<PAGE>
[DATARAM LOGO]
DATARAM CORPORATION
2000 ANNUAL REPORT
<PAGE 1>
Financial Highlights and Table of Contents
(Dollar figures in thousands, except per share amounts)
Fiscal Year 2000 1999 1998 1997
_______ _______ _______ _______
Revenues $ 109,152 $ 75,853 $ 77,286 $ 68,980
Net earnings 7,846 5,635 3,722 3,769
Net earnings per
common and common share
equivalent (diluted) .81 .60 .40 .37
Working capital 22,711 17,438 14,539 15,039
Stockholders' equity 26,894 20,019 16,968 16,286
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
<PAGE 2>
[PICTURE OF ROBERT TARANTINO]
To Our Shareholders
It is my pleasure to report on our fiscal 2000 performance and outline our
outlook and plans for the future.
Fiscal 2000 was a record year for Dataram in nearly all respects. As a
leading independent provider of advanced memory for network servers, the
Company continued to benefit from the explosive growth of the Internet and
the rapid growth in the installed base of network servers in Corporations
worldwide. In fiscal 2000, we substantially increased our revenues, net
earnings and earnings per share. The Company's revenues increased by 44%
in fiscal 2000 to $109,152,000 from fiscal 1999 revenues of $75,853,000.
Net earnings increased by 39% in fiscal 2000 to $7,846,000, or $.81 per
diluted share, from $5,635,000, or $.60 per diluted share for fiscal 1999.
The outlook for our memory business remains strong. Servers are at the
center of corporate networks and the Internet, and our products enhance
server performance. The activities of Internet users, service providers
and large corporations are placing increasing demands on information
technology infrastructure. Today's network expansion supports rapid growth
in data and file transmission. Tomorrow's expansion will enable
distribution of multimedia content and broadband communications. The
converging worlds of voice communications, television and computers will
require vastly higher bandwidth. As a consequence, users will need more
servers and with more memory in them.
Timely new product introductions have always played an important part in
our success. As the power of Intel processors has increased, a new market
has emerged for Dataram, high end Intel processor based servers. Our
customers responded strongly to the availability of our new Intel
certified memories last year and this acceptance made a significant
contribution to our growth.
We must continue to invest in our business to keep up with opportunities.
In fiscal 2001 we will continue to expand our domestic sales force.
Recently, we opened a sales and marketing office in the United Kingdom to
maximize our participation in the Internet infrastructure growth in Europe
and we plan to expand our sales staff in that region also. Additionally,
we have commenced an expansion of our manufacturing facilities which will
culminate in a doubling of our production capacity.
Enhancing shareholder value remains one of our top priorities. Company
management maintains an ongoing communications program with the investment
community, one result of which has been the initiation of analyst coverage
of the Company. To improve liquidity for our shares, the Company's Board
of Directors approved a three-for-two stock split in fiscal 2000 as well
as the transfer the listing of our common shares to the NASDAQ National
Market.
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 consistently reach and even exceed our challenging
goals.
July 15, 2000
Robert V. Tarantino
Chairman of the Board of Directors,
President and Chief Executive Officer
<PAGE 3>
Company Profile
Dataram Corporation provides the products, quality, service and support to
dramatically accelerate the power and performance for ISPs, ASPs,
enterprise-wide business and the online market today.
To address the growing role of e-Business and the demands of the Internet,
Dataram manufactures and markets gigabyte memory for Compaq, Hewlett-
Packard, IBM, Silicon Graphics and Sun Microsystems computers.
Additionally, the Company manufactures a line of Intel certified memory
which is sold to original equipment manufacturers and channel assemblers.
Dataram products are sold worldwide to distributors, value-added resellers
and large end users.
The rapid growth of the Internet, spurring applications such as Web
serving, powerful database-driven sites and highly customized e-Business
services creates unprecedented demand for our premium products.
