FORM 10-Q

 

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

(Mark One)

 

ý Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

 

For the quarterly period ended:  March 31, 2003

 

or

 

o 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: 00029758

 

DATALINK CORPORATION

(Exact name of registrant as specified in its charter)

 

 

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   ý   No   o

 

As of May 2, 2003, 10,222,974 shares of the registrant’s common stock, $.001 par value, were outstanding.

 

 

FORWARD-LOOKING STATEMENTS

 

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for certain forward-looking statements.  This report on Form 10-Q contains forward-looking statements, which reflect the Company’s views with respect to future events and financial performance.  These forward-looking statements are subject to certain risks and uncertainties, including those identified below, which could cause actual results to differ materially from historical results or those anticipated.  The words “aim,” “believe,” “expect,” “anticipate,” “intend,” “estimate” and other expressions which indicate future events and trends identify forward-looking statements.  Actual future results and trends may differ materially from historical results or those anticipated depending upon a variety of factors, including, but not limited to: the level of continuing demand for data storage, including the effect of current economic conditions; competition and pricing pressures and timing of our installations that may adversely affect our revenues and profits; fixed employment costs that may impact profitability if we suffer revenue shortfalls; revenue recognition policies that may unpredictably defer reporting of our revenues;  our ability to hire and retain key technical and other personnel; our dependence on key suppliers;  the strain placed on our resources by growth and expansion; our ability to adapt to rapid technological change; risks associated with possible future acquisitions; fluctuations in our quarterly operating results;  future changes in applicable accounting rules; and volatility in our stock price.

 

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PART I. FINANCIAL INFORMATION

 

Item 1.   Financial Statements

 

Datalink Corporation

Balance Sheets

(In thousands, except share data)

 

		March 31, 2003			December 31, 2002
		(Unaudited)
Assets
Current assets
Cash and cash equivalents		$	11,928		$	10,334
Accounts receivable, net		13,050			12,419
Inventories		3,268			2,410
Inventories shipped but not installed		1,842			4,059
Income tax receivable		1,963			1,952
Other current assets		387			401
Total current assets		32,438			31,575
Property and equipment, net		5,212			5,506
Goodwill		5,500			5,500
Intangibles, net		1,920			2,135
Other assets		65			69
Total assets		$	45,135		$	44,785
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable		$	13,453		$	13,667
Accrued commissions		982			818
Accrued sales and use tax		710			496
Accrued expenses		873			683
Deferred revenue		3,240			2,434
Total current liabilities		19,258			18,098
Deferred rent		332			341
Total liabilities		19,590			18,439
Commitments and contingencies
Stockholders’ equity
Common stock, $.001 par value, 50,000,000 shares authorized, 10,216,143 and 10,206,699 shares issued and outstanding as of March 31, 2003 and December 31, 2002, respectively		10			10
Additional paid in capital		25,913			25,854
Retained earnings (accumulated deficit)		(378		)	482
Total stockholders’ equity		25,545			26,346
Total liabilities and stockholders’ equity		$	45,135		$	44,785

 

The accompanying notes are an integral part of these financial statements.

 

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Datalink Corporation

Statements of Operations

(In thousands, except per share data)

(Unaudited)

 

		Three Months Ended March 31,
		2003			2002
Net sales:
Products		$	16,267		$	14,971
Services		7,475			6,813
		23,742			21,784
Cost of sales:
Cost of products		12,319			11,349
Cost of services		5,097			4,932
		17,416			16,281
Gross profit		6,326			5,503
Operating expenses:
Sales and marketing		3,156			3,215
General and administrative		2,808			2,634
Engineering		1,026			1,517
Amortization of intangibles		215			231
		7,205			7,597
Loss from operations		(879		)	(2,094		)
Interest income, net		19			18
Loss before income taxes		(860		)	(2,076		)
Income tax benefit		—			(776		)
Net loss		$	(860	)	$	(1,300	)
Net loss per share:
Basic		$	(0.08	)	$	(0.15	)
Diluted		$	(0.08	)	$	(0.15	)
Weighted average shares outstanding:
Basic		10,214			8,963
Diluted		10,214			8,963

 

The accompanying notes are an integral part of the financial statements

 

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Datalink Corporation

Statements of Cash Flows

(In thousands)

(Unaudited)

 

