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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
September 30, 1998 Commission File No. 0-11336
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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 No.)
2800 CAMPUS DRIVE
PLYMOUTH, MINNESOTA 55441
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number,
Including Area Code: (612) 551-4000
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Securities registered pursuant to Section 12(b) of the Exchange Act:
None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock
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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
requirement for the past 90 days. Yes X No
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Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not 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-K or any amendment to this
Form 10-K [ ]
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The aggregate market value of the Common Stock held by nonaffiliates of the
Registrant as of December 11, 1998 was approximately $25,434,000 (based upon the
last sale price of the Registrant's Common Stock on such date).
Shares of Common Stock outstanding at December 11, 1998: 4,874,191 share
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the fiscal
year ended September 30, 1998 are incorporated by reference in Part II and
portions of the Registrant's Proxy Statement for the 1999 Annual Meeting of
Shareholders are incorporated herein by reference in Part III, as indicated.
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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 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 (redundant
array of independent disks). This first RAID-3 disk array subsystem allowed five
disk drives to function as one large disk drive to the computer. Since then, the
Company has continued to advance the technology with new product introductions.
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, remote sensing and defense
imaging, geosciences, 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-K that are forward-looking involve risks and
uncertainties. The Company's actual results could differ materially from those
expressed in any forward-looking statements. For a discussion of these risks and
uncertainties, see "Management's Discussion and Analysis--Forward-Looking
Information."
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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 from 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. Since then, Ciprico has introduced several new disk array products to meet
the changing needs of its customers. 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 a list price of $13,000 to $65,300
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 replacements
simple.
6700 SERIES. The Company's 6700 Series disk array was introduced in 1994
and phased out during 1998 as the demand for Fast Wide SCSI-2 products
diminished with the introduction of faster interfaces.
6900 SERIES. Introduced in 1996, Ciprico's 6900 Series disk arrays use a
new version of the SCSI peripheral interface standard, known as UltraSCSI. While
maintaining compatibility with SCSI-2, the UltraSCSI interface offers a transfer
rate of 40 MBs per second, twice the speed of Fast Wide SCSI-2. 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 72
gigabytes (GB) to 144 GB. The 6900 Series also includes several redundancy
features, including hot swap drives and power supplies.
6500 SERIES. The 6500 Series of disk arrays, targeted at entry-level or
low-cost application environments, began shipping in the fall of 1996. The 6500
Series utilizes the Ultra SCSI interface, offers 40 MB per second transfer rate
and allows users to swap disk drives without losing data or performance. Unlike
Ciprico's 6900 and 7000 products, the 6500 product uses ATA-2 disk drives (also
known as IDE disk drives) internally. ATA disk drives are most commonly found in
personal computers. Use of these drives enables the Company to offer a low-cost
solution to customers while meeting their performance, data redundancy and cost
requirements. The disk arrays are available in an 8 + 1 configuration and have
storage capacities ranging from 50 to 100 GB. The 6500 Series can be striped or
daisy-chained together for additional capacity.
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7000 FIBRE CHANNEL SERIES. In fiscal 1997, Ciprico began shipping 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 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 optimize 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 seven arrays using 18 GB
drives 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,
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 and simplify the installation
and use of a Ciprico disk array with a Silicon Graphics platform.
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.
RADIANT SERIES. RadiaNT is a packaged, fully-integrated hardware/software
RAID disk array storage solution for the NT environment. Based on Ciprico's 7000
Series of Fibre Channel RAID disk arrays, the package includes all components
necessary to take advantage of the performance of full-speed Fibre Channel,
including a PCI to Fibre Channel adapter and a graphical user interface (GUI)
utility package. The 7000 product has been certified as Windows NT compatible by
Microsoft Corporation.
NEW PRODUCTS. Ciprico began shipping a new product called FibreSTORE in the
fall of 1998. FibreSTORE is commonly referred to as a JBOD (just a bunch of
drives) product. The FibreSTORE product offers the performance features expected
in many applications but will not have RAID type redundancy. Upgradeable to our
7000 Fibre Channel disk array, this will be part of a family of products that
will also include a new FibreSTORE RAID product. The FibreSTORE RAID product is
expected to be released in the second half of 1999.
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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.
PRODUCT DEVELOPMENT STRATEGY. The Company responds to changing market needs
with development concepts that are continuously re-evaluated against customers'
requirements. As a result, some product development concepts are terminated
before release based on customer feedback. In 1998, the Company abandoned its
development of the RAID Recorder and reassigned resources to accelerate other
high-demand products such as FibreSTORE.
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
and in remote depots.
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, remote sensing
and defense imaging, geosciences and other emerging markets such as 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.
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ENTERTAINMENT. The entertainment market segment includes companies that
create, edit, manipulate and broadcast images, in real-time playback, using
digital technology instead of linear film and video tape. This industry includes
movie studios, post-production houses and video production facilities.
Applications within this market have traditionally included applications such as
3D animation, special effects, film restoration and editing. 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.
An emerging segment of the entertainment market is the digital broadcast
market, with the new high definition television (HDTV) standards mandated in the
U.S. 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. With images stored as data,
new applications for storage devices within the television broadcast segment
will include electronic news gathering, commercial and promotional insertion and
TV broadcast. Digital broadcast markets will also include such applications as
campus and distance learning, movies on demand and in-flight entertainment
systems.
REMOTE SENSING AND DEFENSE IMAGING. The remote sensing and defense imaging
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 and require
massive storage, are then sold or supplied to the end users for analyzing the
data. More images are stored in very high resolution formats and, as more and
more images are stored digitally, they can be accessed using logical data base
management, rather than through linear tape. 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 remote sensing and defense imaging
market segment.
GEOSCIENCES. The geosciences 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
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through 3D images representing underground geological formations, enabling the
exploration company to locate oil fields and determine optimal drilling sites.
OTHER MARKETS. The Company's products are also used in applications in the
medical imaging market segment and digital prepress market segment. Within the
medical imaging market segment, applications for Ciprico disk arrays include
diagnostic imaging, picture archival communication systems and 3-D imaging
applications. When a patient is undergoing an image acquisition procedure,
imaging systems need to capture and display image data 100% of the time. Ciprico
disk arrays provide the performance and redundancy that is required for these
medical applicataions.
Within the digital prepress market segment, computer-to-plate or
direct-to-press manufacturers 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. 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 has identified segments of the visual computing market and
allocated marketing resources to support its principal market segments. Market
managers with an in-depth understanding of the market applications develop a
comprehensive marketing plan tailored to the needs of each market segment,
including market and promotional strategy. In addition, the Company relies on
its experienced application engineers to support the Company's marketing and
sales efforts.
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 has direct sales
representatives in the Boston, Washington D.C., Midwest, Texas, California, and
Pacific Northwest sections of North America. The Company has international sales
and service offices in Newbury, England, Singapore and Tokyo.
As part of the Company's marketing and sales strategy, the Company enters
into relationships with companies who could play an important role in the
successful marketing of the Company's products. The Company's disk arrays are
sold to OEMs for inclusion in their own computer systems, to systems
integrators, large end-users (including government departments and agencies) 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 has developed a strong relationship with Silicon Graphics, Inc.
(SGI) a leading manufacturer of computer platforms in the visual computing
market. In February 1998, the Company announced that after completion of
extensive testing of Ciprico's products, SGI had agreed to become a reseller of
Ciprico's RAID 3 disk arrays. In 1998, sales through SGI totaled $11 million.
(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 will
not 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 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 Company's needs, but alternative sources for
the components are available. The Company has
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strategic partners with which it works closely to fill these needs. The
principal suppliers are Arrow Electronics, Inc., MCMS, Inc. and Du Fresne
Manufacturing Co.
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. In 1998,
sales through Silicon Graphics, Inc. totaled $11.0 million. For the year ended
September 30, 1997, one customer in the remote sensing and defense imaging
market, 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.
(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-Registered Trademark-, and Spectra
6000-Registered Trademark- and has registrations pending for trademarks for
HALO-TM-, FibreSTORE-TM-, and SANity-TM-.
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(8) BACKLOG AND GOVERNMENT APPROVALS.
The Company historically has operated on low levels of backlog, and
therefore, does not consider the level of backlog to be indicative of future
operating results. As of September 30, 1998, the Company had $1.3 million in
backlog which is scheduled to ship in fiscal 1999. 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 be approved for resale by Silicon Graphics, Inc. In 1996, the
Company announced its first product utilizing the new Fibre Channel interface.
