<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period ended December 31, 1996
Commission File No. 0-11336
----------------------------
CIPRICO INC
(Exact name of Small Business Issuer as specified in its charter)
DELAWARE 41-1749708
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2800 Campus Drive
Plymouth, Minnesota 55441
(Address of principal executive offices)
Issuer's telephone number, including area code: (612) 551-4000
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the Issuer was required to file such reports) and (2) has
been subject to such filing requirements for the past 90 days. Yes X No
--- ---
Shares of Common Stock outstanding at February 6, 1997, 5,034,373 shares.
Transitional Small Business Disclosure Format (check one):
Yes No X
--- ---
<PAGE> 2
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
CIPRICO INC AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
December 31, September 30,
(In thousands) 1996 1996*
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 2,096 $ 13,398
Marketable securities 21,408 13,871
Receivables - net 6,111 4,599
Inventories 5,214 3,018
Deferred income taxes 507 507
Other current assets 220 262
--------- --------
Total current assets 35,556 35,655
Property and equipment - net 2,563 2,348
Marketable securities 9,961 9,988
Other assets 13 13
--------- --------
Total assets $48,093 $48,004
========= ========
Liabilities and Stockholders' Equity
Current Liabilities:
Current installments of obligations
under capital leases 35 25
Accounts payable 2,155 2,975
Accrued expenses 1,214 1,209
Income taxes payable 619 792
Deferred revenue 335 518
--------- --------
Total current liabilities 4,358 5,519
Long-term installments of obligations
under capital lease 36 14
Deferred income taxes 15 15
Deferred rent 22 29
--------- --------
Total liabilities 4,431 5,577
Stockholders' Equity:
Common stock 50 50
Additional paid-in capital 38,021 37,952
Retained earnings 5,579 4,441
Accumulated translation adjustments 12 (16)
--------- --------
Total stockholders' equity 43,662 42,427
--------- --------
Total liabilities &
stockholders' equity $48,093 $48,004
========= =======
</TABLE>
*Amounts derived from September 30, 1996 audited consolidated financial
statements.
See Accompanying Notes to Condensed Consolidated Financial Statements.
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<PAGE> 3
CIPRICO INC AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended December 31
(In thousands, except per share data) 1996 1995
<S> <C> <C>
Net sales $8,596 $6,087
Cost of sales 4,455 3,304
------ -------
Gross profit 4,141 2,783
Sales & marketing expenses 1,593 1,155
General & administrative expenses 629 538
Research & development expenses 726 513
------ ------
Earnings from operations 1,193 577
Other income, primary interest 594 134
------ -------
Earnings before taxes 1,787 711
Income tax expense 649 5
------ ------
Net Earnings $1,138 $ 706
====== ======
Earnings per common share $ 0.21 $ 0.19
======= ======
Weighted average common shares 5,416 3,721
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements.
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<PAGE> 4
CIPRICO INC AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended December
(In thousands) 1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,138 $ 706
Adjustments to reconcile net earnings
to net cash provided by (used in)
operating activities:
Depreciation and amortization 413 219
Gain on retirement of fixed assets (1) -
Gain on sale of marketable securities - (60)
Changes in operating assets & liabilities:
Accounts receivable - net (1,512) 371
Inventories (2,196) (68)
Other current assets 42 (44)
Accounts payable (820) (25)
Accrued expenses 5 55
Income taxes payable (173) (11)
Deferred revenue (183) 140
Other, net - (7)
---------- --------
NET CASH FLOWS PROVIDED BY (USED IN)
OPERATING ACTIVITIES (3,287) 1,276
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment purchases (587) (124)
Proceeds from sale of furniture and equipment 13 -
Purchases of marketable securities (10,510) -
Proceeds from sale or maturities
of marketable securities 3,000 1,268
Other assets - net 12 (2)
--------- --------
NET CASH FLOWS PROVIDED BY (USED IN)
INVESTING ACTIVITIES (8,072) 1,142
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under capital lease
obligations (12) (9)
Proceeds from issuance of common stock 69 29
--------- ---------
NET CASH FLOWS PROVIDED BY
FINANCING ACTIVITIES 57 20
--------- ---------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (11,302) 2,438
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 13,398 3,425
--------- --------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ 2,096 $ 5,863
========= ========
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements.