		Three Months Ended, March 31,
		2003			2002
Cash flows from operating activities:
Net loss		$	(860	)	$	(1,300	)
Adjustments to reconcile loss to net cash provided by operating activities:
Provision for bad debts		32			57
Depreciation		511			560
Amortization of intangibles		215			231
Deferred income taxes		—			(782		)
Deferred rent		(9		)	56
Changes in operating assets and liabilities:
Accounts receivable		(663		)	4,441
Inventories		1,359			1,400
Other current assets		3			(158		)
Other assets		41			92
Accounts payable		(214		)	(5,138		)
Accrued expenses		568			(362		)
Income taxes		—			1,311
Deferred revenue		806			380
Net cash provided by operating activities		1,789			788
Cash flows from investing activities:
Purchase of property and equipment		(217		)	(286		)
Net cash used in investing activities		(217		)	(286		)
Cash flows from financing activities:
Proceeds from issuance of common stock		22			61
Payments on note payable to former stockholder		—			(704		)
Net cash provided by (used in) financing activities		22			(643		)
Increase (decrease) in cash and cash equivalents		1,594			(141		)
Cash and cash equivalents, beginning of period		10,334			5,846
Cash and cash equivalents, end of period		$	11,928		$	5,705
Supplementary Cash Flow Information:
Cash paid for interest		$	—		$	42
Cash received for income taxes refund		—			(1,305		)

 

The accompanying notes are an integral part of these financial statements.

 

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Datalink Corporation

Notes To Financial Statements

(In thousands, except share and per share data)

(Unaudited)

1.                                       Basis of Presentation

 

The interim financial statements included in this Form 10-Q have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC).  Certain information and footnote disclosures, normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States, have been condensed or omitted, pursuant to such rules and regulations.  These financial statements should be read in conjunction with the financial statements and related notes thereto included in the Company’s 2002 Annual Report on Form 10-K.

 

The financial statements presented herein as of March 31, 2003, and for the three months ended March 31, 2003 and 2002, reflect, in the opinion of management, all adjustments (which consist only of normal, recurring adjustments) necessary for a fair presentation of the financial position and the results of operations and cash flows for the periods presented.  The results of operations for any interim period are not necessarily indicative of results for the full year.

 

2.                                       Inventories

 

Inventories, including inventories shipped but not installed, principally consist of data storage products and components, valued at the lower of cost or market with cost determined on a first-in, first-out (FIFO) method.

 

3.                                       Net Loss Per Share

 

Basic net loss per share is computed using the weighted average number of shares outstanding. Diluted net loss per share includes the effect of common stock equivalents, if any, for each period. The number of additional shares is calculated by assuming that outstanding stock options were exercised and that the proceeds from such exercise were used to acquire shares of common stock at the average market price during the reporting period.  For the three month period ended March 31, 2003 and 2002, common stock equivalents of 45,000 and 123,000, respectively, were anti-dilutive to the net loss and as a result were excluded from the calculation of diluted loss per share.

 

4.                                       Stock Options

 

Pro forma loss and loss per share have been determined as if the Company had used the fair value method of accounting for its stock option grants and employee stock purchase plan share elections consistent with the method of SFAS No. 123.  Under this method, compensation expense is recognized over the applicable vesting periods and is based on the shares under option and their related fair values on the grant date.

 

		Three Months Ended March 31, (In thousands)
		2003			2002
Net loss:
As reported		$	(860	)	$	(1,300	)
Non cash compensation expense		$	(230	)	$	(181	)
Pro forma		$	(1,090	)	$	(1,481	)
Basic loss per share
As reported		$	(0.08	)	$	(0.15	)
Non cash compensation expense		$	(0.02	)	$	(0.02	)
Pro forma		$	(0.10	)	$	(0.17	)
Diluted loss per share
As reported		$	(0.08	)	$	(0.15	)
Non cash compensation expense		$	(0.02	)	$	(0.02	)
Pro forma		$	(0.10	)	$	(0.17	)

 

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5.                                       Goodwill and Intangible Assets

 

The balance of goodwill at March 31, 2003 and December 31, 2002 was $5.5 million.

