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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
September 30, 1997 Commission File No. 0-11336
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CIPRICO INC.
(Name of Small Business Issuer 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) (Zip Code)
Issuer's Telephone Number,
Including Area Code: (612) 551-4000
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Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock
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Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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 requirement for the past 90 days.
Yes X No
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Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained herein, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
The Registrant's revenues for the fiscal year ended September 30, 1997 were
$36,389,678.
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The aggregate market value of the Common Stock held by nonaffiliates of the
Registrant as of December 11, 1997 was approximately $41,898,000 (based upon
the last sale price of the Registrant's Common Stock on such date).
Shares of Common Stock outstanding at December 11, 1997: 5,145,060 shares.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the 1998 Annual Meeting of
Shareholders are incorporated herein by reference in Part III, as indicated.
Transitional Small Business Disclosure Format (check one): Yes X No
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
Ciprico Inc. and its subsidiaries (Ciprico, Company, Registrant)
design, manufacture, market and service RAID disk arrays and SCSI controllers
for the domestic and international visual computing markets. The Company's
products are compatible with industry standard architectures enabling users to
interface with the primary open architecture computing platforms found in the
visual computing market designed by Silicon Graphics, Inc. ("Silicon
Graphics"), Sun Microsystems, Inc., Hewlett-Packard Company, IBM Corporation
and Apple Computer, Inc. The Company is ISO 9001 certified, an international
quality standard.
The Company was incorporated under the name Computer Products
Corporation in February 1978 and changed its name to Ciprico Inc. in May 1983.
Until September 1980, substantially all of the Company's revenues were
generated from engineering consulting services provided to manufacturers and
end users of computer systems. The Company began development of its controller
based products in January 1980 and shipped its first controller product in
September of the same year. The controller board products are becoming a
smaller portion of the Company's business as it focuses on its disk array
markets.
In late 1990 the Company introduced for sale its first RAID-3 disk
array subsystem which allowed five disk drives to function as one large drive
to the computer. In 1991, the Company introduced the NetArray(TM) product,
which is comprised of a disk array, SCSI controller and special utilities for
the Novell network market. This product has been discontinued. In 1992, the
Company developed its 6700 Series disk array allowing up to nine drives for
storage and utilizing the latest disk drive technology.
The Company's disk arrays are designed to meet the demanding data
transfer rate, storage capacity and data redundancy needs of the visual
computing market. Visual computing refers to the digital representation and
complex image processing of film, video, graphics, photographs, animation,
special effects, three dimensional images and other images. Like many other
computer applications, the trend in visual computing is toward random access,
digital data storage and away from traditional analog tape storage or film
methods. The Company's targeted market segments are entertainment, satellite
telemetry, oil and gas exploration, medical imaging and digital prepress. The
Company now offers several series of RAID-3 disk arrays. Since 1990, Ciprico
has focused on designing leading edge, high performance disk arrays
specifically for use in the Company's targeted market segments, delivering high
quality service through extensive customer training and support programs, and
building a sales organization capable of supporting increased demand for the
Company's products.
Statements in this Form 10-KSB that are forward-looking involve risks
and uncertainties. The Company's actual results could differ materially from
those expressed in any forward-looking
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statements. For a discussion of these risks and uncertainties, see
"Management's Discussion and Analysis--Forward-Looking Information."
NARRATIVE DESCRIPTION OF BUSINESS
(1) PRODUCTS AND SERVICES.
PRODUCTS.
The Company's product line consists mainly of disk arrays, with a
smaller segment of sales made for controllers. Both product lines carry the
common theme of providing the highest levels of performance while maintaining
connectivity by adopting industry standards.
The Company introduced its first generation RAID-3 disk array product
in 1990. Over the next seven years, Ciprico introduced several new disk array
products to meet the changing needs of its customers. The Company announced
its newest product, the 7000 Fibre Channel Series disk array, in April 1996 and
commenced shipments of this product in the fall of 1996. Ciprico now offers
customers a choice of several different series of disk arrays depending on
their needs. Prices for the Company's disk arrays generally range from $14,750
to $95,000 per disk array depending on the features selected by the customer.
Applications may require one or several disk arrays.
The Company designs, develops and manufactures all of its disk array
products to operate within industry standards and at peak performance levels.
The controller board, internal packaging, component integration and cabinet
design are all results of Ciprico's engineering expertise. Disk drives and
power supplies are mounted on easily removable shuttles which make swap outs
simple.
6500 Series. One of the Company's newest product introductions is the
6500 Series of disk arrays, targeted at entry-level or low-cost application
environments. The 6500 Series offers 40 MB per second transfer rate and allows
users to swap disk drives without losing data or performance. The disk arrays
are available in an 8 + 1 configuration and have storage capacities ranging
from 51 to 67 GB. The 6500 Series can be striped or daisy-chained together for
additional capacity.
6700 Series. The Company's 6700 Series disk arrays offer customers a
transfer rate of 20 MB per second. These disk arrays are compatible with
SCSI-2 (an industry standard protocol that allows peripheral equipment to
connect with the host computer). Storage capacity on the Company's disk arrays
is limited only by the capacity of the disk drives themselves. With a
continual program of disk drive qualification, the highest performing and
highest quality disk drives are offered with the disk array. The 6700 Series
disk arrays consist of five or nine drives and currently have storage
capacities of 36 GB to 72 GB. Ciprico's 6700 Series disk arrays offer several
redundancy features, including hot swap drives, which allow replacement of a
failed disk drive without any interruption in performance while the failed disk
drive is being replaced at the convenience of the user. Hot swap power
supplies are available to prevent interruption due to power supply failure.
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6900 Series. Ciprico's 6900 Series disk arrays use a new version of
the SCSI peripheral interface standard, known as UltraSCSI, double-speed or
Fast-20. While maintaining compatibility with SCSI-2, the UltraSCSI interface
offers a transfer rate of 40 MBs per second. Before the introduction of
UltraSCSI, multiple disk arrays had to be striped together to increase transfer
rates. With one 6900 Series UltraSCSI disk array, a user can retrieve 24-bit
color, uncompressed video images at a real-time speed of 30 frames per second.
The Company's 6900 Series offers customers eight data drives plus one redundant
drive, which together provide a storage capacity of 36 GB to 144 GB. The 6900
Series also includes several redundancy features, including hot swap drives and
power supplies.
7000 Fibre Channel Series. In April 1996, Ciprico announced its
newest RAID disk array, the 7000 Series, the industry's first disk array to
offer a host interface compatible with full speed Fibre Channel, the fastest
interface currently available. The 7000 Series offers a transfer rate of 100
MB per second. This disk array is capable of transferring uncompressed video
images in a real-time to preserve quality, or simultaneously transferring
several dozen streams of compressed video images.
Ciprico qualifies its 7000 Series disk arrays with popular host
adapters for standard platforms to preserve compatibility with its customer's
systems. As new computer platforms are introduced specifically for Fibre
Channel, the Company intends to integrate the 7000 Series with platforms that
deliver the highest performance possible to take advantage of full speed Fibre
Channel which can offer maximum interface transfer rates of up to 100 MB per
second. The 7000 Series is based on SCSI drive technology and consists of nine
Fast/Wide SCSI drives, each connected to a dedicated channel. The storage
capacities supported by the 7000 Series disk arrays range from 72 GB to 144 GB.
The total system storage capacity can grow to a terabyte with only fifteen
arrays and a single host connection. The 7000 Series has hot swap disk drives,
power supplies and fans.
Spectra Series. Ciprico has developed, in cooperation with Silicon
Graphics, the Spectra Series to work with Silicon Graphics platforms. The
6500, 6700, 6900 and 7000 Series of disk arrays may all be ordered as a Spectra
package. Included in the Spectra package is a Ciprico disk array, an adapter
for certain models, and a set of software utilities. These graphical user
interface-based utilities were written by Ciprico to facilitate the
installation and use of a Ciprico disk array with a Silicon Graphics platform.
Spectra disk arrays have received Silicon Graphics' "Gold Seal Approval," which
signifies that the products have successfully undergone extensive testing by
Silicon Graphics.
Halo Series. Ciprico has developed the Halo Series to work with Sun
Microsystems UltraSPARC product line. Currently, only the 7000 Series disk
array may be ordered as a Halo package, with other disk arrays to be offered as
market needs arise. Included in the Halo package is a Ciprico 7000 disk array,
the Fibre Channel adapter card, inter-connect cables, and an extensive
GUI-based set of software utilities for easy configuration and monitoring of
disk array performance.
New Products. Ciprico recently announced two new products. The RAID
Recorder combines Ciprico's software and disk array into a product to bundle
with an SGI platform and other
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editing equipment for sale to post production and video editors. This product
offers greater flexibility, speed and a lower cost of operation than the
traditional digital disk recorder. Ciprico also offers the ValueLine (VL)
Series of disk arrays for customers with applications that are capacity
intensive such as oil/gas exploration and digital prepress. This product
provides scaleable capacities for flexibility in configuration, with the
redundancy of RAID-3.