The Company invested significant resources in the development of its Fibre
Channel disk array and was the first manufacturer to introduce a disk array
integrating this new interface. Volume shipments of this product began in
November 1996 and continue to be strong. An entirely new Fibre Channel product,
the FibreSTORE, was recently introduced. This product incorporates Fibre Channel
disk drives into a high performance, dual loop architecture. The FibreSTORE is a
base component in the Company's next generation disk array family. Product
introductions of a new RAID controller product as well as higher capacity
configurations incorporating FibreSTORE are forthcoming.
Software development programs and product introductions are also within the
Company's research and development strategy. Platform specific software packages
for the SGI and SUN/Solarius platforms are being upgraded to enhance the new
FibreSTORE product family. RadiaNT, a software package for the Windows NT
operating system was recently completed and introduced. In 1999, the Company
expects to further explore the market for Storage Area Network (SAN) solutions.
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The Company invested $4,527,000, $3,172,000 and $2,423,000 in research and
development expenses in fiscal 1998, 1997 and 1996, respectively. All of the
Company's research and development expenditures are expensed as incurred. At
November 30, 1998, the Company had 30 full-time employees engaged in research
and development activities.
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.
(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, 1998, the Company had 114 full-time employees, of which 19
were engaged in manufacturing, 30 in engineering and research and development,
51 in sales, sales support and marketing and 14 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 36,400 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.
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.
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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.
EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages and positions of the Company's executive officers are as
follows:
<TABLE>
<CAPTION>
Name Age Position(s)
---- --- -----------
<S> <C> <C>
Robert H. Kill 51 Chairman of the Board, President
and Chief Executive Officer
Stephen R. Hansen 46 Vice President - Product Development
and Operations
Joan K. Berg 46 Vice President of Finance,
Chief Financial Officer and Secretary
</TABLE>
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.
Stephen R. Hansen was elected Vice President - Product Development and
Operations in September 1998. Mr. Hansen has been with the Company since June
1989. From 1983 to 1989, he held Engineering and Management positions with Zycad
Corporation, a developer of high performance supercomputers used for simulation
of VLSI technology. From 1974 to 1983, he held various research and engineering
positions with Control Data Corporation.
Joan K. Berg joined the Company as Vice President of Finance, Chief
Financial Officer and Secretary in September 1998. From 1995 to 1998, Ms. Berg
was Chief Financial Officer of Coda Music Technology, Inc. From 1986 to 1994,
Ms. Berg was the Vice President and Controller of ADC Telecommunications, Inc.,
a manufacturer of telecommunications equipment. Prior to that time, Ms. Berg
practiced as a certified public accountant with Arthur Andersen LLP.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by Item 5 is incorporated herein by reference to
the section labeled "Stock Trading" which appears in the Registrant's Annual
Report to Shareholders for the fiscal year ended September 30, 1998.
ITEM 6. SELECTED FINANCIAL DATA
The information required by Item 6 is incorporated herein by reference to
the sections labeled "Selected Consolidated Statements of Operations Data" and
"Selected Consolidated Balance Sheet Data" which appears in the Registrant's
Annual Report to Shareholders for the fiscal year ended September 30, 1998.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by Item 7 is incorporated herein by reference to
the section labeled "Management's Discussion and Analysis," including disclosure
respecting forward-looking information, which appears in the Registrant's Annual
Report to Shareholders for the fiscal year ended September 30, 1998.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not have any material, near-term, market rate risk.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by Item 8 is incorporated herein by reference to
the consolidated financial statements, notes thereto and Independent Auditors'
Report thereon which appear in the Registrant's Annual Report to Shareholders
for the fiscal year ended September 30, 1998.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Previously reported.
-12-
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Other than "Executive officers of the Registrant" which is set forth
at the end of Part I of this Form 10-K, the information required by Item 10
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 1999 Annual Meeting of
Shareholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference to
the section labeled "Executive Compensation" which appears in the Registrant's
definitive Proxy Statement for its 1999 Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 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 1999 Annual
Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
(a) EXHIBITS. See "Exhibit Index" on page following signatures.
(b) FINANCIAL STATEMENT SCHEDULES. None.
(c) REPORTS ON FORM 8-K.
No report on Form 8-K was filed by the Company during the fourth quarter of
fiscal 1998.
-13-
<PAGE>
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 18, 1998 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 JOAN K. BERG 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-K 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>
/s/ Robert H. Kill Chairman, President and Director December 18, 1998
-----------------------
Robert H. Kill (Principal executive officer)
/s/ Joan K. Berg Vice President of Finance and Chief December 18, 1998
-----------------------
Joan K. Berg Financial Officer (Principal
financial and accounting officer)
Director December , 1998
-----------------------
William N. Wray
/s/ Donald H. Soukup Director December 18, 1998
-----------------------
Donald H. Soukup
/s/ Ronald B. Thomas Director December 18, 1998
-----------------------
Ronald B. Thomas
/s/ Gary L. Deaner Director December 18, 1998
-----------------------
Gary L. Deaner
Director December , 1998
-----------------------
Peyton Gannaway
</TABLE>
-14-
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBIT INDEX TO FORM 10-K
For the fiscal year ended Commission File No.: 0-11336
September 30, 1998
CIPRICO INC.
<TABLE>
<CAPTION>
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 2800 Campus Drive, Plymouth,
Minnesota - - incorporated by reference to Exhibit 10.3 of the
Registrant's Form 10-KSB for the fiscal year ended September 30,
1997.*
</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-K.
<PAGE>
<TABLE>
<S> <C>
10.4 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*
10.5** 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*
10.6** 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*
10.7** 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*
10.8** 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*
10.9** 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*
10.10** 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*
10.11** 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*
10.12** 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*
</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-K.
<PAGE>
<TABLE>
<S> <C>
10.13** 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.*
10.14 Agreement dated January 29, 1998 between Silicon Graphics, Inc. and
Registrant.
13 Portions of September 30, 1998 Annual Report to Shareholders
incorporated by reference in this Form 10-K.
22 SUBSIDIARIES OF THE REGISTRANT
</TABLE>
<TABLE>
<CAPTION>
Jurisdiction
Name of Incorporation
---- ----------------
<S> <S>
Ciprico FSC, Inc. Virgin Islands
Ciprico (Europe) Limited England
Ciprico Asia-Pacific, Inc. Delaware
</TABLE>
<TABLE>
<S> <C>
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-K.
<PAGE>
EXHIBIT 10.14
CIPRICO, INC.
SILICON GRAPHICS AGREEMENT
This Agreement is effective this 29th day of January, 1998("Effective Date") by
and between Ciprico, Inc., having a principal place of business at 2800 Campus
Drive, Plymouth, Minnesota 55441 U.S.A. ("Ciprico") and Silicon Graphics Inc.
(hereinafter referred to as SGI) having its principal place of business at 2011
N. Shoreline Boulevard, Mountain View, California 94043-1389.
Ciprico and SGI agree as follows:
1. RESELLER APPOINTMENT
Ciprico hereby appoints SGI as an authorized non-exclusive Reseller with
respect to the sale of Ciprico Products specified in Attachment A (the
"Products"). These products, as described in Exhibit A1 (Product
Specifications) will be updated by Ciprico from time to time in writing as
Ciprico generally releases additional or modified Product configurations,
options, software, upgrades, and the like.
2. TERM
The term of this Agreement shall commence on the date first written above
(the "Effective Date") and shall continue in full force and effect until
January 28, 2001 (the "Initial Term"). At the end of the initial term,
this Agreement shall automatically renew from year to year on the
anniversary date, unless earlier terminated as provided hereinafter.
3. RELATIONSHIP OF THE PARTIES
SGI and Ciprico acknowledge that both parties are independent contractors.
SGI and Ciprico shall in no way represent itself nor permit any party
acting on its behalf to represent itself as a joint venturer, agent,
employee or general representative of each others company. SGI
acknowledges that its only authorized representation to third parties is to
identify itself as a Ciprico Reseller.
4. CIPRICO'S RESPONSIBILITIES
Consistent with the terms of this Agreement, Ciprico agrees that it will do
the following:
4.1 Sell the Products to SGI for their resale or lease to end users or
other customers. SGI's resale or lease prices shall be under the sole
control of SGI.