The Company is dedicated to creating the highest quality performance
enhancing memory products for network servers, and, as a result, has built
a strong customer base in variety of industries throughout the world,
including Internet service providers, telecommunications, medical imaging,
engineering, manufacturing, business, finance, science and 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 computer manufacturers. Our memory products
achieve the same high level of form, fit and function as the computer
manufacturers and are backed by a lifetime guarantee and incomparable
service.
<PAGE 4>
Over the past 34 years we have earned a reputation for being first to
market with high capacity memory that keeps pace with today's intense
computing environments. Through research and development we can continue
to be a leader in the industry, providing the products our customers need.
We introduced memory for the innovative dense rack server market,
targeting customers who are focused on saving space in the data center and
plan to scale their environment by adding servers by the tens, hundreds or
even thousands. Dataram also supplies memory to boost the performance of
database applications executing large scale transaction processing and
complex decision support queries. In fiscal year 2000, we introduced
seventy-five new products for our target markets. In addition, the
company's Intel products qualified for CMTL "Gold Memory Module"
manufacturer status, a certification program developed jointly by Intel
and CMTL that is the industry standard for memory compatibility on Intel
chipset based server motherboards.
<PAGE 5>
We offer our customers a number of services that add value to their
product purchases. Our website, www.dataram.com offers resources such as
product information and specifications, real time data regarding product
availability, selling prices and shipment status.
Regardless of the application, all orders are backed by a lifetime
guarantee and are shipped within hours of when they are received.
Dataram's flexibility and adaptability allows us to respond quickly and
accurately to our customers needs. Our sales model gives us an important
competitive advantage in the memory industry. Domestically, we have a
centralized sales team located in Princeton, New Jersey. Demonstrating our
commitment to the European marketplace, we have opened a centralized sales
and marketing office in the United Kingdom.
By having a centralized sales team model we assure our customers prompt
and professional attention 24 hours a day and we have increased both the
quantity and quality of our customer relationships.
Because we are committed to growth, we have expanded our sales force and
plan to continue this expansion in the upcoming fiscal year.
<PAGE 6>
Financially, Dataram is poised to meet the demands of our growing
marketplace. We have no long-term debt, a strong balance sheet and a
proven track record of profitability. As we look ahead, we are well
positioned to exceed our customer's expectations to provide exceptional
products, service, support, and loyalty on every level.
<PAGE 7>
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 primarily used in high performance network servers. The Company's
products help powerful computers provide internet services, track airline
reservations, execute stock transactions, support communications activity,
medical imaging, utility transmission, research programs and a host of
other memory intensive applications. The Company's memory products,
principally for computers manufactured by Sun Microsystems, COMPAQ,
Hewlett-Packard, Silicon Graphics, IBM as well as Intel motherboard based
servers 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 highly
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, 2000 1999 1998
_______________________________________________________________
Revenues 100.0% 100.0% 100.0%
Cost of sales 75.0 72.3 75.8
_____ ______ _____
Gross profit 25.0 27.7 24.2
Engineering and development 1.3 1.8 1.5
Selling, general and administrative 12.5 14.6 15.2
_____ ______ _____
Earnings from operations 11.2 11.3 7.5
Other income (expense), net 0.4 0.6 0.3
_____ ______ _____
Earnings before income taxes 11.6 11.9 7.8
Income tax expense 4.4 4.4 3.0
_____ ______ _____
Net earnings 7.2 7.5 4.8
===== ====== ======
Fiscal 2000 Compared With Fiscal 1999
Revenues in fiscal 2000 totaled $109.2 million, an increase of 44% from
fiscal 1999 revenues of $75.8 million. Unit volume measured as gigabytes
shipped increased by approximately 70% in fiscal 2000 over fiscal 1999
levels. Average selling price per gigabyte declined by approximately 17%
in fiscal 2000 from fiscal 1999. The Company's selling prices are largely
dependant on the price of DRAM chips which can be volatile. The majority
of the Company's revenues are generated by products designed for SUN,
Intel, COMPAQ, Hewlett-Packard and Silicon Graphics platforms. In fiscal
2000, approximately 79% of revenues were derived from domestic sales, 14%
from sales into Europe, with the majority of the remaining sales coming
from Pacific Rim countries.
