<PAGE 1>
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, 1999.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ___.
Commission file number: 1-8266
DATARAM CORPORATION
---------------------------
(Exact name of registrant as specified in its charter)
New Jersey 22-1831409
---------------------- ----------------------------------
(State 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 each exchange on which registered
Common Stock, $1.00 Par Value American Stock Exchange
Securities registered pursuant to section 12(g) of the Act: None
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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K 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. [X]
The aggregate market value of the Common Stock held by non-affiliates of
the registrant on July 23, 1999 was $47,849,319.
The number of shares of Common Stock outstanding on July 23, 1999:
5,237,110 shares.
DOCUMENTS INCORPORATED BY REFERENCE:
(1) Definitive Proxy Statement for Annual Meeting of Shareholders to be
held on September 8, 1999 (the "Definitive Proxy Statement") to be filed
within 120 days of the end of the fiscal year.
(2) 1999 Annual Report to Security Holders
<PAGE 2>
DATARAM CORPORATION
INDEX
Part I Page
Item 1. Business (including Risk Factors). . . . . . . . 3
Item 2. Properties . . . . . . . . . . . . . . . . . . . 11
Item 3. Legal Proceedings . . . . . . . . . . . . . . . 11
Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . . 12
Part II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters. . . . . . . . . 12
Item 6. Selected Financial Data. . . . . . . . . . . . . 12
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . 12
Item 7A. Quantitative and Qualitative Disclosure
About Market Risk . . . . . . . . . . . . . . . 12
Item 8. Financial Statements and Supplementary Data. . . 13
Item 9. Changes In and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . 16
Part III
Item 10. Directors and Executive Officers of
the Registrant . . . . . . . . . . . . . . . . . 16
Item 11. Executive Compensation . . . . . . . . . . . . . 16
Item 12. Security Ownership of Certain
Beneficial Owners and Management . . . . . . . . 16
Item 13. Certain Relationships and Related
Transactions . . . . . . . . . . . . . . . . . . 16
Part IV
Item 14. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K . . . . . . . 17
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . 18
<PAGE 3>
PART I
Item 1. BUSINESS
(a) General Development of Business.
Dataram develops, manufactures and markets computer memory
products for use with workstations and network servers. The
Company's memory products expand the capacity and extend the economic
useful life of the installed base of computers manufactured by Sun
Microsystems, Inc. ("Sun"), Hewlett-Packard Company ("HP"), Compaq
Computer ("Compaq"), including its acquired Digital Equipment
Corporation ("DEC") line, Silicon Graphics, Inc. ("SGI"),
International Business Machines Corporation ("IBM") and Dell Computer
Corporation ("Dell"). In fiscal 1999, the Company introduced a line
of Intel certified memory products for sale to original equipment
manufacturers (OEMs)and channel assemblers. Dataram products are not
intended for use with high-end mainframe computers.
In fiscal 1999 the Company exercised a continued decline in the
price it pays for dynamic random access memory ("DRAM"), which is the
principal component of the memory boards it sells. DRAM's have been
readily available from various manufacturers on a rapid basis.
Consequently, the Company has not needed to maintain large inventory
levels to service its customers. Company revenues declined slightly
as increased unit volumes were offset by selling price reductions
resulting from declining DRAM costs.
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") has been listed for trading on the American Stock
Exchange since 1981. The Company's principal executive office is
located at 186 Princeton Road (Route 571), West Windsor, New Jersey
08550 and its telephone number is (609) 799-0071, its fax is (609)
799-6734 and its website is at http://www.dataram.com.
RISK FACTORS
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 over
supply to shortage. In times of shortage, Dataram has been forced to
invest substantial working capital resources in building and
maintaining inventory. At times Dataram has bought DRAMs in excess
of its customers' needs in order to ensure future allocations from
DRAM manufacturers. Dataram believes that the market for DRAMs is
presently in balance between supply and demand, but there can be no
assurance that conditions of shortage may not prevail in the future.
In the event of a shortage, Dataram may not be able to obtain
sufficient DRAMs to meet customers' needs in the short term, and
Dataram may have to invest substantial working capital resources in
order to meet long term customer needs.
<PAGE 4>
WE COULD SUFFER LOSSES IF DRAM PRICES DECLINE SUBSTANTIALLY.
Dataram is often required to maintain substantial inventories during
periods of shortage and allocation. During periods of increasing
availability of DRAM and rapidly declining prices, Dataram has been
forced to write down inventory. At the present time, the market is
neither one of shortage or over supply, and Dataram is able to
maintain a minimum inventory while meeting the needs of customers.
But there can be no assurance that Dataram will not suffer losses in
the future based upon declining DRAM prices.
OUR MEMORY PRODUCTS MAY VIOLATE OTHERS' PATENTS. Dataram's
memory products are designed to be used with proprietary computer
systems built by various OEM manufacturers. Dataram often has to
comply with proprietary memory 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 computer memory
products to meet the requirements of their systems. It is the policy
of Dataram to, in unclear cases, either obtain an opinion of patent
counsel prior to marketing, or obtain a license from the patent
holder. Dataram is presently licensed by both Sun Microsystems and
Silicon Graphics to sell memory products for their principal
products. However, there can be no assurance that memory 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 Dataram's continued presence in the
segment of the market covered by the patent. Nor can there be any
assurance that Dataram's existing products do not violate one or more
existing patents.
WE FACE COMPETITION FROM OEMs. Dataram sells its products at a
lower cost than OEMs. Customers will often pay some premium for the
"name brand" product when buying additional memory and OEMs seek to
exploit this tendency by having a high profit margin on memory
products. However, individual OEMs could change their policy and
price memory products competitively. While Dataram believes that
with its manufacturing efficiency and low overhead it still will be
able to compete favorably with OEMs, in such an event profit margins
and earnings would be adversely affected.
THE MARKET FOR OUR PRODUCTS MAY NARROW OVER TIME. The principal
market of Dataram is owners of workstations and servers, classes of
machines lying between large mainframe computers and personal
computers. The trend has been observed that 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 if Dataram's
competes 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 Dataram's financial performance will not be
adversely affected thereby.
<PAGE 5>
WE MAY MAKE UNPROFITABLE ACQUISITIONS. Dataram has for some
time explored the possibility of acquiring one or more businesses
associated with memory products. While the Board of Directors has
not decided to move forward with any particular acquisition, 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.
OUR STOCK HAS LIMITED LIQUIDITY. Although the stock of Dataram
is publicly traded, it has been observed that this market is "thin."
As a result, Dataram's common stock may trade at a discount to what
would be its value if the stock enjoyed greater liquidity. Dataram's
stock market stock repurchase program, while providing a degree of
liquidity for current holders of Dataram's stock, in the long run has
the effect of reducing the number of shares that are outstanding.
DATARAM IS 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
15% ownership interest. This prohibition of "business combinations"
is for five years and continues after that time period subject to
certain exceptions. A practical consequence of this statute is that
a hostile acquisition of Dataram would be difficult, if not
impossible. As a result, hostile transactions which might be of
benefit to shareholders may not occur because of this statute.
(b) Financial Information about Industry Segments.
The Company operates in one industry segment.
(c) Narrative Description of Business.
Dataram develops, manufactures and markets a variety of memory
products for use with workstations and network servers, including
those sold by Sun, HP, Compaq (including DEC), SGI, IBM and Dell.
The Company sells memory products both for new machines and for the
installed base of these classes of computers at prices less than the
computer manufacturer. The Company's customers are primarily
distributors, value added resellers and large end-users.
Industry Background
The market for independently manufactured memory began in the
early 1970's with the introduction of core magnetic memory expansions
for DEC computers. During the late 1970's semiconductor technology
emerged as the dominant technology for use in computer memories,
displacing magnetic core memories.
<PAGE 6>
The minicomputer was pioneered by DEC in the late 1960's and
early 1970's as a lower cost, localized system which could be used to
service a small department of a company and provide independence from
centralized mainframes. This decentralized approach to satisfying
computing needs gained immediate popularity with the engineering and
scientific community and later with the general business community.
A large installed base of minicomputer systems remains in place,
although this base is now declining.
The workstation, like the PC, is designed to provide computer
resources to individual users. The workstation differs from the PC
in providing substantially greater computational performance,
input/output capability and graphic display. Workstations are nearly
always networked. As a result of this networking capability, a new
class of computer system, the network server, has emerged.
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 network servers
in use today are: file servers, communication servers, computation
servers, database servers, print servers and storage servers.
Dataram designs, produces and markets memory products primarily
to end users of the installed base of workstations and network
servers sold by Sun, HP, Compaq (including DEC), Silicon Graphics,
IBM and Dell.
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 network servers have
become commodities with substantial competition from OEMs and a
number of independent memory manufacture suppliers.
Generally, growth in memory markets closely follows both the
growth in unit shipments of system vendors and the growth of memory
requirements per system.
<PAGE 7>
Business Strategy
In addition to taking advantage of the growing market for
workstations and network servers, Dataram has a two pronged strategy
to increase sales.
Market Penetration
Management estimates that sales by system vendors constitute 80%
of the memory market in fiscal 1999. Thus, there is an opportunity
for growth through penetration of the system vendor's market share.
To successfully compete with system vendors, Dataram must continue to
respond to customers' needs in a short time frame. To support
customers' needs, the Company has established a dedicated and highly
automated manufacturing facility that is designed to produce and ship
customer orders within twenty-four hours or less.
