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 10/31/96 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 6, 1996, there were 3,244,605 shares PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Dataram Corporation And Subsidiary Consolidated Balance Sheets October 31, 1996 and April 30, 1996 (Unaudited) (Audited) October 31, 1996 April 30, 1996 Assets Current Assets: Cash and cash equivalents $ 7,736,429 $ 8,482,447 Trade receivables, less allowance for doubtful accounts and sales returns of $760,000 at October 31, 1996 and $800,000 at April 30, 1996 9,350,372 12,077,714 Inventories 2,204,851 2,311,897 Other current assets 460,746 862,709 __________ __________ Total current assets 19,752,398 23,734,767 Property and equipment, at cost: Land 875,000 875,000 Machinery and equipment 6,338,342 6,190,426 __________ __________ 7,213,342 7,065,426 Less: accumulated depreciation and amortization 5,217,026 4,867,226 __________ __________ Net property and equipment 1,996,316 2,198,200 Other assets 5,730 5,730 __________ __________ $ 21,754,444 $ 25,938,697 ========== ========== October 31, 1996 April 30, 1996 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 2,950,174 $ 5,909,262 Accrued liabilities 1,191,352 1,022,404 Income taxes payable 177,169 0 __________ __________ Total current liabilities 4,318,695 6,931,666 Deferred income taxes 929,000 929,000 Stockholders' Equity: Common stock, par value $1.00 per share. Authorized 18,000,000 shares; issued 3,298,405 at October 31, 1996 and 3,824,305 at April 30, 1996 3,298,405 3,824,305 Additional paid-in capital 2,756,889 3,425,142 Retained earnings 10,451,455 10,828,584 __________ __________ Total stockholders' equity 16,506,749 18,078,031 __________ __________ $ 21,754,444 $ 25,938,697 ========== ========== See accompanying notes to consolidated financial statements. Dataram Corporation and Subsidiary Consolidated Statements of Earnings Three and Six Months Ended October 31, 1996 and 1995 (Unaudited) 1996 1995 2nd Quarter Six Months 2nd Quarter Six Months Revenues $ 17,167,956 $ 34,616,246 $ 32,331,119 $ 57,215,866 Costs and expenses: Cost of sales 13,332,847 27,220,820 28,925,556 50,779,451 Engineering and development 249,408 479,090 453,351 888,314 Selling, general and administrative 2,012,622 3,846,374 1,743,759 3,434,804 __________ __________ __________ __________ 15,594,877 31,546,284 31,222,666 55,102,569 Earnings from operations 1,573,079 3,069,962 1,208,453 2,113,297 Other income (expense), net Other income, net 16,607 16,607 0 0 Interest income 59,721 128,289 0 0 Interest expense 0 0 (38,638) (57,169) __________ __________ __________ __________ 76,328 144,896 (38,638) (57,169) Earnings before income taxes 1,649,407 3,214,858 1,169,815 2,056,128 Income tax expense 635,000 1,236,000 462,000 811,000 __________ __________ __________ __________ Net earnings $ 1,014,407 $ 1,978,858 $ 707,815 $ 1,245,128 Net earnings per share of common stock Primary $ .30 $ .56 $ .18 $ .32 ========== ========== ========== ========== Fully Diluted $ .30 $ .55 $ .18 $ .32 ========== ========== ========== ========== Weighted average number of common shares outstanding Primary 3,391,312 3,554,602 3,883,626 3,814,900 ========== ========== ========= ========= Fully Diluted 3,422,084 3,593,519 3,900,168 3,886,556 ========== ========== ========= =========
Dataram Corporation and Subsidiary Consolidated Statements of Cash Flows Six Months Ended October 31, 1996 and 1995 (Unaudited) 1996 1995 Cash flows from operating activities: Net earnings $ 1,978,858 $ 1,245,128 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Depreciation and amortization 349,800 333,641 Bad debt expense 191,283 143,771 Changes in assets and liabilities: Decrease (increase) in trade receivables 2,536,059 (4,617,568) Decrease (increase) in inventories 107,046 (4,866,402) Decrease in other current assets 401,963 537,769 Decrease in other assets 0 9,346 Increase (decrease) in accounts payable (2,959,089) 5,397,135 Increase (decrease) in accrued liabilities 168,948 (942,528) Increase in income taxes payable 177,169 0 Increase (decrease) in deferred income taxes 0 514,000 __________ __________ Net cash provided by (used in) operating activities 2,952,037 (2,245,708) __________ __________ Cash flows from investing activities: Purchase of property and equipment (147,916) (154,247) __________ __________ Net cash used in investing activities (147,916) (154,247) Cash flows from financing activities: Proceeds from sale of common shares under stock option plan 21,400 238,000 Purchase of and retirement of common shares (3,571,539) 0 Increase in long-term debt 0 1,900,000 __________ __________ Net cash provided by (used in) financing activities (3,550,139) 2,138,000 __________ __________ Net increase (decrease) in cash and cash equivalents (746,018) (261,955) Cash and cash equivalents at beginning of year 8,482,447 721,811 __________ __________ Cash and cash equivalents at end of period $ 7,736,429 $ 459,856 ========== ========== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 26,583 $ 57,169 Income taxes $ 560,000 $ 402,000 See accompanying notes to consolidated financial statements. Dataram Corporation and Subsidiary Notes to Consolidated Financial Statements October 31, 1996 and April 30, 1996 (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: 10/31/96 4/30/96 Raw Materials $ 1,526,000 $ 1,435,000 Work In Process 171,000 45,000 Finished Goods 508,000 832,000 _________ _________ $ 2,205,000 $ 2,312,000 ========= ========= (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, 1996, no further options may be granted under the plan and options to purchase 6,000 shares were exercised in fiscal 1997 at an exercise price of $3.57 per share and no further options remain outstanding. 