tenant, Tenant's use of or
occupancy of said Leased Premises and/or any claim of injury or damage and
any emergency statutory or any other statutory remedy. It is further
mutually agreed that in the event Landlord commences any summary proceeding
for nonpayment of rent, Tenant will not interpose any counterclaim or
defense in the nature of setoff, of whatever nature or description in any
such proceeding.
32. CONSTRUCTION OF LEASE
32.1 This lease shall be construed without regard to any presumption or
other rule requiring construction against the party causing this lease to be
drafted.
32.2 Words and phrases used in the singular shall be deemed to include
the plural and vice versa, and nouns and pronouns used in any particular
gender shall be deemed to include any other gender.
32.3 The rule of " ejusdem generis" shall not be applicable to limit a
general statement following or referable to an enumeration of specific
matters to matters similar to the matters specifically mentioned.
33. GOVERNING LAW, ETC.
This Lease shall be governed by, and its terms and provisions shall be
construed in accordance with the laws of the State of New Jersey. The
provisions of this Lease are subject to the terms of the condominium
documents for the Alexander Park Buildings 100 and 200 Condominium.
Landlord certifies that this tenancy does not violate any of the applicable
rules and regulations as outlined in the condominium documents and bylaws.
34. FIVE YEAR RENEWAL OPTION.
Provided that the Tenant is not in default at the time of Tenant's
renewal notice, the Tenant is hereby given an option to renew this Lease for
an additional five year term. The Tenant's option to renew shall be
exercised by the Tenant giving the Landlord written notice of its intention
to renew on or before March 1, 2016, except that if this Lease expires later
than September 1, 2016, the date for which Tenant may exercise its renewal
notice shall be on or before that date which is six (6) months prior to the
Lease termination date. The rent shall be at then prevailing market rate as
agreed to by the parties but not less than the rent for the final year of
the expiring lease term. If the parties in good faith cannot agree on the
rent, then the Lease shall not be renewed. If renewed the agreed upon rent
shall apply for the first renewal year and thereafter it shall be increased
by 2.5% per year. Tenant agrees to accept the Leased Premises in the
condition then existing as of the commencement of the renewal term of this
Lease, and Landlord shall not be responsible for performing any work on the
Leased Premises other than the Landlord's responsibilities as set forth in
the Lease. The failure or omission by Tenant to give the notice required
under the provisions of this section exercising Tenant's option to renew
within the time and in the manner provided shall be deemed, without further
notice and without further agreement between the parties, that Tenant
elected not to exercise said option.
35. SUBMISSION OF LEASE TO TENANT
The submission by Landlord to Tenant of this Lease shall have no
binding force or effect, shall not constitute an option for the leasing of
the Leased Premises, and shall not confer any rights or impose any
obligations upon either party until the execution thereof by Landlord and
the delivery of an executed original copy thereof to Tenant or its
representatives.
36. TENANT'S RIGHT OF TERMINATION OF UNIT 103
Notwithstanding any other provisions contained in this Lease Agreement
to the contrary, Tenant shall have the right to terminate without penalty or
otherwise being in default of this Lease Agreement its Lease obligation with
respect to that portion of the Leased Premises described as 1,828 square
feet of rentable space located on the first floor of the Building known as
777 Alexander Park and known as Unit No. 103 (hereafter " Unit 103" ) 100
and 200 Condominium. Tenant may exercise this right only for that period
after paying rent for twenty-four (24) months and prior to paying rent for
thirty-two (32) months by providing Landlord with six (6) months prior
written notice of its Lease termination with respect to Unit 103 and paying
to Landlord the sum of $16,909, being the amount equal to six (6) months of
the base rent commencing in month 27 of the Lease. In the event of such
termination, the Base Rent provided in Section 1.1 with respect to Unit 103
shall be deleted and the Extras and Pass-Through expenses provided in
Section 2 shall be reduced from 36% to 30%.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals as
of the day and year first above mentioned.
WITNESS: Dataram Corporation, Tenant
/s/ By: /s/ Mark Maddocks
_______________________________ _________________________________
WITNESS: Hillier Properties, L.L.C., Landlord
/s/ Christine Oransky By: /s/ J. Robert Hillier
_______________________________ __________________________________
J. Robert Hillier
The undersigned, J. ROBERT HILLIER, executes this Lease Agreement in
his individual capacity to guaranty the obligations of the Landlord.
/s/ J. Robert Hillier
___________________________
J. ROBERT HILLIER
EX-10
3
ag012711.txt
LEASE RENEWAL FOR THE MONTGOMERY FACILITY
SECOND LEASE RENEWAL AGREEMENT
______________________________
SECOND LEASE RENEWAL AGREEMENT made as of the last date endorsed hereon
between NAPPEN & ASSOCIATES, a Pennsylvania limited partnership t/a 309
DEVELOPMENT COMPANY ("Lessor")
A N D
DATARAM CORPORATION, a New Jersey corporation, duly registered to do
business in the Commonwealth of Pennsylvania ("Lessee").
Basis of Agreement
__________________
A. By Lease Agreement dated December 31, 2000, as amended by Lease
Renewal Agreement dated February 13, 2006 (together with this Second Lease
Renewal Agreement on and after April 1, 2011, the "Lease"), Lessor demised
and let to Lessee's Assignor, who subsequently assigned its interest to
Lessee under an Assignment, Amendment and Assumption Agreement with an
effective date of April 1, 2009 (the "Assignment"), who hired from Lessor
that certain portion of building situate Lot No. 16, Montgomeryville
Industrial Center, Montgomery Township, Montgomery County, Pennsylvania,
consisting of 17,500 sq. ft., more or less, known and numbered 130 Corporate
Drive, Montgomeryville, Pennsylvania 18936 (the "Premises") for a term
expiring March 31, 2011.
B. The parties desire to extend the term of the Lease for an
additional term of five (5) years, commencing April 1, 2011, and ending
March 31, 2016 ("Second Renewal Term").
C. The parties desire to set forth herein their agreement regarding
the terms of the Lease during the Second Renewal Term.
NOW, THEREFORE, the parties hereto, intending to be legally bound
hereby, agree as follows:
1. The term of the Lease is hereby extended for a Second Renewal Term
of five (5) years, commencing April 1, 2011, and terminating March 31, 2016,
at 11:59 p.m., unless further extended, renewed or previously terminated, as
set forth in the Lease.
2. During the Second Renewal Term, Article 3 of the Lease, entitled
"Minimum Annual Rent" shall be amended and supplemented to read as follows:
"3. Minimum Annual Rent. The minimum annual rent ("Minimum
Annual Rent") payable by Lessee to Lessor during the Second Renewal
Term shall be Ninety Six Thousand Two Hundred Fifty and 00/100 Dollars
($96,250.00) per year, lawful money of the United States of America,
payable in monthly installments in advance during the Second Renewal
Term in sums of Eight Thousand Twenty and 83/100 Dollars ($8,020.83) on
the first day of each month during the Second Renewal Term, commencing
April 1, 2011."
3. Article 25 of the Lease is hereby deleted in its entirety and the
following substituted therefor:
"25. Extensions and Renewals.
A. Extensions. It is hereby mutually agreed that in the
event Lessee has not given the "Preliminary Renewal Notice" as defined
in subparagraph 25(B), or has given the Preliminary Renewal Notice but
has withdrawn the same, Lessee may terminate this Lease at the end of
the Second Renewal Term and any subsequent renewal term or extension
term, by giving to Lessor written notice at least six (6) months prior
thereto, and Lessor may terminate this Lease at the end of the Second
Renewal Term and any subsequent renewal or extension thereof by giving
to Lessee written notice at least five (5) months prior thereto (each
an "Expiration Notice"); but in default of an Expiration Notice given
by either party in the manner provided herein, this Lease shall
continue for an extension term of one (1) year, commencing the day
after the expiration of the then current renewal term or extension
term, as the case may be, upon the terms and conditions in force
immediately prior to the expiration of the then-current renewal term or
extension term, as the case may be (except for the Minimum Annual Rent,
which shall be as computed in subparagraph 25(C)(iii)), and so on from
year to year, unless terminated by the giving of an Expiration Notice
within the times and in the manner aforesaid. In the event that Lessee
or Lessor shall have given an Expiration Notice and Lessee shall fail
or refuse to completely vacate the Premises and restore the same to the
condition required in this Lease on or before the date designated in
the Expiration Notice (the "Expiration Date"), then it is expressly
agreed that Lessor, by notice to Lessee given no later than forty-five
(45) days after the Expiration Date, shall have the option either:
(i) to disregard the Expiration Notice as having no
force and effect, whereupon the Expiration Notice shall be null and
void, ab initio, as if never given; or
(ii) treat Lessee as Holding Over, in accordance with
paragraph 2(B) of the Lease.
All powers granted to Lessor by this Lease shall be exercised and all
obligations imposed upon Lessee by this Lease shall be performed by Lessee
during the Second Renewal Term, as well as during any subsequent extension
or renewal terms of this Lease.
Notwithstanding anything set forth in subparagraph 25(A) to the
contrary, if the term of this Lease is not previously terminated, the term
of this Lease shall end absolutely, without further notice, at 11:59 p.m.
on the day previous to the 29th anniversary of the Lease Commencement Date
set forth in the Lease.
B. Option to Renew.
(i) Provided Lessor has not previously given Lessee a notice
under paragraph 23(P) hereof, and Lessee is not in default under the terms
of this Lease at the end of the term of the Second Renewal Term, Lessee
shall have the right and privilege, at its election, to renew the term of
this Lease for an additional period of five (5) years commencing upon the
day after the expiration of the term of the Second Renewal Term and
terminating five (5) years thereafter without further notice. Such
five-year period is hereinafter referred to as the "Third Renewal Term".
In order to exercise said option, Lessee must give Lessor
written notice of its election to renew ("Preliminary Renewal Notice") at
least six (6) months prior to the expiration of the term of the Second
Renewal Term. Said Third Renewal Term shall be on the same terms and
conditions as herein provided for the Second Renewal Term except that the
Minimum Annual Rent shall be calculated as set forth in the following
paragraph. In the event Lessee does not exercise its option to renew
within the time set forth, the provisions of subparagraph 25(A) shall
apply.
C. Computation of Minimum Annual Rent in the event of
Extension/Renewal.
In the event of exercise of the option to renew this Lease by
Lessee in accordance with the terms of subparagraph B, commencing with the
rental payment due on the first day of the Third Renewal Term, the Minimum
Annual Rent shall be the greater of the Minimum Annual Rent set forth in
this Lease for the Second Renewal Term, or the fair market rental. The fair
market rental shall be determined as follows:
(i) Within fifteen (15) days from receipt of the Preliminary
Renewal Notice, Lessor shall advise Lessee of the fair market rental of the
Premises as of the commencement of the Third Renewal Term, by notice
hereunder. In the event Lessee is dissatisfied with the fair market rental
as specified by Lessor, it may withdraw the Preliminary Renewal Notice, by
notice to Lessor, given at least five (5) months one (1) day prior to the
end of the Second Renewal Term.
