<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period ended March 31, 1997
Commission File No. 0-11336
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CIPRICO INC
(Exact name of Small Business Issuer as specified in its charter)
DELAWARE 41-1749708
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2800 Campus Drive
Plymouth, Minnesota 55441
(Address of principal executive offices)
Issuer's telephone number, including area code: (612) 551-4000
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the Issuer was required to file such reports) and (2) has
been subject to such filing requirements for the past 90 days. Yes X No .
--- ---
Shares of Common Stock outstanding at May 7, 1997,
5,057,450 shares.
Transitional Small Business Disclosure Format (check one):
Yes No X .
--- ---
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CIPRICO INC AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
March 31 September 30
(In thousands) 1997 1996*
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 3,361 $ 13,398
Marketable securities 20,854 13,871
Receivables - net 8,942 4,599
Inventories 5,574 3,018
Deferred income taxes 623 507
Other current assets 217 262
----------- ---------
Total current assets 39,571 35,655
Property and equipment - net 2,617 2,348
Marketable securities 7,474 9,988
Other assets 18 13
----------- ---------
Total assets $ 49,680 $ 48,004
=========== =========
Liabilities and Stockholders' Equity
Current Liabilities:
Current installments of obligations
under capital leases $ 30 $ 25
Accounts payable 3,065 2,975
Accrued expenses 906 1,209
Income taxes payable 6 792
Deferred revenue 505 518
----------- ---------
Total current liabilities 4,512 5,519
Long-term installments of obligations
under capital lease 30 14
Deferred income taxes - 15
Deferred rent 16 29
----------- ---------
Total liabilities 4,558 5,577
Stockholders' Equity:
Common stock 51 50
Additional paid-in capital 38,431 37,952
Retained earnings 6,643 4,441
Accumulated translation adjustments (3) (16)
----------- ---------
Total stockholders' equity 45,122 42,427
----------- ---------
Total liabilities &
stockholders' equity $ 49,680 $ 48,004
=========== =========
</TABLE>
*Amounts derived from September 30, 1996 audited consolidated financial
statements.
See Accompanying Notes to Condensed Consolidated Financial Statements.
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<PAGE> 3
CIPRICO INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31 Six Months Ended March 31
(In thousands, except per share data) 1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net sales $ 9,003 $ 6,696 $ 17,599 $ 12,783
Cost of sales 4,919 3,404 9,374 6,708
----- ----- ------ ------
Gross profit 4,084 3,292 8,225 6,075
Sales & marketing expenses 1,470 1,174 3,063 2,329
General & administrative expenses 663 550 1,292 1,088
Research & development expenses 817 603 1,543 1,116
----- ----- ------ ------
Earnings from operations 1,134 965 2,327 1,542
Other income, primarily interest 432 99 1,026 233
----- ----- ------ ------
Earnings before taxes 1,566 1,064 3,353 1,775
Income tax expense 502 155 1,151 160
----- ----- ------ ------
Net earnings $ 1,064 $ 909 $ 2,202 $ 1,615
===== ===== ====== ======
Earnings per common share $ .20 $ .24 $ .41 $ .43
===== ===== ====== ======
Weighted average common shares 5,353 3,831 5,385 3,776
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements.
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<PAGE> 4
CIPRICO INC AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended March 31
(In thousands) 1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,202 $ 1,615
Adjustments to reconcile net earnings
to net cash provided by (used in)
operating activities:
Depreciation and amortization 825 439
Deferred income taxes - (308)
Loss on retirement of fixed assets 29 2
Gain on sale of marketable securities - (60)
Changes in operating assets & liabilities:
Receivables - net (4,343) (200)
Inventories (2,556) (874)
Other current assets 45 (25)
Accounts payable 90 470
Accrued expenses (303) 297
Income taxes payable (562) 454
Deferred revenue (13) 78
Other, net (5) (17)
------- -------
NET CASH FLOWS PROVIDED BY (USED IN)
OPERATING ACTIVITIES (4,591) 1,871
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment purchases (1,171) (728)
Proceeds from sale of furniture and 94 -
equipment
Purchases of marketable securities (21,969) -
Proceeds from sale or maturities
of marketable securities 17,500 1,268
Other assets - net (6) (2)
------- -------
NET CASH FLOWS PROVIDED BY (USED IN)
INVESTING ACTIVITIES (5,552) 538
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under capital lease
obligations (19) (16)
Proceeds from issuance of common stock 125 223
------- -------
NET CASH FLOWS PROVIDED BY
FINANCING ACTIVITIES 106 207
------- -------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (10,037) 2,616
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 13,398 3,425
------- -------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ 3,361 $ 6,041
======= =======
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements
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<PAGE> 5
CIPRICO INC AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
March 31, 1997
(Unaudited)
Note 1 Unaudited Statements
The accompanying unaudited condensed consolidated financial statements have
been prepared by the Company in accordance with generally accepted accounting
principles, pursuant to the rules and regulations of the Securities and
Exchange Commission. Pursuant to such rules and regulations, certain
financial information and footnote disclosures normally included in the
financial statements have been condensed or omitted. In the opinion of
management, the accompanying unaudited condensed consolidated financial
statements contain all necessary adjustments, consisting only of a recurring
nature, and disclosures to present fairly the financial position as of March
31, 1997 and the results of operations for the three-month and six-month
periods ended March 31, 1997 and 1996, and cash flows for the six-month
periods ended March 31, 1997 and 1996. These condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and the notes thereto included in the Company's Annual Report to
Shareholders for fiscal 1996.
