<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 10/31/99 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 December 2, 1999, there were 5,281,236 shares outstanding. This amount does not reflect the pending 3 for 2 stock split announced November 10, 1999 and distributable on December 15, 1999. <PAGE 2> PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Dataram Corporation And Subsidiary Consolidated Balance Sheets October 31, 1999 and April 30, 1999 (Unaudited) (Audited) October 31, 1999 April 30, 1999 Assets Current Assets: Cash and cash equivalents $ 8,389,248 $ 8,092,527 Trade receivables, less allowance for doubtful accounts and sales returns of $600,000 at October 31, 1999 and $450,000 at April 30, 1999 16,955,823 12,016,106 Inventories 4,449,631 3,290,300 Other current assets 653,210 475,387 __________ __________ Total current assets 30,447,912 23,874,320 Property and equipment, at cost: Land 875,000 875,000 Machinery and equipment 5,929,089 5,188,696 __________ __________ 6,804,089 6,063,696 Less: accumulated depreciation and amortization 3,172,993 2,572,993 __________ __________ Net property and equipment 3,631,096 3,490,703 Other assets 9,210 8,655 __________ __________ $ 34,088,218 $ 27,373,678 ========== ========== Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 10,062,136 $ 4,344,179 Accrued liabilities 2,054,773 1,840,647 Income taxes payable 230,408 250,408 __________ __________ Total current liabilities 12,347,317 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 7,575,015 at October 31, 1999 and issued and outstanding 5,236,810 at April 30, 1999 7,575,015 5,236,810 Retained earnings 13,246,886 14,782,634 __________ __________ Total stockholders' equity 20,821,901 20,019,444 __________ __________ $ 34,088,218 $ 27,373,678 ========== ========== See accompanying notes to consolidated financial statements. <PAGE 3> <TABLE> Dataram Corporation and Subsidiary Consolidated Statements of Earnings Three and Six Months Ended October 31, 1999 and 1998 (Unaudited) 1999 1998 2nd Quarter Six Months 2nd Quarter Six Months <C> <C> <C> <C> Revenues $ 29,385,690 $ 50,550,374 $ 16,261,859 $ 34,012,021 Costs and expenses: Cost of sales 21,940,071 37,354,818 11,095,422 23,365,271 Engineering and development 343,087 676,062 371,824 703,434 Selling, general and administrative 3,857,280 6,907,116 2,810,081 5,747,042 __________ __________ __________ __________ 26,140,438 44,937,996 14,277,327 29,815,747 Earnings from operations 3,245,252 5,612,378 1,984,532 4,196,274 Interest income 117,005 224,687 135,588 252,085 __________ __________ __________ __________ Earnings before income taxes 3,362,257 5,837,065 2,120,120 4,448,359 Income tax provision 1,281,000 2,225,000 830,000 1,741,000 __________ __________ __________ __________ Net earnings $ 2,081,257 $ 3,612,065 $ 1,290,120 $ 2,707,359 ========== ========== ========== ========== Net earnings per share of common stock Basic $ .27 $ .46 $ .16 $ .33 ========== ========== ========== ========== Diluted $ .22 $ .38 $ .14 $ .29 ========== ========== ========== ========== Weighted average number of common shares outstanding Basic 7,790,938 7,809,215 8,314,641 8,329,428 ========== ========== ========= ========= Diluted 9,460,072 9,419,416 9,218,127 9,214,509 ========== ========== ========= ========= See accompanying notes to consolidated financial statements. </TABLE> <PAGE 4> Dataram Corporation and Subsidiary Consolidated Statements of Cash Flows Six Months Ended October 31,1999 and 1998 (Unaudited) 1999 1998 Cash flows from operating activities: Net earnings $ 3,612,065 $ 2,707,359 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 600,000 624,000 Bad debt expense 164,450 113,189 Changes in assets and liabilities: (Increase) decrease in trade receivables (5,104,167) 1,762,167 Increase in inventories (1,159,331) (824,965) Increase in other current assets (177,823) (133,928) Increase in other assets (555) (3,000) Increase (decrease) in accounts payable 5,717,957 (1,494,995) Increase in accrued liabilities 214,126 117,165 Decrease in income taxes payable (20,000) (101,423) __________ __________ Net cash provided by operating activities 3,846,722 2,765,569 __________ __________ Cash flows from investing activities: Purchase of property and equipment (740,393) (641,391) __________ __________ Net cash used in investing activities (740,393) (641,391) Cash flows from financing activities: Proceeds from sale of common shares under stock option plan 573,022 0 Purchase and cancellation of common stock (3,382,630) 0 Purchase of common stock held in treasury 0 (422,741) __________ __________ Net cash used in financing activities (2,809,608) (422,741) __________ __________ Net increase in cash and cash equivalents 296,721 1,701,437 Cash and cash equivalents at beginning of year 8,092,527 7,529,906 __________ __________ Cash and cash equivalents at end of period $ 8,389,248 $ 9,231,343 ========== ========== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 40,484 $ 38,751 Income taxes $ 2,065,000 $ 1,855,200 See accompanying notes to consolidated financial statements. <PAGE 5> Notes to Consolidated Financial Statements October 31, 1999 and 1998 (Unaudited) Basis of Presentation The information at October 31, 1999 and for the three and six months ended October 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 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 October 31, 1999 and April 30, 1999 consist of the following categories: October 31, 1999 April 30, 1999 ________________ ______________ Raw material $ 2,403,000 $ 1,335,000 Work in process 564,000 508,000 Finished goods 1,483,000 1,447,000 ________________ ______________ $ 4,450,000 $ 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. 