<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, 1998.
[ ] 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. [ ]
The aggregate market value of the Common Stock held by non-affiliates of
the registrant on July 17, 1998 was $30,993,973.
The number of shares of Common Stock outstanding on July 24, 1998:
2,781,405 shares.
DOCUMENTS INCORPORATED BY REFERENCE:
(1) Definitive Proxy Statement for Annual Meeting of Shareholders to be
held on September 9, 1998 (the "Definitive Proxy Statement") to be filed
within 120 days of the end of the fiscal year.
(2) 1998 Annual Report to Security Holders.
<PAGE 2>
DATARAM CORPORATION
INDEX
Part I Page
Item 1. Business . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties . . . . . . . . . . . . . . . . . . . 8
Item 3. Legal Proceedings . . . . . . . . . . . . . . . 9
Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . . 9
Part II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters. . . . . . . . . 9
Item 6. Selected Financial Data. . . . . . . . . . . . . 9
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . 10
Item 8. Financial Statements and Supplementary Data. . . 10
Item 9. Changes In and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . 13
Part III
Item 10. Directors and Executive Officers of
the Registrant . . . . . . . . . . . . . . . . . 13
Item 11. Executive Compensation . . . . . . . . . . . . . 13
Item 12. Security Ownership of Certain
Beneficial Owners and Management . . . . . . . . 13
Item 13. Certain Relationships and Related
Transactions . . . . . . . . . . . . . . . . . . 13
Part IV
Item 14. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K . . . . . . . 14
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
<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"), Digital
Equipment Corporation ("DEC"), Silicon Graphics, Inc. ("SGI"),
International Business Machines Corporation ("IBM")and Compaq
Computer ("Compaq"). Dataram products are not intended for use with
high-end mainframe computers.
In fiscal 1998 the Company saw a continuing decline in the price
it pays for dynamic random access memory ("DRAM"), which is the
principal component of the memory boards it sells. As a direct
consequence, the prices for the memory boards the Company sells also
declined. Notwithstanding these price drops, Company revenues have
increased as the Company has substantially increased unit volume.
DRAM has been readily available from various manufacturers on a rapid
basis. Consequently, the Company does not need to maintain large
inventory levels to service its customers.
The Company was incorporated in New Jersey in 1967 and made an
initial public offering in 1968. Its 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-
Hightstown Road, West Windsor, New Jersey 08543 and its telephone
number is (609) 799-0071, its fax is (609) 799-6734 and its website
is http://www.dataram.com.
(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, DEC, SGI, IBM and Compaq. 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 larger end-users.
<PAGE 4>
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.
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 to end
users of the installed base of workstations and network servers sold
by Sun, HP, DEC, Silicon Graphics, IBM and Compaq.
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 5>
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 75%
of the memory market in fiscal 1998. 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 71% of Dataram's fiscal 1998 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.
Products
The Company's principal business is the development, manufacture
and marketing of memory boards and modules 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 6>
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.
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, 1998, the Company incurred costs of $1,113,000 for engineering
and product development compared to $1,030,000 in fiscal 1997 and
$1,584,000 in fiscal 1996.
Manufacturing
The Company purchases standard dynamic random access memory
("DRAM") chips. The costs of such chips is approximately 85% 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 at a
leased site. Memory boards are then 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.
<PAGE 7>
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, DEC, Silicon Graphics, IBM
and Compaq, 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
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 31-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 such instances the Company has 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
<PAGE 8>
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, 1998, the Company had 88 full-time employees.
On July 1, 1998, when the Company assumed direct operation of its
assembly plant, the number of employees increased to 137. The
Company believes it has satisfactory relationships with its
employees. None of the Company's employees are covered by a
collective bargaining agreement.
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 1999) or
the succeeding fiscal year (fiscal 2000).
(d) Financial Information about Foreign and Domestic Operations
and Export Sales.
REVENUES (000's)
Fiscal U.S. Europe Other Consolidated
1998 54,989 14,860 7,437 77,286
1997 50,147 12,988 5,845 68,980
1996 76,072 21,630 9,925 107,627
PERCENTAGES
Fiscal U.S. Europe Other Consolidated
1998 71.2% 19.2% 9.6% 100.0%
1997 72.7% 18.8% 8.5% 100.0%
1996 70.7% 20.1% 9.2% 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.
