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 01/31/02 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 4, 2002, there were 8,487,419 shares outstanding. PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Dataram Corporation And Subsidiaries Consolidated Balance Sheets January 31, 2002 and April 30, 2001 (Unaudited) January 31, 2002 April 30, 2001 Assets Current Assets: Cash and cash equivalents $ 2,838,470 $ 10,235,321 Trade receivables, less allowance for doubtful accounts and sales returns and allowances of $320,000 at January 31, 2002 and $450,000 at April 30, 2001 11,521,047 17,641,248 Inventories 6,567,576 5,924,738 Prepaid income taxes 558,000 0 Other current assets 1,051,659 888,353 __________ __________ Total current assets 22,536,752 34,689,660 Property and equipment, at cost: Land 875,000 875,000 Machinery and equipment 17,035,241 12,620,735 Capitialized equipment leases 0 5,093,000 __________ __________ 17,910,241 18,588,735 Less: accumulated depreciation and amortization 7,574,260 5,362,666 __________ __________ Net property and equipment 10,335,981 13,226,069 Other assets 384,626 365,160 Goodwill 11,144,000 9,957,000 Intangible assets, less accumulated amortization of $5,946,000 at January 31, 2002 and $90,000 at April 30, 2001 0 7,043,000 __________ __________ $ 44,401,359 $ 65,280,889 ========== ========== Liabilities and Stockholders' Equity Current liabilities: Current installments of obligations under capital leases $ 0 $ 978,000 Current installments of long-term debt 0 2,000,000 Accounts payable 6,547,206 7,218,697 Accrued liabilities 1,943,121 3,945,744 Income taxes payable 0 14,751 __________ __________ Total current liabilities 8,490,327 14,157,192 Deferred income taxes 948,000 948,000 Long-term debt, excluding current installments 3,900,000 8,000,000 Obligations under capital leases, excluding current installments 0 4,133,000 __________ __________ Total liabilities 13,338,327 27,238,192 Stockholders' Equity: Common stock, par value $1.00 per share. Authorized 54,000,000 shares; issued and outstanding 8,453,669 at January 31, 2002 and 8,492,219 at April 30, 2001 8,453,669 8,492,219 Additional paid in capital 4,270,674 4,064,708 Retained earnings 18,546,267 25,402,770 Accumulated other comprehensive income (loss) (207,578) 83,000 __________ __________ Total stockholders' equity 31,063,032 38,042,697 __________ __________ $ 44,401,359 $ 65,280,889 ========== ========== See accompanying notes to consolidated financial statements. Dataram Corporation and Subsidiaries Consolidated Statements of Operations Three and Nine Months Ended January 31, 2002 and 2001 (Unaudited) 2002 2001 3rd Quarter Nine Months 3rd Quarter Nine Months Revenues $ 19,645,752 $ 61,389,278 $ 26,828,999 $104,690,762 Costs and expenses: Cost of sales 12,546,709 40,223,842 19,837,798 79,453,658 Engineering and development 438,417 1,445,862 386,366 1,172,757 Selling, general and administrative 5,292,441 16,558,307 3,728,176 12,133,757 Restructuring charges 0 1,200,000 0 0 Intangible asset amortization 5,263,000 5,856,000 0 0 __________ __________ __________ __________ 23,540,567 65,284,011 23,952,340 92,760,172 Earnings (loss) from operations (3,894,815) (3,894,733) 2,876,659 11,930,590 Interest income 85,709 279,003 317,387 838,987 Interest expense (613,851) (1,104,564) 0 0 __________ __________ __________ __________ (528,142) (825,561) 317,387 838,987 Earnings (loss) before income taxes (4,422,957) (4,720,294) 3,194,046 12,769,577 Income tax provision 360,000 1,664,000 1,164,000 4,809,000 __________ __________ __________ __________ Net earnings (loss) $ (4,782,957) $ (6,384,294) $ 2,030,046 $ 7,960,577 ========== ========== ========== ========== Net earnings (loss) per share of common stock Basic $ (.57) $ (.75) $ .24 $ .94 ========== ========== ========== ========== Diluted $ (.57) $ (.75) $ .21 $ .81 ========== ========== ========== ========== Weighted average number of common shares outstanding Basic 8,453,669 8,485,924 8,515,316 8,500,471 ========== ========== ========= ========= Diluted 8,453,669 8,484,924 9,745,422 9,842,041 ========== ========== ========= ========= See accompanying notes to consolidated financial statements.
Dataram Corporation and Subsidiaries Consolidated Statements of Cash Flows Nine Months Ended January 31,2002 and 2001 (Unaudited) 2002 2001 Cash flows from operating activities: Net earnings (loss) $ (6,384,294) $ 7,960,577 Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Depreciation and amortization 9,174,519 1,156,167 Bad debt expense (recovery) (104,863) 61,470 Changes in assets and liabilities: Decrease in trade receivables 6,225,064 3,931,787 (Increase) decrease in inventories (642,838) 285,697 Increase in other current assets (721,306) (796,862) Increase in other assets (19,466) (1,000) Decrease in accounts payable (671,491) (4,847,362) Decrease in accrued liabilities (2,017,374) (396,864) __________ __________ Net cash provided by