EXHIBIT 13(a)
Annual Report to Shareholders
27
DATARAM CORPORATION
1997 ANNUAL REPORT
[DATARAM LOGO]
30 years
[DATARAM LOGO]
The Gigabyte Memory Specialist
Corporate Profile
Dataram is a leading independent manufacturer and marketer of high
capacity memory products for Unix and NT workstations and servers.
With three decades of experience designing, manufacturing and
marketing memory products for the rapidly expanding computer memory
industry, we offer a broad range of products for Compaq, DEC, HP,
IBM, Sun and Silicon Graphics computers. We sell our products
through distributors, VARs, resellers, system integrators and OEMs
into such diverse industries as manufacturing, finance, government,
telecommunications, utilities, research and education. Our ability
to respond quickly to change - in business conditions, technology
and the needs of memory users - uniquely positions us for future
growth in expanding markets throughout the world.
Financial Highlights
(Dollar figures in thousands, except per share amounts)
Fiscal Year 1997 1996 1995 1994
_______ _______ ______ ______
Revenues $68,980 $107,627 $103,028 $79,573
Net earnings (loss) 3,769 1,450 (1,299) (732)
Net earnings (loss) per
common and common share
equivalent (fully diluted) 1.09 0.38 (0.34) (0.19)
Working capital 15,039 16,803 14,061 15,540
Stockholders' equity 16,286 18,078 16,390 17,903
Long-term debt 0 0 0 0
Revenue per employee $ 1,437 $ 2,031 $ 902 $ 527
TABLE OF CONTENTS
1 LETTER TO OUR
STOCKHOLDERS
3 MANAGEMENT'S
DISCUSSION AND
ANALYSIS
6 FINANCIAL REVIEW
16 SELECTED
FINANCIAL DATA
LETTER TO OUR STOCKHOLDERS
To Our Stockholders
Successfully implementing a carefully targeted strategic plan which
capitalizes on established strengths, the Company achieved record
earnings in fiscal 1997 and enhanced its position as a premier
provider of high capacity memory products in an industry sustaining
vigorous growth.
We have kept shareholders informed in a timely manner concerning
the dramatic decline in the price of DRAM (dynamic random access
memory) which began in January 1996 and the corresponding steep
decrease in selling prices for the add-on memory products Dataram
produces for workstations and servers. While this scenario has
significantly reduced revenues, lower selling prices also have
spurred a rapid rise in demand for workstation and server memory.
Although business conditions were challenging, we realized that a
profitable future awaited us if we made the appropriate adjustments
to operate more efficiently. We created a new business plan,
tailored to the realities of a memory marketplace rewarding product
pricing over product enhancements. The new plan produced our first
strategic business objective.
Increase unit volume as a low cost producer
Establishing a state-of-the-art manufacturing facility has enabled
Dataram to cost efficiently meet rising consumer demand and remain
profitable under difficult business conditions. Keeping unit
volume high and inventory levels low throughout fiscal 1997, we
achieved a 146% increase in the number of gigabytes of memory
delivered to customers during the year. These economies of scale
enabled us to more than double our gross profit percentage, which
currently stands at 21% versus 10% for the previous fiscal year. We
plan to double the facility's square footage this year to
accommodate anticipated increased demand.
Although unit volume remains strong, pressure on selling prices has
affected revenues. To grow revenues and sustain our financial
progress, we must successfully address a second strategic
objective.
Broaden our product line
Dataram's 30 years' experience in computer memory provides
competitive advantages in both technological expertise and
knowledge of our specialized markets. We are capitalizing on these
strengths to be first to market with products incorporating the
latest technology such as 64 megabit chips for high capacity Unix
and NT workstations and servers. We are investigating opportunities
for new offerings to complement our core group of memory products.
The computer revolution, which originated in the United States, has
permeated every corner of the globe. If Dataram is to succeed in an
increasingly global economy, we must achieve future success both
here and abroad and implement a third objective.
Expand into additional foreign markets
We have prudently but purposefully extended the geographic reach of
our product line. Dataram products are available in 36 countries
and foreign sales comprise approximately 30% of overall sales
volume.
During fiscal 1998 we will further strengthen our presence in
Europe by establishing an international distribution center in the
United Kingdom. European customers will receive Dataram products
within 24 hours of their order. We are planning additional
improvements to our international infrastructure to capitalize on
the myriad opportunities available to the Company.
Resellers have traditionally been a major source for distributing
our products. While resellers will continue to play an important
role, we must explore and increasingly utilize additional
distribution channels to maximize product availability. If
successful, we will have achieved our fourth strategic goal.
Expand our distribution network
An increased sales force is establishing relationships with key
distributors and incorporating the most modern telecommunications
technology to directly reach end users. Capitalizing on the
accessibility and enormous growth of the World Wide Web, Dataram
has generated increased interest in its Virtual Sales Office (VSO),
where customers can both place and trace orders 24 hours a day,
seven days a week.