Geographic Expansion
Approximately 74% of Dataram's fiscal 1999 revenues were derived
from sales in the United States with the remainder principally in
Western Europe, Canada and the Asian Pacific region. The Company
intends to capitalize on the system vendors' growth of business in
Europe and Asia by providing memory for the systems being sold in
these markets.
OEM Sales
The Company believes OEM's are increasingly out-sourcing their
memory requirements and the Company has sought and obtained and
intends in the future to seek and obtain contracts which provide the
opportunity for high volume transactions.
Products
The Company's principal business is the development, manufacture
and marketing of memory products which can be added to workstations
and network servers to upgrade or expand the capabilities of such
systems. When vendors produce computer systems adhering to open
system industry standards, the development effort for Dataram and
other independent memory manufacturers is straightforward and allows
for the use of many standard components.
Distribution Channels
Dataram sells its memory products in the United States to
distributors, value-added resellers and larger end-users principally
through its staff located in Princeton, New Jersey. The Company also
markets its memory products in Canada, Western Europe and the Asian
Pacific region through a network of independent distributors.
<PAGE 8>
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 Dataram's ability to provide service over the life of
the product are important factors in making sales. As a consequence,
the Company adopted many years ago a Lifetime Warranty program for
its memory products. The economic useful life of the computer
systems to which Dataram's memory equipment is attached is almost
always substantially less than the physical useful life of the
equipment itself. Thus, memory systems 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
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 costs
are low as a percentage of the total cost of the product. As a
result, the world-wide market for DRAM has swung in the past from
periods of substantial over supply, resulting in falling prices for
DRAM, wide availability of DRAMs, availability of rapid delivery of
DRAMs and need for the Company to have minimum inventories to meet
the needs of customers; to periods of shortage, where DRAMs are
allocated and where the Company must invest heavily in inventory in
order to continue to be assured of the supply of DRAMs from vendors.
This volatility in the price and availability of the Company's basic
raw material requires Dataram to maintain substantial cash and credit
resources at all times. At April 30, 1999, the Company had cash and
cash equivalents of $8,093,000 and also had available an unused line
of credit in the amount of $12 million. At the present time, the
market for DRAMs is neither one of over supply nor shortage.
Memory Product Complexity
The history of DRAM memory products has, for many years, been a
process of simplification with a corresponding decline in profit
margins as competitors' entry into the market became easier.
However, recent trends in the market have seen the development by
OEMs of more complex memory designs. This has enabled Dataram to
increase its margins somewhat.
<PAGE 9>
Engineering and Development
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 components as they become available.
Dataram designs prototype memory products and subjects them to
reliability testing procedures. During its fiscal year ended April
30, 1999, the Company incurred costs of $1,373,000 for engineering
and product development compared to $1,113,000 in fiscal 1998 and
$1,030,000 in fiscal 1997.
Manufacturing
The Company purchases standard dynamic random access memory
("DRAM") chips. The costs of such chips is approximately 80% of the
total manufacturing cost of memory products. Fluctuations in the
availability or prices of memory chips can have a significant impact
on the Company's profit.
Dataram has created close relationships with 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. The Company assembles its memory boards which are
rigorously tested in the Company's quality assurance program.
Backlog
The Company expects that all backlog on hand will be filled
during the current fiscal year. The Company believes that backlog is
generally not material to its business since the Company usually
ships its memory products on the same day an order is received.
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. Dataram competes with Sun, HP, Compaq (including DEC),
Silicon Graphics, IBM and Dell, as well as with a number of third
party memory suppliers, including Kingston Technology.
Although many of Dataram'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
<PAGE 10>
computer system vendors' technology. Dataram's objective is to
continue to remain strong in all of these areas with particular
focus in 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.
Dataram must continue low cost, high volume production while
remaining flexible to satisfy the time-to-market requirement.
The Company believes that its 32-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 and service program which provides
customers with added confidence in buying from Dataram. 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.
Employees
As of April 30, 1999, the Company had 149 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.
<PAGE 11>
Environment
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 2000) or
the succeeding fiscal year (fiscal 2001).
(d) Financial Information about Foreign and Domestic Operations
and Export Sales.
REVENUES (000's)
Export
Fiscal U.S. Europe Other Consolidated
1999 56,292 13,960 5,601 75,853
1998 54,989 14,860 7,437 77,286
1997 50,147 12,988 5,845 68,980
PERCENTAGES
Export
Fiscal U.S. Europe Other Consolidated
1999 74.2% 18.4% 7.4% 100.0%
1998 71.2% 19.2% 9.6% 100.0%
1997 72.7% 18.8% 8.5% 100.0%
Item 2. Properties
The Company occupies approximately 24,000 square feet of
space for administrative, sales, research and development and
manufacturing support in West Windsor Township, New Jersey under a
lease expiring on June 30, 2001.
The Company leases a 24,000 square foot assembly plant in
Northampton Township, Pennsylvania. The lease expires on January 31,
2000 but the Company has two two-year renewal options.
The Company also leases one sales office located in
California, and a distribution center in England.
On September 29, 1980, the Company purchased approximately
81 acres of undeveloped property in West Windsor Township, New
Jersey. The purchase price of $875,000 was paid in cash. This
property is approximately five miles from the Company's current
leased facilities.
Item 3. Legal Proceedings
The Company is not engaged in any material legal
proceedings.
<PAGE 12>
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of Security Holders in
the fourth quarter of the fiscal year covered by this report.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
Incorporated by reference herein is the information set
forth in the Company's 1999 Annual Report to Security Holders under
the caption "Common Stock Information" at page 9
Item 6. Selected Financial Data
Incorporated by reference herein is the information set
forth in the 1999 Annual Report to Security Holders under the caption
"Selected Financial Data" at page 21
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Incorporated by reference herein is the information set
forth in the 1999 Annual Report to Security Holders under the caption
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" at page 7 through page 9
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Incorporated by reference herein is the information set forth in
the 1999 Annual Report to Security Holders under the caption
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" at page 9.
<PAGE 13>
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, 1999 and 1998. 10
Consolidated Statements of Earnings - Years ended
April 30, 1999, 1998 and 1997. . . . . . . . . . . . . 11
Consolidated Statements of Cash Flows -
Years ended April 30, 1999, 1998 and 1997. . . . . . . 12
Consolidated Statements of Stockholders' Equity -
Years ended April 30, 1999, 1998 and 1997. . . . . . . 13
Notes to Consolidated Financial Statements -
April 30, 1999, 1998 and 1997. . . . . . . . . . . .14-19
Independent Auditors' Report on Consolidated
Financial Statements. . . . . . . . . . . . . . . . 20
Page in
Financial Statement Schedule: 10-K
Valuation and Qualifying Accounts -
Years ended April 30, 1999, 1998 and 1997 . . . . . . 14
Independent Auditors' Report on
Financial Statement Schedule . . . . . . . . . . . . 15
All other 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.
<PAGE 14>
<TABLE>
Schedule VIII
DATARAM CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended April 30, 1999, 1998 and 1997
Additions
charged Deduc-
Balance at to costs tions Balance
beginning and from at close
Description of period expenses reserves* of period
___________ _________ ________ _________ _________
<S> <C> <C> <C> <C>
Year ended April 30, 1999:
Allowance for doubtful accounts $ 450,000 (125,000) (125,000) 450,000
Reserve for inventory obsolescence $ 50,000 -- 25,000 25,000
Year ended April 30, 1998:
Allowance for doubtful accounts $ 800,000 435,000 785,000 450,000
Reserve for inventory obsolescence $ -- 50,000 -- 50,000
Year ended April 30, 1997:
Allowance for doubtful accounts $ 800,000 263,000 263,000 800,000
Reserve for inventory obsolescence $ -- -- -- --
___________________________
*Represents write-offs of specifically identifiable amounts.
</TABLE
<PAGE 15>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Dataram Corporation:
Under date of May 20, 1999, we reported on the consolidated balance sheets
of Dataram Corporation and subsidiary as of April 30, 1999 and 1998, and
the related consolidated statements of earnings, stockholders' equity, and
cash flows for each of the years in the three-year period ended April 30,
1999. These consolidated financial statements and our report thereon are
incorporated by reference in the annual report on Form 10-K for the year
1999. In connection with our audits of the aforementioned consolidated
financial statements, we also have audited the related financial statement
schedule as listed in the accompanying index. This financial statement
schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statement schedule
based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth
therein.
KPMG LLP
KPMG LLP
Princeton, New Jersey
May 20, 1999
<PAGE 16>
Item 9. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure
Not Applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
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."
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
Incorporated by reference herein is the information set forth in
the Definitive Proxy Statement under the caption "Security Ownership of
Certain Beneficial Owners and Management."
Item 13. Certain Relationships and Related Transactions
Incorporated by reference herein is the information set forth in
the Definitive Proxy Statement under the captions "Executive Compensation"
and "Board of Directors."
<PAGE 17>
PART IV
Item 14. Exhibits, Financial Statement Schedule, and Reports on
Form 8-K
(a) The following documents are filed as part of this
report:
1. Financial Statements incorporated by
reference into Part II of this Report.
2. Financial Statement Schedule included in
Part II of this Report.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the last
quarter of the fiscal year covered by this report.
(c) Exhibits:
The Exhibit Index appears on page 19.