Cost of sales increased $27.1 million in fiscal 2000 from fiscal 1999.
Cost of sales as a percentage of revenue increased by 2.7% in fiscal 2000
from fiscal 1999. The percentage increase is primarily attributable to the
growth in revenues of the Company's Intel certified products which were
introduced in the third quarter of fiscal 1999 and which command lower
margins than the Company's compatibles products.
Engineering and development costs amounted to $1.4 million in fiscal 2000
and 1999. The Company intends to maintain its commitment to the timely
introduction of new memory products as new servers are introduced.
Selling, general and administrative costs were $13.7 million in fiscal
2000 versus $11.1 million in fiscal 1999. Fiscal 2000 expenses included
full year expenses associated with the Company's expansion of its sales
force initiated in fiscal 1999 as well as increased marketing
expenditures. The Company intends to continue to expand its sales force in
fiscal 2001 both domestically as well as in Europe where it opened a sales
and marketing office in April, 2000.
Other income, net totaled $491,000 and $436,000 in fiscal 2000 and 1999,
respectively. Other income in both years consists primarily of net
interest income.
<PAGE 8>
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 were generated by products designed for SUN, Hewlett-Packard,
Silicon Graphics, and COMPAQ platforms. Additionally, in the third quarter
of fiscal 1999, the Company began producing Intel certified products for
sale to channel assemblers and original equipment manufacturers. 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 was primarily attributable to a
favorable product mix resulting from the Company's 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 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.
Liquidity and Capital Resources
During fiscal 2000 the Company purchased and retired 339,104 shares of its
common stock at a total price of $3.2 million while still maintaining a
strong working capital and cash position. Working capital at the end of
fiscal 2000 amounted to $22.7 million, including cash and cash equivalents
of $13.7 million, compared to working capital of $17.4 million, including
cash and cash equivalents of $8.1 million in fiscal 1999. Current assets
at year end were 2.8 times current liabilities compared to 3.7 at the end
of fiscal 1999.
Inventories at the end of fiscal 2000 were $4.7 million compared to fiscal
1999 year end inventories of $3.3 million. The increase in inventories is
attributable to the year over year growth in revenues.
Capital expenditures were $2.8 million in fiscal 2000 compared to $1.2
million in fiscal 1999. Capital expenditures in both years were primarily
for manufacturing equipment, leasehold improvements and management
information systems upgrades. At the end of fiscal 2000, contractual
commitments for capital purchases were zero. Fiscal 2001 capital
expenditures are expected to be approximately 20% higher than fiscal 2000
expenditures.
On June 15, 1999, the Company announced an open market repurchase plan
providing for the repurchase of up to 500,000 shares of the Company's
common stock. As of June 15, 2000, the total number of shares authorized
for purchase under the program is 382,100 shares.
Inflation has not had a significant impact on the Company's revenue and
operations.
During fiscal 2000, the Company renewed its $12 million unsecured
revolving credit line with its bank. The credit facility was unused during
fiscal 2000. 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.
<PAGE 9>
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 $9,700,000 and the weighted average effective interest
weight for these investments was approximately 5.5%. 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 markets in Euro denominations
to a limited number of customers.
Common Stock Information
The Common Stock of the Company was traded on the American Stock Exchange
under the symbol "DTM" through January 31, 2000. On February 1, 2000, the
Company moved the trading of its Common Stock to the NASDAQ National
Market with the symbol "DRAM". The following table sets forth, for the
periods indicated, the high and low closing prices for the Common Stock
adjusted for a three-for-two stock split distributed on December 15, 1999.
2000 1999
___________________ __________________
High Low High Low
___________________ __________________
First Quarter 7 1/12 4 5/6 4 1/2 3 19/24
Second Quarter 10 19/24 6 1/3 4 23/24 3 11/24
Third Quarter 23 10 5/8 7 1/6 4 7/8
Fourth Quarter 28 3/16 14 3/4 6 5/6 4 1/2
At April 30, 2000 there were approximately 7,000 shareholders.