operating activities 4,837,951 7,353,610 __________ __________ Cash flows used in investing activities - additions to property and equipment, net (428,431) (2,587,105) ___________ __________ Cash flows from financing activities: Principal payments of term loan (10,000,000) 0 Borrowings under revolving line of credit 3,900,000 0 Principal payments of capital lease obligations (5,111,000) 0 Proceeds from sale of common shares under stock option plan, including tax benefits 345,183 3,434,301 Purchase and subsequent cancellation of common stock (649,976) (1,027,724) __________ __________ Net cash provided by (used in) financing activities (11,515,793) 2,406,577 __________ __________ Effect of foreign currency translation on cash and cash equivalents (290,578) 0 __________ __________ Net increase (decrease) in cash and cash equivalents (7,396,851) 7,173,082 Cash and cash equivalents at beginning of year 10,235,321 13,649,601 __________ __________ Cash and cash equivalents at end of period $ 2,838,470 $ 20,822,683 ========== ========== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 1,104,564 $ 32,603 Income taxes $ 1,640,000 $ 2,055,000 See accompanying notes to consolidated financial statements. Notes to Consolidated Financial Statements January 31, 2002 and 2001 (Unaudited) Basis of Presentation The information at January 31, 2002 and for the three and nine months ended January 31, 2002 and 2001, 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 accounting principles generally accepted in the United States of America. 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, 2001 included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission. Comprehensive Income (loss) Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS No. 130") requires that items defined as other comprehensive income, such as unrealized investment gains and losses and foreign currency translation gains and losses, be seperately classified in the consolidated financial statements and that the accumulated balance of other comprehensive income (loss) be reported separately from retained earnings and additional paid in capital in the equity section of the consolidated balance sheet. Comprehensive loss for the three and nine months ended January 31, 2002 was $4,743,000 and $6,675,000, respectively. Comprehensive income for the prior year three and nine months ended January 31, 2001 was $2,030,000 and $7,961,000, respectively. Acquisition On March 23, 2001, the Company acquired certain assets, principally including inventory, accounts receivable and equipment of Memory Card Technology A/S ("MCT"), a corporation in suspension of payments under Danish bankruptcy law. MCT designed and manufactured memory from its facility in Denmark and had sales offices in Europe, Latin America and the Pacific Rim. The Company purchased the assets from MCT for total consideration of approximately $32,006,000 of which approximately $28,581,000 was paid in cash plus the assumption of certain payables and accrued expenses, certain direct transaction cost and certain MCT employee rationalization costs all of which total approximately $3,425,000. The net assets acquired by the Company were recorded at their respective fair values under the purchase method of accounting. Accordingly, the excess of the purchase price over the fair value of identifiable net tangible and identifiable intangible assets acquired in the amount of $11,144,000 represents goodwill which, as of January 31, 2002, includes approximately $1,100,000 which had been assigned to the workforce acquired (See New Accounting Standards). The results of operations of MCT for the period from May 1, 2001 through January 31, 2002 have been included in the consolidated results of operations of the Company. Significant Accounting Policies Principles of consolidation The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated. The Company's foreign subsidiaries' functional currency is the U.S. dollar as all revenues are received in U.S. dollars and a majority of expenditures are made in U.S. dollars. The Company and its foreign subsidiaries report in U.S. dollars. For subsidiaries that maintain their accounts in currencies other than the U.S. dollar, the Company uses the current method of translation whereby the statements of earnings are translated using the average exchange rate and the assets and liabilities are translated using the period end exchange rate. Foreign currency translation gains or losses are recorded as a separate component of accumulated other comprehensive income or loss. Foreign currency non-monetary assets and liabilities are translated using historical rates of exchange. Foreign currency transaction gains or losses are included in the consolidated statement of earnings. For the three and nine month periods ended January 31, 2002 and 2001, the Company had no foreign currency transaction gains or losses. Restructuring charges In fiscal 2002's first quarter, the Company initiated a restructuring of its operations, which resulted in a workforce reduction of approximately 25%. The Company recorded a restructuring charge of $1,200,000, in the quarter ended July 31, 2001, which primarily relates to severance payments. As of January 31, 2002, the Company had paid out approximately $1,002,000 of the charges with the majority of the balance expected to be paid within the next six months. 