SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________________
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report: March 23, 2001
DATARAM CORPORATION
____________________________________________________________________________
(Exact name of registrant as specified in charter)
New Jersey 1-8266 22-1831409
____________________________________________________________________________
(State or other juris- Commission File No. (IRS Employer Identification
diction of incorporation) No.)
Route 571, P.O. Box 7528, Princeton, NJ 08543-7528
____________________________________________________________________________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (609) 799-0071
____________________________________________________________________________
(Former name, former address if changed since last report)
Form 8-K/A
This form 8-K/A amends the Current Report on Form 8-K of Dataram Corporation,
previously filed with the Securities and Exchange Commission on March 23,
2001, to update Item 2 to revise previously reported purchase price
consideration, and to file the financial statements and pro forma financial
information required by Item 7 of Form 8-K.
Item 2. Acquisition or Disposition of Assets
As previously reported, as of March 23, 2001, Dataram Corporation
acquired certain assets, including inventory, accounts receivable and
equipment, of Memory Card Technology A/S ("MCT"), a corporation in suspension
of payments under Danish bankruptcy law. The purchase price was $28,581,000
which was paid in cash and the assumption of certain payables and accrued
expenses of $1,825,000. The source of the purchase price was the
registrant's cash reserves and an existing line of credit described in the
registrant's last Annual Report on Form 10-K. In addition to those amounts
previously reported, we have also estimated costs directly related to the
acquisition of approximately $1.6 million and also assumed capital lease
obligations of approximately $5.3 million.
MCT designs and manufactures memory from its facility in Denmark and has
sales offices Europe, Latin America and the Pacific Rim. MCT's products
include Rambus, DDR, SDRAM, DRAM, SRAM, SGRAM and EDO memory plus flash
memory, video memory and cache memory. Applications for its memory include
notebooks, desktops, servers, workstations, and terminals and other rapidly
growing applications such as digital cameras, digital copiers, digital
printers, image processors, print controllers, multi-function centers,
routers and video cards.
Item 7.
(a) Financial statements of business acquired
Filed herewith as a part of this filing are the audited consolidated balance
sheets for MCT and subsidiaries as of June 30, 2000 and 1999 and the related
consolidated statements of operations, stockholders' equity and other
comprehensive loss, cash flows and notes to the consolidated financial
statements for each of the years in the two-year period ended June 30, 2000
and the report of PricewaterhouseCoopers and Ernst & Young, joint independent
auditors' prepared under accounting principles generally accepted in the
United States of America. Also included are unaudited condensed consolidated
financial statements of MCT as of and for the seven-months ended January 31,
2001.
Memory Card Technology A/S
(under suspension of payments)
Consolidated Financial Statements
as of and for the Years ended June 30, 2000 and 1999
Independent Auditors' Report
To the Board of Directors of
Memory Card Technology A/S
(under suspension of payments) and
Dataram Corporation:
We have audited the accompanying consolidated balance sheets of Memory Card
Technology A/S(under suspension of payments)and Subsidiaries as of June 30,
2000 and 1999 and the related consolidated statements of operations, of cash
flows and of changes in shareholder's equity for each of the two years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Memory Card
Technology A/S(under suspension of payments)and Subsidiaries at June 30, 2000
and 1999, and the consolidated results of their operations and their cash
flows for each of the two years then ended, in conformity with accounting
principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 and Note 15
to the financial statements, the Company has suffered recurring losses from
operations including a loss from operations of $23,235,000 for the year ended
June 30, 2000. The Company also has a negative working capital of $15,334,000
and a shareholders' deficit of $6,306,000 as of June 30, 2000. On January 29,
2001 the Company filed a petition for suspension of payments relief with the
Danish bankruptcy courts. Additionally, on March 23, 2001 the Company sold
substantially all of its assets to Dataram Corporation and the Group's
management, subsequently, plans to liquidate the remaining operations. These
factors raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters are also
described in Note 1 and Note 15. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Ernst & Young
PricewaterhouseCoopers Statsautoriseret Revisionsaktieselskab
Aarhus, Denmark Aarhus, Denmark
June 6, 2001 June 6, 2001
HARALD BIRKWALD MICHAEL NIELSSON LEIF SHERMER-LARSEN ARNE B. JEPSEN
Harald Birkwald Michael Nielsson Leif Shermer-Larsen Arne B. Jepsen
Danish State Authorized Public Danish State Authorized Public
Accountants Accountants
Memory Card Technology A/S
Consolidated Statements of Operations and Other Comprehensive Loss
(In thousands, USD)
Years ended June 30,
2000 1999
Net revenue (Note 12) $ 137,998 $ 65,550
Cost of sales (Note 3) 124,843 52,132
Gross profit 13,155 13,418
Operating expenses:
Research and development 525 646
Selling and marketing 2,135 1,611
General and administrative 5,607 3,587
Bad debt expense 2,264 2,932
Staff costs 9,188 6,196
Impairment of goodwill (Note 4) 3,178 -
Depreciation and amortization 2,733 1,065
Total operating expenses 25,630 16,037
Operating loss (12,475) (2,619)
Other Income (expense):
Interest income 243 164
Other financial income - 370
Interest expense 3,363 910
Other financial expense 6,906 -
Minority interest 20 19
Income (loss) before income taxes (22,481) (2,976)
Income tax expense (Note 6) 754 333
Net loss (23,235) (3,309)
Other comprehensive loss, net of tax:
Exchange rate adjustments (1,927) 2,358
Comprehensive loss $ (25,162) $ (951)
See Accompanying Notes to Consolidated Financial Statements.
Memory Card Technology A/S
Consolidated Balance Sheets
(In thousands)
June 30,
2000 1999
Assets
Current assets
Cash and cash equivalents $ 7,305 $ 1,641
Accounts receivable, net of allowance
for doubtful accounts of $7,151 and
of $ 4,908 , as of June 30, 2000
and 1999, respectively 27,512 15,327
Inventory (Note 3) 61,805 45,725
Prepaid expenses and other current assets 648 384
Total current assets 97,270 63,077
Property and equipment, net (Note 5) 9,713 10,376
Goodwill, net of accumulated amortization
of $437 as of June 30, 2000 5,350 -
Other assets 483 228
Total assets $ 112,816 $ 73,681
Liabilities and Shareholders' Equity (Deficit)
Current liabilities
Accounts payable $ 30,758 $ 12,516
Current portion of capital
lease obligations (Note 10b) 1,020 976
Accrued expenses (Note 9) 10,839 6,052
Deferred rent 107 90
Bank debt (Note 7) 69,880 28,031
Total current liabilities 112,604 47,665
Noncurrent liabilities
Income tax payable 805 -
Capital lease obligations (Note 10b) 5,713 7,085
Total Liabilities 119,122 54,750
Commitments (Note 10)
Minority interest - 54
Shareholders' equity (deficit) (Note 14)
Common stock, $ 1.45 par value,
2,179,189 shares authorized;
issued and outstanding 2,179,189 3,162 3,162
Additional paid in capital 18,428 18,488
Revaluation reserve (159) (159)
Accumulated other comprehensive income (loss) 431 2,358
Retained earnings (deficit) (28,207) (4,972)
Less: cost of shares of common stock held
in treasury (840 shares in 2000
and 0 shares in 1999) 39 0
Total shareholders' equity (deficit) (6,306) 18,877
Total liabilities and
shareholders' equity (deficit) $ 112,816 $ 73,681
See Accompanying Notes to Consolidated Financial Statements.
