<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________________________
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Quarter Ended December 31, 1997
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 0-11336
CIPRICO INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 41-1749708
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2800 CAMPUS DRIVE
PLYMOUTH, MINNESOTA 55441
(Address of principal executive offices)
Registrant's telephone number, including area code: (612) 551-4000
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
-------- --------
The number of shares outstanding of the registrant's Common Stock, $.01 par
value, as of February 4, 1998 was 5,090,908 shares.
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CIPRICO INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
Page
<TABLE>
<S> <C> <C>
PART I Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheets at
December 31, 1997 and September 30, 1997 3
Consolidated Condensed Statements of Earnings for
Three Months Ended December 31, 1997 and 1996 4
Consolidated Condensed Statements of Cash Flows for
Three Months Ended December 31, 1997 and 1996 5
Notes to Consolidated Condensed Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 8-9
PART II Other Information
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 6. Exhibit Index and Reports on Form 8-K 10
SIGNATURES 11
</TABLE>
2
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PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CIPRICO INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
(In thousands) December 31, September 30,
1997 1997
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,610 $ 4,512
Marketable securities 24,722 24,807
Accounts receivable, less allowance 6,525 5,152
Inventories 4,469 4,354
Deferred income taxes 788 788
Other current assets 874 809
------- -------
Total current assets 41,988 40,422
Property and equipment, net 4,237 3,948
Marketable securities 7,499 7,483
Other assets 281 252
------- -------
Total assets $54,005 $52,105
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,568 $ 2,285
Accrued expenses 1,165 1,242
Deferred revenue 565 520
------- -------
Total current liabilities 5,298 4,047
Shareholders' equity:
Capital stock 51 51
Additional paid-in capital 39,440 39,316
Retained earnings 9,216 8,691
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Total shareholders' equity 48,707 48,058
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Total liabilities and shareholders' equity $54,005 $52,105
======= =======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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CIPRICO INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands except Three Months Ended
per share amounts) December 31,
--------------------
1997 1996
------ ------
<S> <C> <C>
NET SALES $7,260 $8,596
Cost of sales 3,684 4,455
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GROSS PROFIT 3,576 4,141
Research and development expenses 879 726
Sales and marketing expenses 1,788 1,593
General and administrative expenses 631 629
------ ------
EARNINGS FROM OPERATIONS 278 1,193
Other income, primarily interest 517 594
------ ------
EARNINGS BEFORE INCOME TAXES 795 1,787
Income tax expense 270 649
------ ------
NET EARNINGS $ 525 $1,138
====== ======
NET EARNINGS PER SHARE - BASIC $ .10 $ .23
====== ======
NET EARNINGS PER SHARE - DILUTED $ .10 $ .21
====== ======
Shares used to calculate net earnings per common share:
Basic 5,137 5,018
Diluted 5,383 5,422
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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CIPRICO INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE> Three Months Ended December 31,
<CAPTION>
1997 1996
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<S> <C> <C>
NET CASH FLOWS PROVIDED BY (USED IN)
OPERATING ACTIVITIES $ 662 $ (3,287)
Cash flows from investing activities:
Equipment purchases (757) (574)
Purchases of marketable securities (11,269) (10,510)
Proceeds from sale or maturity of marketable
securities 11,338 3,000
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NET CASH FLOWS USED IN INVESTING ACTIVITIES (688) (8,084)
-------- --------
Net cash flows from financing activities:
Proceeds from issuance of common stock 124 69
-------- --------
NET CASH FLOWS PROVIDED BY FINANCING
ACTIVITIES 124 69
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Net increase (decrease) in cash and cash equivalents 98 (11,302)
Cash and cash equivalents at beginning of period 4,512 13,398
-------- --------
Cash and cash equivalents at end of period $ 4,610 $ 2,096
======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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CIPRICO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
December 31, 1997
(Unaudited)
NOTE A - BASIS OF PRESENTATION
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. The
Company markets its products worldwide through a direct sales force and various
distribution channels.
The accompanying unaudited consolidated condensed financial statements have
been prepared by the Company in accordance with Regulation S-X pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although
management believes that the disclosures are adequate to make the information
presented not misleading.
In the opinion of management, the unaudited consolidated condensed financial
statements contain all necessary adjustments, consisting only of a recurring
nature, and disclosures to present fairly the financial position as of December
31, 1997 and the results of operations and cash flows for the three-month
periods ended December 31, 1997 and 1996. These consolidated condensed
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 1997.
