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)