Memory Card Technology A/S
Consolidated Statements of Changes in Shareholders' Equity
(In thousands)
Common Additional Reserve Accumulated Retained Shareholders'
Stock paid-in other earnings Equity
Capital comprehensive(accumulated
Income (loss) deficit)
Shareholders' equity
at June 30,1998 $ 3,162 18,467 (159) 0 (1,663) 19,807
Net loss (3,309) (3,309)
Other comprehensive loss
adjustments loss on exchange
rate adjustments, net of tax: 2,358 2,358
Treasury shares gain 21 21
Shareholders' equity
at June 30, 1999 3,162 18,488 (159) 2,358 (4,972) 18,877
Net loss (23,235) (23,235)
Other comprehensive loss
adjustments loss on exchange
rate adjustments, net of tax: (1,927) (1,927)
Treasury shares 39 39
Treasury shares loss (60) 60
Shareholders' equity
at June 30, 2000 $ 3,162 18,428 (120) 431 (28,207) (6,306)
See Accompanying Notes to Consolidated Financial Statement
Memory Card Technology A/S
Consolidated Statements of Cash Flows
(In thousands)
Years ended June 30,
2000 1999
Cash flows from operating activities:
Net loss $ (23,235) $ (3,309)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 5,909 1,065
Adjustments:
Difference between interest
paid and interest expense (539) -
Difference between taxes paid
and income tax expense 776 (916)
Loss on exchange rate contracts 1,881 1,009
Warranty provision 39 -
Exchange rate adjustment 3,460 (3,015)
Other adjustments (146) (621)
Changes in assets and liabilities:
Inventory (19,345) (25,422)
Trade receivables (10,836) (5,773)
Other receivables (319) 363
Trade payables 17,762 5,704
Other payables 1,848 4,642
Net cash used in operating activities (22,745) (26,273)
Cash flows from investing activities:
Cash used for investing activities
in intangible and tangible assets (5,032) (9,399)
Cash used for investing activities
in financial assets (234) (22)
Cash used acquiring subsidiaries (7,484) -
Sale of intangible and tangible assets 550 1,815
Net cash used in investing activities (12,200) (7,606)
Cash flows from financing activities:
Borrowings on line of credit agreement 42,586 34,992
Reduction of long-term debt (1,967) (1,655)
Purchase of treasury stock (10) -
Net cash provided by financing activities 40,609 33,337
Net increase (decrease) in
cash and cash equivalents 5,664 (542)
Cash and cash equivalents at
beginning of the year 1,641 2,183
Cash and cash equivalents at
the end of the year $ 7,305 $ 1,641
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest expense $ 2,879 $ 722
Income taxes (22)
Supplemental schedule of non-cash investing activity
Capital lease $ - $ 8,267
See Accompanying Notes to Consolidated Financial Statements
MEMORY CARD TECHNOLOGY A/S
(under suspension of payments)
Notes to Consolidated Financial Statements
(In thousands, USD)
(1) Overview, Going Concern, Description of Business and Basis of
Consolidation
Overview
Memory Card Technology A/S ("the Company") is a Danish corporation. The
Company voluntarily filed a notice with the Danish bankruptcy courts in
January 2001 initiating bankruptcy proceedings, and is operating under the
supervision of a court appointed supervisor pursuant to the provisions of the
Danish Bankruptcy Act. The Bankruptcy Court has appointed a supervisor which
will oversee Company's proceedings pending reorganization or liquidation of
the Company's remaining net assets. On March 23, 2001, the Company sold
substantially all of its operating assets, including its interest in most of
its operating subsidiaries, net of certain assumed liabilities, to Dataram
Corporation ("Dataram"). The terms of the acquisition agreement are described
in more detail elsewhere in these consolidated financial statements.
The accompanying consolidated financial statements were prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Current Report on Form 8-K of
Dataram, see Note 15). As of the date of the preparation of these financial
statements, the Company did not have any class of publicity traded security,
as the Company's common stock had been suspended from trading on the
Copenhagen Stock Exchange. As a result, these financial statements have been
prepared using the disclosure guidelines applicable to a nonpublic enterprise
for purposes of U.S. GAAP. Disclosures regarding operating segments,
earnings per share, and pensions have, accordingly, been omitted.
Earlier official Danish consolidated financial statements have been prepared
in accordance with Danish GAAP and filed at the Danish authorities. The
result in those financial statements deviates materially from the accounting
result in the present consolidated financial statements prepared in
accordance with US-GAAP.
Going Concern
The Company has suffered net losses in the amount of $23,235 and $3,309 in
fiscal years 2000 and 1999, respectively and has a negative working capital
of $15,334 and a shareholders' deficit of $6,306 at June 30, 2000.
As a result of significant declines in the market prices for the Company's
products subsequent to June 30, 2000 (See Note 15), the Company anticipates a
significant loss from operations for the year ending June 30, 2001.
These matters raise substantial doubt about the Company's ability to continue
as a going concern.
The financial statements do not include any adjustments that may be necessary
upon the resolution of this uncertainty.
Description of Business The Company historically has been engaged in the
business of designing, manufacturing, and marketing standard and specialty
memory modules. The Company together with its subsidiaries are referred to
herein after as the "Group".
Basis of Consolidation The accompanying consolidated financial statements
have been prepared in conformity with generally accepted accounting
principles in the United States of America and include the parent company
Memory Card Technology A/S and all subsidiaries in which this Company
directly or indirectly holds a controlling interest. Newly acquired companies
are included in the accounts from the acquisition date. The legal entities
included in the basis of presentation and respective participating interests
of the Group are as follows:
Memory Card Technology S.A., Argentina (100%)
Memory Card Technology Ltda., Colombia (100%)
Hypertec Pty. Ltd., Australia and Subsidiaries (100%)
Memory Card Technology Ltd., United Kingdom (100%)
Memory Card Technology GmbH, Germany (100%)
Memory Card Technology Srl., Italy (100%)
Memory Card Technology Inc, USA (100%).
The consolidated financial statements have been prepared by combining
accounts of the Group companies a similar nature and subsequently eliminating
inter-company accounts and transactions.
(2) Summary of Significant Accounting Politics
Cash and Cash Equivalents
The Group considers all highly liquid investments with an original maturity
of three months or less to be cash equivalents.
Inventory Valuation
Inventories are valued at the lower of cost or market, with costs determined
by weighted-average method.
Property and Equipment
Property and equipment is recorded at cost less accumulated depreciation.
