<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 June 30, 1997
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 August 4, 1997, 5,091,901 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>
June 30 September 30
(In thousands) 1997 1996
-------- ------------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 3,370 $13,398
Marketable securities 20,876 13,871
Receivables - net 8,975 4,599
Inventories 5,346 2,789
Deferred income taxes 623 507
Other current assets 457 262
-------- ------------
Total current assets 39,647 35,426
Property and equipment - net 3,243 2,577
Marketable securities 7,485 9,988
Other assets 22 13
-------- ------------
Total assets $50,397 $48,004
======== ============
Liabilities and Stockholders' Equity
Current Liabilities:
Current installments of obligations
under capital leases $ 27 $ 25
Accounts payable 1,919 2,975
Accrued expenses 1,257 1,209
Income taxes payable 90 792
Deferred revenue 508 518
-------- ------------
Total current liabilities 3,801 5,519
Long-term installments of obligations
under capital lease 27 14
Deferred income taxes - 15
Deferred rent 9 29
-------- ------------
Total liabilities 3,837 5,577
Stockholders' Equity:
Common stock 51 50
Additional paid-in capital 38,679 37,952
Retained earnings 7,815 4,441
Accumulated translation adjustments 15 (16)
-------- ------------
Total stockholders' equity 46,560 42,427
-------- ------------
Total liabilities &
stockholders' equity $50,397 $48,004
======== ============
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements.
-2-
<PAGE> 3
CIPRICO INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended June 30 Ended June 30
(In thousands, except per share data) 1997 1996 1997 1996
------- ------ ------- -------
<S> <C> <C> <C> <C>
Net sales $10,123 $7,101 $27,722 $19,884
Cost of sales 5,247 3,679 14,621 10,387
------- ------ ------- -------
Gross profit 4,876 3,422 13,101 9,497
Sales & marketing expenses 1,965 1,355 5,028 3,683
General & administrative expenses 738 677 2,030 1,765
Research & development expenses 826 552 2,369 1,668
------- ------ ------- -------
Earnings from operations 1,347 838 3,674 2,381
Other income, primarily interest 430 222 1,456 454
------- ------ ------- -------
Earnings before taxes 1,777 1,060 5,130 2,835
Income tax expense 605 164 1,756 324
------- ------ ------- -------
Net earnings $ 1,172 $ 896 $ 3,374 $ 2,511
======= ====== ======= =======
Earnings per common share $ .22 $ .20 $ .63 $ .63
======= ====== ======= =======
Weighted average common shares 5,383 4,447 5,378 4,000
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements.
-3-
<PAGE> 4
CIPRICO INC AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended June 30
(In thousands) 1997 1996
------ ------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $3,374 $2,511
Adjustments to reconcile net earnings
to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,245 907
Deferred income taxes (131) (308)
Loss on retirement of fixed assets 69 3
Gain on sale of marketable securities - (60)
Changes in operating assets & liabilities:
Receivables (4,376) 79
Inventories (2,557) (716)
Other current assets (195) (17)
Accounts payable (1,056) 238
Accrued expenses 48 477
Income taxes payable (347) 599
Deferred revenue (10) 102
Other, net (30) (22)
------ ------
NET CASH FLOWS PROVIDED BY (USED IN)
OPERATING ACTIVITIES (3,966) 3,793
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment purchases (2,085) (1,366)
Proceeds from sale of furniture and equipment 154 2
Purchases of marketable securities (32,501) -
Proceeds from sale or maturities
of marketable securities 28,000 1,267
Other assets - net 22 (7)
------ ------
NET CASH FLOWS (USED IN)
INVESTING ACTIVITIES (6,410) (104)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under capital lease
obligations (25) (21)
Proceeds from issuance of common stock 373 31,064
------ ------
NET CASH FLOWS PROVIDED BY
FINANCING ACTIVITIES 348 31,043
------ ------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (10,028) 34,732
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 13,398 3,425
------ ------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ 3,370 $38,157
====== ======
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements
-4-
<PAGE> 5
CIPRICO INC AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
June 30, 1997
(Unaudited)
Note 1 - Unaudited Statements
The accompanying unaudited condensed consolidated financial statements have
been prepared by the Company in accordance with generally accepted accounting
principles, pursuant to the rules and regulations of the Securities and
Exchange Commission. Pursuant to such rules and regulations, certain
financial information and footnote disclosures normally included in the
financial statements have been condensed or omitted. In the opinion of
management, the accompanying unaudited condensed consolidated financial
statements contain all necessary adjustments, consisting only of a recurring
nature, and disclosures to present fairly the financial position as of June
30, 1997 and the results of operations for the three-month and nine-month
periods ended June 30, 1997 and 1996, and cash flows for the nine-month
periods ended June 30, 1997 and 1996. These condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and the notes thereto included in the Company's Annual Report to
Shareholders for fiscal 1996.