In preparation of the Company's consolidated financial statements, management
is required to make estimates and assumptions that affect reported amounts of
assets and liabilities and related revenues and expenses. Actual results could
differ from the estimates used by management.
Note 2 Investments
The Company has invested its excess cash from the public offering completed in
the third quarter of fiscal 1996 in commercial paper and mortgage backed
government federal agency securities. These investments are classified as
held-to-maturity given the Company's intent and ability to hold the securities
to maturity and are carried at amortized cost. Investments that have
maturities of less than one year have been classified as short-term
investments.
Note 3 Inventories
Inventories were comprised of the following:
<TABLE>
<CAPTION>
March 31, September 30,
(In thousands) 1997 1996
<S> <C> <C>
Finished Goods $ 2,579 $ 1,215
Work-in-Process 1,469 497
Raw Materials 1,526 1,306
----- --------
$ 5,574 $ 3,018
===== =====
</TABLE>
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<PAGE> 6
Note 4 Offering of Common Stock
In June 1996, the Company received net proceeds of approximately
$30,776,000 from the sale of 1,500,000 shares of its common stock through
a public offering.
Note 5 - New Accounting Pronouncements
The FASB has issued Statement No. 123 "Accounting for Stock-Based
Compensation", which is effective for fiscal 1997. Under this Statement,
the Company must either adopt the fair value-based method of accounting
for employee stock options or continue to account for employee stock
options using the intrinsic value-based method. Management intends to
continue with the intrinsic value-based method which, under the new
standard, will require additional disclosure.
The FASB has also issued Statement No. 128, "Earnings Per Share", which is
effective for financial statements issued after December 15, 1997. Early
adoption of the new standard is not permitted. The new standard
eliminates primary and fully diluted earnings per share and requires
presentation of basic and diluted earnings per share together with
disclosure of how the per share amounts are computed.
The adoption of these standards is not expected to have a material effect
on the consolidated financial statements of the Company.
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<PAGE> 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
(Three months and six months ended March 31, 1997
compared to three months and six months ended March 31, 1996.)
Net sales for the three-month period ended March 31, 1997 increased by 34%
to $9 million when compared to sales of $6.7 million for the same period last
year. Net sales for the six-month period ended March 31, 1997 increased 38% to
$17.6 million when compared to $12.8 million for the same period last year.
The increase in net sales is attributed to shipments of the Company's new 7000
Series Fibre Channel and 6500 Series entry-level disk arrays. Continued
leadership in the film/video production and satellite telemetry markets which
represented 43% and 24%, respectively, of the net sales for the six-month
period, was also a contributing factor. The Company continues to add new
customers resulting in no customer for the three-month and six-month periods
ended March 31, 1997 representing 10% or more of total sales. The Company's
export sales totaled $4.4 million or 25% of net sales during the six-month
period ended March 31, 1997 compared to $4.8 million or 38% of net sales for
the same period last year. Management anticipates improved sales over the
previous fiscal year subject to continued product acceptance and growth in new
market opportunities for its new disk array products.
Gross profit, as a percent of net sales, for the three-month and six-month
periods ended March 31, 1997 was 45.4% and 46.7% respectively, compared to
49.2% and 47.5%, for the same periods last year. The decrease in current
period gross margin is related to a "one-time" competitive situation for a
large quantity order of 6700 disk arrays and higher than anticipated prices on
new generation disk drives. Management anticipates gross margins for the
remainder of fiscal 1997 to be in the mid to upper forty percent range due to
favorable drive prices. Gross profit margins are dependent on a number of
factors including customer and product mix and disk drive costs. Disk drives
are a significant cost component of total disk array costs. There is no
assurance the Company can sustain the current gross margin levels given the
price fluctuations of new generation disk drives.
Sales and marketing expenses were 16.3% and 17.4% of net sales for the
three-month and six-month periods ended March 31, 1997 compared to 17.5% and
18.2% for the same respective periods last year. The percentage decrease was
primarily due to the increased sales volume when compared to the same periods
last year. Actual dollars of spending for the current periods was higher than
the same periods last year due to expenses associated with additional sales and
marketing staff. Management anticipates sales and marketing expense dollars for
the remainder of fiscal 1997 will be higher than last year, but lower as a
percentage of net sales when compared to last year.
General and administrative expenses were 7.4% and 7.3% of net sales for
the three-month and six-month periods ended March 31, 1997 as compared to 8.2%
and 8.5% for the same respective periods last year. Actual dollars of spending
for the current periods was higher than the same periods last year due to a
general increase in spending to support company growth. Management anticipates
general and administrative expenses for the remainder of the fiscal year to be
approximately 7% to 9% of net sales.