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, 2002 and April 30, 2001 consist of the following categories: January 31, 2002 April 30, 2001 ________________ ______________ Raw material $ 4,037,000 $ 2,841,000 Work in process 376,000 236,000 Finished goods 2,155,000 2,848,000 ________________ ______________ $ 6,568,000 $ 5,925,000 ================ ============== Financial information by geographic location The Company operates in one business segment and develops, manufactures and markets a variety of memory systems for use with servers, workstations, desktop and notebook computers which are manufactured by various companies. Revenues for the three and nine month periods ended January 31, 2002 by geographic region is as follows: Three months ended Nine months ended January 31, 2002 January 31, 2002 ________________ ________________ United States $ 10,310,000 $ 31,035,000 Europe 7,023,000 18,982,000 Other (prinicipally Asia Pacific) 2,313,000 11,372,000 ________________ ________________ Consolidated $ 19,646,000 $ 61,389,000 ================ ================ Long-lived assets (which consist of property and equipment, and goodwill) and total assets by geographic region as of January 31, 2002 is as follows: Long-lived assets Total assets _________________ ______________ United States $ 5,651,000 $ 16,964,000 Europe 15,610,000 24,138,000 Other 219,000 3,299,000 _________________ ______________ Consolidated $ 21,480,000 $ 44,401,000 ================= ============== Long-term Debt On April 16, 2001 the Company entered into a $10,000,000 term note ("term note") and a $15,000,000 revolving credit line ("credit line") with a commercial bank (together, referred to as the "credit facility"). On January 21, 2002 the Company amended and restated its credit facility. The credit facility contains financial covenants as defined in the agreement which the Company was in compliance with at January 31, 2002. The term note was due in twenty quarterly installments of $500,000 until March 31, 2006. The Company repaid the term loan in its entirety in January, 2002. As of January 31, 2002, the amount borrowed under the revolving credit line is $3,900,000 and $11,100,000 remains available for borrowing. Derivative Financial Instruments Effective May 1, 2001, the Company adopted SFAS 133. This Statement requires the recognition of all derivative instruments as either assets or liabilities in the consolidated balance sheet, and the periodic adjustment of those instruments to fair value. The classification of gains and losses resulting from changes in the fair values of derivatives is dependent on the intended use of the derivative and its resultant designation. In an effort to limit its interest expense and cash flow exposure, the Company entered into an interest rate swap agreement on and for the duration of the Company's $10,000,000 variable rate term loan. The swap agreement fixed the interest rate at 7.16% for the entire loan balance and for the entire loan term, which had approximately. In accordance with the provisions in SFAS 133, the Company designated this swap as a cash flow hedge and recorded the fair value of the instruments on the balance sheet at that date, with a correspondening adjustment to comprehensive earnings (loss). In January, 2002, the Company repaid its term loan and terminated its interest rate swap agreement. The early termination of the interest rate swap agreement result in a charge of approximately $259,000 which was recorded as interest expense in the consolidated statements of operations for the three and nine month periods ended January 31, 2002. New Accounting Standards In July 2001, the FASB issued Statement No. 141, Business Combinations, and Statement No. 142, Goodwill and Other Intangible Assets. Statement 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001 as well as all purchase method business combinations completed after June 30, 2001. Statement 141 also specifies criteria intangible assets acquired in a purchase method business combination must meet to be recognized and reported apart from goodwill, noting that any purchase price allocable to an assembled workforce may not be accounted for separately. Statement 142 will require that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of Statement 142. Statement 142 will also require that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The Company adopted the provisions of Statement 141 upon issuance. The Company has elected to adopt the provisions of Statement 142 in