(ii) The new Minimum Annual Rent, effective on or after the first
day of the Third Renewal Term and for the balance of the Third Renewal Term
shall be the greater of the fair market rental set forth in Lessor's notice
or the Minimum Annual Rent as set forth in this Lease for the Second Renewal
Term. This Minimum Annual Rent shall be payable in equal monthly
installments commencing on the first day of the Third Renewal Term and on
the first day of each month thereafter during the Third Renewal Term.
(iii) For extensions of this Lease under subparagraph 25(A), the
Minimum Annual Rent during a one-year extension term shall be the greater of
the Minimum Annual Rent for the previous Lease Year or the fair market
rental for the Premises as of the commencement of the extension term, as
determined by Lessor, payable in monthly installments on the first day of
each month during the extension term."
THE FOLLOWING PARAGRAPH 4 SETS FORTH AN ACKNOWLEDGEMENT AND
CONFIRMATION OF WARRANT OF AUTHORITY FOR ANY PROTHONOTARY OR ATTORNEY OF
COURT OF RECORD TO CONFESS JUDGMENT AGAINST THE LESSEE. IN GRANTING THIS
WARRANT OF ATTORNEY TO CONFESS JUDGMENT AGAINST THE LESSEE, THE LESSEE,
FOLLOWING CONSULTATION WITH (OR DECISION NOT TO CONSULT) SEPARATE COUNSEL
FOR THE LESSEE AND WITH KNOWLEDGE OF THE LEGAL EFFECT THEREOF, HEREBY
KNOWINGLY, INTENTIONALLY, VOLUNTARILY AND UNCONDITIONALLY WAIVES ANY AND
ALL RIGHTS THE LESSEE HAS OR MAY HAVE TO PRIOR NOTICE AND AN OPPORTUNITY
FOR HEARING UNDER THE RESPECTIVE CONSTITUTIONS AND LAWS OF THE UNITED STATES
OF AMERICA, THE COMMONWEALTH OF PENNSYLVANIA OR ELSEWHERE. IT IS
SPECIFICALLY ACKNOWLEDGED BY THE LESSEE THAT THE LESSOR HAS RELIED ON THIS
WARRANT OF ATTORNEY IN EXECUTING THIS SECOND LEASE RENEWAL AGREEMENT AND AS AN
INDUCEMENT TO GRANT FINANCIAL ACCOMMODATIONS HEREUNDER TO THE LESSEE.
LESSEE EXPRESSLY WARRANTS AND REPRESENTS THAT THE FOLLOWING WARRANT OF
ATTORNEY TO CONFESS JUDGMENT HAS BEEN AUTHORIZED EXPRESSLY BY PROPER ACTION
OF THE BOARD OF DIRECTORS OF LESSEE.
LESSEE AND LESSOR HEREBY CONSENT TO THE JURISDICTION OF THE COURT OF
COMMON PLEAS OF MONTGOMERY COUNTY PENNSYLVANIA OR THE FEDERAL DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA FOR ANY PROCEEDING IN CONNECTION
WITH THE LEASE, AND HEREBY WAIVE OBJECTIONS AS TO VENUE AND CONVENIENCE OF
FORUM IF VENUE IS IN MONTGOMERY COUNTY, PENNSYLVANIA OR IN THE FEDERAL
DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA. IN ANY ACTION OR
SUIT UNDER THE LEASE, SERVICE OF PROCESS MAY BE MADE UPON LESSOR OR ANY
LESSEE BY MAILING A COPY OF THE PROCESS BY FIRST CLASS MAIL TO THE RECIPIENT
AT THE RESPECTIVE ADDRESS SET FORTH IN PARAGRAPH 26 OF THE LEASE. LESSOR
AND LESSEE HEREBY WAIVE ANY AND ALL OBJECTIONS TO SUFFICIENCY OF SERVICE
OF PROCESS IF DULY SERVED IN THIS MANNER
4. Lessee and Lessor, jointly and severally, acknowledge and confirm
that the Lease contains paragraph 23(M) (specifically ratified and assumed
by Lessee in the Assignment), which permits the Lessor to CONFESS JUDGMENT
AGAINST LESSEE FOR THE RECOVERY BY LESSOR OF POSSESSION OF THE PREMISES
upon the expiration of the then current term of the Lease. The parties
hereto further acknowledge and agree that nothing contained herein can be
construed to impair in any manner whatsoever Lessor's ability to confess
judgment against Lessee for the recovery by Lessor of possession of the
Premises pursuant to the terms of the Lease.
5. Effectiveness. The furnishing of the form of this agreement shall
not constitute an offer and this agreement shall become effective upon and
only upon its execution by and delivery to each party hereto.
6. In all other respects, the terms and conditions of the Lease not
inconsistent with the terms hereof are hereby ratified and confirmed and
shall remain in full force and effect during the Second Renewal Term.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement,
intending to be legally bound, as of the day and year last below written.
NAPPEN & ASSOCIATES,
a Pennsylvania limited partnership
t/a 309 DEVELOPMENT COMPANY
Dated:
By:__________________________________
Robert W. Nappen,
Managing General Partner
DATARAM CORPORATION, A New Jersey
corporation,
By:________________________________
Title:______________________________
Dated:
Attest:_____________________________
Title:______________________________
(CORPORATE SEAL)
EX-13
4
ars2011.txt
ANNUAL REPORT TO SECURITY HOLDERS
[DATARAM LOGO]
DATARAM CORPORATION
2011 ANNUAL REPORT
Table of Contents
1 President's Letter
3 Management's Discussion and Analysis
of Financial Condition and Results
of Operations
16 Financial Review
20 Selected Financial Data
[PICTURE OF JOHN FREEMAN]
President's Letter
To Our Shareholders:
Two years ago, I outlined our growth and diversification strategy for the
Company and the initiatives we put in place to implement that strategy. I am
pleased to report on our growth, progress and future plans.
We continued the implementation of our new go to market corporate strategy
instituted last fiscal year. As I stated last year, we changed our
traditional direct sales model. We focused a direct sales team on selling
solutions within industry verticals, opened web based e-sales, created an
inside sales team and increased our investment in our partner strategy. We
now have implemented Alliance Partners for corporations, Reseller and
Distributor Partners, Government Partners and Individual Partners. Each of
these changes made contributions to our growth.
In fiscal 2011, our memory solutions business grew by 6 percent to $46.8
million and we posted our second consecutive year of growth after five years
of negative growth. This business is now operating profitably.
On March 31, 2009, we acquired certain assets of Micro Memory Bank, Inc.
(MMB), a prominent memory module company offering legacy to advanced
solutions in laptop, desktop and server memory products. Both MMB and the
traditional Dataram memory business have benefited from leveraging each
other's skills, strategies, marketing, sales, engineering and purchasing
resources.
During fiscal 2011, we continued our integration of MMB and our traditional
memory business. In March, 2011, we completed the consolidation of our two
manufacturing facilities and reduced our expenses by approximately $1.2
million annually as a result.
In fiscal 2010, we developed and launched a new corporate website
incorporating new features, functions, content, and branding which reflects
and supports our new corporate mission and strategy.
The website's interactive e-commerce capabilities generated business leads
and sales representing over $1.7 million in revenues in fiscal 2011 compared
to approximately $1.0 million last year. Revenues generated through the
website are continuing to grow and are trending towards an annualized run
rate exceeding $2.0 million.
In fiscal 2011, we incorporated a quote and order application to facilitate
ease of quotation and order placement and further strengthen our business
relationship with our premier channel partners and select enterprise
clients.
During fiscal 2011, we continued to make significant investments in the
development of our XcelaSAN product line. XcelaSAN is a unique intelligent
Storage Area Network (SAN) optimization solution that delivers substantive
application performance improvement to applications such as Oracle, SQL and
VMware. XcelaSAN augments existing storage systems by transparently applying
intelligent caching algorithms that serve the most active block-level data
from high-speed storage, creating an intelligent, virtual solid state SAN.
This breakthrough solution allows organizations to dramatically increase the
performance of their business-critical applications without the costly
hardware upgrades or over-provisioning of storage typically found in current
solutions for increased performance.
3
Our development team has successfully incorporated high availability
functionality into the product software and the first generation product is
now available for sale. The product is currently installed and being
evaluated for purchase at selected customer sites. XcelaSAN continues to
provide significant performance improvements over traditional solutions at
dramatically less cost.
Many clients are reconsidering traditional computing paradigms requiring
major technology refreshes every several years. Instead we have seen our
clients seek out solutions which optimize the performance and extend the
useful life of existing IT assets. By doing so, our clients realize
substantial reductions in computing costs, eliminate business risks
associated with the introduction of new technology, and avoid substantial
resource overhead required to implement these new IT assets. We believe the
timing of introducing XcelaSAN into the market is ideal as it provides
exponential optimization of storage assets while also extending their useful
life. In addition, as our clients deploy "tiered" storage architectures
designed to store data in the most logical and economical repository,
XcelaSAN represents a critical component in leveraging and supporting
that strategy.
We have completed the formation of a dedicated XcelaSAN lead generation and
sales team.
In May, 2011, we secured the financing we believe necessary to sustain the
Company through the period of the product launch.
We will continue to execute our new strategy and leverage the investments we
have made in sales, marketing and new product development to increase our
growth and profits in our memory solutions and XcelaSAN storage businesses.
These investments have also set the stage for Dataram to provide more
solutions and optimization benefits to our clients as we continue to
diversify and create a stronger foundation for growth.
On behalf of the Company's Board of Directors and management team, I would
like to thank our shareholders for their continued support and our employees
for their hard work and dedication.
July 17, 2011
John H. Freeman
President and Chief Executive Officer
4
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
Dataram Corporation ("the Company") 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, HP, IBM and Sun
Microsystems. Additionally, the Company manufactures a line of memory
products for Intel and AMD motherboard based servers. The Company is also
a developer, manufacturer and marketer of a line of high performance storage
caching products.
The Company's 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 DRAMs is the largest single component 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.
On March 31, 2009, the Company acquired certain assets of Micro Memory Bank,
Inc. ("MMB"), a privately held corporation. MMB is a manufacturer of legacy
to advanced solutions in laptop, desktop and server memory products. The
acquisition expanded the Company's memory product offerings and routes to
market. The results of operations of MMB for the period from the acquisition
date through April 30, 2011 have been included in the consolidated results
of operations of the Company.
Results of Operations
The following table sets forth consolidated operating data expressed as a
percentage of revenues for the periods indicated.
Years Ended April 30, 2011 2010 2009
_________________________________________________________________
Revenues 100.0% 100.0% 100.0%
Cost of sales 76.4 73.6 67.4
_____ _____ _____
Gross profit 23.6 26.4 32.6
Engineering 2.2 2.3 4.7
Research and development 4.0 9.7 5.9
Selling, general and administrative 26.4 30.3 42.7
_____ _____ _____
5
Loss from operations (9.0) (15.9) (20.7)
Other income (expense), net (0.9) (0.3) 0.9
_____ _____ _____
Loss before income tax
expense (benefit) (9.9) (16.2) (19.8)
Income tax expense (benefit) 0.0 8.2 (7.7)
_____ _____ _____
Net loss (9.9) (24.4) (12.1)
===== ===== =====
Fiscal 2011 Compared With Fiscal 2010
Revenues for fiscal 2011 were $46.8 million compared to $44.0 million in
fiscal 2010. The Company's revenues increased by approximately 6% in fiscal
2011 versus fiscal 2010.