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<PAGE> 8
Research and development expenses, as a percent of net sales, for the
three-month and six-month periods ended March 31, 1997 remained constant with
the same periods last year at 9.1% and 8.7%, respectively. Actual dollars of
spending for the current periods were higher than the same periods last year
due to an increase in engineering staff and product development expenses
related to the Company's two new products introduced in fiscal 1997 and future
products to be released. Management anticipates research and development
expenses for the remainder of the fiscal year to be approximately 8% to 9% of
net sales.
Other income mainly consists of interest income from investment of excess
cash balances. The increase for the current periods of fiscal 1997 compared to
the same periods last year is due primarily to income generated from investment
of secondary offering proceeds received in the third quarter of fiscal 1996.
Income tax expense was $1.2 million for the first six months of fiscal
1997 compared to $160,000 for the same period last year. This increase
reflects the change in operating results of $2.2 million of pre-tax earnings
for the six months ended March 31, 1997 compared to $1.6 million for the same
period last year. It also reflects an increase in the Company's effective tax
rate to approximately 34% for the current period. Net earnings for the same
period last year were not fully taxed due to utilization of a $1.7 million net
operating loss carryforward. Management anticipates the current period tax
rate to approximate 34% of pre-tax earnings.
LIQUIDITY AND CAPITAL RESOURCES
The Company's Annual Report on Form 10-KSB for the year ended September
30, 1996 contains a detailed discussion of Ciprico's liquidity and capital
resources. In conjunction with this Quarterly Report on Form 10-QSB, investors
should read the 1996 Form 10-KSB.
During the first six months of fiscal year 1997, the level of cash and
cash equivalents decreased by $10 million. Operating activities used $4.6
million primarily as a result of a $4.3 million increase in receivables and a
$2.6 million increase in inventories, both attributable to the rising level of
sales. These uses of cash were largely offset by net income for the period of
$2.2 million and a $560,000 decrease in income taxes payable due to a refund of
prior year taxes. Investing activities used $5.5 million as a result of net
purchases of marketable securities for the period of $4.5 million and a $1.2
million investment in capital equipment.
Management feels there is adequate liquidity to meet the immediate
on-going operating needs of the company.
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<PAGE> 9
FORWARD-LOOKING INFORMATION
The statements in this report that are forward-looking involve risks and
uncertainties. The Company's actual results could differ materially from those
expressed in any forward-looking statements. Certain of these risks and
uncertainties are discussed below.
The Company sells its products into seven visual computing vertical
markets which include: film/video production, oil/gas exploration, digital
prepress, medical imaging, satellite telemetry, broadcast/video services and
mechanical CAD/CAM/CAE. Continued growth in sales in these markets is essential
to Company growth.
Gross margins on product sales are highly dependent on the cost of disk
drives. There is no assurance the Company can sustain the current gross margin
levels given the price fluctuations of new generation disk drives.
Component parts for the Company's products have been on allocation from
time to time from its suppliers which means parts could become difficult to
obtain, thus having an adverse effect on the Company's results of operations.
The Company's products are characterized by rapidly changing technology,
evolving industry standards and relatively short product life cycles. Delays
in product enhancements and developments, failure to gain market acceptance of
new or enhanced products, or emergence of new products or technologies by
others, would have an adverse effect on the Company's business and results of
operations.
-9-
<PAGE> 10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 - Financial Data Schedule (filed in electronic format only)
(b) Reports on Form 8-K
No report on Form 8-K was filed during the quarter ended
March 31, 1997.
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<PAGE> 11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Issuer has duly caused this report to be signed on its behalf of the
undersigned thereunto duly authorized.
CIPRICO INC
(the "Issuer")
Date: May 7, 1997
/s/ Robert H. Kill
--------------------------------
Robert H. Kill, President
(Principal Executive Officer)
/s/ Cory J. Miller
--------------------------------
Cory J. Miller, Vice President of
Finance/Chief Financial Officer
(Principal Financial and Accounting Officer)
-11-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-01-1997
<CASH> 3,361
<SECURITIES> 28,328
<RECEIVABLES> 9,037
<ALLOWANCES> 360
<INVENTORY> 5,574
<CURRENT-ASSETS> 39,571
<PP&E> 7,519
<DEPRECIATION> 4,902
<TOTAL-ASSETS> 49,680
<CURRENT-LIABILITIES> 4,512
<BONDS> 0
0
0
<COMMON> 38,482
<OTHER-SE> 6,640
<TOTAL-LIABILITY-AND-EQUITY> 49,680
<SALES> 9,003
<TOTAL-REVENUES> 9,003
<CGS> 4,919
<TOTAL-COSTS> 4,919
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 22
<INTEREST-EXPENSE> 2
<INCOME-PRETAX> 1,566
<INCOME-TAX> 502
<INCOME-CONTINUING> 1,064
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,064
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
</TABLE>