<PAGE 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 27, 1999 By: ROBERT V. TARANTINO
________________________________
Robert V. Tarantino, 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 27, 1999 By: ROBERT V. TARANTINO
________________________________
Robert V. Tarantino, President
Chief Executive Officer and
Chairman of the Board of Directors
(Principal Executive Officer)
Date: July 27, 1999 By: RICHARD HOLZMAN
________________________________
Richard Holzman, Director
Date: July 27, 1999 By: THOMAS A. MAJEWSKI
________________________________
Thomas A. Majewski,
Director
Date: July 27, 1999 By: BERNARD L. RILEY
________________________________
Bernard L. Riley, Director
Date: July 27, 1999 By:
________________________________
Roger C. Cady, Director
Date: July 27, 1999 By: MARK E. MADDOCKS
________________________________
Mark E. Maddocks
Vice President, Finance
(Principal Financial
and Accounting Officer)
<PAGE 19>
</TABLE>
<TABLE>
EXHIBIT INDEX
<C> <C> <C> <C> <C>
Page Page Page Page Page
of this of 1997 of 1996 of 1995 of 1994
this 10-K 10-K 10-K 10-K 10-K
_______ _______ _______ _______ _______
<S>
3(a) Certificate of Incorporation 27
3(b) By-Laws 70
4(a) Loan Agreement with New Jersey 23
National Bank
4(b) 1995 Letter Amendments to Loan 93
Agreement
4(c) 1996 Letter Amendments to Loan
Agreement 18
4(d) 1997 Letter Amendment to Loan
Agreement 17
10(a) 1992 Incentive and Non-Statutory 127
Stock Option Plan
10(b) Lease 133
10(c) 1999 Lease Amendment 19
10(d) Savings and Investment Retirement Plan 146
10(e) Employment Agreement of 227
Robert V. Tarantino
13(a) 1999 Annual Report to Shareholders 27
24(a) Independent Auditors' Consent for 20
S-8 Registration No. 33-56282
27 Financial Data Schedule 21
28(a) Earnings Press Release 22
28(b) Stock Repurchase Press Release 26
</TABLE>
<PAGE 20>
Independent Auditors' Consent
The Board of Directors
Dataram Corporation:
We consent to incorporation by reference in the Registration Statement
(No. 33-56282) on Form S-8 of Dataram Corporation and subsidiary of our
report dated May 20, 1999, relating to the consolidated balance sheets of
Dataram Corporation and subsidiary as of April 30, 1999 and 1998, and the
related consolidated statements of earnings, stockholders' equity, and
cash flows for each of the years in the three-year period ended April 30,
1999, and our report dated May 20, 1999 relating to the financial
statement schedule as listed in Item 8 of Form 10-K, which reports appear
in the April 30, 1999 annual report on Form 10-K of Dataram Corporation.
KPMG LLP
KPMG LLP
Princeton, New Jersey
July 26, 1999
<TABLE> <S> <C>
<ARTICLE> 5
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-END> APR-30-1999
<CASH> 8,093
<SECURITIES> 0
<RECEIVABLES> 12,466
<ALLOWANCES> 450
<INVENTORY> 3,290
<CURRENT-ASSETS> 23,874
<PP&E> 6,064
<DEPRECIATION> 2,573
<TOTAL-ASSETS> 27,374
<CURRENT-LIABILITIES> 6,436
<BONDS> 0
0
0
<COMMON> 5,237
<OTHER-SE> 14,782
<TOTAL-LIABILITY-AND-EQUITY> 27,374
<SALES> 75,853
<TOTAL-REVENUES> 75,853
<CGS> 54,814
<TOTAL-COSTS> 54,814
<OTHER-EXPENSES> 1,373
<LOSS-PROVISION> (125)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 8,994
<INCOME-TAX> 3,359
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<EPS-DILUTED> .90
</TABLE>
<PAGE>
FOR: Dataram Corporation
APPROVED BY: Mark E. Maddocks
Chief Financial Officer
Dataram Corporation
(609) 799-0071
FOR IMMEDIATE RELEASE
CONTACT: Investor Relations:
Cheryl Schneider/John
Blackwell
Press: Michael McMullan
Morgen-Walke Associates, Inc.
(212) 850-5600
DATARAM REPORTS RECORD FISCAL 1999 FOURTH QUARTER AND
YEAR END EARNINGS RESULTS
-Fourth Quarter Sales Up 19%, Net Earnings Up 40%-
PRINCETON, NJ, May 20, 1999 -- Dataram Corporation (AMEX: DTM)
today reported record earnings for its fourth quarter and fiscal year
ended April 30, 1999.
For the fiscal 1999 fourth quarter, net earnings increased 40% to
$1,506,000, or $0.24 per diluted share, versus $1,075,000, or $0.18
per diluted share for the fiscal 1998 fourth quarter. Revenues of
$22.9 million were up 19% versus $19.2 million in the prior year's
fourth quarter.
For the 1999 fiscal year, net earnings rose 51% to $5,635,000, or
$0.90 per diluted share, versus $3,722,000, or $0.60 per diluted share
for the prior fiscal year. Revenues were $75.8 million in the 1999
fiscal year compared to $77.3 million in fiscal 1998.
The Company noted that volume, measured in gigabytes shipped,
increased 83% in the fourth quarter and 95% in the fiscal year
compared to the respective prior year periods. The volume increase was
mitigated by a reduction in the average selling prices of memory
products due to lower average DRAM prices. On a sequential quarterly
basis selling prices were comparable to third quarter prices, while
volume shipped increased by approximately 25%.
Additionally, the Company continued to participate in its previously
announced 500,000 share repurchase program. The Company purchased
140,700 shares during the fourth quarter and 338,000 shares for the
fiscal year ended April 30, 1999.
- -more-
<PAGE>
DATARAM REPORTS RECORD FOURTH QTR. AND YEAR-END EARNINGS Page: 2
Robert V. Tarantino, Dataram's president and chief executive
officer, commented, "I am pleased with the Company's fourth quarter
and fiscal 1999 performance. Our record earnings highlight the
growing appeal of our product line with commercial consumers, and
continued demand for workstation and network server memory. It also
reflects the continued success of our marketing efforts and the
efficiency with which we are able to assemble and distribute our
products."
Mr. Tarantino continued, "In addition to our core business, we
began producing products for sale to channel assemblers and original
equipment manufacturers during the fourth quarter. We believe this
market segment will provide us with significant growth opportunities
in the future and will allow us to maximize our manufacturing
capabilities."
Mr. Tarantino concluded, "We continue to focus on driving our
penetration of the gigabyte memory market through the development of
new products and building new strategic partnerships as well as
maintaining our strong existing relationships. With solid momentum in
our business, as evidenced by our record performance in fiscal 1999,
we look forward to continuing to successfully execute our business
strategy of improving market share with products and initiatives that
provide steady growth in the upcoming fiscal year."
Dataram Corporation is a leading provider of gigabyte memory
upgrades for workstations and network servers. The Company
specializes in the manufacture of large-capacity memory boards for
Compaq/Digital, Hewlett-Packard, IBM, Intel, Silicon Graphics and Sun
Microsystems computers.
The information provided in this press release may include
forward-looking statements relating to future events, such as the
development of new products, the commencement of production, or the
future financial performance of the Company. Actual results may differ
from such projections and are subject to certain risks including,
without limitation, risks arising from: changes in the price of memory
chips, changes in the demand for memory systems for workstations and
servers, increased competition in the memory systems industry, delays
in developing and commercializing new products and other factors
described in the Company's most recent Annual Report on Form 10-K
filed with the Securities and Exchange Commission which can be
reviewed at http://www.sec.gov.
(Financial Tables To Follow)
<PAGE>
DATARAM CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share amounts)
Three Months Ended Fiscal Year Ended
4/30/99 4/30/98 4/30/99 4/30/98
_______ _______ _______ _______
Revenues $ 22,919 $ 19,227 $ 75,853 $ 77,286
Costs and expenses:
Cost of sales 17,579 13,879 54,814 58,608
Engineering and development 315 305 1,373 1,113
Selling, general and
administrative 2,700 3,321 11,108 11,766
_________ ________ ________ ________
20,594 17,505 67,295 71,487
Earnings from operations 2,325 1,722 8,558 5,799
Interest income (expense), net 74 43 436 268
_________ ________ ________ ________
Earnings before income taxes 2,399 1,765 8,994 6,067
Income tax provision 893 690 3,359 2,345
_________ ________ ________ ________
Net earnings $ 1,506 $ 1,075 $ 5,635 $ 3,722
========= ======== ======== ========
Net earnings per share
Basic $ 0.28 $ 0.19 $ 1.03 $ 0.63
Diluted $ 0.24 $ 0.18 $ 0.90 $ 0.60
========= ======== ======== ========
Average number of shares outstanding
Basic 5,302 5,672 5,454 5,916
========= ======== ======== ========
Diluted 6,181 6,144 6,233 6,237
========= ======== ======== ========
- -more-
<PAGE>
DATARAM CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in thousands)
April 30, 1999 April 30, 1998
______________ ______________
ASSETS
Current assets:
Cash and cash equivalents $ 8,093 $ 7,530
Trade receivables, net 12,016 10,076
Inventories 3,290 2,923
Other current assets 475 493
_____________ _____________
Total current assets 23,874 21,022
Property and equipment, net 3,491 3,435
Other assets 9 7
_____________ _____________
$ 27,374 $ 24,464
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,344 $ 4,699
Accrued liabilities 1,841 1,548
Income taxes payable 251 236
_____________ _____________
Total current liabilities 6,436 6,483
Deferred income taxes 919 1,013
Stockholders' equity 20,019 16,968
_____________ _____________
$ 27,374 $ 24,464
# # #
<PAGE>
APPROVED BY: Mark E. Maddocks
Chief Financial Officer
Dataram Corporation
(609) 799-0071
CONTACT: Investor Relations:
Cheryl Schneider/John
Blackwell
Press: Michael McMullan
Morgen-Walke Associates, Inc.