Depreciation is generally computed on the straight-line basis. Depreciation
rates are based on the estimated useful lives, which range from three to five
years for machinery and equipment. When property or equipment is retired or
otherwise disposed of, related costs and accumulated depreciation are removed
from the accounts.
Repair and maintenance costs are charged to operations as incurred.
Leasehold improvements are amortized over the shorter of the life of the
lease or the economic useful life of the asset.
Revenue Recognition
Sales are recognized at the time that goods are shipped and title has passed.
Stock rotation is offered to a limited number of distributors. Costs
associated with stock rotation arrangements, if material, are accrued at the
time of sale. Sales associated with electronic manufacturing services are
recognized at the time the manufacturing process is complete and the services
have been rendered.
Shipping and Handling Fees
Shipping and handling fees billed to customers are included in net revenues
when invoiced. Costs incurred for shipping and handling are included in cost
of sales.
Income Taxes
Expected tax on income for the year is expensed in the income statement along
with the movements in deferred tax balances resulting from temporary
differences. Deferred tax assets and liabilities are recognized for future
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. When necessary, a valuation allowance is recorded to reduce tax
assets to an amount for which realization is more likely than not.
The amount for tax included in the income statement is based on the result in
accordance with current tax rates and regulations. The effects of changes in
tax rates are recognized in the period in which the changes are enacted.
Minority Interests
The Consolidated Financial Statements contain a separate item stating the
share of Group subsidiaries' income or loss and shareholders' equity
represented by the minority interest.
Foreign Currencies
The Group's functional currency is the U.S. dollar as all revenues are
received in U.S. dollars and a majority of the Company's expenditures are
made in U.S. dollars. The Group reports in U.S. dollars. Most of the
Group's subsidiaries report in U.S. dollars. For subsidiaries that maintain
their accounts in currencies other than the U.S. dollar, the Group uses the
current method of translation whereby the statements of operations are
translated using the average exchange rate and the assets and liabilities are
translated using the year end exchange rate. Foreign currency translation
gains or losses are recorded as a separate component of other comprehensive
loss. Transactions in foreign currencies during the year are translated into
U.S. dollars at the rates of exchange in effect at the date of transaction.
Foreign currency monetary assets and liabilities are translated using rates
of exchange at the balance sheet date. 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 operations.
Intangible Assets
Intangible assets are stated at cost less accumulated amortization. Goodwill
arises in connection with acquisitions. The purchase price is allocated to
the fair values of the assets acquired and liabilities assumed with the
excess recorded as goodwill. Goodwill is amortized over estimated economic
life, generally not exceeding ten years.
Advertising Costs
Advertising costs are expensed as incurred. The amounts expensed during the
years ended June 30, 2000 and 1999 were $ 970 and $ 721 respectively.
Product Development and Related Engineering
The Company expenses product development and related engineering costs as
incurred. Engineering effort is directed to development of new or improved
products as well as ongoing support for existing products. The amounts
expensed during the years ended June 30, 2000 and 1999 were $ 525 and $ 646
respectively.
Risks and Uncertainties
As of June 30, 2000 and 1999 the Group's accounts include cash, bank
borrowings, trade debtors and trade creditors which are denominated in
currencies other than the USD. Realization of such amounts is subject to the
risk of fluctuations in foreign exchange rates relative to the USD. Wherever
possible the Group attempts to limit the exchange rate exposure by matching
the receivables, borrowings and payables in the same currency. Where this is
not possible the Group enters into forward currency contracts to further
limit the exchange rate risk. Operating results, however, are affected by
significant fluctuations in exchange rates.
Financial instruments, which potentially subject the Group to a concentration
of credit risk principally, consist of accounts receivable. Approximately 24%
and 54% of accounts receivable were concentrated with 10 customers as of June
30, 2000, and 1999, respectively. There was one customer that accounted for
8% and 15% of total trade debtors as of June 30, 2000 and 1999. Customers
include OEM's chip manufacturers, independent distributors, systems
integrators and retailers. The Group generally does not require collateral on
accounts receivable as the majority of the Group's customers are well
established companies or are insured. Management believes it has adequately
provided for the collection risk in the company's trade accounts receivable
by recording an allowance for doubtful accounts which reduces such amounts to
their net realizable value.
The Group is dependent on certain suppliers, including limited and sole
source suppliers, to provide key components used in the Group's products. The
Group believes that other suppliers could provide similar raw materials at
competitive prices. However a change in suppliers could cause a delay in
manufacturing and possible loss of net sales, which would impact operating
results adversely.
The Group has deposited its cash and cash equivalents with reputable
financial institutions and has also entered into forward currency contracts
with reputable financial institutions and believes the risk of loss due to
non-performance by the counter party to be remote.
The majority of the Group's revenues are derived from memory products. These
products are primarily comprised of memory chips. The market for memory chips
is volatile and the prices can fluctuate rapidly. Chip prices generally drive
the prices charged to customers so a rapid decline in the price of chips
could have an adverse effect on the Group's results of operations. In
addition, the market for memory products is characterized by frequent
transitions in which products rapidly incorporate new features and
performance standards. There is a risk that technological obsolescence could
affect the inventory of finished goods on hand. A failure to develop products
with required feature sets or performance standards or a delay in bringing a
new product to market could also adversely affect the Group's operating
results.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Fair Value of Financial Instruments
The Group's financial instruments including accounts receivable and accounts
payable are carried at cost, which approximates their fair value at balance
sheet date, because of their short-term maturity.
Forward exchange contracts aimed at hedging debtor and creditor items are
carried at fair value on the balance sheet. Unrealized gains and losses on
financial transactions in the form of forward exchange contracts aimed at
hedging the debtor and creditor items and anticipated transactions are
included in the statement of operations account as incurred.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of
Long-Lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds the fair value of the assets. Fair
values are generally determined by discounting future net cash flows expected
to result from the use of the asset using interest rates relevant for
evaluating future potential capital investments. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs to
sell.
Warranty
The Group provides a warranty for the replacement of products sold and
proving defective within one year from delivery. However, the warranty period
for own brand memory products is ten years. In connection with warranty
claims, the Group has a corresponding claim of its own against its suppliers.
Warranty costs, if material, are accrued as an expense in the period the
related products are sold.
Cash Flows Statements
The cash flow statement is presented using the indirect method and shows cash
flows from operating, investing and financing activities, as well as
movements in cash and cash equivalents and opening and closing cash and cash
equivalents at the beginning and end of the year. The net cash flow from
operating activities is calculated as operating profit adjusted for non-cash
operating items, movements in operating capital, financial income and
expenses, and income tax paid. The net cash flow from investing activities
consists of purchases and sales of intangible and tangible, and financial
fixed assets. The net cash flow from financing activities consists of a
capital increase as well as raising and repayment of long-term debt.