 

Information regarding the Company’s other intangible asset that continues to be amortized is as follows:

 

		As of March 31, 2003 (In thousands)
		Carrying Amount			Accumulated Amortization			Net
Customer lists		$	4,300		$	2,380		$	1,920
		$	4,300		$	2,380		$	1,920

 

Amortization expense for the three months ended March 31, 2003 was $215,000.  Estimated amortization expense for the remainder of fiscal 2003 and for each of the succeeding fiscal years based on the intangible assets as of March 31, 2003 is as follows:

 

		(In thousands)
2003		$	645
2004		860
2005		415
Total		$	1,920

 

6.                                       Recently Issued Accounting Pronouncements

 

In December 2002, the EITF issued EITF 00-21, Revenue Arrangements with Multiple Deliverables. This Issue addresses certain aspects of the accounting by a vendor for arrangements under which it will perform multiple revenue-generating activities.  In some arrangements, the different revenue-generating activities (deliverables) are sufficiently separable, and there exists sufficient evidence of their fair values to separately account for some or all of the deliverables (that is, there are separate units of accounting).  In other arrangements, some or all of the deliverables are not independently functional, or there is not sufficient evidence of their fair values to account for them separately. This Issue addresses when and, if so, how an arrangement involving multiple deliverables should be divided into separate units of accounting.  This Issue does not change otherwise applicable revenue recognition criteria. This Issue is applicable for transactions entered into after June 15, 2003 and could have an impact on revenue recognition of future sales transactions.

 

Item 2.           Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following information should be read in conjunction with the unaudited financial statements and the notes thereto included in Item 1 of this Quarterly Report and with the “Forward-Looking Statements” section in this filing and other Company filings with the U.S. Securities and Exchange Commission.

 

We are an independent information storage architect.  We derive our revenues principally from analyzing, designing, implementing and supporting information storage infrastructures. Our solutions can include hardware products, such as disk arrays, tape systems, interconnection components, and storage management software products. We recognize revenue from hardware and software product sales when we complete our installation and configuration services.

 

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As indicated above, our customers frequently engage us for assistance in the installation of our solutions. Occasionally, they also engage us for consulting services. We recognize revenues for this work as we render these services.

 

We sell support service contracts to our customers.  When customers purchase support services through us, customers receive the benefit of integrated support.  We have a qualified, independent support desk to provide customer support services.  We fulfill on-site assistance by purchasing support service agreements for our customers from our hardware and software vendors or their designated third-party service providers and by arranging on-site support assistance with the appropriate vendor if necessary. We defer revenues, net of direct costs resulting from these contracts, and amortize these amounts into operations, over the term of the contracts, which are generally twelve months.

 

In the past, we have experienced fluctuations in the timing of orders from our customers, and we expect to continue to experience these fluctuations in the future.  These fluctuations have resulted from, among other things, the time required to design, test and evaluate our data storage solutions before customers deploy them, the size of customer orders, the complexity of our customers’ network environments, necessary system configuration to deploy our solutions and new product introductions by suppliers.  Completion of our installation and configuration services may also delay recognition of revenues.  Current economic conditions and competition also affect our customers’ decisions to place orders with us.  As a result, our net sales may fluctuate from quarter to quarter.

 

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

 

In December 2002, the EITF issued EITF 00-21, Revenue Arrangements with Multiple Deliverables. This Issue addresses certain aspects of the accounting by a vendor for arrangements under which it will perform multiple revenue-generating activities.  In some arrangements, the different revenue-generating activities (deliverables) are sufficiently separable, and there exists sufficient evidence of their fair values to separately account for some or all of the deliverables (that is, there are separate units of accounting).  In other arrangements, some or all of the deliverables are not independently functional, or there is not sufficient evidence of their fair values to account for them separately. This Issue addresses when and, if so, how an arrangement involving multiple deliverables should be divided into separate units of accounting.  This Issue does not change otherwise applicable revenue recognition criteria. This Issue is applicable for transactions entered into after June 15, 2003 and could have an impact on revenue recognition of future sales transactions.