its first fiscal quarter ended July 31, 2001, as allowed by the Statement. Statement 141 requires, upon adoption of Statement 142, that the Company evaluate its existing intangible assets and goodwill that were acquired in a prior purchase business combination, and to make any necessary reclassifications in order to conform to the new criteria in Statement 141 for recognition apart from goodwill. Effective May 1, 2001, approximately $1.2 million assigned to the value of the MCT workforce has been reclassified to goodwill. Since the Company has adopted Statement 142, the Company has reassessed, as of May 1, 2001 the useful lives and residual values of all intangible assets acquired in purchase business combinations, and did not make any amortization period or carrying value adjustments. In addition, to the extent an intangible asset is identified as having an indefinite useful life, the Company is required to test the intangible asset for impairment in accordance with the provisions of Statement 142 in the first interim period. There are no indefinite life intangible assets. In connection with the transitional goodwill impairment evaluation, Statement 142 requires the Company to perform an assessment of whether there is an indication that goodwill is impaired as of the date of adoption. To accomplish this the Company must identify its reporting units and determine the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units as of the date of adoption. The Company then has up to six months from the date of adoption to determine the fair value of each reporting unit and compare it to the reporting unit's carrying amount. To the extent a reporting unit's carrying amount exceeds its fair value, an indication exists that the reporting unit's goodwill may be impaired and the Company must perform the second step of the transitional impairment test. In the second step, the Company must compare the implied fair value of the reporting unit's goodwill, determined by allocating the reporting unit's fair value to all of it assets (recognized and unrecognized) and liabilities in a manner similar to a purchase price allocation in accordance with Statement 141, to its carrying amount, both of which would be measured as of the date of adoption. This second step is required to be completed as soon as possible, but no later than the end of the year of adoption. Any transitional impairment loss will be recognized as the cumulative effect of a change in accounting principle in the Company's statement of earnings. The Company has completed this task in its second quarter ended October 31, 2001 and concluded that the estimated fair value of its acquired business (MCT),which is the reporting unit as defined by Statement 142, as of May 1, 2001, exceeded its carrying amount and therefore no indication of an impairment of the goodwill on the MCT transaction existed upon the adoption of the statement. As of May 1, 2001, the date of adoption, the Company had unamortized goodwill in the amount of $11,144,000 and unamortized identifiable intangible assets (acquired customer base) in the amount of $5,856,000, which was subject to the transition provisions of Statements 141 and 142. Amortization expense related to goodwill (including value assigned to the workforce) was $255,000 for the year ended April 30, 2001. The Company's diluted earnings per share for fiscal 2001 would have been $0.90 per share versus $0.88 per share as previously reported, had this amortization expense not been reported. There was no goodwill amortization expense in the three and nine months ended January 31, 2001 as the Company's acquisition was not consumated until March 2001. Accordingly, the adoption of this Statement does not require a proforma net income calculation for those prior three and nine month periods. The Company evaluated the carrying value of both its intangible assets and goodwill as of May 1, 2001 and concluded that such assets had not been impaired. The Company has previously stated that due to the pressure on the Company's worldwide operations caused by continued economic weakness and its associated impact on capital spending coupled with the overall decline in pricing for DRAMs and its associated impact on the Company's selling prices that it would be required to perform another impairment analysis for both the intangible assets and the acquired goodwill. That analysis was performed in the third quarter ended January 31, 2002. The Company evaluated the carrying value of goodwill as of January 31, 2002 and concluded that the asset had not been impaired. The Company also evaluated the carrying value of its intangible assets (acquired customer base) and concluded that it was in fact impaired. The Company's integration activities have included: narrowing its combined product offerings to certain strategic platforms; redefining its targeted customer base; and directing the efforts of its acquired sales force to sell memory products only for those identified platforms through the targeted customer base. As a result, the Company's customer base has changed and the future cash flows expected to be generated by the acquired customer base, as it existed at the date of acquisition no longer supported any carrying value for those assets. Accordingly, the Company has fully amortized its intangible assets in the fiscal quarter ended January 31, 2002. Use of estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. 