1
Our strategic plan is demanding and ambitious, but affordable. We
can implement our plan without incurring debt because we adhere to
the following long-standing corporate credo:
Maintain a strong financial condition
Possessing solid financial resources has given Dataram considerable
competitive advantages. It has enabled us to withstand the changing
computer memory industry, deploying the requisite capital resources
to maximize profitability during the good times, and giving us
needed staying power during those challenging periods when a number
of under financed competitors fell by the wayside. Financial
stability also has given us access to capital at favorable rates.
Equally important, it has enabled us to finance improvements to our
operating infrastructure largely through cash on hand, avoiding
debt and interest expense.
In fiscal 1997, Dataram strengthened an already healthy financial
condition. We improved our current ratio from 3.4 to 1 to 3.9 to 1,
with no debt and an unused $12 million line of credit.
Looking forward, we believe we can implement our strategic growth
plan and maintain our solid financial position.
The Year Ahead
The computer memory industry traditionally has experienced periods
of softness, and while this could reoccur during a portion of
fiscal 1998, the overall industry trend is for solid growth to
continue.
We are prepared to continue capitalizing on the many opportunities
presented to us and anticipate another strong earnings year.
We want to thank our employees for their dedication and
professionalism in helping Dataram achieve a financial milestone,
and our customers whose loyalty to our products is deeply
appreciated.
On March 27, 1997, John J. Cahill retired as a Director of Dataram
after 17 years of service. We thank him for his dedication and
contributions to the Company and wish him continued success in his
professional and personal endeavors.
Sincerely,
ROBERT V. TARANTINO
Robert V. Tarantino
President and
Chief Executive Officer
July 14, 1997
2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
Dataram is a developer, manufacturer and marketer of quality
computer memory products for use with high capacity workstations
and servers. The Company's memory products, principally for
workstations and servers manufactured by Sun Microsystems, Hewlett-
Packard, Digital Equipment Corporation, IBM, COMPAQ and Silicon
Graphics, are sold worldwide to distributors, value-added
resellers and end users.
The Company is an independent memory manufacturer specializing in
high capacity memory and competes with several other large
independent memory manufacturers as well as the original equipment
manufacturers mentioned above. Competition is fierce, and memory
boards for the computer workstation and server markets are
commodity items with low individual profit margins. 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 95% of the total cost of a
finished workstation memory board. Consequently, average selling
prices for computer memory boards are extremely 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, 1997 1996 1995
_____________________ ____ ____ ____
Revenues 100.0% 100.0% 100.0%
Cost of sales 78.9 90.0 88.1
_____ ______ _____
Gross profit 21.1 10.0 11.9
Engineering and development 1.5 1.5 2.4
Selling, general and administrative 11.1 6.2 11.1
_____ ______ _____
Earnings (loss) from operations 8.5 2.3 (1.6)
Other income (expense), net 0.3 (0.1) (0.4)
_____ ______ _____
Earnings (loss) before income taxes 8.8 2.2 (2.0)
Income taxes (benefit) 3.4 0.9 (0.7)
_____ ______ _____
Net earnings (loss) 5.4 1.3 (1.3)
===== ====== ======
Fiscal 1997 Compared With Fiscal 1996
Fiscal 1997 was a year characterized by the continued rapid decline
in DRAM prices. The primary memory chip used in the Company's
products during the fiscal year was the 16 megabit DRAM. At the
beginning of the year, these chips cost approximately $25 each. By
the fourth quarter of the fiscal year, they were generally
available at less than $8 each. As a result of competitive
pressures in the industry, average selling prices for the Company's
products declined throughout the year generally in line with the
decline in DRAM prices. However, lower pricing for memory products
resulted in a significant increase in unit demand. During the
second half of fiscal 1997, the Company started producing
workstation products incorporating the next generation of DRAMs, 64
megabit. It is anticipated that 64 megabit based products will be
substantial contributors to fiscal 1998 revenues.
Revenues in 1997 totaled $69.0 million, a decrease of 36% from 1996
revenues of $107.6 million. As discussed, the decline in revenues
in fiscal 1997 was the result of declining average selling prices
for the Company's products offset by increased unit shipments.
Revenues from the sale of products for Sun and Hewlitt-Packard
workstations and computers were the leading contributors totaling
71.3% of revenues.
Cost of sales decreased $42.5 million in fiscal 1997 from fiscal
1996. Cost of sales as a percentage of revenues decreased by 11.1%
in fiscal 1997 from fiscal 1996. With the change in the DRAM
market, vendors could no longer charge independent memory
manufacturers premiums to what the original equipment manufacturers
were being charged for DRAMs.
Engineering and development costs amounted to $1.0 million in 1997,
a decrease of $0.6 million from fiscal 1996 expenditures of $1.6
million. The Company intends to maintain its commitment to timely
introduction of new memory products.
