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 1/31/99 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 March 3, 1999, there were 5,313,110 shares outstanding. PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Dataram Corporation And Subsidiary Consolidated Balance Sheets January 31, 1999 and April 30, 1998 (Unaudited) (Audited) January 31, 1999 April 30, 1998 Assets Current Assets: Cash and cash equivalents $ 9,882,485 $ 7,529,906 Trade receivables, less allowance for doubtful accounts and sales returns of $450,000 at January 31, 1999 and at April 30, 1998 7,838,563 10,075,838 Inventories 3,512,992 2,923,165 Other current assets 659,499 493,013 __________ __________ Total current assets 21,893,539 21,021,922 Property and equipment, at cost: Land 875,000 875,000 Machinery and equipment 9,669,253 8,805,875 __________ __________ 10,544,253 9,680,875 Less: accumulated depreciation and amortization 7,151,979 6,245,979 __________ __________ Net property and equipment 3,392,274 3,434,896 Other assets 8,655 7,380 __________ __________ $ 25,294,468 $ 24,464,198 ========== ========== Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 2,771,607 $ 4,698,786 Accrued liabilities 1,880,350 1,548,315 Income taxes payable 0 236,116 __________ __________ Total current liabilities 4,651,957 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 January 31, 1999 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 15,534,761 12,060,705 Treasury stock, at cost (192,200 shares) (1,468,060) 0 __________ __________ Total stockholders' equity 19,629,511 16,967,981 __________ __________ $ 25,294,468 $ 24,464,198 ========== ========== See accompanying notes to consolidated financial statements Dataram Corporation and Subsidiary Consolidated Statements of Earnings Three and Nine Months Ended January 31, 1999 and 1998 (Unaudited) 1999 1998 3rd Quarter Nine Months 3rd Quarter Nine Months Revenues $ 18,921,906 $ 52,933,927 $ 19,844,043 $ 58,059,070 Costs and expenses: Cost of sales 13,869,310 37,234,581 14,690,712 44,853,570 Engineering and development 354,489 1,057,923 283,608 808,575 Selling, general and administrative 2,660,858 8,407,900 3,255,737 8,319,558 __________ __________ __________ __________ 16,884,657 46,700,404 18,230,057 53,981,703 Earnings from operations 2,037,249 6,233,523 1,613,986 4,077,367 Other income (expense), net Other income, net 0 0 1,200 3,200 Interest income, net 109,982 362,067 81,094 220,841 __________ __________ __________ __________ 109,982 362,067 82,294 224,041 Earnings before income taxes 2,147,231 6,595,590 1,696,280 4,301,408 Income tax provision 725,000 2,466,000 664,000 1,655,000 __________ __________ __________ __________ Net earnings $ 1,422,231 $ 4,129,590 $ 1,032,280 $ 2,646,408 ========== ========== ========== ========== Net earnings per share of common stock Basic $ .26 $ .75 $ .18 $ .44 ========== ========== ========== ========== Diluted $ .22 $ .66 $ .17 $ .42 ========== ========== ========== ========== Weighted average number of common shares outstanding Basic 5,405,421 5,503,775 5,872,410 5,994,780 ========== ========== ========= ========= Diluted 6,395,249 6,268,914 6,150,158 6,257,674 ========== ========== ========= ========= See accompanying notes to consolidated financial statements. Dataram Corporation and Subsidiary Consolidated Statements of Cash Flows Nine Months Ended January 31,1999 and 1998 (Unaudited) 1999 1998 Cash flows from operating activities: Net earnings $ 4,129,590 $ 2,646,408 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 906,000 495,300 Bad debt expense (181,363) 271,086 Changes in assets and liabilities: (Increase) decrease in trade receivables 2,418,638 (1,310,834) (Increase) decrease in inventories (589,827) 900,134 (Increase) decrease in other current assets (166,486) 63,789 Increase in other assets (1,275) (1,650) Decrease in accounts payable (1,927,179) (773,192) Increase in accrued liabilities 332,035 231,430 Increase(decrease) in income taxes payable (236,116) 34,116 __________ __________ Net cash provided by operating activities 4,684,017 2,556,587 __________ __________ Cash flows from investing activities: Purchase of property and equipment (863,378) (1,424,129) __________ __________ Net cash used in investing activities (863,378) (1,424,129) Cash flows from financing activities: Proceeds from sale of common shares under stock option plan (including tax benefits) 0 329,875 Purchase and cancellation of common stock 0 (1,605,327) Purchase of common stock held in treasury (1,468,060) 0 __________ __________ Net cash used in financing activities (1,468,060) (1,275,452) __________ __________ Net increase (decrease) in cash and cash equivalents 2,352,579 (142,994) Cash and cash equivalents at beginning of year 7,529,906 6,835,671 __________ __________ Cash and cash equivalents at end of period $ 9,882,485 $ 6,692,677 ========== ========== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 38,751 $ 37,453 Income taxes $ 2,750,200 $ 1,473,058 See accompanying notes to consolidated financial statements. Notes to Consolidated Financial Statements January 31, 1999 and 1998 (Unaudited) Basis of Presentation The information at January 31, 1999 and for the three and nine months ended January 31, 1999 and 1998, 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 (as a credit to common stock) 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 January 31, 1999 and April 30, 1998 consist of the following categories: January 31, 1999 April 30, 1998 ________________ ______________ Raw material $ 1,536,000 $ 1,759,000 Work in process 324,000 61,000 Finished goods 1,653,000 1,103,000 ________________ ______________ $ 3,513,000 $ 2,923,000 ================ ============== 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. 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 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 January 31, 1999, the amount available for borrowing under the revolving credit facility was $12,000,000. Treasury stock On September 9, 1998, the Company announced an Open Market Repurchase Plan. The plan provides for repurchases of up to 500,000 shares of the Company's common stock. The shares may be repurchsed from time to time either on the American Stock Exchange or through block purchases. As of January 31, 1999, 192,200 shares had been purchased under the plan at a total cost of $1,468,060 and are held as treasury stock. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources As of January 31, 1999, working capital amounted to $17.2 million reflecting a current ratio of 4.7 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. On October 31, 1999, $6 million of the facility is scheduled to expire and on October 31, 2000, the remaining $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. Results of Operations Revenues for the three month period ended January 31, 1999 were $18,922,000 compared to revenues of $19,844,000 for the comparable prior year period. Fiscal 1999 nine month revenues totaled $52,934,000 versus nine month revenues of $58,059,000 for the prior fiscal year. The decrease in revenues was the result of declining average selling prices for the Company's products reflecting a year over year 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 third quarter and nine months of fiscal 1999 were 73% and 70%, respectively of revenues versus 74% and 77% 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 third quarter and nine months were $354,000 and $1,058,000, respectively versus $284,000 and $809,000 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 nine months were 14% and 16% of revenues, respectively versus 16% and 14%, for the comparable prior year periods. Three month total expenditures decreased by $595,000 from the comparable prior year period. Nine month selling, general and administrative costs decreased by $88,000 in fiscal 1999 versus fiscal 1998. 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. Fiscal 1998 third quarter S,G&A costs included approximately $525,000 of legal expenses incurred related to a Complaint filed by Sun Microsystems, Inc., which has since been resolved. The change in nine 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 third quarter and nine months of fiscal 1999 and 1998 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 1999 (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 8, 1999 By: MARK E. MADDOCKS ________________________ Mark E. Maddocks Vice President, Finance (Principal Financial Officer) Page 8 of 8