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 1/31/00 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 February 28, 2000, there were 8,091,483 shares outstanding. PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Dataram Corporation And Subsidiary Consolidated Balance Sheets January 31, 2000 and April 30, 1999 (Unaudited) (Audited) January 31, 2000 April 30, 1999 Assets Current Assets: Cash and cash equivalents $ 12,405,552 $ 8,092,527 Trade receivables, less allowance for doubtful accounts and sales returns of $450,000 at January 31, 2000 and at April 30, 1999 11,098,245 12,016,106 Inventories 3,970,144 3,290,300 Other current assets 1,049,615 475,387 __________ __________ Total current assets 28,523,556 23,874,320 Property and equipment, at cost: Land 875,000 875,000 Machinery and equipment 6,449,304 5,188,696 __________ __________ 7,324,304 6,063,696 Less: accumulated depreciation and amortization 3,511,993 2,572,993 __________ __________ Net property and equipment 3,812,311 3,490,703 Other assets 9,210 8,655 __________ __________ $ 32,345,077 $ 27,373,678 ========== ========== Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 5,748,384 $ 4,344,179 Accrued liabilities 1,971,603 1,840,647 Income taxes payable 0 250,408 __________ __________ Total current liabilities 7,719,987 6,435,234 Deferred income taxes 919,000 919,000 Stockholders' Equity: Common stock, par value $1.00 per share. Authorized 18,000,000 shares; issued 8,028,425 at January 31, 2000 and 5,236,810 at April 30, 1999 8,028,425 5,236,810 Additional paid in capital 605,281 0 Retained earnings 15,072,384 14,782,634 __________ __________ Total stockholders' equity 23,706,090 20,019,444 __________ __________ $ 32,345,077 $ 27,373,678 ========== ========== See accompanying notes to consolidated financial statements. Dataram Corporation and Subsidiary Consolidated Statements of Earnings Three and Nine Months Ended January 31, 2000 and 1999 (Unaudited) 2000 1999 3rd Quarter Nine Months 3rd Quarter Nine Months Revenues $ 25,727,507 $ 76,277,881 $ 18,921,906 $ 52,933,927 Costs and expenses: Cost of sales 19,456,699 56,811,517 13,869,310 37,234,581 Engineering and development 371,643 1,047,705 354,489 1,057,923 Selling, general and administrative 3,076,099 9,983,215 2,660,858 8,407,900 __________ __________ __________ __________ 22,904,441 67,842,437 16,884,657 46,700,404 Earnings from operations 2,823,066 8,435,444 2,037,249 6,233,523 Interest income, net 123,432 348,119 109,982 362,067 __________ __________ __________ __________ Earnings before income taxes 2,946,498 8,783,563 2,147,231 6,595,590 Income tax provision 1,121,000 3,346,000 725,000 2,466,000 __________ __________ __________ __________ Net earnings $ 1,825,498 $ 5,437,563 $ 1,422,231 $ 4,129,590 ========== ========== ========== ========== Net earnings per share of common stock Basic $ .23 $ .69 $ .18 $ .50 ========== ========== ========== ========== Diluted $ .19 $ .56 $ .15 $ .44 ========== ========== ========== ========== Weighted average number of common shares outstanding Basic 7,983,154 7,867,180 8,108,132 8,255,663 ========== ========== ========= ========= Diluted 9,780,524 9,658,011 9,592,874 9,403,371 ========== ========== ========= ========= See accompanying notes to consolidated financial statements. Dataram Corporation and Subsidiary Consolidated Statements of Cash Flows Nine Months Ended January 31, 2000 and 1999 (Unaudited) 2000 1999 Cash flows from operating activities: Net earnings $ 5,437,563 $ 4,129,590 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 939,000 906,000 Bad debt expense (recoveries) 38,819 (181,363) Changes in assets and liabilities: Decrease in trade receivables 879,042 2,418,638 Increase in inventories (679,844) (589,827) Increase in other current assets (574,228) (166,486) Increase in other assets (555) (1,275) Increase (decrease) in accounts payable 1,404,205 (1,927,179) Increase in accrued liabilities 130,956 332,035 Decrease in income taxes payable (250,408) (236,116) __________ __________ Net cash provided by operating activities 7,324,550 4,684,017 __________ __________ Cash flows from investing activities: Purchase of property and equipment (1,260,608) (863,378) __________ __________ Net cash used in investing activities (1,260,608) (863,378) Cash flows from financing activities: Proceeds from sale of common shares under stock option plan (including tax benefits) 1,631,713 0 Purchase and cancellation of common stock (3,382,630) (1,468,060) __________ __________ Net cash used in financing activities (1,750,917) (1,468,060) __________ __________ Net increase in cash and cash equivalents 4,313,025 2,352,579 Cash and cash equivalents at beginning of year 8,092,527 7,529,906 __________ __________ Cash and cash equivalents at end of period $ 12,405,552 $ 9,882,485 ========== ========== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 40,484 $ 38,751 Income taxes $ 3,340,000 $ 2,750,200 See accompanying notes to consolidated financial statements. Notes to Consolidated Financial Statements January 31, 2000 and 1999 (Unaudited) Basis of Presentation The information at January 31, 2000 and for the three and nine months ended January 31, 2000 and 1999, 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, 1999 included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission. Stock Splits On November 10, 1999 the Company's Board of Directors announced a three-for- two stock split effected in the form of a dividend for shareholders of record at the close of business on November 24, 1999 and payable December 15, 1999. The stock split has been charged to additional paid in capital in the amount of $546,781 and retained earnings in the amount of $1,978,224. 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 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. Weighted average shares outstanding and net earnings per share in the accompanying financial statements have been restated to give retroactive effect to these stock splits. 