<PAGE 1> 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 07/31/99 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) 186 Princeton Road (Route 571), West Windsor, New Jersey 08550 ______________________________________________________________________________ (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 August 18, 1999, there were 5,237,910 shares outstanding. <PAGE 2> PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Dataram Corporation And Subsidiary Consolidated Balance Sheets July 31, 1999 and April 30, 1999 (Unaudited) (Audited) July 31, 1999 April 30, 1999 Assets Current Assets: Cash and cash equivalents $ 9,508,529 $ 8,092,527 Trade receivables, less allowance for doubtful accounts and sales returns of $400,000 at July 31, 1999 and $450,000 at April 30, 1999 9,781,766 12,016,106 Inventories 4,303,244 3,290,300 Other current assets 645,689 475,387 __________ __________ Total current assets 24,239,228 23,874,320 Property and equipment, at cost: Land 875,000 875,000 Machinery and equipment 5,695,586 5,188,696 __________ __________ 6,570,586 6,063,696 Less: accumulated depreciation and amortization 2,872,993 2,572,993 __________ __________ Net property and equipment 3,697,593 3,490,703 Other assets 8,655 8,655 __________ __________ $ 27,945,476 $ 27,373,678 ========== ========== Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 4,203,211 $ 4,344,179 Accrued liabilities 969,352 1,840,647 Income taxes payable 507,408 250,408 __________ __________ Total current liabilities 5,679,971 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 and outstanding 5,237,110 at July 31, 1999 and 5,236,810 at April 30, 1999 5,237,110 5,236,810 Additional paid-in capital 347,813 0 Retained earnings 15,761,582 14,782,634 __________ __________ Total stockholders' equity 21,346,505 20,019,444 __________ __________ $ 27,945,476 $ 27,373,678 ========== ========== See accompanying notes to consolidated financial statements. <PAGE 3> Dataram Corporation and Subsidiary Consolidated Statements of Earnings Three Months Ended July 31, 1999 and 1998 (Unaudited) 1999 1998 Revenues $ 21,164,684 $ 17,750,162 Costs and expenses: Cost of sales 15,414,747 12,269,849 Engineering and development 332,975 331,610 Selling, general and administrative 3,049,836 2,936,961 __________ __________ 18,797,558 15,538,420 Earnings from operations 2,367,126 2,211,472 Interest income, net 107,682 116,497 __________ __________ Earnings before income taxes 2,474,808 2,328,239 Income tax expense 944,000 911,000 __________ __________ Net earnings $ 1,530,808 $ 1,417,239 ========== ========== Net earnings per share of common stock: Basic $ .29 $ .25 ========== ========== Diluted $ .25 $ .23 ========== ========== Weighted average number of common shares outstanding: Basic 5,218,327 5,562,810 ========== ========== Diluted 6,176,246 6,126,308 ========== ========== See accompanying notes to consolidated financial statements. <PAGE 4> Dataram Corporation and Subsidiary Consolidated Statements of Cash Flows Three Months Ended July 31,1999 and 1998 (Unaudited) 1999 1998 Cash flows from operating activities: Net earnings $ 1,530,808 $ 1,417,239 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 300,000 342,000 Bad debt expense (recovery) (55,782) 103,580 Changes in assets and liabilities: Decrease in trade receivables 2,290,122 2,350,308 Decrease (increase) in inventories (1,012,944) 553,437 Increase in other current assets (170,302) (150,912) Increase in other assets 0 (3,000) Decrease in accounts payable (140,968) (1,548,152) Increase (decrease)in accrued liabilities (871,295) 99,284 Increase in income taxes payable 257,000 572,577 __________ __________ Net cash provided by operating activities 2,126,639 3,736,361 __________ __________ Cash flows from investing activities: Purchase of property and equipment (506,890) (556,350) __________ __________ Net cash used in investing activities (506,890) (556,350) Cash flows from financing activities: Proceeds from sale of common shares under stock option plan (including tax benefits) 417,813 0 Purchase and subsequent cancellation of common stock (621,560) 0 __________ __________ Net cash used in financing activities (203,747) 0 __________ __________ Net increase in cash and cash equivalents 1,416,002 3,180,011 Cash and cash equivalents at beginning of period 8,092,527 7,529,906 __________ __________ Cash and cash equivalents at end of period $ 9,508,529 $ 10,709,917 ========== ========== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 36,682 $ 38,751 Income taxes $ 525,200 $ 365,200 See accompanying notes to consolidated financial statements. <PAGE 5> Notes to Consolidated Financial Statements July 31, 1999 and 1998 (Unaudited) Basis of Presentation The information at July 31, 1999 and for the three months ended July 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, 1999 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. Weighted average shares outstanding and net earnings per share have been retroactively adjusted to reflect the stock split. 