<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------------------
FORM 10-Q
[X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarter Ended March 31, 1998
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 0-11336
CIPRICO INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 41-1749708
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2800 CAMPUS DRIVE
PLYMOUTH, MINNESOTA 55441
(Address of principal executive offices)
Registrant's telephone number, including area code: (612) 551-4000
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
The number of shares outstanding of the registrant's Common Stock, $.01 par
value, as of April 24, 1998 was 4,985,217 shares.
1
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CIPRICO INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page
<S> <C> <C>
PART I Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheets at
March 31, 1998 and September 30, 1997 3
Consolidated Condensed Statements of Earnings for
Three and Six Months Ended March 31, 1998 and 1997 4
Consolidated Condensed Statements of Cash Flows for
Six Months Ended March 31, 1998 and 1997 5
Notes to Consolidated Condensed Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 8-9
PART II Other Information
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
</TABLE>
2
<PAGE> 3
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CIPRICO INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
(In thousands) March 31, September 30,
1998 1997
----------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,617 $ 4,512
Marketable securities 19,315 24,807
Accounts receivable, less allowance 6,736 5,152
Inventories 3,083 4,354
Deferred income taxes 788 788
Other current assets 489 809
-------- --------
Total current assets 40,028 40,422
Property and equipment, net 4,129 3,948
Marketable securities 7,500 7,483
Other assets 236 252
-------- --------
Total assets $ 51,893 $ 52,105
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,639 $ 2,285
Accrued expenses 1,698 1,242
Deferred revenue 607 520
-------- --------
Total current liabilities 4,944 4,047
Shareholders' equity:
Capital stock 50 51
Additional paid-in capital 36,568 39,316
Retained earnings 10,331 8,691
-------- --------
Total shareholders' equity 46,949 48,058
-------- --------
Total liabilities and shareholders' equity $ 51,893 $ 52,105
======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
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CIPRICO INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands except Three Months Ended Six Months Ended
per share amounts) March 31, March 31,
--------- ---------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES $ 10,564 $ 9,003 $ 17,824 $ 17,599
Cost of sales 5,318 4,919 9,002 9,374
---------- ------- ---------- --------
GROSS PROFIT 5,246 4,084 8,822 8,225
Research and development expense 1,029 817 1,908 1,543
Sales and marketing expenses 2,172 1,470 3,960 3,063
General and administrative expenses 849 663 1,480 1,292
---------- ------- ---------- --------
EARNINGS FROM OPERATIONS 1,196 1,134 1,474 2,327
Other income, primarily interest 493 432 1,010 1,026
---------- ------- ---------- --------
EARNINGS BEFORE INCOME TAXES 1,689 1,566 2,484 3,353
Income tax expense 574 502 844 1,151
--------- ------- ---------- --------
NET EARNINGS $ 1,115 $ 1,064 $ 1,640 $ 2,202
========= ======= ========== ========
NET EARNINGS PER SHARE - BASIC $ .22 $ .21 $ .32 $ .44
========= ======= ========== ========
NET EARNINGS PER SHARE - DILUTED $ .21 $ .20 $ .31 $ .41
========= ======= ========== ========
Shares used to calculate net earnings per share:
Basic 5,061 5,040 5,099 5,029
Diluted 5,283 5,353 5,333 5,374
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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CIPRICO INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(In thousands) Six Months Ended
March 31,
---------
1998 1997
-------- --------
<S> <C> <C>
NET CASH FLOWS PROVIDED BY (USED IN)
OPERATING ACTIVITIES $ 3,455 $ (4,610)
Cash flows from investing activities:
Equipment purchases (1,076) (1,083)
Purchases of marketable securities (22,150) (21,969)
Proceeds from sale or maturity of marketable
securities 27,625 17,500
--------- ----------
NET CASH FLOWS PROVIDED BY (USED IN)
INVESTING ACTIVITIES 4,399 (5,552)
---------- ----------
Net cash flows from financing activities:
Repurchase of common stock (3,018) --
Proceeds from issuance of common stock 269 125
----------- ------------
NET CASH FLOWS PROVIDED BY (USED IN)
FINANCING ACTIVITIES (2,749) 125
---------- ------------
Net increase (decrease) in cash and cash equivalents 5,105 (10,037)
Cash and cash equivalents at beginning of period 4,512 13,398
---------- ----------
Cash and cash equivalents at end of period $ 9,617 $ 3,361
========== ==========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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CIPRICO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 1998
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The principal business activity of Ciprico Inc. and subsidiaries (the Company)
is the design, manufacture, marketing and service of disk array solutions for
use in high performance computer systems for the visual computing markets. The
Company markets its products worldwide through a direct sales force and various
distribution channels.