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 January 31, 2000 and April 30, 1999 consist of the following categories: January 31, 2000 April 30, 1999 ________________ ______________ Raw material $ 1,471,000 $ 1,335,000 Work in process 352,000 508,000 Finished goods 2,147,000 1,447,000 ________________ ______________ $ 3,970,000 $ 3,290,000 ================ ============== 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, 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. 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. Common Stock During the nine month period ended January 31, 2000, the Company purchased and retired 419,850 shares of its common stock. This amount reflects the 3 for 2 stock split announced November 10, 1999 and distributed on December 15, 1999. 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. Long-term debt During the second quarter of fiscal 2000, 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, 2000, at which point it will decrease to $6,000,000 until October 31, 2001. The agreement provides for Eurodollar rate loans, CD rate loans and base rate loans at an interest rate no higher than the bank's base commercial lending rate less 1/2%. The Company is required to pay a commitment fee equal to 1/16 of one percent per annum on the unused commitment. The agreement contains certain restrictive financial covenants including a minimum current ratio, minimum tangible net worth requirement, minimum interest coverage ratio, maximum debt to equity ratio and certain other covenants, as defined by the agreement. There were no borrowings during fiscal 2000 and 1999. As of January 31, 2000, the amount available for borrowing under the revolving credit facility was $12,000,000. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities and Exchange Act of 1934, as amended. Actual results could differ materially from those projected in the forward looking statements. Liquidity and Capital Resources As of January 31, 2000, working capital amounted to $20.8 million reflecting a current ratio of 3.7 compared to working capital of $17.4 million and a current ratio of 3.7 as of April 30, 1999. During the second quarter of fiscal 2000, the Company amended and restated its $12 million unsecured revolving credit line with its bank to renew the expiring portion of the facility. On October 31, 2000, $6 million of the facility is scheduled to expire and on October 31, 2001, the remaining $6 million 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. The credit facility was unused during the first nine months of fiscal 2000 and fiscal 1999. As of January 31, 2000 there was no amount outstanding under the line of credit. 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 turn of the century created no adverse effects for the Company. The Company's products are all year 2000 compliant. The Company's manufacturing, accounting, production and inventory control systems and software are year 2000 compliant. The Company has numerous personal computers and peripheral devices used in information technology and non-information technology applications which are also year 2000 compliant. Management believes, and has no knowledge to the contrary, that the Company's customers and key vendors are also year 2000 compliant. Management estimates that the financial impact of its Y2K compliance effort had no material effect on the Company's consolidated financial condition, results of operations and liquidity. Results of Operations Revenues for the three month period ended January 31, 2000 increased 36% to $25,728,000 from revenues of $18,922,000 for the comparable prior year period. Fiscal 2000 nine month revenues totaled $76,278,000, an increase of 44% versus nine month revenues of $52,934,000 for the prior fiscal year. The increase in revenues was the result of increased demand for the Company's memory products, driven primarily by the worldwide internet driven increased demand for servers and associated peripherals. Cost of sales for the third quarter and nine months of fiscal 2000 were 76% and 75%, respectively of revenues versus 73% and 70% for the same prior year periods. The increase in cost of sales is primarily the result of product mix, specifically, the growth in the Company's Intel certified products which generally command lower margins than the Company's products sold in non-Intel markets. Engineering and development costs in fiscal 2000's third quarter and nine months were $372,000 and $1,048,000, respectively versus $354,000 and $1,058,000 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 third quarter and nine months were 12% and 13% of revenues, respectively versus 14% and 16%, for the comparable prior year periods. Three month total expenditures increased by $415,000 from the comparable prior year period. Nine month selling, general and administrative costs increased by $1,575,000 in fiscal 2000 versus fiscal 1999. The increase in cost is primarily the result of the planned expansion of the Company's sales force, and costs attributed to the increase in revenues. Additionally, fiscal 1999 three and nine month expense includes a $300,000 recovery of an account receivable previously charged to allowance for doubtful accounts in the fourth quarter of fiscal 1998. Other income (expense), net for the third quarter and nine months of fiscal 2000 and 1999, consisted primarily of interest income on short term investments. Income tax expense for the third quarter and nine months of fiscal 1999 include a $116,000 benefit (net of Federal income tax benefit) from a reduction in the Company's effective state tax rate. 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. 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 Third Quarter, Fiscal Year 2000 (Attached). 28 (b). Press Release announcing change in listing of the Company's common stock from the AMEX to the Nasdaq (Attached). 28 (c). Press Release announcing engagement of investor relations firm (Attached). B. Reports on Form 8-K No reports on Form 8-K have been filed during the current quarter. 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: March 7, 2000 By: MARK E. MADDOCKS ______________________ ______________________ Mark E. Maddocks Vice President, Finance (Principal Financial Officer) Page 8 of 8 Page 8 of 8