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 July 31, 1999 and April 30, 1999 consist of the following categories: July 31, 1999 April 30, 1999 ________________ ______________ Raw materials $ 1,858,000 $ 1,335,000 Work in process 337,000 508,000 Finished goods 2,108,000 1,447,000 ________________ ______________ $ 4,303,000 $ 3,290,000 ================ ============== <PAGE 6> 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. Common Stock During the quarter ended July 31, 1999, the Company purchased and retired 69,700 shares of its common stock. 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. <PAGE 7> 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 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 July 31, 1999, working capital amounted to $18.6 million reflecting a current ratio of 4.3 compared to working capital of $17.4 million and a current ratio of 3.7 as of April 30, 1999. The Company's financial condition remains strong. The Company has a $12 million unsecured line of credit with a bank, of which $6 miilion is scheduled to expire in October 1999 and $6 million expires in October 2000. The Company intends to renew any expiring portion of the facility by the expiration date and maintain a $12 million total facility. At the end of the quarter there was no amount outstanding under the line of credit. With its current working capital balance and the line of credit, management believes that it will be able to support its growth and other capital needs for the foreseeable future. The Company's products are all year 2000 compliant. The Company has upgraded its manufacturing, accounting, production and inventory control systems and software and management believes that these systems and software are now or will be year 2000 compliant by year end. The Company has numerous personal computers and peripheral devices used in information technology and non-information technology applications which have been tested for year 2000 compliance. The Company has upgraded or replaced any known non year 2000 compliant devices and management believes that these devices are now year 2000 compliant. 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 questionnaires and interviews. The Company has a diverse customer base, with no single customer 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 receivables and supply disruption. 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. At this time the Company has no contingincy plan in place to deal with the possible consequences listed above. However, management believes that the actions it has taken should significantly reduce the adverse effect any such disruptions may have. On September 10, 1998, the Company announced an open market repurchase program providing for the repurchase of up to 500,000 shares of its common stock. On June 15, 1999, the Company announced an additional open market repurchase plan providing for the repurchase of up to 500,000 shares of the Company's common stock. During the quarter ended July 31, 1999, the Company purchased 69,700 shares of its common stock at an average price of $8.90 per share. As of July 31, 1999 there are 592,300 shares remaining available for purchase under the two programs. <PAGE 8> Results of Operations Revenues for the three month period ending July 31, 1999 were $21,165,000 compared to revenues of $17,750,000 for the comparable prior year period. Volume, measured in gigabytes shipped, increased 60% in the first quarter compared to the prior year period. The volume increase was mitigated by a 25% reduction in average selling prices due to lower average DRAM prices. The Company continues to expand its sales with existing customers as well as securing new customers. Cost of sales for the first quarter were 73% of revenues versus 69% for the same prior year period. The increase in the cost of sales was mainly the result of reduced sales of certain of the Company's Digital Equipment Corporation (now Compaq) compatible memory products which command high margins. Engineering and development costs in fiscal 1999's first quarter were $333,000 versus $332,000 for the same prior year period. The Company continues to maintain its commitment to timely introduction of new memory products as new workstations and computers are introduced. Selling, general and administrative costs in this year's first quarter were 14% of revenues versus 17% for the same prior year period. Three month total expenditures were comparable to the prior year period. Interest income, net for the first quarter of fiscal 2000 and fiscal 1999, consists primarily of interest income on short term investments. <PAGE 9> 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 First Quarter, Fiscal Year 1999 (Attached). B. Reports on Form 8-K No reports on Form 8-K have been filed during the current quarter. <PAGE 10> 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: 8/26/99 By: MARK E. MADDOCKS _____________________ ________________________ Mark E. Maddocks Vice President, Finance (Principal Financial and Accounting Officer) Page 8 of 8