The Company has never paid a dividend and does not at present have an
intention to pay a dividend in the foreseeable future.
<PAGE 10>
DATARAM CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
April 30, 2000 and 1999
(In thousands, except share amounts)
2000 1999
______ ______
Assets
Current assets:
Cash and cash equivalents $13,650 $ 8,093
Trade receivables, less allowance for
doubtful accounts of $450 in 2000 and
1999 16,241 12,016
Inventories:
Raw materials 2,454 1,335
Work in process 223 508
Finished goods 1,974 1,447
______ ______
4,651 3,290
Deferred income taxes (note 3) 428 368
Other current assets 157 107
______ ______
Total current assets 35,127 23,874
______ ______
Property and equipment, at cost:
Land 875 875
Machinery and equipment 8,010 5,189
______ ______
8,885 6,064
Less accumulated depreciation 3,878 2,573
______ ______
Net property and equipment 5,007 3,491
Other assets 17 9
______ ______
$40,151 $27,374
====== ======
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 9,538 $ 4,344
Accrued liabilities (note 7) 2,878 2,092
______ ______
Total current liabilities 12,416 6,436
Deferred income taxes (note 3) 841 919
______ ______
Total liabilities 13,257 7,355
______ ______
Stockholders' equity (notes 4 and 5):
Common stock, par value $1.00 per share.
Authorized 18,000,000 shares; issued
and outstanding 8,278,403 in 2000
and 5,236,810 in 1999 8,278 5,237
Additional paid-in capital 981 -
Retained earnings 17,635 14,782
______ ______
Total stockholders' equity 26,894 20,019
______ ______
Commitments and contingencies (note 6)
$40,151 $27,374
====== ======
See accompanying notes to consolidated financial statements.
<PAGE 11>
DATARAM CORPORATION AND SUBSIDIARY
Consolidated Statements of Earnings
Years ended April 30, 2000, 1999 and 1998
(In thousands, except per share amounts)
2000 1999 1998
_______ _______ _______
Revenues (note 9) $109,152 $ 75,853 $ 77,286
_______ _______ _______
Costs and expenses (notes 6 and 8):
Cost of sales 81,877 54,814 58,608
Engineering and development 1,391 1,373 1,113
Selling, general and administrative 13,701 11,108 11,766
_______ _______ _______
96,969 67,295 71,487
_______ _______ _______
Earnings from operations 12,183 8,558 5,799
Other income (expense):
Other income, net - - 3
Interest income 533 479 305
Interest expense (42) (43) (40)
_______ _______ _______
491 436 268
_______ _______ _______
Earnings before income tax expense 12,674 8,994 6,067
Income tax expense (note 3) 4,828 3,359 2,345
_______ _______ _______
Net earnings $ 7,846 $ 5,635 $ 3,722
======= ======= =======
Net earnings per common share:
Basic $ .99 $ .69 $ .42
======= ======= =======
Diluted $ .81 $ .60 $ .40
======= ======= =======
See accompanying notes to consolidated financial statements.
<PAGE 12>
DATARAM CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended April 30, 2000, 1999 and 1998
(In thousands)
2000 1999 1998
______ _____ ______
Cash flows from operating activities:
Net earnings $7,846 $5,635 $3,722
Adjustments to reconcile net earnings
to net cash provided by
operating activities:
Depreciation and amortization 1,307 1,147 785
Bad debt expense (recovery) 58 (125) 435
Deferred income tax benefit (138) (37) (2)
Changes in assets and liabilities:
Increase in trade
receivables (4,283) (1,815) (2,038)
(Increase) decrease in
inventories (1,361) (367) 1,473
Decrease in income tax
receivable - - 48
(Increase) decrease in
other current assets (50) (39) 33
Increase in other assets (8) (2) (1)
Increase (decrease) in
accounts payable 5,193 (355) 554
Increase in accrued
liabilities 787 308 691
_____ _____ _____
Net cash provided by
operating activities 9,351 4,350 5,700
_____ _____ _____
Cash flows from investing activities:
Additions to property and
equipment, net (2,823) (1,203) (1,966)
_____ _____ _____
Net cash used in investing activities (2,823) (1,203) (1,966)
_____ _____ _____
Cash flows from financing activities:
Purchase and subsequent cancellation
of shares of common stock (3,205) (2,615) (3,318)
Proceeds from sale of common shares
under stock option plan (including
tax benefits) 2,234 31 278
_____ _____ _____
Net cash used in financing
activities (971) (2,584) (3,040)
_____ _____ _____
Net increase in cash and
cash equivalents 5,557 563 694
Cash and cash equivalents at
beginning of year 8,093 7,530 6,836
_____ _____ _____
Cash and cash equivalents at end
of year $ 13,650 $ 8,093 $ 7,530
===== ===== =====
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 40 $ 40 $ 52
Income taxes $ 3,968 $ 2,950 $ 2,033
===== ===== =====
See accompanying notes to consolidated financial statements.