Revenues for the fiscal years ended April 30, 2011 and 2010 by geographic
region were:
Year ended Year ended
April 30, 2011 April 30, 2010
________________ ________________
United States $ 37,400,000 $ 36,410,000
Europe 6,481,000 5,055,000
Other (principally Asia Pacific Region) 2,966,000 2,555,000
________________ ________________
Consolidated $ 46,847,000 $ 44,020,000
================ ================
Cost of sales was $35.8 million in fiscal 2011 or 76.4 percent of revenues
compared to $32.4 million or 73.6 percent of revenues in fiscal 2010.
Management expects that cost of sales as a percentage of revenue will
generally be approximately 75%. Fluctuations either up or down of 3% or less
are not unusual and can result from many factors, some of which are rapid
changes in the price of DRAMs, a change in product mix possibly resulting
from a large order or series of orders for a particular product or a change
in customer mix.
Engineering expenses in each of fiscal 2011 and fiscal 2010 were $1.0 million.
Research and development expenses in fiscal 2011 were $1.9 million, versus
$4.3 million in fiscal 2010. Research and development expense includes
payroll, employee benefits, stock-based compensation expense and other
headcount-related expenses associated with product development. Research and
development expense also includes third-party development and programming
costs. In the first quarter of fiscal 2009, the Company implemented a
strategy to introduce new and complementary products into its offerings
portfolio. The Company is currently focusing on the development of a line of
high-performance storage caching products ("XcelaSAN"). XcelaSAN is a unique
intelligent Storage Area Network ("SAN") optimization solution that delivers
substantive application performance improvement to applications such as
Oracle, SQL and VMware. XcelaSAN augments existing storage systems by
transparently applying intelligent caching algorithms that serve the most
6
active block-level data from high-speed storage, creating an intelligent,
virtual solid state SAN. As part of that strategy, in January 2009, the
Company entered into a software purchase and license agreement with another
company whereby the Company acquired 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 this agreement, of which $300,000 was expensed in the
first fiscal quarter and $300,000 was expensed in the second fiscal quarter.
The Company exclusively owns the software. The software and the storage
products, which incorporate the software, are currently under development.
On November 4, 2011, the Company determined that technological feasibility
of the product was established. In fiscal 2011 the Company capitalized $1.5
million of research and development costs. We expect to make further
investments in this area.
Selling, general and administrative(S,G&A) expenses were $12.4 million in
fiscal 2011 versus $13.4 million in fiscal 2010. Stock-based compensation
expense was recorded as a component of S,G&A expense and totaled
approximately $482,000 in fiscal 2011, versus $918,000 in fiscal 2010. In
fiscal 2011, there were options granted to purchase 139,000 shares of the
Company's common stock compared to grants to purchase 899,500 shares in
fiscal 2010. Intangible asset amortization is recorded as a component of
S,G&A expense and totaled approximately $407,000 in fiscal 2011, versus
$637,000 in fiscal 2010.
Other income (expense), net for fiscal year 2011 totaled $401,000 expense
versus $117,000 expense in fiscal 2010. Other income (expense) in fiscal
2011 includes $286,000 of interest expense. Other income in fiscal year 2011
also includes $135,000 of foreign currency transaction losses, primarily as
a result of the US dollar strengthening against the EURO. Additionally,
other income (expense) includes approximately $47,000 of income recorded
for the gain on sale of assets. Other income in fiscal 2010 includes
$85,000 of foreign currency transaction losses and approximately $42,000
of interest expense, net of interest income.
The Company's consolidated statements of operations for fiscal 2011 include
tax expense of approximately $5,000 that consists of state minimum tax
payments.
The Company's consolidated statements of operations for fiscal 2010 include
approximately $3.6 million of income tax expense. The Company utilizes the
asset and liability method of accounting for income taxes in accordance with
the provisions of the Expenses - Income Taxes Topic of the Financial
Accounting Standards Board (FASB) Accounting Standards Codification (ASC).
Under the asset and liability method, deferred income 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 the Company determines that it is more
likely than not that some portion or all of the deferred income tax assets
will not be realized. The Company considers certain tax planning strategies
in its assessment as to the recoverability of its deferred income tax
assets. In each reporting period, the Company assesses, based on the weight
of all evidence, both positive and negative, whether a valuation allowance
on its deferred income tax assets is warranted. Based on the assessment
conducted in the Company's reporting period ended January 31, 2010, the
Company concluded that such an allowance was warranted and, accordingly,
recorded a valuation allowance of approximately $5.8 million in that
reporting period. Deferred income tax assets and liabilities are measured
7
using enacted tax rates in effect for the year in which those temporary
differences are expected to be recovered or settled. 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. As of April 30, 2011 the
Company had Federal and State net operating loss (NOL) carry-forwards of
approximately $17.1 million and $15.1 million, respectively. These can be
used to offset future taxable income and expire between 2023 and 2031 for
Federal tax purposes and 2016 and 2031 for state tax purposes. The Company's
NOL carry-forwards are a component of its deferred income tax assets which
are reported net of a full valuation allowance in the Company's
consolidated financial statements at April 30, 2011 and at April 30, 2010.
Fiscal 2010 Compared With Fiscal 2009
Revenues for fiscal 2010 were $44.0 million compared to $25.9 million in
fiscal 2009. The Company's acquired MMB business unit generated revenues of
approximately $14.0 million in fiscal 2010 and $0.9 million in fiscal 2009.
Exclusive of the effect of the acquired MMB business units revenues, the
Company's revenues increased by approximately 20% in fiscal 2010 versus
fiscal 2009.
Cost of sales were $32.4 million in fiscal 2010 or 73.6 percent of revenues
compared to $17.4 million or 67.4 percent of revenues in fiscal 2009.
Fiscal year 2010 cost of sales as a percentage of revenue is considered by
management to be within the Company's normal range. Fiscal year 2009
percentages are considered by management to be unusually low and were the
result of a product mix skewed more heavily toward higher margin legacy
products as sales of lower margin mainstream products were negatively
impacted by the world financial crisis. Fluctuations in cost of sales as a
percentage of revenues are not unusual and can result from many factors,
including rapid changes in the price of DRAMs, or changes in product mix
possibly resulting from a large order or series of orders for a particular
product or a change in customer mix.
Engineering expenses in fiscal 2010 were $1.0 million, versus $1.2 million
in fiscal 2009.
Research and development expenses in fiscal 2010 were $4.3 million, versus
$1.5 million in fiscal 2009. 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 with another company whereby the Company acquired 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 this agreement, of which
$300,000 was expensed in the first fiscal quarter and $300,000 was expensed
in the second fiscal quarter.
Selling, general and administrative(S,G&A) expenses were $13.4 million in
fiscal 2010 versus $11.1 million in fiscal 2009. The acquired MMB business
unit's S,G&A expense recorded in fiscal 2010 was approximately $2.1 million,
versus $161,000 in fiscal 2009. The prior fiscal year's 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 was recorded as a component of S,G&A expense and
totaled approximately $918,000 in fiscal 2010, versus $533,000 in fiscal
8
2009. In fiscal 2010, the Company recorded marketing and sales expense
related to our new storage products of approximately $906,000 versus nil in
the comparable prior year. These expenses are mainly related to the addition
of sales personnel and sales engineers for the storage products.
Other income (expense), net for fiscal year 2010 totaled $117,000 expense
versus $223,000 income in fiscal 2009. Other income (expense) in fiscal 2010
includes $85,000 of foreign currency transaction losses, primarily as a
result of the EURO weakening against the US dollar. Additionally, other
income (expense) includes $42,000 of interest expense, net of interest
income. Approximately $10,000 of income was recorded for the gain on sale of
assets. Other income in fiscal 2009 includes $294,000 of interest income,
net of interest expense. Additionally, other income includes $68,000 of
foreign currency transaction losses, primarily as a result of the EURO
weakening against the US dollar.
The Company's consolidated statements of operations for fiscal 2010 include
approximately $3.6 million of income tax expense. The Company utilizes the
asset and liability method of accounting for income taxes in accordance with
the provisions of the Expenses - Income Taxes Topic of the Financial
Accounting Standards Board (FASB) Accounting Standards Codification (ASC)
(Codification). Under the asset and liability method, 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 the Company determines that 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. In each reporting
period, the Company assesses, based on the weight of all evidence, both
positive and negative, whether a valuation allowance on its deferred tax
assets is warranted. Based on the assessment conducted in the Company's
reporting period ended January 31, 2010, the Company concluded that such
an allowance was warranted and accordingly, recorded a valuation allowance
of approximately, $5.8 million in that reporting period. Deferred tax
assets and liabilities are measured using enacted tax rates in effect for
the year in which those temporary differences or tax attributes are expected
to be recovered or settled. 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. Income tax expense (benefit) for fiscal 2009 was
a benefit of $2.0 million. The Company's effective tax rate for financial
reporting purposes in fiscal 2009 was approximately 39%.
Liquidity and Capital Resources
Cash and cash equivalents at April 30, 2011 amounted to $345,000 and working
capital amounted to $3.1 million, reflecting a current ratio of 1.4 to 1,
compared to cash and cash equivalents of $2.5 million, working capital of
$8.5 million and a current ratio of 2.4 to 1 as of April 30, 2010.
Accounts receivable at the end of fiscal 2011 totaled $4.6 million compared
to fiscal 2010 year end accounts receivable of $5.3 million.
Net cash used in operating activities totaled $2.4 million and consisted
primarily of net losses totaling approximately $4.6 million, non-cash
depreciation and amortization expense of approximately $1.0 million and
non-cash stock-based compensation expense of $610,000. Net changes in
assets and liabilities reduced net cash used in operating activities by
$608,000. Of these, accrued liabilities decreased by approximately
9
$898,000, primarily as a result of payments made for the accrued
contingently payable acquisition price for MMB recorded at April 30, 2010.
Accounts payable decreased by approximately $578,000, primarily as a result
of a reduction in inventories of approximately $1.4 million. The reduction
in inventory is attributable to higher availability of DRAMs resulting in
shorter lead times.
Cash used in investing activities totaled approximately $2.4 million and
consisted of a contingently payable purchase price of approximately
$488,000 for the MMB acquisition, more fully described below, capitalized
software development costs totaling approximately $1.5 million and additions
of property and equipment, totaling approximately $478,000.
Cash provided by financing activities totaled approximately $2.7 million and
consisted of borrowings under a revolving credit facility, more fully
described below, totaling approximately $2.2 million and net proceeds from a
loan from a related party totaling $500,000. Proceeds from the sale of
common shares under the Company's stock option plan totaling approximately
$13,000 were also received.
On July 27, 2010, the Company entered into an agreement with a financial
institution for formula-based secured debt financing of up to $5,000,000.
The amount of financing available to the Company under the agreement varies
with the level of the Company's eligible accounts receivable. At April 30,
2011 the Company had $28,000 of financing available to it under the terms of
the agreement.