(212) 850-5600
DATARAM ANNOUNCES ADDITIONAL SHARE REPURCHASE PROGRAM
PRINCETON, NJ, June 15, 1999 -- Dataram Corporation (AMEX: DTM)
today announced that its Board of Directors has approved an additional
500,000 share open market repurchase program. The Company has
purchased an aggregate of 386,000 shares of common stock, at prices
ranging from $5.38 to $9.90 per share under its current 500,000 share
repurchase program leaving a cumulative authorization under the two
programs to repurchase an additional 614,000 shares. The total number
of shares of common stock outstanding, as of June 11, 1999 was
5,189,000 shares. Shares may be repurchased from time to time either
on the American Stock Exchange or through block purchases.
Robert V. Tarantino, Dataram's president and chief executive
officer, commented, "The current stock price does not reflect the
substantial opportunities ahead of us nor does it reflect our strong
operating performance over the past few years. We recognize the
growth potential in our business and the value of the stock at its
current levels. The approval of this new 500,000 share open market
repurchase program re-emphasizes our solid financial performance and
our confidence in Dataram's future."
Dataram Corporation is a leading provider of gigabyte memory
upgrades for workstations and network servers. The Company's products
help powerful computers provide internet services, track airline
reservations, create Hollywood special effects, execute stock
transactions and support communications activity, utility
transmission, research programs and a host of other memory-hungry
applications.
The information provided in this press release may include
forward-looking statements relating to future events, such as the
development of new products, the commencement of production, or the
future financial performance of the Company. Actual results may differ
from such projections and are subject to certain risks including,
without limitation, risks arising from: changes in the price of memory
chips, changes in the demand for memory systems for workstations and
servers, increased competition in the memory systems industry, delays
in developing and commercializing new products and other factors
described in the Company's most recent Annual Report on Form 10-K
filed with the Securities and Exchange Commission which can be
reviewed at http://www.sec.gov.
###
<PAGE>
[DATARAM LOGO]
DATARAM CORPORATION
1999 ANNUAL REPORT
<PAGE>
Financial Highlights
(Dollar figures in thousands, except per share amounts)
Fiscal Year 1999 1998 1997 1996
_______ _______ _______ _______
Revenues $ 75,853 $ 77,286 $ 68,980 $ 107,627
Net earnings 5,635 3,722 3,769 1,450
Net earnings per
common and common share
equivalent (diluted) .90 .60 .55 .19
Working capital 17,438 14,539 15,039 16,803
Stockholders' equity 20,019 16,968 16,286 18,078
Long-term debt 0 0 0 0
Table of Contents
2 A Message from the President
3 Company Profile
7 Management's Discussion and Analysis
of financial Condition and results
of Operations
10 Financial Review
21 Selected Financial Data
1
[PICTURE OF ROBERT TARANTINO]
TO OUR SHAREHOLDERS
It is with great excitement that I come to you this year to
report on our Company's performance in fiscal 1999 and our plans
and outlook for the future.
Dataram Corporation benefited from a number of positive factors
in fiscal 1999, including the explosive growth of the Internet
and the continued rapid growth in the installed base of network
servers and workstations in companies that track airline
reservations, create Hollywood special effects, execute stock
transactions, support communications activity, utility
transmission, research programs and a host of other memory
intensive applications.
The Company's net earnings increased by 51 percent for fiscal
1999 to $5,635,000, or $.90 per diluted share, from $3,722,000,
or $.60 per diluted share for fiscal 1998. We accomplished this
despite the fact that our revenues for fiscal 1999 were off
slightly as a result of lowered product selling prices resulting
from the declining cost of DRAM chips. Fiscal 1999 revenues were
$75.9 million versus $77.3 million for the prior fiscal year.
Gross margins for fiscal 1999 were 28 percent, a four-percentage-
point increase over the prior year.
Our ability to increase our profitability in an environment of
declining selling prices underscores the soundness of our growth
strategy and the reputation and quality of our products. DRAM
chip prices are certainly important to our business, but they are
not everything. Rather than concentrating our efforts on an area
over which we had no control, we continued to improve our company
from within by increasing our business with existing customers,
expanding our customer base, broadening our product line and
launching a new growth initiative to supply high performance,
Intel certified memory to the Original Equipment Manufacturers
(OEM) market. As a result, our sales volume, measured by
gigabytes shipped, increased 95 percent in fiscal 1999.
The burgeoning growth of the Internet has created great demand
for the type of memory products we produce. High performance
memory is the key to fast Internet response, which is
increasingly in demand as e-commerce and Internet data
dissemination continue to expand. It is a tremendously exciting
part of our business that we expect will continue to fuel our
growth and provide our shareholders with greater value and a
profitable way to participate in the growth of the Internet.
Additionally, by establishing a presence in the OEM marketplace,
we are adhering to our strategy of continuing to grow our core
memory business while expanding into new markets. In order to
build this new segment of our business, we appointed Jay Litus to
the position of Vice President of Business Development. Mr.
Litus, who has more than 15 years of relevant executive level
experience, is responsible for developing strategic business
partnerships with OEMs. Already, we have secured relationships
with two important new customers. We look forward to continued
progress in this area.
We see significant investment value in Dataram, knowing the
substantial growth opportunities that lie ahead for us. In
recognition of this, the Company's Board of Directors enacted a
500,000 share repurchase program in fiscal 1999, which was later
expanded to include an additional 500,000 shares. The Board also
approved a two-for-one stock split during fiscal 1999 to improve
liquidity for our shares. We believe that, together, these
actions benefit our shareholders by enhancing the value of our
stock.
We would like to take this opportunity to thank our shareholders
and the investment community for their continued support, and to
express our appreciation to our employees, whose hard work and
dedication enable us to continuously reach and meet higher goals.
July 15, 1999
Robert V. Tarantino
Chairman of the Board of Directors,
President and Chief Executive Officer
"net earnings increased by 51 percent
for fiscal 1999"
2
<PAGE>
Company Profile
INTRODUCTION
Dataram is a leading independent manufacturer of gigabyte
capacity memory products for workstations and network servers.
Our products increase the performance and extend the useful life
of computers manufactured by COMPAQ/Digital, Dell, Hewlett-
Packard, IBM, Silicon Graphics and Sun Microsystems.
Additionally, the Company manufactures and markets a line of high
capacity Intel certified memory products for sale to original
equipment manufacturers and channel assemblers. Our products are
sold worldwide to distributors, value-added resellers and large
end users.
QUALITY PRODUCTS FUEL OUR ENGINE
Dataram's dedication to creating the highest quality performance-
enhancing products for advanced workstations and network server
users has enabled us to build a strong customer base in a variety
of industries throughout the world, including engineering,
manufacturing, business, finance, science, education, government,
utilities, and arts and entertainment. Our value advantage lies
in our consistent product quality, unparalleled service and
support, and the ability to offer our products at a price
significantly lower than the computer manufacturers. Our memory
products achieve the same high level of form, fit and function as
the original equipment versions and are backed by a lifetime
guarantee and incomparable service.
3
<PAGE>
Dataram has earned a reputation over the past 32 years for being
first to market with products that keep pace with the computer
industry's latest innovations. In fiscal 1999, we introduced
more than 70 new memory products, including a line of products
for the Original Equipment Manufacturing (OEM)/channel assembler
market, which allows us not only to establish relationships with
new customers, but also expand relationships with our existing
customers. We believe that we will be able to grow this part of
our business considerably over the next few years.
Although our Company has enjoyed consistent increases in the
demand for its products, we have recently been experiencing a
surge in orders from Internet-related companies. The dramatic
growth of the Internet has greatly benefited us and will, we
believe, continue to do so as the ranks of Internet users and the
memory demands of online companies keep increasing.
4
<PAGE>
SERVICE AND SUPPORT KEEP THE WHEELS ROLLING
In order to establish and maintain strong, healthy relationships
with our customers, we are committed to providing them with the
highest level of customer service and support and to constantly
develop new, innovative ways to serve them better.
To deliver on that mandate, Dataram offers its customers a number
of thoughtfully designed necessities and conveniences that add
value to their product purchases. A customer interested in our
products can shop, place or track an order anytime of the day or
night on our Web site, www.dataram.com. Regardless of the
application, all of our products are backed by a lifetime
guarantee. We ship nearly all orders within hours of when they
are received. Polite and professional memory and service
consultants are available to provide direct and immediate help to
customers around the clock, without ever subjecting them to a
lengthy, time-wasting waiting period.
As we look ahead, we feel confident that Dataram will continue to
surpass its customers' expectations, not merely for product
quality, but for order fulfillment and delivery, and helpfulness
and professionalism.
LAYING DOWN THE TRACKS FOR FUTURE GROWTH
As the Internet continues to revolutionize the way people live,
learn and do business, Dataram will remain prepared to supply the
increasing amounts of memory needed to keep the Internet moving
forward. As important as the Internet is, it is not the only
driver of our business. Corporations continue to demand ever
increasing amounts of our product as they expand their internal
networks. Complex software introductions drive users to maximize
the memory content of their workstations and servers. Finally,
the constantly changing technology in the industry continues to
provide us with new opportunities.