New Accounting Pronouncements
In June 2000, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards "Accounting for Certain
Derivative Instruments and Certain Hedging Activities," ("SFAS 138") which
amends SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," ("SFAS 133"). SFAS No. 133 requires that all derivatives be
recorded in the balance sheet as assets or liabilities and measured at fair
value. Management does not anticipate that the implementation of SFAS 133 as
amended by SFAS 138 will have a material effect on the Group's combined
financial statements.
(3) Inventories
Inventories are summarized as follows:
June 30,
2000 1999
(In thousands)
Raw materials $ 44,880 $ 39,999
Finished goods 16,925 5,726
$ 61,805 $ 45,725
Included as a component of cost of sales in fiscal 2000, is a write-down of
obsolescence. For the year ended June 30, 2000 the write-down amounted to
$18,357.
(4) Impairment of Long-Lived Assets
During fiscal year ended 2000, after considering the Group's deteriorating
operating performance and significant declines in memory module prices (See
Note 16) the Group's management evaluated the ongoing value of its goodwill
resulting from the acquisition of Memory Card Technology LTD., United
Kingdom. Based on this evaluation, management determined that goodwill with a
carrying value of $ 3,178 was impaired and wrote down the value of the
asset as of June 30, 2000 to zero. The fair value of goodwill was estimated
by management to be negligible as the group has plans to discontinue and
liquidate the operations of the Memory Card Technology LTD., United Kingdom
in the near future.
(5) Property and equipment, Net
Property and equipment, net, consisted of:
June 30,
2000 1999
(In thousands)
Leasehold improvements $ 789 $ 672
Manufacturing equipment 10,019 9,241
Computer equipment 820 465
Furniture and fixtures 3,550 1,445
_________ _________
15,178 11,823
Less: Accumulated depreciation and amortization 5,465 1,447
_________ _________
$ 9,713 $ 10,376
(6) Income Taxes
As of June 30, 2000, the Company has unused net operating loss carry-forwards
of approximately $239 available to offset against future taxable income. The
unused net operating loss expires in various amounts through the year 2005.
Net deferred tax assets of approximately $6,820 resulting from net operating
losses of $239, temporary differences resulting from inventory write-downs of
$1,290 and temporary differences-other of $5,291 have been offset by a
valuation allowance, given management's conclusion that it is more likely
than not such assets will not be realized.
Components of the provision for income taxes at June 30, 2000 and 1999 of $
754 and $ 333 respectively are both currently payable.
(7) Bank Debt
During fiscal 1999, Memory Card Technology A/S had three separate revolving
bank lines of credit with a total maximum availability of $38 million. As of
June 30, 1999, the aggregate notes payable under these lines of credit was
approximately $26.7 million, leaving $11.3 million of unused credit.
Borrowings under the agreements incurred interest at the banks' variable base
rate plus a fixed margin. As of June 30, 1999, interest rates under the
agreements ranged from 3.20% to 3.67% for borrowings in Danish kroner
totaling DKK 97.8 million and 6.80% to 7.00% for borrowings in United States
dollars totaling $13.2 million. These agreements were intended to meet short-
term working capital requirements. At June 30, 2000 and 1999, the Group also
had a standby letter of credit in the United States in the amount of $77,389
to guarantee the rental payment for certain premises in California.
Commission charged for the letter of credit is calculated at 2.00% of
guaranteed balance.
During fiscal 2000, Memory Card Technology A/S entered into a syndicated
revolving loan agreement which replaced the credit facilities used in fiscal
1999. The new loan had an initial maximum of $ 55 million with an option to
increase this amount a further $13 million by March 1, 2000. The aggregate
notes payable under this agreement as of June 30, 2000 was $68 million. The
interest rate applicable to such borrowings is either LIBOR or EURIBOR plus a
0.8% margin and a commitment fee on the used portion of the facility. As of
June 30, 2000, interest rates under this agreement ranged from 7.02% to 7.57%
for borrowings in United States dollars totaling $68,000. The loan agreement
includes several covenants concerning activities of the Group and
requirements to maintain certain financial measures and ratios.
Subsequent to June 30, 2000, the Company failed to meet certain of the
financial covenants and ratios. As a result of the failure to meet such
covenants and ratios under the terms of the agreement with the bank lenders,
the lenders have the ability to withhold the availability of additional
borrowings under the agreement and request repayment of the outstanding
borrowings under the agreement prior to their scheduled maturity. Upon the
initiation by the Company of the suspension of payments procedure pursuant to
Danish Bankruptcy law in January 2001 as disclosed in note 1, the repayment
of interest and principal on such indebtedness was stayed pending the
resolution of the suspension of payment proceedings. The aggregate
borrowings under this facility are classified as current in the accompanying
balance sheet as of June 30, 2000.
(8) Related Party Transactions
The Company has entered into certain transactions with JT Holding Denmark A/S
("JT Holding"), a company that is wholly owned by John R. Trolle, President
and CEO of the Group at June 30, 2000 and 1999. At June 30, 2000, JT Holding
owned approximately 53.24% of the outstanding shares of Memory Card
Technology A/S. During 2000, the Company remitted $570 to companies
partially owned by JT Holding for the Company's sponsorship of certain
sporting activities. In addition, the Company had an outstanding payable due
to JT Holding of approximately $102.
(9) Accrued Expenses
Accrued expenses consisted of the following:
Years ended June 30,
2000 1999
(In thousands)
Unrealized exchange rate losses on forward
exchange contracts $ 3,079 $ 1,204
Accrued compensation 612 483
Public tax and VAT 4,730 3,563
Other accrued expenses 2,418 802
$ 10,839 $ 6,052
(10) Commitments
(A) Operating leases
The Group leases certain property and manufacturing equipment under
agreements, which expire over the next ten years. Future minimum lease
payments for all non-cancelable operating leases having a remaining term in
excess of one year at June 30, 2000 are as follows:
June 30,2000
(In thousands)
2001 $ 711
2002 754
2003 765
2004 776
2005 and thereafter 4,060
Total $ 7,066
Expenses for non-cancelable operating leases for the periods ended June 30,
2000 and 1999 were $ 739 and $ 929 respectively.
(B) Capital leases
In fiscal year 2000 and 1999, the Group leased equipment under agreements
that are classified as capital leases. The amount necessary to reduce the net
minimum lease payments to the present value is calculated at the interest
rate implicit in the leases, which is approximately 4.3%.
The following is a schedule by year of future minimum lease payments required
under the leases, together with the net present value of minimum lease
payments as of June 30, 2000:
Period Ending June 30,2000
(In thousands)
2001 $ 1,268
2002 1,268
2003 1,268
2004 3,431
Total minimum lease payments 7,235
Less: Amount representing interest 502
Present value of future minimum lease payments 6,733
Less: Current portion 1,020
Noncurrent Portion $ 5,713
(11) Financial Instruments
The Group has used financial instruments to hedge against currency exchange
rate movements. The Group has not used financial instruments for
speculative purposes. The Group has used forward exchange contracts with
terms of up to one year a to hedge against exchange rate risks resulting from
trade debtors and creditors to be recovered or paid in currencies other than
the Group's functional currency. In addition, the Group has used forward
exchange contracts to hedge currency exchange rate risk relating to certain
anticipated financing transactions. For each of the foregoing types of
transactions, the Group has accounted for the fair value of all instruments
issued or held by recording the fair value on the balance sheet with
resultant unrealized gains and losses included in the statement of
operations. The following is a summary of the amounts recorded as of June
30, 1999 and 2000, respectively.