4.2 Provide SGI with such product sales training, collateral, and sales
lead's, as SGI and Ciprico deem appropriate.
4.3 Keep SGI regularly advised of changes in published specifications of
the Products and provide SGI with at least 60 days prior written
notice.
4.4 Exchange information on product applications, product positioning, and
market research in our mutual product market segments.
4.5 Provide technical service training either at SGI's facilities or at
Ciprico headquarters at no charge, once per year. Provide a method
for technical
<PAGE>
assistance and problem escalation for SGI's "Front Line"
support program. This is to include a "spare parts" method of
availability for SGI and it's customer base as referenced in
Attachment D. Provide expansive written and or web-based customer
support material.
4.6 Provide SGI with secure access to Ciprico sales web site.
4.7 Provide Product that meets worldwide agency standards i.e. UL, CUL,
TUV, Standard IEC950/Directive EN60950 approvals.
4.8 Ciprico agrees to adhere to the conditions of mutual non-disclosure
agreement as referenced in attached C paragraph 2.
5. SGI'S RESPONSIBILITIES
In accordance with the terms of this Agreement, SGI agrees that it will do
the following:
5.1 SGI agrees to adhere to the conditions of mutual non-disclosure
agreement as referenced in Attachment C.
5.2 Maintain an SGI staff of Ciprico trained "technical" support personnel
to support its customers.
5.3 Make a reasonable business effort to attain mutually agreed upon sales
objectives as specified in Attachment B. Ciprico and SGI will review
the sales objectives and pricing on a quarterly basis.
5.4 Refrain from modifying Ciprico's Products, trademarks or copyright
notices in any fashion or de-compiling, reverse engineering, or
otherwise extracting software code in human or machine readable form
from the Products without prior written approval of Ciprico.
5.5 SGI acknowledges that the Products are subject to the jurisdiction of
the United States and the Export Administration Regulation, Part
730-774, et seq.; that the subject SGI sale, transfer, export or
re-export of Products may require the prior written approval of the
United States Government; and that SGI assumes all responsibility for
obtaining the required authorization. SGI also agrees not to sell,
transfer, export or re-export Products to any party subject to a
denial of United States export privileges (refer to "Denied Persons
List" currently in effect; contained in Supplement 1 to Part 764, US
Export Administration Regulations).
5.6 Refrain from copying, duplicating, or otherwise reproducing software
contained in the Products without prior written approval of Ciprico.
6. PRICE AND DISCOUNTS
6.1 SGI prices for the Products are specified in Attachment A. All prices
for the Products are exclusive of any applicable value added taxes,
sales taxes, transport costs, custom duties and insurance costs for
which SGI shall be additionally liable. Ciprico is responsible for
taxes based on Ciprico's income.
6.2 Ciprico reserves the right to change prices at any time by giving not
less than thirty (30) days written notice to SGI. Such changes in
price will be subject to the price protection provision set forth in
Section 7.
7. PRICE PROTECTION
<PAGE>
7.1 In the event of a price increase, Ciprico will honor all orders with
acknowledged delivery dates at the old price.
7.2 In the event of a price reduction, SGI shall be entitled to the new
price on all open orders.
8. REPORTS
SGI agrees to provide Ciprico every three (3) months with a forecast for
Product covering the subsequent twelve (12) month period. It is understood
and agreed, however, that the forecast and amendments thereto do not
constitute in any way a promise of commitment or obligation of SGI with
respect to the quantity or type of Product to be purchased under this
Agreement.
9. DELIVERY AND ACCEPTANCE
9.1 The Products and services shall be ordered by purchase orders and
change orders thereto (hereinafter individually or collectively
"Orders") issued by SGI personnel. Each Order shall reference this
Agreement and shall specify quantity, configuration, prices, delivery
dates and destination, or service as applicable, and other such
matters necessary for the individual transaction to be adequately
described. All Orders, including those issued by SGI in anticipation
of the signing of this Agreement, and reasonable related instructions
which are consistent with the terms of this Agreement are deemed
accepted by Ciprico upon acknowledgment thereof and are covered
hereby.
Ciprico shall acknowledge receipt of each SGI Order within two (2)
business days after receipt and shall deliver Ordered Units in
accordance with the Delivery dates indicated on the Orders provided
such dates are consistent with the Order lead times, which is thirty
(30) days for Units. If, within two (2) business days of an SGI
Order, Ciprico determines that SGI Ordered Units can not be delivered
within thirty (30) days, due to shortages of Product or Software,
Ciprico will notify SGI of the revised Order lead time and SGI may
have the option to cancel the Ordered Units in writing to Ciprico
within two (2) business days of Ciprico notification. Ciprico shall
make reasonable efforts to comply with SGI Orders which request
Delivery of Units in less than thirty (30) days.
9.2 Shipment shall be made FOB (FCA - Free Carrier for International
orders) Ciprico's factory, Plymouth, Minnesota, U.S.A., freight
collect, and title thereto and risk of loss or damage shall pas to SGI
on delivery of Products to the carrier. SGI reserves the right to
select common carrier and method of shipment. If Ciprico is late in
shipping any Products at F.O.B. point as per Ciprico order
acknowledgement to SGI, SGI may require Ciprico to ship some or all of
such Products by air freight or other premium mode of transportation
and Ciprico shall pay the cost differential between the normal and
premium mode. If Ciprico is more than 20 days late in delivery
against an acknowledged order, SGI reserves the right to cancel the
order without charge.
9.3 SGI shall promptly and thoroughly inspect all Products upon arrival
and shall notify Ciprico in writing within fourteen (14) days of any
shipping discrepancies, packing shortages or other non-conformities of
the Products, which are reasonably discoverable upon such inspection.
Such inspection and/or lack of notification by SGI cannot limit
Ciprico's warranty obligation.
9.4 In the event that a Customer cancels or defers an order for Product
that it had
<PAGE>
placed with SGI, SGI may cancel or defer an Order for an identical
product placed with Ciprico prior to Delivery, by providing to Ciprico
in writing a copy of the Customer's cancellation request or deferral.
If the SGI deferral request is received by Ciprico within a fourteen
(14) working day period of the calendar quarter end, SGI may be
subject to reasonable re-stocking charges as determined by Ciprico.
9.5 This Agreement states the terms and conditions applicable to the
Orders and replaces in their entirety both the pre-printed terms and
conditions appearing on any SGI Order forms and any additional terms
or changes appearing on Ciprico's acknowledgment of the Orders.
10. PAYMENT TERMS AND DEFAULT
The payment terms shall be Net 45 days after invoice date. The invoice
shall reference the detailed line items of the SGI Order placed hereunder.
SGI will be responsible for all original freight and shipping charges,
unless Ciprico is late delivering any Products at F.O.B. point, in which
case Ciprico shall be responsible for any additional freight and shipping
charges as noted in 9.2.
11. WARRANTY
Ciprico's sole and exclusive warranty to SGI is that all products to be
delivered hereunder will be free of defects in material and workmanship for
a period of one (1) year from the date of shipment to SGI or SGI designated
shipping area.
Ciprico warrants that it's product will meet the Ciprico Product
Specification for each product that SGI purchases or will purchase in the
future.
Ciprico will honor all warranties only on a "return to factory" basis
shipped at SGI expense. Ciprico's sole obligation (and exclusive remedy)
hereunder shall be to repair or replace any defective component and pay
transportation costs for such replacement at no charge to SGI, who shall at
it's own expense provide labor for removal of the defective product and
installation of it's replacement.
If Ciprico or SGI detects a recurring pattern of defects or a material
safety problem in any of the Products provided hereunder, Ciprico shall
investigate and determine the root cause of the defect. Upon finding that
a recurrent defect or a material safety problem exists, which may cause
substantial problem, Ciprico shall provide, in an orderly fashion, a
replacement solution to the recurrent defect or material safety problem.
All costs incurred by SGI in performing the replacement, including labor
costs if an off site action is required, will be borne by Ciprico. Ciprico
may change the terms of the standard warranty at any time, effective upon
thirty (30) days written notice to SGI.
Ciprico acknowledges Year 2000 Compliance as referenced in Attachment C.
