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 7/31/01 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 September 5, 2000, there were 8,538,119 shares outstanding.
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Dataram Corporation and Subsidiaries
Consolidated Balance Sheets
July 31, 2001 and April 30, 2001
(Unaudited)
July 31, 2001 April 30, 2001
Assets
Current Assets:
Cash and cash equivalents $ 11,871,035 $ 10,235,321
Trade receivables, less allowance
for doubtful accounts and sales returns
of $375,000 at July 31, 2001
and $450,000 at April 30, 2001 11,369,263 17,641,248
Inventories 4,374,412 5,924,738
Other current assets 1,124,576 888,353
__________ __________
Total current assets 28,739,286 34,689,660
Property and equipment, at cost:
Land 875,000 875,000
Machinery and equipment 18,193,247 17,713,735
__________ __________
19,068,247 18,588,735
Less: accumulated depreciation
and amortization 6,568,766 5,362,666
__________ __________
Net property and equipment 12,499,481 13,226,069
Other assets 396,626 365,160
Goodwill 11,144,000 11,144,000
Intangible assets, less accumulated amortization 5,559,000 5,856,000
__________ __________
$ 58,338,393 $ 65,280,889
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of obligations
under capital leases $ 978,000 $ 978,000
Current installments of long-term debt 2,000,000 2,000,000
Accounts payable 2,925,790 7,218,697
Accrued liabilities 3,820,394 3,960,495
__________ __________
Total current liabilities 9,724,184 14,157,192
Deferred income taxes 948,000 948,000
Long-term debt, excluding current installments 7,500,000 8,000,000
Obligations under capital leases, excluding
current installments 3,820,000 4,133,000
__________ __________
Total liabilities 21,992,184 27,238,192
Stockholders' Equity:
Common stock, par value $1.00 per share.
Authorized 54,000,000 shares; issued and
outstanding 8,538,119 at July 31, 2001
and 8,492,219 at April 30, 2001 8,538,119 8,492,219
Additional paid in capital 4,199,939 4,064,708
Retained earnings 23,610,709 25,402,770
Accumulated other comprehensive income (loss) (2,558) 83,000
__________ __________
Total stockholders' equity 36,346,209 38,042,697
__________ __________
$ 58,338,393 $ 65,280,889
========== ==========
See accompanying notes to consolidated financial statements.
Dataram Corporation and Subsidiaries
Consolidated Statements of Operations
Three Months Ended July 31, 2001 and 2000
(Unaudited)
2001 2000
Revenues $ 22,570,281 $ 37,995,812
Costs and expenses:
Cost of sales 15,624,829 28,860,588
Engineering and development 594,182 372,021
Selling, general and administrative 6,056,119 4,345,596
Restructuring charges 1,200,000 0
Intangible asset amortization 297,000 0
__________ __________
23,772,130 33,578,205
Earnings (loss) from operations (1,201,849) 4,417,607
Interest income (expense), net (154,513) 229,617
Earnings (loss) before income taxes (1,356,362) 4,647,224
Income tax provision 405,000 1,768,000
__________ __________
Net earnings (loss) $ (1,761,362) $ 2,879,224
========== ==========
Net earnings (loss) per share of common stock
Basic $ (.21) $ .34
========== ==========
Diluted $ (.21) $ .29
========== ==========
Weighted average number of common
shares outstanding
Basic 8,524,195 8,426,771
========== ==========
Diluted 8,524,195 9,958,790
========== ==========
See accompanying notes to consolidated financial statements.