Controllers. Prior to 1994, the Company's sales were largely
attributed to controller boards, peripheral input/output connectors for tape
and disk drives. In the early 1990s, as the controller market weakened, the
Company transitioned its focus to the RAID-3 disk array markets. While the
Company continues to sell controller boards, it expects such sales to represent
a decreasing percentage of net sales.
SERVICES.
Ciprico offers several training and service programs including the
Advantage Support Program and the Safety Net Spares Program. The Advantage
Support Program allows the customer to choose which spares it will rent for its
disk array support. This program also offers training for service technicians,
priority telephone support and parts repair and updates at no additional
charge.
With the Safety Net Spares Program, critical spare parts are located
at the customer's site on a consignment basis, while other spare parts are
available upon request with next-day delivery. Under this program, the
customer's technicians are provided with training, a training manual, service
guide and a software diagnostic application. Telephone support specialists are
also available through the Company's toll-free help line, which has a 99%
attainment record of customers reaching a technical support specialist on the
first call. International customers have critical and non-critical spare parts
on location.
The Company also provides a return-to-factory parts and labor warranty
against defects in materials and workmanship covering a period of one year from
the date of shipment to customers. Extended warranty and maintenance services
are also offered to customers as the primary warranty expires. All repair work
for the Company's products is presently done at the Company's Plymouth,
Minnesota, manufacturing facility.
(2) MARKETING AND DISTRIBUTION.
MARKETS.
The Company's market focus is visual computing applications. Within
the visual computing market, the Company focuses on entertainment, satellite
telemetry, oil and gas exploration, medical imaging and digital prepress market
segments. Each of these market segments requires the high data transfer rate
performance, large storage capacity and redundancy provided by the Company's
RAID-3 disk arrays.
Entertainment. The entertainment market segment includes companies
that create, edit, manipulate and broadcast images, in real-time playback,
using digital technology instead of film
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and video tape. This industry includes movie studios, post-production houses,
video production facilities, hotels, and in-flight entertainment. Applications
within this market include 3D animation, special effects, film restoration,
editing and broadcasting.
Film/video production requires extremely high image resolution because
the final image will be enlarged many times when it is displayed on a movie
screen. Broadcast and video services applications require very high bandwidth
to supply many simultaneous video streams to multiple users and there can be no
interruptions in service, which cause dead air time. In the hospitality
industry, applications include movies-on- demand and in-flight entertainment
systems. Ciprico's disk array systems are the first to offer a single disk
array that achieves smooth motion, or real-time video transfer rates for
creation, editing and viewing images.
Satellite Telemetry. The satellite telemetry market segment consists
of companies and government organizations that capture and extract images from
satellites and transfer them to groundstations for processing. This market
segment has three primary applications where Ciprico disk arrays are best
suited: data capture, image processing and extraction, and mission planning.
Data capture is the process of collecting the images that are transmitted from
a satellite passing overhead to a groundstation located on earth. The
groundstation must be capable of reading these transmitted images very fast and
be ready to receive them during the small window of opportunity when the
satellite is in position to transmit. In the image processing and extraction
application, the images that are gathered at the groundstation are bundled into
data sets. The data sets, which can be hundreds of GBs thus requiring massive
storage, are then sold or supplied to the end users for analyzing the data. In
the mission planning application, imagery data is used to select strategic
targets and rehearse a mission by viewing a 3D battlefield map and monitor
enemy troop and equipment movements.
Ciprico's disk arrays deliver high performance transfer rates,
typically real-time, that are required by users in the satellite telemetry
market segment.
Oil and Gas Exploration. The oil and gas exploration market segment
is comprised mainly of the major oil and gas exploration companies. This
market segment has undergone dramatic changes in recent years with the
introduction of 3D and 4D (motion) technology. Seismic data is typically
generated by detonating an explosive charge, sending shock vibrations beneath
the earth's surface, which reflect off underground geological formations. The
seismic data, which can be measured in terabytes (1,000 GB), is recorded,
processed to about one-tenth of its original data size and stored digitally.
The processing and interpretation of the seismic data may take days or even
weeks, during which time a Ciprico disk array's redundancy features are
critical should a disk drive or power supply fail. By using high performance
workstations and disk arrays, the seismic information can be displayed through
3D images representing underground geological formations, enabling the
exploration company to locate oil fields and determine optimal drilling sites.
Medical Imaging. The medical imaging market segment includes medical
equipment manufacturers and integrators who develop systems that collect and
interpret medical images. The two primary medical imaging application
environments in which Ciprico disk arrays operate best are image acquisition
and image storage and transmission. A magnetic resonance imaging ("MRI"),
computed tomography ("CT") or ultrasound examination is conducted on a patient
in a
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radiology lab. The resulting image acquired is stored digitally. Image
storage and transmission applications, such as picture archive and
communications systems ("PACs") and teleradiology, are essentially networks of
medical images. The digital image that is acquired in the radiology laboratory
is stored in a central archive and must be rapidly retrieved and displayed at
viewing stations throughout the hospital or clinic.
The redundancy features of the Company's disk arrays also ensure that
examination images are not lost due to drive failure.
Digital Prepress. The digital prepress market segment consists of
companies such as computer-to-plate or direct-to-press manufacturers that
utilize disk arrays to optimize performance. Digital technology eliminates the
material costs of photographic film, increases the quality and accuracy of
image reproduction, and provides the printer with tools for quick turnaround.
Examples of prepress applications include desktop publishing and page layout,
photo-retouch, large workgroup servers and production management software,
computer-to-plate devices, and digital presses. Computer-based prepress
applications create image sizes up to 200 MB for a single page of printed
material. As the printing industry endorses digital technology to reduce cost,
improve flexibility and shorten production schedules, new opportunities are
developing within the prepress market. RAID-based disk storage provides many
features and benefits for improving the capabilities of digital prepress
applications.
DISTRIBUTION.
The Company's strategy is one of application selling into the
Company's identified segments of the visual computing market. This strategy
requires that the Company's marketing and sales personnel have an in-depth
knowledge of the various imaging applications and related data storage
requirements of end users in the various segments. Based upon such
understanding, the Company's product managers are responsible for developing a
comprehensive marketing plan tailored to the needs of each market segment,
including brochures, trade shows, advertising and direct mail. In addition,
the Company relies on its experienced application engineers to support the
Company's marketing and sales efforts.
As part of the Company's marketing and sales strategy, the Company
enters into relationships with companies that could play an important role in
the successful marketing of the Company's products. For example, the Company
has developed a strong relationship with Silicon Graphics, a leading
manufacturer of computer platforms in the visual computing market. The Company
has also developed a distribution relationship with Access Graphics, a premier
Value-added UNIX distributor. Access has a large reseller channel that
supports Ciprico's market segments for Unix platforms, including SGI and Sun.
Typically, the Company's disk arrays are sold to OEMs for inclusion in
their own computer systems and to systems integrators and VARs who in turn sell
the disk arrays to end users. The initial sales process is complex, requiring
interaction with several layers of the customer's organization and extensive
technical exchanges, product demonstrations and commercial negotiations. As a
result, the Company's typical sales cycle is three to nine months.
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The Company's products are sold through a combination of direct sales
people, value-added distribution and resellers. Ciprico's direct sales
organization is primarily responsible for "demand creation" activities and
distribution management. This enables the Company to establish strong direct
ties with its customers, resellers and end users. The Company's North American
sales locations are in Plymouth, Minnesota; Raleigh, North Carolina; Bedford,
New Hampshire; Houston, Texas; Seattle, Washington and several locations in
California. The Company has international sales and service offices in
Newbury, England and in Singapore.
(3) STATUS OF NEW PRODUCTS.
See item (10) below.
(4) COMPETITION.
The market for all levels of RAID disk arrays is highly competitive.
The Company competes with other disk array manufacturers, with manufacturers of
proprietary integrated computer systems and with systems integrators that
market computer systems which contain general purpose RAID disk arrays. Such
competitors often offer systems at lower prices than those offered by the
Company and the Company must compete on the basis of product performance in
specific applications. Many of these competitors have greater financial,
manufacturing and marketing resources than those of the Company.
The Company's ability to compete successfully depends upon its ability
to continue to develop high performance products that obtain market acceptance
and can be sold at increasingly competitive prices. Although the Company
believes that its RAID-3 disk array products have certain competitive
advantages, there can be no assurance that the Company will be able to compete
successfully in the future or that other companies may not develop products
with greater performance and thus reduce the demand for the Company's products,
or that the Company may encounter increased price competition for such products
which could materially and adversely affect the Company's operating results.
Also, the Company's OEM customers and other manufacturers could develop their
own disk arrays or could integrate competitive RAID disk arrays into their
systems rather than the Company's products, which could materially and
adversely affect the Company's operating results.
(5) SOURCES AND AVAILABILITY OF RAW MATERIALS.
The Company's controller products are comprised of a printed circuit
board made up of various integrated circuits and miscellaneous electronic
components. Many of the components are industry standard parts and readily
available from many suppliers at competitive prices. The board assemblies are
purchased from an ISO 9000, independent board assembly firm which manufactures
the assemblies to the Company's specifications. The completed board assembly
is received at the Company's plant where it is subject to burn-in and test
procedures to insure product performance, reliability and quality.