June 30, 1999 June 30, 2000
(In thousands) (In thousands) (In thousands) (In thousands)
Contract value Estimated Contract value Estimated
Market Value Market Value
Forward exchange contracts up to one year:
Receive DKK/pay GBP $ 4,573 $ 4,716 $ 4,113 $ 4,533
Receive DKK/pay USD 6,612 7,673 27,323 29,982
$ 11,185 $ 12,389 $ 31,436 $ 34,515
Unrealized gains/(losses) $ (1,204) $ (3,079)
The estimated fair value of the company's currency derivatives is based upon
market rates at June 30, 2000 and 1999 for similar financial instruments with
like maturities. Fair values of cash equivalents, short-term debt and other
short-term financial instruments approximate cost at the related balance
sheet dates.
(12) Barter Sales
The Group has entered into an agreement with one of its distributors that
provides for the extension of credit to the distributor beyond normal credit
terms and without interest. Under the agreement, the distributor is a
preferred supplier of memory components to the Group and the Group is the
distributor's preferred supplier of memory products of a type that the Group
manufactures on its own brand basis. The agreement with this distributor was
entered into by management to allow the Group to liquidate excess or slow
moving inventory through sale of these products to the distributor. Given
the age of the amounts receivable and degree of uncertainty of the recovery
of the outstanding amounts, the receivables from this distributor have been
accounted for in the accompanying financial statements using the cost
recovery method of accounting prescribed by Accounting Principles Board, APB
10. APB 10 allows for the use of the cost recovery method in the event that
there is not a reasonable basis for estimating the degree of collectibility
on receivables Under this method, equal amounts of revenue and expense are
recognized as collections are made or payables owed are netted against
receivables and all costs have been recovered, postponing recognition of
profit until that time.
The amount of product sales and inventory purchases from such customer in
fiscal year 2000 and 1999 are summarized as follows:
Years ended June 30,
2000 1999
(In thousands)
Product Sales $ - $ 2,955
Purchases $ 1,819 $ 3
(13) Acquisitions
On September 1, 1999, the Group acquired Hypertec Pty. Ltd. ("Hypertec") for
a total purchase price of $ 7.3 million in cash. The acquisition was
accounted for as a purchase. Accordingly, the assets and liabilities of the
acquired business are included in the Group's results of operations beginning
on the date of the acquisition. $ 5.3 million was allocated to goodwill,
which is amortized over 10 years. $ 0.5 million was allocated to skilled
workforce and is accounted for as an identifiable intangible asset subject to
amortization over a period of seven years.
The allocation of purchase price is as follows:
June 30, 2000
(In thousands)
Purchase price $ 7,329
Less: Net assets purchased (1,795)
Subtotal $ 5,534
Fair value adjustments:
Write off R&D and borrowing costs (194)
Skilled work force 509
Provision for employee termination and other (107)
Total increase to fair values of net assets 208
Goodwill 5,325
On February 25, 2000 the Group acquired the remaining minority interest in
Memory Card Technology Ltd., United Kingdom, the Group's British operations,
for a total purchase price of $ 3,401 million.. The excess of the purchase
price over the result change in the Group's interest in the net assets
acquired of $ 3,359 million was allocated to goodwill.
The allocation of purchase price is as follows:
June 30, 2000
(In thousands)
Purchase price $ 3,401
Less: Net assets purchased (42)
Goodwill $ 3,359
As of June 30, 2000 the Group's management determined that the goodwill
resulting from the acquisition of Memory Card Technology, Ltd. United
Kingdom, was permanently impaired and therefore written-off. (See note 5).
(14) Shareholders' Equity (Deficit)
During 2000, the Company initiated a stock option plan for the Group's
management. The plan provides for the award of 40,000 stock options with a
set exercise price of $ 0.05 . If the company meets its operating financial
targets for fiscal years 2002 and 2003, the stock options will be granted. In
connection with the stock option plan, the Group repurchased 1,500 treasury
shares and sold 660 treasury shares representing 0.04 % of the share
capital. The cost of the shares was $39 and the sales price $28 . The Group
held 840 treasury shares at June 30, 2000.
(15) Subsequent Events
During the period October 2000 through March 2001, prices for DRAM Chips
decreased by approximately 75%. The drastic decline in market prices has had
a significant impact on the Group's operations for the year ending June
30,2001 as DRAM Chips represent approximately 80% of the Group's revenues.
On November 8, 2000 the outstanding notes payable on the Company's lines of
credit of approximately $19,300 were subordinated to other outstanding loans
and general creditors. The loan expires on March 1, 2001. The Company's
primary shareholder J.T Holding Danmark A/S, wholly owned by former CEO John
Trolle, has pledged 1,160,100 shares of its holdings in Memory Card
Technology A/S (an amount representing 53.24% of the Company's outstanding
shares) as collateral for the subordinated loan. The loan is irredeemable
for one year from its initiation date. However, the amount becomes
immediately due when J.T. Holding Danmark A/S sales its collaterilized
holdings of Memory Card Technology A/S shares. Per the terms of the
agreement, interest on the subordinated loan is calculated on the basis of
the development of the market value of the company's shares, however, since
the shares are in suspension and are deemed valueless there is no interest
component associated with the loan.
On November 15, 2000, the Company closed its forward exchange contracts at a
loss of $6,100. At June 30, 2000, approximately $3,100 of this amount had
been accrued for as an unrealized loss on forward exchange contracts.
On January 5, 2001, John R. Trolle, CEO, terminated his employment with
Memory Card Technology A/S.
On January 29, 2001, Memory Card Technology A/S filed a petition for
suspension of payments relief with the Danish bankruptcy courts. Under the
petition, certain claims against Memory Card Technology A/S in existence
prior to the filing of the petition were stayed while the company continued
operations under direction of a court appointed supervisor. Subsequent to
the filing, the company has attempted to conduct normal business operations
and maintain relationships with its customers. The Company expects to emerge
from suspension of payments proceedings into bankruptcy proceedings during
August of 2001.
As a part of the process, the Company has attempted to notify all known or
potential creditors of the filing for the purpose of identifying all pre-
petition claims against the Company. The ultimate amount and settlement terms
for such liabilities are subject to a plan of reorganization, and
accordingly, are not presently determinable.