EXCEPT AS EXPRESSLY PROVIDED IN THE APPLICABLE STANDARD WARRANTY POLICY,
CIPRICO MAKES NO REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESSED OR
IMPLIED, EITHER BY LAW OR BY STATUTE, WITH RESPECT TO THE PRODUCTS, WHETHER
AS TO MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR ANY OTHER
MATTER. THE WARRANTY REMEDIES DESCRIBED IN THIS PARAGRAPH REPRESENTS SGI'S
EXCLUSIVE REMEDIES FOR BREACHES OF WARRANTY.
12. PRODUCT CHANGES AND DISCONTINUANCE OF PRODUCT
<PAGE>
Ciprico will provide SGI with the opportunity, in advance, to provide input
to Ciprico planned Product marketing activity specifically addressed at the
sale of Product. Ciprico will give SGI the opportunity to participate in
discussions with regard to Product changes and will notify SGI promptly
before any significant product changes. Ciprico also shall notify SGI at
least ninety (90) days prior to the discontinuance of manufacture or sale
of any Products.
13. LIMITATION OF LIABILITY
13.1 EXCEPT FOR MATTERS ARISING OUT OF SECTION 14, CIPRICO'S LIABILITY ON
ANY CLAIM OF ANY KIND FOR ANY LOSS OR DAMAGE ARISING OUT OF, OR
RESULTING FROM THE PRODUCTS OR SERVICES FURNISHED HEREUNDER, SHALL IN
NO CASE EXCEED THE PRICE OF THE SPECIFIC PRODUCT OR SERVICE WHICH
GIVES RISE TO THE CLAIM. EXCEPT AS TO TITLE, ANY SUCH LIABILITY SHALL
TERMINATE UPON EXPIRATION OF THE STANDARD WARRANTY POLICY PROVIDED FOR
IN CIPRICO'S THEN-EFFECTIVE WARRANTY POLICY. IN NO EVENT SHALL
CIPRICO HAVE ANY LIABILITY FOR INCIDENTAL, CONSEQUENTIAL, OR SPECIAL
DAMAGES OF ANY DESCRIPTION, INCLUDING BUT NOT LIMITED TO LOST PROFITS
OR DAMAGE TO REPUTATION.
13.2 Neither SGI nor Ciprico shall, by reason of the discontinuance or
change of any Products or the termination or non-renewal of
Resellership of Products be liable to the other for compensation,
reimbursement or damages on account of the loss of prospective profits
on anticipated sales, or on account of expenditures, investments,
leases, or commitments in connection with the business or good will of
SGI or Ciprico.
13.3 SGI hereby waives application of any provision of law now existing or
hereafter in force in any jurisdiction where SGI's offices are located
which restricts or imposes conditions upon Ciprico's right to
terminate or not to renew this Agreement or which would require
Ciprico to pay any sums to SGI upon such termination or non-renewal.
14. PATENT INDEMNTITY
Ciprico will defend at its own expense, and indemnify SGI against any
action brought against SGI to the extent that it is based on a claim that
the Products supplied by Ciprico or the operation of such Products for
their intended use pursuant to Ciprico's specifications, infringe a patent,
copyright, trademark, trade secret or other intellectual property owned by
anyone other than Ciprico; and Ciprico shall pay those costs and damages
finally awarded against SGI or which result from a settlement thereof. SGI
must provide prompt notice of any claim and reasonably cooperate in
defense, giving Ciprico the right to control any litigation.
15. TERMINATION
15.1 The SGI Agreement hereby created may be terminated as follows:
A. Either party may terminate this Agreement without cause, by
providing the other party written notice not less than ninety
(90) days prior to termination, such written notice identifying
the party's intent to withdraw from their obligations and
responsibilities under this Agreement. Termination will not
affect open SGI purchase orders.
<PAGE>
B. Should either party violate any provision of this Agreement, this
Agreement will terminate without further notice if the defaulting
party fails to fully cure such default within thirty (30) days
after the giving of written notice by the non-defaulting
identifying the breach and demanding that it be cured, except
that the cure period for a default on any payment due for
Products shall be fifteen (15) days.
C. By either party, upon one day's written notice in the event that
the other Party becomes insolvent, ceases to function as a going
concern or to conduct its operations in the normal course of
business, files or has filed against it a petition in bankruptcy,
or makes an assignment for the benefit of creditors, or has a
receiver or trustee appointed for any material part of its
properties.
16. ASSIGNMENT
Neither SGI nor Ciprico may assign or delegate its obligations hereunder to
any third party without the prior written consent of either party. This
Agreement shall be binding upon and inure to the benefit of the permitted
successors and assigns of the parties hereto.
17. SEVERANCE
In the event any part of this Agreement is held by the final order of any
court, tribunal or administrative agency having jurisdiction over the
Agreement or the subject matter hereof to be invalid, contrary to the law
or public policy, or otherwise unenforceable, such part or parts shall be
severed herefrom and shall not affect any other part or parts of this
Agreement.
18. NOTICES
All notices required or permitted by this Agreement shall be addressed to
the recipient at the address designated above, or any other address
hereafter designated in writing by such party, shall be written in the
English language, and shall be either hand delivered, mailed by certified
mail or express mail return receipt requested. Such notices shall be
deemed given when mail is delivered, or hand delivered, as the case may be.
19. NO THIRD PARTY BENEFICIARIES
The parties do not intend that anyone other than Ciprico, SGI and their
permitted successors and assigns have any rights relating to or arising out
of this Agreement. Without listing the generality of the foregoing, no
other distributor, SGI or representative of Ciprico shall have any rights
relating to or arising out of this Agreement.
20. U.S. EXPORT REGULATIONS
SGI agrees to adhere to all provisions of the U.S. Laws and Regulations in
effect from time to time regarding export licenses and the control and
regulation of the export and re-export of products or technical data
supplied to SGI. In the event that SGI does not or cannot comply with all
substantive provisions required to obtain an Individual Validated Export
license or in the event Ciprico's export privileges are restricted or
withdrawn, Ciprico will not be responsible for damages of any kind to SGI.
21. FORCE MAJEURE
Ciprico and or SGI shall not be deemed in breach hereof on account of any
delay in delivery or other performance caused in whole or in part by, or
otherwise materially
<PAGE>
related to, the occurrence of any contingency beyond Ciprico's and or SGI's
control, including but not limited to: war or hostility; crime, tort or
unlawful act; failure or delay in land, water or air transportation; act of
any government or agency, subdivision or branch thereof; judicial action;
strikes or other labor disputes; accident, fire, explosion, flood, storm or
other acts of God; shortage of labor, fuel, power, inventory or machinery;
technical failure; delay or failure to perform by any supplier; or, in
general, any contingency whatsoever (whether similar or dissimilar to those
set forth herein) where Ciprico and SGI have exercised ordinary care in the
provision thereof.
22. ENTIRE AGREEMENT AND NONWAIVER
This Agreement shall supersede and make inoperative as of this date any
oral or written sales agency, Resellership or similar agreement heretofore
entered into between the parties hereto with respect to the Products. This
Agreement contains the entire and only agreement between the parties hereto
with respect to the Products or any other materials hereafter supplied by
Ciprico to, and no modification or waiver of any of the provisions hereof,
or any representation, promise or addition hereto, or waiver of any breach
hereof, shall be binding upon either party unless made in writing and
signed by the party to be charged thereby. No waiver of any particular
breach shall be deemed to apply to any other breach, whether prior or
subsequent to the waiver. Without limiting the generality of the
foregoing, no term (except quantity and product description) appearing on
SGI's purchase order or other order document shall be binding upon Ciprico
unless specifically accepted by SGI in a writing signed by its Vice
President-General Manager and by Ciprico in a writing signed by its
President, or its appropriate Vice-President-General Manager.
23. CONTROLLING LAW AND JURISDICTION
This Agreement will be deemed to have been made in the State of Minnesota,
U.S.A. and shall be governed by, construed and interpreted under the laws
of the State of Minnesota (but not its conflict of law rules). With
respect to the enforcement of this Agreement or any legal action brought on
account of or in connection with this Agreement, SGI hereby consents that
the jurisdiction of the U.S. District Court for the State of Minnesota and
agrees that Ciprico may effect valid service of process on SGI by certified
mail at SGI's last known address or by any other means authorized under and
pursuant to applicable law before the commencement of action before such
court.
24. REGISTRATION AND APPROVAL
If this Agreement or the relationship established hereunder must be
approved and/or registered with any governmental authority with
jurisdiction over SGI, SGI shall bear all costs and expenses thereof, but
all documents submitted to such governmental authorities must be approved
in advance by Ciprico.
