Overall sales climbed 11 percent from total sales for the quarter ended April 30, 2001. Sales of network attached storage (NAS) products increased 9 percent from $5.8 million in the three-month period ended April 30, 2001 to $6.3 million this quarter.

The Company’s NAS sales for fiscal 2001 totaled $28.4 million, a 63 percent increase over the $17.4 million total for fiscal year 2000. NAS sales during the fourth quarter accounted for 70 percent of revenue, with the remaining 30 percent generated from sales of other Procom products. For the comparable quarterly period last year, NAS sales accounted for 49 percent of total revenue.

Procom President and Chief Executive, Alex Razmjoo, reported, In this quarter we made significant strides in operating efficiencies. Additionally, we took steps during the fourth quarter to strengthen our balance sheet, including taking additional reserves for accounts receivable and taking certain inventory write-downs. We believe these measures will help position us to complete our transition to a pure play NAS business and are prudent given current economic conditions.

Cost of sales for the fourth quarter of fiscal 2001 was $6.3 million and included an increase in inventory reserves of $1.2 million primarily associated with the discontinuation of specific product lines at the end of the July quarter. Gross profit, including this inventory reserve adjustment, was $2.6 million for a gross margin of 29.1 percent. Excluding the inventory reserve adjustment, cost of sales would have been $5.1 million, resulting in a gross profit of $3.8 million and the highest gross margin in Procom’s history – 42.5 percent. By comparison, the Company’s gross profit and gross margin for the third quarter of fiscal 2001 were $3.2 million and 39.7 percent, respectively.

Selling, general and administrative (SG&A) expenses for the fourth quarter were $7.9 million, which included an increase in accounts receivable reserves of $3.3 million over third quarter reserves. The increase was incorporated as a result of weak global economic conditions and its potential impact on the financial stability of several of Procom’s customers. Excluding this increase in accounts receivable reserves, SG&A expenses would have been $4.5 million.

Research and development (R&D) expenses for the fourth quarter were $1.5 million, which is comparable to the third quarter.

Including the inventory and accounts receivable related charges described above, the operating loss for the fourth quarter was $6.8 million. Excluding these items, the operating loss for the quarter would have been $2.2 million or 19 percent less than the $2.7 million operating loss for the third quarter.

Fourth quarter net interest expense of $499,000 includes a write-off of $326,000 in debt issuance costs associated with the Company’s 6% convertible debenture as Procom repaid $5.0 million of the original $15.0 million debenture. Excluding this write-off, the net interest expense for the fourth quarter was $173,000.

During the fourth quarter, Procom recorded a tax expense of $2.1 million related to the increase in valuation allowance for deferred tax assets in accordance with SFAS No. 109, Accounting for Income Taxes.

The fourth quarter net loss was $9.4 million or 64 cents per share. Excluding the charges related to inventory, account receivables, debt issuance costs and deferred tax assets described above, net loss for the fourth quarter would have been $2.4 million or 16 cents per share, compared to a net loss of $3.0 million or 25 cents per share in the third quarter.

Revenue for fiscal year 2001 was $41.9 million, compared to revenue of $63.2 million for fiscal 2000. NAS sales grew from $17.4 million in fiscal 2000 to $28.4 million in fiscal 2001. The gross profit and gross margins for fiscal 2001 were $15.3 million and 36.4 percent, respectively, compared to $17.0 million and 26.9 percent, respectively, for fiscal year 2000. Excluding the $1.2 million increase in inventory reserves, gross profit for fiscal year 2001 would have been $16.4 million or 39.3 percent a 12.4 basis point increase in gross margins over last fiscal year.

Total operating expenses for fiscal year 2001, including a $4.3 million charge for in-process R&D, were $31.9 million compared to $29.1 million for fiscal year 2000. Excluding the in-process R&D and accounts receivable charges, total operating expenses would have been $24.3 million a 17 percent reduction from the previous year.

The net loss for fiscal year 2001 was $19.4 million or $1.54 per share compared to a net loss of $8.0 million or 70 cents per share for fiscal year 2000. Excluding the charges discussed above, the net loss for fiscal 2001 would have been $8.4 million or 60 cents per share.

Alex Razmjoo added, I am pleased with the growth that we have had in our NAS revenue this past fiscal year. Our accomplishments reflect on-target execution of our strategic plan.

SOURCE: COMPANY PRESS RELEASE