Also, on July 27, 2010, the Company entered into an agreement with a vendor,
which is wholly owned by an employee and executive officer of the Company,
to consign a formula-based amount of up to $3,000,000 of certain inventory
into the Company's manufacturing facilities. As of April 30, 2011, the
Company has received financing totaling $1,500,000 under this agreement, of
which $1,000,000 was used to repay in full a Note payable to the employee
arising from an agreement entered into with the employee in February, 2010
and which expired in August, 2010. At April 30, 2011 no further financing
was available to the Company under the formulas contained in the consignment
agreement, although the formulas provide for additional possible financing
in the future.
The weighted average interest rate on amounts borrowed under these
agreements at April 30, 2011 and 2010 was 11.4% and 5.25%, respectively. The
average dollar amounts borrowed under these agreements for the fiscal years
ended April 30, 2011, 2010 and 2009 was $2,263,000, $250,000 and nil,
respectively.
On May 11, 2011, the Company and certain investors entered into a securities
purchase agreement pursuant to which the Company agreed to sell an aggregate
of 1,775,000 shares of its common stock and warrants to purchase a total of
1,331,250 shares of its common stock to such investors. The aggregate net
proceeds of such offering and sale, after deducting fees to the Placement
Agent and other estimated offering expenses payable by the Company, was
approximately $3.0 million. The transaction closed on May 17,2011.
Based on the cash received from the Purchase Agreement and on the cash flows
expected to be provided from the two financing agreements above along with
the cash flows projected to result from the Company's operations, management
has concluded that the Company's liquidity needs will be satisfied. The
Company's short-term cash flow projections include cash flow generated from
its traditional memory solutions business as well as from revenues generated
10
by sales of its recently developed XcelaSAN product line. There can be no
assurance, however, that in the short-term, realized revenues will be in
line with the Company's projections. Management continues to evaluate the
Company's liquidity needs and expense structure as it executes its business
plan.
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 April 30, 2011, the total number of shares authorized for
purchase under the program is 172,196 shares. In fiscal 2011 and 2010, the
Company did not repurchase any shares of its common stock.
On March 31, 2009, the Company acquired certain assets of MMB. The Company
purchased the assets from MMB for total consideration of approximately $2.3
million, of which approximately $912,000 was paid in cash. The Company also
assumed certain accounts payable totaling approximately $190,000 and certain
accrued liabilities totaling approximately $122,000. The net assets acquired
by the Company were recorded at their respective fair values under the
purchase accounting guidance existing at the date of acquisition. Under the
terms of the agreement with MMB, the remaining portion of the purchase price
is contingently payable based upon the performance of the new Dataram
business unit to be operated as a result of the acquisition (the Unit).
Through April 30, 2011, the Company has paid or accrued approximately $2.2
million of the contingently payable purchase price which is recorded as a
component of Goodwill in the Company's consolidated financial statements.
The remaining contingently payable purchase price consists of a percentage,
averaging approximately 55%, payable quarterly, over the next twenty-three
months of earnings before interest, taxes, depreciation and amortization of
the Unit and will be recorded as a component of Goodwill in the Company's
consolidated financial statements.
Contractual Obligations
Future minimum lease payments under non-cancelable operating leases (with
initial or remaining lease terms in excess of one year) as of April 30, 2011
are as follows:
Year ending April 30:
2012 $ 272,000
2013 352,000
2014 365,000
2015 374,000
2016 368,000
Thereafter 147,000
_____________
$ 1,878,000
============
Purchases
At April 30, 2011, the Company had open purchase orders outstanding totaling
$3.1 million primarily for inventory items to be delivered in the first six
months of fiscal 2012. These purchase orders are cancelable.
11
Recently Adopted Accounting Guidance
We have adopted the authoritative guidance issued by the FASB on the
consolidation of variable interest entities. The new guidance requires
revised evaluations of whether entities represent variable interest
entities, ongoing assessments of control over such entities and additional
disclosures for variable interests. The adoption of the FASB authoritative
guidance did not have a material impact on our consolidated financial
statements.
We have adopted the authoritative guidance on revenue recognition issued by
the FASB. Under the new guidance on arrangements that include software
elements, tangible products that have software components that are essential
to the functionality of the tangible product are no longer within the scope
of the software revenue recognition guidance, and software-enabled products
are now subject to other relevant revenue recognition guidance.
Additionally, the FASB issued authoritative guidance on revenue arrangements
with multiple deliverables that are outside the scope of the software
revenue recognition guidance. Under the new guidance, when vendor specific
objective evidence or third party evidence for deliverables in an
arrangement cannot be determined, a best estimate of the selling price is
required to separate deliverables and allocate arrangement consideration
using the relative selling price method. The new guidance includes new
disclosure requirements on how the application of the relative selling price
method affects the timing and amount of revenue recognition. The adoption of
the FASB authoritative guidance on revenue recognition did not have a
material impact on our consolidated financial statements.
Recent Accounting Guidance Not Yet Adopted
There are no new pronouncements which affect the Company.
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 this Annual
Report, management 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 the Revenue Recognition - Right of Return Topic
of the FASB ASC. Estimated warranty costs are accrued by management upon
product shipment based on an estimate of future warranty claims.
12
Stock Option Expense - As required by the Compensation - Stock Compensation
Topic of FASB ASC, the accounting for transactions in which an entity
receives employee services in exchange for (a) equity instruments of the
enterprise or (b) liabilities that are based on the fair value of the
entity's equity instruments or that may be settled by the issuance of such
equity instruments are accounted for using a fair value-based method with a
recognition of an expense for compensation cost related to share-based
payment arrangements, including stock options and employee stock purchase
plans. The consolidated statements of operations for fiscal 2011 and fiscal
2010 include approximately $610,000 and $918,000, respectively, of
stock-based compensation expense. Stock-based compensation expense is
recognized in the operating expenses line item of the accompanying
consolidated statements of operations on a ratable basis over the vesting
periods. These stock option grants have been classified as equity
instruments and, as such, a corresponding increase, net of the reversal of
the previously recorded income tax benefit for options which expired during
the reporting period, has been reflected in additional paid-in capital in
the accompanying consolidated balance sheet. 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: The expected life in
fiscal year 2011 and 2010 represents the period that the Company's
stock-based awards are expected to be outstanding and was calculated using
the simplified method pursuant to SEC Staff Accounting Bulletin (SAB) No.
107 (SAB 107) and SAB No. 110. Expected life for fiscal years 2009 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 common stock using the daily closing price of
the Company's common stock, pursuant to SAB 107. Expected dividend yield
assumes the current dividend rate remains unchanged. Expected forfeiture
rate is based on the Company's historical experience. The risk-free rate is
based on the rate of U.S Treasury zero-coupon issues with a remaining term
equal to the expected life of the option grants.
Research and Development Expense - All research and development costs are
expensed as incurred, including Company-sponsored research and development
and costs of patents and other intellectual property that have no
alternative future use when acquired and in which we had an uncertainty in
receiving future economic benefits. Development costs of a computer software
product to be sold, leased, or otherwise marketed are subject to
capitalization beginning when a product's technological feasibility has been
established and ending when a product is available for general release to
customers. Technological feasibility of a computer software product is
established when all planning, designing, coding and testing activities that
are necessary to establish that the product can be produced to meet its
design specifications including functions, features and technical
performance requirements are completed. The Company has been developing
computer software for its XcelaSAN storage caching product line. On
November 4, 2010, the Company determined that technological feasibility of
the product was established, and development costs subsequent to that date
have been capitalized. Prior to November 4, 2010, the Company expensed all
development costs related to this product line. At the time the product is
made available for general release to customers the capitalized costs will
be amortized to cost of sales over the estimated useful life of the
underlying technology.
Income Taxes - The Company utilizes the asset and liability method of
accounting for income taxes in accordance with the provisions of the
Expenses - Income Taxes Topic of the FASB ASC. Under the asset and liability
13
method, deferred income 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 income 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 income 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. The effect on deferred income tax
assets and liabilities of a change in tax rates is recognized in earnings
in the period that the tax rate changes. The Company recognizes, in its
consolidated financial statements, the impact of a tax position, if that
position is more likely than not to be sustained on audit, based on
technical merits of the position. There are no material unrecognized tax
positions in the financial statements.
Goodwill - Goodwill is tested for impairment on an annual basis and between
annual tests if indicators of potential impairment exist, using a
fair-value-based approach. The date of our annual impairment test is March 1.
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.
Quantitative and Qualitative Disclosure about Market Risk
The Company does not invest in market risk sensitive instruments. At times,
the Company's cash equivalents consist of overnight deposits with banks and
money market accounts. 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.
Controls and Procedures
The Chief Executive Officer and Chief Financial Officer of the Company have
evaluated the effectiveness of our disclosure controls and procedures as
14
required by Exchange Act Rule 13a-15(b) 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.
Report of Management on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate
internal control over financial reporting for the Company. Internal control
over financial reporting is a process to provide reasonable assurance
regarding the reliability of our financial reporting for external purposes
in accordance with accounting principles generally accepted in the United
States of America. Internal control over financial reporting includes
maintaining records that in reasonable detail accurately and fairly reflect
our transactions; providing reasonable assurance that transactions are
recorded as necessary for preparation of our financial statements; providing
reasonable assurance that receipts and expenditures of Company assets are
made in accordance with management authorization; and providing reasonable
assurance that unauthorized acquisition, use or disposition of Company
assets that could have a material effect on our financial statements would
be prevented or detected on a timely basis. Because of its inherent
limitations, internal control over financial reporting is not intended to
provide absolute assurance that a misstatement of our financial statements
would be prevented or detected.
Management has conducted an evaluation of the effectiveness of our internal
control over financial reporting based on the framework in Internal
Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. There were no changes in our
internal control over financial reporting during fiscal 2011 that have
materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting. Management has concluded that the
Company's internal control over financial reporting was effective as of
April 30, 2011. This Annual Report does not include an attestation report of
the Company's independent registered public accounting firm regarding
internal control over financial reporting. Management's report was not
subject to attestation by the Company's independent registered public
accounting firm.
Common Stock Information
The Common Stock of the Company is traded on the NASDAQ National Market with
the symbol "DRAM". The following table sets forth, for the periods
indicated, the high and low prices for the Common Stock.
2011 2010
___________________ __________________
High Low High Low
___________________ __________________
First Quarter $ 2.40 $ 1.19 $ 1.75 $ 1.27
Second Quarter 2.63 1.52 4.49 1.39
Third Quarter 2.54 1.42 5.49 2.50
Fourth Quarter 2.65 1.91 3.51 2.22
At April 30, 2011, there were approximately 5,000 shareholders.