Agreed to by:
SGI: CIPRICO, INC.:
By: /s/ John Beau Vrolyk By: /s/ Robert H. Kill
----------------------------- --------------------------
TYPED NAME John Beau Vrolyk TYPED NAME Robert H. Kill
TITLE: Executive Vice President -SSBU TITLE: President and CEO
ADDRESS: 2011 N. Shoreline Blvd. ADDRESS: 2800 Campus Drive, Ste. #60
Mountain View, CA 94043 Plymouth, MN 55441
U.S.A.
<PAGE>
SELECTED CONSOLIDATED STATEMENTS OF OPERATIONS DATA
CIPRICO INC. AND SUBSIDIARIES
- -----------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales ............................... $ 30,088,527 $ 36,389,678 $ 27,408,126 $ 15,966,203 $ 13,120,610
Gross profit ............................ 15,083,406 17,289,962 13,024,667 7,467,829 6,272,967
50.1% 47.5% 47.5% 46.8% 47.8%
Operating expenses ...................... 16,029,420 12,848,590 10,061,622 7,361,413 6,694,506
53.3% 35.3% 36.7% 46.1% 51.0%
Income (loss) from operations ........... (946,014) 4,441,372 2,963,045 106,416 (421,539)
(3.1%) 12.2% 10.8% .7% (3.2%)
Other income, net ....................... 1,950,622 1,998,000 976,657 317,661 121,916
Income tax expense ...................... 342,000 2,190,000 496,000 28,000 21,000
Net income (loss) ....................... $ 662,608 $ 4,249,372 $ 3,443,702 $ 396,077 $ (320,623)
------------------------------------------------------------------------------
Net earnings (loss) per share - Basic ... $ .13 $ .84 $ .87 $ .12 $ (.10)
------------------------------------------------------------------------------
Net earnings (loss) per share - Diluted . $ .13 $ .79 $ .80 $ .12 $ (.10)
------------------------------------------------------------------------------
Shares used to calculate net earnings
(loss) per share:
Basic ........................... 5,023,374 5,056,451 3,943,352 3,234,168 3,093,872
Diluted ......................... 5,221,244 5,395,687 4,325,672 3,394,079 3,093,872
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
SELECTED CONSOLIDATED BALANCE SHEET DATA
<TABLE>
<CAPTION>
SEPTEMBER 30 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Working capital ......................... $ 35,556,875 $ 36,374,954 $ 29,849,513 $ 6,572,688 $ 5,243,796
Total assets ............................ 49,473,161 52,105,282 47,988,900 10,920,067 8,583,220
Shareholders' equity .................... 45,308,752 48,057,546 42,427,015 7,696,264 6,473,522
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
STOCK TRADING
Ciprico common stock is traded on the Nasdaq National Market under the symbol
CPCI. As of November 30, 1998, there were approximately 3,600 shareholder
accounts of record. Closing stock sale price ranges for the years ended
September 30, 1998 and 1997, were:
<TABLE>
<CAPTION>
QUARTER 1998 HIGH 1998 LOW 1997 HIGH 1997 LOW
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First .......... $ 15.13 $ 11.13 $ 20.50 $ 12.50
Second ......... 14.75 11.50 15.13 11.00
Third .......... 14.13 9.94 16.75 11.38
Fourth ......... 8.56 6.50 18.38 13.75
</TABLE>
The Company has never paid cash dividends on any of its securities. The Company
currently intends to retain any earnings for use in its operations and does not
anticipate paying cash dividends in the foreseeable future.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
CIPRICO INC. AND SUBSIDIARIES
- --------------------------------------
RESULTS OF OPERATIONS
OVERVIEW:
Ciprico designs, manufactures and markets the high-performance storage
solutions preferred by the leading visual computing and digital media
professionals throughout the world. Ciprico builds flexible, high performance
digital storage solutions, using disk array products specifically designed for
computing applications requiring high speed image capture and display, full
image resolution playback, sustained performance and data protection. The
Company's primary markets are Entertainment, Remote Sensing and Defense Imaging
(formerly referred to as Satellite/Telemetry), and Geosciences. In addition,
the Company seeks opportunities in other markets with high-performance storage
requirements such as Digital Prepress and Medical Imaging.
Prior to 1996, the Company's disk array used a peripheral interface standard
known as SCSI or Ultra-SCSI. In 1996, the Company began shipping a disk array
offering a host interface compatible with full speed Fibre Channel, the fastest
interface currently available. The Company intends to broaden its product line
further in 1999 with the introduction of an entry level disk array sometimes
referred to as a JBOD (an acronym used in the industry to refer to "just a bunch
of drives") product and a new family of RAID products which will offer a number
of new features compared to those found in the Company's other products.
The Company is headquartered in Minneapolis, Minnesota with sales offices
throughout the U.S. and in the United Kingdom, Singapore and Japan. The
Minneapolis headquarters is staffed with engineers, technicians, sales,
marketing, manufacturing and administrative employees. During the fourth quarter
of fiscal 1998, the Company reduced its employee headcount by approximately 10%.
NET SALES:
Net sales decreased 17% to $30.1 million in 1998 compared to $36.4 million in
1997. Net sales in 1997 were up 33% from 1996. Sales in the Company's key
markets are shown in the chart below.
The increase in revenues in the Geosciences market is partially attributable to
the success of the Company's partnership with Silicon Graphics, Inc. (SGI).
Decreased revenues in the Entertainment market results from the decline of new
movie development and special effects requiring storage in that market segment.
The decrease in the Remote Sensing and Defense Imaging market is principally due
to timing of large contracts, while the decrease in other sales is due to a
reduction of sales of the older controller board products.
NET SALES (IN MILLIONS)
<TABLE>
<CAPTION>
Market 1998 % of Total 1997 % of Total 1996 % of Total
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Entertainment ....................... $ 8.4 27.9 $ 15.7 43.1 $ 16.7 61.0
Remote Sensing and Defense Imaging .. 10.2 33.9 12.4 34.1 3.6 13.1
Geosciences ......................... 7.4 24.6 1.1 3.0 1.1 4.0
Other ............................... 4.1 13.6 7.2 19.8 6.0 21.9
----------------------------------------------------------------------------
$ 30.1 100.0% $ 36.4 100.0% $ 27.4 100.0%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
</TABLE>
Export sales represented 22%, 21% and 36% of total sales in 1998, 1997 and 1996.
In 1998, sales through SGI totaled $11.0 million. In 1997, one customer in the
Remote Sensing and Defense Imaging 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.
The Company's revenue growth in 1999 is dependent on its ability to provide new
products and expand the applications of its products into targeted market
segments.
COST OF SALES AND GROSS PROFIT:
Gross profit of $15.1 million represented a 50% gross profit margin for 1998,
compared to 48% in both 1997 and 1996. This increase in the margin percentage is
partially attributable to a higher percentage of sales of the higher margin
Fibre Channel products and a lower percentage of revenue from the discontinued
6700 product. The Company improved its margin percentage in 1998 while managing
the changes in disk drive prices and the transition from 9 gigabyte drives to 18
gigabyte drives.
Gross profit on product sales is highly dependent on the cost of disk drives and
may fluctuate from quarter to quarter. The Company believes its strong vendor
relations will aid in component availability and cost reductions. The Company
anticipates 1999 gross profit, as a percentage of net sales, to continue in the
mid to upper forty percent range.
RESEARCH AND DEVELOPMENT EXPENSES:
Research and development expenses of $4.5 million increased 43% from 1997 due to
additional staff, outside professional services and depreciation expenses for
test equipment. Research and development expenses of $3.2 million in 1997
increased $749,000 from 1996. 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 that research and development expenses in 1999 will approximate the
level of spending in 1998.
SALES AND MARKETING EXPENSES:
Sales and marketing expenses of $8.6 million increased 23% from 1997, reflecting
the costs associated with increasing our sales staff and product promotion
expenses. In 1997, sales and maketing expenses increased $1.6
16
<PAGE>
million over 1996 sales and marketing expense. 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. The
Company expects that the rate of growth of expenses in 1999 will be less than
the rate of growth in expenses of the prior two years.