On March 23, 2001, Dataram Corporation a New Jersey maker and distributor of
memory boards entered into an asset purchase agreement with Memory Card
Technology A/S, whereby, Dataram acquired certain assets, including
inventory, certain accounts receivable and equipment of Memory Card
Technology A/S. The purchase price was $ 28,541 which was paid in cash and
the assumption of certain payables and accrued expenses of $ 1,864. Dataram
did not acquire the Group's interest in a number of its subsidiaries,
including Memory Card Technology Inc.-USA, or assume debt incurred prior to
March 15, 2001. Management expects that the Company will enter into
bankruptcy or involuntary liquidation during August of 2001, after which the
Company will be dissolved and the proceeds will be distributed among the
Company's creditors.
Subsequent to June 30, 2000, the Company has continued to experience
significant operating losses and consequently has incurred an increased
shareholders' deficit.
MEMORY CARD TECHNOLOGY A/S
Statement of Operations and Other Comprehensive Loss
(UNAUDITED)
For the Seven Months Ended January 31, 2001
(In thousands)
Net revenue $ 76,357
Cost of sales 105,072
Gross profit (28,715)
Operating expenses:
Research and development 228
Selling and marketing 1,390
General and administrative 3,730
Bad debt expense 823
Staff costs 5,557
Depreciation and amortization 1,451
Total operating expenses 13,179
Operating loss (41,894)
Other Income (expense):
Interest income 116
Interest expense 3,638
Other financial expense 10,987
Income (loss) before income taxes (56,403)
Income tax expense 0
Net loss (56,403)
Other comprehensive loss, net of tax:
Exchange rate adjustments 12
Other comprehensive loss $ (56,391)
MEMORY CARD TECHNOLOGY A/S
Balance Sheet
(UNAUDITED)
As at January 31, 2001
(In thousands)
Assets
Current assets
Cash and cash equivalents $ 2,317
Accounts receivable, net 10,958
Inventory 12,802
Prepaid expenses and other current assets 771
Total current assets 26,848
Property and equipment, net 8,860
Goodwill, net 4,996
Other assets 578
Total assets $ 41,282
Liabilities and Shareholders' Equity (Deficit)
Current liabilities
Accounts payable $ 8,180
Current portion of capital lease obligations 1,008
Accrued expenses 3,741
Bank debt 84,973
Total current liabilities 97,902
Noncurrent liabilities
Income tax payable 912
Capital lease obligations 5,176
Total Liabilities 103,990
Shareholders' equity (deficit)
Common stock, $1.45 par value, 2,179,189 shares authorized;
issued and outstanding 2,179,189 3,162
Additional paid in capital 18,456
Revaluation reserve (159)
Accumulated comprehensive income 443
Retained earnings (deficit) (84,610)
Total shareholders' equity (deficit) (62,708)
Total liabilities and shareholders' equity (deficit) $ 41,282
MEMORY CARD TECHNOLOGY A/S
Statement of Cash Flows
(UNAUDITED)
For the Seven Months Ended January 31, 2001
(In thousands)
Cash flows from operating activities:
Net loss $(56,403)
Adjustments to reconcile net earnings
to net cash provided by
operating activities:
Amortization of intangible assets 354
Depreciation and amortization 1,452
Bad debt expense 823
Changes in assets and liabilities:
Decrease in trade receivables 15,731
Decrease in inventories 49,003
Increase in other current assets (123)
Increase in other assets (95)
Decrease in accounts payable (22,697)
Decrease in accrued liabilities (7,098)
Increase in income taxes payable 107
_________
Net cash used in
operating activities (18,946)
_________
Cash flows from investing activities:
Purchase of property and equipment (598)
_________
Cash flows from financing activities:
Net borrowings on line of credit agreement 15,093
Net cash used in capital lease activities (537)
_________
Net cash provided by financing
activities 14,556
_________
Net decrease in cash and
cash equivalents (4,988)
Cash and cash equivalents at
beginning of year 7,305
_________
Cash and cash equivalents at end
of period $ 2,317
MEMORY CARD TECHNOLOGY A/S
Notes to Consolidated Financial Statements
(UNAUDITED)
(In thousands)
Basis of Presentation
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles in the United States
of America and include the parent company Memory Card Technology A/S and all
subsidiaries in which this Company directly or indirectly holds a controlling
interest. Newly acquired companies are included in the accounts from the
acquisition date. The legal entities included in the basis of presentation
and respective participating interests of the Group are as follows:
Memory Card Technology S.A., Argentina (100%)
Memory Card Technology Ltda., Colombia (100%)
Hypertec Pty. Ltd., Australia and Subsidiaries (100%)
Memory Card Technology Ltd., United Kingdom (100%)
Memory Card Technology GmbH, Germany (100%)
Memory Card Technology Srl., Italy (100%)
Memory Card Technology Inc, USA (100%).
The consolidated accounts have been prepared on the same basis as the
consolidated accounts as of the year ended June 30, 2000 and reference is
made to those notes contained herein.
(b) Pro forma financial information
The following unaudited pro forma financial information is subject to
revision related to the purchase price allocation, which could have an
impact on the accompanying financial information.
The following unaudited pro forma condensed consolidated financial
statements are attached hereto:
Unaudited pro forma condensed consolidated statements of operations for
the nine months ended January 31, 2001 and for the fiscal year ended
April 30, 2000 and notes thereto
Unaudited pro forma condensed consolidated balance sheet as of January
31, 2001 and notes thereto
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION OF
DATARAM CORPORATION AND MCT
On March 23, 2001, Dataram Corporation acquired certain assets, including
inventory, accounts receivable and equipment, of MCT, a corporation in
suspension of payments under Danish bankruptcy law. Dataram did not purchase
the US operations of MCT and did not assume any of the pre-existing bank
indebtedness of MCT. The following presents certain unaudited pro forma
condensed consolidated financial information for Dataram for the periods as
indicated. The unaudited pro forma condensed consolidated financial
information gives effect to the MCT acquisition which occurred on March 23,
2001, as if the transaction had occurred on May 1, 1999, for purposes of the
pro forma statements of operations for the year ended April 30, 2000 and for
the nine-months ended January 31, 2001 and, as of January 31, 2001, for
purposes of the pro forma balance sheet as of January 31, 2001. The pro forma
financial information was prepared using the assumptions described below and
in the related notes thereto.
The unaudited pro forma condensed consolidated financial information reflects
pro forma adjustments that are based upon available information and certain
assumptions that we believe are reasonable. The pro forma adjustments
related to the purchase price allocation of the MCT acquisition are
preliminary and based on information obtained to date that is subject to
revision as additional information becomes available. Any such revisions
could have an impact on the accompanying financial information. The
unaudited pro forma financial information does not purport to represent the
results of operations or financial position that would have resulted had the
transactions to which pro forma effect is given been consummated as of the
dates or for the periods indicated. In preparing the unaudited pro forma
financial information, we believe we have utilized reasonable methods to
conform the basis of presentation. The unaudited pro forma financial
statements have not been adjusted for certain cost savings that we may
realize in connection with the integration of MCT.
For purposes of the unaudited pro forma condensed consolidated statements of
operations, our historical consolidated statement of earnings for the fiscal
year ended April 30, 2000 was combined with MCT's historical consolidated
statement of operations for the fiscal year ended June 30, 2000. In addition,
our historical consolidated statement of operations for the nine months ended
January 31, 2001 was combined with MCT's historical consolidated statement of
operations for the seven months ended January 31, 2001 and for the two months
ended June 30, 2000.
