This Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities and Exchange Act of 1934, as amended. The information provided in this interim report may include forward-looking statements relating to future events, such as the development of new products, pricing and availability of raw materials or the future financial performance of the Company. Actual results may differ from such projections and are subject to certain risks including, without limitation, risks arising from: changes in the price of memory chips, changes in the demand for memory systems for workstations and servers, increased competition in the memory systems industry, delays in developing and commercializing new products and other factors described in the Company's most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission which can be reviewed at http://www.sec.gov.

Executive Overview

Dataram 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. The Company also manufactures a line of memory products for Intel and AMD motherboard based servers.

The Company's memory products are sold worldwide to OEMs, distributors, value-added resellers and end-users. The Company has a manufacturing facility in the United States with sales offices in the United States 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.

Liquidity and Capital Resources

The Company's cash and working capital position remain strong. As of July 31, 2009, cash and cash equivalents amounted to $7.3 million and working capital amounted to $14.2 million, reflecting a current ratio of 5.4 to 1, compared to cash and cash equivalents of $12.5 million, working capital of $15.5 million and a current ratio of 6.0 to 1 as of April 30, 2009.

During the first fiscal quarter ended July 31, 2009, net cash used in operating activities totaled approximately $5,108,000. Net loss in the period was approximately $978,000. Inventories increased by approximately $2,285,000. In the quarter ended July 31, 2009, the MMB business unit described in Note 2 increased their inventory levels by approximately $1.0 million to properly support normal sales levels. At April 30, 2009, the MMB business unit inventory totaled approximately $170,000. Inventory was maintained at an unsustainably low level during the first month subsequent to the acquisition as part of the Company's transition and integration plan. The balance of the inventories increase was primarily the result of management's decision to purchase inventories at favorable pricing levels. Accounts receivable increased by approximately $1,661,000, primarily as a result of increased revenues. Deferred income taxes increased by $628,000 and accrued liabilities decreased by approximately $190,000. Cash used in operating activities was partially offset by an increase in accounts payable of approximately $341,000. Depreciation and amortization expense of approximately $283,000 and non-cash stock-based expense of approximately $156,000 were also recorded.

Net cash used in investing activities totaled approximately $145,000 for the quarter ended July 31, 2009. This was primarily the result of property and equipment additions. These additions were for test equipment used in the Company's manufacturing process.

On June 21, 2004, the Company entered into a credit facility with a bank, which provided for up to a $5 million revolving credit line. The Company was required to pay a fee equal to one-eighth of one percent per annum on the unused commitment. There have been no borrowings against the credit line. On February 23, 2009, the Company canceled this agreement.

Management believes that the Company's existing cash resources will be sufficient to meet short-term liquidity needs. Management further believes that its working capital is adequate to finance the Company's long-term operating needs and future capital requirements.

Future minimum lease payments under noncancellable operating leases (with initial or remaining lease terms in excess of one year) as of April 30, 2009 are as follows:

                                        Operating leases
Year ending April 30:                   ________________

    2010                                 $      533,000

    2011                                        387,000

    2012                                         34,000

    Thereafter                                        0
                                         ______________

Total minimum lease payments             $      954,000

                                         ==============

The Company has no other material commitments.

Results of Operations

Revenues for the three month period ended July 31, 2009 were $9,190,000 compared to revenues of $7,563,000 for the comparable prior year period. The recently acquired MMB business unit described in Note 2, generated revenues of approximately $2,912,000 in 2010's fiscal first quarter and nil in the comparable prior year period. In the fiscal period ended July 31, 2009, excluding the effect of the revenues generated by the MMB acquisition, the Company's revenues declined by $1,285,000 when compared to the prior comparable period. There has been a softening in demand due to the weakening economy. Many customers have curtailed or temporarily suspended their capital spending while they adapt their business plans to the current environment.

Revenues for the three months ended July 31, 2009 and 2008 by geographic region are as follows:

                                  Three months ended       Three months ended
                                  July 31, 2009            July 31, 2008
                                  ________________         ________________
United States                     $      7,245,000         $      5,574,000
Europe                                   1,457,000                1,447,000
Other (principally Asia Pacific Region)    488,000                  542,000
                                  ________________          ________________
Consolidated                      $      9,190,000         $      7,563,000
                                  ================         ================

Cost of sales for the first quarter of fiscal 2010 and 2009 were 72% and 65% of revenues, respectively. The recently acquired MMB business unit's cost of sales were 72% in fiscal 2010's first quarter. Also contributing to the increase in percentage was the fact that in the quarter ended July 31, 2009, two large orders were shipped to one customer where the bidding for the orders was extremely competitive. Fluctuations in cost of sales as a percentage of revenues in any given quarter are not unusual and can result from many factors, some of which are a rapid change in the price of DRAMs, or a change in product mix possibly resulting from a large order or series of orders for a particular product or a change in customer mix. Cost of sales in the first quarter of fiscal 2010 was $6.7 million compared to $4.9 million in the prior year comparable period.

Engineering expense in fiscal 2010's first quarter totaled $253,000, versus $332,000 for the same prior year period.