Selling, general and administrative costs were $7.7 million in
fiscal 1997 versus $6.7 million in fiscal 1996. In fiscal 1997, the
Company incurred increased legal expenses associated with a
previously announced complaint filed by a competitor as well as
planned increases in marketing and promotional expenditures.
Other income, net totaled $227,000 in 1997 versus other expense,
net of $61,000 in 1996. Fiscal 1997 other income consists primarily
of net interest income and fiscal 1996 other expense consists
primarily of net interest expense.
3
Fiscal 1996 Compared With Fiscal 1995
The computer memory market changed dramatically in fiscal 1996. Up
until late calendar 1995, DRAM chips had been in tight supply for
a period of approximately two and one-half years, primarily because
of the explosive growth in demand for personal computers. Chip
manufacturers allocated DRAMs to OEMs and the larger independent
memory manufacturers. Smaller manufacturers were forced to obtain
DRAMs on the spot market at premium prices. Starting in late 1995,
this situation changed. Chip manufacturers had invested heavily in
production capacity and the growth rate for personal computers
slowed modestly. Supply suddenly exceeded demand. In the ensuing
inventory correction, the supply of DRAMs became plentiful and
their prices plummeted. Competitive pressures forced computer
memory manufacturers to lower the selling prices of memory boards
as well. At present, most DRAMs are readily available and are
expected to remain so for the foreseeable future. Consequently,
average selling prices for computer memory boards are likely to
remain under pressure. However, the workstation and server markets
are expanding markets and the unit volume growth rate for memory
products remains high.
Revenues in 1996 totaled $107.6 million, an increase of 4.5% over
1995 revenues of $103.0 million. Revenues from the sale of
products for Sun and Hewlett-Packard manufactured workstations and
computers totaled 74.6% of revenue. Revenues for fiscal 1996 were
negatively impacted in the fourth quarter by the decline in average
selling prices for memory boards associated with the reduction in
the price of DRAMs.
Cost of sales increased $6.2 million in fiscal 1996 from fiscal
1995. Cost of sales as a percentage of revenue increased by 1.9%
in fiscal 1996 from fiscal 1995. For most of the first three
quarters of fiscal 1996, cost of sales to support incremental
business was increased by the necessity of procuring DRAM chips
from sources of supply less competitively priced than the Company's
primary vendors.
Engineering and development costs amounted to $1.6 million in 1996,
a decrease of $0.9 million from fiscal 1995 expenditures of $2.5
million. This was primarily the result of a work force reduction
implemented in the fourth quarter of fiscal 1995 associated with
the previously announced decision to withdraw from the storage
product business.
Selling, general and administrative costs decreased by 4.9% of
revenue to $6.7 million in fiscal 1996 from $11.5 million in
fiscal 1995. As a result of the decision to withdraw from the
storage product business in the fourth quarter of fiscal 1995, the
Company's general and administrative, sales and marketing forces
were significantly reduced.
Other expense, net of other income totaled $61,000 in 1996 versus
$364,000 in 1995. Fiscal 1996 expense consists primarily of net
interest expense. Included in 1995 expenses are $162,000 related to
disposals of fixed assets associated with the storage product line.
The balance of 1995 net other expense consists primarily of
interest expense offset by income from salvage of certain obsolete
equipment and inventory items.
4
Liquidity and Capital Resources
During fiscal 1997 the Company purchased and retired 766,000 shares
of its common stock at a total price of $5.7 million while still
maintaining a strong working capital and cash position. Working
capital at the end of fiscal 1997 amounted to $15.0 million,
including cash and cash equivalents of $6.8 million, compared to
working capital of $16.8 million, including cash and cash
equivalents of $8.5 million in fiscal 1996. Current assets at year
end were 3.9 times current liabilities compared to 3.4 at the end
of 1996.
Inventories at the end of 1997 were $4.4 million compared to 1996
year-end inventories of $2.3 million. At the end of fiscal 1997
many DRAM manufacturers, in an effort to increase prices, announced
production cuts of 16 megabit DRAMs as well as a shift in
allocation of production capacity to more profitable 64 megabit
DRAMs. In response, the Company temporarily elected to increase its
inventory commitment. Subsequent to year-end, the DRAM prices have
returned to more normal levels and the Company has reduced its
inventory. Currently, DRAMs are readily available.
Capital expenditures were $650,000 in 1997 compared to $270,000 in
1996. Capital expenditures in 1997 included approximately $200,000
for leasehold improvements and facility renovation. Remaining 1997
and 1996 capital expenditures were primarily for automated testing
equipment and management information systems upgrades. At the end
of fiscal 1997, contractual commitments for capital purchases were
nil. Fiscal 1998 capital expenditures are expected to be in the
same range as fiscal 1997 expenditures.