The unaudited pro forma financial statements and accompanying notes should be
read in conjunction with the historical consolidated financial statements of
Dataram as reported in it's annual report on Form 10-K as of and for the
fiscal year ended April 30, 2000, and it's quarterly report on Form 10-Q as
of and for the nine months ended January 31, 2001, and the historical
consolidated financial statements of MCT as of and for the fiscal year ended
June 30, 2000 and the unaudited consolidated financial statements as of and
for the seven months ended January 31, 2001 included elsewhere herein.
Overview of MCT Acquisition and Financing
Dataram purchased 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 costs and
certain MCT employee rationalization costs all of which total approximately
$3,425,000. The net assets acquired by Dataram in the transaction will be
recorded at their respective fair values under the purchase method of
accounting in accordance with accounting principles generally accepted in the
United States of America. Accordingly, the excess of the purchase price over
the fair value of identifiable net tangible and identifiable intangible
assets acquired represents goodwill. The consideration and preliminary
allocation of the purchase price are summarized below (dollars in thousands):
Purchase price consideration:
Borrowings under our credit facility $10,000
Cash 18,581
Direct acquisition costs 1,600
Assumption of liabilities 1,825
_______
Total consideration $32,006
Preliminary Allocation of purchase price:
Cash $ 1,255
Accounts receivable and other current assets (1) 8,051
Inventory (2) 3,131
Property, plant and equipment 7,437
Intangible assets (3) 7,133
Goodwill (4) 10,257
Capital lease obligations (5,258)
_______
Total $32,006
(1) We have purchased substantially all of the accounts receivables of MCT as
a result of the acquisition. Certain accounts receivable balances have been
identified as being retained by the seller and are not included due to their
uncertainty of collection. We have recorded an additional $700,000 fair
value adjustment for those older accounts receivables purchased with
additional collection uncertainty.
(2) In connection with determining the fair value of inventory purchased in
the acquisition of MCT, we have performed an analysis of cost and items
included in inventory and determined what we could sell each item for in the
market. We have assumed a gross profit margin consistent with trends in our
business worldwide and the industry. Based on information received relating
to the inventory purchased, we recorded a $3 million additional fair value
provision which is included in the $3.1 million fair value of inventory as
shown above.
(3) The respective preliminary fair values of intangible assets and useful
lives are as follows (dollars in thousands):
Description Amount Useful Life
Customer base 5,931 3 years
Workforce 1,202 5 years
(4) Estimated goodwill which resulted from the acquisition is being amortized
over a period of 10 years.
On March 23, 2001, the Company drew $10 million against its existing credit
facility to fund a portion of the purchase price. On April 16, 2001, the
Company entered into a $10 million term note ("term note") and a $15 million
revolving credit line ("credit line") with a commercial bank (together,
referred to as the "credit facility"). The proceeds from the term note were
used to repay the existing obligation under the credit facility. The term
note is due in twenty quarterly installments of $500,000 until March 31,
2006. The term note bears interest, which is payable monthly in arrears, at
the LIBO Rate for 90 day maturities plus 1.9% computed on the basis of a 360
day year for the actual number of days elapsed. On May 10, 2001, the Company
entered into a fixed interest rate arrangement with its commercial lender for
a notional amount of $10,000,000 at an interest rate of 7.16% for the
duration of the term note.
We have incurred certain direct acquisition costs which include legal,
accounting and investment banking fees of approximately $1.4 million. In
addition, we have recorded a provision for approximately $200,000 which
includes primarily estimated costs for involuntary MCT employee termination
benefits. None of the expected benefits from the integration efforts have
been reflected in the accompanying unaudited pro forma statements of
operations.
Dataram Corporation
Unaudited Pro Forma Condensed Consolidated Statement of Operations
Year ended April 30, 2000
(in thousands, except share and per share information)
Dataram
Corporation MCT
Year ended Year ended Pro Forma Adjustments
April 30, June 30, Purchase
2000 2000 Accounting Pro Forma
Historical Historical Subtotal Eliminations(1) Adjustments Consolidated
Revenues $109,152 $137,998 $247,150 $(18,593) $ - $228,557
Costs and expenses
Cost of sales 81,877 124,483 206,720 (17,523) - 189,197
Engineering and development 1,391 525 1,916 - - 1,916
Selling, general & administrative 13,701 21,927 35,628 (2,441) 2,175 (2,3) 35,362
Impairment of goodwill - 3,178 3,178 - - 3,178
96,969 150,473 247,442 (19,964) 2,175 229,653
Earnings/(loss) from operations 12,183 (12,475) (292) 1,371 (2,175) (1,096)
Other income (expense):
Interest income 533 263 796 (12) (533) (4) 251
Interest expense (42) (3,363) (3,405) 2,700 (1,253) (5,6) (1,958)
Foreign currency transaction losses - (6,906) (6,906) - - (6,906)
Total other income (expense) 491 (10,006) (9,515) 2,688 (1,786) (8,613)
Earnings/(loss) before
income tax expense 12,674 (22,481) (9,807) 4,059 (3,961) (9,709)
Income tax expense/(benefit) 4,828 754 5,582 - (1,676) (7) 3,906
Net earnings/(loss) $ 7,846 $(22,235) $(15,389) $4,059 $(2,285) $(13,615)
Net earnings (loss)
per common share data:
Basic $ 0.99 $ (1.71)
Diluted $ 0.81 $ (1.71) (8)
Weighted average number
of common shares
outstanding:
Basic 7,953,490 7,953,490
Diluted 9,726,533 7,953,490 (8)
Dataram Corporation
Unaudited Pro Forma Condensed Consolidated Statement of Operations
Nine Months ended January 31, 2001
(in thousands, except share and per share information)
Dataram
Corporation MCT
Period ended Period ended Pro Forma Adjustments
January 31, January 31, Purchase
2001 2001 Accounting Pro Forma
Historical Historical Subtotal Eliminations(1) Adjustments Consolidated
Revenues $104,691 $104,831 $209,522 $(13,733) $ - $195,789
Costs and expenses
Cost of sales 79,454 134,590 214,044 (15,584) - 198,460
Engineering and development 1,173 - 1,173 - - 1,173
Selling, general & administrative 12,133 16,682 28,815 (1,689) 1,561 (2,3) 28,687
92,760 151,272 244,032 (17,273) 1,561 228,320
Earnings/(loss) from operations 11,931 (47,441) (34,510) 3,540 (1,561) (32,531)
Other income (expense):
Interest income 839 186 1,025 - (839) (4) 186
Interest expense - (4,568) (4,568) 4,400 (619) (5,6) (787)
Foreign currency transaction losses - (10,987) (10,987) - - (10,987)
Total other income (expense) 839 (15,369) (14,530) 4,400 (1,458) (11,588)
Earnings/(loss) before
income tax expense 12,770 (61,810) (49,040) 7,940 (3,019) (44,119)
Income tax expense/(benefit) 4,809 - 4,809 - (1,288) (7) 3,521
Net earnings/(loss) $7,961 $(61,810) $ (53,849) $ 7,940 $(1,731) $(47,640)
Net earnings (loss)
per common share data:
Basic $0.94 $(5.60)
Diluted $0.81 $(5.60)(8)
Weighted average number
of common shares
outstanding:
Basic 8,500,481 8,500,481
Diluted 9,842,041 8,500,481(8)
Notes to Unaudited Pro Forma Condensed Consolidated Statements of
Operations (dollars, in thousands)
Nine months Year
Ended Ended
January 31, April 30,
2000 2000
(1) Adjustment to eliminate the US operations of MCT not
acquired by us and the interest expense on certain debt not 0 0
assumed by us in the acquisition.