Dataram is poised to benefit from this increasing demand, because
of its financial strength. We have no long-term debt, a strong
cash position, and a track record of profitability. Moreover, we
have been around for more than three decades and have established
a strong reputation for quality, value and service.
5
<PAGE>
In addition to our financial strength and reputation, Dataram's
sales model gives us an important edge in the memory business.
Because we are committed to growing revenues, we have expanded
our sales force and plan to continue this expansion in the
upcoming fiscal year. This highly trained sales force produces
tangible benefits and superior results. The number of gigabytes
sold per employee rose in fiscal 1999 and we have increased both
the quantity and quality of our customer relationships. Our
sales force is centrally located in Princeton, New Jersey. By
having a centralized sales team, we assure our customers of
prompt and professional attention 24 hours a day.
6
<PAGE>
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
Dataram is a developer, manufacturer and marketer of large
capacity memory products for use with computer workstations and
network servers. The Company's products help powerful computers
provide internet services, track airline reservations, create
Hollywood special effects, execute stock transactions, support
communications activity, utility transmission, research programs
and a host of other memory intensive applications. The Company's
memory products, principally for workstations and servers
manufactured by Sun Microsystems, Hewlett-Packard,
COMPAQ/Digital, Silicon Graphics, IBM and Dell are sold worldwide
to distributors, value-added resellers and end users.
The Company is an independent memory manufacturer and competes
with several other large independent memory manufacturers as well
as the original equipment manufacturers mentioned above. The
primary raw material used in producing memory boards are dynamic
random access memory (DRAM) chips. The purchase cost of DRAM
chips typically represents approximately 80% of the total cost of
a finished server or workstation memory board. Consequently,
average selling prices for computer memory boards are
significantly dependent on the pricing and availability of DRAM
chips.
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, 1999 1998 1997
_______________________________________________________________
Revenues 100.0% 100.0% 100.0%
Cost of sales 72.3 75.8 78.9
_____ ______ _____
Gross profit 27.7 24.2 21.1
Engineering and development 1.8 1.5 1.5
Selling, general and administrative 14.6 15.2 11.1
_____ ______ _____
Earnings from operations 11.3 7.5 8.5
Other income (expense), net 0.6 0.3 0.3
_____ ______ _____
Earnings before income taxes 11.9 7.8 8.8
Income tax expense 4.4 3.0 3.4
_____ ______ _____
Net earnings 7.5 4.8 5.4
===== ====== ======
Fiscal 1999 Compared With Fiscal 1998
Revenues in fiscal 1999 totaled $75.9 million, a decrease of 2%
from fiscal 1998 revenues of $77.3 million. Unit volume measured
as gigabytes shipped increased by approximately 95% in fiscal
1999 over fiscal 1998 levels. However, the Company's average
selling price per gigabyte declined by approximately 53% in
fiscal 1999 from fiscal 1998. The decline in selling prices was
industry wide and was the result of the continued reduction in
the purchase cost of DRAMs. The majority of the Company's
revenues continue to be generated by products designed for SUN,
Hewlett-Packard, Silicon Graphics, and COMPAQ/Digital platforms.
Additionally, in the third quarter of fiscal 1999, the Company
began producing products for sale to channel assemblers and
original equipment manufactures. In fiscal 1999, approximately
74% of revenues were derived from domestic sales, 18% from sales
into Europe, with the majority of the remaining sales coming from
Pacific Rim countries.
Cost of sales decreased $3.8 million in fiscal 1999 from fiscal
1998. Cost of sales as a percentage of revenue decreased by 3.5%
in fiscal 1999 from fiscal 1998. The decrease in percentage is
primarily attributable to a favorable product mix resulting from
the Company's continued focus on higher capacity memory products
which command higher margins.
Engineering and development costs amounted to $1.4 million and
$1.1 million in fiscal 1999 and 1998, respectively. The Company
has increased its engineering resources to maintain the timely
introduction of new products.
Selling, general and administrative costs were $11.1 million in
fiscal 1999 versus $11.8 million in fiscal 1998. In fiscal 1999,
The Company continued to expand its sales force and increase
marketing efforts. The increase in investment in these areas was
offset by a decrease in legal expenses. In fiscal 1998 The
Company incurred approximately $2.0 million in legal expenses
associated with a previously announced complaint filed by Sun
Microsystems, Inc. which was resolved in April 1998.
Other income, net totaled $436,000 and $268,000 in fiscal 1999
and 1998, respectively. Other income in both years consists
primarily of net interest income.
7
<PAGE>
Fiscal 1998 Compared With Fiscal 1997
During fiscal 1998 DRAM chips continued to dramatically decline
in price. At the beginning of the fiscal year, 64 megabit and 16
megabit DRAMs cost approximately $48 and $8, respectively. By the
end of the year these same DRAMs were approximately $10 and $2.
As a result of this decline and the competitive nature of the
industry, average selling prices for most of the Company's
products have declined commensurately. However, unit volume
measured as gigabytes shipped offset the selling price decline.
Workstation and server users increasingly purchased larger
capacity memory boards based on 64 megabit DRAM technology as
these products have became more cost effective.
Revenues in 1998 totaled $77.3 million, an increase of 12% from
1997 revenues of $69.0 million. The increase in fiscal 1998 was
the result of increased unit volume offset by reduced average
selling prices. In fiscal 1998, the Company implemented a planned
expansion of its domestic and international sales force. This
enhanced resource led to an expanded customer base and increased
volume. In fiscal 1998, the Company entered into a licensing
agreement with Silicon Graphics, Inc. which resulted in increased
revenue generated by products designed for that market. In the
fourth quarter of fiscal 1998, the Company entered into a
licensing agreement with Sun Microsystems, Inc. which allows the
Company to use Sun's patented memory module technology. In fiscal
1998, approximately 71% of revenues were derived from domestic
sales, 19% from sales into Europe, with the majority of the
remaining sales coming from Pacific Rim countries.
Cost of sales increased $4.2 million in fiscal 1998 from fiscal
1997. However, cost of sales as a percentage of revenue decreased
by 3.1% in fiscal 1998 from fiscal 1997. The decrease in
percentage is primarily attributable to a decision made by the
Company in the beginning of fiscal 1998 to focus exclusively on
higher capacity memory products which command higher margins.
Engineering and development costs amounted to $1.1 million in
fiscal 1998, a decrease from fiscal 1997 expenditures of $1.0
million.
Selling, general and administrative costs were $11.8 million in
fiscal 1998 versus $7.7 million in fiscal 1997. In fiscal 1998,
The Company incurred approximately $2.0 million in legal expenses
associated with a previously announced complaint filed by Sun
Microsystems, Inc. Fiscal 1997 expenses related to this matter
totaled approximately $400,000. The litigation was resolved in
fiscal 1998 and all expenses associated with the litigation were
either paid or accrued as of the end of fiscal 1998. The
remainder of the year over year increase was primarily the result
of the previously mentioned expansion of the Company's sales
force.
Other income, net totaled $268,000 and $227,000 in 1998 and 1997,
respectively. Other income in both years consists primarily of
net interest income.
Liquidity and Capital Resources
During fiscal 1999 the Company purchased and retired 338,000
shares of its common stock at a total price of $2.6 million while
still maintaing a strong working capital and cash position.
Working capital at the end of fiscal 1999 amounted to $17.4
million, including cash and cash equivalents of $8.1 million,
compared to working capital of $14.5 million, including cash and
cash equivalents of $7.5 million in fiscal 1998. Current assets
at year end were 3.7 times current liabilities compared to 3.2 at
the end of fiscal 1998.
Inventories at the end of fiscal 1999 were $3.3 million compared
to fiscal 1998 year-end inventories of $2.9 million. Currently,
DRAMs remain readily available and the Company maintains only the
required level of inventory necessary to support its customer
base.
Capital expenditures were $1.2 million in fiscal 1999 compared to
$2.0 million in fiscal 1998. Capital expenditures in both years
were primarily for manufacturing equipment, leasehold
improvements and management information systems upgrades. At the
end of fiscal 1999, contractual commitments for capital purchases
were nil. Fiscal 2000 capital expenditures are expected to be
approximately the same level as fiscal 1999 expenditures.
The Company's products are all year 2000 compliant. The Company
has upgraded its manufacturing, accounting, production and
inventory control systems and software and management believes
that these systems and software are now or will be year 2000
compliant by year end. The Company has numerous personal
computers and peripheral devices used in information technology
and non-information technology applications which have been
tested for year 2000 compliance. The Company has upgraded or
replaced any known non year 2000 compliant devices and management
believes that these devices are now year 2000 compliant.
Management estimates that the financial impact of the upgrade
will not have a material
8
<PAGE>
effect on the Company's consolidated financial condition, results
of operations and liquidity.
As part of the Company's Year 2000 readiness program, the Company
has identified its key vendors and suppliers and is attempting to
ascertain their stage of year 2000 readiness primarily through
questionnaires and interviews. The Company has a diverse customer
base, with no single customer accounting for 10% or more of its
revenue. At this time, the Company has no plans to ascertain the
stage of year 2000 readiness of its current customers.
The possible consequences of the Company, its key vendors,
certain customers, governments or government agencies, financial
institutions, utilities, etc. of not being year 2000 compliant by
January 1, 2000 include but are not limited to, among other
things, a temporary plant closing, delays in the delivery of
products, delays in collection of receivables and supply
disruption. Because of the widespread nature of this problem, no
assurances can be made that the Company will not be materially
adversely affected by a temporary inability of the Company to
conduct its business in the ordinary course for a period of time
after January 1, 2000. However, management believes that the
actions it has taken should significantly reduce the adverse
effect any such disruptions may have.