GENERAL AND ADMINISTRATIVE EXPENSES:
General and administrative expenses of $2.9 million increased 8% from 1997,
principally related to consulting relative to the Company's business systems. In
1997, general and administrative expenses were $2.7 million compared to $2.2
million for 1996. Spending increased in 1997 due to increased personnel costs to
support Company growth. The Company expects to restrict expense spending in 1999
until the Company returns to higher revenue levels.
OTHER INCOME:
Other income of $2.0 million in 1998 and 1997 increased $1.0 million from 1996
due to interest income on higher average cash balances. The Company's stock
offering in May 1996 yielded net proceeds of $30.8 million.
INCOME TAX EXPENSE:
Income tax expense represented 34% of income before tax for 1998 and 1997. The
effective tax rate in 1996 was 12.6% due to the utilization of net operating
loss carryforwards.
NET INCOME:
As a result of the factors described above, net income decreased $3.6 million in
1998 and increased $806,000 in 1997.
LIQUIDITY AND CAPITAL RESOURCES:
As of September 30, 1998, the Company had cash, cash equivalents and marketable
securities totaling $33.0 million compared to $36.8 million at the end of 1997
and $37.3 million at the end of 1996. In 1996, the Company realized net proceeds
of $30.8 million from the sale of 1.5 million shares of common stock which
amount has been invested in short-term securities and longer-term securities
with original maturities of less than two years.
Cash flows from operating activities were $2.6 million, $2.1 million and $3.5
million in 1998, 1997 and 1996. The Company made capital expenditures totaling
$2.7 million, $3.0 million and $2.0 million in 1998, 1997 and 1996. The Company
anticipates that capital expenditures for 1999 will approximate $3.7 million.
During 1998, the Company initiated a stock buyback program of up to $6.0
million. As of September 30, 1998, 359,400 shares of common stock have been
repurchased for $4.3 million.
Management believes that current cash balances and cash generated from
operations will be adequate to fund requirements for working capital and capital
expenditures, as well as any potential acquisition in 1999.
YEAR 2000 ISSUE:
The Company has completed an assessment of Year 2000 compliance for its critical
operating and application systems. Through this assessment, no major issues were
discovered. The Company expects to be fully Year 2000 compliant by March 31,
1999. The cost associated with the assessment and any modifications necessary is
expected to be less than $200,000. Ultimately, the potential impact of the Year
2000 issue will depend not only on the actions taken by the Company, but also on
the way in which the Year 2000 issue is addressed by customers, vendors and
other entities with which the Company does business. The Company is
communicating with these parties to learn how they are addressing the Year 2000
issue and to evaluate any likely impact on the Company. The Year 2000 efforts of
third parties are not within the Company's control. Failure by these third
parties, particularly those upon which the Company may be dependent, to respond
to Year 2000 issues successfully could result in business disruption,
operational problems, financial loss, legal liability and similar risks for the
Company. At the present time, it is not possible to determine whether any such
events are likely to occur, or to quantify any potential negative impact they
may have on the Company's future results of operations and financial condition.
The Company expects to assess its need for contingency plans during 1999.
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 established visual computing vertical
markets such as Entertainment (film/video and digital broadcast), Geosciences,
Remote Sensing and Defense Imaging, and emerging markets such as Digital
Prepress and Medical Imaging. Continued growth in demand for storage in these
markets, together with identification of new applications within 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 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
operations.
The Company's ability to become Year 2000 compliant on a timely basis depends
upon, among other things, the availability of key Year 2000 personnel, the
Company's ability to locate and correct all relevant computer codes, the
readiness of third parties, and the Company's ability to respond to unforeseen
Year 2000 complications.
17
<PAGE>
CONSOLIDATED BALANCE SHEETS
CIPRICO INC. AND SUBSIDIARIES
- -----------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .................................................. $ 9,029,907 $ 4,512,411
Marketable securities ...................................................... 18,944,967 24,806,985
Trade accounts receivable, less allowances of $277,000 in
1998 and $391,000 in 1997 .......................................... 5,666,718 5,151,911
Income taxes receivable .................................................... 1,208,929 325,047
Inventories ................................................................ 3,755,191 4,353,934
Deferred income taxes ...................................................... 738,000 788,000
Other current assets ....................................................... 377,572 484,402
-----------------------------------
Total current assets ............................................... 39,721,284 40,422,690
Property and equipment, at cost:
Furniture and fixtures ............................................. 754,579 676,474
Equipment .......................................................... 9,800,812 8,385,670
Leasehold improvements ............................................. 359,912 267,035
-----------------------------------
10,915,303 9,329,179
Less accumulated depreciation and amortization ..................... (6,404,601) (5,381,084)
-----------------------------------
Net property and equipment ......................................... 4,510,702 3,948,095
Marketable securities ...................................................... 5,015,602 7,482,838
Deferred income taxes ...................................................... 81,000 118,000
Other assets ............................................................... 144,573 133,659
-----------------------------------
Total assets ....................................................... $ 49,473,161 $ 52,105,282
-----------------------------------
-----------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ........................................................... $ 2,437,647 $ 2,285,335
Accrued compensation ....................................................... 435,778 604,182
Warranty accrual ........................................................... 135,000 345,000
Income taxes payable ....................................................... 80,677 77,749
Other accrued expenses ..................................................... 257,493 215,133
Deferred revenue ........................................................... 817,814 520,337
-----------------------------------
Total current liabilities .......................................... 4,164,409 4,047,736
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 4,916,297 shares in 1998 and 5,130,484 shares in 1997 .. 49,162 51,304
Additional paid-in capital ................................................. 35,982,710 39,315,659
Retained earnings .......................................................... 9,353,191 8,690,583
Deferred compensation from restricted stock ................................ (76,311) -
-----------------------------------
Total shareholders' equity ......................................... 45,308,752 48,057,546
-----------------------------------
Total liabilities and shareholders' equity ......................... $ 49,473,161 $ 52,105,282
-----------------------------------
-----------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
18
<PAGE>
CONSOLIDATED INCOME STATEMENTS
CIPRICO INC. AND SUBSIDIARIES
- ---------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales ...................................... $ 30,088,527 $ 36,389,678 $ 27,408,126
Cost of sales .................................. 15,005,121 19,099,716 14,383,459
-------------------------------------------------------
Gross profit ................................... 15,083,406 17,289,962 13,024,667
Research and development expenses .............. 4,527,337 3,171,918 2,423,190
Sales and marketing expenses ................... 8,576,153 6,976,680 5,405,226
General and administrative expenses ............ 2,925,930 2,699,992 2,233,206
-------------------------------------------------------
Income (loss) from operations .................. (946,014) 4,441,372 2,963,045
Other income:
Interest and dividend income .............. 1,891,040 1,878,000 865,157
Royalty income ............................ 59,582 120,000 111,500
-------------------------------------------------------
1,950,622 1,998,000 976,657
-------------------------------------------------------
Income before income taxes ..................... 1,004,608 6,439,372 3,939,702
Income tax expense ............................. 342,000 2,190,000 496,000
-------------------------------------------------------
NET INCOME ..................................... $ 662,608 $ 4,249,372 $ 3,443,702
-------------------------------------------------------
-------------------------------------------------------
NET EARNINGS PER SHARE - BASIC ................. $ .13 $ .84 $ .87
-------------------------------------------------------
-------------------------------------------------------
NET EARNINGS PER SHARE - DILUTED ............... $ .13 $ .79 $ .80
-------------------------------------------------------