The disk array is comprised mainly of a controller, metal cabinet,
disk drives, power supply and other miscellaneous parts. The metal enclosure
and power supply are specified to the
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Company's needs, but alternative sources for the components are available. The
Company has strategic partners with which it works closely to fill these needs.
The principal suppliers are Anthem Electronics, Manufacturing Services Limited
and Fabrico Inc.
The Company depends heavily on its suppliers to provide high quality
materials on a timely basis and at reasonable prices. Although many of the
components for the Company's products are available from numerous sources at
competitive prices, certain of the disk drives used in its products are
presently purchased by the Company from a single source. Furthermore, because
of increased industry demand for many of those components, their manufacturers
may, from time to time, not be able to make delivery on orders on a timely
basis. In addition, manufacturers of components on which the Company relies
may choose, for numerous reasons, not to continue to make those components, or
the next generation of those components, available to the Company.
The Company has no long-term supply contracts. There can be no
assurance that the Company will be able to obtain, on a timely basis, all of
the components it requires. If the Company cannot obtain essential components
as required, the Company could be unable to meet demand for its products,
thereby materially adversely affecting its operating results and allowing
competitors to gain market share. In addition, scarcity of such components
could result in cost increases and adversely affect the Company's operating
results.
Assembly operations for the Company are ISO 9001 certified, located in
Plymouth, Minnesota and are typical of the electronics industry with no unusual
methods or equipment required. The sophisticated nature of the Company's
products does, however, require extensive testing by skilled personnel. The
Company utilizes specialized testing equipment and maintains an internal test
engineering group to provide this product support.
(6) CUSTOMER DEPENDENCE.
The Company's products are sold to a broad base of customers. For the
year ended September 30, 1997, sales to a department of the U.S. Navy
represented 10% of net sales. For the year ended September 30, 1996, sales to
Sony Trading International and Sony Pictures Imageworks combined, totaled 18%
of net sales, while sales to Avid Technology totaled 11% of net sales. For the
year ended September 30, 1995, no one customer accounted for 10% or more of net
sales.
(7) PATENTS AND TRADEMARKS.
The Company has no patents, and does not consider ownership of patents
to be material to its business. The Company believes that the rapidly changing
technology in the computer industry makes the Company's future success
dependent more on the technical competence and creative skills of its personnel
than on any patents it may be able to obtain. However, protection of the
Company's proprietary hardware, firmware and software is very important to the
Company. It relies upon trade secrecy and confidentiality agreements with its
employees and customers, rather than on patent or copyright protection, to
preserve its intellectual property rights in this material. The Company has
obtained federal registrations for the trademarks Ciprico(TM), Tapemaster(TM),
Rimfire(TM), Quartermaster(TM), Net Array(TM) and Spectra 6000(TM) and has a
registration outstanding for the mark HALO.
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(8) GOVERNMENT APPROVALS.
The Company is not required to obtain government approval of its
products.
(9) EFFECT OF GOVERNMENT REGULATIONS.
The Company does not believe that any existing or proposed
governmental regulations will have a material effect on its business.
(10) RESEARCH AND NEW PRODUCT DEVELOPMENT.
The Company operates in an industry which is subject to rapid
technological change. Its goals in research and development are to develop
leading edge products that adhere to industry standards. The Company's ability
to achieve this goal is largely dependent upon its ability to anticipate and
respond to change. The Company uses engineering design teams that work
cross-functionally with marketing managers, application engineers and customers
to develop products and product enhancements. Computer input/output interface
standards are maintained and an extensive disk drive qualification program is
in place to monitor off-the-shelf disk drives to ensure the quality and
performance of the disk drives integrated into the Company's disk arrays. As
part of its development strategy, the Company actively seeks available,
cooperative and co-development activities with industry leaders in the
hardware, software and systems businesses, such as Silicon Graphics.
Ciprico's research and development efforts have been successful as
demonstrated by such accomplishments as offering the first RAID-3 disk array to
achieve real-time playback of uncompressed video, and the first and only RAID-3
provider to receive Silicon Graphics' "Gold Seal Approval." In April 1996, the
Company announced its newest product, which utilizes the new Fibre Channel
interface. The Company has invested significant resources in the development
of its Fibre Channel disk array and is the first manufacturer to introduce a
disk array integrating this new interface. The Company began shipments of this
new Fibre Channel product in the fall of 1996. The Company is one of 60
companies that are members of the Fibre Channel Association, which is committed
to providing connectivity to standard computing platforms.
Research and Development expenses in fiscal 1997 and 1996 were
$3,172,000 and $2,423,000, respectively. All of the Company's research and
development expenditures are expensed as incurred. At November 30, 1997, the
Company had 29 full-time employees engaged in research and development
activities, 27 of whom are engineers.
The Company does not have significant firm orders for its development
stage products. There is no assurance that any of the Company's development
programs will be completed or that the resulting products, if any, will be
marketed successfully.
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(11) ENVIRONMENTAL REGULATION.
Compliance by the Company with present federal, state and local
provisions regulating the discharge of material into the environment, or
otherwise relating to the protection of the environment, has not had and is not
expected to have any material effect upon the capital expenditures, earnings or
competitive position of the Company.
(12) EMPLOYEES.
At November 30, 1997, the Company had 121 full-time employees, of
which 20 were engaged in manufacturing, 29 in engineering and research and
development, 51 in sales, sales support and marketing and 21 in general
management and administration. None of the Company's employees are represented
by a labor union. The Company has experienced no work stoppages and believes
that its employee relations are good.
Management believes that the future success of the Company will depend
in part on its ability to attract and retain qualified technical, management
and marketing personnel. Such experienced personnel are in great demand, and
the Company must compete for their services with other firms which may be able
to offer more favorable benefits.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's administrative headquarters, manufacturing and research
and development operations are located in one building in Plymouth, Minnesota,
totaling approximately 32,000 square feet. The lease for this space expires in
October 2002. The Company believes that its existing facilities and equipment
are well maintained and in good operating condition. The Company owns most of
the equipment used in its operations. Such equipment consists primarily of
manufacturing and test equipment, tools, fixtures and computer hardware and
software. Management believes that all major computer applications which are
critical to the Company's operations are century compliant.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to nor is any of its property subject to
any material pending legal proceedings, nor are any material legal proceedings
known to be contemplated by governmental authorities or others.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders through the
solicitation of proxies or otherwise during the fourth quarter of the Company's
fiscal year.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Stock Trading
Ciprico common stock is traded on the NASDAQ National Market System
under the symbol CPCI. As of November 28, 1997, there were approximately 3,695
shareholder accounts of record. Closing stock sale price ranges for the
years ended September 30, 1997 and 1996, were:
<TABLE>
<CAPTION>
Quarter 1997 High 1997 Low 1996 High 1996 Low
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First .................. $ 20.50 $ 12.50 $ 12.08 $ 5.83
Second ................. 15.13 11.00 15.83 10.67
Third .................. 16.75 11.38 28.50 12.88
Fourth ................. 18.38 13.75 20.25 11.75
</TABLE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
Ciprico Inc. and Subsidiaries
RESULTS OF OPERATIONS
NET SALES:
Net sales increased by $9.0 million, or 33% in 1997 from 1996 compared to an
increase of $11.4 million or 72% in 1996 from 1995. In 1997, the Company
continued to penetrate the visual computing markets with its offerings of new
products. The entertainment market (film/video and broadcasting) accounted for
43% of net sales in 1997 compared to 61% in 1996 and 42% in 1995. The satellite/
telemetry market grew to 34% of net sales in 1997 compared to 13% in 1996 and
18% in 1995. New product sales accounted for 43% of net sales in 1997 with
shipments of the industry's first Fibre Channel and ATA disk array products.
The Company believes its ability to provide new products and develop
partnerships were key contributing factors to the sales growth.
In 1997, one customer in the satellite/telemetry market, a department of the
U.S. Navy, made up 10% of net sales. In 1996, two significant customers in the
entertainment market made up 29% of net sales. Sony Trading International
combined with Sony Pictures made up 18% of net sales, while Avid Technology made
up 11% of net sales. Net sales were very diverse in 1995 resulting in no major
customers accounting for a significant portion of sales.
Export sales declined in 1997 to 21% of net sales compared to 36% and 35% of net
sales in 1996 and 1995 respectively. Sales in Japan were lower at 7% of net
sales in 1997 compared to 20% in 1996 and 14% in 1995. This reduction was due to
an expected reduction in sales to Sony Trading International.
COST OF SALES AND GROSS PROFIT:
Gross profit increased to $17.3 million, and was 48% of net sales in 1997,
compared to $13.0 and $7.5 million, or 48% and 47% in 1996 and 1995,
respectively. The Company is able to maintain its gross profit percentages
through selling leading-edge technology products, providing strong customer
support and effective cost controls.
In 1996, the Company completed an expansion of its manufacturing space to
improve production capacity and efficiencies. The Company continues to believe
in strong vendor relations to aid in component availability and cost reductions.