On September 10, 1998, the Company announced an open market
repurchase program providing for the repurchase of up to 500,000
shares of its common stock. On June 15, 1999, the Company
announced an additional open market repurchase plan providing for
the repurchase of up to 500,000 shares of the Company's common
stock. As of June 15, 1999, the total number of shares authorized
for purchase under the two programs is 614,000 shares.
Inflation has not had a significant impact on the Company's
revenue and operations.
During fiscal 1999, the Company renewed its $12 million unsecured
revolving credit line with its bank. The credit facility was
unused during fiscal 1999. Annually, $6 million of the facility
is scheduled to expire. The Company intends to renew any expiring
portion of the facility by the expiration date and maintain a $12
million total facility.
Management believes that its working capital together with
internally generated funds and its bank line of credit are
adequate to finance the Company's operating needs and future
capital requirements.
Quantitative and Qualitative Disclosure About Market Risk
The Company does not invest in market risk sensitive instruments.
The Company's investments during the past fiscal year have
consisted of overnight deposits with banks. The average principal
sum invested was approximately $8,500,000 and the weighted
average effective interest weight for these investments was
approximately 5.25%. The Company's rate of return on its
investment portfolio changes with short-term interest rates,
although such changes will not effect the value of its portfolio.
The Company's objectives in connection with its investment
strategy is to maintain the security of its cash reserves without
taking market risk with principal. As the current premium for
investing long term is small by historic standards, it does not,
in management's judgement, justify a risk as to the security of
principal. The Company maintains a limited inventory of its
products in Europe. The Company is considering marketing its
products in Euro denominations.
Common Stock Information
The Common Stock of the Company is traded on the American Stock
Exchange under the symbol "DTM". The following table sets forth,
for the periods indicated, the high and low closing prices for
the Common Stock as reported by the American Stock Exchange and
adjusted for a two-for-one stock split distributed on December 3,
1998.
1999 1998
___________________ __________________
High Low High Low
___________________ __________________
First Quarter 6 3/4 5 11/16 5 7/16 4 1/2
Second Quarter 7 7/16 5 3/16 5 3/16 4 1/16
Third Quarter 10 3/4 7 5/16 4 27/32 4
Fourth Quarter 10 1/4 6 3/4 6 11/32 4 29/32
At April 30, 1999 there were approximately 2,000 shareholders.
The Company has never paid a dividend and does not at present
have an intention to pay a dividend in the foreseeable future.
9
<PAGE>
DATARAM CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
April 30, 1999 and 1998
(In thousands, except share amounts)
1999 1998
______ ______
Assets
Current assets:
Cash and cash equivalents $ 8,093 $ 7,530
Trade receivables, less allowance for
doubtful accounts of $450 in 1999 and
1998 12,016 10,076
Inventories:
Raw materials 1,335 1,759
Work in process 508 61
Finished goods 1,447 1,103
______ ______
3,290 2,923
Deferred income taxes (note 3) 368 425
Other current assets 107 68
______ ______
Total current assets 23,874 21,022
______ ______
Property and equipment, at cost:
Land 875 875
Machinery and equipment 5,189 8,806
______ ______
6,064 9,681
Less accumulated depreciation 2,573 6,246
______ ______
Net property and equipment 3,491 3,435
Other assets 9 7
______ ______
$27,374 $24,464
====== ======
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 4,344 $ 4,699
Accrued liabilities (note 7) 2,092 1,784
______ ______
Total current liabilities 6,436 6,483
Deferred income taxes (note 3) 919 1,013
______ ______
Total liabilities 7,355 7,496
______ ______
Stockholders' equity (notes 4 and 5):
Common stock, par value $1.00 per share.
Authorized 18,000,000 shares; issued
and outstanding 5,236,810 in 1999
and 2,781,405 in 1998 5,237 2,781
Additional paid-in capital - 2,126
Retained earnings 14,782 12,061
______ ______
Total stockholders' equity 20,019 16,968
______ ______
Commitments and contingencies (notes 6 and 10)
$27,374 $24,464
====== ======
See accompanying notes to consolidated financial statements.
10
<PAGE>
DATARAM CORPORATION AND SUBSIDIARY
Consolidated Statements of Earnings
Years ended April 30, 1999, 1998 and 1997
(In thousands, except per share amounts)
1999 1998 1997
_______ _______ _______
Revenues (note 9) $ 75,853 $ 77,286 $ 68,980
_______ _______ _______
Costs and expenses (notes 6 and 8):
Cost of sales 54,814 58,608 54,409
Engineering and development 1,373 1,113 1,030
Selling, general and administrative 11,108 11,766 7,674
_______ _______ _______
67,295 71,487 63,113
_______ _______ _______
Earnings from operations 8,558 5,799 5,867
Other income (expense):
Other income, net - 3 18
Interest income 479 305 276
Interest expense (43) (40) (67)
_______ _______ _______
436 268 227
_______ _______ _______
Earnings before income tax expense 8,994 6,067 6,094
Income tax expense (note 3) 3,359 2,345 2,325
_______ _______ _______
Net earnings $5,635 $3,722 $3,769
======= ======= =======
Net earnings per common share:
Basic $ 1.03 $ .63 $ .56
======= ======= =======
Diluted $ .90 $ .60 $ .55
======= ======= =======
See accompanying notes to consolidated financial statements.
11
<PAGE>
DATARAM CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended April 30, 1999, 1998 and 1997
(In thousands)
1999 1998 1997
______ _____ ______
Cash flows from operating activities:
Net earnings $5,635 $3,722 $3,769
Adjustments to reconcile net earnings
to net cash provided by
operating activities:
Depreciation and amortization 1,147 785 594
Bad debt expense (recovery) (125) 435 263
Deferred income tax expense
(benefit) (37) (2) 50
Changes in assets and liabilities:
(Increase) decrease in trade
receivables (1,815) (2,038) 3,342
(Increase) decrease in
inventories (367) 1,473 (2,084)
Decrease in income tax
receivable - 48 376
(Increase) decrease in
other current assets (39) 33 (51)
(Increase) in other assets (2) (1) -
Increase (decrease) in
accounts payable (355) 554 (1,764)
Increase in accrued
liabilities 308 691 70
_____ _____ _____
Net cash provided by
operating activities 4,350 5,700 4,565
_____ _____ _____
Cash flows from investing activities:
Purchase of property and equipment (1,203) (1,966) (650)
_____ _____ _____
Net cash used in investing activities (1,966) (1,966) (650)
_____ _____ _____
Cash flows from financing activities:
Purchase and subsequent cancellation
of shares of common stock (2,615) (3,318) (5,671)
Proceeds from sale of common shares
under stock option plan (including
tax benefits) 31 278 110
_____ _____ _____
Net cash used in financing
activities (2,584) (3,040) (5,561)
_____ _____ _____
Net increase (decrease) in cash and
cash equivalents 563 694 (1,646)
Cash and cash equivalents at
beginning of year 7,530 6,836 8,482
_____ _____ _____
Cash and cash equivalents at end
of year $ 8,093 $ 7,530 $ 6,836
===== ===== =====
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 40 $ 52 $ 43
Income taxes $ 2,950 $ 2,033 $ 1,881
===== ===== =====
See accompanying notes to consolidated financial statements.
12
<PAGE>
DATARAM CORPORATION AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years ended April 30, 1999, 1998 and 1997
(In thousands, except share amounts)
Total
Additional stock-
Common paid-in Retained holders'
stock capital earning equity
______ ________ _______ ________
Balance at April 30, 1996 $ 3,824 $ 3,425 $10,829 $18,078
Issuance of 19,000 shares
under stock option plans 19 91 - 110
Purchase and subsequent
cancellation of
765,856 shares (765) (1,063) (3,843) (5,671)
Net earnings - - 3,769 3,769
______ ________ _______ ______
Balance at April 30, 1997 3,078 2,453 10,755 16,286
Issuance of 39,000 shares
under stock option plans 39 239 - 278
Purchase and subsequent
cancellation of
335,044 shares (336) (566) (2,416) (3,318)
Net earnings - - 3,722 3,722
______ ________ _______ ______
Balance at April 30, 1998 2,781 2,126 12,061 16,968
Two-for-one common stock
split 2,782 (2,126) (656) -
Issuance of 12,000 shares
under stock option plans 12 19 - 31
Purchase and subsequent
cancellation of
338,000 shares (338) (19) (2,258) (2,615)
Net earnings - - 5,635 5,635
______ ________ _______ ______
Balance at April 30, 1999 $ 5,237 $ - $14,782 $20,019
====== ======== ======= =======
See accompanying notes to consolidated financial statements.
13
<PAGE>
Notes to Consolidated Financial Statements
(1) Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary, Dataram International
Sales Corporation (a Domestic International Sales Corporation
(DISC)). All significant intercompany transactions and balances
have been eliminated.
Cash and Cash Equivalents
Cash and cash equivalents consist of unrestricted cash, money
market preferred stock and commercial paper purchased with
original maturities of three months or less.
Inventory Valuation
Inventories are valued at the lower of cost or market, with costs
determined by the first-in, first-out method.
Property and Equipment
Property and equipment is recorded at cost. Depreciation is
generally computed on the straight-line basis. Depreciation rates
are based on the estimated useful lives which range from three to
five years for machinery and equipment. When property or
equipment is retired or otherwise disposed of, related costs and
accumulated depreciation are removed from the accounts.