15
DATARAM CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
April 30, 2011 and 2010
(In thousands, except share and per share amounts)
2011 2010
______ ______
Assets
Current assets:
Cash and cash equivalents $ 345 $ 2,507
Accounts receivable, less allowance for
doubtful accounts and sales returns
of $225 in 2011 and $250 in 2010 4,630 5,344
Inventories:
Raw materials 3,229 3,919
Work in process 36 32
Finished goods 2,197 2,921
______ ______
5,462 6,872
Other current assets 127 87
______ ______
Total current assets 10,564 14,810
Property and equipment:
Machinery and equipment 11,931 12,300
Leasehold improvements 1,239 2,235
______ ______
13,170 14,535
Less accumulated depreciation
and amortization 12,207 13,418
______ ______
Net property and equipment 963 1,117
Other assets 111 105
Intangible assets, less accumulated
amortization of $1,099 in 2011 and
$692 in 2010 1,940 867
Goodwill 1,242 754
______ ______
$14,820 $17,653
====== ======
Liabilities and Stockholders' Equity
Current liabilities:
Note payable-revolving credit line $ 2,154 $ 0
Accounts payable 2,945 3,523
Accrued liabilities 840 1,738
Due to related party 1,500 1,000
______ ______
Total current liabilities 7,439 6,261
16
Commitments and contingencies
Stockholders' equity:
Common stock, par value $1.00 per share.
Authorized 54,000,000 shares; issued
and outstanding 8,928,309 at April 30,
2011 and 8,918,309 on April 30, 2010 8,929 8,919
Additional paid-in capital 8,622 8,009
Accumulated deficit (10,170) (5,536)
______ ______
Total stockholders' equity 7,381 11,392
______ ______
$14,820 $17,653
====== ======
See accompanying notes to consolidated financial statements.
DATARAM CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended April 30, 2011, 2010 and 2009
(In thousands, except per share amounts)
2011 2010 2009
_______ _______ _______
Revenues $ 46,847 $ 44,020 $ 25,897
Costs and expenses:
Cost of sales 35,777 32,408 17,443
Engineering 1,033 997 1,219
Research and development 1,894 4,265 1,531
Selling, general and administrative 12,371 13,365 11,064
_______ _______ _______
51,075 51,035 31,257
_______ _______ _______
Loss from operations (4,228) (7,015) (5,360)
Other income (expense):
Interest income 0 12 300
Interest expense (286) (54) (6)
Currency loss (135) (85) (68)
Other income (expense) 20 10 (3)
_______ _______ _______
(401) (117) 223
_______ _______ _______
Loss before income tax
expense (benefit) (4,629) (7,132) (5,137)
Income tax expense (benefit) 5 3,611 (2,002)
_______ _______ _______
Net loss $ (4,634)$(10,743) $(3,135)
======= ======= =======
Net loss per common share:
Basic $ (0.52)$ (1.21) $ (0.35)
======= ======= =======
17
Diluted $ (0.52)$ (1.21) $ (0.35)
======= ======= =======
See accompanying notes to consolidated financial statements.
DATARAM CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended April 30, 2011, 2010 and 2009
(In thousands)
2011 2010 2009
______ ______ ______
Cash flows from operating activities:
Net loss $ (4,634)$(10,743) $(3,135)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 1,039 1,193 456
Bad debt expense (recovery) (6) 32 204
Stock-based compensation expense 610 918 533
Other stock option expense - - 121
Loss (gain) on sale of property
and equipment (47) (10) 2
Deferred income tax expense
(benefit) - 3,582 (2,040)
Changes in assets and liabilities
(net of effect of acquisition
of business):
Decrease (increase) in
accounts receivable 720 (1,994) 940
Decrease (increase) in
inventories 1,410 (4,672) (223)
Decrease (increase) in
other current assets (40) 39 (28)
Decrease (increase) in
other assets (6) 31 (41)
Increase (decrease) in
accounts payable (578) 2,137 (594)
Increase (decrease) in
accrued liabilities (898) 650 217
_____ _____ _____
Net cash used in operating activities (2,430) (8,837) (3,588)
_____ _____ _____
Cash flows from investing activities:
Acquisition of business (488) (1,736) (912)
Additions to property and
equipment (478) (573) (617)
Software development costs (1,480) - -
Proceeds from sale of property and
equipment 47 10 -
_____ _____ _____
Net cash used in investing activities (2,399) (2,299) (1,529)
_____ _____ _____
18
Cash flows from financing activities:
Net proceeds from borrowings under
Revolving credit line 2,154 - -
Proceeds from related party
note payable 500 1,000 -
Proceeds from sale of common shares
under stock option plan 13 118 -
_____ _____ _____
Net cash provided by financing
activities 2,667 1,118 -
_____ _____ _____
Net decrease in cash and
cash equivalents (2,162) (10,018) (5,117)
Cash and cash equivalents at
beginning of year 2,507 12,525 17,642
_____ _____ _____
Cash and cash equivalents at end
of year $ 345 $ 2,507 $ 12,525
===== ===== ======
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 275 $ 54 $ 6
===== ===== =====
Income taxes $ 5 $ 35 $ 20
===== ===== =====
See accompanying notes to consolidated financial statements.
19
DATARAM CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended April 30, 2011, 2010 and 2009
(In thousands, except share amounts)
Number Retained Total
of Additional paid-in stock-
Common Common paid-in (accumulated) holders'
Shares stock capital (deficit) equity
_______ _______ _________ ___________ ________
Balance at April 30, 2008 8,869 $ 8,869 $ 6,408 $ 8,342 $23,619
Net loss - - (3,135) (3,135)
Stock-based compensation expense
Net of tax effect of
expired options of $39 - 494 - 494
Other stock option expense - 121 - 121
_______ ________ _________ _________ _______
Balance at April 30, 2009 8,869 $ 8,869 $ 7,023 $ 5,207 $21,099
Issuance of shares under
stock option plans 50 50 68 - 118
Net loss - - (10,743) (10,743)
Stock-based compensation
expense - 918 - 918
_______ ________ ________ _________ _______
Balance at April 30, 2010 8,919 $ 8,919 $ 8,009 $ (5,536) $11,392
Issuance of shares under
stock option plans 10 10 3 - 13
Net loss - - (4,634) (4,634)
Stock-based compensation
expense - 610 - 610
_______ ________ ________ ________ ________
Balance at April 30, 2011 8,929 $ 8,929 $ 8,622 $(10,170) $ 7,381
===== ===== ===== ====== =====
See accompanying notes to consolidated financial statements.
20
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
(1) Description of Business and Significant Accounting Policies
Dataram Corporation ("the Company") 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, HP, IBM and Sun
Microsystems. Additionally, the Company manufactures a line of memory
products for Intel and AMD motherboard based servers. The Company is also
developing a line of high-performance storage caching products.
The Company's memory products are sold worldwide to OEMs, distributors,
value-added resellers and end-users. The Company has two manufacturing
facilities in the United States with sales offices in the United States
and Europe.
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 DRAMs is the largest single component 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.
Principles of Consolidation
The consolidated financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America and
include the accounts of the Company and its wholly-owned subsidiaries. All
significant intercompany transactions and balances have been eliminated in
consolidation.
Liquidity
As discussed in Note 3, the Company entered into financing agreements to
address short-term liquidity needs. Also, as discussed in Note 5, on May 11,
2011, the Company entered into a securities purchase agreement with certain
investors and received approximately $3.0 million in net proceeds in
connection with the agreement on May 17, 2011. Based on the cash provided by
the securities purchase agreement and the cash flows expected to be provided
from the financing agreements along with the cash flows projected to result
from the Company's operations, management has concluded that the Company's
short-term liquidity needs have been satisfied. The Company's short-term
cash flow projections include cash flow generated from its traditional
memory solutions business as well as from revenues generated by sales of
its recently developed XcelaSAN product line. There can be no assurance,
however, that in the short-term, realized revenues will be in line with the
Company's projections. In order to satisfy long-term liquidity needs, the
Company will need to generate profitable operations and positive cash flows.
Cash and Cash Equivalents
Cash and cash equivalents consist of unrestricted cash and money market
accounts.
21
Accounts Receivable
Accounts receivable consist of the following categories:
April 30, 2011 April 30, 2010
________________ ______________
Trade receivables $ 4,643 $ 5,000
VAT receivable 212 594
Allowance for doubtful accounts
and sales returns (225) (250)
________________ ______________
$ 4,630 $ 5,344
================ ==============
Inventories
Inventories, consisting of materials, labor and manufacturing overhead, are
stated at the lower of cost or market, with cost determined by the first-in,
first-out method.
Property and Equipment
Property and equipment is recorded at cost. Depreciation is computed on the
straight-line basis. Depreciation and amortization rates are based on the
estimated useful lives, which range from two to five years for machinery and
equipment and five to six years for leasehold improvements. When property or
equipment is retired or otherwise disposed of, related costs and accumulated
depreciation and amortization are removed from the accounts. Depreciation
and amortization expense related to property and equipment for the fiscal
years ended April 30, 2011, 2010 and 2009 totaled $632, $556, and $407,
respectively.
Repair and maintenance costs are charged to operations as incurred.
Long-Lived Assets
Long-lived assets, such as property, plant and equipment, are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets
to be held and used is measured by a comparison of the carrying amount of an
asset to the estimated undiscounted future cash flows expected to be
generated by the asset. If the carrying amount of an asset exceeds its
estimated future cash flows, an impairment charge is recognized by the
amount by which the carrying amount of the asset exceeds the estimated fair
value of the asset. Assets to be disposed of would be separately presented
in the consolidated balance sheets and reported at the lower of the carrying
amount or fair value less cost to sell, and no longer depreciated. The
Company considers various valuation factors, principally undiscounted cash
flows, to assess the fair values of long-lived assets.
Intangible Assets and Goodwill
Intangible assets with determinable lives, other than customer relationships
and research and development, are amortized on a straight-line basis over
their estimated period of benefit, ranging from four to five years. Research
and development and customer relationships are amortized over a two-year
period at a rate of 65% of the gross value acquired in the first year
22
subsequent to their acquisition and 35% of the gross value acquired in the
second year. The Company evaluates the recoverability of intangible assets
periodically and takes into account events or circumstances that warrant
revised estimates of useful lives or that indicate that impairment exists.
All of the Company's intangible assets with definitive lives are subject to
amortization. No impairments of intangible assets have been identified
during any of the periods presented. Goodwill is tested for impairment on
an annual basis and between annual tests if indicators of potential
impairment exist, using a fair-value-based approach. The date of the annual
impairment test is March 1. There has been no impairment of Goodwill in any
of the periods presented.
The Company estimates that it has no significant residual value related to
its intangible assets. Acquired intangibles generally are amortized on a
straight-line basis over weighted average lives. Intangible assets
amortization expense was $407 for fiscal year 2011, $637 for fiscal year
2010 and $55 for fiscal year 2009. The components of finite-lived intangible
assets acquired are as follows:
Gross Weighted Net
Carrying Average Accumulated Carrying
Amount Life Amortization Amount
________ _______ ____________ _________
Customer relationships $ 758 2 Years $ 758 $ 0
Trade names 733 5 Years 305 428
Non-compete agreement 68 4 Years 36 32
Software development costs (a) 1,480 1,480
------- ------ -------
$ 3,039 $1,099 $ 1,940
======= ====== =======
The following table outlines the estimated future amortization expense
related to intangible assets:
Year ending April 30:
2012 $ 164
2013 162
2014 134
-------
$ 460
=======
(a) At the time XcelaSAN is made available for general release to customers
the capitalized costs will be amortized to cost of sales over the estimated
useful life of the underlying technology.
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. Estimated warranty
costs are accrued by management upon product shipment based on an estimate
of future warranty claims.