Dataram Corporation and Subsidiaries
Consolidated Statements of Cash Flows
Three Months Ended July 31,2001 and 2000
(Unaudited)
2001 2000
Cash flows from operating activities:
Net earnings (loss) $ (1,761,362) $ 2,879,224
Adjustments to reconcile net earnings (loss)
to net cash provided by
operating activities:
Depreciation and amortization 1,503,100 424,800
Bad debt expense (recovery) (59,877) 96,866
Changes in assets and liabilities:
(Increase) decrease in trade receivables 6,331,862 (1,900,187)
(Increase) decrease in inventories 1,550,326 (1,592,582)
Increase in other current assets (722,974) (113,630)
Increase in other assets (31,466) 0
Increase (decrease) in accounts payable (4,292,907) 1,738,228
Decrease in accrued liabilities (215,551) (368,837)
Increase in income taxes payable 472,000 610,599
__________ __________
Net cash provided by
operating activities 2,773,151 1,774,481
__________ __________
Cash flows from investing activities-
Purchase of property and equipment (474,869) (764,703)
Cash flows from financing activities:
Principal payment on short-term portion of debt (500,000) 0
Principal payments under capital
lease obligations (313,000) 0
Proceeds from sale of common shares under
stock option plan (including tax benefits) 201,675 1,593,314
Purchase and subsiquent cancellation
of common stock (51,243) 0
__________ __________
Net cash provided by (used in) financing (662,568) 1,593,314
activities __________ __________
Net increase in cash
and cash equivalents 1,635,714 2,603,092
Cash and cash equivalents at
beginning of period 10,235,321 13,649,601
__________ __________
Cash and cash equivalents at
end of period $ 11,871,035 $ 16,252,693
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 282,169 $ 32,603
Income taxes $ 230,000 $ 250,000
See accompanying notes to consolidated financial statements.
Notes to Consolidated Financial Statements
July 31, 2001 and 2000
(Unaudited)
Basis of Presentation
The information for the three months ended July 31, 2001 and 2000, 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 conjunction
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 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 months ended July 31, 2001 was $1,847,000 compared to comprehensive
income of $2,879,000 for the three months ended July 31, 2000.
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 designs and manufactures memory from its facility in Denmark and has 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
$11,369,000 represents goodwill which includes approximately $1,100,000 which
had been assigned to the value of the workforce acquired. The results of
operations of MCT for the period from May 1, 2001 through July 31, 2001 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 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 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.
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% and
certain other cost efficiencies. 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 July 31, 2001, the Company had paid out
approximately $173,000 of the charges with the majority of the balance
expected to be paid in the Company's fiscal second quarter.
Inventory valuation
Inventories are valued at the lower of cost or market, with costs determined
by the first-in, first-out method. Inventories at July 31, 2001 and April 30,
2001 consist of the following categories:
July 31, 2001 April 30, 2001
________________ ______________
Raw material $ 2,165,000 $ 2,841,000
Work in process 74,000 236,000
Finished goods 2,135,000 2,848,000
________________ ______________
$ 4,374,000 $ 5,925,000
================ ==============
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 term loan.
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. Due to the nature and characteristics of the
Company's designated hedging instruments, all adjustments to the fair values
of such instruments will be adjusted via comprehensive earnings. The effect
of adopting SFAS 133 at May 1, 2001, and the amounts recorded related to its
derivative financial instruments as of and for the three month period ended
July 31, 2001, were not material to the Company's consolidated financial
position and did not impact the Company's consolidated results of operations
or cash flows.
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 requires 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 requires 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, also 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 with the new criteria in Statement 141
for recognition apart from 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 adjustments. In
addition, to the extent an intangible asset is identified as having an
indefinite useful life, the Company tested the intangible asset for impairment
in accordance with the provisions of Statement 142 in the first interim
period. There was no impairment loss.
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 operations. The Company is in the process of completing
this task.
As of the date of adoption, the Company has unamortized goodwill in the amount
of $11,144,000 and unamortized identifiable intangible assets in the amount of
$5,856,000 all of which will be subject to the transition provisions of
Statements 141 and 142. Amortization expense related to goodwill was $210,000
and $0 for the year ended April 30, 2001 and the three months ended July 31,
2001, respectively. Because of the extensive effort needed to comply with
adopting Statement 142, it is not practicable to reasonably estimate the
impact of adopting this Statement on the Company's financial statements at the
date of this report, including whether any goodwill transitional impairment
losses will be required to be recognized as the cumulative effect of a change
in accounting principle.