-------------------------------------------------------
Shares used to calculate net earnings per share:
Basic ..................................... 5,023,374 5,056,451 3,943,352
Diluted ................................... 5,221,244 5,395,687 4,325,672
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
DEFERRED
COMPENSATION
COMMON STOCK FROM
AND ADDITIONAL RETAINED RESTRICTED
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996 SHARES PAID-IN CAPITAL EARNINGS STOCK TOTAL
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, September 30, 1995 ............. 3,398,919 $ 6,638,355 $ 1,057,909 $ - $ 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
Exercise of employee stock options ...... 120,994 357,992 - - 357,992
Tax benefit related to options .......... - 289,000 - - 289,000
Employee plan stock purchases ........... 15,099 163,878 - - 163,878
Restricted stock issued ................. 9,120 104,990 - (104,990) -
Amortization of restricted stock ........ - - - 28,679 28,679
Net earnings ............................ - - 662,608 - 662,608
Repurchase of common stock .............. (359,400) (4,250,951) - - (4,250,951)
-------------------------------------------------------------------------------
Balance, September 30, 1998 ............. 4,916,297 $ 36,031,872 $ 9,353,191 $ (76,311) $ 45,308,752
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
19
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
CIPRICO INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30 1998 1997 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................ $ 662,608 $ 4,249,372 $ 3,443,702
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization .................... 2,111,469 1,486,216 840,942
Deferred income taxes ............................ 87,000 (414,000) (492,000)
Other ............................................ 44,080 135,910 (55,486)
Compensation related to stock transactions ....... 28,679 53,646 30,117
Changes in operating assets and liabilities:
Accounts receivable .............................. (514,807) (682,669) (1,283,848)
Income taxes receivable .......................... (883,882) (325,047) -
Inventory ........................................ 598,743 (1,564,620) (1,439,967)
Other current assets ............................. 106,830 (92,735) (146,285)
Accounts payable ................................. 152,312 (758,225) 574,667
Accrued expenses ................................. (336,044) (44,049) 619,456
Income taxes payable ............................. 291,928 61,480 931,815
Deferred revenue ................................. 297,477 2,645 428,144
----------------------------------------------
NET CASH FLOWS PROVIDED BY
OPERATING ACTIVITIES ........................ 2,646,393 2,107,924 3,451,257
CASH FLOWS FROM INVESTING ACTIVITIES:
Equipment purchases ................................... (2,718,156) (2,993,853) (1,981,323)
Other assets, net ..................................... (10,914) (120,368) (7,225)
Purchases of marketable securities .................... (44,262,387) (46,315,602) (23,858,856)
Proceeds from sale or maturity of marketable securities 52,591,641 37,884,635 1,267,506
----------------------------------------------
NET CASH FLOWS PROVIDED BY (USED IN)
INVESTING ACTIVITIES ........................ 5,600,184 (11,545,188) (24,579,898)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock ................ 521,870 551,513 31,101,332
Repurchase of common stock ............................ (4,250,951) - -
----------------------------------------------
NET CASH FLOWS PROVIDED BY (USED IN)
FINANCING ACTIVITIES ........................ (3,729,081) 551,513 31,101,332
----------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .. 4,517,496 (8,885,751) 9,972,691
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ........ 4,512,411 13,398,162 3,425,471
----------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR .............. $ 9,029,907 $ 4,512,411 $ 13,398,162
----------------------------------------------
----------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for income taxes ............ $ 846,954 $ 2,866,968 $ 55,544
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES:
During fiscal 1998, 1997 and 1996, the Company had tax benefits related to stock
option exercises of $289,000, $776,000 and $216,000.
During fiscal 1998, the Company issued 9,120 shares of restricted stock valued
at $104,990.
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CIPRICO INC. AND SUBSIDIARIES
- ------------------------------------------
SEPTEMBER 30, 1998, 1997 AND 1996
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, Ciprico Asia-Pacific Inc. and Ciprico FSC, Inc. (a
foreign sales corporation). All 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
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. Inventories consist of the following:
<TABLE>
<CAPTION>
As of September 30 1998 1997
- ------------------------------------------------
<S> <C> <C>
Finished Goods ..... $1,979,927 $1,566,097
Work-in-process .... 389,040 1,162,379
Raw materials ...... 1,386,224 1,625,458
------------------------
$3,755,191 $4,353,934
------------------------
------------------------
</TABLE>
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, 1998, the Company's cash and cash equivalents were
invested as follows: $5,443,694 in commercial paper and $3,586,213 in a money
market fund. At September 30, 1997, principally all of the Company's cash and
cash equivalents were invested in a money market fund.
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, 1998 and 1997, amortized cost approximates fair value of
held-to-maturity investments which consist of the following:
<TABLE>
<CAPTION>
1998 1997
- ----------------------------------------------------------------
<S> <C> <C>
Current marketable securities:
Commercial Paper ............... $ 8,944,872 $14,813,715
U.S. Government Agencies ....... 10,000,095 9,993,270
--------------------------
Total current ................ 18,944,967 24,806,985
Non-current marketable securities:
U.S. Government Agencies ....... 5,015,602 7,482,838
--------------------------
$23,960,569 $32,289,823
--------------------------
--------------------------
</TABLE>
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 eighteen months 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: On December 31, 1997, the Company adopted Statement of
Financial Accounting Standards No. 128 - "Earnings per Share." 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 fiscal years ended
September 30, 1998, 1997 and 1996, 197,870, 339,236 and 382,319 shares of common
stock equivalents were included in the computation of diluted net earnings per
share. Options to purchase 551,050, 72,250 and 46,000 shares of common stock
with a weighted average exercise price of $13.92, $17.04 and $15.91 were
outstanding at September 30, 1998, 1997 and 1996, but were excluded from the
computation of common share equivalents for the fiscal year because they were
antidilutive.
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.
21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CIPRICO INC. AND SUBSIDIARIES
- ------------------------------------------
SEPTEMBER 30, 1998, 1997 AND 1996
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.
RECLASSIFICATION: Certain 1996 and 1997 amounts have been reclassified to
conform to the 1998 presentation.
2. INCOME TAXES
The provisions for income tax expense consist of:
<TABLE>
<CAPTION>
Years ended September 30 1998 1997 1996
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal .................. $ 230,000 $ 2,354,000 $ 848,000
State .................... 3,000 226,000 115,000
Foreign .................. 22,000 24,000 25,000
------------------------------------------
Total current .... 255,000 2,604,000 988,000
Deferred ................. 87,000 (414,000) (492,000)
------------------------------------------
$ 342,000 $ 2,190,000 $ 496,000
------------------------------------------
------------------------------------------
</TABLE>
In 1998, 1997 and 1996, income tax benefits of $289,000, $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 are as follows:
<TABLE>
<CAPTION>
As of September 30 1998 1997
- ----------------------------------------------------------
<S> <C> <C>
Current deferred tax assets:
Inventory ....................... $398,000 $309,000
Allowance for doubtful accounts.. 102,000 143,000
Warranty accrual ................ 50,000 126,000
Vacation accrual ................ 94,000 91,000
Other ........................... 94,000 119,000
--------------------
Current deferred tax asset .... 738,000 788,000
--------------------
Long-term deferred tax assets:
Depreciation .................... 39,000 107,000
Deferred compensation ........... 42,000 11,000
--------------------
Long-term deferred tax asset... 81,000 118,000
--------------------
$819,000 $906,000
--------------------
--------------------
</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 1998 1997 1996
- ------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory rate ........ 34.0% 34.0% 34.0%
State taxes, net of federal
income tax benefit .......... 2.3 2.3 2.3
Change in valuation allowance - - (24.5)
Other ......................... (2.3) (2.3) .8
--------------------------
34.0% 34.0% 12.6%
--------------------------
--------------------------
</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 Repurchase
During 1998, the Company initiated a stock buyback program of up to $6.0
million. As of September 30, 1998, 359,400 shares of common stock have been
repurchased for $4,250,951.
Stock Option Plans
At September 30, 1998, the Company had two 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 30,1998, the company
had 479,707 shares reserved for future issuance under the plans.