The Company anticipates 1998 gross profit, as a percent of net sales, to range
in the mid to upper forty percent of net sales.
SALES AND MARKETING EXPENSES:
Sales and marketing expenses totaled $7.0 million or 19% of net sales in 1997
compared to $5.4 million or 20% of net sales in 1996, and $4.1 million or 26% of
net sales in 1995. The major components of the increase in 1997 were $784,000
related to compensation costs associated with additional personnel and $670,000
related to increased promotion expenses. Sales and marketing expenses are
expected to increase in actual dollars in 1998 in line with expected growth in
sales, but decrease as a percent of net sales.
GENERAL AND ADMINISTRATIVE EXPENSES:
General and administrative expenses were $2.7 million or 7% of net sales in 1997
compared to $2.2 and $1.4 million or 8% and 9% of net sales for 1996 and 1995,
respectively. Spending increased in 1997 due to increased personnel costs to
support Company growth. The Company expects general and administrative expenses
to increase in 1998 in line with expected growth in sales, but remain constant
as a percent of net sales.
RESEARCH AND DEVELOPMENT EXPENSES:
Research and development expenses in 1997 were $3.2 million or 9% of net sales,
compared to $2.4 million and $1.8 million, or 9% and 11% of net sales in 1996
and 1995, respectively. The major components of the increase in 1997 were
$443,000 related to compensation costs associated with additional personnel and
$177,000 related to depreciation expenses for test equipment. The Company
expects research and development expenses in 1998 to increase due to new product
development planned for future disk array products and computer platform
connectivity.
OTHER INCOME:
Other income increased by $1.0 million in 1997. Interest and dividend income,
the largest component, increased due to higher average cash balances associated
with the proceeds from the stock offering in May, 1996. Royalty income is from
the usage of an older discontinued technology.
INCOME TAX EXPENSE:
Income tax expense for 1997, 1996 and 1995 is described in footnote 2. of the
consolidated financial statements.
<PAGE> 13
NET EARNINGS:
Net earnings increased in 1997 to $4.2 million compared to $3.4 million in 1996
and $396,000 in 1995. The 1997 and 1996 increases were due to the increased
sales levels, lower expenses as a percent of net sales, and interest income.
LIQUIDITY AND CAPITAL RESOURCES:
Liquidity is very strong with cash and cash equivalents and short term
marketable securities totaling $29.3 million at year-end, compared to $27.3
million in 1996. Liquidity increased $22.6 million in 1996 primarily due to net
proceeds of $30.8 million received from the sale of 1.5 million shares of common
stock. The Company also has $7.5 million invested in long term investments. The
Company's working capital was $36.4 million at September 30, 1997 compared to
$29.8 million at September 30, 1996.
Cash flows from operating activities in 1997 were $2.1 million. This result was
largely attributed to sources of cash from net earnings of $4.2 million and
non-cash expenses for depreciation of $1.5 million. Anticipated growth for
fiscal year 1998 could create a use of cash to fund working capital needs.
Cash flows used in investing activities were mainly for the net investment in
marketable securities of $8.4 million and equipment expenditures totaling $3.0
million. Equipment purchases increased $1.0 million over 1996 due to purchases
for product development equipment, production and test equipment and upgrading
of the Company's computer systems. Future investments for equipment will
increase due to the Company's expansion of new product development and
continuing computer systems upgrades.
Cash flows from financing activities were the result of proceeds from the
issuance of common stock through the Company's stock option purchase plans.
During the past year, the Company reviewed several potential acquisition
situations. The Company has not found a suitable acquisition and will continue
to look for new technology opportunities.
Funding of future working capital needs and equipment purchases could cause a
reduction in the cash balances in 1998. The Company believes that current funds
and the funds from operations are adequate to support 1998 operations as
currently planned.
FORWARD-LOOKING INFORMATION:
The statements in this Annual 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 five visual computing vertical markets which
include: entertainment (film/video and broadcast), oil/gas exploration, digital
prepress, medical imaging, and satellite/telemetry. Continued growth in these
markets, especially the entertainment market, 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 potential for price fluctuations and product availability 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 operation.
The Company operates on very little backlog which means its results from quarter
to quarter are very hard to project and may fluctuate. A large percentage of
total quarterly sales may occur in the last month and weeks of a quarter.
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, failures 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 operation.
<PAGE> 14
ITEM 7. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
Ciprico Inc. and Subsidiaries
- -------------------------------------------------
<TABLE>
<CAPTION>
September 30, 1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................... $ 4,512,411 $ 13,398,162
Marketable securities ................................... 24,806,985 13,871,013
Trade accounts receivable, less allowances of $391,000 in
1997 and $335,000 in 1996 ...................... 5,151,911 4,469,242
Income taxes receivable ................................. 325,047 -
Inventories:
Finished goods ................................. 1,566,097 986,844
Work-in-process ................................ 1,162,379 496,412
Raw materials .................................. 1,625,458 1,306,058
----------------------------
Total inventories .............................. 4,353,934 2,789,314
Deferred income taxes ................................... 788,000 492,000
Other current assets .................................... 484,402 391,667
----------------------------
Total current assets ........................... 40,422,690 35,411,398
Property and equipment, at cost:
Furniture and fixtures ......................... 676,474 576,289
Equipment ...................................... 8,385,670 6,203,258
Leasehold improvements ......................... 267,035 267,035
----------------------------
9,329,179 7,046,582
Less accumulated depreciation and amortization . (5,381,084) (4,470,214)
----------------------------
Net property and equipment ..................... 3,948,095 2,576,368
Marketable securities ................................... 7,482,838 9,987,843
Deferred income taxes ................................... 118,000 -
Other assets ............................................ 133,659 13,291
----------------------------
Total assets ................................... $ 52,105,282 $ 47,988,900
============================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ........................................ $ 2,285,335 $ 3,043,560
Accrued compensation .................................... 604,182 663,474
Warranty accrual ........................................ 345,000 295,355
Income taxes payable .................................... 77,749 792,269
Other accrued expenses .................................. 215,133 249,535
Deferred revenue ........................................ 520,337 517,692
----------------------------
Total current liabilities ...................... 4,047,736 5,561,885
COMMITMENTS ............................................. - -
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value; 1,000,000 shares
authorized; no shares issued and outstanding ... - -
Common stock, $.01 par value; 9,000,000
shares authorized; issued and
outstanding 5,130,484 shares in 1997 and
5,011,390 shares in 1996 ....................... 51,304 50,114
Additional paid-in capital .............................. 39,315,659 37,935,690
Retained earnings ....................................... 8,690,583 4,441,211
----------------------------
Total shareholders' equity ..................... 48,057,546 42,427,015
----------------------------
Total liabilities and shareholders' equity ..... $ 52,105,282 $ 47,988,900
============================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 15
CONSOLIDATED STATEMENTS OF EARNINGS
Ciprico Inc. and Subsidiaries
<TABLE>
<CAPTION>
Years ended September 30 1997 1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales .................................................... $36,389,678 $27,408,126 $15,966,203
Cost of sales ................................................ 19,099,716 14,383,459 8,498,374
---------------------------------------
Gross profit ................................................. 17,289,962 13,024,667 7,467,829
Sales and marketing expenses ................................. 6,976,680 5,405,226 4,129,493
General and administrative expenses .......................... 2,699,992 2,233,206 1,432,373
Research and development expenses ............................ 3,171,918 2,423,190 1,799,547
---------------------------------------
Earnings from operations ..................................... 4,441,372 2,963,045 106,416
Other income:
Interest and dividend income ............................ 1,878,000 865,157 225,711
Royalty income .......................................... 120,000 111,500 91,950
---------------------------------------
1,998,000 976,657 317,661
---------------------------------------
Earnings before income taxes ................................. 6,439,372 3,939,702 424,077
Income tax expense ........................................... 2,190,000 496,000 28,000
---------------------------------------
NET EARNINGS ................................................. $ 4,249,372 $ 3,443,702 $ 396,077
=======================================
NET EARNINGS PER COMMON SHARE ............................... $ .79 $ .80 $ .12
=======================================
Weighted average number of common and common equivalent shares 5,395,687 4,325,672 3,394,079
</TABLE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unrealized
Common Stock Gain on
and additional securities
paid-in Retained available
Years ended September 30, 1997, 1996 and 1995 Shares capital earnings for sale Total
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, September 30, 1994 ............. 3,099,924 $ 5,872,090 $ 601,432 $ - $ 6,473,522
Exercise of employee stock options ...... 297,416 701,797 - - 701,797
Restricted stock issued ................. 1,579 5,002 - - 5,002
Net earnings ............................ - - 396,077 - 396,077
Compensation related to
stock option exercises ......... - 59,466 - - 59,466
Change in unrealized gain ............... - - - 60,400 60,400
----------------------------------------------------------------------
Balance, September 30, 1995 ............. 3,398,919 6,638,355 997,509 60,400 7,696,264
Exercise of employee stock options ...... 110,353 297,447 - - 297,447
Tax benefit related to options .......... - 216,000 - - 216,000
Proceeds from sale of common stock ...... 1,500,000 30,776,922 - - 30,776,922
Employee plan stock purchases ........... 2,176 27,744 - - 27,744
Net earnings ............................ - - 3,443,702 - 3,443,702
Compensation related to
stock option exercises ......... - 30,117 - - 30,117
Change in unrealized gain ............... - - - (60,400) (60,400)
Fractional shares, related to
stock split..................... (58) (781) - - (781)
----------------------------------------------------------------------