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 and Exchange Act of 1934, as amended. Actual results could differ materially from those projected in the forward looking statements. Results of Operations In fiscal 2002's first quarter, the Company initiated a restructuring of its operations, which resulted in a workforce reduction of approximately 25%. Accordingly, in the quarter ended July 31, 2001, the Company recorded a restructuring charge of $1,200,000, which primarily related to severance payments. As of January 31, 2002, the Company had paid out approximately $1,002,000 of the charges with the balance expected to be paid in the Company's current fiscal year. The restructuring is expected to reduce operating expenses by approximately $4 million annually. Revenues for the three month period ending January 31, 2002 were $19,646,000 compared to revenues of $26,829,000 for the comparable prior year period. Fiscal 2002 nine month revenues totaled $61,389,000 versus nine month revenues of $104,691,000 for the prior fiscal year. Revenues in this year's fiscal third quarter include $8,306,000 attributable to the operations of the Company's acquisition, which was completed in March 2001. Nine month revenues attributable to the Company's acquired operations were $25,977,000. The decrease in revenues was primarily the result of decreased average selling prices for the Company's products caused by the decline in price of Dynamic Random Access Memory (DRAM) chips, the primary raw material used in the Company's products. Additionally, the worldwide economic slowdown has unfavorable impacted volume. DRAM prices for the current years fiscal third quarter compared to last years fiscal third quarter decreased by approximately 75%. Towards the end of the third quarter DRAM prices began to increase. This trend has continued into the beginning of the Company's fiscal fourth quarter. Management expects that it will be able to increase the selling prices for its products accordingly. Cost of sales for the third quarter and nine months of fiscal 2002 were 64% and 65% of revenues, respectively versus 74% and 76% for the same prior year periods. The decrease in cost of sales as a percentage of revenues is attributable to the fact that the Company's average selling prices for its products did not decline at the same rate that its primary raw material (DRAM) costs declined. Engineering and development costs in fiscal 2002's third quarter and nine months were $438,000 and $1,446,000, respectively, versus $386,000 and $1,173,000 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 fiscal 2002's third quarter and nine months increased to 27% of revenues for the three and nine months of fiscal 2002 from 14% and 12%, respectively for the same prior year periods. The percentage is significantly higher in fiscal 2002 due to the lower revenue reported. Three and nine month total expenditures increased by $1,564,000 and $4,424,000 from the comparable prior year periods. This is primarily a result of additional expenses associated with the acquisition of MCT, which was consummated in March, 2001. Current year expenses include the expense of the combined companies and prior comparable periods expenses includes only preacquisition selling, general and administrative expense. Intangible asset amortization recorded in fiscal 2002's third quarter and nine month was $5,263,000 and $5,856,000, respectively versus nil for the same periods in fiscal 2001 as the Company's acquisition was not consummated until March 2001. The Company has previously stated that due to the pressure on the Company's worldwide operations caused by continued economic weakness and its associated impact on capital spending coupled with the overall decline in pricing for DRAMs and its associated impact on the Company's selling prices that it would be required to perform an impairment analysis for its intangible assets and acquired goodwill. That analysis was performed in the third quarter ended January 31, 2002. The Company evaluated the carrying value of goodwill as of January 31, 2002 and concluded that the asset had not been impaired. The Company also evaluated the carrying value of its intangible assets (acquired customer base) and concluded that it was in fact impaired. The Company's integration activities have included: narrowing its combined product offerings to certain strategic platforms; redefining its targeted customer base; and directing the