Option transactions under the Company's stock option plans during the three
years ended September 30, 1998 are summarized as follows:
<TABLE>
<CAPTION>
Number of Weighted Average
Shares Exercise Price
- -----------------------------------------------------------------------------
<S> <C> <C>
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
Granted .................................. 225,500 9.85
Exercised ................................ (120,994) 2.94
Canceled ................................. (55,275) 13.21
----------------------------
Outstanding at September 30,1998 ........... 954,474 $ 10.51
----------------------------
----------------------------
Options exercisable at September 30:
1996 ..................................... 255,811 $ 3.95
----------------------------
----------------------------
1997 ..................................... 378,136 $ 6.72
----------------------------
----------------------------
1998 ..................................... 462,148 $ 9.30
----------------------------
----------------------------
</TABLE>
22
<PAGE>
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>
$ 2.68 - 4.00 111,328 1.4 years $ 3.41
4.17 - 5.00 117,596 1.6 years 4.31
6.17 - 8.67 148,000 4.7 years 7.96
10.25 - 13.50 263,050 3.6 years 12.43
13.63 - 17.88 306,500 3.7 years 14.76
21.50 - 22.00 8,000 2.7 years 21.97
-------
954,474
-------
-------
</TABLE>
<TABLE>
<CAPTION>
Options Exercisable
RANGE OF NUMBER WEIGHTED AVERAGE
EXERCISE PRICES OUTSTANDING EXERCISE PRICE
- ----------------------------------------------------------
<S> <C> <C>
$2.68 - 4.00 105,891 $ 3.39
4.17 - 5.00 89,477 4.30
6.17 - 8.67 3,000 6.94
10.25 - 13.50 158,777 12.38
13.63 - 17.88 100,753 14.66
21.50 - 22.00 4,250 21.97
-------
462,148
-------
-------
</TABLE>
The weighted average fair value of options granted in 1998, 1997 and 1996 was
$4.94, $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 1998, 1997 and
1996: no dividend yield; risk-free rate of return of 5.4%, 6.0% and 5.8%;
volatility of 66.2%, 72.3% and 69.0%; and an average term of 3.1 years, 2.9
years and 3.2 years. The Company's 1998, 1997 and 1996 proforma net earnings and
net earnings per share would have been $475,650, $3,426,121 and $2,970,650 or
$.09, $.64 and $.69 per share had the fair value method been used for valuing
options granted during 1998, 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 25,953 shares have been issued, including
15,099 shares for $163,878 in 1998, 8,678 shares for $126,916 in 1997 and 2,176
shares for $27,744 during 1996. At September 30, 1998, the Company had 124,047
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 19,120 shares have been issued.
At September 30, 1998, the Company had 130,880 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 1998 and 1997,
and 50 percent of the first 2 percent of participants' salaries in fiscal 1996.
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
1998, 1997 and 1996 were $126,552, $105,400 and $124,215.
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CIPRICO INC. AND SUBSIDIARIES
- ------------------------------------------
SEPTEMBER 30, 1998, 1997 AND 1996
5. SALES CONCENTRATION
<TABLE>
<CAPTION>
Years ended September 30 1998 1997 1996
- ----------------------------------------------------------------
<S> <C> <C> <C>
Customer A ................... 37% 4% 3%
Customer B ................... 8 10 -
Customer C ................... - 5 18
Customer D ................... 5 2 11
-----------------------------
50% 21% 32%
-----------------------------
-----------------------------
</TABLE>
At fiscal years ended September 30, 1998, 1997, and 1996, the company had a
receivable from Customer A totaling approximately $2.4 million, $291,000 and
$414,000.
6. FINANCIAL INFORMATION BY GEOGRAPHIC AREA
The Company's net sales summarized by geographic area are as follows:
<TABLE>
<CAPTION>
Net Sales 1998 1997 1996
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
North America ........ $23,454,635 $28,814,469 $17,429,093
Europe ............... 3,739,773 3,173,165 2,654,796
Japan ................ 1,822,443 2,581,348 5,468,620
Other foreign ........ 1,071,676 1,820,696 1,855,617
-----------------------------------------------------
$30,088,527 $36,389,678 $27,408,126
-----------------------------------------------------
-----------------------------------------------------
</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 $550,063,
$488,702, $415,479, $366,154 and $29,639 for fiscal 1999, 2000, 2001, 2002 and
beyond. For the years ended September 30, 1998, 1997 and 1996, operating lease
expenses were $506,444, $324,837 and $279,285.
8. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) has issued two statements which
the Company has not yet adopted.
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.
24
<PAGE>
INDEPENDENT AUDITORS REPORT
THE BOARD OF DIRECTORS AND SHAREHOLDERS -- CIPRICO INC.
We have audited the accompanying consolidated balance sheets of Ciprico Inc. and
subsidiaries as of September 30, 1998 and 1997, and the related consolidated
income statements and statements of cash flows and shareholders' equity for each
of the two years in the period ended September 30, 1998. 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. The consolidated income statement and statements
of cash flows and shareholders' equity of Ciprico Inc. and subsidiaries for the
year ended September 30, 1996, were audited by other auditors whose report dated
November 6, 1996, expressed an unqualified opinion on those statements.
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 1998 and 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, 1998 and 1997, and the consolidated
results of their operations and their consolidated cash flows for each of the
two years in the period ended September 30, 1998, in conformity with generally
accepted accounting principles.
/s/ Grant Thornton LLP
Minneapolis, Minnesota
November 3, 1998
THE BOARD OF DIRECTORS AND SHAREHOLDERS -- CIPRICO INC.
We have audited the consolidated income statement and statements of cash flows
and shareholders' equity of Ciprico Inc. and subsidiaries for the year 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 out 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated results of operations and
cash flows and the consolidated statement of shareholders' equity of Ciprico
Inc. and subsidiaries for the year ended September 30, 1996, in conformity with
generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Minneapolis, Minnesota
November 6, 1996
- -------------------------------------------------------------------------------
QUARTERLY FINANCIAL INFORMATION
(UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998
Net sales ........................... $ 7,260,090 $ 10,563,551 $ 4,894,889 $ 7,369,997 $ 30,088,527
Net income (loss) ................... 525,107 1,114,531 (784,304) (192,726) 662,608
Diluted earnings (loss) per share ... $ .10 $ .21 $ (.16) $ (.04) $ .13
1997
Net sales ........................... $ 8,595,841 $ 9,003,577 $ 10,122,488 $ 8,667,772 $ 36,389,678
Net income .......................... 1,137,808 1,063,854 1,172,219 875,491 4,249,372
Diluted earnings per share .......... $ .21 $ .20 $ .22 $ .16 $ .79
1996
Net sales ........................... $ 6,086,902 $ 6,695,977 $ 7,100,950 $ 7,524,297 $ 27,408,126
Net income .......................... 705,561 909,313 896,115 932,713 3,443,702
Diluted earnings per share .......... $ .19 $ .24 $ .21 $ .17 $ 80
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
Years ended September 30 1998 1997 1996
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal .............. $ 230,000 $ 2,354,000 $ 848,000
State ................ 3,000 226,000 115,000
Foreign .............. 22,000 24,000 25,000
------------------------------------------------------
Total current ........ 255,000 2,604,000 988,000
------------------------------------------------------
Deferred ............. 87,000 (414,000) (492,000)
------------------------------------------------------
Total ........ $ 342,000 $ 2,190,000 $ 496,000
------------------------------------------------------
------------------------------------------------------
</TABLE>
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated November 3, 1998, accompanying the
consolidated financial statements included in the Annual Report of Ciprico Inc.
and subsidiaries on Form 10-K for the year ended September 30, 1998. 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. 33-47840, File
No. 33-78116, File No. 33-64999, File No. 33-65001, File No. 333-02931, File No.
333-02933, File No. 333-42841, File No. 333-42843 and File No. 333-42845).
/s/ GRANT THORNTON LLP
Minneapolis, Minnesota
December 11, 1998
<PAGE>
Exhibit 23.2
Independent Auditors' Consent
The Board of Directors
Ciprico Inc.:
We consent to incorporation by reference in the registration statements
(No. 33-47840, 33-78116, 33-64999, 33-65001, 333-02931, 333-02933, 333-428241,
333-42843 and 333-42845) on Form S-8 of Ciprico Inc of our report dated November
6, 1996, relating to the consolidated statements of income, shareholders'
equity, and cash flows for the year ended September 30, 1996, which report
appears in the September 30, 1998 Annual Report of Ciprico Inc.
/s/ KPMG Peat Marwick LLP
Minneapolis, Minnesota
December 11, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<CASH> 9,029,907
<SECURITIES> 23,960,569
<RECEIVABLES> 5,943,718
<ALLOWANCES> 277,000
<INVENTORY> 3,755,191
<CURRENT-ASSETS> 39,721,284
<PP&E> 10,915,303
<DEPRECIATION> 6,404,601
<TOTAL-ASSETS> 49,473,161
<CURRENT-LIABILITIES> 4,164,409
<BONDS> 0
0
0
<COMMON> 36,031,872
<OTHER-SE> 9,276,880
<TOTAL-LIABILITY-AND-EQUITY> 49,473,161
<SALES> 30,088,527
<TOTAL-REVENUES> 30,088,527
<CGS> 15,005,121
<TOTAL-COSTS> 31,034,541
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 203,722
<INTEREST-EXPENSE> 11,756
<INCOME-PRETAX> 1,004,608
<INCOME-TAX> 342,000
<INCOME-CONTINUING> 662,608
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 662,608
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
</TABLE>