A competitor of the Company, Sun Microsystems, Inc., has filed a
complaint against the Company asserting infringement of certain
patents (See note 10 of notes to consolidated financial
statements). The Company has filed its answer and affirmative
defenses to the claim and has asserted several anti-trust and other
anti-competitive counterclaims against Sun. At this time, it is too
early to make any evaluation or estimate of the likelihood or
amount of a favorable or unfavorable outcome of this case.
Management believes its defenses against Sun's claims, and the
Company's counterclaims are meritorious and intends to vigorously
defend against the claims and pursue its counterclaims. However, no
assurances can be made that an unfavorable outcome will not have a
material adverse affect on the Company's consolidated financial
condition, results of operations and liquidity.
On July 11, 1997, the Company announced an open market repurchase
plan providing for the repurchase of up to 300,000 shares of the
Company's common stock.
Inflation has not had a significant impact on the Company's
revenues and operations.
During fiscal 1997, the Company renewed and increased to $12
million its unsecured revolving credit line with its bank. The
credit facility was unused during fiscal 1997. 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.
Common Stock Information
The Common Stock of the Company is traded on the American Stock
Exchange under the symbol "DTM". The following table sets forth,
for the periods indicated, the high and low closing prices for the
Common Stock as reported by the American Stock Exchange.
1997 1996
___________________ __________________
High Low High Low
___________________ __________________
1st Quarter 6 11/16 5 1/2 7 3/4 4 5/8
2nd Quarter 8 1/8 6 1/8 9 3/8 6 1/4
3rd Quarter 11 1/4 7 5/8 8 7/8 5 3/8
4th Quarter 11 7/8 8 1/2 7 4 1/8
At April 30, 1997 there were approximately 2,000 shareholders.
The Company has never paid a dividend and does not at present have
an intention to pay a dividend in the foreseeable future.
5
DATARAM CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
April 30, 1997 and 1996
(In thousands, except share amounts)
1997 1996
______ ______
Assets
Current assets:
Cash and cash equivalents $ 6,836 $ 8,482
Trade receivables, less allowance for
doubtful accounts of $800 in 1997 and
1996 8,473 12,078
Inventories:
Raw materials 3,369 1,435
Work in process 98 45
Finished goods 929 832
______ ______
4,396 2,312
Income tax receivable (note 4) 48 424
Deferred income taxes (note 4) 423 389
Other current assets 101 50
______ ______
Total current assets 20,277 23,735
______ ______
Property and equipment, at cost:
Land 875 875
Machinery and equipment 6,840 6,190
______ ______
7,715 7,065
Less accumulated depreciation 5,461 4,867
______ ______
Net property and equipment 2,254 2,198
Other assets 6 6
______ ______
$22,537 $25,939
====== ======
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 4,145 $ 5,909
Accrued liabilities (note 7) 1,093 1,023
______ ______
Total current liabilities 5,238 6,932
Deferred income taxes (note 4) 1,013 929
______ ______
Total liabilities 6,251 7,861
______ ______
Stockholders' equity (note 5):
Common stock, par value $1.00 per share.
Authorized 18,000,000 shares; issued
and outstanding 3,077,449 in 1997
and 3,824,305 in 1996 3,078 3,824
Additional paid-in capital 2,453 3,425
Retained earnings 10,755 10,829
______ ______
Total stockholders' equity 16,286 18,078
______ ______
Commitments (notes 6 and 10)
$22,537 $25,939
====== ======
See accompanying notes to consolidated financial statements
6
DATARAM CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended April 30, 1997, 1996 and 1995
(In thousands, except per share amounts)
1997 1996 1995
_______ _______ _______
Revenues $ 68,980 $107,627 $103,028
_______ _______ _______
Costs and expenses:
Cost of sales 54,409 96,929 90,758
Engineering and development 1,030 1,584 2,484
Selling, general and administrative 7,674 6,661 11,451
_______ _______ _______
63,113 105,174 104,693
_______ _______ _______
Earnings (loss) from operations 5,867 2,453 (1,665)
Other income (expense):
Other income (expense), net 18 (2) (68)
Interest income 276 41 -
Interest expense (67) (100) (296)
_______ _______ _______
227 (61) (364)
_______ _______ _______
Earnings (loss) before income tax
expense (benefit) 6,094 2,392 (2,029)
Income tax expense (benefit) (note 4) 2,325 942 (730)
_______ _______ _______
Net earnings (loss) $3,769 $1,450 $(1,299)
======= ======= =======
Net earnings (loss) per common share:
Primary $ 1.10 $ .38 $ (.34)
======= ======= =======
Fully diluted $ 1.09 $ .38 $ (.34)
======= ======= =======
See accompanying notes to consolidated financial statements
7
DATARAM CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended April 30, 1997, 1996 and 1995
(In thousands)
1997 1996 1995
______ _____ ______
Cash flows from operating activities:
Net earnings (loss) $3,769 $1,450 $(1,299)
Adjustments to reconcile net earnings
(loss)to net cash provided by
operating activities:
Depreciation and amortization 594 693 876
Loss on disposition of property
and equipment - 2 162
Bad debt expense 263 485 422