Balance, September 30, 1996 ............. 5,011,390 37,985,804 4,441,211 - 42,427,015
Exercise of employee stock options ...... 100,416 277,722 - - 277,722
Tax benefit related to options .......... - 776,000 - - 776,000
Employee plan stock purchases ........... 8,678 126,916 - - 126,916
Restricted stock issued ................. 10,000 146,875 - - 146,875
Net earnings ............................ - - 4,249,372 - 4,249,372
Compensation related to
stock option exercises ......... - 53,646 - - 53,646
----------------------------------------------------------------------
Balance, September 30, 1997 ............. 5,130,484 $ 39,366,963 $8,690,583 $ - $48,057,546
======================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 16
CONSOLIDATED STATEMENTS OF CASH FLOWS
Ciprico Inc. and Subsidiaries
<TABLE>
<CAPTION>
Years ended September 30 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings .......................................................... $ 4,249,372 $ 3,443,702 $ 396,077
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization ....................................... 1,486,216 840,942 712,477
Provision for warranty expense ...................................... 317,995 291,024 12,000
Provision for bad debt expense ...................................... 93,507 156,165 36,029
Deferred income taxes ............................................... (414,000) (492,000) -
Other ............................................................... 135,910 (55,486) (31,569)
Compensation related to stock option exercises ...................... 53,646 30,117 59,466
Changes in operating assets and liabilities:
Accounts receivable ................................................. (776,176) (1,440,013) (894,396)
Income taxes receivable ............................................. (325,047) - -
Inventory ........................................................... (1,564,620) (1,439,967) (434,194)
Other current assets ................................................ (92,735) (146,285) 46,500
Accounts payable .................................................... (758,225) 574,667 834,296
Accrued expenses .................................................... (362,044) 328,432 212,332
Income taxes payable ................................................ 61,480 931,815 3,463
Deferred revenue .................................................... 2,645 428,144 33,346
-------------------------------------------------
NET CASH FLOWS PROVIDED BY
OPERATING ACTIVITIES ........................................ 2,107,924 3,451,257 985,827
CASH FLOWS FROM INVESTING ACTIVITIES:
Equipment purchases ................................................... (3,034,761) (1,997,378) (682,616)
Proceeds from sale of equipment ....................................... 40,908 16,055 146,145
Other assets, net ..................................................... (120,368) (7,225) (4,231)
Purchases of marketable securities .................................... (46,315,602) (23,858,856) -
Proceeds from sale or maturity of marketable
securities .......................................................... 37,884,635 1,267,506 97,422
-------------------------------------------------
NET CASH FLOWS USED IN
INVESTING ACTIVITIES ........................................ (11,545,188) (24,579,898) (443,280)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock ................................ 551,513 31,101,332 706,799
-------------------------------------------------
NET CASH FLOWS PROVIDED BY
FINANCING ACTIVITIES ........................................ 551,513 31,101,332 706,799
-------------------------------------------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS ................................................. (8,885,751) 9,972,691 1,249,346
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ........................ 13,398,162 3,425,471 2,176,125
-------------------------------------------------
CASH AND CASH EQUIVALENTS AT
END OF YEAR .......................................................... $ 4,512,411 $ 13,398,162 $ 3,425,471
=================================================
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the year for income taxes ............................ $ 2,866,968 $ 55,544 $ 24,537
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITY:
During fiscal 1997 and 1996, the Company had tax benefits related to stock
option exercises of $776,000 and $216,000.
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Ciprico Inc. and Subsidiaries
- -----------------------------------------------
September 30, 1997, 1996 and 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS: The principal business activity of Ciprico Inc. and subsidiaries (the
Company) is the design, manufacture, marketing and service of disk array
solutions for use in high performance computer systems for the visual computing
markets.
CONSOLIDATION: The accompanying consolidated financial statements include the
accounts of Ciprico Inc. and its wholly owned subsidiaries, Ciprico
International Limited and Ciprico FSC, Inc. (a foreign sales corporation).
All significant intercompany balances and transactions have been
eliminated.
ACCOUNTING ESTIMATES: In the preparation of the Company's consolidated
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities, and related
revenue and expenses. Actual results could differ from those estimates used
by management.
REVENUE RECOGNITION: Revenue is recognized upon shipment of products. Revenue
from extended warranty and maintenance agreements is recognized on the
straight-line basis over the term of the agreement.
PRODUCT WARRANTY COSTS: Estimated future warranty costs are provided at the
time of revenue recognition.
RESEARCH AND DEVELOPMENT COSTS: Research and development costs are charged to
expense as incurred
ROYALTY INCOME: Royalties are recognized when payment is received.
CASH AND CASH EQUIVALENTS: The Company considers all highly liquid temporary
investments with original maturities of three months or less to be cash
equivalents. At September 30, 1997, principally all of the Company's cash
and cash equivalents are invested in a money market fund. At September 30, 1996,
the company's cash and cash equivalents were invested in a money market fund,
commercial paper and government agencies.
MARKETABLE SECURITIES: The Company has invested its excess cash in commercial
paper and government agencies. 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 current
marketable securities.
At September 30, 1997 and 1996, amortized cost approximates fair value of
held-to-maturity investments which consist of the following:
<TABLE>
<CAPTION>
1997 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current marketable securities
Commercial Paper ................................................ $14,813,715 $ 5,915,642
U.S. Government Agencies ........................................ 9,993,270 7,955,371
----------------------------------
24,806,985 13,871,013
Non-current marketable securities
U.S. Government Agencies ........................................ 7,482,838 9,987,843
----------------------------------
$32,289,823 $23,858,856
==================================
</TABLE>
The non-current held-to-maturity securities at September 30, 1997 all mature
in fiscal 1999. Marketable securities at September 30, 1995 were
classified as available-for-sale. Unrealized gains and losses on these
securities are excluded from earnings and are reported as a separate component
of shareholders' equity.
INVENTORIES: Inventories are stated at the lower of cost or replacement market.
Cost is determined using the first-in, first-out method. Inventory costs include
outside assembly charges, allocated manufacturing overhead and direct material
costs.
PROPERTY AND EQUIPMENT: Property and equipment is carried at cost, less
accumulated depreciation and amortization. Depreciation is provided using the
straight line method over estimated useful lives of three to seven years or, in
the case of leasehold improvements, over the period of the related lease, if
shorter. Major replacements and improvements are capitalized; repairs and
maintenance are expensed as incurred. Accelerated and straight-line methods are
used for income tax reporting.
NET EARNINGS PER SHARE: Net earnings per share amounts are based upon the
weighted average number of common and common equivalent shares
outstanding during the year. Common equivalent shares are excluded from the
computation in periods in which they have an antidilutive effect.
FOREIGN CURRENCY: The financial statements of Ciprico International Limited
have been translated into U.S. dollars in accordance with the provisions of
SFAS No. 52 "Foreign Currency Translation." Under SFAS No. 52, assets and
liabilities are translated into U.S. dollars at the year-end exchange rate,
while income and expenses are translated at the average exchange rates during
the year. The resulting translation adjustments are not material.
RECLASSIFICATION: Certain 1995 and 1996 amounts have been reclassified to
conform to the 1997 presentation.
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Ciprico Inc. and Subsidiaries
- ----------------------------------------------------------
September 30, 1997, 1996 and 1995
2. INCOME TAXES
The provisions for income tax expense consist of:
<TABLE>
<CAPTION>
Years ended September 30 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal ............................................ $ 2,354,000 $ 848,000 $ 5,000
State .............................................. 226,000 115,000 5,000
Foreign ............................................ 24,000 25,000 18,000
------------------------------------------
Total current ............................. 2,604,000 988,000 28,000
Deferred ........................................... (414,000) (492,000) -
------------------------------------------
Total ..................................... $ 2,190,000 $ 496,000 $ 28,000
</TABLE>
In 1997 and 1996, income tax benefits of $776,000 and $216,000 related to stock
option exercises were recorded as a direct increase to additional paid-in
capital.
Deferred income taxes arise from temporary differences between financial and tax
reporting. The tax effects of the cumulative temporary differences resulting in
the net deferred tax assets (liabilities) are as follows:
<TABLE>
<CAPTION>
As of September 30 1997 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Inventory ................................................. $ 294,000 $ 196,000
Depreciation .............................................. 107,000 (15,000)
Allowance for doubtful accounts ........................... 143,000 121,000
Warranty accrual .......................................... 126,000 107,000
Other ..................................................... 236,000 83,000
---------------------------------
Net deferred tax asset .................................... $ 906,000 $ 492,000
=================================
</TABLE>
The following is a reconciliation of the federal statutory income tax rate
to the consolidated effective tax rate:
<TABLE>
<CAPTION>
Years ended September 30 1997 1996 1995
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory rate ..................... 34.0% 34.0% 35.0%
State taxes, net of federal
income tax benefit........................ 2.3 2.3 .8
Change in valuation allowance............... - (24.5) (30.7)
Other....................................... (2.3) .8 1.5
---------------------
34.0% 12.6% 6.6%
=====================
</TABLE>
3. SHAREHOLDERS' EQUITY
Stock Split
On March 27, 1996, the Company declared a three-for-two stock split which was
distributed on April 12, 1996. All share and per share data for the periods
presented have been restated to reflect the stock split.