Research and development expense in fiscal 2010's first quarter were $874,000 versus $212,000 in the same prior year period. 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 has the exclusive right to purchase specified software for a price of $900,000 plus a contingent payment of $100,000. Fiscal 2010's first quarter research and development expense includes $300,000 of expense related to a payment for the software purchase and license. The software and the storage product, which incorporates the software, is currently under development and is not deemed saleable at the present time. Should the Company elect to continue with the development project, the Company must make the final $300,000 payment, at which point the Company will own the software. We expect to make further investments in this area.

Selling, general and administrative (S,G&A) expense in the first fiscal quarter ended July 31, 2010 decreased by approximately $135,000 from the comparable prior year period. The acquired MMB business unit's S,G&A expense recorded in fiscal 2010's first quarter was approximately $602,000 versus nil in the comparable prior year period. The prior fiscal year's first quarter expense included a charge of approximately $716,000 related to a retirement agreement entered into with the Company's former chief executive officer. Stock-based compensation expense is recorded as a component of S,G&A expense and totaled approximately $156,000 and $126,000, respectively, for the first quarter of fiscal 2010 and 2009.

Other income, net for the first quarter of fiscal 2010 totaled $34,000, versus $109,000 for the same prior year period. Other income in fiscal 2010's first quarter consisted primarily of $10,000 of interest income and approximately $24,000 of foreign currency transaction gains, primarily as a result of the EURO strengthening relative to the US dollar. Fiscal 2009's first quarter other income, net consisted of approximately $111,000 of net interest income offset by approximately a $2,000 loss on disposal of assets.

Income tax benefit for the first quarter of fiscal 2010 and 2009 was $628,000 and $385,000, respectively. The Company's effective tax rate for financial reporting purposes in fiscal 2010 is approximately 39.0%. The Company has Federal and State net operating loss (NOL) carry-forwards of approximately $5.6 million and $4.0 million, respectively. These can be used to offset future taxable income and expire between 2023 and 2029 for Federal tax purposes and 2016 and 2029 for state tax purposes.

Critical Accounting Policies

During December 2001, the Securities and Exchange Commission (SEC) published a Commission Statement in the form of Financial Reporting Release No. 60 which encouraged that all registrants discuss their most "critical accounting policies" in management's discussion and analysis of financial condition and results of operations. The SEC has defined critical accounting policies as those that are both important to the portrayal of a company's financial condition and results, and that require management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. While the Company's significant accounting policies are summarized in Note 1 to the consolidated financial statements included in the Company's Form 10-K for the fiscal year ended April 30, 2009, the Company believes the following accounting policies to be critical:

Revenue Recognition - Revenue is recognized when title passes upon shipment of goods to customers. The Company's revenue earning activities involve delivering or producing goods. The following criteria are met before revenue is recognized: persuasive evidence of an arrangement exists, shipment has occurred, selling price is fixed or determinable and collection is reasonably assured. The Company does experience a minimal level of sales returns and allowances for which the Company accrues a reserve at the time of sale in accordance with SFAS No. 48, "Revenue Recognition When Right of Return Exists". Estimated warranty costs are accrued by management upon product shipment based on an estimate of future warranty claims.

Stock Option Expense - In December 2004, SFAS No. 123 (revised 2004), "Share-Based Payment"("SFAS 123(R)") was issued. SFAS 123(R) revises SFAS 123 and supersedes APB No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). SFAS 123, as originally issued in 1995, established as preferable a fair value-based method of accounting for share-based payment transactions with employees. However, SFAS 123 as amended permitted entities the option of continuing to apply the intrinsic value method under APB 25 that the Company had been using, as long as the footnotes to the financial statements disclosed what net income would have been had the preferable fair value-based method been used. SFAS 123(R) requires that the compensation cost relating to all share-based payment transactions, including employee stock options, be recognized in the historical financial statements. That cost is measured based on the fair value of the equity or liability instrument issued and amortized over the related service period. The Company adopted the guidance in SFAS 123(R) effective May 1, 2006. As such, the accompanying consolidated statement of operations for the fiscal 2010 and fiscal 2009 first quarter ending July 31 includes approximately $156,000 and $126,000 of stock option expense, respectively, in operating expenses related to the fair value of options granted to employees and directors under the Company's stock-based compensation plans which is being amortized over the service period in the financial statements, as required by SFAS 123(R). These awards have been classified as equity instruments, and as such, a corresponding increase of approximately $156,000 has been reflected in additional paid-in capital in the accompanying consolidated balance sheet as of July 31, 2009. The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:
Expected life is based on the Company's historical experience of option exercises relative to option contractual lives; Expected volatility is based on the historical volatility of the Company's share price; Expected dividend yield assumes the current dividend rate remains unchanged; Risk free interest rate approximates United States government debt rates at the time of option grants.

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.

Income Taxes - The Company utilizes the asset and liability method of accounting for income taxes in accordance with the provisions of SFAS No. 109, "Accounting for Income Taxes" (SFAS No. 109). Under the asset and liability method of SFAS No. 109, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company considers certain tax planning strategies in its assessment as to the recoverability of its tax assets. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Under SFAS No. 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that the tax rate changes.

Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, including deferred tax asset valuation allowances and certain other reserves and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the consolidated financial statements in the period they are determined to be necessary. Some of the more significant estimates made by management include the allowance for doubtful accounts and sales returns, the deferred tax asset valuation allowance and other operating allowances and accruals. Actual results could differ from those estimates.