Repair and maintenance costs are charged to operations as
incurred.
Revenue Recognition
Revenue from product sales is recognized when the related goods
are shipped to the customer and all significant obligations of
the Company have been satisfied. Estimated warranty costs are
accrued.
Product Development and Related Engineering
The Company expenses product development and related engineering
costs as incurred. Engineering effort is directed to development
of new or improved products as well as ongoing support for
existing products.
Income Taxes
The Company follows the asset and liability method of accounting
for income taxes in accordance with the provisions of Statement
of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes". Under the asset and liability method of SFAS No.
109, deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. 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 income in the period that the tax rate
changes.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentration of credit risk consist primarily of cash and cash
equivalents. 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.
Net Earnings Per Share
In February 1997, the FASB issued SFAS No. 128, "Earnings Per
Share". SFAS 128 establishes standards for computing and
presenting earnings per share and is effective for financial
statements for both interim and annual periods ending after
December 15, 1997. Accordingly, the accompanying net earnings per
share information has been calculated and presented in accordance
with the provisions of SFAS 128.
Basic net earnings per share was calculated by dividing net
earnings by the weighted average number of common shares
outstanding during the period after giving retroactive effect to
the two-for-one stock split declared on November 11, 1998 and
distributed to shareholders on December 3, 1998 (see note 4).
Diluted net earnings per share was calculated in a manner
consistent with Basic net earnings 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).
14
<PAGE>
The following presents a reconciliation of the numerator and
denominator used in computing Basic and Diluted net earnings per
share:
(Earnings in thousands)
Year ended April 30, 1999
Earnings Shares Per share
(numerator) (denominator) amount
_________ ___________ _________
Basic net earnings per share
- -net earnings and weighted
average common shares
outstanding $ 5,635 5,454,495 $ 1.03
Effect of dilutive securities
- -stock options - 778,230
_______ _________ ______
Diluted net earnings per share
- -net earnings, weighted
average common shares
outstanding and effect of
stock options $ 5,635 6,232,725 $ .90
======= ========= ======
Year ended April 30, 1998
Earnings Shares Per share
(numerator) (denominator) amount
_________ ___________ _________
Basic net earnings per share
- -net earnings and weighted
average common shares
outstanding $ 3,722 5,916,030 $ .63
Effect of dilutive securities
- -stock options - 320,620
_______ _________ ______
Diluted net earnings per share
- -net earnings, weighted
average common shares
outstanding and effect of
stock options $ 3,722 6,236,650 $ .60
======= ========= ======
Year ended April 30, 1997
Earnings Shares Per share
(numerator) (denominator) amount
_________ ___________ _________
Basic net earnings per share
- -net earnings and weighted
average common shares
outstanding $ 3,769 6,721,950 $ .56
Effect of dilutive securities
- -stock options - 142,572
_______ _________ ______
Diluted net earnings per share
- -net earnings, weighted
average common shares
outstanding and effect of
stock options $ 3,769 6,864,522 $ .55
======= ========= ======
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
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.
Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed of
Long-Lived assets 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 future net cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceed the fair value of the
assets. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell.
Stock Based Compensation
Stock based compensation is recognized using the intrinsic value
method in accordance with the provisions of Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"), and related interpretations. For disclosures
purposes, net earnings and net earnings per
15
<PAGE>
share data included in note 5 are provided in accordance with
Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-based Compensation" ("SFAS 123"), as if the fair value
method had been applied.
(2) Long-Term Debt
On November 1, 1998, the Company amended and restated its credit
facility with its bank. Under the amended agreement, the Company
modified certain financial covenants, eliminated its term loan
facility and increased its revolving credit facility to
$12,000,000 until October 31, 1999, at which point it will
decrease to $6,000,000 until October 31, 2000. The agreement
provides for Eurodollar rate loans, CD rate loans and base rate
loans at an interest rate no higher than the bank's base
commercial lending rate less 1/2%. The Company is required to pay
a commitment fee equal to 1/16 of one percent per annum on the
unused commitment. The agreement contains certain restrictive
financial covenants including a minimum current ratio, minimum
tangible net worth requirement, minimum interest coverage ratio,
maximum debt to equity ratio and certain other covenants, as
defined by the agreement. There were no borrowings under this
facility during fiscal 1999 and 1998. As of April 30, 1999, the
amount available for borrowing under the revolving credit
facility was $12,000,000.
(3) Income Taxes
Income tax expense for the years ended April 30 consists of the
following:
(In thousands) 1999 1998 1997
_____ _____ _____
Current:
Federal $ 2,958 $ 1,889 $ 1,889
State 438 458 386
_____ _____ _____
3,396 2,347 2,275
_____ _____ _____
Deferred:
Federal (33) (1) (26)
State (4) (1) 76
_____ _____ _____
(37) (2) 50
_____ _____ _____
Total income tax expense $ 3,359 $ 2,345 $ 2,325
===== ===== =====
The actual income tax expense differs from "expected" tax expense
(computed by applying the U. S. corporate tax rate of 34% to
earnings before income taxes) as follows:
(In thousands) 1999 1998 1997
_____ _____ _____
Computed "expected" tax
expense $ 3,058 $ 2,063 $ 2,072
State income taxes(net
of Federal income tax
benefit) 286 303 303
Other 15 (21) (50)
_____ _____ _____
$ 3,359 $ 2,345 $ 2,325
===== ===== =====
The tax effect of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities are presented below:
(In thousands) 1999 1998
____ ____
Deferred tax assets:
Compensated absences, principally due
to accrual for financial reporting
purposes $ 77 $ 125
Accounts receivable, principally due
to allowance for doubtful accounts 176 176
Property and equipment, principally
due to differences in depreciation 199 104
Inventory, principally due to
reserve for obsolescence 10 20
____ ____
Total gross deferred tax assets 462 425
____ ____
Deferred tax liabilities:
Investment in wholly-owned subsidiary,
principally due to unremitted
earnings of DISC (663) (663)
Other (350) (350)
____ ____
Total gross deferred tax liabilities (1,013) (1,013)
____ ____
Net deferred tax liabilities $(551) $(588)
==== ====
(4) Common Stock Transactions
On November 11, 1998, the Company's Board of Directors announced
a two-for-one stock split effected in the form of a dividend for
shareholders of record at the close business on November 23, 1998
and payable December 3, 1998. The stock split has been charged to
additional paid-in capital and retained earnings at par value.
Share amounts in the notes to the financial statements, weighted
average shares outstanding and net earnings per share have been
retroactively adjusted to reflect the stock split.
(5) Stock Option Plans
During 1982, the Company adopted an incentive stock option plan.
In 1995. In 1997, 6,000 (pre-split) options were exercised under
this plan at an exercise price of $3.567 (pre-split). No further
options may be granted under the plan and there are no options
outstanding under the 1982 plan.
In September 1992, the Company adopted an incentive and
nonstatutory 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
16
<PAGE>
employees. In general, the plan allows granting of up to
1,900,000 shares, adjusted for the two-for-one stock split, of
the Company's common stock at an option price to be no less than
the fair market value of the stock on the date such options are
granted. The holder of the option may purchase 20% of the common
stock with respect to which the option has been granted on or
after the first anniversary of the date of the grant and an
additional 20% of such shares on or after each of the four
succeeding anniversary dates. At April 30, 1999, 669,600 of the
outstanding options are exercisable.
The status of the 1992 plan for the three years ended April 30,
1999, adjusted for the two-for-one stock split, is as follows:
Options Outstanding
_____________________________
Exercise price
Shares per share
_________ _______________
Balance April 30, 1996 704,000 $ 2.563-3.563
Granted 334,000 3.469
Exercised (26,000) 2.563-3.563
Cancelled (20,000) 3.563
_________ ____________
Balance April 30, 1997 992,000 2.563-3.563
Granted 464,000 4.219-5.375
Exercised (78,000) 3.563
Cancelled (44,000) 2.563-4.688
_________ ____________
Balance April 30, 1998 1,334,000 2.563-5.375
Granted 116,000 5.406
Exercised (12,000) 2.563
Cancelled ( 8,000) 2.563
_________ ____________
Balance April 30, 1999 1,430,000 $ 2.563-5.406
========== ============
The Company also grants nonqualified stock options to nonemployee
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
nonemployee directors are exercisable at a price representing the
fair value at the date of grant, and expire five years after date
of grant. Of each option, 25% is first exercisable on or after
the date of the grant and an additional 25% on each of three
succeeding anniversary dates. At April 30, 1999, 90,000 of the
outstanding options are exercisable.