 

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

 

The preparation of financial statements requires us to make estimates and assumptions that affect reported earnings. We evaluate these estimates and assumptions on an on-going basis based on historical experience and on other factors that we believe are reasonable. Estimates and assumptions include, but are not limited to, the areas of customer receivables, inventories, investments, income taxes, self-insurance reserves and commitments and contingencies.  We believe that the following represent the areas where more critical estimates and assumptions are used in the preparation of the financial statements:

 

Revenue Recognition.  As discussed above, we recognize revenues from hardware and software product sales only after all functionally essential portions of the installation services have been completed and the product is functioning properly rather than upon shipment. We recognize all professional service revenue, including installation and consulting service revenue, when the service is rendered.  We believe this policy minimizes management’s judgments over the timing and extent of revenue recognition. Revenues from maintenance contracts are recognized ratably over the period of the contract. Although this policy that we adopted on January 1, 2000 contains very specific guidelines for measuring revenue, certain judgments do affect the application of our revenue policy, such as evaluating multiple element arrangements.

 

Inventory.  We periodically review, estimate and adjust our reserves for obsolete or unmarketable inventory equal to the difference between the inventory cost and the estimated market value based upon assumptions about future demand and market conditions. Results could be materially different if demand for our

 

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products decreased because of economic or competitive conditions, or the length of our industry downturn, or if products become obsolete because of technical advancements in the industry.

 

Valuation of Goodwill and Other Intangible Assets.   Goodwill is tested for impairment annually or more frequently if changes in circumstance or the occurrence of events, suggests an impairment exists. The test for impairment requires us to make several estimates about fair value, most of which are based on total market capitalization as compared to the carrying value of our net assets. If our total market capitalization is at or below the carrying value of our net assets for several quarters, it may prompt us to engage a third party valuation firm to perform a valuation of us to further assess whether our goodwill is impaired pursuant to SFAS 142.  We consider our goodwill impairment test estimates critical due to the amount of goodwill recorded on our balance sheet and the judgment required in determining fair value amounts.

 

Other intangible assets consist of customer lists. We amortize customer lists using the straight-line method over an estimated useful life of five years. We review these intangible assets for impairment pursuant to SFAS 144, Accounting for the Impairment or Disposal of Long Lived Assets, as changes in circumstance or the occurrence of events suggests the remaining value is not recoverable.

 

Income Taxes.  We utilize the asset and liability method of accounting for income taxes.  We recognize deferred tax liabilities or assets for the expected future tax consequences of temporary differences between the book and tax bases of assets and liabilities.  We regularly assess the likelihood that our deferred tax assets will be recovered from future taxable income.   We record a valuation allowance to reduce our deferred tax assets to the amounts we believe to be realizable.  We consider projected future taxable income and ongoing tax planning strategies in assessing the amount of the valuation allowance.  If we determine it is more likely than not that we will not realize all or part of our deferred tax assets, we will adjust our earnings for the deferred tax in the period we make this determination.  As a result of our cumulative losses over the past two years and the full utilization of our loss carry back potential, we concluded during the fourth quarter of fiscal 2002 to record a full valuation allowance against our net deferred tax assets.  The valuation allowance at March 31, 2003 was $1.6 million.  In addition, we expect to provide a full valuation allowance on any future tax benefits until we can sustain a level of profitability that demonstrates our ability to utilize these assets.

 

RESULTS OF OPERATIONS

 

Net Sales.  Our total net sales increased $1.9 million, or 9.0%, to $23.7 million for the three months ended March 31, 2003, from $21.8 million for the comparable quarter in 2002. Our product sales increased $1.3 million, or 8.7% to $16.3 million for the three months ended March 31, 2003, from $15.0 million for the comparable quarter in 2002.  This improvement reflects an increase in the number of networked storage solutions installed.  In particular, our sales of primary disk storage increased reflecting demand for new modular disk products.

 

Our service sales increased $662,000, or 9.7%, to $7.5 million for the three months ended March 31, 2003, from $6.8 million for the comparable quarter in 2002.  Our service sales increase is related to an increase in installation sales with the increase in our product sales.

 

Gross Profit.  Our total gross profit as a percentage of net sales increased to 26.6% for the quarter ended March 31, 2003, as compared to 25.3% for the comparable quarter in 2002.  Product gross profit as a percentage of product sales remained flat at 24.3% in the first quarter of 2003 from the comparable quarter in 2002. Service gross profit as a percentage of service sales increased to 31.8% for the quarter ended March 31, 2003, as compared to 27.6% for the comparable quarter in 2002.  Gross profit improvements were due to an increase in the number of networked storage solution sales that included new primary disk storage technologies and services and an increase in the amount of vendor discounts and rebates on product purchases.