<PAGE 13>
DATARAM CORPORATION AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years ended April 30, 2000, 1999 and 1998
(In thousands, except share amounts)
Total
Additional stock-
Common paid-in Retained holders'
stock capital earning equity
______ ________ _______ ________
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
Three-for-two common stock
split 2,640 (263) (2,377) -
Issuance of 740,100 shares
under stock option plans,
including tax benefits
of $1,280,000 740 1,494 - 2,234
Purchase and subsequent
cancellation of
339,104 shares (339) (250) (2,616) (3,205)
Net earnings - - 7,846 7,846
______ ________ _______ ______
Balance at April 30, 2000 $ 8,278 $ 981 $17,635 $26,894
====== ======== ======= =======
See accompanying notes to consolidated financial statements.
<PAGE 14>
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
Net Earnings Per Share is presented in accordance with 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 three-for-two stock split declared on November 10, 1999 and
distributed to shareholders on December 15, 1999 (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).
<PAGE 15>
The following presents a reconciliation of the numerator and
denominator used in computing Basic and Diluted net earnings per
share adjusted for the three-for-two stock split:
(Earnings in thousands)
Year ended April 30, 2000
Earnings Shares Per share
(numerator) (denominator) amount
_________ ___________ _________
Basic net earnings per share
-net earnings and weighted
average common shares
outstanding $ 7,846 7,953,490 $ .99
Effect of dilutive securities
-stock options - 1,773,043
_______ _________ ______
Diluted net earnings per share
-net earnings, weighted
average common shares
outstanding and effect of
stock options $ 7,846 9,726,533 $ .81
======= ========= ======
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 8,181,743 $ .69
Effect of dilutive securities
-stock options - 1,167,345
_______ _________ ______
Diluted net earnings per share
-net earnings, weighted
average common shares
outstanding and effect of
stock options $ 5,635 9,349,088 $ .60
======= ========= ======
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 8,874,045 $ .42
Effect of dilutive securities
-stock options - 480,930
_______ _________ ______
Diluted net earnings per share
-net earnings, weighted
average common shares
outstanding and effect of
stock options $ 3,722 9,354,975 $ .40
======= ========= ======
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 share data included in note 5 are provided
in accordance with SFAS No. 123, "Accounting for Stock-based Compensation"
("SFAS 123"), as if the fair value method had been applied.