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.
Liquidity and Capital Resources
As of July 31, 2001, working capital amounted to $19.0 million reflecting
a current ratio of 3.0 compared to working capital of $20.5 million and a
current ratio of 2.5 as of April 30, 2001.
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 term loan matures in March 2006 and is payable in twenty equal
quarterly installments. In May 2001, the Company entered into an arrangement
with its bank which fixes the interest rate of the term loan at 7.16% for the
duration of the loan. The credit facility contains financial covenants as
defined in the agreement which the Company was not in compliance with at July
31, 2001, but for which it has received a waiver of compliance. At July 31,
2001 the amount outstanding under the term loan was $9.5 million. At July 31,
2001 the amount available for borrowing under the revolving credit line was
$15 million. Management believes that its working capital together with
internally generated funds and its bank line of credit are adequate to finance
the Company's operating needs and future capital requirements.
Results of Operations
Revenues for the three month period ending July 31, 2001 were $22,570,000
compared to revenues of $37,996,000 for the comparable prior year period.
Revenues in this year's fiscal first quarter include $9,836,000 attributable
to the operations of the Company's acquisition which was completed in March,
2001. 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. During the quarter ended July 31, 2001, DRAM prices
declined by more than 50% from the beginning of the quarter to the end of the
quarter and by approximately 90% from the first quarter of last fiscal year.
As a result of this decline, average selling prices for the Company's products
in this year's first quarter have declined by approximately 75% from the
comparable prior year period.
Cost of sales for the first quarter were 69% of revenues versus 76% for the
same prior year period. 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 first quarter were
$594,000 versus $372,000 for the same prior year period. Fiscal 2002's first
quarter includes $135,000 of engineering and development expense incurred by
the operations of the Company's acquisition. 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 first quarter
increased to 27% of revenues from 11% for the same prior year period. Three
month total expenditures increased by $1,711,000 from the comparable prior
year period, of which approximately $2,400,000 is related to the Company's
acquired operations. Prior year fiscal first quarter expenses included
approximately $500,000 of variable compensation expenses, which were not
incurred in fiscal 2002's first quarter.
In fiscal 2002's first quarter, the Company initiated a restructuring of its
operations which resulted in a workforce reduction of approximately 25% and
certain other cost efficiencies. Accordingly, in the quarter ended July 31,
2001, the Company recorded a restructuring charge of $1,200,000, which
primarily relates to severance payments. As of July 31, 2001, the Company had
paid out approximately $173,000 of the charges with the majority of the
balance expected to be paid in the Company's fiscal second quarter. The
restructuring is expected to reduce future operating expenses by approximately
$4 million, annually.
Intangible asset amortization recorded in fiscal 2002's first quarter was
$297,000 versus nil in fiscal 2001.
Other income (expense),net totaled ($155,000) and $230,000 for fiscal
2002 and 2001 first quarter, respectively. Other income (expense), net in
fiscal 2002's first quarter consisted of interest expense of $250,000 and
interest income of $95,000. Fiscal 2001's first quarter other income
(expense), net of $230,000 consisted primarily of interest income on short
term investments.
Income tax expense in fiscal 2002's first quarter was $405,000 versus
$1,768,000 in the comparable prior year period. For fiscal 2002, income tax
expense was recognized on income realized in the United States and no income
tax benefit was recognized for losses incurred in international subsidiaries.
Fiscal 2001's first quarter expense included only the Company's normal
combined federal and state tax expense with an effective rate of approximately
38%.
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
27 (a). Press Release announcing restructuring of operations (Attached)
27 (b). Press Release reporting results of First Quarter, Fiscal Year
2002 (Attached).
B. Reports on Form 8-K
No reports on Form 8-K have been filed during the current quarter.
Two reports on Form 8-KA were 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
Date: September 13, 2001 By: MARK E. MADDOCKS
______________________ ____________________
Mark E. Maddocks
Vice President, Finance
(Principal Financial Officer)
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