In preparation of the Company's consolidated financial statements, management
is required to make estimates and assumptions that affect reported amounts of
assets and liabilities and related revenues and expenses. Actual results could
differ from the estimates used by management.
Note 2 - Investments
The Company has invested its excess cash from the public offering completed in
the third quarter of fiscal 1996 in commercial paper and mortgage backed
government federal agency securities. These investments are classified as
held-to-maturity given the Company's intent and ability to hold the securities
to maturity and are carried at amortized cost. Investments that have
maturities of less than one year have been classified as short-term
investments.
Note 3 - Inventories
Inventories were comprised of the following:
<TABLE>
<CAPTION>
June 30, September 30,
(In thousands) 1997 1996
-------- -------------
<S> <C> <C>
Finished Goods $1,979 $ 986
Work-in-Process 1,356 497
Raw Materials 2,011 1,306
----- -----
$5,346 $2,789
===== =====
</TABLE>
-5-
<PAGE> 6
Note 4 - Offering of Common Stock
In June 1996, the Company received net proceeds of approximately $30,776,000
from the sale of 1,500,000 shares of its common stock through a public
offering.
Note 5 - New Accounting Pronouncements
The FASB has issued Statement No. 123 "Accounting for Stock-Based
Compensation", which is effective for fiscal 1997. Under this Statement, the
Company must either adopt the fair value-based method of accounting for
employee stock options or continue to account for employee stock options using
the intrinsic value-based method. Management intends to continue with the
intrinsic value-based method which, under the new standard, will require
additional disclosure.
The FASB has also issued Statement No. 128, "Earnings Per Share", which is
effective for financial statements issued after December 15, 1997. Early
adoption of the new standard is not permitted. The new standard eliminates
primary and fully diluted earnings per share and requires presentation of
basic and diluted earnings per share together with disclosure of how the per
share amounts are computed.
The adoption of these standards is not expected to have a material effect on
the consolidated financial statements of the Company.
Note 6 - Reclassification
Certain 1996 amounts have been reclassified to conform to the 1997
presentation.
-6-
<PAGE> 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
(Three months and nine months ended June 30, 1997
compared to three months and nine months ended June 30, 1996.)
Net sales for the three-month period ended June 30, 1997 increased by 43%
to $10.1 million when compared to sales of $7.1 million for the same period
last year. Net sales for the nine-month period ended June 30, 1997 increased
39% to $27.7 million when compared to $19.9 million for the same period last
year. The increase in net sales is attributed to shipments of the Company's
new 7000 Series Fibre Channel and 6500 Series entry-level disk arrays, and
continuing growth in the Company's customer base. Sales to one customer
accounted for 31% and 11% of sales for the current three-month and nine-month
periods. Last year, two customers accounted for 24% and 13% of sales for the
three-month periods and 19% and 14% of sales for the nine-month periods.
Film/video production and satellite telemetry markets continue to be
strong markets representing 36% and 35% of net sales for the nine-month period.
The Company's export sales totaled $6.0 million or 22% of net sales during the
nine-month period ended June 30, 1997 compared to $8 million or 40% of net
sales for the same period last year. Management anticipates improved sales
over the previous fiscal year subject to continued product acceptance and new
customer opportunities.
Gross profit, as a percentage of net sales, for the three-month and
nine-month periods ended June 30, 1997 was 48.2% and 47.3% compared to 48.2%
and 47.8% for the same periods last year. Gross profit margin improved during
the current three-month period when compared to the prior three-month period
due to lower disk drive costs and shipments of higher margin new technology
products. Management anticipates gross margins for the remainder of fiscal 1997
to be in the mid to upper forty percent range.
Sales and marketing expenses were 19.4% and 18.1% of net sales for the
three-month and nine-month periods ended June 30, 1997 compared to 19.1% and
18.5% for the same periods last year. Actual spending for the current periods
was higher than the same periods last year due to expenses associated with
additional sales and marketing staff and an increase in advertising expenses.
Management anticipates sales and marketing expense dollars for the remainder of
fiscal 1997 will be higher than last year, but comparable as a percentage of
net sales.
General and administrative expenses were 7.3% of net sales for the
three-month and nine-month periods ended June 30, 1997 compared to 9.5% and
8.9% for the same periods last year. Actual spending for the current periods
was higher than the same periods last year due to a general increase in
spending to support company growth. Management anticipates general and
administrative expenses for the remainder of the fiscal year to be
approximately 7% to 8% of net sales.