The accompanying unaudited consolidated condensed financial statements have been
prepared by the Company in accordance with Regulation S-X pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although management believes
that the disclosures are adequate to make the information presented not
misleading.
In the opinion of management, the unaudited consolidated condensed financial
statements contain all necessary adjustments, consisting only of a recurring
nature, and disclosures to present fairly the financial position as of March 31,
1998 and the results of operations and cash flows for the three-month and
six-month periods ended March 31, 1998 and 1997. These consolidated condensed
financial statements should be read in conjunction with the consolidated
financial statements and the notes thereto included in the Company's Annual
Report to Shareholders for fiscal 1997.
In preparation of the Company's consolidated financial statements, management is
required to make estimates and assumptions that affect reported amounts of
assets and liabilities and related revenues and expenses. Actual results could
differ from the estimates used by management.
NOTE B - MARKETABLE SECURITIES
The Company has invested its excess cash in commercial paper and government
agencies. These investments are classified as held-to-maturity given the
Company's intent and ability to hold the securities to maturity and are carried
at amortized cost.
Investments that have maturities of less than one year have been classified as
current marketable securities. At March 31, 1998 and September 30, 1997,
amortized cost approximates fair value of held-to-maturity investments which
consist of the following:
<TABLE>
<CAPTION>
(In thousands) March 31, September 30,
1998 1997
--------- -------------
<S> <C> <C>
Current marketable securities:
Commercial Paper $ 11,820 $ 14,814
U.S. Government Agencies 7,495 9,993
--------- ---------
19,315 24,807
Non-current marketable securities:
U.S. Government Agencies 7,500 7,483
--------- ---------
$ 26,815 $ 32,290
========= =========
</TABLE>
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NOTE C - INVENTORIES
Inventories are stated at the lower of cost or replacement market. Cost is
determined using the first-in, first-out method. Inventories consist of the
following:
<TABLE>
<CAPTION>
(In thousands) March 31, September 30,
1998 1997
--------- -------------
<S> <C> <C>
Finished Goods $ 1,559 $ 1,566
Work-in-Process 510 1,162
Raw Materials 1,014 1,626
--------- ---------
$ 3,083 $ 4,354
========= =========
</TABLE>
NOTE D - SHAREHOLDERS' EQUITY
On January 5, 1998, the Company announced a stock buyback program of up to $3.0
million. The program was completed in March, 1998, resulting in 229,200 shares
of common stock repurchased and retired. Under the program, the Company could
repurchase shares in the open market and in privately negotiated transactions
based on prevailing market conditions.
NOTE E - 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 three months
ended March 31, 1998 and 1997, 222,235 and 312,895 shares of common stock
equivalents were included in the computation of diluted net earnings per share.
Options to purchase 331,788 and 150,750 shares of common stock with a weighted
average exercise price of $14.96 and $15.44 were outstanding at March 31, 1998
and 1997, but were excluded from the computation of common share equivalents for
the three-month period because their exercise prices were greater than the
average market price of the common shares. For the six months ended March 31,
1998 and 1997, 233,726 and 345,308 shares of common stock equivalents were
included in the computation of diluted net earnings per share. Options to
purchase 331,788 and 80,500 shares of common stock with a weighted average
exercise price of $14.96 and $16.68 were outstanding at March 31, 1998 and 1997,
but were excluded from the computation of common share equivalents for the
six-month period because their exercise prices were greater than the average
market price of the common shares.
