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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/ X / Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended 10/31/98 or
/ / 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 or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
P.O. Box 7528, Princeton, NJ 08543
____________________________________________________________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (609) 799-0071
__________________________________________________________________________
(Former name, former address and former fiscal year, if changed since last
report)
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
_____ _____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the last practicable date. Common Stock ($1.00 par
value): As of December 4, 1998, there were 5,562,810 shares outstanding.
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PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Dataram Corporation And Subsidiary
Consolidated Balance Sheets
October 31, 1998 and April 30, 1998
(Unaudited) (Audited)
October 31, 1998 April 30, 1998
Assets
Current Assets:
Cash and cash equivalents $ 9,231,343 $ 7,529,906
Trade receivables, less allowance
for doubtful accounts and sales returns
of $450,000 at October 31, 1998
and at April 30, 1998 8,200,482 10,075,838
Inventories 3,748,130 2,923,165
Other current assets 626,941 493,013
__________ __________
Total current assets 21,806,896 21,021,922
Property and equipment, at cost:
Land 875,000 875,000
Machinery and equipment 9,447,266 8,805,875
__________ __________
10,322,266 9,680,875
Less: accumulated depreciation
and amortization 6,869,979 6,245,979
__________ __________
Net property and equipment 3,452,287 3,434,896
Other assets 10,380 7,380
__________ __________
$ 25,269,563 $ 24,464,198
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 3,203,791 $ 4,698,786
Accrued liabilities 1,665,480 1,548,315
Income taxes payable 134,693 236,116
__________ __________
Total current liabilities 5,003,964 6,483,217
Deferred income taxes 1,013,000 1,013,000
Stockholders' Equity:
Common stock, par value $1.00 per share.
Authorized 18,000,000 shares; issued
5,562,810 at October 31,
1998 and issued and outstanding
2,781,405 at April 30, 1998 5,562,810 2,781,405
Additional paid in capital 0 2,125,871
Retained earnings 14,112,530 12,060,705
Treasury stock, at cost (69,400 shares) (422,741) 0
__________ __________
Total stockholders' equity 19,252,599 16,967,981
__________ __________
$ 25,005,146 $ 24,464,198
========== ==========
See accompanying notes to consolidated financial statements.
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Dataram Corporation and Subsidiary
Consolidated Statements of Earnings
Three and Six Months Ended October 31, 1998 and 1997
(Unaudited)
1998 1997
2nd Quarter Six Months 2nd Quarter Six Months
Revenues $ 16,261,859 $ 34,012,021 $ 20,067,735 $ 38,215,027
Costs and expenses:
Cost of sales 11,095,422 23,365,271 15,402,781 30,037,758
Engineering and development 371,824 703,434 301,389 524,967
Selling, general and administrative 2,810,081 5,747,042 2,908,762 5,188,921
__________ __________ __________ __________
14,277,327 29,815,747 18,612,932 35,751,646
Earnings from operations 1,984,532 4,196,274 1,454,803 2,463,381
Other income (expense), net
Other income, net 0 0 0 2,000
Interest income, net 135,588 252,085 75,053 139,747
__________ __________ __________ __________
135,588 252,085 75,053 141,747
Earnings before income taxes 2,120,120 4,448,359 1,529,856 2,605,128
Income tax provision 830,000 1,741,000 585,000 991,000
__________ __________ __________ __________
Net earnings $ 1,290,120 $ 2,707,359 $ 944,856 $ 1,614,128
========== ========== ========== ==========
Net earnings per share of common stock
Basic $ .23 $ .49 $ .16 $ .27
========== ========== ========== ==========
Diluted $ .21 $ .44 $ .15 $ .26
========== ========== ========== ==========
Weighted average number of common
shares outstanding
Basic 5,543,094 5,552,952 6,004,726 6,055,966
========== ========== ========= =========
Diluted 6,145,418 6,143,006 6,268,256 6,323,826
========== ========== ========= =========
See accompanying notes to consolidated financial statements.
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Dataram Corporation and Subsidiary
Consolidated Statements of Cash Flows
Six Months Ended October 31,1998 and 1997
(Unaudited)
1998 1997
Cash flows from operating activities:
Net earnings $ 2,707,359 $ 1,614,128
Adjustments to reconcile net earnings
to net cash provided by
operating activities:
Depreciation and amortization 624,000 250,200
Bad debt expense 113,189 172,992
Changes in assets and liabilities:
(Increase) decrease in trade receivables 1,762,167 (1,524,040)
(Increase) decrease in inventories (824,965) 1,152,905
(Increase) decrease in other current assets (133,928) 6,825
Increase in other assets (3,000) (1,650)
Increase (decrease) in accounts payable (1,494,995) 1,456,588
Increase (decrease)in accrued liabilities 117,165 ( 517,743)
(Decrease) in income taxes payable (101,423) 0
__________ __________
Net cash provided by
operating activities 2,765,569 2,610,205
__________ __________
Cash flows from investing activities:
Purchase of property and equipment (641,391) (1,005,581)
__________ __________
Net cash used in investing activities (641,391) (1,005,581)
Cash flows from financing activities:
Proceeds from sale of common shares under
stock option plan 0 57,000
Purchase and cancellation of common stock 0 (1,101,651)
Purchase of common stock held in treasury (422,741) 0
__________ __________
Net cash used in financing activities (422,741) (1,044,651)
__________ __________
Net increase in cash
and cash equivalents 1,701,437 559,973
Cash and cash equivalents at
beginning of year 7,529,906 6,835,671
__________ __________
Cash and cash equivalents at
end of period $ 9,231,343 $ 7,395,644
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 38,751 $ 37,453
Income taxes $ 1,855,200 $ 923,058
See accompanying notes to consolidated financial statements.