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<PAGE> 5
CIPRICO INC AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
December 31, 1996
(Unaudited)
Note 1 Unaudited Statements
The accompanying unaudited condensed consolidated financial statements
have been prepared by the Company in accordance with generally accepted
accounting principles, pursuant to the rules and regulations of the Securities
and Exchange Commission. Pursuant to such rules and regulations, certain
financial information and footnote disclosures normally included in the
financial statements have been condensed or omitted. In the opinion of
management, the accompanying unaudited condensed consolidated financial
statements contain all necessary adjustments, consisting only of a recurring
nature, and disclosures to present fairly the financial position as of December
31, 1996 and the results of operations and cash flows for the three month
periods ended December 31, 1996 and 1995. These condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and the notes thereto included in the Company's Annual
Report to Shareholders for fiscal 1996.
In preparation of the Company's consolidated financial statements, management
is required to make estimates and assumptions that affect reported amounts of
assets and liabilities and related revenues and expenses. Actual results could
differ from the estimates used by management.
Note 2 Investments
The Company has invested its excess cash from the public offering completed in
the third quarter of fiscal 1996 in commercial paper and mortgage backed
government federal agency securities. These investments are classified as
held-to-maturity given the Company's intent and ability to hold the securities
to maturity and are carried at amortized cost. Investments that have
maturities of less than one year have been classified as short-term
investments.
Note 3 Inventories
Inventories were comprised of the following:
<TABLE>
<CAPTION>
December 31, September 30,
(In thousands) 1996 1996
<S> <C> <C>
Finished Goods $2,182 $1,215
Work-in-Process 1,331 497
Raw Materials 1,701 1,306
------ ------
$5,214 $3,018
====== ======
</TABLE>
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<PAGE> 6
Note 4 Stock Split
On March 27, 1996, the Company declared a three-for-two stock split which
was distributed on April 12, 1996. Share and per share data for all periods
presented have been restated to reflect the stock split.
Note 5 Offering of Common Stock
In June 1996, the Company received net proceeds of approximately
$30,776,000 from the sale of 1,500,000 shares of its common stock through a
public offering.
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<PAGE> 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Net sales in the first quarter of fiscal 1997 increased by 41% to $8.6
million when compared to sales of $6.1 million for the same period last year.
The increase in net sales is attributed to shipments of the Company's new fibre
channel disk arrays. Continued strong product acceptance in the film/video
production and satellite telemetry markets which represented 43% and 15%,
respectively, of total first quarter net sales was also a contributing factor.
Sales to two key customers made up 15% and 10% of net sales, respectively,
for the first quarter of fiscal 1997. The Company's continued international
focus resulted in export sales of $2.4 million or 28% of net sales during the
three-month period ended December 31, 1996 compared to $2.1 million or 34% of
net sales for the same period last year. Management anticipates improved sales
over the previous fiscal year subject to continued product acceptance and
growth in new applications for disk arrays.
Gross profit, as a percent of net sales, for the first quarter of fiscal
year 1997 was 48.2% compared to 45.7% for the same period last year. The
increase is due to shipment of higher margin fibre channel products as well as
product cost controls and manufacturing efficiencies gained from a higher
volume of sales. Management anticipates gross profit margins for the remainder
of fiscal 1997 to continue in the mid to upper forty percent range but, gross
margins are dependent on several factors including customer mix, product mix
and disk drive costs. Disk drives are a significant cost component of the disk
array and there is no assurance the Company can sustain the current gross
margin levels given the price fluctuations of new generation disk drives.
Sales and marketing expenses were 18.5% of net sales for the first quarter
of fiscal year 1997 compared to 19.0% for the same period last year. The
percentage decrease was primarily due to the increased sales volume when
compared to the same period of last year. Actual dollars of spending for the
current period was $438,000 higher than the same period last year due to
increased advertising and promotional expenses and additional sales and
marketing staff to address the growing market segments. Management anticipates
sales and marketing expenses for the remainder of fiscal 1997 will be higher
than last year, but lower as a percent of net sales when compared to last year.
General and administrative expenses were 7.3% of net sales for the first
quarter of fiscal year 1997 compared to 8.8% for the same period last year.
The percentage decrease was primarily due to the increased sales volume when
compared to the same period last year. Actual dollars of spending for the
current period was $91,000 higher than the same period last year due to a
general increase in spending to support company growth. Management anticipates
general and administrative expenses for the remainder of the fiscal year to be
approximately 7% to 9% of net sales.
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<PAGE> 8
Research and development expenses, as a percent of net sales, for the
first quarter of fiscal 1997 remained constant with the same period last year
at 8.4%. Actual dollars of spending for the current period was $213,000 higher
than the same period last year due to an increase in engineering staff and
product development expenses related to the fibre channel and 6500 series
products. Management anticipates research and development expenses for the
remainder of the fiscal year to be approximately 8% to 9% of net sales.
Other income mainly consists of interest income from investment of excess
cash balances. The increase for the first quarter of fiscal year 1997 when
compared to the same period last year is due primarily to income generated from
investment of the secondary offering proceeds received in the third quarter of
fiscal year 1996.