NOTE F - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement No. 130
- - "Reporting Comprehensive Income," and Statement No. 131 - "Disclosures about
Segments of an Enterprise and Related Information" which are effective for
fiscal year 1999. Statement No. 130 will require the Company to display an
amount representing comprehensive income, as defined by the statement, as part
of the Company's basic financial statements. Comprehensive income will include
items such as unrealized gains or losses on certain investment securities and
foreign currency items. Statement No. 131 will require the Company to disclose
financial and other information about its business segments, their products and
services, geographic areas, major customers, revenues, profits, assets and other
information.
The adoption of these statements is not expected to have a material effect on
the consolidated financial statements of the Company.
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CIPRICO INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Three and Six Months Ended March 31, 1998 Compared to Three and Six Months
Ended March 31, 1997
Net sales for the three-month and six-month periods ended March 31, 1998
increased by 17% and 1% to $10.6 million and $17.8 million when compared to net
sales of $9.0 million and $17.6 million for the same periods last fiscal year.
The entertainment, satellite/telemetry and oil/gas exploration markets continue
to be strong markets, representing 24%, 38% and 29% of net sales for the current
six-month period. During the current quarter, the Company expanded its
distribution network by signing an agreement with Silicon Graphics Inc. (SGI)
whereby SGI will sell and support the Company's disk array storage products with
SGI computing platforms. Sales to two customers accounted for 38% and 16% of
sales for the current three-month period and 35% and 10% of sales for the
current six-month period. For the three-month and six-month periods ended March
31, 1997, no customer accounted for 10% or more of total sales. International
sales decreased to $2.7 million or 15% of net sales during the current six-month
period compared to $4.4 million or 25% of net sales for the same period last
fiscal year due to weakness in the European markets. Management anticipates
improved sales over the previous fiscal year subject to expanded distribution
channels, continued product acceptance and a return of significant sales in the
entertainment market.
Gross profit, as a percentage of net sales, for the three-month and six-month
periods ended March 31, 1998 was 50% and 49% compared to 45% and 47% for the
same periods last fiscal year. This improvement is primarily due to the cost
decrease of high performance disk drives during the current fiscal year.
Management anticipates increased sales through distribution channels that tend
to carry a lower gross profit percentage. As a result, management anticipates
gross profit, as a percentage of sales, to decline in the second half of fiscal
1998, but remain in the mid to upper forty percent range.
Research and development expenses increased $212,000, or 26%, for the current
quarter as compared to the same quarter of last fiscal year and $365,000, or
24%, for the six months ended March 31, 1998 as compared to the same period last
fiscal year. The increase can primarily be attributed to outside consulting
costs related to new product development.
Sales and marketing expenses increased $702,000, or 48%, for the current quarter
as compared to the same quarter of last fiscal year and $897,000, or 29%, for
the six months ended March 31, 1998 as compared to the same period last fiscal
year. The increase can be attributed to additional sales and marketing staff and
new product promotions as the Company positions itself for sales growth.
General and administrative expenses increased $186,000, or 28%, for the current
quarter as compared to the same quarter of last fiscal year and $188,000, or
15%, for the six months ended March 31, 1998 as compared to the same period last
fiscal year. The increase can primarily be attributed to consulting costs
incurred in connection with the Company's information technology transformation
project.
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 earnings per share data have been restated to conform to
the provisions of Statement No. 128.
LIQUIDITY AND CAPITAL RESOURCES
The Ciprico Annual Report on Form 10-KSB for the year ended September 30, 1997
contains a detailed discussion of Ciprico's liquidity and capital resources. In
conjunction with this Quarterly Report on Form 10-Q, investors should read the
1997 Form 10-KSB.
8
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Liquidity is very strong with cash and cash equivalents and short-term
marketable securities totaling $28.9 million at March 31, 1998. Cash flows from
operating activities during the current six-month period were $3.5 million. This
result was primarily attributable to sources of cash from net earnings of $1.6
million, non-cash expenses for depreciation of $891,000 and a $802,000 net
change in operating assets and liabilities. Investing activities provided $4.4
million primarily as a result of net proceeds from the maturity of marketable
securities offset by $1.1 million of capital expenditures for office equipment,
production and test equipment and facility expansion. Financing activities used
$2.7 million primarily as a result of a stock buyback program in which the
Company reacquired 229,200 shares of common stock for $3.0 million.