<PAGE 16>
(2) Long-Term Debt
On October 29, 1999, the Company amended and restated its existing credit
facility with its bank. Under the amended agreement, the Company
modified certain financial covenants and increased its revolving credit
facility to $12,000,000 until October 31, 2000, at which point it will
decrease to $6,000,000 until October 31, 2001. 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 2000 and 1999. As of April 30, 2000, 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) 2000 1999 1998
_____ _____ _____
Current:
Federal $ 4,184 $ 2,958 $ 1,889
State 782 438 458
_____ _____ _____
4,966 3,396 2,347
_____ _____ _____
Deferred:
Federal (120) (33) (1)
State (18) (4) (1)
_____ _____ _____
(138) (37) (2)
_____ _____ _____
Total income tax expense $ 4,828 $ 3,359 $ 2,345
===== ===== =====
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) 2000 1999 1998
_____ _____ _____
Computed "expected" tax
expense $4,309 $ 3,058 $ 2,063
State income taxes(net
of Federal income tax
benefit) 504 286 303
Other 15 15 (21)
_____ _____ _____
$4,828 $ 3,359 $ 2,345
===== ===== =====
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) 2000 1999
____ ____
Deferred tax assets:
Compensated absences, principally due
to accrual for financial reporting
purposes $ 98 $ 77
Accounts receivable, principally due
to allowance for doubtful accounts
and sales returns 22 176
Property and equipment, principally
due to differences in depreciation 326 199
Inventory, principally due to
reserve for obsolescence 154 10
____ ____
Total gross deferred tax assets 600 462
____ ____
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 $(413) $(551)
==== ====
(4) Common Stock Transactions
On November 10, 1999, the Company's Board of Directors announced
a three-for-two stock split effected in the form of a dividend for
shareholders of record at the close business on November 24, 1999
and payable December 15, 1999. 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.
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.
<PAGE 17>
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 employees. In general, the plan
allows granting of up to 2,850,000 shares, adjusted for stock splits, 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, 2000, 558,350 of the
outstanding options are exercisable.
The status of the 1992 plan for the three years ended April 30,
2000, adjusted for stock splits, is as follows:
Options Outstanding
_____________________________
Exercise price
Shares per share
_________ _______________
Balance April 30, 1997 1,488,000 $ 1.708-2.375
Granted 696,000 2.813-3.583
Exercised (117,000) 2.375
Cancelled (66,000) 1.708-3.125
_________ ____________
Balance April 30, 1998 2,001,000 1.708-3.583
Granted 174,000 3.604
Exercised (18,000) 1.708
Cancelled (12,000) 1,708
_________ ____________
Balance April 30, 1999 2,145,000 1.708-3.604
Granted 240,000 4.833-12.583
Exercised (758,650) 1.708-3.604
Cancelled (24,000) 3.604-4.833
_________ ____________
Balance April 30, 2000 1,602,350 $ 1.708-12.583
========== ============
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, 2000, 175,000 of the
outstanding options are exercisable.
The status of the nonemployee director options for the three
years ended April 30, 2000, adjusted for stock splits, is as follows:
Options Outstanding
___________________________
Exercise price
Shares per share
______ _______________
Balance April 30, 1997 450,000 $ 2.313-3.750
Granted 360,000 2.813
Exercised - -
Cancelled (360,000) 3.750
________ ____________
Balance April 30, 1998 450,000 2.313-2.813
Granted - -
Exercised - -
Cancelled - -
________ ____________
Balance April 30, 1999 450,000 2.313-2.813
Granted - -
Exercised (162,500) 2.313-2.813
Cancelled - -
________ ____________
Balance April 30, 2000 287,500 $ 2.313-2.813
======== ============
The following table, adjusted for stock splits, summarizes information
about stock options outstanding at April 30, 2000:
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, 2000 life price 2000 price
____________ _________ ____________ ________ _________ ________
$1.708-2.812 1,324,900 5.22 $ 2.57 703,600 $ 2.55
3.250-3.604 336,950 7.78 3.53 59,750 3.52
4.833-6.000 171,000 9.04 5.20 - -
12.583 57,000 9.57 12.58 - -
____________ _________ ____________ _______ _________ _______
$2.563-5.406 1,889,850 6.15 $ 3.28 763,350 $ 2.63
============ ========= ============ ======= ========= =======
<PAGE 18>
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,
________________________
2000 1999 1998
____ ____ ____
Net earnings:
As reported $ 7,846 $ 5,635 $ 3,722
Pro forma 7,503 5,346 3,517
Net earnings per common share
(adjusted for stock splits):
Basic:
As reported .99 .69 .42
Pro forma .94 .65 .39
Diluted:
As reported .81 .60 .40
Pro forma .77 .57 .38
The pro forma amounts as noted above may not be representative of
the effects on reported earnings for future years.