Deferred income tax expense
(benefit) 50 710 (530)
Write-off of inventory - - 1,880
Changes in assets and liabilities:
(Increase) decrease in trade
receivables 3,342 2,333 (1,753)
(Increase) decrease in
inventories (2,084) 5,749 1,866
Decrease in income tax
receivable 376 252 326
Increase in other current assets (51) (6) (39)
Decrease in other assets - 9 6
Decrease in accounts payable (1,764) (2,871) (1,177)
Increase (decrease) in accrued
liabilities 70 (1,021) 339
_____ _____ _____
Net cash provided by
operating activities 4,565 7,785 1,079
_____ _____ _____
Cash flows from investing activities:
Proceeds from sale of property
and equipment - 7 -
Purchase of property and equipment (650) (270) (581)
_____ _____ _____
Net cash used in investing activities (650) (263) (581)
_____ _____ _____
Cash flows from financing activities:
Purchase and subsequent cancellation
of shares of common stock (5,671) - (469)
Proceeds from sale of common shares
under stock option plan (including
tax benefits) 110 238 255
_____ _____ _____
Net cash provided by (used in)
financing activities (5,561) 238 (214)
_____ _____ _____
Net increase (decrease) in cash and
cash equivalents (1,646) 7,760 284
Cash and cash equivalents at
beginning of year 8,482 722 438
_____ _____ _____
Cash and cash equivalents at end
of year $ 6,836 $ 8,482 $ 722
===== ===== =====
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 43 $ 125 $ 258
Income taxes 1,881 582 -
===== ===== =====
Supplemental disclosures of noncash transactions:
Disposal of fully-depreciated
equipment $ - $ - $ 348
===== ===== =====
See accompanying notes to consolidated financial statements
8
DATARAM CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended April 30, 1997, 1996 and 1995
(In thousands, except share amounts)
Total
Additional Stock-
Common paid-in Retained holders'
stock capital earning equity
______ ________ _______ ________
Balance at April 30, 1994 $ 3,806 $ 3,107 $10,990 $17,903
Issuance of 61,500 shares
under stock option plans 61 194 - 255
Purchase and subsequent
cancellation of 75,000 shares (75) (82) (312) (469)
Net loss - - (1,299) (1,299)
______ ________ _______ ______
Balance at April 30, 1995 3,792 3,219 9,379 16,390
Issuance of 32,000 shares
under stock option plans 32 206 - 238
Net earnings - - 1,450 1,450
______ ________ _______ ______
Balance at April 30, 1996 3,824 3,425 10,829 18,078
Issuance of 19,000 shares
under stock option plans 19 91 - 110
Purchase and subsequent
cancellation of
765,856 shares (765) (1,063) (3,843) (5,671)
Net earnings - - 3,769 3,769
______ ________ _______ ______
Balance at April 30, 1997 $ 3,078 $ 2,453 $10,755 $16,286
====== ======== ======= =======
See accompanying notes to consolidated financial statements
9
DATARAM CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
April 30, 1997, 1996 and 1995
(1) Significant Accounting Policies
Principles of consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, Dataram International
Sales Corporation (a Domestic International Sales Corporation
(DISC)) and DTM Development Corporation. DTM Development
Corporation was dissolved during 1995. All significant intercompany
transactions and balances have been eliminated.
Cash and cash equivalents
Cash and cash equivalents consist of unrestricted cash and 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.
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 and, generally, requires no
collateral from its customers.
Earnings (loss) per share
Earnings (loss) per common and common equivalent share are based on
the weighted average number of shares outstanding and equivalent
shares from dilutive stock options. In 1995 the calculation was
based solely on weighted average number of shares outstanding, as
all options were anti-dilutive.
The determination of such shares used in the computation of per
share data is as follows:
Weighted Equivalent
average number shares
of shares from dilutive Total
outstanding stock options shares
______________ _____________ __________
Primary:
1997 3,360,975 71,286 3,432,261
1996 3,816,261 19,097 3,835,358
1995 3,796,526 - 3,796,526
Fully diluted:
1997 3,360,975 103,260 3,464,235
1996 3,816,261 16,354 3,832,615
1995 3,796,526 - 3,796,526
10
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
Statement of Financial Accounting Standards SFAS No. 107,
"Disclosure about Fair Value of Financial Instruments", defines the
fair value of a financial instrument as the amount at which the
instrument could be exchanged in a current transaction between
willing parties. 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
In March 1995, the Financial Accounting Standards Board issued
SFAS No. 121,
Accounting for stock based compensation
In October 1995, the Financial Accounting Standards Board issued
SFAS No. 123, "Accounting for Stock-based Compensation." This
statement requires companies to make pro forma disclosures in a
footnote of net income as if the fair value based method of
accounting for stock options, as defined in the statement, had been
applied. The accounting requirements of this statement are
effective for transactions entered into during 1996 and ensuing
years (see note 5).