-7-
<PAGE> 8
Research and development expenses were 8.2% and 8.5% of net sales for the
three-month and nine-month periods ended June 30 compared to 7.8% and 8.4% for
the same periods last year. Actual spending for the current periods was higher
than the same periods last year due to product development expenses, including
an increase in engineering staff, related to the Company's three new products
introduced in fiscal 1997 and future products to be released. Management
anticipates research and development expenses for the remainder of the fiscal
year to be approximately 8% to 9% of net sales.
Other income consists mainly of interest income from invested cash. The
increase for the current periods of fiscal 1997 compared to the same periods
last year is due primarily to income generated from investment of secondary
offering proceeds received in the third quarter of fiscal 1996.
Income tax expense was $1.8 million for the first nine months of fiscal
1997 compared to $324,000 for the same period last year. This increase
reflects the change in operating results of $5.1 million of pre-tax earnings
for the nine months ended June 30, 1997 compared to $2.8 million for the same
period last year. It also reflects an increase in the Company's effective tax
rate to approximately 34% for the current period compared to 13% for last year.
Net earnings for the same period last year were not fully taxed due to
utilization of a $1.7 million net operating loss carryforward. Management
anticipates the current period tax rate to approximate 34% of pre-tax earnings.
LIQUIDITY AND CAPITAL RESOURCES
The Company's Annual Report on Form 10-KSB for the year ended September
30, 1996 contains a detailed discussion of Ciprico's liquidity and capital
resources. In conjunction with this Quarterly Report on Form 10-QSB, investors
should read the 1996 Form 10-KSB.
During the first nine months of fiscal year 1997, the level of cash and
cash equivalents decreased by $10 million. Operating activities used $4.0
million primarily the result of a $4.4 million increase in receivables and a
$2.6 million increase in inventories to support the increasing level of sales.
These uses of cash were largely offset by net income for the period of $3.4
million. Investing activities used $6.4 million as a result of net purchases
of $4.5 million in marketable securities and a $2.1 million investment in
capital equipment.
Management feels there is adequate liquidity to meet the immediate
on-going operating needs of the Company.
-8-
<PAGE> 9
FORWARD-LOOKING INFORMATION
The statements in this report that are forward-looking involve risks and
uncertainties. The Company's actual results could differ materially from those
expressed in any forward-looking statements. Certain of these risks and
uncertainties are discussed below.
The Company sells its products into seven visual computing vertical
markets which include: film/video production, oil/gas exploration, digital
prepress, medical imaging, satellite telemetry, broadcast/video services and
mechanical CAD/CAM/CAE. Continued growth in sales in these markets is essential
to Company growth.
Gross margins on product sales are highly dependent on the cost of disk
drives. There is no assurance the Company can sustain the current gross margin
levels given the price fluctuations of new generation disk drives.
Component parts for the Company's products have been on allocation from
time to time from its suppliers which means parts could become difficult to
obtain, thus having an adverse effect on the Company's results of operations.
The Company's products are characterized by rapidly changing technology,
evolving industry standards and relatively short product life cycles. Delays
in product enhancements and developments, failure to gain market acceptance of
new or enhanced products, or emergence of new products or technologies by
others, would have an adverse effect on the Company's business and results of
operations.
-9-
<PAGE> 10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 - Financial Data Schedule (filed in electronic format only)
(b) Reports on Form 8-K
No report on Form 8-K was filed during the quarter ended
June 30, 1997.
-10-
<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: August 4, 1997
/s/ Robert H. Kill
-----------------------------------------------
Robert H. Kill, President
(Principal Executive Officer)
/s/ Cory J. Miller
-----------------------------------------------
Cory J. Miller, Vice President of Finance/Chief
Financial Officer
(Principal Financial and Accounting Officer)
-11-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 3,370
<SECURITIES> 28,361
<RECEIVABLES> 9,143
<ALLOWANCES> 379
<INVENTORY> 5,346
<CURRENT-ASSETS> 39,647
<PP&E> 8,691
<DEPRECIATION> 5,448
<TOTAL-ASSETS> 50,397
<CURRENT-LIABILITIES> 3,801
<BONDS> 0
0
0
<COMMON> 38,730
<OTHER-SE> 7,830
<TOTAL-LIABILITY-AND-EQUITY> 50,397
<SALES> 10,123
<TOTAL-REVENUES> 10,123
<CGS> 5,247
<TOTAL-COSTS> 5,247
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 25
<INTEREST-EXPENSE> 2
<INCOME-PRETAX> 1,777
<INCOME-TAX> 605
<INCOME-CONTINUING> 1,172
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,172
<EPS-PRIMARY> .22
<EPS-DILUTED> .22
</TABLE>