23
Engineering and Research and Development
Research and development costs are expensed as incurred. Development costs
of a computer software product to be sold, leased, or otherwise marketed are
subject to capitalization beginning when a product's technological
feasibility has been established and ending when a product is available for
general release to customers. Technological feasibility of a computer
software product is established when all planning, designing, coding and
testing activities that are necessary to establish that the product can be
produced to meet its design specifications including functions, features and
technical performance requirements are completed. The Company has been
developing computer software for its XcelaSAN storage caching product line.
On November 4, 2010, the Company determined that technological feasibility
of the product was established, and development costs subsequent to that
date totaling $1,480 have been capitalized. Prior to November 4, 2010, the
Company expensed all development costs related to this product line.
At the time the product is made available for general release to customers
the capitalized costs will be amortized to cost of sales over the estimated
useful life of the underlying technology.
Income Taxes
The Company utilizes the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred income tax assets and
liabilities are recognized for the estimated future tax consequences
attributable to temporary 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 income tax assets will not be
realized. The Company considers certain tax planning strategies in its
assessment as to the recoverability of its deferred income tax assets.
Deferred income 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. 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.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations
of credit risk consist primarily of cash and cash equivalents and accounts
receivable. 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. At April 30, 2011 and 2010, amounts due from one
customer totaled approximately 22% and 14%, respectively of accounts
receivable.
In fiscal 2011, fiscal 2010 and fiscal 2009, the Company had sales to one
customer that accounted for approximately 11%, 11% and 17%, respectively of
revenues.
Net income (loss) per share
Basic net income per share is calculated by dividing net income by the
weighted average number of common shares outstanding during the period.
Diluted net income per share was calculated in a manner consistent with
24
basic net income per share except that the weighted average number of common
shares outstanding 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 loss per share.
Year ended April 30, 2011
Loss Shares Per share
(numerator) (denominator) amount
_________ ___________ _________
Basic net loss per share
-net loss and weighted
average common shares
outstanding $(4,634) 8,923,268 $ (.52)
Effect of dilutive securities
-stock options - - -
_______ _________ ______
Diluted net loss per share
-net loss weighted average
common shares outstanding
and effect of
stock options $(4,634) 8,923,268 $ (.52)
======= ========= ======
Year ended April 30, 2010
Loss Shares Per share
(numerator) (denominator) amount
_________ ___________ _________
Basic net loss per share
-net loss and weighted
average common shares
outstanding $(10,743) 8,890,914 $(1.21)
Effect of dilutive securities
-stock options - - -
_______ _________ ______
Diluted net loss per share
-net loss weighted average
common shares outstanding
and effect of
stock options $(10,743) 8,890,914 $(1.21)
======= ========= ======
Year ended April 30, 2009
Earnings Shares Per share
(numerator) (denominator) amount
_________ ___________ _________
Basic net earnings per share
-net earnings and weighted
average common shares
outstanding $(3,135) 8,869,184 $ (.35)
Effect of dilutive securities
-stock options - - -
_______ _________ ______
Diluted net earnings per share
-net earnings, weighted
average common shares
outstanding and effect of
stock options $(3,135) 8,869,184 $ (.35)
======= ========= ======
25
Diluted net loss per common share does not include the effect of options
to purchase 1,899,200, 1,996,800 and 1,307,675 shares of common stock for
the years ended April 30, 2011, 2010 and 2009, respectively, because they
are anti-dilutive.
Product Warranty
The majority of the Company's products are intended for single use;
therefore, the Company requires limited product warranty accruals. The
Company accrues estimated product warranty cost at the time of sale and any
additional amounts are recorded when such costs are probable and can be
reasonably estimated.
Balance Charges to Balance
Beginning Costs and End
of Year Expenses Other Deductions of Year
_________ _________ _____ __________ ________
Year Ended
April 30, 2011 $ 79 1 - (1) $ 79
Year Ended
April 30, 2010 $ 79 6 - (6) $ 79
Year Ended
April 30, 2009 $ 54 5 25(1) (5) $ 79
(1) Includes a warranty obligation of an acquired business (See Note 2).
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 income tax asset valuation allowance and other operating
allowances and accruals. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The fair value of financial instruments is determined by reference to market
data and other valuation techniques as appropriate. The Company believes
that there is no material difference between the fair value and the reported
amounts of financial instruments in the consolidated balance sheets.
Stock-Based Compensation
At April 30, 2011, the Company has stock-based employee and director
compensation plans, which are described more fully in Note 7. New shares
of the Company's common stock are issued upon exercise of stock options.
26
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 are accounted for using a fair value-based method with a
recognition of an expense for compensation cost related to share-based
payment arrangements, including stock options and employee stock purchase
plans.
The Company's consolidated statement of operations for fiscal year ended
April 30, 2011 includes $610 of stock based compensation expense. Stock
based compensation expense is recognized in the results of operations on a
ratable basis over the vesting periods. These stock option grants have been
classified as equity instruments, and as such, a corresponding increase has
been reflected in additional paid-in capital in the accompanying balance
sheet as of April 30, 2011. In fiscal 2010 and fiscal 2009, stock-based
compensation expense totaled $918 and $533, respectively. A corresponding
increase of $918 is reflected in additional paid-in capital in fiscal 2010's
consolidated balance sheet. The fair value of each stock option granted is
estimated on the date of grant using the Black-Scholes option pricing model.
A summary of option activity for the fiscal year ended April 30, 2011 is as
follows:
Weighted Weighted average Aggregate
average remaining intrinsic
Shares exercise price contractual life value(1)
__________ __________ __________ __________
Balance
April 30, 2010 1,946,800 $3.25 6.38 $ 175
Granted 139,000 $1.76 - -
Exercised (10,000) $1.28 - -
Expired (226,600) $5.72 - -
Balance
April 30, 2011 1,849,200 $2.88 5.91 $ 88
Exercisable
April 30, 2011 1,229,200 $3.10 5.09 $ 65
Expected to vest
April 30, 2011 1,757,000 $2.88 5.91 -
(1) These amounts represent the difference between the exercise price and
$1.92, the closing price of Dataram common stock on April 29, 2011 as
reported on the NASDAQ Stock Market, for all in-the-money options
outstanding. For exercised options, intrinsic value represents the
difference between the exercise price and the closing price of Dataram
common stock on the date of exercise.
Total cash received from the exercise of options in fiscal 2011 was $13.
During fiscal 2011, 139,500 options completed vesting. As of April 30, 2011,
there was $554 of total unrecognized compensation expense related to stock
options. This expense is expected to be recognized over a weighted average
period of approximately twelve months. At April 30, 2011, an aggregate of
88,527 shares were authorized for future grant under the Company's stock
option plans.
27
The fair value of each stock option granted during the year is estimated on
the date of grant using the Black-Scholes option pricing model with the
following assumptions:
2011 2010 2009
------- ------- -------
Expected life (years) 3.0 to 6.0 3.0 to 6.0 5.0 to 10.0
Expected volatility 56% to 79% 56% 110%
Expected dividend yield - - -
Expected forfeiture rate 5.0% 5.0% 5.0%
Risk-free interest rate 0.7% to 2.9% 1.6% to 2.8% 4.0%
Weighted average fair value of options
granted during the year $ 1.07 $ 2.55 $ 2.36
The expected life in fiscal years 2011 and 2010 represents the period that
the Company's stock-based awards are expected to be outstanding and was
calculated using the simplified method pursuant to SEC Staff Accounting
Bulletin (SAB) Nos. 107 and 110. Expected life for fiscal year 2009, 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 common stock using the daily closing price of
the Company's common stock, pursuant to SAB 107. Expected dividend yield
assumes the current dividend rate remains unchanged. Expected forfeiture
rate is based on the Company's historical experience. The risk-free
interest rate is based on the rate of U.S Treasury zero-coupon issues with
a remaining term equal to the expected life of the option grants.
(2) Acquisition
On March 31, 2009, the Company acquired certain assets of Micro Memory
Bank, Inc. ("MMB"), a privately held corporation. MMB is a manufacturer of
legacy to advanced solutions in laptop, desktop and server memory products.
The acquisition expands the Company's memory product offerings and routes to
market. The Company purchased the assets from MMB for total consideration of
approximately $2,253 of which approximately $912 was paid in cash. The
Company also assumed certain accounts payable totaling approximately $190
and certain accrued liabilities totaling approximately $122. Under the terms
of the agreement with MMB, the remaining portion of the purchase price is
contingently payable based upon the performance of the MMB business unit
operating as a result of the acquisition ("the Unit") and consists of a
percentage, averaging 65%, payable quarterly, over the four year period from
date of acquisition, of earnings before interest, taxes, depreciation and
amortization of the Unit. The net assets acquired by the Company were
recorded at their respective fair values under the purchase method of
accounting. The results of operations of MMB for the period from the
acquisition date, March 31, 2009, through April 30, 2011 have been included
in the consolidated results of operations of the Company.
The following unaudited pro forma financial information presents the
combined results of operations of the Company and MMB for the year ended
April 30, 2009 as if the acquisition had occurred at May 1, 2008. The pro
forma financial information does not necessarily reflect the results of
operations that would have occurred had the Company been a single entity
during this period.
28
Fiscal year
ended
April 30, 2009
______________
Revenues $37,814
Net loss ($2,929)
Basic and diluted loss per share ($0.33)
The total consideration of the acquisition has been allocated to the fair
value of the assets of MMB as follows:
Accounts receivable $ 478
Machinery and equipment 200
Deposits 16
Trade names 733
Customer relationships 758
Non-compete agreement 68
--------
Gross assets acquired 2,253
Liabilities assumed 312
--------
Net assets acquired $ 1,941
========
The contingent purchase price amount for the acquisition in the fiscal year
ended April 30, 2011 totaled $488 and is recorded as an addition to
goodwill. The cumulative contingent purchase amount for the acquisition
through April 30, 2011 totaled $2,224.
Following are details of the changes in our goodwill balances during the
fiscal years ended April 30, 2011 and 2010:
Fiscal year Fiscal year
ended ended
April 30, 2011 April 30, 2010
______________ ______________
Beginning balance $ 754 $ -
Contingently payable
acquisition purchase price 488 754
----- -----
Ending balance $1,242 $ 754
===== =====
We test goodwill for impairment annually on March 1, using a fair value
approach.
(3) Financing Agreements
On February 24, 2010, the Company entered into a Note and Security Agreement
with Sheerr Memory's, LLC ("Sheerr Memory") owner (See Note 4). Under the
agreement, the Company borrowed the principal sum of $1,000 for a period of
six months, which the Company could extend for an additional three months
without penalty. The loan bore interest at the rate of 5.25%. Interest was
payable monthly, and the entire principal amount was payable in the event of
the employee's termination of employment by the Company. The loan was
secured by a security interest in all machinery, equipment and inventory of
Dataram at its Montgomeryville, PA location. The loan was paid in full on
August 13, 2010. No further financing is available to the Company under this
agreement.