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 B - 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 December 31, 1997 and September 30, 1997,
amortized cost approximates fair value of held-to-maturity investments which
consist of the following:
<TABLE>
<CAPTION>
December 31, September 30,
(In thousands) 1997 1997
------------ -------------
<S> <C> <C>
Current marketable securities
Commercial Paper $14,735 $14,814
U.S. Government Agencies 9,987 9,993
------- -------
24,722 24,807
Non-current marketable securities
U.S. Government Agencies 7,499 7,483
------- -------
$32,221 $32,290
======= =======
</TABLE>
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NOTE C - INVENTORIES
Inventories are stated at the lower of cost or replacement market. Cost is
determined using the first-in, first-out method. Inventories consist of the
following:
<TABLE>
<CAPTION>
December 31, September 30,
(In thousands) 1997 1997
------------ -------------
<S> <C> <C>
Finished Goods $1,573 $1,566
Work-in-Process 800 1,162
Raw Materials 2,096 1,626
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$4,469 $4,354
====== ======
</TABLE>
NOTE D - NET EARNINGS PER SHARE
On December 31, 1997, the Company adopted Statement of Financial Accounting
Standards No. 128 - "Earnings per Share" ("SFAS 128"). As required by
Statement No. 128, all current and prior year net earnings per share data have
been restated to conform to the provisions of Statement No. 128.
The Company's basic net earnings per share amounts have been computed by
dividing net earnings by the weighted average number of outstanding common
shares. The Company's diluted net earnings per share is computed by dividing
net earnings by the weighted average number of outstanding common shares and
common share equivalents relating to stock options, when dilutive. For the
three months ended December 31, 1997 and 1996, 246,045 and 404,745 shares of
common stock equivalents were included in the computation of diluted net
earnings per share. Options to purchase 445,438 and 35,750 shares of common
stock with a weighted average exercise price of $14.48 and $18.84 were
outstanding at December 31, 1997 and 1996, but were excluded from the
computation of common share equivalents because their exercise prices were
greater than the average market price of the common shares.
NOTE E - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("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 year 1999. Statement No. 130 will require the Company to
display an amount representing 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 statements is not expected to have a material effect on
the consolidated financial statements of the Company.
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CIPRICO INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO THREE MONTHS ENDED DECEMBER
31, 1996
Net sales for the three-month period ended December 31, 1997 decreased by 16%
to $7.3 million when compared to sales of $8.6 million for the same period last
year. The decrease in net sales can be attributed to a product mix shift
toward more 6900 Series disk arrays instead of the anticipated mix of fibre
channel (7000 Series) and 6500 Series products and a large percentage of orders
received in the latter part of the quarter. As a result, the Company was
unable to ship all orders and ended the current period with a higher backlog
than usual. The entertainment (film/video and broadcasting) and
satellite/telemetry markets continue to be strong markets, representing 35% and
33% of net sales for the current three-month period. In addition, a growing
new market, oil/gas exploration, accounted for 25% of net sales for the current
period. The Halo disk array, a new product developed for the Sun platform, was
introduced in the current period and received strong customer acceptance.
International sales decreased to $1.5 million or 21% of net sales during the
current three-month period compared to $2.4 million or 28% of net sales for the
same period last year. Three key customers accounted for 31%, 12% and 10% of
sales for the current three-month period while two customers accounted for 15%
and 10% of sales for the same period last year. Management anticipates
improved sales over the previous fiscal year subject to continued product
acceptance, growth in new market opportunities and expanded distribution
channels.
Gross profit, as a percentage of net sales, for the three-month period ended
December 31, 1997 was 49.3% compared to 48.2% for the same period last year.
This improvement is primarily due to the cost decrease of high performance disk
drives during the current period. Management anticipates gross profit for the
remainder of fiscal 1998 to be challenged by anticipated sales through
distribution channels which tend to carry a lower profit, but remain in the mid
to upper forty percent range.
Research and development expenses increased $153,000 or 21% for the three-month
period ended December 31, 1997 compared to the same period last year. The
increase can be attributed to expenses associated with product development
activities, including an increase in engineering staff, related to enhancements
to the Company's current fibre channel products.