<PAGE 9>
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
SUN MICROSYSTEMS, INC. V. DATARAM CORPORATION, United
States District Court for the Northern District of California, San
Jose Division. In August of 1996 the plaintiff filed suit alleging
infringement of five U.S. Patents allegedly infringed by Dataram in
the manufacture of single in-line memory modules ("SIMM's") for use
in workstations and network servers manufactured by Sun Microsystems,
Inc. The plaintiff sought both an injunction and damages. The
Company answered this complaint denying the infringement as a matter
of fact and also alleging the invalidity of the patents both in light
of prior art in the field and for fraud upon the U.S. Patent Office
by the plaintiff. The Company also filed counterclaims against the
plaintiff alleging among other matters anti-trust violations,
intentional interference with contractual relationships, and product
disparagement by the Plaintiff. This matter was settled during the
fourth quarter of fiscal 1998 with the Company agreeing to commence
the payment of royalties on certain Sun Microsystems, Inc. memory
systems and each party releasing one another from past claims.
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 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 1998 Annual Report to Security Holders under
the caption "Common Stock Information" at page 7.
Item 6. Selected Financial Data
Incorporated by reference herein is the information set
forth in the 1998 Annual Report to Security Holders under the caption
"Selected Financial Data" at page 19.
<PAGE 10>
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 1998 Annual Report to Security Holders under the caption
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" at page 5 through page 7.
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, 1998 and 1997. 8
Consolidated Statements of Earnings - Years ended
April 30, 1998, 1997 and 1996. . . . . . . . . . . . . 9
Consolidated Statements of Cash Flows -
Years ended April 30, 1998, 1997 and 1996. . . . . . . 10
Consolidated Statements of Stockholders' Equity -
Years ended April 30, 1998, 1997 and 1996. . . . . . . 11
Notes to Consolidated Financial Statements -
April 30, 1998, 1997 and 1996. . . . . . . . . . . . . 12
Independent Auditors' Report on Financial Statements. . . . 18
Page in
Financial Statement Schedule: 10-K
Valuation and Qualifying Accounts -
Years ended April 30, 1998, 1997 and 1996 . . . . . . 11
Independent Auditors' Report on
Financial Statement Schedule . . . . . . . . . . . . 12
All other schedules are omitted as the required information
is inapplicable or because the required information is shown in
the financial statements or notes thereto.
- --------------
*Incorporated herein by reference.
<PAGE 11>
Schedule VIII
DATARAM CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended April 30, 1998, 1997 and 1996
Additions
charged Deduc-
Balance at to costs tions Balance
beginning and from at close
Description of period expenses reserves* of period
___________ _________ ________ _________ _________
Year ended April 30, 1996:
Allowance for doubtful accounts $ 695,000 485,000 380,000 800,000
Reserve for inventory obsolescence $ 300,000 -- 300,000 --
Year ended April 30, 1997:
Allowance for doubtful accounts $ 800,000 263,000 263,000 800,000
Reserve for inventory obsolescence $ -- -- -- --
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
___________________________
*Represents write-offs of specifically identifiable amounts.
</TABLE
<PAGE 12>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Dataram Corporation:
Under date of May 20, 1998, we reported on the consolidated balance
sheets of Dataram Corporation and subsidiary as of April 30, 1998 and
1997, 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, 1998. These consolidated financial
statements and our report thereon are incorporated by reference in
the annual report on Form 10-K for the year 1998. 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 PEAT MARWICK LLP
KPMG Peat Marwick LLP
Princeton, New Jersey
May 20, 1998
<PAGE 13>
Item 9. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
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 14>
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 year covered by this report.
(c) Exhibits:
The Exhibit Index appears on page 16.
<PAGE 15>
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 24, 1998 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 24, 1998 By: ROBERT V. TARANTINO
________________________________
Robert V. Tarantino, President
Chief Executive Officer and
Director (Principal Executive
Officer)
Date: July 24, 1998 By: RICHARD HOLZMAN
________________________________
Richard Holzman, Director
Date: July 24, 1998 By: THOMAS A. MAJEWSKI
________________________________
Thomas A. Majewski,
Director
Date: July 24, 1998 By: BERNARD L. RILEY
________________________________
Bernard L. Riley, Director
Date: July 24, 1998 By:
________________________________
Roger C. Cady, Director
Date: July 24, 1998 By: MARK E. MADDOCKS
________________________________
Mark E. Maddocks
Vice President, Finance
(Principal Financial
and Accounting Officer)
<PAGE 16>
EXHIBIT INDEX
Page Page Page Page
of this of 1996 of 1995 of 1994
this 10-K 10-K 10-K 10-K
_______ _______ _______ _______
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) 1998 Lease Amendment 19
10(d) Savings and Investment Retirement Plan 146
10(e) Employment Agreement of 227
Robert V. Tarantino
13(a) 1998 Annual Report to Shareholders 28
24(a) Independent Auditors' Consent for 22
S-8 Registration No. 33-56282
27 Financial Data Schedule 23
28(a) Earnings Press Release 24
28(b) Termination of Sun Litigation
Press Release 27