Reclassification
Certain amounts in the 1996 and 1995 consolidated financial
statements have been reclassified to conform to the 1997
presentation.
(2) Long-Term Debt
On October 27, 1994, the Company entered into a credit agreement
with a bank for a three-year $10,000,000 revolving credit facility
and a $3,500,000 term loan facility. On April 28, 1995 the Company
amended and restated its credit facility with its bank. Under the
amended agreement the Company reduced the term loan facility to
$1,500,000 and modified certain financial covenants. On November
1, 1996, the Company further amended and restated its credit
facility with its bank. Under the amended agreement, the Company
modified certain financial covenants, eliminated the term loan
facility and increased the revolving credit facility to $12,000,000
until October 31, 1997, at which point it will decrease to
$6,000,000 until October 31, 1998. 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 1997. The maximum
and average balances outstanding at any time during fiscal 1996
were $5,500,000 and $1,200,000, respectively. The average interest
rate was 8% in fiscal year 1996. As of April 30, 1997, the amount
available for borrowing under the revolving credit facility was
$12,000,000.
(3) Restructuring
In Fiscal years 1995, the Company restructured certain aspects of
its business. During the fourth quarter of 1995, the Company
announced the phaseout of its storage product line. In connection
with this phaseout, the Company recorded a $3,132,000 pre-tax
charge to 1995 operations consisting of approximately: (1)
$1,880,000 write-off of inventory; (2) $640,000 in severance and
other costs related to employee termination; (3) $162,000 for
disposal of machinery and equipment related to the storage product
line; and (4) $450,000 in accruals for estimated net returns,
warranty obligations, and other costs. These charges are included
in cost of sales, engineering and development, selling, general and
administrative, and other expense in the accompanying 1995
consolidated statement of operations and aggregated approximately
$2,336,000, $150,000, $484,000 and $162,000, respectively. As of
April 30, 1995, the Company had accrued approximately $1,090,000
for probable future cash expenditures related to the discontinued
storage product line. All amounts accrued as of April 30, 1995 were
paid out or otherwise satisfied during fiscal 1996.
(4) Income Taxes
Income tax expense (benefit) for the years ended April 30 consists
of the following:
(In thousands) 1997 1996 1995
_____ _____ _____
Current:
Federal $ 1,889 $ 232 $ (200)
State 386 - -
_____ _____ _____
2,275 232 (200)
_____ _____ _____
Deferred:
Federal (26) 598 (474)
State 76 112 (56)
_____ _____ _____
50 710 (530)
_____ _____ _____
Total expense (benefit) $2,325 $ 942 $ (730)
===== ===== =====
The actual income tax expense (benefit) differs from "expected" tax
expense (benefit) (computed by applying the U. S. corporate tax
rate of 34% to earnings (loss) before income taxes) as follows:
(In thousands) 1997 1996 1995
_____ _____ _____
Computed "expected' tax
expense (benefit) $ 2,072 $ 813 $ (690)
State income taxes (benefit)
(net of Federal income tax
benefit) 303 74 (37)
Other (50) 55 (3)
_____ _____ _____
Total expense
(benefit) $ 2,325 $ 942 $ (730)
===== ===== =====
11
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) 1997 1996
____ ____
Deferred tax assets:
Compensated absences, principally due
to accrual for financial reporting
purposes $ 88 $ 73
Accounts receivable, principally due
to allowance for doubtful accounts 312 316
Inventories, principally due to
differences in depreciation 23 -
Net operating loss carryforwards - 80
____ ____
Total gross deferred tax assets 423 469
Less valuation allowance - -
____ ____
Net deferred tax assets 423 469
____ ____
Deferred tax liabilities:
Investment in wholly-owned subsidiary,
principally due to unremitted
earnings of DISC (663) (663)
Property and equipment, principally
due to differences in depreciation - (33)
Other (350) (313)
____ ____
Total gross deferred tax liabilities (1,013) (1,009)
____ ____
Net deferred tax assets (liabilities) $(590) $(540)
==== ====
(5) Stock Option Plans
During 1982, the Company adopted an incentive stock option plan. In
1995, 1,500 options were exercised under this plan at an exercise
price of $1.625 per share. In 1997, 6,000 options were exercised
under this plan at an exercise price of $3.567. As of April 30,
1997, no further options may be granted under the plan and there
are no options outstanding under the 1982 plan.
In September 1992, the Company adopted an incentive and non-
statutory 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
950,000 shares 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, 1997, 191,400 of the
outstanding options are exercisable.