Sales and marketing expenses increased $195,000 or 12% for the three-month
period ended December 31, 1997 compared to the same period last year. The
increase can be attributed to expenses associated with additional sales and
marketing staff as the Company positions itself for expansion of its
distributor sales network and focuses on new market opportunities.
Other income consists mainly of interest income from invested cash. The
decrease for the three-month period ended December 31, 1997 compared to the
same period last year can be attributed to declining long-term interest rates.
On December 31, 1997, the Company adopted Statement of Financial Accounting
Standards No. 128 - "Earnings per Share" ("SFAS 128"). As required by SFAS
128, all current and prior year earnings per share data have been restated to
conform to the provisions of SFAS 128.
LIQUIDITY AND CAPITAL RESOURCES
The Ciprico Annual Report on Form 10-KSB for the year ended September 30, 1997
contains a detailed discussion of Ciprico's liquidity and capital resources.
In conjunction with this Quarterly Report on Form 10-Q, investors should read
the 1997 Form 10-KSB.
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Liquidity is very strong with cash and cash equivalents and short-term
marketable securities totaling $29.3 million at December 31, 1997. Cash flows
from operating activities during the current three-month period were $662,000.
This result was attributed to sources of cash from net earnings of $525,000 and
non-cash expenses for depreciation of $465,000 offset by a $328,000 net
decrease in operating assets and liabilities. Investing activities used
$688,000 primarily as a result of capital expenditures for office equipment,
production and test equipment and facility expansion.
On January 5, 1998, the Company announced a stock buyback program of up to $3.0
million. As of the date of this filing, $1.3 million has been used to purchase
105,000 shares.
Funding of future working capital needs and equipment purchases, combined with
purchases of the Company's stock, could cause a reduction in the cash balance
in fiscal 1998. Management believes that current funds and the funds from
operations are adequate to support the current on-going operating needs of the
Company.
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 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 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 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 operations.
The Company typically 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 orders may be received in the last month or weeks
of a quarter and quarterly sales may be affected by the Company's ability or
inability to ship such orders by quarter end.
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.
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CIPRICO INC. AND SUBSIDIARIES
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 29, 1998.
(b) At the Annual Meeting, the number of directors
was set at six by a vote of 4,887,990 for, 32,262 against and
13,590 abstentions.
(c) Donald H. Soukup and William N. Wray were elected
to serve as Class I directors for a term of three years and
until their successors have been duly elected and qualified.
Mr. Soukup and Mr. Wray each received 4,891,093 votes for and
42,749 withheld authority. The term of office of Ronald B.
Thomas and Peyton Gannaway continues until the 1999 Annual
Meeting. The term of office of Robert H. Kill and Gary L.
Deaner continues until the 2000 Annual Meeting.
(d) The shareholders approved an increase of (1)
350,000 shares reserved for the 1992 Nonqualified Stock Option
Plan, (2) 250,000 shares reserved for the 1994 Incentive Stock
Option Plan and (3) 75,000 shares reserved for the 1996
Restricted Stock Plan by a vote of 1,862,495 for, 712,328
against, 50,423 abstentions and 2,308,596 broker non-votes.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 - Financial Data Schedule (filed in electronic format
only)
(b) No report on Form 8-K was filed during the
quarter ended December 31, 1997.
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CIPRICO INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities and 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.
Dated: February 4, 1998 /s/ Robert H. Kill
-----------------------------------
Robert H. Kill, President
(Principal Executive Officer)
Dated: February 4, 1998 /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-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 4,610
<SECURITIES> 32,221
<RECEIVABLES> 6,941
<ALLOWANCES> 416
<INVENTORY> 4,469
<CURRENT-ASSETS> 41,988
<PP&E> 9,829
<DEPRECIATION> (5,592)
<TOTAL-ASSETS> 54,005
<CURRENT-LIABILITIES> 5,298
<BONDS> 0
0
0
<COMMON> 39,491
<OTHER-SE> 9,216
<TOTAL-LIABILITY-AND-EQUITY> 54,005
<SALES> 7,260
<TOTAL-REVENUES> 7,260
<CGS> 3,684
<TOTAL-COSTS> 6,982
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 27
<INTEREST-EXPENSE> 3
<INCOME-PRETAX> 795
<INCOME-TAX> 270
<INCOME-CONTINUING> 525
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 525
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
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