Income tax expense was $649,000 for the first quarter of fiscal year 1997
compared to $5,000 for the same period last year. This increase reflects the
change in pre-tax earnings of $1.8 million for the first quarter of fiscal
year 1997 compared to $711,000 for the same period last year. It also
reflects an increase in the effective tax rate to approximately 36% for the
current period. Net earnings for the same period last year were not fully
taxed due to utilization of a $1.7 million net operating loss carryforward.
Management anticipates the current period tax rate to approximate 36% of
pre-tax earnings.
LIQUIDITY AND CAPITAL RESOURCES
(December 31, 1996 vs. September 30, 1996)
During the first quarter of fiscal year 1997, the level of cash and cash
equivalents decreased by $11.3 million. Operating activities used $3.3 million
of cash as a result of increases in accounts receivable and inventories of $1.5
million and $2.2 million, respectively, due to the increasing sales levels.
Investing activities used $8.0 million due primarily to purchases of marketable
securities.
Management feels there is adequate liquidity to meet the immediate
on-going operating needs of the Company.
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<PAGE> 9
FORWARD-LOOKING INFORMATION
The statements in this report that are forward-looking involve risks and
uncertainties. The Company's actual results could differ materially from those
expressed in any forward-looking statements. Certain of these risks and
uncertainties are discussed below.
The Company sells its products into six visual computing vertical markets
which include: film/video production, oil/gas exploration, digital prepress,
medical imaging, satellite telemetry and video services. Continued growth in
sales in these markets is essential to Company growth.
Gross margins on product sales are highly dependent on the cost of disk
drives. There is no assurance the Company can sustain the current gross margin
levels given the price fluctuations of new generation disk drives.
Component parts for the Company's products have been on allocation from
time to time from its suppliers which means parts could become difficult to
obtain, thus having an adverse effect on the Company's result of operations.
The Company's products are characterized by rapidly changing technology,
evolving industry standards and relatively short product life cycles. Delays
in product enhancements and developments, failure to gain market acceptance of
new or enhanced products, or emergence of new products or technologies by
others, would have an adverse effect on the Company's business and result of
operations.
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<PAGE> 10
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of the Registrant's
shareholders was held on Thursday, January 30, 1997.
(b) At the Annual Meeting the number of directors was set at six
by a vote of 4,428,865 for, 120,346 against and 4,619 abstentions.
(c) Robert H. Kill and Gary L. Deaner were elected to serve as
Class III directors for a term of three years and until their
successors have been duly elected and qualified. Mr. Kill
received 4,529,288 votes for and 24,542 witheld authority. Mr.
Deaner received 4,494,289 votes for and 59,541 witheld authority.
The term of office of Donald H. Soukup and William N. Wray
continues until the 1998 Annual Meeting. The term of office of
Ronald B. Thomas and Peyton Gannaway continues until the 1999
Annual Meeting.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27- Financial Data Schedule (filed in electronic format only)
(b) Reports on Form 8-K
No report on Form 8-K was filed during the quarter
ended December 31, 1996.
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<PAGE> 11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Issuer has duly caused this report to be signed on its behalf of the
undersigned thereunto duly authorized.
CIPRICO INC
(the "Issuer")
Date: February 6, 1997
/s/ Robert H. Kill
------------------------------------
Robert H. Kill, President
(Principal Executive Officer)
/s/ Cory J. Miller
------------------------------------
Cory J. Miller, Vice President of
Finance/Chief Financial Officer
(Principal Financial and Accounting
Officer)
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<PAGE> 12
EXHIBIT INDEX
CIPRICO INC.
FORM 10-QSB
For Quarter Ended December 31, 1996
Exhibit Number Description
- -------------- -----------------------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,096
<SECURITIES> 31,369
<RECEIVABLES> 6,212
<ALLOWANCES> 357
<INVENTORY> 5,214
<CURRENT-ASSETS> 35,556
<PP&E> 7,219
<DEPRECIATION> 4,656
<TOTAL-ASSETS> 48,093
<CURRENT-LIABILITIES> 4,358
<BONDS> 0
0
0
<COMMON> 38,071
<OTHER-SE> 5,591
<TOTAL-LIABILITY-AND-EQUITY> 48,093
<SALES> 8,596
<TOTAL-REVENUES> 8,596
<CGS> 4,455
<TOTAL-COSTS> 4,455
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 19
<INTEREST-EXPENSE> 2
<INCOME-PRETAX> 1,787
<INCOME-TAX> 649
<INCOME-CONTINUING> 1,138
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,138
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
</TABLE>