29
On July 27, 2010, the Company entered into a secured credit facility with a
bank, which provides for up to a $5,000 revolving credit line. Advances
under the facility are limited to 80% of eligible receivables, as defined
in the agreement. The agreement does not have a fixed term. The agreement
provides for Prime Rate loans at an interest rate equal to the Prime Rate
plus two percent, subject to minimum interest rate of five and one quarter
percent. The Company is required to pay a monthly maintenance fee equal to
six-tenths of one percent (0.6%) of the monthly average principal balance of
any borrowings under the facility in the prior month. Advances under the
facility are secured by substantially all assets of the Company. The
agreement contains certain restrictive covenants, specifically a minimum
tangible net worth covenant and certain other covenants, as defined in the
agreement. At April 30, 2011, the Company is in compliance with all
covenants of the agreement. The amount of financing available to the
Company under the agreement varies with the level of the Company's eligible
accounts receivable as defined in the agreement. At April 30, 2011 the
Company had $28 of financing available to it under the terms of the
agreement.
On July 27, 2010, the Company entered into an agreement with Sheerr Memory,
(See Note 4) to consign a formula based amount of up to $3,000 of certain
inventory into the Company's manufacturing facilities. At April 30, 2011 no
further financing was available to the Company under the formulas contained
in the agreement, although the formulas defined in the agreement provide for
additional possible financing in the future.
The weighted average interest rate on amounts borrowed under these
agreements at April 30, 2011 and 2010 was 11.4% and 5.25%, respectively. The
average dollar amount borrowed under these agreements for the fiscal years
ended April 30, 2011, 2010 and 2009 was $2,263, $250 and nil, respectively.
(4) Related Party Transactions
During fiscal 2011 and 2010, the Company purchased inventories for resale
totaling approximately $2,623 and $4,976, respectively from Sheerr Memory.
Sheerr Memory's owner is employed by the Company as the general manager of
the acquired MMB business unit described in Note 2 and is an executive
officer of the Company. When the Company acquired certain assets of MMB, it
did not acquire any of its inventory. However, the Company informally agreed
to purchase such inventory on an as needed basis, provided that the offering
price was a fair market value price. The inventory acquired was purchased
subsequent to the acquisition of MMB at varying times and consisted
primarily of raw materials and finished goods used to produce products
sold by the MMB business unit. Approximately $1,131 and $400, respectively,
of accounts payable in the Company's consolidated balance sheets as of
April 30, 2011 and 2010 is payable to Sheerr Memory. Sheerr Memory offers
the Company trade terms of net 30 days and all invoices are settled in the
normal course of business. No interest is paid. The Company has made
further purchases from Sheerr Memory subsequent to April 30, 2011 and
management anticipates that the Company will continue to do so, although
the Company has no obligation to do so.
On February 24, 2010, the Company entered into a Note and Security Agreement
(See Note 3) with Sheerr Memory's owner. Under the agreement, the Company
borrowed the principal sum of $1,000 for a period of six months, which the
Company could extend for an additional three months without penalty.
Interest paid to Sheerr Memory under this agreement in the fiscal year ended
April 30, 2011 was $19.
30
On July 27, 2010, the Company entered into an agreement with Sheerr Memory
to consign a formula based amount of up to $3,000 of certain inventory into
the Company's manufacturing facilities (see Note 3). The agreement has a
two-year term and the Company is obligated to pay monthly a fee equal to
0.833% of the average daily balance of the purchase cost of the consigned
products held by Sheerr Memory under the agreement. The Company is obligated
to purchase any consigned products acquired by Sheerr Memory under the
agreement within ninety days of the acquisition date of the product. The
Company and Sheerr Memory must jointly agree to the products to be held in
consignment under the agreement. As of April 30, 2011, the Company has
received financing totaling $1,500 under the agreement which is recorded as
a liability in the accompanying consolidated balance sheets. Interest paid
to Sheerr Memory in fiscal 2011 under this agreement was $23. Interest
payable to Sheerr Memory at April 30, 2011 was $10.
(5) Subsequent Event
On May 11, 2011, the Company and certain investors entered into a securities
purchase agreement in connection with a registered direct offering, pursuant
to which the Company agreed to sell an aggregate of 1,775,000 shares of its
common stock and warrants to purchase a total of 1,331,250 shares of its
common stock to such investors for aggregate net proceeds, after deducting
fees to the Placement Agent and other estimated offering expenses payable
by the Company, of approximately $3,000. On May 17, 2011, this transaction
closed.
(6) Income Taxes
Income (loss) before provision for income taxes for the years ended
April 30 is as follows:
2011 2010 2009
_____ _____ _____
Current:
Federal $ (4,629) $ (7,132) $ (5,137)
Income tax expense (benefit) for the years ended April 30 consists
of the following:
2011 2010 2009
_____ _____ _____
Current:
Federal $ - $ - $ -
State 5 29 -
_____ _____ _____
5 29 -
Deferred:
Federal - 3,216 (1,595)
State - 366 (407)
_____ _____ _____
- 3,582 (2,002)
_____ _____ _____
Total income tax expense (benefit) $ 5 $ 3,611 $(2,002)
===== ===== =====
31
Income tax expense (benefit) differs from "expected" tax expense (benefit)
(computed by applying the applicable U. S. statutory Federal income tax rate
to earnings before income taxes) as follows:
2011 2010 2009
_____ _____ _____
Federal income tax at
statutory rates $ (1,574) $(2,425) $(1,798)
State income taxes(net
of Federal income tax
benefit) (319) 395 (269)
Other (259) (138) 65
Total income tax expense (benefit)
before provision for valuation
allowance _____ _____ _____
(2,152) (2,168) (2,002)
Changes in valuation allowance (2,157) 5,779 -
_____ _____ _____
Total income tax expense (benefit) $ 5 $ 3,611 $(2,002)
===== ===== =====
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are
presented below:
2011 2010
____ ____
Deferred tax assets:
Compensated absences and severance,
principally due to accruals for
financial reporting purposes $ 121 $ 96
Stock-based compensation expense 1,026 838
Accounts receivable, principally due
to allowance for doubtful accounts
and sales returns 88 98
Property and equipment, principally
due to differences in depreciation 289 (27)
Intangible assets 390 288
Inventories 183 217
Foreign tax credit 0 53
Domestic net operating losses 6,703 4,488
Software development costs (577) -
Alternative minimum tax 438 438
Other 58 73
_____ _____
Net deferred tax assets 8,719 6,562
Valuation allowance (8,719) (6,562)
_____ _____
Net deferred tax assets $ 0 $ 0
===== =====
32
The Company recorded a valuation allowance of $2,157 and $6,562 for the
fiscal years ended April 30, 2011 and 2010, respectively. Management
believes sufficient uncertainty exists regarding the realizability of the
deferred tax asset items and that a valuation allowance is required.
Management considers projected future taxable income and tax planning
strategies in making this assessment. The amount of deferred tax assets
considered realizable could materially change in the future if estimates
of future taxable income change.
The Company has Federal and State net operating loss carryforwards of
approximately $17,053 and $15,091, respectively. These can be used to offset
future taxable income and expire between 2023 and 2031 for Federal tax
purposes and 2016 and 2031 for State tax purposes.
The Company adopted FASB guidance for accounting for uncertainty in income
taxes on May 1, 2008. The implementation of this guidance did not result in
a material adjustment to the Company's liability for unrecognized income tax
benefits. At the time of adoption and as of April 30, 2011, the Company
currently was not and is not engaged in an income tax examination by any tax
authority. The Company recognizes interest and penalties on unpaid taxes in
its income tax expense. No interest or penalties were recognized during the
Company's fiscal years ended April 30, 2011, nor were any amounts accrued as
of April 30, 2011.
The Company files income tax returns in the United States and in various
states. The Company's significant tax jurisdictions are the U.S. Federal,
New Jersey and Pennsylvania. The tax years subsequent to 2007 remain open
to examination by the taxing authorities.
(7) Stock Options
The Company has a 2001 incentive and non-statutory stock option plan for the
purpose of permitting certain key employees to acquire equity in the Company
and to promote the growth and profitability of the Company by attracting and
retaining key employees. In general, the plan allows granting of up to
1,800,000 shares of the Company's common stock at an option price to be no
less than the fair market value of the Company's common stock on the date
such options are granted. Currently, options granted under the plan vest
ratably on the annual anniversary date of the grants. Vesting periods for
options currently granted under the plan range from one to five years. At
April 30, 2011, 1,015,200 of the outstanding options are exercisable.
The status of the plan for the three years ended April 30, 2011,
is as follows:
Options Outstanding
___________________________________________________
Exercise price Weighted average
Shares per share exercise price
_________ ______________ ___________
Balance April 30, 2008 663,000 $ 2.813-24.250 $ 5.828
Granted 412,000 1.280-3.200 2.405
Exercised - - -
Expired (109,325) 1.990-7.9800 4.738
_________ ____________ ____________
Balance April 30, 2009 965,675 $ 1.280-24.250 $ 4.491
33
Granted 899,500 1.530-2.650 2.549
Exercised (17,125) 1.990-4.090 2.576
Expired (221,250) 1.990-24.250 6.303
_________ ____________ ____________
Balance April 30, 2010 1,626,800 $ 1.280-24.250 $ 3.191
Granted 139,000 1.580-2.160 1.758
Exercised (10,000) 1.280 1.280
Expired (190,600) 1.580-24.250 5.566
_________ ____________ ____________
Balance April 30, 2011 1,565,200 $ 1.280-7.980 $ 2.786
========= ============ ==========
The Company periodically grants nonqualified stock options to non-employee
directors of the Company. These options are granted for the purpose of
retaining the services of directors who are not employees of the Company and
to provide additional incentive for such directors to work to further the
best interests of the Company and its shareholders. The options granted to
these non-employee directors are exercisable at a price representing the
fair value at the date of grant, and expire either five or ten years after
date of grant. Vesting periods for options currently granted under the plan
range from one to two years. At April 30, 2011, 214,000 of the outstanding
options are exercisable.
The status of the non-employee director options for the three
years ended April 30, 2011, is as follows:
Options Outstanding
__________________________________________________
Exercise price Weighted average
Shares per share exercise price
_________ _____________ ____________
Balance April 30, 2008 236,000 $ 2.990-7.980 $ 5.304
Granted 56,000 1.990 1.990
Exercised - - -
Expired - - -
________ ____________ ____________
Balance April 30, 2009 292,000 $ 1.990-7.980 $ 4.668
Granted 140,000 2.570 2.570
Exercised (32,000) 1.990-3.330 2.325
Expired (80,000) 2.990-7.980 5.672
________ ____________ ____________
Balance April 30, 2010 320,000 $ 1.990-7.980 $ 3.734
Granted - - -
Exercised - - -
Expired (36,000) 6.420-6.630 6.560
________ ____________ ____________
Balance April 30, 2011 284,000 $ 1.990-7.980 $ 3.375
======== ============ ============
Other Stock Option Expense
During fiscal 2009's first quarter, the Company granted options to purchase
50,000 shares of the Company's common stock to a privately held company in
exchange for certain patents and other intellectual property. The options
34
granted are exercisable at a price representing the fair value at the date
of grant, were 100% exercisable on the date of grant and expire ten years
after the date of grant. The calculated fair value of these options is
approximately $121 and was determined using the Black-Scholes option-pricing
model based upon the market price of the underlying common stock as of the
date of grant, reduced by the present value of estimated future dividends,
using an expected quarterly dividend rate of zero, an expected forfeiture
rate of zero, a calculated volatility factor of 110% and a risk-free
interest rate of 4.0%. Such calculated fair value has been charged in its
entirety to the research and development expense line item in the
accompanying consolidated statement of operations for this grant as of
April 30, 2009. These stock option grants have been classified as equity
instruments, and as such, a corresponding increase of $121 has been
reflected in additional paid-in capital in the accompanying consolidated
balance sheet as of April 30, 2009.
