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 10/31/95 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 8, 1995, there were 3,824,305 shares outstanding. PART 1: FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Dataram Corporation and Subsidiary Consolidated Balance Sheets October 31, 1995 and April 30, 1995 Unaudited Audited Assets October 31, 1995 April 30, 1995 Current Assets: $ 459,856 $ 721,811 Cash and cash equivalents Trade receivables, less allowance for doubtful accounts and sales returns of $585,000 at October 31, 1995 and $495,000 at April 30, 1995 19,394,821 14,921,024 Inventories 12,927,209 8,060,807 Other current assets 591,861 1,129.630 Total current assets 33,373,747 24,833,272 Property and equipment, at cost: Land 875,000 875,000 Machinery and equipment 6,106,751 5,952,504 6,981,751 6,827,504 Less: accumulated depreciation and amortization 4,530,799 4,197,158 Net property and equipment 2,450,952 2,630,346 Other assets 5,730 15,076 $ 35,830,429 $27,478,694 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $14,175,184 $ 8,778,049 Accrued liabilities 1,126,820 2,069,348 Total current liabilities 15,302,004 10,847,397 Deferred income taxes 753,822 239,822 Long-term debt 1,900,000 0 Stockholders' Equity Common stock, par value $1.00 per share. Authorized 18,000,000 shares; issued 3,824,305 at October 31, 1995 and 3,792,305 at April 30, 1995 3,824,305 3,792,305 Additional paid-in capital 3,425,142 3,219,142 Retained earnings 10,625,156 9,380,028 Total stockholders' equity 17,874,603 16,391,475 $35,830,429 $27,478,694 See accompanying notes to consolidated financial statements. Dataram Corporation and Subsidiary Consolidated Statements of Earnings Three and Six Months Ended October 31, 1995 and 1994 (Unaudited) 1995 1994 2nd Quarter Six Months 2nd Quarter Six Months Revenues $ 32,331,119 $57,215,866 $ 27,361,305 $49,524,262 Costs and expenses: Cost of sales 28,925,556 50,779,451 22,788,189 41,275,020 Engineering and development 453,351 888,314 676,903 1,305,773 Selling, general and administrative 1,743,759 3,434,804 2,958,212 5,555,409 31,122,666 55,102,569 26,423,304 48,136,202 Earnings from operations 1,208,453 2,113,297 938,001 1,388,060 Other income (expense): Other income (expense), net 0 0 25,000 58,202 Interest expense (38,638) (57,169) (93,422) (129,562) (38,638) (57,169) (68,422) (71,360) Net earnings before income taxes 1,169,815 2,056,128 869,579 1,316,700 Income tax provision 462,000 811,000 344,000 523,000 Net earnings $ 707,815 $ 1,245,128 $ 525,579 $ 793,700 Net earnings per common and common equivalent share: Primary $ .18 $ .33 $ .14 $ .21 Fully Diluted $ .18 $ .32 $ .14 $ .21 Weighted averaged number of common and common equivalent shares outstanding: Primary 3,883,626 3,829,633 3,821,109 3,822,162 Fully Diluted 3,900,168 3,876,660 3,821,109 3,822,162
See accompanying notes to consolidated financial statements Dataram Corporation and Subsidiaries Consolidated Statements of Cash Flows Six Months Ended October 31, 1995 and 1994 (Unaudited) 1995 1994 Sources of working capital: Net earnings $ 1,245,128 $ 793,700 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 333,641 421,999 Bad debt expense 143,771 106,286 Changes in assets and liabilities: Increase in trade receivables (4,617,568) (3,454,201) Increase in inventories (4,866,402) (1,004,557) Decrease in other current assets 537,769 616,657 Decrease in other assets 9,346 2,934 Increase (decrease) in accounts payable 5,397,135 (3,268,288) Decrease in accrued liabilities (942,528) (271,565) Increase in deferred income taxes 514,000 0 Total adjustments (3,490,836) (6,850,735) Net cash used in operating activities (2,245,708) (6,057,035) Cash flows from investing activities: Purchase of fixed assets (154,247) (224,656) Net cash used in investing activities (154,247) (224,656) Cash flows from financing activities: Proceeds from sale of common shares under stock option plan 238,000 2,438 Increase in long-term debt 1,900,000 5,900,000 Net cash provided by financing activities 2,138,000 5,902,438 Net increase in cash and cash equivalents (261,955) (379,253) Cash and cash equivalents at beginning of year 721,811 437,779 Cash and cash equivalents at end of period $ 459,856 $ 58,526 Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 57,169 $ 129,562 Income taxes $ 402,000 $ 0 See accompanying notes to consolidated financial statements. Dataram Corporation and Subsidiary Notes to Consolidated Financial Statements October 31, 1995 and April 30, 1995 (1) Cash and cash equivalents consist of unrestricted cash,bankers acceptances, commercial paper and other short term investments. All investments are convertible to cash within a period of approximately thirty days or less. (2) Inventories consist of the following categories: 10/31/95 4/30/95 Raw Materials $ 8,150,000 $ 4,726,000 Work In Process 579,000 648,000 Finished Goods 4,198,000 2,687,000 $12,927,000 $ 8,061,000 (3) The Company has an agreement with a bank which provides for a total unsecured line of credit of $11,000,000 with interest at no higher than one-half percent below the bank's base commercial lending rate. Borrowings under the line of credit are at the convenience of Company management and may be repaid at any time. The line of credit agreement expires in October, 1997, unless otherwise amended or extended. (4) In 1982, the Company adopted an incentive stock option plan. As of October 31, 1995, no further options may be granted under the plan and options to purchase 6,000 shares were outstanding and exercisable at an excercise price of $3.57 per share. In September 1992, an incentive and nonstatutory stock option plan was adopted by the shareholders which provides