The status of the 1992 plan for the three years ended April 30,
1997 is as follows:
Options Outstanding
___________________
Price
Shares per share
______ ___________
Balance April 30, 1994 320,000 $ 7.125
Granted - -
Exercised - -
Cancelled - -
________ ____________
Balance April 30, 1995 320,000 7.125
Granted 142,000 5.125-6.75
Exercised (32,000) 7.125
Cancelled (78,000) 7.125
________ ____________
Balance April 30, 1996 352,000 5.125-7.125
Granted 167,000 6.938
Exercised (13,000) 5.125-7.125
Cancelled (10,000) 7.125
________ ____________
Balance April 30, 1997 496,000 $5.125-7.125
======== ============
In March 1990, the Company granted a total of 90,000 shares of
nonqualified stock options to three non-employee directors of the
Company. These options were exercisable at a price of $4.21 per
share, the fair market value at date of grant, for a five-year
period commencing at the date of grant. During 1995, 60,000 of
these options were exercised and the remaining 30,000 options
expired.
12
In November 1992, the Company granted options to acquire a total
of 120,000 shares to four non-employee directors of the Company.
These options were 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
aforementioned options are exercisable at a price of $11.25 per
share, 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 first anniversary of the date of the grant and an
additional 25% on each of three succeeding anniversary dates.
During 1996, 30,000 of these outstanding options were cancelled in
accordance with the terms of the plan. In September 1996, the
Company granted options to acquire 30,000 shares to a new director
of the Company upon the same terms. This option is exercisable at
a price of $6.9375 per share which approximated fair value at the
date of grant, and expires in September 2001. In March 1993, the
Company granted options to acquire 30,000 shares to an officer of
the Company upon the same terms. This option was granted for the
purpose of retaining the services of this officer who is not an
employee of the Company. This option is exercisable at a price of
$11.25 per share, which exceeded the fair value at the date of
grant and expires in November 1997. At April 30, 1997, 120,000 of
these outstanding options were exercisable.
The Company has adopted the disclosure-only provisions of SFAS No.
123, and applies APB Opinion 25 in accounting for its plans and,
accordingly, cost for stock option plans and stock purchase plans
in its financial statements. 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)
1997 1996
____ ____
Net earnings as reported $ 3,769 $1,450
Net earnings pro forma 3,667 1,418
Net earnings per share as reported:
Primary 1.10 .38
Fully diluted 1.09 .38
Net earnings per share pro forma:
Primary 1.07 .37
Fully diluted 1.06 .37
The pro forma amounts as noted above may not be representative of
the effects on reported earnings for future years. Pro forma net
earnings reflects only options granted in 1997 and 1996.
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 1997 and 1996 is
estimated at grant date using the Black-Scholes option pricing
model with the following weighted average assumptions: for 1997 -
expected dividend yield 0.0%, risk free interest rate of 7%,
expected volatility of 41%, and an expected life of 7 years; for
1996 - expected dividend yield 0.0%, risk free interest rate of
6.5%, expected volatility of 19%, and an expected life of 7.5
years. The weighted average estimated fair value of options granted
in 1997 and 1996 was $4.14 and $2.42, respectively.
(6) Commitments
The Company and its subsidiaries occupy various facilities and
operate various equipment under operating lease arrangements.
Rents charged to operations amounted to approximately $612,000 in
1997, $555,000 in 1996 and $449,000 in 1995.
Minimum annual rental commitments for all noncancellable operating
leases as of April 30, 1997 are approximately as follows:
(In thousands)
1998 $ 657
1999 642
2000 567
2001 281
2002 47
_____
$2,194
=====
(7) Accrued Liabilities
Accrued liabilities consist of the following:
(In thousands) 1997 1996
____ ____
Payrolls, including
vacations $ 329 $ 252
Commissions and bonuses 559 351
Other 205 420
______ ______
$1,093 $1,023
====== ======
(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 $121,000, $127,000 and $215,000 in 1997, 1996 and
1995, respectively.
13
(9) Segment Information - Operations and Assets by Geographic
Locations
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. Information for 1997, 1996 and 1995 about the
Company's operations and identifiable assets by geographic region
is as follows:
(In thousands) Export
______________
1997 United States Europe Other Consolidated
_____________ ______ _____ ____________
Revenues -
unaffiliated customers $50,147 $12,988 $ 5,845 $ 68,980
_______ _______ _______ ________
Net revenues $50,147 $12,988 $ 5,845 $ 68,980
======= ======= ======= ========
Net earnings $ 3,769
========
Identifiable assets $ 22,537
========
(In thousands) Export
______________
1996 United States Europe Other Consolidated
_____________ ______ _____ ____________
Revenues -
unaffiliated customers $76,072 $21,630 $ 9,925 $107,627
_______ _______ _______ ________
Net revenues $76,072 $21,630 $ 9,925 $107,627
======= ======= ======= ========
Net earnings $ 1,450
========
Identifiable assets $ 25,939
========
(In thousands) Export
______________
1995 United States Europe Other Consolidated
_____________ ______ _____ ____________
Revenues -
unaffiliated customers $78,535 $14,654 $ 9,839 $103,028
_______ _______ _______ ________
Net revenues $78,535 $14,654 $ 9,839 $103,028
======= ======= ======= ========
Net loss $ (1,299)
========
Identifiable assets $ 27,355
========
(10) Litigation
In August 1996, a competitor of the Company (the Competitor) filed
a complaint alleging patent infringement against the Company in the
Federal District Court asserting the infringement of five specific
patents related to single in-line memory module (SIMM) technology.