(8) Accrued Liabilities
Accrued liabilities consist of the following at April 30:
2011 2010
-------- --------
Contingently payable acquisition
purchase price (See Note 2) $ 56 $ 788
Payroll, including vacation 331 334
Commissions 125 130
Bonuses 148 275
Other 180 211
-------- --------
$ 840 $ 1,738
======== ========
(9) Commitments and contingencies
Leases
The Company and its subsidiaries occupy various facilities and operate
various equipment under operating lease arrangements. Rent charged to
operations pursuant to such operating leases amounted to approximately
$655 in 2011, $654 in 2010 and $561 in 2009.
Future minimum lease payments under non-cancelable operating leases (with
initial or remaining lease terms in excess of one year) as of April 30, 2011
are as follows:
Year ending April 30:
2012 $ 272
2013 352
2014 365
2015 374
2016 368
Thereafter 147
___________
$ 1,878
=======
35
Purchases
At April 30, 2011, the Company had open purchase orders outstanding
totaling $3.1 million primarily for inventory items to be delivered in
the first six months of fiscal 2012. These purchase orders are cancelable.
License Agreements
The Company has entered into certain licensing agreements with varying terms
and conditions. The Company is obligated to pay royalties on certain of
these agreements. Royalties charged to operations pursuant to such
agreements amounted to approximately $93 in 2011, $131 in 2010 and
$160 in 2009.
Legal Proceedings
The Company is not involved in any claim or legal action.
(10) Employee Benefit Plan
The Company has a defined contribution plan (the Plan) which is available to
all qualified employees. Employees may elect to contribute a portion of
their compensation to the Plan, subject to certain limitations. The Company
contributes a percentage of the employee's contribution, subject to a
maximum of 4.5 percent. The Company's matching contributions aggregated
approximately $301, $307 and $249 in 2011, 2010 and 2009, respectively.
(11) Revenues by Geographic Location
The Company operates in one business segment and develops, manufactures and
markets a variety of memory systems for use with servers and workstations
which are manufactured by various companies. Revenues, total assets and
long lived assets for 2011, 2010 and 2009 by geographic region is as follows:
United Europe Other* Consolidated
States
_______ _______ ______ ____________
April 30, 2011
Revenues $ 37,400 $ 6,481 $ 2,966 $ 46,847
Total assets $ 14,783 $ 37 $ 0 $ 14,820
Long lived assets $ 4,256 $ 0 $ 0 $ 4,256
April 30, 2010
Revenues $ 35,566 $ 4,484 $ 3,970 $ 44,020
Total assets $ 17,511 $ 133 $ 9 $ 17,653
Long lived assets $ 2,738 $ 0 $ 0 $ 2,738
April 30, 2009
Revenues $ 19,088 $ 4,793 $ 2,016 $ 25,897
Total assets $ 24,416 $ 106 $ 33 $ 24,555
Long lived assets $ 2,604 $ 0 $ 0 $ 2,604
*Principally Asia Pacific Region
36
(12) Quarterly Financial Data (Unaudited)
Quarter Ended
____________________________________________
Fiscal 2011 July 31 October 31 January 31 April 30
___________ _______ __________ __________ ________
Revenues $12,744 $10,949 $11,873 $11,281
Gross profit 3,123 2,413 2,903 2,631
Net loss (1,239) (1,715) (839) (841)
Net loss per basic and
diluted common share (.14) (.19) (.09) (.09)
Quarter Ended
____________________________________________
Fiscal 2010 July 31 October 31 January 31 April 30
___________ _______ __________ __________ ________
Revenues $ 9,190 $10,673 $12,284 $11,873
Gross profit 2,535 2,737 3,385 2,955
Net loss (978) (1,616) (6,538) (1,611)
Net loss per basic and
diluted common share (.11) (.18) (.74) (.18)
____________________________________________
Earnings (loss) per share is calculated independently for each quarter and,
therefore, may not equal the total for the year.
37
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Dataram Corporation
We have audited the accompanying consolidated balance sheets of Dataram
Corporation and Subsidiaries as of April 30, 2011 and 2010, and the related
consolidated statements of operations, stockholders' equity and cash flows
for each of the years in the three-year period ended April 30, 2011. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Dataram
Corporation and Subsidiaries as of April 30, 2011 and 2010, and their
results of operations and cash flows for each of the years in the
three-year period ended April 30, 2011 in conformity with accounting
principles generally accepted in the United States of America.
J.H. Cohn LLP
Roseland, New Jersey
July 28, 2011
Selected Financial Data
(Not covered by Independent Registered Public Accounting Firm's Reports)
(In thousands, except per share amounts)
Years Ended April 30, 2011 2010 2009 2008 2007
______________________ ____ ____ ____ ____ ____
Revenues $ 46,847 $ 44,020 $ 25,897 $ 30,893 $ 38,404
Net earnings (loss) (4,634) (10,743) (3,135) 1,608 770
Basic earnings (loss)
per share (.52) (1.21) (.35) .18 .09
Diluted earnings (loss)
per share (.52) (1.21) (.35) .18 .09
Current assets 10,564 14,810 18,533 24,865 23,893
Total assets 14,820 17,653 24,555 26,110 25,905
Current liabilities 7,439 6,261 3,075 2,491 2,573
Total stockholders'
equity 7,381 11,392 21,099 23,619 23,332
Cash dividends paid - - - 2,114 2,055
38
DIRECTORS AND CORPORATE OFFICERS
Directors
John H. Freeman
President and Chief Executive Officer
of Dataram Corporation
Thomas A. Majewski*
Principal, Walden Inc.
Roger C. Cady*
Principal, Arcadia Associates
Rose Ann Giordano*
President, Thomis Partners
*Member of audit committee
Corporate Officers
John H. Freeman
President and Chief Executive Officer
Mark E. Maddocks
Vice President, Finance and
Chief Financial Officer
Jeffrey H. Duncan
Vice President of Manufacturing
and Engineering
David A. Sheerr
General Manager, Micro Memory Bank
Anthony M. Lougee
Controller
Thomas J. Bitar
Secretary
Member, Dillon, Bitar & Luther, L.L.C.
Corporate Headquarters
Dataram Corporation
777 Alexander Park
Princeton, NJ 08540
609-799-0071
Auditors
J.H. COHN LLP
Roseland, NJ
General Counsel
Dillon, Bitar & Luther, L.L.C.
Morristown, NJ
39
Transfer Agent and Registrar
American Stock Transfer and Trust Company
10150 Mallard Creek Drive
Suite 307
Charlotte, NC 28262
Stock Listing
Dataram's common stock is listed on
the NASDAQ with the trading symbol DRAM.
Annual Meeting
The annual meeting of shareholders
will be held on Thursday, September 22,
2011, at 2:00 p.m. at Dataram's
corporate headquarters at:
777 Alexander Park
Princeton, NJ 08540
Form 10-K
A copy of the Company's Annual Report
on Form 10-K filed with the Securities
& Exchange Commission is available
without charge to shareholders.
Address requests to:
Vice President, Finance
Dataram Corporation
777 Alexander Park
Princeton, NJ 08543
Corporate Headquarters
Dataram Corporation
777 Alexander Park
Princeton, NJ 08540
Toll Free: 800-DATARAM
Phone: 609-799-0071
Fax: 609-799-6734
www.dataram.com
40
EX-23
5
ex232011.txt
CONSENT OF J. H. COHN LLP
Exhibit 23(a)
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statement
(No. 33-56282) on Form S-8 and the Registration Statement (No. 333-173212)
on Form S-3 of Dataram Corporation and of our report dated July 28, 2011,
relating to the consolidated balance sheets of Dataram Corporation and
Subsidiaries as of April 30, 2011 and 2010, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of
the years in the three-year period ended April 30, 2011 which report appears
in the April 30, 2011 Annual Report on Form 10-K of Dataram Corporation.
/s/ J.H. Cohn, LLP
Roseland, New Jersey
July 28, 2011
EX-31
6
cert31a.txt
RULE 13A-14(A) CERTIFICATION OF JOHN H. FREEMAN
Exhibit 31(a)
Rule 13a-14(a) Certification
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302
I, John H. Freeman, certify that:
1. I have reviewed this annual report on Form 10-K of Dataram
Corporation;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules 13a-
15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such
evaluation; and
d) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth fiscal
quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of
registrant's Board of Directors (or persons performing the equivalent
functions):
a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: July 28, 2011 /s/ John H. Freeman
______________________________
John H. Freeman, President and
Chief Executive Officer
(Principal Executive Officer)
EX-31
7
cert31b.txt
RULE 13A-14(A) CERTIFICATION OF MARK E. MADDOCKS
Exhibit 31(b)
Rule 13a-14(a) Certification
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302
I, Mark E. Maddocks, certify that:
1. I have reviewed this annual report on Form 10-K of Dataram
Corporation;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules 13a-
15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such
evaluation; and
d) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth fiscal
quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of
registrant's Board of Directors (or persons performing the equivalent
functions):
a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: July 28, 2011 /s/ Mark E. Maddocks
______________________________
Mark E. Maddocks
Vice President, Finance
(Principal Financial & Accounting Officer)
EX-32
8
cert32a.txt
SECTION 1350 CERTIFICATION OF JOHN H. FREEMAN
Exhibit 32(a)
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
In connection with the Annual Report of Dataram Corporation, a New Jersey
corporation (the Company"), on Form 10-K for the year ended April 30, 2011,
as filed with the Securities and Exchange Commission (the "Report"), John H.
Freeman, Chief Executive Officer of the Company, does hereby certify,
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section
1350), that to his knowledge:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
July 28, 2011 /s/ John H. Freeman
_____________________________________
John H. Freeman
President and Chief Executive Officer
[A signed original of this written statement required by Section 906 has
been provided to Dataram Corporation and will be retained by Dataram
Corporation and furnished to the Securities and Exchange Commission or its
staff upon request.]
EX-32
9
cert32b.txt
SECTION 1350 CERTIFICATION OF MARK E. MADDOCKS
Exhibit 32(b)
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
In connection with the Annual Report of Dataram Corporation, a New Jersey
corporation (the "Company"), on Form 10-K for the year ended April 30, 2011,
as filed with the Securities and Exchange Commission (the "Report"), Mark E.
Maddocks, Chief Financial Officer of the Company, does hereby certify,
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section
1350), that to his knowledge:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
July 28, 2011 /s/ Mark E. Maddocks
_____________________________________
Mark E. Maddocks
Vice President, Finance and Chief Financial Officer
[A signed original of this written statement required by Section 906 has
been provided to Dataram Corporation and will be retained by Dataram
Corporation and furnished to the Securities and Exchange Commission or its
staff upon request.]