Public Offering
On June 5, 1996, the Company completed the sale of 1.5 million shares of common
stock in a public offering. Net proceeds from the stock offering totaled
$30,776,922.
Stock Option Plans
The Company has four stock option plans under which officers, directors and
employees have been or may be granted incentive and nonqualified stock options
to purchase the Company's common stock at fair market value on the date of
grant. The options become exercisable over varying periods and expire up to ten
years from date of grant. At September 30, 1997, 30,000 shares had been issued
subject to additional authorized shares by shareholder vote. The total number of
shares reserved under these plans is 1,875,000.
Option transactions under the Company's stock option plans during the three
years ended September 30, 1997 are summarized as follows:
<TABLE>
<CAPTION>
Number of Weighted Average
Shares Exercise Price
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at September 30, 1994 ........................................... 726,584 $ 2.66
Granted ............................................................ 194,963 4.10
Exercised .......................................................... (305,274) 2.42
Canceled ........................................................... (35,726) 2.64
----------------------------
Outstanding at September 30, 1995 ........................................... 580,547 3.26
Granted ............................................................ 256,908 12.99
Exercised .......................................................... (110,699) 2.73
Canceled ........................................................... (11,973) 3.89
----------------------------
Outstanding at September 30, 1996 ........................................... 714,783 6.85
Granted ............................................................ 301,300 14.66
Exercised .......................................................... (101,340) 3.15
Canceled ........................................................... (9,500) 10.23
----------------------------
Outstanding at September 30, 1997 ........................................... 905,243 $ 9.83
============================
Options exercisable at September 30:
1995 ................................................................ 214,485 $ 2.89
============================
1996 ................................................................ 255,811 $ 3.95
============================
1997 ................................................................ 378,136 $ 6.72
============================
</TABLE>
<PAGE> 19
The following table summarizes information concerning currently outstanding and
exercisable stock options:
<TABLE>
<CAPTION>
Options Outstanding
Range of Number Weighted Average Weighted Average
Exercise Prices Outstanding Remaining Contractual Life Exercise Price
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 2.00 - 2.99 150,280 1.2 years $ 2.70
3.00 - 4.49 204,138 2.3 years 4.13
5.00 - 6.74 3,750 3.0 years 5.93
6.75 - 10.13 4,125 3.1 years 7.45
11.17 - 15.19 471,700 4.1 years 13.53
15.25 - 22.00 71,250 4.1 years 17.07
-------
905,243
=======
</TABLE>
<TABLE>
<CAPTION>
Options Exercisable
Range of Number Weighted Average
Exercise Prices Outstanding Exercise Price
- ------------------------------------------------------------
<S> <C> <C>
$2.00 - 2.99 121,134 $ 2.66
3.00 - 4.49 124,276 4.06
5.00 - 6.74 750 6.17
6.75 - 10.13 750 7.71
11.17 - 15.19 126,101 12.77
15.25 - 22.00 5,125 18.26
-------
378,136
=======
</TABLE>
The weighted average fair value of options granted in 1997 and 1996 was $7.36
and $6.60 per share. The fair value of each option grant is estimated on the
date of grant using the Black-Scholes option pricing model with the following
weighted average assumptions used for grants in 1997 and 1996: no dividend
yield; risk-free rate of return of 6.0% and 5.8%; volatility of 72.3% and 69.0%;
and an average term of 2.9 years and 3.2 years. The Company's 1997 and 1996
proforma net earnings and net earnings per share would have been $3,436,121 and
$2,970,650 or $.64 and $.69 per share had the fair value method been used for
valuing options granted during 1997 and 1996. These effects may not be
representative of the future effects of applying the fair value method.
Employee Stock Purchase Plan
The 1996 Employee Stock Purchase Plan ("ESPP") provides for the purchase by
eligible employees of Company common stock at a price equal to 85% of the market
price on either the commencement or the termination date of each six-month plan
phase, whichever is lower. Participants may authorize payroll deductions up to
10% of their base salary during the plan phase to purchase the stock. Since
inception of the ESPP, a total of 10,854 shares have been issued, including
8,678 shares for $126,916 in 1997 and 2,176 shares for $27,744 during 1996. At
September 30, 1997, the Company had 139,146 shares reserved for future issuance
under the ESPP.
Restricted Stock Plan
The 1996 Restricted Stock Plan ("RSP") provides for common stock awards to
officers and certain key employees of the Company. Restricted stock vests
generally after continued employment for a period of up to five years. All
restricted stock awards entitle the participant to full dividend and voting
rights. Since inception of the RSP, a total of 10,000 shares have been issued.
The amount of unearned compensation recognized as expense was approximately
$18,000 for 1997. At September 30, 1997, the Company had 65,000 shares reserved
for future issuance under the RSP.
4. EMPLOYEE BENEFIT PLAN
The Company participates in a 401(k) savings plan covering substantially all of
its employees. Minimum contributions to the plan by the Company are 50 percent
of the first 4 percent of the participants' salaries in fiscal 1997, and 50
percent of the first 2 percent of participants' salaries in fiscal 1996 and
1995. Contributions in addition to the minimum are made by the Company based on
the Company's financial performance. The Company's contributions to this plan in
1997, 1996 and 1995 were $105,400, $124,215 and $29,854 respectively.
5. SALES CONCENTRATION
The consolidated statements of earnings included sales to significant customers
as follows:
<TABLE>
<CAPTION>
Years ended September 30 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Customer A ........................ 10% -% -%
Customer B ........................ 5 18 8
Customer C ........................ 2 11 1
----------------------------------
Total ........................ 17% 29% 9%
----------------------------------
</TABLE>
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Ciprico Inc. and Subsidiaries
- -------------------------------------------
September 30, 1997, 1996 and 1995
6. FINANCIAL INFORMATION BY GEOGRAPHIC AREA
The Company's net sales, earnings from operations and identifiable assets
summarized by geographic area are as follows:
<TABLE>
<CAPTION>
Net Sales 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
North America ............ $28,814,469 $17,429,093 $10,341,928
UK subsidiary ............ 3,173,165 2,654,796 2,781,651
Japan .................... 2,581,348 5,468,620 2,211,380
Other foreign ............ 1,820,696 1,855,617 631,244
----------- ----------- -----------
Total .................... $36,389,678 $27,408,126 $15,966,203
=========== =========== ===========
<CAPTION>
Earnings (loss) from operations
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
North America ................. $3,767,652 $2,559,421 $ (499,231)
UK subsidiary ................. 673,720 403,624 605,647
---------- ---------- ----------
Total ......................... $4,441,372 $2,963,045 $ 106,416
========== ========== ==========
<CAPTION>
Identifiable Assets
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
North America ................. $ 51,797,934 $ 47,857,720 $ 10,738,735
UK subsidiary ................. 574,557 435,506 436,764
Eliminations .................. (267,209) (304,326) (255,432)
---------------------------------------------
Total ......................... $ 52,105,282 $ 47,988,900 $ 10,920,067
=============================================
</TABLE>
7. COMMITMENTS
The Company has operating leases for office and manufacturing space which expire
through October 2002. Future minimum payments under these leases are $396,092,
$363,153, $368,558, $395,586 and $395,291 for 1998, 1999, 2000, 2001 and beyond.
For the years ended September 30, 1997, 1996 and 1995, operating lease expenses
were $324,837, $279,285 and $237,579, respectively.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
financial instruments:
Cash and Cash equivalents
The carrying amount approximates fair value because of the short maturity of
those instruments.
Marketable Securities
The fair values of marketable securities are based on quoted market prices.
9. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) has issued three statements
which the Company has not yet adopted.
The FASB issued statement No. 128, "Earnings Per Share," which is effective for
periods ending 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 were computed. The effect
of adopting this new standard would not have a material affect on the reported
net earnings per common share.
In June 1997, the FASB issued Statement No. 130 "Reporting Comprehensive Income"
and Statement No. 131 "Disclosures about Segments of an Enterprise and Related
Information" which are effective for fiscal years beginning after December 15,
1997. Statement No. 130 will require the Company to display an amount
representing total comprehensive income, as defined by the statement, as part of
the Company's basic financial statements. Comprehensive income will include
items such as unrealized gains or losses on certain investment securities and
foreign currency items. Statement No. 131 will require the Company to disclose
financial and other information about its business segments, their products and
services, geographic areas, major customers, revenues, profits, assets and other
information. The adoption of these two standards is not expected to have a
material effect on the consolidated financial statements of the Company.