 

Sales and Marketing.  Sales and marketing expenses include wages and commissions paid to sales and marketing personnel, travel costs and advertising, promotion and hiring expenses.  Sales and marketing expenses totaled $3.2 million, or 13.3% of net sales for the quarter ended March 31, 2003 compared to $3.2 million,

 

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or 14.8% of net sales for the first quarter in 2002.  Sales and marketing expenses in absolute dollars remained flat for the first three months of 2003 as compared to the first three months of 2002.  Our sales and marketing expenses were lower as a percentage of net sales because of the increase in sales.

 

General and Administrative.  General and administrative expenses include wages for administrative personnel, professional fees, depreciation, communication expenses and rent and related facility expenses.  General and administrative expenses were $2.8 million, or 11.8% of net sales for the quarter ended March 31, 2003, as compared to $2.6 million, or 12.1% of net sales for the first quarter in 2002.  When comparing the first three months of 2003 to the first three months of 2002, the increase in general and administrative expenses in absolute dollars is primarily from increased depreciation expense for investments made in a new customer relationship management information system and increased property taxes for our corporate headquarters.  Our general and administrative expenses were lower as a percentage of net sales because of the increase in sales.

 

Engineering.  Engineering expenses include employee wages and travel, hiring and training expenses for our professional engineers and technicians. We record engineering costs associated with installation services to our cost of service sales.  Engineering expenses were $1.0 million, or 4.3% of net sales for the first quarter ended March 31, 2003, as compared to $1.5 million, or 7.0% of net sales for the first quarter in 2002.  The decrease in engineering expenses in both absolute dollars and as a percentage of net sales reflects an increase in the number of installations for the first three months of 2003 as compared to the first three months of 2002.  As a result there were higher levels of engineering costs associated with the installation services recorded as cost of service sales.  In addition, the decrease is also a result of lower depreciation expense from engineering laboratory equipment.

 

Goodwill and Other Intangible Amortization.  Amortization of other intangible assets was $215,000, or 0.9% of net sales for the quarter ended March 31, 2003, as compared to $231,000, or 1.1% of net sales for the first quarter in 2002.  Due to the adoption of Statement of Financial Accounting Standards (SFAS) 142, “Goodwill and Intangible Assets”, we discontinued the amortization of goodwill effective January 1, 2000, but instead test for impairment annually or whenever impairment is indicated.  In 2002, we amortized the remaining $163,000 balance of the trademark and name intangible with no further amortization in 2003.

 

Income Taxes.  We recorded no income tax benefit for the three months ended March 31, 2003 as compared to an income tax benefit of $776,000 for the three months ended March 31, 2002.  In the fourth quarter of 2002, we recognized a non-cash charge of $1.6 million upon the creation of a valuation reserve for the deferred tax asset.  The ultimate realization of deferred tax assets is dependent upon carry back to prior periods and upon the generation of future taxable income during the periods in which those temporary differences become deductible.  Based upon the level of taxable losses in 2002 and the near-term uncertainty of taxable income, management cannot reasonably predict when or if these deductible differences will be realized.  In addition, we expect to provide a full valuation allowance on any future tax benefits until we can sustain a level of profitability that demonstrates our ability to utilize these assets.

 

LIQUIDITY AND CAPITAL RESOURCES

 

Net cash provided by operating activities was $1.8 million for the three months ended March 31, 2003.  The cash provided by operating activities resulted from non-cash depreciation and amortization, a reduction in inventories shipped but not installed with most installations completed at quarter end and an increase in deferred maintenance contract revenue.

 

Net cash used in investing activities was $217,000 for the three months ended March 31, 2003. We used this cash primarily for enhancements to our customer relationship management information system, enhancements to our decision support reporting tool and upgraded computer equipment.

 

Net cash provided by financing activities was $22,000 for the three months ended March 31, 2003.

 

Our contractual cash obligations, consisting of operating leases, as of March 31, 2003 for the remainder of 2003 and each of the full years thereafter are summarized as follows:

 

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		(In thousands)
2003		$	1,650
2004		2,141
2005		2,009
2006		1,872
2007		1,530
Future		5,595
		$	14,797

 

We believe that funds generated from operations, together with the available credit under our revolving credit agreement, will be sufficient to finance our current operations and planned capital expenditures for at least the next twelve months. We are planning approximately $600,000 of capital expenditures for the last three quarters of 2003 primarily related to information systems development and equipment.