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 2000, 1999 and
1998 was $2.80, $2.81 and $2.43, respectively, on the date of the
grant using the BlackScholes option pricing model with the
following assumptions: for 2000 - expected dividend yield 0.0%,
risk free interest rate of 6.5%, expected volatility of 43%, and
an expected life of 7.5 years; 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.
(6) Commitments
The Company and its subsidiary occupy various facilities and
operate various equipment under operating lease arrangements.
Rent charged to operations amounted to approximately $689,000 in
2000, $790,000 in 1999 and $593,000 in 1998.
Minimum annual rental commitments for all noncancellable
operating leases as of April 30, 2000 are approximately as
follows:
(In thousands)
2001 $ 628
2002 398
2003 286
2004 276
2005 194
_____
$ 1,782
=====
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.
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) 2000 1999
____ ____
Payroll, including
vacation $ 342 $ 288
Commissions and bonuses 1,231 999
Royalties (note 6) 1,034 420
Other 271 385
______ ______
$2,878 $2,092
====== ======
(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 $258,000, $181,000 and $133,000 in 2000, 1999 and
1998, respectively.
<PAGE 19>
(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 2000, 1999 and 1998 by
geographic region is as follows:
(in thousands) Export
________________
Years ended April 30, United Europe Other Consolidated
States
_______ _______ ______ ____________
2000 $ 85,832 $ 14,865 $8,455 $ 109,152
1999 $ 56,292 $ 13,960 $5,601 $ 75,853
1998 $ 54,989 $ 14,860 $7,437 $ 77,286
<PAGE 20>
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, 2000 and 1999,
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, 2000. 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 auditing standards generally
accepted in the United States of America. 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,
2000 and 1999, and the results of their operations and their cash
flows for each of the years in the three-year period ended April
30, 2000, in conformity with accounting principles generally accepted in
the United States of America.
KPMG LLP
Princeton, New Jersey
May 24, 2000
<PAGE 21>
Selected Financial Data
(Not covered by independent auditors' report)
(In thousands, except per share amounts)
Years Ended April 30, 2000 1999 1998 1997 1996
______________________ ____ ____ ____ ____ ____
Revenues $ 109,152 $ 75,853 $ 77,286 $ 68,980 $ 107,627
Net earnings 7,846 5,635 3,722 3,769 1,450
Basic earnings
per share .99 .69 .42 .37 .13
Diluted earnings
per share .81 .60 .40 .37 .13
Current assets 35,127 23,874 21,022 20,277 23,735
Total assets 40,151 27,374 24,464 22,537 25,939
Current liabilities 12,416 6,436 6,483 5,238 6,932
Long-term debt - - - - -
Total stockholders'
equity 26,894 20,019 16,968 16,286 18,078
Cash dividends - - - - -
Earnings per share data has been adjusted to reflect the three-for-two stock
split for shareholders of record on November 24, 1999.
Quarterly Financial Data (Unaudited)
(In thousands, except per share amounts)
Quarter Ended
____________________________________________
Fiscal 2000 July 31 October 31 January 31 April 30
___________ _______ __________ __________ ________
Revenues $21,164 $29,386 $25,728 $32,874
Gross profit 5,750 7,445 6,271 7,809
Net earnings 1,531 2,081 1,825 2,409
Net earnings (diluted) per common
and common equivalent share .17 .22 .19 .24
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 .15 .14 .15 .16
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 three-for-two stock
split for shareholders of record on November 24, 1999.
<PAGE 22>
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
Jerry J. Mazza
Vice President, Corporate Development
Mark R. Bresky
Vice President, Information Technology
Anthony M. Lougee
Controller
Thomas J. Bitar
Secretary
Member, Dillon, Bitar & Luther, L.L.C.
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, L.L.C.
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 NASDAQ with the trading symbol DRAM.
Annual Meeting
The annual meeting of shareholders
will be held on Wednesday, September 6,
2000, 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
<PAGE 23>
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