On April 22, 1998, the Company announced a second stock buyback program of up to
$3.0 million. As of the date of this filing, there have not been any shares
purchased under this plan.
Funding of future working capital needs and equipment purchases, combined with
purchases of the Company's stock, could cause a reduction in the cash balance in
fiscal 1998. Management believes that current funds and the funds from
operations are adequate to support the current on-going operating needs of the
Company.
IMPACT OF YEAR 2000 ISSUE
The Year 2000 Issue is the result of computer programs being written using a
two-digit field rather than four to define the applicable year. Computer
programs that have date-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a system failure
or miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar business activities.
The Company is assessing the impact of the Year 2000 Issue on its operations.
The assessment includes communication with all major suppliers and customers.
The Company is reviewing its systems to determine whether they are century
compliant and does not expect the Year 2000 computer issue to significantly
affect its operations.
FORWARD-LOOKING INFORMATION
The statements in this report that are forward-looking involve risks and
uncertainties. The Company's actual results could differ materially from those
expressed in any forward-looking statements. Certain of these risks and
uncertainties are discussed below.
The Company sells its products into five visual computing vertical markets which
include entertainment (film/video and broadcast), oil/gas exploration, digital
prepress, medical imaging, and satellite/telemetry. Continued growth in sales
in these markets is essential to Company growth.
Gross profit on product sales is highly dependent on the cost of disk drives.
There is no assurance the Company can sustain the current gross margin profit
levels given the potential for price fluctuations and product availability of
new generation disk drives.
Component parts for the Company's products have been on allocation from time to
time from its suppliers which means parts could become difficult to obtain, thus
having an adverse effect on the Company's results of operations.
The Company typically operates on very little backlog, which means its results
from quarter to quarter are very hard to project and may fluctuate. A large
percentage of total quarterly orders may be received in the last month or weeks
of a quarter and quarterly sales may be affected by the Company's ability or
inability to ship such orders by quarter end.
The Company's products are characterized by rapidly changing technology,
evolving industry standards and relatively short product life cycles. Delays in
product enhancements and developments, failure to gain market acceptance of new
or enhanced products, or emergence of new products or technologies by others,
would have an adverse effect on the Company's business and results of
operations.
9
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CIPRICO INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) Information relating to the Company's Annual Meeting
of Shareholder's held on January 29, 1998 is
contained in the Company's Quarterly Report on Form
10-Q for the quarter ended December 31, 1997.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 - Financial Data Schedule (filed in electronic
format only)
(b) No report on Form 8-K was filed during the quarter
ended March 31, 1998.
10
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CIPRICO INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CIPRICO INC.
Dated: April 24, 1998 /s/ Robert H. Kill
--------------------------------------
Robert H. Kill, President
(Principal Executive Officer)
Dated: April 24, 1998 /s/ Cory J. Miller
---------------------------------------
Cory J. Miller, Vice President of
Finance/Chief Financial Officer
(Principal Financial and Accounting
Officer)
11
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CIPRICO INC. AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit Number Description
27 Financial Data Schedule
(filed in electronic format only)
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 9,617
<SECURITIES> 26,815
<RECEIVABLES> 7,075
<ALLOWANCES> 339
<INVENTORY> 3,083
<CURRENT-ASSETS> 40,028
<PP&E> 9,885
<DEPRECIATION> 5,756
<TOTAL-ASSETS> 51,893
<CURRENT-LIABILITIES> 4,944
<BONDS> 0
0
0
<COMMON> 39,618
<OTHER-SE> 10,331
<TOTAL-LIABILITY-AND-EQUITY> 51,893
<SALES> 10,564
<TOTAL-REVENUES> 10,564
<CGS> 5,318
<TOTAL-COSTS> 9,368
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (70)
<INTEREST-EXPENSE> 3
<INCOME-PRETAX> 1,689
<INCOME-TAX> 574
<INCOME-CONTINUING> 1,115
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,115
<EPS-PRIMARY> .22
<EPS-DILUTED> .21
</TABLE>