for the granting of up to 950,000 shares of common stock to key employees. As of October 31, 1995, options to purchase 322,000 shares at prices ranging from $5.125 to $7.125 per share were outstanding. As of October 31, 1995 options to purchase 32,000 shares had been exercised and options to purchase 139,500 shares were exercisable. In November 1992 and March 1993, the Company granted to three non-employee directors of the Company and the Company's outside general counsel five year options to acquire a total of 120,000 shares of the Company's common stock at an exercise price of $11.25 per share. As of October 31, 1995, none of these options had been exercised and options to purchase 60,000 shares were exercisable. (5) Certain amounts in the fiscal year 1995 consolidated financial statements have been reclassified to conform to the fiscal year 1996 presentation. (6) Information furnished reflects all adjustments which are, in the opinion of management, necessary to a fair presentation of the results of this interim statement. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources As of October 31, 1995, working capital amounted to $18.1 million reflecting a current ratio of 2.2 compared to working capital of $14.0 million and a current ratio of 2.3 as of April 30, 1995. The Company's financial condition remains strong. The Company has a $11.0 million unsecured line of credit with a bank which expires in October 1997. The line of credit was used during the quarter to deal with peak cash demands. At the end of the quarter $1.9 million was outstanding under the line of credit. The funds were primarily used to support growth in accounts receivable associated with increased revenue levels. With its current working capital balance and the line of credit, management believes that it will be able to support its revenue growth and other capital needs for the foreseeable future. Results of Operations Revenues for the three month period ending October 31, 1995 were $32,331,000 compared to revenues of $27,361,000 for the comparable prior year period, an increase of 18%. Six month revenues of $57,216,000 reflected an increase of 16% over the prior fiscal year's six month revenues of $49,524,000. Revenues from overseas markets for the second quarter and six months of fiscal 1996 amounted to 28% and 27%, respectively of total revenues. Cost of sales for the second quarter and six months were 89% of revenues versus 83% for the same prior year periods. Computer memory products have become commodity items and as such command low operating margins. The Company has successfully transformed its organizational structure to compete in a computer memory market characterized by high volume, pricing pressures and low operating margins. Toward the end of this year's second quarter, there were indications that the market for Dynamic Rams (DRAMS), the primary raw material in computer memory boards, had changed. Spot prices for four megabit DRAMS had softened. However, the vast majority of the Company's products are used in workstations and high end personal computers and servers. As a consequence these products primarily use 16 megabit DRAMS. Contract and spot market prices for these DRAMS remained firm throughout the quarter. While management believes that it is possible that prices for 16 megabit DRAMS could decline towards the end of the the third quarter of fiscal 1996, it is unclear at this time what the magnitude of that change, if any, will be. Engineering and development costs in fiscal 1996's second quarter and six months were $453,000 and $888,000 versus $677,000 $1,305,000 for the same prior year periods. Today's workstation, server and personal computer memories have simple design characteristics. The Company intends 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 second quarter and six months declined to 6% of revenues from 11% for the same prior year periods. Three and six month total expenditures decreased by $1,214,000 and $2,121,000, respectively from the prior year. This decrease is primarily the result of the restructuring of the Company's operations related to a discontinued product line which occurred at the end of the fourth quarter of last fiscal year. As a result of the restructuring, the Company's engineering and development expenses and selling, general and administrative expenses have been significantly reduced as a percentage of revenue. Management expects that ongoing cost control measures will further reduce these expenditures as a percentage of revenue on comparable revenues. Other income (expense),net for the second quarter and six months of fiscal 1996 consisted primarily of interest expense associated with the Company's revolving credit line. Prior year other income (expense) consisted of interest expense offset by income from salvage of certain obsolete equipment and inventory items. PART II: OTHER INFORMATION ITEM 5. OTHER INFORMATION A. Backlog The Company's backlog released for shipment as of October 31, 1995, was $1.3 million compared to a backlog of $3.4 million on October 31,1994. The Company normally fills most of its orders within one day or less after receipt and its backlog at any point in time is not necessarily indicative of future financial performance. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K A. Exhibits 27 (a). Financial Data Schedule 28 (a). Press Release reporting results of Second Quarter, Fiscal Year 1996 (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 BERNARD L. RILEY Date:December 8, 1995 By: Bernard L. Riley Vice President, Finance (Principal Financial Officer) MARK E. MADDOCKS Date:December 8, 1995 By: Mark E. Maddocks Controller (Principal Accounting Officer)