efforts of its acquired sales force to sell memory products only for those identified platforms through the targeted customer base. As a result, the Company's customer base has changed and the future cash flows expected to be generated by the acquired customer base, as it existed at the date of acquisition no longer supported any carrying value for those assets. Accordingly, the Company has fully amortized its intangible assets in the fiscal quarter ended January 31, 2002. Other income (expense), net for the third quarter and nine months of fiscal 2002 totaled ($528,000) and ($825,000), respectively versus $317,000 and $839,000 for the same periods in fiscal 2001. Other income (expense), net for fiscal 2002's three and nine months consisted of interest expense of $614,000 and $1,104,000 offset by interest income of $86,000 and $279,000. In fiscal 2002's third quarter, the Company elected to prepay fully its term debt and capital lease obligations. The Company also terminated its interest rate swap agreement. Approximately $259,000 of the current quarter and year to date interest expense relates to the early termination of the swap agreement. Additionally the Company incurred an incremental interest charge during the third quarter of approximately $141,000 for early payment of its capital lease obligations. Fiscal 2001's three and nine months other income(expense), net consisted primarily of interest income on short-term investments. Income tax expense for the three and nine months ended January 31, 2002 was $360,000 and $1,664,000, respectively versus $1,164,000 and $4,809,000 in the comparable prior year periods. For the current fiscal year, income tax expense was recognized on income realized in the United States at our expected full year effective rate and no income tax benefit was recognized for losses incurred in international subsidiaries due to the uncertainty regarding their realization. The prior year's three and nine month expense included only the Company's normal combined United States federal and state tax expense with an effective rate of approximately 38%. Liquidity and Capital Resources As of January 31, 2002, working capital amounted to $14.0 million reflecting a current ratio of 2.7 compared to working capital of $20.5 million and a current ratio of 2.5 as of April 30, 2001. The Company's trade receivables balance has declined by $6,225,000, from the beginning of the fiscal year. This is primarily the result of the declining revenue levels previously discussed. The Company turns its receivables at approximately the same rate regardless of its revenue level. Therefore, this asset can be expected to expand or contract in a manner that corresponds with revenue changes. The Company's capital expenditures this fiscal year to date total $990,000. Management expects that capital expenditures for the remainder of the fiscal year to be at similar levels. During this year's second fiscal quarter the Company purchased and retired 91,250 shares of its common stock at a total price of $599,000 under its existing open market repurchase authorization. As of January 31, 2002, the total number of shares remaining available for purchase under the current authorization is 203,450 shares. During the third quarter ended January 31, 2002, the Company prepaid the outstanding capital lease obligations of $5,093,000 resulting in a $141,000 interest charge. During fiscal 2001, the Company entered into a credit facility with its bank, which provided for a $10 million term loan and a $15 million revolving credit line. The Company's prior $12 million revolving credit facility was closed. The $10 million term loan was repaid during this year's fiscal third quarter ended January 31, 2002. In January, 2002 the Company amended and restated its credit facility with its bank. The agreement contains certain restrictive covenants with which the Company was in compliance with at January 31, 2002. As of January 31, 2002, 3.9 million was outstanding on the $15 million revolving credit line and $11.1 million was available for borrowing. Management believes that the Company's operating cash flows and availability under borrowings will be sufficient to meet short term liquidity needs as the Company does not expect any unforeseen demands beyond general operating requirements for cash. Management further believes that its working capital together with internally generated funds from its operations and its bank line of credit are adequate to finance the Company's long term operating needs and future capital requirements. 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 4 (a). Amendment to Credit Agreement (Attached). 27 (a). Press Release reporting results of Third Quarter, Fiscal Year 2002 (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 March 8, 2002 MARK E. MADDOCKS Date: ____________________ By: _______________________ Mark E. Maddocks Vice President, Finance (Principal Financial Officer)