The status of the nonemployee director options for the three
years ended April 30, 1999, adjusted for the two-for-one stock
split, is as follows:
Options Outstanding
___________________________
Exercise price
Shares per share
______ _______________
Balance April 30, 1996 240,000 $ 5.625
Granted 60,000 3.469
Exercised - -
Cancelled - -
________ ____________
Balance April 30, 1997 300,000 3.469-5.625
Granted 240,000 4.219
Exercised - -
Cancelled (240,000) 5.625
________ ____________
Balance April 30, 1998 300,000 3.469-4.219
Granted - -
Exercised - -
Cancelled - -
________ ____________
Balance April 30, 1999 300,000 $3.469-4.219
======== ============
The following table, adjusted for the two-for-one stock split,
summarizes information about stock options outstanding at April
30, 1999:
Options outstanding Options exercisable
____________________________________________ ___________________
Number Weighted Number
out- average Weighted exercis- Weighted
Range of standing remaining average able at average
exercise at April contractual exercise April 30, exercise
price 30, 1999 life price 1999 price
____________ _________ ____________ ________ _________ ________
$2.563-3.563 850,000 5.16 $ 3.34 582,800 $ 3.38
4.219-4.875 640,000 6.77 4.28 140,000 4.28
5.375-5.406 240,000 8.65 5.39 36,800 5.38
____________ _________ ____________ _______ _________ _______
$2.563-5.406 1,730,000 6.55 $ 3.97 759,600 $ 3.64
============ ========= ============ ======= ========= =======
17
<PAGE>
The Company applies APB Opinion 25 in accounting for its Plans
and, accordingly, compensation cost for stock options is measured
as the excess, if any, of the quoted market price at the date of
the grant over the amount an employee must pay to acquire the
stock. Because the Company grants options at a price equal to the
market price of the stock at the date of grant, no compensation
expense is recorded. Had the Company determined compensation cost
based on the fair value at the grant date consistent with the
provisions of SFAS No. 123, the Company's net earnings would have
been reduced to the pro forma amounts indicated below:
(In thousands, except per share amounts)
April 30,
________________________
1999 1998 1997
____ ____ ____
Net earnings:
As reported $ 5,635 $ 3,722 $ 3,769
Pro forma 5,346 3,517 3,667
Net earnings per common share
(adjusted for two-for-one stock split):
Basic:
As reported 1.03 .63 .56
Pro forma .98 .59 .55
Diluted:
As reported .90 .60 .55
Pro forma .86 .56 .53
The pro forma amounts as noted above may not be representative of
the effects on reported earnings for future years. Pro forma net
earnings reflects only options granted in 1999, 1998 and 1997.
Therefore, the full impact of calculating compensation cost for
stock options under SFAS No. 123 is not reflected in the pro
forma net earnings amounts presented above because compensation
cost is reflected over the options' vesting period of 5 years and
compensation cost for options granted prior to April 30, 1995 is
not considered.
The fair value of the stock options granted in 1999, 1998 and
1997 was $2.81, $2.43 and $2.07, respectively, on the date of the
grant using the BlackScholes option pricing model with the
following assumptions: for 1999 - expected dividend yield 0.0%,
risk free interest rate of 6.5%, expected volatility of 34%, and
an expected life of 7.5 years; for 1998 - expected dividend yield
0.0%, risk free interest rate of 6.5%, expected volatility of
37%, and an expected life of 7.5 years; for 1997 - expected
dividend yield 0.0%, risk free interest rate of 7%, expected
volatility of 41%, and an expected life of 7 years.
(6) Commitments
The Company and its subsidiary occupy various facilities and
operate various equipment under operating lease arrangements.
Rents charged to operations amounted to approximately $790,000 in
1999, $593,000 in 1998 and $612,000 in 1997.
Minimum annual rental commitments for all noncancellable
operating leases as of April 30, 1999 are approximately as
follows:
(In thousands)
2000 $ 748
2001 431
2002 125
_____
$1,304
=====
During the year ended April 30, 1998, the Company signed
licensing agreements with Silicon Graphics, Inc. (SGI) and Sun
Microsystems, Inc. (SUN) to manufacture memory upgrades for
certain high performance servers and workstations. The Company
signed an additional licensing agreement with SGI for certain
products in fiscal 1999. Under these agreements, the Company is
obligated to pay a royalty based on sales of such products.
(7) Accrued Liabilities
Accrued liabilities consist of the following:
(In thousands) 1999 1998
____ ____
Payroll, including
vacation $ 288 $ 474
Commissions and bonuses 999 563
Royalties (note 6) 420 364
Other 385 383
______ ______
$2,092 $1,784
====== ======
18
<PAGE>
(8) 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 6 percent of
the employee's eligible compensation, based on the employee's
years of service. The Company's matching contributions aggregated
approximately $181,000, $133,000 and $121,000 in 1999, 1998 and
1997, respectively.
(9) Revenues by Geographic Location
The Company operates in one business segment and develops,
manufactures and markets a variety of memory systems for use with
workstations and servers which are manufactured by various
computer systems companies. Revenues for 1999, 1998 and 1997 by
geographic region is as follows:
(in thousands) Export
________________
Years ended April 30, United Europe Other Consolidated
States
_______ _______ ______ ____________
1999 $ 56,292 $ 13,960 $5,601 $ 75,853
1998 $ 54,989 $ 14,860 $7,437 $ 77,286
1997 $ 50,147 $ 12,988 $5,845 $ 68,980
(10) Litigation
In August 1996, SUN filed a complaint alleging patent
infringement against the Company in the Federal District Court
asserting the infringement of five specific patents related to
single inline memory module (SIMM) technology. In October 1996,
the Company filed its answer and affirmative defenses and
asserted several anti-trust and other anti-competitive
counterclaims against SUN in addition to its affirmative
defenses.
This case was settled and dismissed with prejudice by the court
in April 1998. The Company and SUN entered into a licensing and
settlement agreement which resulted in resolution of all claims
for damages. The license agreement provides for payment of
royalties by the Company on sales of certain defined memory
modules.
19
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Dataram Corporation:
We have audited the accompanying consolidated balance sheets of
Dataram Corporation and subsidiary as of April 30, 1999 and 1998,
and the related consolidated statements of earnings,
stockholders' equity, and cash flows for each of the years in the
three-year period ended April 30, 1999. 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 generally accepted
auditing standards. 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 subsidiary as of April 30,
1999 and 1998, and the results of their operations and their cash
flows for each of the years in the three-year period ended April
30, 1999, in conformity with generally accepted accounting
principles.
KPMG LLP
Princeton, New Jersey
May 20, 1999
20
Selected Financial Data
(Not covered by independent auditors' report)
(In thousands, except per share amounts)
Years Ended April 30, 1999 1998 1997 1996 1995
______________________ ____ ____ ____ ____ ____
Revenues $ 75,853 $ 77,286 $ 68,980 $107,627 $103,028
Net earnings (loss) 5,635 3,722 3,769 1,450 (1,299)
Basic earnings
(loss) per share 1.03 .63 .56 .19 (.17)
Diluted earnings
(loss) per share .90 .60 .55 .19 (.17)
Current assets 23,874 21,022 20,277 23,735 24,710
Total assets 27,374 24,464 22,537 25,939 27,355
Current liabilities 6,436 6,483 5,238 6,932 10,649
Long-term debt - - - - -
Total stockholders'
equity 20,019 16,968 16,286 18,078 16,390
Cash dividends - - - - -
Earnings per share data has been adjusted to reflect the two-for-one stock
split for shareholders of record on December 3, 1998.
Quarterly Financial Data (Unaudited)
(In thousands, except per share amounts)
Quarter Ended
____________________________________________
Fiscal 1999 July 31 October 31 January 31 April 30
___________ _______ __________ __________ ________
Revenues $17,750 $16,262 $18,922 $22,919
Gross profit 5,480 5,167 5,053 5,339
Net earnings 1,417 1,290 1,422 1,506
Net earnings (diluted) per common
and common equivalent share .23 .21 .22 .24
Quarter Ended
____________________________________________
Fiscal 1998 July 31 October 31 January 31 April 30
___________ _______ __________ __________ ________
Revenues $18,147 $20,068 $19,844 $19,227
Gross profit 3,512 4,665 5,153 5,348
Net earnings 669 945 1,032 1,076
Net earnings (diluted) per common
and common equivalent share .11 .15 .17 .18
Earnings per share is calculated independently for each quarter and therefore
does not equal the total for the year.
Earnings per share data has been adjusted to reflect the two-for-one stock
split for shareholders of record on December 3, 1998.
21
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DIRECTORS AND CORPORATE OFFICERS
Directors
Robert V. Tarantino
Chairman of the Board of Directors,
President and Chief Executive Officer
of Dataram Corporation
Richard Holzman*
Private Investor
Thomas A. Majewski*
Principal, Walden Inc.
Bernard L. Riley*
Private Investor
Roger Cady*
Principal, Arcadia Associates
*Member of audit committee
Corporate Officers
Robert V. Tarantino
President and Chief Executive Officer
Mark E. Maddocks
Vice President, Finance and
Chief Financial Officer
Jeffrey H. Duncan
Vice President of Manufacturing
and Engineering
Hugh F. Tucker
Vice President, Sales
Jay Litus
Vice President, Business Development
Thomas J. Bitar
Secretary
Partner, Dillon, Bitar & Luther
Corporate Headquarters
Dataram Corporation
186 Princeton Road (Route 571)
West Windsor, NJ 08550
609-799-0071
Auditors
KPMG LLP
Princeton, NJ
General Counsel
Dillon, Bitar & Luther
Morristown, NJ
Transfer Agent and Registrar
First Union National Bank
Customer Information Center
1525 West W.T. Harris Boulevard
Building 3C3
Charlotte, NC 28288
Stock Listing
Dataram's common stock is listed on
the American Stock Exchange with the
trading symbol DTM.
Annual Meeting
The annual meeting of shareholders
will be held on Wednesday, September 8,
1999, at 2:00 p.m. at Dataram's
corporate headquarters at:
186 Princeton Road (Route 571)
West Windsor, NJ 08550
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
186 Princeton Road (Route 571)
West Windsor, NJ 08550
22
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Dataram Corporation
Corporate Headquarters-186 Princeton Road (Route 571)-West
Windsor, NJ 08550
Toll Free: 800-DATARAM Phone: 609-799-0071 Fax: 609-799-6734
Web Site: www.dataram.com