 

Item 3.           Quantitative and Qualitative Disclosures About Market Risk.

 

All of our operations are based in the U.S. and all of our transactions are denominated in U.S. dollars. Our interest income is sensitive to changes in the general level of U.S. interest rates.  However, due to the nature of our short-term investments, we have concluded that these are exposed to no material market risk.  The following discusses our exposure to market risk related to changes in interest rates, foreign exchange rates and equity prices.

 

Interest rate risk.  As of March 31, 2003, we had $11.9 million of cash and money market accounts. A decrease in market rates of interest on these accounts would have no material effect on the value of our assets or the related interest income. We have no short or long-term debt.

 

Foreign currency exchange rate risk.  We market and sell all of our products in the United States. Therefore, we are not currently exposed to any direct foreign currency exchange rate risk.

 

Equity price risk.  We do not own any equity investments. Therefore, we are not currently exposed to any direct equity price risk.

 

Item 4. Controls and Procedures.

 

Disclosure Controls and Procedures.  Within the 90 days prior to the date of this report, we carried out an evaluation, under the supervision and with the participation of our management, including our President and Chief Executive Officer and our Vice President Finance and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15b under the Securities Exchange Act of 1934. Based on their review of our disclosure controls and procedures, the President and Chief Executive Officer and the Vice President Finance and Chief Financial Officer have concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to us that is required to be included in our periodic SEC filings.

 

Internal Controls and Procedures.  There were no significant changes in internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

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PART II. OTHER INFORMATION

 

Item 1.           Legal Proceedings.

 

As of the date of this filing, we are not involved in any material legal proceedings. We also were not involved in any material legal proceedings that were terminated during the first quarter of 2003.

 

Item 2.           Changes in Securities and Use of Proceeds.

 

None

 

Item 3.           Defaults Upon Senior Securities.

 

None

 

Item 4.           Submission of Matters to a vote of Security Holders.

 

None

 

Item 6.           Exhibits and Reports on Form 8-K.

 

(a)                                  Exhibits

 

99.1                           Certifications by the President and Chief Executive Officer and Vice President Finance and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

(b)                                 Reports on Form 8-K

 

The Company filed a current report on Form 8-K dated April 16, 2003, to announce the Company’s 2003 first quarter results.

 

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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.

 

 

Dated: May 6, 2003	Datalink Corporation
	By:	/s/ Daniel J. Kinsella
	Daniel J. Kinsella, Vice President Finance and
	Chief Financial Officer

 

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CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Greg R. Meland, certify that:

 

1.                                       I have reviewed this quarterly report on Form 10-Q of Datalink Corporation (the “Registrant”);

 

2.                                       Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

 

3.                                       Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this quarterly report;

 

4.                                       The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:

 

(a)                                  designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

 

(b)                                 evaluated the effectiveness of the Registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

 

(c)                                  presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

 

5.                                       The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent function):

 

(a)                                  all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant’s ability to record, process, summarize and report financial data and have identified for the Registrant’s auditors any material weaknesses in internal controls; and

 

(b)                                 any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal controls; and

 

6.                                       The Registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

Date:  May 6, 2003.
	By:	/s/ Greg R. Meland
	Greg R. Meland, President and
	Chief Executive Officer

 

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CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Daniel J. Kinsella, certify that:

 

1.                                       I have reviewed this quarterly report on Form 10-Q of Datalink Corporation (the “Registrant”);

 

2.                                       Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

 

3.                                       Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this quarterly report;

 

4.                                       The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:

 

(a)                                  designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

 

(b)                                 evaluated the effectiveness of the Registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

 

(c)                                  presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

 

5.                                       The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent function):

 

(a)                                  all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant’s ability to record, process, summarize and report financial data and have identified for the Registrant’s auditors any material weaknesses in internal controls; and

 

(b)                                 any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal controls; and

 

6.                                       The Registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

Date:  May 6, 2003.
	By:	/s/ Daniel J. Kinsella
	Daniel J. Kinsella, Vice President Finance and
	Chief Financial Officer
	(Principal Financial Officer)

 

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