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 October 31, 1999, the amount available for borrowing under the revolving credit facility was $12,000,000. 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 October 31, 1999, the Company purchased and retired 210,200 shares of its common stock. For the six month period ended October 31, 1999, 279,900 shares have been purchased and retired. These amounts do not reflect the pending 3 for 2 stock split announced November 10, 1999 and distributable on December 15, 1999. <PAGE 7> 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 8> 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 October 31, 1999, working capital amounted to $18.1 million reflecting a current ratio of 2.5 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. 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. The credit facility was unused during the first six months of fiscal 2000 and fiscal 1999. As of Octber 31, 1999 there was no amount outstanding under the line of credit. 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 October 31, 1999, the Company purchased 210,200 shares of its common stock at an average price of $13.14 per share. As of October 31, 1999 there are 382,100 shares remaining available for purchase. 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 management believes that 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 have been tested for year 2000 compliance. The Company has upgraded or replaced any non year 2000 compliant devices and management believes that these devices are all year 2000 compliant. Management estimates that the financial impact of the upgrades has not had 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 management believes that its key vendors and suppliers are year 2000 compliant. The Company has a diverse and ever changing customer base, with no single customer typically accounting for 10% or more of its revenue. The Company has not ascertained the stage of year 2000 readiness of its current customers. <PAGE 9> 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 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 ending October 31, 1999 were $29,386,000 compared to revenues of $16,262,000 for the comparable prior year period. Fiscal 2000 six month revenues totaled $50,550,000 versus six month revenues of $34,012,000 for the prior fiscal year. The increase in revenues was the result of strong volume growth coupled with more stable average selling prices. Volume, measured in gigabytes shipped, increased 104% in the second quarter compared to the prior year comparable period. Cost of sales for the second quarter and six months of fiscal 1999 were 75% and 74%, respectively of revenues versus 68% and 69% for the same prior year periods. 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 2000's second quarter and six months were $343,000 and $676,000, respectively versus $372,000 and $703,000 for the same prior year periods. The Company intends to maintain its commitment to the timely introduction of new memory products as new workstations and computers are introduced. Selling, general and administrative costs in this year's second quarter and six months decreased to 13% and 14%, respectively of revenues from 17% for the same prior year periods. Three month total expenditures increased by $1,047,000 from the comparable prior year period. Six month selling, general and administrative costs increased by $1,160,000 in fiscal 2000 versus fiscal 1999. The increase in costs is primarily attributable to a continued expansion of the Company's sales force, as well as an increase in costs associated with increased revenues and profits. Other income (expense),net for the second quarter and six months of fiscal 1999 and fiscal 2000 consists primarily of interest income on short term investments. Safe Harbor Statement The information provided in this interim report may include forward- looking statements relating to future events, such as the development of new products, the commencement of production or the future financial performance of the Company. Actual results may differ from such projections and are subject to certain risks including, without limitation, risks arising from: changes in the price of memory chips, changes in the demand for memory systems for workstations and servers, increased competition in the memory systems industry, delays in developing and commercializing new products and other factors described in the Company's most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission which can be reviewed at http://www.sec.gov. <PAGE 10> PART II: OTHER INFORMATION ITEM 5. EXHIBITS AND REPORTS ON FORM 8-K A. Exhibits 10 (a). Amendment to revolving line of credit agreement (Attached). 27 (a). Financial Data Schedule 28 (a). Press Release reporting results of Second Quarter, Fiscal Year 2000 (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: December 10, 1999 By: MARK E. MADDOCKS _____________________ ___________________________ Mark E. Maddocks Vice President, Finance (Principal Financial Officer) Page 8 of 8 Page 8 of 8