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, 1996, options to purchase 479,000 shares at prices ranging from $5.125 to $7.125 per share were outstanding. As of October 31, 1996 options to purchase 32,000 shares had been exercised and options to purchase 196,400 shares were exercisable. In November 1992 and March 1993, the Company granted to three nonemployee 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. On September 10, 1996, the Company granted to a fourth non-employee director five year options to acquire 30,000 shares at an exercise price of $6.9375. As of October 31, 1996, none of these options had been exercised and options to purchase 112,500 shares were exercisable. (5) In June of 1996, the Company announced an open market repurchase plan providing for the repurchase of up to 250,000 shares of the Company's common stock. In July of 1996, the plan was amended to provide for the repurchase of up to 500,000 shares of the Company's common stock. On September 10, 1996 the Board of Directors authorized the repurchase of an additional 300,000 shares. As of October 31, 1996 a total of 531,900 shares had been repurchased at a total cost of $3,572,000. (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, 1996, working capital amounted to $15.4 million reflecting a current ratio of 4.6 compared to working capital of $16.8 million and a current ratio of 3.4 as of April 30, 1996. The Company's financial condition remains strong. The Company has an $11.0 million unsecured line of credit with a bank which expires in October 1997. 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. Results of Operations _____________________ Revenues for the three month period ending October 31, 1996 were $17,168,000 compared to revenues of $34,616,000 for the comparable prior year period. Fiscal 1997 six month revenues totaled $34,616,000 versus six month revenues of $57,216,000 for the prior fiscal year. The decline in revenues was the result of declining average selling prices for the Company's products reflecting an eighty percent decrease in the price of dynamic random access memory chips (DRAMs)which are the primary raw material in memory boards. As a result of competitive conditions in the memory board marketplace, the Company passed these cost savings through to our customers. Increased unit volume partially offset the reduction in selling prices. Total megabytes shipped have increased by approximately 115% and 110% in this year's second quarter and six months, respectively versus the same periods last year. Cost of sales for the second quarter and six months of fiscal 1997 were 78% and 79%, respectively of revenues versus 89% for both of the same prior year periods. The increase in operating margins is the result of increased unit volume which created significant economies of scale, combined with aggressive purchasing and materials management. Prices for the four and sixteen megabit DRAM continued to decline during the second quarter. To minimize the impact of the changes in raw material values, the Company has maintained tight control over inventory levels, while still meeting customer delivery requirements. The price of DRAMS has continued to decline and it is uncertain as to when prices will stabilize. Engineering and development costs in fiscal 1997's first quarter and six months were $249,000 and 479,000, respectively versus $453,000 and $888,000 for the same prior year periods. The decrease in cost was due to modest reductions in staff, and an overall control of cost primarily associated with lower product design costs of today's simplified memory boards. 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 increased to 12% of revenues from 6% for the same prior year period. Three month total expenditures increased by $269,000 from the comparable prior year period. This increase is largely attributable to certain planned marketing and promotional expenditures, as well as certain legal expenses incurred related to a Complaint filed by Sun Microsystems, Inc. Six month selling, general and administrative costs increased by $412,000 in fiscal 1997 versus fiscal 1996. The Company has strategically added to its sales department this year to accelerate our ability to service new and existing customers. Other income (expense),net for the second quarter and six months of fiscal 1997 consisted primarily of interest income on short term investments. Prior year other income (expense) consisted of interest PART II: OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On October 15, 1996, Dataram was served with a Complaint filed against it by Sun Microsystems, Inc. ("Sun") in the United States District Court for the Northern District of California. This Complaint claims infringement by Dataram of five patents issued to Sun which enable the use of single in-line memory modules in the memory systems for certain Sun workstations. Sun seeks to enjoin Dataram from infringing the patents, and seeks damages and attorney's fees. Dataram has answered the Complaint, asserting that the patents which were issued to Sun are invalid or not infringed by Dataram products. Dataram is seeking payment of its attorney fees in this action from Sun. Also, Dataram has filed counterclaims charging Sun with anti- trust violations, unfair competition and product disparagement. ITEM 5. EXHIBITS AND REPORTS ON FORM 8-K A. Exhibits 27 (a). Financial Data Schedule 99 (a). Press Release reporting results of Second Quarter, Fiscal Year 1997. 99 (b). Press Release reporting the Sun Microsystems, Inc. Complaint. 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 Dec. 9, 1996 MARK E. MADDOCKS Date: ___________________ By: _____________________________ Mark E. Maddocks Vice President, Finance (Principal Financial Officer)