<PAGE> 21
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Ciprico Inc.:
We have audited the accompanying consolidated balance sheet of Ciprico Inc. and
subsidiaries as of September 30, 1997, and the related consolidated statements
of earnings, shareholders' equity and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the 1997 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Ciprico Inc.
and subsidiaries as of September 30, 1997, and the consolidated results of their
operations and their consolidated cash flows for the year then ended, in
conformity with generally accepted accounting principles.
/s/ Grant Thornton LLP
Minneapolis, Minnesota
October 31, 1997
<PAGE> 22
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Ciprico Inc.:
We have audited the consolidated balance sheet of Ciprico Inc. and
subsidiaries as of September 30, 1996, and the related consolidated statements
of earnings, shareholders' equity and cash flows for each of the years in
the two-year period ended September 30, 1996. These consolidated financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Ciprico Inc. and subsidiaries as of September 30, 1996, and the results of their
operations and their cash flows for each of the years in the two-year period
ended September 30, 1996, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
Minneapolis, Minnesota
November 6, 1996
<PAGE> 23
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Previously reported.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The names, ages and positions of the Company's executive officers are
as follows:
Name Age Position(s)
- ---- --- -----------
Robert H. Kill 50 Chairman of the Board, President
and Chief Executive Officer
Cory J. Miller 44 Vice President of Finance,
Chief Financial Officer and
Secretary
Officers are elected annually by and serve at the discretion of the
Board of Directors. There is no family relationship between the executive
officers of the Company.
Robert H. Kill has been Chairman of the Board of Directors of the
Company since January 1996, President and Chief Executive Officer since March
1988 and a director since September 1987. Mr. Kill was Executive Vice
President of the Company from September 1987 to March 1988, Secretary from
September 1987 to July 1988 and from November 1989 to October 1993, and Vice
President and General Manager from August 1986 to September 1987. Mr. Kill
held several marketing and sales positions at Northern Telecom, Inc. from 1979
to 1986, his latest position being Vice President, Terminals Distribution.
Cory J. Miller was elected Vice President of Finance and Chief
Financial Officer in October 1992 and Secretary in October 1993. Mr. Miller
served as the Company's Controller an Chief Financial Officer from December
1989 to October 1992 and as Controller from October 1987 to December 1989. Mr.
Miller was Director of Finance at VTC Incorporated, a semiconductor
manufacturer, from 1985 to 1987 prior to joining Ciprico.
The information required by Item 9 relating to directors and
compliance with Section 16(a) is incorporated herein by reference to the
sections labeled "Election of Directors" and "Section 16(a) Beneficial
Ownership Reporting Compliance," respectively, which appear in the Registrant's
definitive Proxy Statement for its 1998 Annual Meeting of Shareholders.
ITEM 10. EXECUTIVE COMPENSATION
The information required by Item 10 is incorporated herein by
reference to the section labeled "Executive Compensation" which appears in the
Registrant's definitive Proxy Statement for its 1998 Annual Meeting of
Shareholders.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 11 is incorporated herein by
reference to the sections labeled "Principal Shareholders" and "Management
Shareholdings" which appear in the Registrant's definitive Proxy Statement for
its 1998 Annual Meeting of Shareholders.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
- 12 -
<PAGE> 24
ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K
(a) Exhibits. See "Exhibit Index" on page following signatures.
(b) Reports on Form 8-K.
No report on Form 8-K was filed by the Company during the fourth
quarter of fiscal 1997.
- 13 -
<PAGE> 25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
CIPRICO INC.
(the "Registrant")
Date: December 19 , 1997 By /s/ Robert H. Kill
-------- ---------------------------------------
Robert H. Kill, Chairman of the Board
and President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
(Power of Attorney)
Each person whose signature appears below constitutes and appoints
ROBERT H. KILL and CORY J. MILLER his true and lawful attorneys-in- fact and
agents, each acting alone, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign
any or all amendments to this Annual Report on Form 10-KSB and to file the
same, with all exhibits thereto, and other documents in connection therewith
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, each acting alone, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully and to all intent and purposes as he might or
could do in person, hereby ratifying and confirming all said attorneys-in-fact
and agents, each acting alone, or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
<TABLE>
<CAPTION>
Signature Title Date
--------------------------------- ------------------------------------------- ----
<S> <C> <C> <C> <C>
/s/ Robert H. Kill Chairman, President and Director December 19 , 1997
--------------------------------- (Principal executive officer) -------
Robert H. Kill
/s/ Cory J. Miller Vice President of Finance and Chief December 19 , 1997
--------------------------------- Financial Officer (Principal -------
Cory J. Miller financial and accounting officer)
Director December , 1997
--------------------------------- ---------
William N. Wray
Director December , 1997
--------------------------------- ---------
Donald H. Soukup
/s/ Ronald B. Thomas Director December 19 , 1997
--------------------------------- -------
Ronald B. Thomas
/s/ Gary L. Deaner Director December 19 , 1997
--------------------------------- -------
Gary L. Deaner
/s/ Peyton Gannaway Director December 19 , 1997
--------------------------------- -------
Peyton Gannaway
</TABLE>
- 14 -
<PAGE> 26
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBIT INDEX TO FORM 10-KSB
For the fiscal year ended
September 30, 1997 Commission File No.: 0-11336
- --------------------------------------------------------------------------------
CIPRICO INC.
- --------------------------------------------------------------------------------
<TABLE>
<Capiton>
Exhibit Description
- ------- -----------
<S> <C>
2 Agreement and Plan of Merger of Ciprico Inc. (a Minnesota corporation) into Ciprico Inc. (a Delaware corporation)--
incorporated by reference to Exhibit 2 of the Registrant's Form 10-Q for the quarter ended March 31, 1988*
3.1 The Registrant's Certificate of Incorporation, as amended to date--incorporated by reference to Exhibit 19.1 of the
Registrant's Form 10-Q for the quarter ended March 31, 1988*
3.2 The Registrant's Bylaws, as amended to date--incorporated by reference to Exhibit 19.2 of the Registrant's Form
10-Q for the quarter ended March 31, 1988*
10.1 Lease Agreement, dated December 3, 1991, relating to manufacturing space located at 2800 Campus Drive, Plymouth,
Minnesota and corporate office space located at 2955 Xenium Lane, Plymouth Minnesota--incorporated by reference to
Exhibit 10.1 of the Registrant's Form 10-K for the fiscal year ended September 30, 1991*
10.2 First Amendment, dated July 1, 1996, to Lease Agreement dated December 3, 1991, relating to space at 2800 Campus
Drive, Plymouth, Minnesota--incorporated by reference to Exhibit 10.2 of the Registrant's Form 10-KSB for the
fiscal year ended September 30, 1996*
10.3 Second Amendment, dated September 2, 1997, to Lease Agreement dated December 3, 1991 relating to space at 1800
Campus Drive, Plymouth, Minnesota
10.4** Registrant's Incentive Stock Option Plan--incorporated by reference to Exhibit 10.7 of the Registrant's Form 10-K
for the fiscal year ended September 30, 1983*
</TABLE>
__________________________
* Incorporated by reference - Commission File No. 0-11336
** Indicates a management contract or compensatory plan or arrangement required
to be filed as an exhibit to this Form 10-KSB.
<PAGE> 27
<TABLE>
<S> <C>
10.5** Specimen of Incentive Stock Option Agreement--incorporated by reference to Exhibit 10.8 of the Registrant's Form
10-K for the fiscal year ended September 30, 1983*
10.6** Amendment to Registrant's Incentive Stock Option Plan--incorporated by reference to Exhibit 10.13 of the
Registrant's Form 10-K for the fiscal year ended September 30, 1984*
10.7** Registrant's 1986 Nonqualified Stock Option Plan--incorporated by reference to Exhibit 10.12 of the Registrant's
Form 10-K for the fiscal year ended September 30, 1986*
10.8** Specimen of Nonqualified Stock Option Agreement under 1986 Nonqualified Stock Option Plan--incorporated by
reference to Exhibit 10.13 of the Registrant's Form 10-K for the fiscal year ended September 30, 1986*
10.9** 1986 Amendment to Registrant's Incentive Stock Option Plan--incorporated by reference to Exhibit 10.14 of the
Registrant's Form 10-K for the fiscal year ended September 30, 1986*
10.10 License Agreement between Cottrill, Inc. and TechSource Inc., Registrant's subsidiary, dated December 18, 1987--
incorporated by reference to Exhibit 10.18 of the Registrant's Form 10-K for the fiscal year ended September 30,
1988*
10.11** Registrant's 1992 Nonqualified Stock Option Plan--incorporated by reference to Exhibit 10.13 of the Registrant's
Form 10-K for the fiscal year ended September 30, 1992*
10.12** Specimens of Nonqualified Stock Option Agreements under 1992 Nonqualified Stock Option Plan--incorporated by
reference to Exhibit 10.14 of the Registrant's Form 10-K for the fiscal year ended September 30, 1992*
10.13** Amendment No. 1 to Registrant's 1992 Nonqualified Stock Option Plan--incorporated by reference to Exhibit 10.11 of
the Registrant's Form 10-KSB for the fiscal year ended September 30, 1995*
</TABLE>
__________________________
* Incorporated by reference - Commission File No. 0-11336
** Indicates a management contract or compensatory plan or arrangement required
to be filed as an exhibit to this Form 10-KSB.