(2) Adjustment to reverse historical goodwill amortization
expense recorded by MCT for the nine months ended January 31,
2001 and for the year ended June 30, 2000. (398) (437)
(3) Adjustments to amortization expense for the excess cost over
fair value of net assets acquired and other intangible assets.
Excess costs over fair value (goodwill) and other intangible
assets are being amortized over their estimated useful lives
which is 10 years for goodwill, and 3 to 5 years for other
intangible assets. 1,959 2,612
(4) Adjustment to reflect elimination of historical interest
income on Dataram cash balances used to fund the acquisition
(5.5% investment rate assumed). All of our historical interest
income originated from cash balances from operations which was
used to fund the acquisition therefore all historical interest
income has been eliminated. 839 533
(5) Adjustment to reflect pro forma interest expense on the
$10 million term loan at an assumed interest rate of 7.16%,
consistent with the interest rate currently in effect. 549 716
(6) Adjustment to reflect interest expense on estimated
incremental borrowings of approximately $7.7 million and
$1.4 million for the fiscal year ended April 31, 2000
and the nine months ended January 31, 2001, respectively,
at an assumed interest rate of 7.16%, consistent with the
interest rate currently in effect on the term loan. Estimated
incremental borrowings is based on the average historical cash
balances plus cash proceeds from the actual $10 million term
note, compared to the cash needed to fund the acquisition. 70 537
(7) Represents the income tax effect on increased interest expense,
additional amortization and other adjustments, as well as
combining the historical results of MCT with Dataram.
The combined income tax rates of approximately 37.7% and 38.1%
for the nine month period ending January 31, 2001 and the year
ended April 30, 2000, respectively, are consistent with our
historical rate as the pro forma adjustments will be deductible
for income tax purposes. No tax benefit has been recorded for
losses incurred by MCT. 1,288 1,676
(8) Pro forma diluted per share information excludes the effects
of common stock equivalents because inclusion would be considered
anti-dilutive as a pro forma loss is presented herein. 0 0
Unaudited Pro Forma Condensed Consolidated Balance Sheet
As of January 31, 2001
(in thousands)
Dataram
Corporation MCT
As of As of Pro Forma Adjustments
January 31, January 31, Purchase
2001 2001 Accounting Pro Forma
Historical Historical Subtotal Eliminations(1) Adjustments Consolidated
Assets
Current assets:
Cash and cash equivalents $20,823 $ 2,317 $ 23,140 $ (1,062) $(18,541)(2) $ 3,537
Trade receivables, net 12,248 10,958 23,206 (3,678) (700)(4) 18,828
Inventories 4,366 12,802 17,168 (6,671) (3,000)(4) 7,497
Other current assets 1,381 771 2,152 - - 2,152
Total current assets 38,818 26,848 65,666 (11,411) (22,241) 32,014
Net property, plant and equipment 6,438 8,860 15,298 (1,423) - 13,875
Goodwill - 4,996 4,996 (4,996) 10,256 (5) 10,256
Other intangible assets - - - - 7,133 (6) 7,133
Other assets 18 578 596 83 - 679
Total assets $45,274 $41,282 $86,556 $(17,747) $ (4,852) $63,957
Liabilities & Stockholders' Equity
Current liabilities:
Accounts payable $4,690 $8,180 $12,870 $(6,355) $ - $ 6,515
Accrued liabilities 2,482 3,741 6,223 (3,741) 1,600 (7) 4,082
Current portion of capital
lease obligation - 1,008 1,008 - - 1,008
Bank debt 84,973 84,973 (84,973) - - -
Total current liabilities 7,172 97,902 105,074 (95,069) 1,600 11,605
Long term debt - - - - 10,000 (3) 10,000
Capital lease obligation,
less current portion - 5,176 5,176 (926) - 4,250
Deferred income taxes 841 - 841 - - 841
Other liabilities - 912 912 (912) - -
Stockholders' equity
Common stock 8,480 3,162 11,642 - (3,162)(8) 8,480
Additional paid-in capital 4,013 18,456 22,469 79,160 (97,616)(8) 4,013
Other comprehensive income - 284 284 - (284) -
Retained earnings/
(Accumulated deficit) 24,768 (84,610) (59,842) - 84,610 (8) 24,768
Total Stockholders' Equity 37,261 (62,708) (25,447) 79,160 (16,452) 37,261
Total Liabilities &
Stockholders' Equity $45,274 $41,282 $86,556 $(17,747) $(4,852) $63,957
Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet
(dollars in thousands)
(1) To eliminate all assets and liabilities of MCT not purchased by us.
(2) To reflect a reduction in cash for the $18.5 million used to fund the
acquisition (see note 3 below).
(3) To reflect the obligation for the $10 million term note used to fund
the remainder of the purchase price.
(4) To reflect adjustments to tangible assets acquired in the MCT
acquisition, including inventory and accounts receivable, to their fair
market value. Certain accounts receivable balances have been identified as
being retained by the seller and are not included due to their uncertainty of
collection. We have recorded an additional $700,000 fair value adjustment
for those older accounts receivables purchased with additional collection
uncertainty. We have also performed an analysis of cost and items included in
inventory and determined what we could sell each item for in the market. We
have assumed a gross profit margin consistent with trends in our business and
the industry. Based on information received relating to the inventory
purchased, we recorded a $3 million additional fair value provision.
(5) To record estimated goodwill as the excess of the purchase price over
the fair value of the assets acquired and liabilities assumed in the MCT
acquisition.
(6) To record intangible assets at their respective estimated fair
values. These adjustments are based on management's estimate of fair value
based on its experience within this industry. We do not expect changes to
these estimates, or the related useful lives, based on our final analysis to
be material.
(7) To accrue certain legal, accounting, and other direct acquisition
costs and to accrue for certain MCT employee rationalization costs.
(8) To eliminate historical MCT stockholders' equity.
SIGNATURE
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, hereunto duly authorized.
DATARAM CORPORATION
Date: July 23, 2001 By: MARK MADDOCKS
_______________ _______________
Mark Maddocks,
Vice President, Finance and
Chief Financial Officer