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Notes to Consolidated Financial Statements
October 31, 1998 and 1997
(Unaudited)
Basis of Presentation
The information at October 31, 1998 and for the three and six months ended
October 31, 1998 and 1997, is unaudited but includes all adjustments
(consisting only of normal recurring adjustments) which, in the opinion of
management, are necessary to state fairly the financial information set forth
therein in accordance with generally accepted accounting principles. The
interim results are not necessarily indicative of results to be expected for
the full fiscal year. These financial statements should be read in conjuction
with the audited financial statements for the year ended April 30, 1998
included in the Company's Annual Report on Form 10-K filed with the Securities
and Exchange Commission.
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 of business on November 23, 1998 and payable December 3, 1998. The
accompanying per share amounts in the financial statements have been restated
to give retroactive effect to this stock split. The stock split has been
charged to additional paid in capital in the amount of $2,125,871 and retained
earnings in the amount of $655,534.
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 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. Inventories at October 31, 1998 and April
30, 1998 consist of the following categories:
October 31, 1998 April 30, 1998
________________ ______________
Raw material $ 2,150,000 $ 1,759,000
Work in process 105,000 61,000
Finished goods 1,493,000 1,103,000
________________ ______________
$ 3,748,000 $ 2,923,000
================ ==============
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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 earnings 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.
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.
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Long-term debt
During the second quarter of fiscal 1999, the Company amended and restated its
credit facility with its bank. Under the amended agreement, the Company
modified certain financial covenants and increased the 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
during fiscal 1999 and 1998. As of October 31, 1998, the amount available for
borrowing under the revolving credit facility was $12,000,000.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
As of October 31, 1998, working capital amounted to $16.8 million
reflecting a current ratio of 4.4 compared to working capital of $14.5 million
and a current ratio of 3.2 as of April 30, 1998.
During fiscal 1999, the Company amended and restated 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.
Year 2000
The Company's products are all year 2000 compliant. The Company has
completed its upgrade of its manufacturing, accounting, production and
inventory control systems and software and these systems and software are now
year 2000 compliant. The Company has numerous personal computers and
peripheral devices used in information technology and non-information
technology applications which are currently being tested for year 2000
compliance. The Company intends to upgrade or replace any non year 2000
compliant devices by the end of the current fiscal year. Management estimates
that the financial impact of the upgrade will not have a material 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 questionaires and interviews.
The Company has a diverse and ever changing customer base, with no single
customer typically 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 recievables, and
inventory and supply obsolescence. 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.
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Results of Operations
Revenues for the three month period ending October 31, 1998 were
$16,262,000 compared to revenues of $20,068,000 for the comparable prior year
period. Fiscal 1999 six month revenues totaled $34,012,000 versus six month
revenues of $38,215,000 for the prior fiscal year. The decrease in revenues
was the result of declining average selling prices for the Company's products
reflecting a decrease in the price of dynamic random access memory chips
(DRAMs)which are the primary raw material in memory boards, offset by
increased unit volume.
Cost of sales for the second quarter and six months of fiscal 1998 were
68% and 69%, respectively of revenues versus 77% and 79% for the same prior
year periods. The decrease in cost of sales as a percentage of revenues is
attributable to favorable product mix as users continue to shift from 16
megabit based product to higher capacity 64 megabit product which command more
favorable margins.
Engineering and development costs in fiscal 1999's second quarter and six
months were $372,000 and $703,000, respectively versus $301,000 and $525,000
for the same prior year periods. The Company intends to maintain its
commitment to the timely introduction of new memory products as new
workstations and computers are introduced.
Selling, general and administrative costs in this year's second quarter
and six months increased to 17% of revenues from 14% for the same prior year
periods. Three month total expenditures decreased by $99,000 from the
comparable prior year period. Six month selling, general and administrative
costs increased by $558,000 in fiscal 1999 versus fiscal 1998. Fiscal 1998
S,G&A costs included legal expenses incurred related to a Complaint filed by
Sun Microsystems, Inc., which has since been resolved. The increase in six
month costs is primarily attributable to an expansion of the Company's sales
force initiated in the beginning of fiscal 1998 as well as an increase in
certain marketing and promotional programs, offset by the reduction in legal
expense.
Other income (expense),net for the second quarter and six months of
fiscal 1999 and 1998 consisted primarily of interest income on short term
investments.
Safe Harbor Statement
The information provided in this interim report 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.
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PART II: OTHER INFORMATION
ITEM 5. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
27 (a). Financial Data Schedule
28 (a). Press Release reporting results of Second Quarter, Fiscal Year
1999 (Attached).
28 (b). Amendment to revolving line of credit agreement (Attached).
B. Reports on Form 8-K
No reports on Form 8-K have been filed during the current quarter.
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATARAM CORPORATION
Date: By: MARK E. MADDOCKS
______________________ ________________________
Mark E. Maddocks
Vice President, Finance
(Principal Financial Officer)