In October 1996, the Company filed its answer and affirmative
defenses and asserted several anti-trust and other anti-competitive
counterclaims against the Competitor in addition to its affirmative
defenses. Management of the Company believes its defenses against
the Competitor's claims and its counterclaims are meritorious and
the Company intends to vigorously defend against the claims and
pursue its counterclaims. At this time, it is too early to make any
evaluation or estimate of the likelihood or amount of an
unfavorable outcome and therefore, no provision for possible loss
has been recorded in the consolidated financial statements although
the Company continues to incur professional fees related to this
litigation. No assurances can be made that an unfavorable outcome
in this case will not result in a material adverse affect on the
Company-year period ended April 30, 1997. These consolidated
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Dataram Corporation and subsidiaries as of April 30,
1997 and 1996, and the results of their operations and their cash
flows for each of the years in the three-year period ended April
30, 1997, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
Princeton ,New Jersey
May 22, 1997
15
Selected Financial Data
(Not covered by independent auditors' report)
(In thousands, except per share amounts)
Years Ended April 30, 1997 1996 1995 1994 1993
______________________ ____ ____ ____ ____ ____
Revenues $ 68,980 $107,627 $103,028 $ 79,573 $ 58,564
Net earnings (loss) 3,769 1,450 (1,299) (732) 3,018
Primary earnings
(loss) per share 1.10 .38 (.34) (.19) .76
Fully diluted earnings
(loss) per share 1.09 .38 (.34) (.19) .76
Current assets 20,277 23,735 24,710 27,027 23,784
Total assets 22,537 25,939 27,355 30,135 26,867
Current liabilities 5,238 6,932 10,649 11,487 7,085
Long-term debt 0 0 0 0 0
Total stockholders'
equity 16,286 18,078 16,390 17,903 18,684
Cash dividends - - - - -
Note: Net loss for 1994 included income of $118,000 or $0.03 per share related
to adoption of SFAS 109, Accounting for Income Taxes
Quarterly Financial Data (Unaudited)
(In thousands, except per share amounts)
Quarter Ended
____________________________________________
Fiscal 1997 July 31 October 31 January 31 April 30
___________ _______ __________ __________ ________
Revenues $17,448 $17,168 $17,514 $16,850
Gross profit 3,560 3,835 3,570 3,605
Net earnings 964 1,014 912 878
Net earnings per common
and common equivalent share .26 .30 .27 .27
Fiscal 1996 July 31 October 31 January 31 April 30
___________ _______ __________ __________ ________
Revenues $24,885 $32,331 $28,385 $22,026
Gross profit 3,031 3,405 1,475 2,787
Net earnings (loss) 537 708 (243) 448
Net earnings (loss) per common
and common equivalent share .14 .18 (.06) .12
16
30 years
[DATARAM LOGO]
The Gigabyte Memory Specialist
DIRECTORS AND CORPORATE OFFICERS
Directors
Robert V. Tarantino
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
Thomas J. Bitar
Secretary
Partner, Dillon, Bitar & Luther
Corporate Headquarters
Dataram Corporation
186 Princeton-Hightstown Road
West Windsor, NJ 08543
609-799-0071
Auditors
KPMG Peat Marwick LLP
Princeton, NJ
General Counsel
Dillon, Bitar & Luther
Morristown, NJ
Transfer Agent and Registrar
First Union National Bank
Customer Information Center
1525 West W.T. Harris Boulevard
Building 3c3
Charlotte, NC 28288
Stock Listing
Dataram's common stock is listed on
the American Stock Exchange with the
trading system DTM.
Annual Meeting
The annual meeting of shareholders
will be held on Wednesday, September 10,
1997, at 2:00 p.m. at Dataram's
corporate headquarters at:
186 Princeton-Hightstown Road
West Windsor Business Park
West Windsor, NJ 08543
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
P.O. Box 7528
Princeton, NJ 08543-7528
1997 ANNUAL REPORT
[DATARAM LOGO]
Dataram Corporation
Corporate Headquarters
P.O. Box 7528
Princeton, NJ 08543-7528
Telephone
800-DATARAM
609-799-0071
FAX
609-799-6734
WEB SITE
http://www/dataram.com