<PAGE> 28
<TABLE>
<S> <C>
10.14** Amendment No. 2 to Registrant's 1992 Nonqualified Stock Option Plan--incorporated by reference to Exhibit 10.12 of
the Registrant's Form 10-KSB for the fiscal year ended September 30, 1995*
10.15** Registrant's 1994 Incentive Stock Option Plan--incorporated by reference to Exhibit 10.13 of the Registrant's Form
10-KSB for the fiscal year ended September 30, 1993*
10.16** Specimen of Incentive Stock Option Agreement under 1994 Incentive Stock Option Plan--incorporated by reference to
Exhibit 10.14 of the Registrant's Form 10-KSB for the fiscal year ended September 30, 1993*
10.17** Registrant's 1996 Restricted Stock Plan--incorporated by reference to Exhibit 10.15 of the Registrant's Form
10-KSB for the fiscal year ended September 30, 1995*
10.18** Specimen of Restricted Stock Agreement under 1996 Restricted Stock Plan--incorporated by reference to Exhibit
10.16 of the Registrant's Form 10-KSB for the fiscal year ended September 30, 1995*
10.19** Restricted Stock Agreement dated December 30, 1994 between Registrant and Robert H. Kill--incorporated by
reference to Exhibit 10.1 of the Registrant's Form 10-QSB for the quarter ended June 30, 1995.*
22 Subsidiaries of the Registrant
------------------------------
Jurisdiction
Name of Incorporation
---- ----------------
Ciprico FSC, Inc. Virgin Islands
Ciprico (Europe) Limited England
23.1 Consent of Grant Thornton LLP
23.2 Consent of KPMG Peat Marwick LLP
24 Power of Attorney from Certain Directors--see Signature Page
27 Financial Data Schedule (filed in electronic format only)
</TABLE>
__________________________
* Incorporated by reference - Commission File No. 0-11336
** Indicates a management contract or compensatory plan or arrangement required
to be filed as an exhibit to this Form 10-KSB.
<PAGE> 1
EXHIBIT 10.3
SECOND AMENDMENT TO LEASE
This Amendment ("Agreement") is made as of the 2nd day of
September, 1997 by and between LIBERTY PROPERTY LIMITED PARTNERSHIP, a
Pennsylvania limited partnership (hereinafter called "Landlord"), and CIPRICO,
INC., a Delaware corporation (hereinafter called "Tenant").
BACKGROUND:
A. Tenant and Landlord's predecessor-in-interest are parties to
that certain Lease dated as of December 3, 1991 with respect to certain
premises containing approximately 30,982 square feet of Rentable Area
consisting of suites 60, 70, 80, 90, 100, 110 and 120 in that certain building
known as the 2800 Campus Drive Building, all as more particularly described in
the Lease.
B. The Lease was amended by that certain First Amendment to Lease
dated July 1, 1996 by and between Tenant, as tenant, and NWBC Associates
Limited Partnership, as landlord (the "First Amendment"). The term "Lease"
herein shall mean the Lease, as so amended.
C. Landlord is the successor-in-interest to NWBC Associates
Limited Partnership.
D. The First Amendment, among other things, provides that
effective February 1, 1998, the Premises shall be increased by the 5,460 square
feet shown crosshatched on Exhibit A to the First Amendment.
E. Subject to the terms and conditions set forth below, Landlord
and Tenant desire to amend the Lease so as to accelerate the effective date of
the expansion of the Premises from February 1, 1998 to October 1, 1997.
AMENDMENT:
Now, therefore, for good and valuable consideration, the receipt and
legal sufficiency of which the undersigned acknowledge, the undersigned agree
as follows:
1. Section 2.2 of the First Amendment is hereby amended and
restated in its entirety as follows:
"2.2. Effective October 1, 1997, the Premises shall
be increased by that 5,460 square feet shown crosshatched on
the attached Exhibit A (the "Additional Space")."
2. Section 2.3 of the First Amendment is hereby amended and
restated in its entirety as follows:
<PAGE> 2
"2.3 Effective October 1, 1997, Tenant's percentage
of occupancy for determination of Tenant's pro rata share of
Operating Expenses and Real Estate Taxes shall be increased to
fifty six and 39/100ths percent (56.39%).
3. Section 2.4 of the First Amendment is hereby amended and
restated in its entirety as follows:
"The Base Rent schedule, payable in equal monthly
installments in advance in accordance with Section 2 of the
Lease, based on 36,442 square feet, shall be as follows:
<TABLE>
<CAPTION>
PERIOD BASE RENT MONTHLY BASE RENT
PER SQUARE FOOT
<S> <C> <C>
10/1/97-12/31/97 $7.00 $21,257.83
1/1/97-7/31/00 $8.87 $26,936.71
8/1/00-10/31/02 $9.76 $29,639.49"
</TABLE>
4. The parties agree that notwithstanding the acceleration of the
effective date for the expansion of the Premises from February 1, 1998 to
October 1, 1997, the date set forth in Section 2.5 of the First Amendment by
which payment of the $100,024 leasehold improvement allowance must be made
shall remain unchanged at February 1, 1998.
5. This Second Amendment is contingent upon Landlord obtaining
control of the Additional Space, currently leased to Kiland Distributing, on or
before October 1, 1997. If for any reason Kiland Distributing has not
relinquished the Additional Space to Landlord on or before October 1, 1997,
this Second Amendment shall be null and void and of no force or effect.
6. Except as may be otherwise specifically provided, the Premises
and the Additional Space shall be leased to Tenant on the terms and conditions
set forth in the Lease. In the event of any inconsistencies between the terms
of the Lease and this Agreement, the terms of this Agreement shall have
control. All capitalized terms not otherwise defined herein shall have the
meaning given to them in the Lease.
<PAGE> 3
The parties have executed this Agreement as of the date stated in the
opening paragraph of this Agreement.
TENANT: CIPRICO, INC. BY:
BY: /s/ Cory J. Miller
----------------------------
ITS: V.P. of Finance/CFO
---------------------------
LANDLORD: LIBERTY PROPERTY LIMITED
PARTNERSHIP
BY: LIBERTY PROPERTY TRUST, GENERAL PARTNER
BY: /s/ illegible
------------------------
ITS: Senior Vice President
-----------------------
<PAGE> 4
EXHIBIT A
Floor plan of leased premises showing additional 5,460 square feet being
leased.
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated October 31, 1997, accompanying the
consolidated financial statements included in the Annual Report of Ciprico Inc.
and subsidiaries on Form 10-KSB for the year ended September 30, 1997. We
hereby consent to the incorporation by reference of said report in the
Registration Statement of Ciprico Inc. and Subsidiaries on Forms S-8 (File No.
2-89276, File No. 2-96358, File No. 33-5746, File No. 33-14466, File No.
33-47840, File No. 33-78116, File No. 33-64999, File No. 33-65001, File No.
333-02931 and File No. 333-02933).
/s/ GRANT THORNTON LLP
Minneapolis, Minnesota
December 15, 1997
<PAGE> 1
Exhibit 23.2
Independent Auditors' Consent
The Board of Directors
Ciprico Inc.:
We consent to incorporation by reference in the registration
statements (No. 2-89276, 2-96358, 33-5746, 33-14466, 33-47840, 33-78116,
33-64999, 33-65001, 333-02931 and 333-02933) on Form S-8 of Ciprico Inc. of our
report dated November 6, 1996, relating to the consolidated balance sheet of
Ciprico Inc. and subsidiaries as of September 30, 1996, and the related
consolidated statements of earnings, shareholders' equity, and cash flows for
each of the years in the two-year period ended September 30, 1996, which report
appears in the September 30, 1997 Form 10-KSB of Ciprico Inc.
/s/ KPMG Peat Marwick LLP
Minneapolis, Minnesota
December 15, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<CASH> 4,512,411
<SECURITIES> 32,289,823
<RECEIVABLES> 5,542,911
<ALLOWANCES> 391,000
<INVENTORY> 4,353,934
<CURRENT-ASSETS> 40,422,690
<PP&E> 9,329,179
<DEPRECIATION> 5,381,084
<TOTAL-ASSETS> 52,105,282
<CURRENT-LIABILITIES> 4,047,736
<BONDS> 0
0
0
<COMMON> 39,366,963
<OTHER-SE> 8,690,583
<TOTAL-LIABILITY-AND-EQUITY> 52,105,282
<SALES> 36,389,678
<TOTAL-REVENUES> 36,389,678
<CGS> 19,099,716
<TOTAL-COSTS> 19,099,716
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 93,507
<INTEREST-EXPENSE> 10,014
<INCOME-PRETAX> 6,439,372
<INCOME-TAX> 2,190,000
<INCOME-CONTINUING> 4,249,372
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,249,372
<EPS-PRIMARY> .79
<EPS-DILUTED> .79
</TABLE>
